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I think the notion of accredited investor is very discriminatory to small investors. It's basically says - if you already wealthy then you have an access to att

I think the notion of accredited investor is very discriminatory to small investors. It's basically says - if you already wealthy then you have an access to attractive investment opportunities with huge upside (and of course, huge risk), if you are just a middle class man then stay where you are (since your investment options with huge upside are severely limited and you don't have enough capital to make sense from investing in index). The better version of requirements for accredited investors would be some sort of exam (hard enough to make sure you have solid knowledge about financial markets, financial instruments and risk/return relationship).

wmf 9y ago
Equity crowdfunding by non-accredited investors is recently legal in the US due to the JOBS Act, yet none of these ICOs use it.
- DennisP 9y ago
  To raise from the public under the JOBS Act, you have to do your ICO through a regulated platform. As far as I know, none of those support blockchain projects, so it's not actually an option yet. Plus you can't raise more than a million dollars or so that way. And there's a limit per person, so instead of just sending ETH, everybody would have to go through the platform's KYC, and declare how much income/assets they have. In the meantime, people in countries with more economic freedom than the U.S. can just deploy a couple pages of code, make some basic efforts to block U.S. investors, and be done with it.
  - Cshelton 9y ago
    Also, to raise under the JOBS act, you pretty much have to do a full accounting audi to the same level as a publically traded company. And I think there is a limit of $50k for each person you raise from with a certain max in total raised. All in all, half of the money raised would go to paying for the funding to begin with, making it very very seldom used.
Cshelton 9y ago
The effect of missing out on an upside is a lot less than taking a huge hit on the downside. It isn't discriminatory, it's protective. It is sad but many people would put their entire savings and next months rent into a risky investment that is not publicly traded on a regulated market and basically lose their money most of the time because they invest on hype and because their buddy told them. If an accredited investor loses his money, the nobody feels bad because they had the money in the first place and the means to either hire somebody who knows what they're doing or be responsible themselves. I'd be fine with zero regulation on it all together, as long as I, as a tax payer, don't have to bail out all the idiots will fall for ponzi scheme after ponzi scheme. But do we let them dye on the streets because they lost everything? Hence why the regulation is in place. You are also assuming that being an accredited investor gives you access to better investments, which is not entirely true. Many accredited investors lose their lunch on investments. Look at the number of hedge funds that beat a market index fund, it's like 10%. Or look at VC firms where 1 investment makes up for the loss of 10 others. Many never do get that return and just lose money until they're out. The best investment definition varies widely, and in actuality, most accredited investors would be better off just investing in an index fund because believe it or not, they don't know what they are doing most of the time either. Which is why many investments are high risk. So a test would not help either.
- jerguismi 9y ago
  > It isn't discriminatory, it's protective. I think it is both. The regulation is removing the upside risk as well as the downside risk. Many professional investors are investing to real stupid things and losing their money, it is not that difficult to find examples.
  - sanswork 9y ago
    Is it easy to find examples of ones who have lost so much that they are literally poor?
    - mikeyouse 9y ago
      That's why these rules exist in the first place.. People like "The Jackal of Wall St.": http://www.thedailybeast.com/articles/2015/10/31/the-best-con-man-you-ve-never-heard-of http://www.thedailybeast.com/articles/2015/10/31/the-best-co... Or the boiler rooms & microcap fraud in the 1980s/1990s: https://en.wikipedia.org/wiki/Microcap_stock_fraud https://en.wikipedia.org/wiki/Microcap_stock_fraud And yep, it was still happening even before the accredited investor criteria was relaxed; https://www.justice.gov/usao-sdfl/pr/five-defendants-charged-securities-fraud-related-violations https://www.justice.gov/usao-sdfl/pr/five-defendants-charged...
Veratyr 9y ago
I think something that makes even less sense is that in theory this is to protect people from making high risk investments yet there's nothing stopping any random person who cares to do so from opening an account with a brokerage and spending their life's savings on far out of the money call options.
- sanswork 9y ago
  The idea isn't to stop people from doing something stupid but to stop people from trying to get people who aren't in a position to weather risk to do something risky to increase their own likelihood of profiting.
  - kolinko 9y ago
    Forex does exactly that and it's completely legal. Somdoes gambling.
    - sanswork 9y ago
      Forex has regulations for unsophisticated investors in the US. Gambling is different in that the user goes into it knowing that they have a negative EV. Lots of people lose everything gambling no doubt but while they may hope to win they know the likelihood is that they will lose.

wmf 9y ago

Equity crowdfunding by non-accredited investors is recently legal in the US due to the JOBS Act, yet none of these ICOs use it.

