You literally can't make this any easier for the SEC. There's not much of a defense when you repeatedly admit that you're attempting to raise money by issuing something you market as an investment opportunity.
There are other ways of addressing fraud besides violating people's right to freely contract with other consenting adults, like punishing those who commit fraud to deter others from committing the crime, and public education campaigns.
The idea that the government has a right to deem a certain class of investors as "unsophisticated", and thus better off deprived of the right to decide for themselves what to invest in, and prohibit an entire class of interactions, on the basis that too many instances of that class are fraudulent, upends basic principles of liberal society.
The poorest households in the US spend 9% of their income on lottery tickets, showing that you can't legislate people out of misusing their funds. If anything, the attempt to do so deprives them of better investment opportunities, and better opportunities to learn how the investment world works.
And this isn't free market idealism. The crypto/token investment market has become vastly more sophisticated over the last 4 years. Token sales that would have raised millions 4 years get nothing today. People need to have a bit more faith in other people, and in freedom.
Kik is choosing not to become a “public” company in that they don’t want to file disclosures. They’re trying to circumvent the rules that show they’re operating above board.
can being the operative word. There is a very significant market for investments where "sophisticated" – er – Accredited Investors get access to purchase securities that are not available to the public.
Frustration from people who want to but cannot access this market is real and arguably valid, a balancing act between preventing fraud and granting access which is tipped a bit too far towards not necessarily preventing fraud but restricting access for the benefit of a few. (on the other hand before you go public there is a benefit to only having investors that really know what they are doing, the rabble of small time less knowledgable investors can be a business risk before your company is ready for the public)
What I am saying is that the people spouting nonsense come from a place where there is truth, but so many people know so little about it that good discussions are hard to come by.
The reality is if you’re a high profile founder with a great idea and traction you can get money from mostly everyone while maintaining a nice clean cap table. If you aren’t, you then raise from “suckers” (see the ICO market).
It's as though some of the libertarian leaning commenters think these rules were brought in because the government was tired of seeing so many poor people become wealthy. The reality is the government was tired of seeing so many poor people get rekked and thrown into the welfare system, what little of it there is here.
tl;dr: getting rich isn’t easy and deregulation is likely to cause more harm than good.
So us, poor unsophisticated plebs, can’t invest in anything until post IPO. Which seems to be way after the majority of the gains have been captured.
Ironically people are trying to build fully automatic DAOs, such that the use of funds is fully transparent. Effectively baking in the reporting into the organization.
And also after the point where most of the failed companies have collapsed. Don't let survivorship bias run your investment decisions.
“The poorest households in the US spend 9% of their income on lottery tickets, showing that you can't legislate people out of misusing their funds.”
You’ve explained why it’s urgent that we outlaw lottery tickets. For most of USA history Protestant and Catholic leaders were unified in their opposition to all forms of gambling, and so lottery tickets were unthinkable for most of USA history. And every progressive activist that I know personally would like to see an end to lottery tickets and other forms of de facto regressive taxation. Lottery tickets, like other forms of gambling, tend to undermine habits of thrift and sobriety.
I agree with your implied analogy — ICOs are like lottery tickets. That’s why they should be banned.
Not all of them, though maybe nearly all of them.
There is nothing at all wrong with using a crypto-system to distribute ownership of your business. The SEC is actively working to make this a reality. It is just a different market to do the same thing.
There is however so very much wrong with doing this outside regulation. Black market shares of your company are bad. Making up the nth new coin and selling its nonsense to the unwise in pump and dump schemes is wrong. In order to do so legally you have to be extraordinarily careful to completely divorce yourself from the US financial system and doing business on US soil.
Banks themselves are starting to use crypto-coins to operate. They're just a tool, when used in the right way they aren't an exciting anarchist revolution usurping The Man, they're just a different sort of database/API. JPMorgan is setting something up for business-to-business transactions because they think it could be a better replacement for the current complex frameworks they have for keeping track of money.
Most ICOs are like bad lottery tickets, but it's not the technology underlying it at fault.
Actually in most countries lotteries are pretty heavily regulated to ensure that they are indeed redistributing a share of ticket sales as winnings and are also fairly selecting winners. ICOs are like unregulated lotteries that might intend to keep the proceeds from all "investments" to themselves and/or unfairly distribute to insiders like the "influencers". Opportunity makes a thief.
Imagine if anyone could buy $5 worth of stock for the product they're buying at 7-11. Over-time these small purchases would let them amass a sizeable base of assets, and all the while they'd have a stake in parts of the real economy, which would incentivize them to invest time in learning how it works. The educational value alone would be enormous.
