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The SEC introduced "accredited investors" in the USA because scammers were taking money from people who didn't/couldn't research scams and lost fortunes in get-

The SEC introduced "accredited investors" in the USA because scammers were taking money from people who didn't/couldn't research scams and lost fortunes in get-rich-quick stock schemes.

brndnmtthws 9y ago
That's the story they (the SEC and friends) provide, but to me it seems more like they wanted to make it hard for people with limited means participate in the legalized get-rich-quick schemes. How about just let the market decide? Why do we have stupid rules that exclude poor people from investing?
- blawson 9y ago
  Because when those poor people make one bad choice they lose everything, and the state has to take care of them.
  - brndnmtthws 9y ago
    Yeah, just like the government bailouts during the 2008 financial crisis[1]. Except the US gov doesn't bail out poor people. [1]: https://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%932008#Government_responses https://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80...
    - ericd 9y ago
      If the government hadn't done that, there was a very real chance of the economy grinding to a halt, with mass layoffs resulting, which would have had a very, very large impact on poor people. So yes, in a way, it was a bailout of poor people. I think they should have done much more to break up the banks into smaller chunks in the aftermath, but I'm tired of this sort of lazy condemnation of what they did as some conspiracy to help rich people and not poor. They were trying to get the country through some very dire times.
    - s73ver_ 9y ago
      Ok.... how does that relate to the topic we're talking about? I know it's fashionable to point to bankers and complain about how bad they are, and while most of it isn't incorrect, it doesn't answer the question of what happens to those who get taken in by scam investments.
- walshemj 9y ago
  A case in point USA retail investors where banned from the Royal mail privatisation which was a no brainer investment
  - sjg007 9y ago
    And a scam on the British people.
- nradov 9y ago
  It's more like the rules exclude honest poor people from investing. I have several acquaintances of modest means who invested in privately traded stocks through the simple expedient of lying about their income and assets. To be clear, I'm not claiming that this is smart or ethical but it happens all the time. People can write down any numbers they want on the accredited investor forms and usually no one checks.
- _ah 9y ago
  The cost of a bad high-risk investment is an annoyance to a qualified investor. It is catastrophic to a poor person. This is also why we require car/home insurance, but wealthy folks can opt out and self-insure since a total loss won't bankrupt them. Unfortunately, letting "the market" decide will just make a bunch of poor people into broke people. Do you want to take a risk with a very low chance of success? The state has a Lotto ticket they'd like to sell you.
  - njarboe 9y ago
    There could be some kind of test as an alternative way to become an "accredited investor". If you make $250,000 for two years, or have $1 million in liquid assets, or pass the test. Why not?
    - _ah 9y ago
      Because Risk is risky. Even brilliant professional investors have deals which go bad. Passing a test does not remove the bankrupcy problem.
      - njarboe 9y ago
        Having a lot of money does not remove the bankruptcy problem. Having a family and/or friend support system does. Maybe if you can get four people who will vouch to let you sleep at their place while you recover from bankruptcy would be a better test? Also, as said elsewhere, society now seems to let people risk big money gambling at casinos when the expected return is always negative.
- ryandrake 9y ago
  Can't let those dirty commoners have access to the juiciest investment opportunities. Those should be reserved exclusively for the already-wealthy. And if they complain, say we know better and it's for their own good. Of course, everyone knows the already-wealthy are smarter than the rest of us, and only they are capable of doing the unfathomably complex math needed to evaluate an investment.
  - s73ver_ 9y ago
    So what do we do when someone who doesn't actually have extra money loses it all in a scam investment?
    - ryandrake 9y ago
      The same thing "we" do when they spend it all on lottery tickets or blackjack? There are already many existing ways for people to lose all their money, with much lower EV than investing in a small growth company. Why is it that this particular type of investment is carved out as something common people should be protected from?
- s73ver_ 9y ago
  "How about just let the market decide?" That's what was the problem; the market was deciding it was a great idea to rip people off.
conanbatt 9y ago
Its a good question to ask if the regulation is more expensive than the scamming.
- ericd 9y ago
  For the victims, it certainly wasn't.
  - conanbatt 9y ago
    And what follows to that assertion?
    - ericd 9y ago
      What I mean is that while it may be worse for optimizing the global output of the system than simply letting the scamming happen (which is what you seem to be asking about), it's important to remember that it's not all about optimizing the global number, but also preventing individuals from experiencing financial ruin.
      - conanbatt 9y ago
        I dont think prevention of financial ruin is the goal. Any proper investment has that risk as well. I think its just very ill-perceived by the population to have a pit of snakes and scammers and people flailing accusations. But is the bank really any better?
        ericd 9y ago
        It's the stated goal, there are solid historical reasons for it, and it's a reasonable way to tackle it. It's very disingenuous to equate other investments with ICOs or startups in terms of risk, especially the risk of going to 0. If you invest in 3 random S&P 500 companies, it's very unlikely that you'll end up with $0 from that after 10 years. If you invest in 3 random startups, there's a pretty good chance that you'll have $0 from that after 10 years. If you invest in 3 random ICOs, you're almost certain to have no value from that in 3 years. If the SEC made it incredibly easy for the general public to invest in startups, scammers would come out of the woodwork to fleece the public, as they have in the ICO world, and as they have in the past for more traditional stock investments. Making a fake company or bullshit ICO and hyping it to the public would be one of the easiest ways to make $10M, and the prospect of that is going to draw a lot of scammers.

