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How benevolent the authorities are! Can you imagine starting a business and then beseeching the SEC king David Blass to find out if your business is legal, and

by temphn 14y ago

How benevolent the authorities are! Can you imagine starting a business and then beseeching the SEC king David Blass to find out if your business is legal, and announcing with relief a "no action" letter? It cost Angellist and FundersClub a few tens of thousands of dollars in legal fees simply to find out what the ever-shifting law was. Worse, to be a CEO of a startup these days you need to be willing to risk jail time to launch a new product. For had Blass (unelected and likely unfirable due to "career status") ruled the other way, many would consider that a judgment on the legitimacy of the transactions at issue rather than a demonstration of the illegitimacy of the SEC. And FC/Angellist would have had to scramble away post-haste from crowdfunding for fear that disintermediating Blass' banksters meant being fitted for pinstripes. Go back and read the original TechCrunch article. People actually thought FundersClub might be facing jail time! What brass, what courage you need to start a business today in a regulated space. They took maximum risks, I wish them (and Angellist) maximum reward. I also hope that someday soon Blass is forced to cower in the corner waiting for a ruling by the people who actually produce something, hoping against hope for a "no action" letter, praying that he won't be thrown summarily in jail.

natrius 14y ago
I agree with most of what you're saying, but I don't know what your preferred alternative would be. What should've happened instead?
- neurotech1 14y ago
  Theoretically, two other possibilities; 1) They act a certain way, and be prepared to defend civilly and criminally if necessary. That said even if what AngelList and FundersClub do is technically illegal, the fact they target accredited investors and don't promise insane returns, probably would tip the balance towards a civil action. IANAL and we're talking hypothetical action anyway. 2) Another possibility would be to obtain a declarative judgement that what they are doing is in fact legal. IANAL but this would be messy, expensive and a lengthy process.
- temphn 14y ago
  Simple: the business should be able to deal with willing buyers and sellers. The SEC shouldn't exist. Pure caveat emptor, buyer beware. If you trust the SEC to "protect you" on your behalf you will (someday soon) find yourself Cyprused with no recourse. Cyprus has its equivalent of the SEC, and did absolutely nothing to prevent the complete collapse of the economy. The US became a world power before the alphabet soup of agencies that arose once the frontier closed. Regulation and bureaucracy can best be conceptualized as middle management that arises after a startup's early stages, parasites that a relatively strong organism/organization like the US can tolerate - but not indefinitely. The SEC's primary interest is increasing the SEC's budget and power, it has absolutely nothing to do with safeguarding your interests.
rayiner 14y ago
What a load... The SEC exists for a reason. That reason is that the 1920's demonstrated that the financial industry couldn't be trusted to completely regulate itself, and would use information asymmetries to its advantage to bilk investors out of their money. Similar lessons have been learned with regards to the food industry, drug industry, manufacturing industries, etc. A no-action letter is essentially just a declaratory judgment from the SEC offering an opinion of the legality of a novel course of action. It exists not because the law is ever-shifting, but because the financial industry it regulates is ever-shifting. For better or worse, engaging in commerce with the public is not a right in the U.S., it's a privilege, and that is by design. That may not be consistent with libertarian capitalist ideology, but it's not libertarian capitalist ideology that's encoded into the Constitution. Rather, the Constitution grants Congress broad power to regulate commerce, and in this case Congress has decided, over and over, that financial services must be regulated and has empowered the SEC to enforce compliance with those regulations. As an aside, it should be noted that at least in the U.S., the government has always regulated pretty much everything that was commercial in nature and affected more than a handful of people. At the time of the founding, the government (state and federal), regulated land ownership, navigation by water, joint stock corporations, and imports/exports, which were at the time everything that was worth regulating in a country where most people still grew their own food and made their own clothes. They regulated the railroads as they spread and became important, they regulated business trusts by the end of the 19th century, they regulated TV and radio as it became prevalent, and as the corporate entity of choice shifted from business trusts to publicly traded companies, they regulated those too. One can imagine a world where none of these things ever happened, but so far the history of the U.S. has been one where important economic activity has been regulated.
- bcj 14y ago
  I'd like to believe that the grandparent comment is the top because of this comment. The culture surrounding HN is such that a fair number of commenters find themselves on the wrong side of government regulation, and government regulation often seems (and sometimes is) oblique, arbitrary, and manipulated by special interests. It's always worth considering the circumstances that have led to regulation (and specifically edge cases) as regulation is often a direct response to an actual problem. Even when regulation is outdated or wrong, it is rarely completely wrong.

