This July 4th, Celebrate Your Freedom by Flexing It for “Uncle” Jay Clayton, Chairman of the U.S. Securities & Exchange Commission, Who Wants to Hear Your Comments on the Accredited Investor Rules
As you may already be aware, less than 5% of Americans are eligible to invest in most startups companies. That’s because the vast majority of startup investment opportunities in the United States involve unregistered securities. In order to invest in unregistered securities, you need to qualify as an “accredited investor.” That means if you aren’t a millionaire or earn at least $200,000 a year ($300,000 if you’re married), you are prohibited from investing any amount of money in these companies by law.*
*To learn more about these restrictions and how they apply to security token offerings, you can access my free Security Token Crash Course on the Resources page.
On June 18, 2019, the U.S. Securities and Exchange Commission issued a press release entitled SEC Seeks Public Comment on Ways to Harmonize Private Securities Offering Exemptions, in which it sought comments on several topics, such as:
Whether the limitations on [investors] provide an appropriate level of investor protection … or pose an undue obstacle to capital formation or investor access to investment opportunities, including a discussion of … the “accredited investor” definition.SEC Seeks Public Comment on Ways to Harmonize Private Securities Offering Exemptions
Given the fact that initial coin offerings (“ICOs”) were initially promoted as a response to investor restrictions in the U.S. and other jurisdictions, I was quite surprised that the SEC’s request for comments didn’t get more attention in the crypto community.** I was even more surprised to discover that as of this writing, there have only been seven—that’s right, seven (7)—comments posted on the SEC website over the past two weeks. And one of those is mine, for crying out loud. 🙄
**That is, until I remembered that June 18 was the same date that Facebook announced its Libra cryptocurrency project. 😅
Let’s change that! Regardless of whether you love the accredited investor definition or hate it, now is the time to let the SEC know. For your convenience, here is a link with instructions on how to submit comments as well as a link to the currently posted comments, including mine, which you can also read below:
Subject: File No. S7-08-19
From: Grant Gulovsen, Esq
Affiliation: Owner, Gulovsen Law Office
June 20, 2019
Regarding the accredited investor rules, I would propose that instead of focusing upon the wealth of the investor, attention should be focused upon providing more useful information to potential investors that they will actually understand and will help them make better investment decisions, because I believe that is the best way for the SEC to carry out its mission.
Currently, the information provided to investors in any exempt offering is nearly useless. Private placement memorandums typically do not contain any information that is helpful from an investment decision-making standpoint. Instead, they are a laundry list of risk factors and far too much irrelevant information that serves no purpose other than to shield the issuers from liability (and also to enrich the lawyers–like myself–who prepare them).
Simply stating, “You are an idiot if you invest in this cockamamie scheme because you are going to lose everything you put into it, but if you still insist, please only invest an amount that you won’t even notice is missing if the investment drops to zero,” would be far more useful than the average PPM.
I would therefore propose more statistical data be collected and made available to prospective investors for all exempt offerings, perhaps via a streamlined registration process that relied on something like blockchain technology to ensure that data collected cannot be manipulated by issuers and having other safeguards in place that do not require the issuers to conduct a separate raise just to pay the costs associated with independent auditors, lawyers, etc.
In order to be effective, the data would have to be accessible and easily searchable, so, for instance, prospective investors could search a database that showed all exempt offerings in the past 5 years that met criteria similar to ones they were considering investing in. Basically, just a subset of the most important data collected from public reporting companies.
That’s all I’ve got. Thanks for the opportunity.
Now it’s your turn! One again, here is a link with instructions on how to submit comments as well as a link to the currently posted comments. Please spread the word by sharing this post and I look forward to reading everyone’s comments soon!