DennisP 9y ago
To raise from the public under the JOBS Act, you have to do your ICO through a regulated platform. As far as I know, none of those support blockchain projects, so it's not actually an option yet. Plus you can't raise more than a million dollars or so that way. And there's a limit per person, so instead of just sending ETH, everybody would have to go through the platform's KYC, and declare how much income/assets they have. In the meantime, people in countries with more economic freedom than the U.S. can just deploy a couple pages of code, make some basic efforts to block U.S. investors, and be done with it.
- Cshelton 9y ago
  Also, to raise under the JOBS act, you pretty much have to do a full accounting audi to the same level as a publically traded company. And I think there is a limit of $50k for each person you raise from with a certain max in total raised. All in all, half of the money raised would go to paying for the funding to begin with, making it very very seldom used.

Cshelton 9y ago

The effect of missing out on an upside is a lot less than taking a huge hit on the downside. It isn't discriminatory, it's protective. It is sad but many people would put their entire savings and next months rent into a risky investment that is not publicly traded on a regulated market and basically lose their money most of the time because they invest on hype and because their buddy told them. If an accredited investor loses his money, the nobody feels bad because they had the money in the first place and the means to either hire somebody who knows what they're doing or be responsible themselves. I'd be fine with zero regulation on it all together, as long as I, as a tax payer, don't have to bail out all the idiots will fall for ponzi scheme after ponzi scheme. But do we let them dye on the streets because they lost everything? Hence why the regulation is in place. You are also assuming that being an accredited investor gives you access to better investments, which is not entirely true. Many accredited investors lose their lunch on investments. Look at the number of hedge funds that beat a market index fund, it's like 10%. Or look at VC firms where 1 investment makes up for the loss of 10 others. Many never do get that return and just lose money until they're out. The best investment definition varies widely, and in actuality, most accredited investors would be better off just investing in an index fund because believe it or not, they don't know what they are doing most of the time either. Which is why many investments are high risk. So a test would not help either.

jerguismi 9y ago
> It isn't discriminatory, it's protective. I think it is both. The regulation is removing the upside risk as well as the downside risk. Many professional investors are investing to real stupid things and losing their money, it is not that difficult to find examples.
- sanswork 9y ago
  Is it easy to find examples of ones who have lost so much that they are literally poor?
  - mikeyouse 9y ago
    That's why these rules exist in the first place.. People like "The Jackal of Wall St.": http://www.thedailybeast.com/articles/2015/10/31/the-best-con-man-you-ve-never-heard-of http://www.thedailybeast.com/articles/2015/10/31/the-best-co... Or the boiler rooms & microcap fraud in the 1980s/1990s: https://en.wikipedia.org/wiki/Microcap_stock_fraud https://en.wikipedia.org/wiki/Microcap_stock_fraud And yep, it was still happening even before the accredited investor criteria was relaxed; https://www.justice.gov/usao-sdfl/pr/five-defendants-charged-securities-fraud-related-violations https://www.justice.gov/usao-sdfl/pr/five-defendants-charged...

Veratyr 9y ago

I think something that makes even less sense is that in theory this is to protect people from making high risk investments yet there's nothing stopping any random person who cares to do so from opening an account with a brokerage and spending their life's savings on far out of the money call options.

sanswork 9y ago
The idea isn't to stop people from doing something stupid but to stop people from trying to get people who aren't in a position to weather risk to do something risky to increase their own likelihood of profiting.
- kolinko 9y ago
  Forex does exactly that and it's completely legal. Somdoes gambling.
  - sanswork 9y ago
    Forex has regulations for unsophisticated investors in the US. Gambling is different in that the user goes into it knowing that they have a negative EV. Lots of people lose everything gambling no doubt but while they may hope to win they know the likelihood is that they will lose.