by temphn 14y ago

natrius 14y ago

I agree with most of what you're saying, but I don't know what your preferred alternative would be. What should've happened instead?

neurotech1 14y ago
Theoretically, two other possibilities; 1) They act a certain way, and be prepared to defend civilly and criminally if necessary. That said even if what AngelList and FundersClub do is technically illegal, the fact they target accredited investors and don't promise insane returns, probably would tip the balance towards a civil action. IANAL and we're talking hypothetical action anyway. 2) Another possibility would be to obtain a declarative judgement that what they are doing is in fact legal. IANAL but this would be messy, expensive and a lengthy process.
temphn 14y ago
Simple: the business should be able to deal with willing buyers and sellers. The SEC shouldn't exist. Pure caveat emptor, buyer beware. If you trust the SEC to "protect you" on your behalf you will (someday soon) find yourself Cyprused with no recourse. Cyprus has its equivalent of the SEC, and did absolutely nothing to prevent the complete collapse of the economy. The US became a world power before the alphabet soup of agencies that arose once the frontier closed. Regulation and bureaucracy can best be conceptualized as middle management that arises after a startup's early stages, parasites that a relatively strong organism/organization like the US can tolerate - but not indefinitely. The SEC's primary interest is increasing the SEC's budget and power, it has absolutely nothing to do with safeguarding your interests.

rayiner 14y ago

What a load... The SEC exists for a reason. That reason is that the 1920's demonstrated that the financial industry couldn't be trusted to completely regulate itself, and would use information asymmetries to its advantage to bilk investors out of their money. Similar lessons have been learned with regards to the food industry, drug industry, manufacturing industries, etc. A no-action letter is essentially just a declaratory judgment from the SEC offering an opinion of the legality of a novel course of action. It exists not because the law is ever-shifting, but because the financial industry it regulates is ever-shifting. For better or worse, engaging in commerce with the public is not a right in the U.S., it's a privilege, and that is by design. That may not be consistent with libertarian capitalist ideology, but it's not libertarian capitalist ideology that's encoded into the Constitution. Rather, the Constitution grants Congress broad power to regulate commerce, and in this case Congress has decided, over and over, that financial services must be regulated and has empowered the SEC to enforce compliance with those regulations. As an aside, it should be noted that at least in the U.S., the government has always regulated pretty much everything that was commercial in nature and affected more than a handful of people. At the time of the founding, the government (state and federal), regulated land ownership, navigation by water, joint stock corporations, and imports/exports, which were at the time everything that was worth regulating in a country where most people still grew their own food and made their own clothes. They regulated the railroads as they spread and became important, they regulated business trusts by the end of the 19th century, they regulated TV and radio as it became prevalent, and as the corporate entity of choice shifted from business trusts to publicly traded companies, they regulated those too. One can imagine a world where none of these things ever happened, but so far the history of the U.S. has been one where important economic activity has been regulated.

bcj 14y ago
I'd like to believe that the grandparent comment is the top because of this comment. The culture surrounding HN is such that a fair number of commenters find themselves on the wrong side of government regulation, and government regulation often seems (and sometimes is) oblique, arbitrary, and manipulated by special interests. It's always worth considering the circumstances that have led to regulation (and specifically edge cases) as regulation is often a direct response to an actual problem. Even when regulation is outdated or wrong, it is rarely completely wrong.