Incorrect. Maybe you're basing that number off the (alternative) 2 million in liquid assets, but the income threshold is something like 200k/year for 2 years. A quick google shows estimates ranging from 8%[1] to 13 million[2]
[1] https://www.archerinvestors.com/accredited-investors/ [2] https://dqydj.com/accredited-investors-in-america/
[0] https://www.statista.com/topics/3467/millionaires-in-the-uni...
That means that when it was originally instituted, there were much fewer and they were much richer compared to the rest of society.
So if someone is quoting an unreasonably low number, they might be using a figure from long ago.
> There is a common misconception that a “process” exists for an individual to become an accredited investor. No government agency or independent body reviews an investor's credentials, and no certification exam or piece of paper exists that states a person has become an accredited investor. Instead, the companies that issue unregistered securities determine a potential investor’s status by conducting diligence prior to sale.
In the US as far as I know it's just fulfilling the monetary requirements (income or assets).
> Instead, the companies that issue unregistered securities determine a potential investor’s status by conducting diligence prior to sale.
means you are not accredited until you have due diligence done on you.
So what though? We're not arguing over how simple or onerous the due diligence process is. Whatever it is, whether it's as simple as just checking a box or as difficult as walking on the moon, it is something that needs to happen before you are "accredited". Households that don't go through that process aren't accredited, even if they're worth a trillion dollars. It's as simple as that.
>(a) Accredited investor. Accredited investor shall mean any person who comes within any of the following categories, <etc.>
Persons that meet the definition of an 'accredited investor' per 17 CFR § 230.501 are accredited. Attestations, diligence, etc. are irrelevant to that fact as defined by law. There is nothing that needs to happen above and beyond the criteria as spelled out.
Have 999,999$ net worth? not accredited. Find a dollar bill on the street? Accredited. Spend 1$ on a coffee (ha..)? No longer accredited.
Incorrect.
You are accredited if you meet the income, asset, or professional certification tests.
People selling you certain securities are required to make a good faith effort to confirm thar you are accredited before selling to you, but (whether or not another firm has done so), but this has no bearing on whether you are accredited, in the same way that whether you are a citizen, lawful permanent resident, or work-authorized alien doesn't depend on whether or not an employer of yours has done their duty in regard to I-9 employment eligibility verification.
There is no governing body that gives you a stamp of approval towards accreditation. It's basically only "enforced" if you get caught.
So, no, there's not practically "more to it" than checking a box. The most stringent I've seen is a notarized letter from my accountant (rare) and the least stringent I've seen is that the startup owner never asked.
Theoretically a smart contract could check the token and Ethereum balance of an address and classify it as accredited if it has more than $2 million in on-chain assets. I’ve spoken to several securities lawyers, and the consensus seems to be that this is unconventional but complied with US securities law as it stands.
However, an accredited investor might just be someone who got rich through inheritance, i.e., not at all through their own doing, so I don't think that accredited investors necessarily know more about investing. They can, in theory, weather a loss more, depending how much they bet, although AFAIK there are not restrictions on them betting it all.
People are allowed to buy lottery tickets. They are also allowed to bet it all at a casino. Why shouldn't someone be able to put even a small amount of money in crypto? Maybe it pays off for them, maybe it doesn't (just like lottery / casino / etc., and I think they have a better chance in crypto).
That said I don't really like centralized crypto lenders like Celsuis, Nexo, etc. If anything, I think people have a better chance just buying crypto at spot price and not lending it out, although if someone really was set on lending out their crypto, they are better off with the decentralized lending alternatives.
You can put money in crypto, though. Buy Bitcoin, buy Ethereum, there are plenty of ways to put your money in crypto.
Here New York is going after companies like Nexo that pretend like their risky crypto product is just like a bank account that happens to pay higher interest. Look how they advertise it on https://nexo.io/ -
ISO 27001:2013 Compliant. Impeccable risk assessment, data protection, and enhanced cybersecurity
$375 million insurance on all custodial assets
Earn daily interest on your crypto
Add or withdraw funds at any time
Personally, I find these to be misleading statements. You can't necessarily add or withdraw funds at any time because you depend on Nexo's solvency which is not guaranteed like it is for a bank account, their risk assessment in my opinion is not impeccable, et cetera.
If Nexo is going to pretend they are as risk-free as a bank account, then it seems reasonable for New York to regulate their statements like they regulate bank accounts.
For all those who try to compare this to subprime, there's two big differences here. First, decentralized lending is enforced by smart contract -> the banking apps dont take credit risk because they can auto liquidate defaulter's assets and collect a 10-20% liquidation fee for doing so. Second, decentralized lending apps max out at 60% LTV. People are either going to be safe and do 30-40% leverage which protects against 33-50% drops in the value of the collateral, or they are going get liquidated at 60%. There's no too big to fail here.
Right. What part of "Ponzi scheme" did you not understand?
This has nothing to do with "crypto". This is the same scheme as Madoff's. It's almost the same scheme as John Law's bank of 1720. There's not much innovation in scams. Just new forms of obfuscation.
