Is The SEC Planning To Change The Definition of Accredited Investor? 10X Lockout?

February 26, 2022 1:16 pm

I can’t figure out who is protecting me the most…is it the cop who tickets me for going 38 in a 35 or the SEC with Gary Gensler at the head?

Do ya’ll mind if I opt out of some of this protection?

Because instead of feeling “protected” I’m started to feel a bit “persecuted”.

I get it, the words sound the same and can be a bit confusing, but I’d be real happy to go about life without all this protection, how about you?

Here’s the latest.

Since 1985, the SEC has maintained a definition of “Accredited Investor”.

An Accredited Investor is someone who can invest in private equity offerings that are not registered with the SEC.

While the definition is complex, one of the simpler parts to understand is if you have $1 Million in assets, you likely meet the test of “Accredited”.

This limitation operates under the guise of “investor protection” but many see it as simply a gatekeeper to keep the small investors (the “average Americans”) out of the big profit opportunities.

As Brad Kimes famously said recently, why is it I can go to a casino and legally gamble away ALL my money, but the SEC says I’m not smart enough to INVEST that same money into private companies that are changing the world?

GREAT question.

And the answer appears to be implied: maybe it’s not about investor protection at all.

Maybe it’s Gary Gensler and his boys at the SEC protecting a monopoly for all his rich buddies.  A walled garden where the plebes cannot get in.

Feel protected yet?

And now here’s the latest news.

With the recent jump in inflation, reports are circulating that Gary and the boys are looking to raise the $1 million floor to $10 million.

Take a look:

That tweet is referencing a new report from Bloomberg Law.

Here is the relevant portion:

The agency’s most recent regulatory agenda includes a planned proposal to redefine “accredited investor” status, potentially restricting the pool of investors who can participate in certain types of private offerings in an effort to boost investor protection.

That policy direction could limit opportunities for investors from underrepresented communities and put the agency at odds with the Biden administration’s broader focus on diversity and equity, some advocates say.

“The inclusion of more people also pushes economic development, ingenuity, returns for a group of people who’ve been historically financially locked out of the ability to buy homes, locked out to levels of loans and access to capital,” said Shelly Bell, founder and CEO of nonprofit crowdfunding organization Black Girl Ventures, who spoke at an SEC meeting earlier this month.

The Securities and Exchange Commission has considered the issue in the past, but only to make modest tweaks. The agency is expected to pick it up again in April with a request for public comment on changing the definition of accredited investors who can participate in privately held, “unregistered” share offerings of at least $10 million, according to the agency’s fall 2021 regulatory agenda.

The SEC’s Small Business Capital Formation Advisory Committee recommended at the end of a Feb. 10 meeting that the commission expand the definition in order to address diversity, equity and inclusion in capital markets and avoid exacerbating the wealth gap.

To qualify as accredited investor, a person currently must have at least $200,000 in personal income, or $300,000 for combined incomes, over the past two years, with the expectation of the same or higher income in the current year.

People with a net worth of more than $1 million jointly or with their spouse, excluding the value of their home, also qualify.

About 13% of U.S. households qualified as accredited investors in 2016, according to the SEC.

In 2020, the agency added some financial industry qualifications, such as serving as brokers or executives or directors of companies issuing unregistered securities.

The issue has resurfaced as private offerings continue to outpace SEC-registered public offerings. In 2019, private offering investment totaled $2.7 trillion, dwarfing the $1.2 trillion invested in registered offerings, according to SEC data released last year.

SEC’s ‘Lever’
The SEC hasn’t clearly indicated which direction it would head in redefining accredited investors or whether it would raise the dollar thresholds for eligibility.

But SEC Chairman Gary Gensler has emphasized regulatory changes that generally aim to enhance investor protection and disclosure.

“Looking at the accredited investor definition is sort of one more lever that the SEC is looking at” for a safer marketplace, said Bradley Chernin, a partner at Covington and Burling LLP in San Francisco who specializes in venture capital and strategic investments.

 

Replies on Twitter tell me not a lot of people are feeling extra protected by the change:

Accurate?

Jamie, is that you with your hand up Gary’s, errrr, backside?

Others question why there is a dollar limit at all, it should be more about education (and I agree — or allow us to opt in and assume the risk):

Here is Jake Chervinsky, attorney and Head of Policy at the Blockchain Association (or is that the BTC/ETH Alliance Association?).

Anyway, here is Chervinsky echoing similar comments:

Other people are claiming the article is misinterpreted and that the change is for offerings up to $10 million and not a new level for investors:

Unfortunately, the author of this article believe that is incorrect.

Rule 504 of Reg. D already exempts private offerings up to $10 million so that would not need changed:

So…what do we know for sure right now?

Let’s recap:

First, we know the SEC is likely not going to make it easier for the average investor, only harder.  Because, you know….”protection”.

Second, we know these rule changes are pending for the next SEC meeting in 2022.

Third, we know the current definition is still $1 million and you MAY want to take advantage of that while you can.

Here are my friends over at Linqto explaining how you may already qualify as “Accredited” and not even know it:

I don’t offer financial advice here at ProCoinNews, but I can tell you it might be WELL worth your time to head over to Linqto and start the process of getting Accredited.

Get in now before it’s too late.

It only takes a few minutes and you can do it right here:

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