If the law was really about "protecting people", then gambling and the lottery would also be illegal.

Also, why can't I sign a paper saying I accept the risk of investing? Why can't I become an accredited investor by passing a class? I can pass a series of classes to become an EMT and be trusted with peoples lives, but no classes are sufficient to educate me about investing in startups.

When you look at how the accredited investor laws are structured, its clearly meant lock the middle class out of the market

You can! All you have to do is lie on your affadavit of accredition, granting you the two things you want: (1) investment in the venture, to (2) no ability to file criminal charges on the venture management if you get fleeced. You do want both of those, right?

https://www.worldcasinodirectory.com/united-states/map

And aren't states mostly the beneficiaries of lotteries? Here the revenue is supposed to go to schools or something.

I'm not going to deny there are many casinos (there are plenty) but the OP's statement of "gambling and the lottery would also be illegal" seems to miss that in probably the vast majority of the US, gambling and operating lotteries is illegal. For example, Texas recently had to have a constitutional amendment to allow sports teams to hold charitable raffles.

https://ballotpedia.org/Texas_Proposition_5,_Definition_of_P...

I agree it's not a perfect system and people who want to can find other ways to throw away their money. But we're probably not guilty of over-regulating financial markets in general.

I think it's a great system. But I also hate poor people and don't want them to have the same opportunities I have. Let them play the lottery instead right?

[ADDED: In case anyone missed the sarcasm I'm not a huge fan of state lotteries because they target the people who can least afford them. That said, I realize many buyers would go the less regulated route if they didn't exist.]

Neither could employees that have access to internal financials. You could believe your company is doing great, but you cannot invest. You dont have the chance to compete for the resource with the investors that can.

This also means less money goes into investment.

Result:

- Qualified investors get higher returns - Employees get lower wages because there is less capital invested - Founders get less money - Fewer startups are created

In the name of protecting compulsive gamblers?

Actually, for non-startups (i.e., 99% of new businesses), loans from banks, family, and friends, are the primary form of investment. This method of investing does not require the investor to be accredited.

Neither could employees that have access to internal financials.

Investors are also not entitled to internal financials. They might have a right to financial statement, but those are very different things.

Employees get lower wages because there is less capital invested

If the increased capital is coming from employees, then this is just a circular transaction: the money goes from the employee, to the company, back to the employee again = no net financial difference.

Founders get less money In the real world, founders borrow money, which forces them to be calculating and spendthrift with their cash.

Fewer startups are created

Oh no! Juicero would never have existed!...Wait, that's a good thing, and the very existence of Juicero and other wasteful startups suggests that the problem is too much capital, not too little.

Precisely because its illegal to do it otherwise..you are making my case for me with this statement.

> If the increased capital is coming from employees, then this is just a circular transaction: the money goes from the employee, to the company, back to the employee again = no net financial difference.

It could be divested from other less profitable capital investments like index funds, real estate or straight down cash. That lower competition of capital for startups means less startups and thus lower wages.

> Oh no! Juicero would never have existed!...Wait, that's a good thing, and the very existence of Juicero and other wasteful startups suggests that the problem is too much capital, not too little.

Thats your opinion, but you are making a comment on a site run by an institution whose primary goal is to make more startups.

Also, the people applying for home loans weren't compulsive gamblers. The banks literally told them they were qualified.

Put it up to a vote and the vast majority will do away with these restrictions. The people don't want it. Some people want it, and some people benefit from it. As its usual in economics, those groups are not the same.

"Financial protections" => the government collects a tax to impose a restriction on you, to benefit the richest class.

Does that also apply to "democratic" processes?

Should only "accredited citizens" have the right to vote?

Having to pass a test to demonstrate you understand the policy choices and how they affect you could be a good idea if done impartially.

But to the point, categorical denial of access to a participatory space -- here based on your bank balance -- is akin to denying voting rights based on gender or color.

That said, contrast the S&L crisis [3] with Bernie Madoff's fraud [4]. The former lost $160 billion of regular Joes' money (along with wealthy investors'). $132 billion of taxpayer money had to be spent, alongside countless hours of regulators', judges' and lawmakers' time, again, on the public dime. A minor political crisis started (and subsided).

With the latter, $70 billion was lost (though it might have been as "small" as $20 billion). Prosecutors and judges still got involved, but fines repaid their efforts. Systemic effects were largely contained.

TL; DR We restrict the masses from illiquid investments procured through irregular channels because (1) the legal costs of diligence preclude small investments, meaning small investors either invest at a material disadvantage or invest too much (relative to their worth) and (2) the lower your worth, the higher the probability that a busted investment will lose you your shirt. That turns a financial problem into a de-stabilising political problem.