Instead we foolishly prohibit people from participating in many of the most lucrative sectors of the economy, which corrals them into low-value dead-end activities like playing the lottos. If you want someone to grow, you don't over-protect them. That applies to raising children, and it applies to governance of the public at large.
Yeah, and in ten years they might get $14, which will just give some extra profit to their creditors when they file for bankruptcy for unpaid medical bills, or be captured in a civil forfeiture. And if somehow they managed to keep it and actually save a couple grand, that just means they'll become ineligible for SNAP and lose much more in benefits.
People play the lottery because it represents something more than slaving yourself to make scraps. They are not stupid, and know the system is design to keep you poor, and that hoping to escape by amassing a few bucks is almost as delusional as expecting to win the lottery.
How is that any different than matching two numbers on a lotto ticket and winning $10, or $1000?
With real-world investing, especially in micro-caps, they have a chance to hit it big as well, and make millions. So it has the same dream escapist aspect. And it provides a much more solid grounding for the future than throwing money in a game that you are mathematically guaranteed to lose if you play long enough. Investing is not a game of pure chance, and it is not zero sum. With enough skill, you can actually make money, and your skill can improve over time, and doing so actually improves how the economy as a whole allocates capital.
That's immediately spendable; it doesn't sit somewhere where it can be taken (by illegal or legal means). That's also one of the reasons why people join susus instead of just saving, for example.
> With real-world investing, especially in micro-caps, they have a chance to hit it big as well, and make millions.
There's no change of making millions in a day, or week. The few "rags-to-riches" trading millionaires progressively amassed their money over at least a few years. But that means losing benefits, which people can't afford to risk. Like I said, the system is designed to keep them there, and they know it.
>>There's no change of making millions in a day, or week. The few "rags-to-riches" trading millionaires progressively amassed their money over at least a few years.
Crypto-assets have seen many thousands of percent gains in a matter of days. I don't know if you could turn $2 into a million in one week the way you can with a lotto, but the gains I think are substantial enough to compete for lotto spending, especially considering that odds of gains can be improved by the buyer through research and analysis.
The gvt lotto was not created before people played lottery, it was invented because people want to play chance games anyway and that's a great way to build roads at the same time.
I think the real market could be potentially more exciting than lottos, if regulations didn't prevent securities from being marketed the way lottos are. In a way, the token sale frenzy demonstrated that.
Counterpoint: The government declares which investors are savvy or not ("accreditation" based on the rules) only partly because they believe certain people are unqualified to make certain investment decisions based on knowledge. The other major factor is whether an investor is more likely to lose amounts material to their survival.
Two items to consider:
1. A person making enough spare income to take such risks is someone who likely won't suffer nearly as much if the risk goes south. Someone making 200,000/y (ok, excluding SF/NY since apparently legislators hardcoded a value like idiots) or who has 1mil assets after the primary home will probably feel pretty bad if a 25,000 investment goes to zero, but they probably won't be going on public assistance.
2. That said, regarding qualification to actually make the decision, a person who has the net worth or the income flow to qualify for accreditation may also be in a better position to invest in concepts being developed by people with past track records or increased odds of success. This may be a general result of being connected to such people (what you might call "the old boys' club," but this can broadly apply to any network of people) or may simply stem from being better positioned to evaluate/diligence the concept e.g. because they're applying their specialized knowledge to evaluate a new idea which they feel has value.
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Idealism is one thing, but if you're more likely to be preyed upon because you don't have the knowledge or connections to make more informed investment decisions and are more willing to increase the tax burden on your fellow person as a result of investment decisions gone sour, that's where the government steps in to protect the general population.
As a reminder, this is one of the few responsibilities the government actually has in any society, even the most libertarian.
Anyway, this isn't really a debate. If you disagree, you're empowered to do what you wish; I've made my counterpoint above and don't intend to go further.
You're just rewording what I said.
What you're promoting is based on a principle that is roundly rejected when applied in every other sphere of life.
>>As a reminder, this is one of the few responsibilities the government actually has in any society, even the most libertarian.
Protecting people from their own bad judgement is not a responsibility that the government has in a free (libertarian) society.
That's why we let people read whatever literature they want, no matter how toxic the ideas it promotes, and to eat as much as they want, exercise as little as they want, engage in as much unprotected sex as they want, and drink and smoke as much they want.
When it comes to crime, the government does have a role in protecting people, but the way it traditionally protects them is by intervening when someone reports a crime in progress, or punishing individuals after they've committed a crime, to create a deterrent effect, not by prohibiting people from venturing into dangerous areas of the city, or prohibiting certain types of relationships that are more likely to lead to criminal incidents.