The SEC introduced "accredited investors" in the USA because scammers were taking money from people who didn't/couldn't research scams and lost fortunes in get-rich-quick stock schemes.

brndnmtthws 9y ago

That's the story they (the SEC and friends) provide, but to me it seems more like they wanted to make it hard for people with limited means participate in the legalized get-rich-quick schemes. How about just let the market decide? Why do we have stupid rules that exclude poor people from investing?

blawson 9y ago
Because when those poor people make one bad choice they lose everything, and the state has to take care of them.
- brndnmtthws 9y ago
  Yeah, just like the government bailouts during the 2008 financial crisis[1]. Except the US gov doesn't bail out poor people. [1]: https://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80%932008#Government_responses https://en.wikipedia.org/wiki/Financial_crisis_of_2007%E2%80...
  - ericd 9y ago
    If the government hadn't done that, there was a very real chance of the economy grinding to a halt, with mass layoffs resulting, which would have had a very, very large impact on poor people. So yes, in a way, it was a bailout of poor people. I think they should have done much more to break up the banks into smaller chunks in the aftermath, but I'm tired of this sort of lazy condemnation of what they did as some conspiracy to help rich people and not poor. They were trying to get the country through some very dire times.
  - s73ver_ 9y ago
    Ok.... how does that relate to the topic we're talking about? I know it's fashionable to point to bankers and complain about how bad they are, and while most of it isn't incorrect, it doesn't answer the question of what happens to those who get taken in by scam investments.
walshemj 9y ago
A case in point USA retail investors where banned from the Royal mail privatisation which was a no brainer investment
- sjg007 9y ago
  And a scam on the British people.
nradov 9y ago
It's more like the rules exclude honest poor people from investing. I have several acquaintances of modest means who invested in privately traded stocks through the simple expedient of lying about their income and assets. To be clear, I'm not claiming that this is smart or ethical but it happens all the time. People can write down any numbers they want on the accredited investor forms and usually no one checks.
_ah 9y ago
The cost of a bad high-risk investment is an annoyance to a qualified investor. It is catastrophic to a poor person. This is also why we require car/home insurance, but wealthy folks can opt out and self-insure since a total loss won't bankrupt them. Unfortunately, letting "the market" decide will just make a bunch of poor people into broke people. Do you want to take a risk with a very low chance of success? The state has a Lotto ticket they'd like to sell you.
- njarboe 9y ago
  There could be some kind of test as an alternative way to become an "accredited investor". If you make $250,000 for two years, or have $1 million in liquid assets, or pass the test. Why not?
  - _ah 9y ago
    Because Risk is risky. Even brilliant professional investors have deals which go bad. Passing a test does not remove the bankrupcy problem.
    - njarboe 9y ago
      Having a lot of money does not remove the bankruptcy problem. Having a family and/or friend support system does. Maybe if you can get four people who will vouch to let you sleep at their place while you recover from bankruptcy would be a better test? Also, as said elsewhere, society now seems to let people risk big money gambling at casinos when the expected return is always negative.
ryandrake 9y ago
Can't let those dirty commoners have access to the juiciest investment opportunities. Those should be reserved exclusively for the already-wealthy. And if they complain, say we know better and it's for their own good. Of course, everyone knows the already-wealthy are smarter than the rest of us, and only they are capable of doing the unfathomably complex math needed to evaluate an investment.
- s73ver_ 9y ago
  So what do we do when someone who doesn't actually have extra money loses it all in a scam investment?
  - ryandrake 9y ago
    The same thing "we" do when they spend it all on lottery tickets or blackjack? There are already many existing ways for people to lose all their money, with much lower EV than investing in a small growth company. Why is it that this particular type of investment is carved out as something common people should be protected from?
s73ver_ 9y ago
"How about just let the market decide?" That's what was the problem; the market was deciding it was a great idea to rip people off.

conanbatt 9y ago

Its a good question to ask if the regulation is more expensive than the scamming.

ericd 9y ago
For the victims, it certainly wasn't.
- conanbatt 9y ago
  And what follows to that assertion?
  - ericd 9y ago
    What I mean is that while it may be worse for optimizing the global output of the system than simply letting the scamming happen (which is what you seem to be asking about), it's important to remember that it's not all about optimizing the global number, but also preventing individuals from experiencing financial ruin.
    - conanbatt 9y ago
      I dont think prevention of financial ruin is the goal. Any proper investment has that risk as well. I think its just very ill-perceived by the population to have a pit of snakes and scammers and people flailing accusations. But is the bank really any better?
      - ericd 9y ago
        It's the stated goal, there are solid historical reasons for it, and it's a reasonable way to tackle it. It's very disingenuous to equate other investments with ICOs or startups in terms of risk, especially the risk of going to 0. If you invest in 3 random S&P 500 companies, it's very unlikely that you'll end up with $0 from that after 10 years. If you invest in 3 random startups, there's a pretty good chance that you'll have $0 from that after 10 years. If you invest in 3 random ICOs, you're almost certain to have no value from that in 3 years. If the SEC made it incredibly easy for the general public to invest in startups, scammers would come out of the woodwork to fleece the public, as they have in the ICO world, and as they have in the past for more traditional stock investments. Making a fake company or bullshit ICO and hyping it to the public would be one of the easiest ways to make $10M, and the prospect of that is going to draw a lot of scammers.