Side note: early-stage investing isn't as profitable, on a risk-adjusted basis, as it might seem if one only counts the winners.

[1] https://www.sec.gov/fast-answers/answers-accredhtm.html

[2] http://www.finra.org/industry/qualification-exams

[3] https://en.wikipedia.org/wiki/Savings_and_loan_crisis

[4] https://en.wikipedia.org/wiki/Bernard_Madoff#Size_of_loss_to...

Disclaimer: I am not a lawyer. This is not legal, nor any other kind, of advice. Consult an investment adviser and a securities lawyer before making risky investments.

These people almost always earn more than $200,000 a year and so qualify as "accredited investors" under the SEC's definition. Keep in mind, too, that start-ups can compensate their unaccredited employees with equity just the same.

Disclaimer: I am not a lawyer. This is not legal nor securities advice.

Actually not, because accredited investors must have cleared $200k for the two previous calendar years and most people who co-invest under the knowledgeable employees exemption are PE associates who have been on the job for less than two years.

Source? (Private equity associates are entry-level number crunchers. Their fraction of carry is a rounding error, if positive.)

Private equity associates very rarely receive carry, which is why they co-invest instead.

*edited for clarity

The vast majority of partner co-investment vehicles I've come across contain partners' capital. A rounding error may be from associates, who are usually counted against the limited number of unaccredited investors such funds can, with great legal liability, be marketed to.

You can argue that it should work like that, but we intentionally decided to make SEC regulation the rule, and only grant exceptions for investors who have demonstrated they can handle the risk.

There is nothing saying that a non-accredited investor can't invest when a valuation is low. The investment just has to be regulated by the SEC.

We had no say in this.

The SEC unilaterally created modern day (1970s onward) accredited investor rules, although I'm sure they had their routine public comment period as if that made a difference.

The 1930s Congress and public had no idea that exemption from their protection would take shape this way.

Former accredited investor-like rules relied on financial literacy tests. These were predictable discriminatory and even the most compliant financial firms found them to be too vague. The SEC switched to the money tests to solve the lack of clarity and discrimination problems, LOL OOPS.

The exact mechanism for how an exemption is decided is certainly up for debate. I was simply saying the mandatory part was decided on by 'us'.

Are you sure about that?

Private markets introduce much higher degrees of information asymmetry. Maybe you'll get rich, but your odds of losing your money are also much higher. The basic theory of accredited investors is, "Unsophisticated players aren't allowed to gamble unless they can afford to lose."

I'm fine with that. I don't want to pay for the retirement of somebody who got talked into sinking their retirement funds into something that was fucked from the start. If we want to give people a cut of the proceeds of innovation, let them put their money in funds that in turn invest a reasonable proportion of the money in high-risk areas like VC. There the asymmetries are drastically reduced.

I'm not sure I'd have expected to see day trading touted as an investing approach that should be encouraged.

The bill was largely footed by large numbers of people who knew nothing about the technology. I know one person who founded a router company in 1996, IPO'd in 2000, cashed out his shares for ~8 figures right before the market cratered, and is using that to fund his second startup. I know another person who invested in all sorts of dot-coms in 2000 and lost her entire inheritance & life savings in that (and a few real-estate purchases in 2007). I'd bet that the second group outnumbers the first by a large margin, but people in the first do exist.

I was more talking about day traders specifically. I suspect most of them burned up their capital at some point or other. And a lot of this is probably related to the maxim that when taxi drivers start offering you investment advice, it's likely time to get out.

>The reason cryptocurrencies & ICOs are popular is they let anyone speculate and day trade

Even assuming this was good, you can trade as a non-accredited investor.

[1] no disrespect intended, almost everyone is including me

This is right on the mark. Remove accredited investor requirements, and all that money will go to better options, like for example, YC startups. Nothing could do more damage to the investor monopolies of the world than opening this funding venue.

You think its a fair trade to lock 95% of Americans out of the investment market in order to protect the elderly?

New law: accredited investing means passing a 1 week course to obtain an investment license, which must be renewed bianually.

Now we can keep Grandma Suzy safe (because she hasn't passed the class) without locking 95% of Americans out of the investment market.

They say as much money moved into ICO's in the last 6 months as VC funding in the valley. To the very least, thats double the funding for tech startups: higher wages, more founders and higher absolute investment returns.

The tragedy is that scam ICO's make it because they cant put it into better investments due to regulation. Its the classic case of a damaging restriction.

they (a) lie on their attestation and (b) waive their right to sue

I'd be in favor of needing to take a course on investment in order to be accredited, but having income requirements is bullshit and absolutely lends to making the rich richer and keeping the poor poor.