Preemptive restrictions applied to innocent people is not how crime is addressed in a free society.
I don't know where you get your ideas of what libertarians are or aren't but, the general basis of libertarianism is that government gives your recourse for physical harm, defrauding via lies of commission (on principle and independent of the individual's ability to protect themselves), and typically property rights (though libertarians often disagree why). Generally the truth is considered to be an absolute defense against an accusation of fraud, and the justification of fraud is not a function of government having to 'bail people out', and in general, libertarianism does not consider it the role of government to "protect the general population". Typically, libertarians believe this under the premise that so often governments have done (and continue to do) shady things under the "guise of protecting the general population".
Approval-encumbered interaction is not consistent with how free society works, where people are presumed innocent, and not burdened with restrictions, until proven guilty.
Speech used to be like that. You had to get approval from the state, before being allowed to publish. This was to prevent things like libel. It was called Prior Restraint. Eventually courts ruled it violated the Freedom of Speech, and we are all vastly better for that ruling.
In practice it's also not flexible enough for innovation. It regiments only one acceptable way to establish an informed and consensual interaction, which precludes innovative new ways opened up by technology.
You might liken an underground ICO to a bug chaser party where some participant doesn't even know what that is.
That kind of stuff is a real problem, and there are plenty of scenarios where government prohibition isn't overstepping. In those cases, we're not protecting you from yourself, but rather protecting everyone else from you and your poor decisions that make your misfortune a burden to society.
The vast majority of people applauding restrictions on securities offerings would vote against any party that advocated similar restrictions on high-risk sexual activity. That shows that most people are just conforming to the popular viewpoint, and not independently and critically thinking about the issue.
That is dangerous, because these issues are too complex, and too important, to decide on nothing more than what position is the popular fad. They have very significant consequences for huge numbers of people. We as a society need every single voter to fully understand the principle behind every law, and be able to justify it, because the consequence for violating the laws is that a person has their property seized, or their freedom taken away.
Also, I think your analogy is inappropriate. People investing in crypto tokens is not going to do damage anywhere close to that done by "bug chaser parties". It's just money, if that (much of it is in the form of other crypto-tokens, so we're not even talking about fiat currency being risked).
Even if you accept that people bankrupting themselves is a terrible outcome for society, the fact remains that people have plenty of other ways to blow their money. I can't see how these investments not being prohibited would make the problem any worse.
But what a lack of prohibitions and a free market in soliciting and making investments would do is provide people with valuable exposure to the real investment world, and allow them to get a better understanding of how marketing hype, and speculative bubbles work, and how to identify real value. It would also allow people in much lower socio-economic groups to raise capital.
Finally, no one is saying that victimizing behaviour, like fraud, should be legal. The question is, how do you address predatory behaviour. The answer in the West has traditionally been to punish those convicted of committing it. Cookie-cutter rules that subordinate every participant in an industry to a centralized gatekeeper, are disproportionate to the threat of fraud and inconsistent with the principles of a free society, like the presumption of innocence and the freedom of association and contract.
They overly regiment the market, which inhibits innovation, and create barriers to entry to various sectors of the economy that exacerbate income inequality.
if they had raised money by telling a story that they didn't believe to the VC's to raise money from the VC's, then they would have been guilty of something by their own words: but they didn't, and their point in saying that was they did not do that. Instead, they pivoted...
The money they raised in the ICO has the SEC upset, but not for the reason your example refers to, but simply for lack of registration.
It is also the scammers fault for scamming, and they face their own set of consequences.
I also think there is this bizarre double talk on HN where people say sophisticated investor status shouldn't be a thing while also condemning ICOs, which is exactly what happens when sophisticated investor status isn't a thing.
It's a misnomer because it implies there is some kind of knowledge or skill threshold required.
What it really means is "has enough money they can afford to lose some".
In reality, there are plenty of people who have tons of money and not a clue how to invest it well.
It's not. "Accredited investor" is the official term. "Sophisticated investor" is a higher finance-colloquial bar, typically requiring one follow institutional best practices (e.g. legal and risk reviews).
"When we looked at raising another round [of VC funding], we asked ourselves how do we answer the question about how we will become a profitable business [...] We didn’t have an answer we really believed."
... so instead they decided to raise money from unsophisticated investors in an unregulated market, where nobody asks such inconvenient questions! No surprise that the SEC is upset.
[1] https://news.ycombinator.com/item?id=15245656