Of course the corporation/vendor of the scammy investments will fold at that time, but the management will have long since pulled their money out and will be largely unpenalized, leaving tax payers to fund the bail out.
That's not to say accredited investors don't get government bailouts when they play it to close to the fire, they do. The bailout is just done quietly in the background and nobody is the wiser...
Exactly: being wealthier just means you can make bigger bets. It's rather common for athletes to go bankrupt after retirement.
[1] https://www.msn.com/en-us/money/markets/what-net-worth-is-co...
122 million, you mean. (The rest of your piece is consistent with that.)
Without providing that proof of lower risk (and a LOT more information), the tradeoff is that you can raise from accredited investors. It is one thing to take $500k from an accredited investor who might wince but can still take the hit if your investment opportunity fails, but quite another to take the same amount from someone for whom it is their entire life savings. Your failure then condemns them to a life of poverty and living on govt programs.
Sure it seems nice and egalitarian for everyone to have the 'opportunity' to invest in riskier schemes, but history shows that the times it ends well do not offset the times that it fails.
It seems every 3rd or 4th generation needs to learn for themselves. Banking and finance go off on a bunch of new ideas, there are systemic failures and boom/bust cycles, enough people realize that this unregulated wild west is a bad idea and put in regulatory fixes, it gets better, then after a couple of generations everyone forgets and says "why are all these damn regulations here keeping me from becoming wealthy?", starts dismantling them, nothing happens for a while, then the failures, boom/bust, etc start again, lather, rinse, repeat...
See Chesterton's Fence [1]
"We estimate in 2020 there were 13,665,475 accredited investor households in America." https://dqydj.com/accredited-investors-in-america/
I'd argue SEC pushes people who aren't accredited investors into riskier investments.
In all seriousness, this is gate keeping, wrapped into "think about the kids" gift paper.
At large, US tax payers don't have access to state funded pension. Not all have access to 401k and like. Those that do, often aren't provided with great or flexible options or charged high fees. Plans are tied to controlled by employers. One of the ways to build wealth is to invest it into real estate. But it is hard, to acquire a primary residence hour US families have to compete with foreign investors, local private investors, big institutional investors with exclusive membership, like the one you mentioned, now even municipal pension funds. Not only fewer investment options are available to them, also fewer options to hedge against economic downturn. Tax system favors the rich.
Now God forbid the mass gains access to something new, that might actually double or triple their money. Gotta keep them in check.
Crypto is a huge gamble, but, at the same time, it is one of those opportunities that can shoot up. I know people whose 401k only recently recovered from 2008 crash and it's unclear how long it will take to recover after then next one.
Although, I agree that crypto is not for everyone, but I would rather see it challenge from marketing and advertisement perspective. Make them watch very carefully every word they put in any marketing material. Introduce various cool down periods, that can be a function of your net worth. Come down hard on anyone who touts it as a sure win strategy, but let people take the risk, if they want to.
You can't ask for no accountability, these rules are written in blood (or red, I guess).
Imo it would make it worse. Most of widely available standard financial instruments are based on some sort of contractual obligations of responsible parties, assets, operations. Risk analysis has been developing for decades for these instruments, and then enter Gamestop and AMC…
What would you put in prospectus for bitcoin, ethereum, level 2 cryptos or colored bitcoin? Or something like dash or monero? How do you estimate risk and impact of the upcoming ethereum fork?
Using the same guidelines for crypto as for standard financial instruments, will make it look like one of the known investment interests, while in fact, it is fundamentally different. I would say anyone, who tries to sell you a bitcoin under disguise of investment with some known risk properties is misleading.
You might need to be accredited to invest in a bank that operates on bitcoin, or have all your money parked on an exchange that operates in bitcoin, unless they're willing to do the paperwork. These are things that can and should be audited regularly if they're going to hold a lot of people's money.
Why should some legal investments not even be theoretically available to non-wealthy people? This smacks of the highest sort of elitism to me.
Feels like "Rules for Thee, but not for Me".
This is actually the spirit of accreditation - it's more to do about how you promote securities as opposed to simply filtering out a portion of the population due to net worth.
However, they also have to balance systemic risk agai st the need for access to the capital markets for smaller (and, yes, riskier) companies, which is why we have reg D offerings. Traditionally, the balancing test has been whether the “accredited investor” can be expected to have access to knowledge and expertise sufficient for them to understand the risk of unregulated and often complex offerings, such as convertible notes. In practice, this usually covers institutions and high-net-worth individuals, who have no excuse for not availing themselves of such expertise, or at least are less likely to lose their shirt if they don’t do so. Systemically, this prevents people from rushing into less-regulated, more risky investments that could create the kind of fiscal and political instability that marked earlier panics — reg D offerings may be riskier, but this way the SEC can manage just how many people are exposed to that risk. (You can, justifiably, be cynical about the fact that very large institutions will happily sink tens of billions into high-risk investments and get bailed out thereafter, but that leads to the question of whether it’s actually worth tightening regulation at the price of reduced financial innovation.)
BTW, the SEC has also recently opened up 501(D) criteria so a lack of net worth can be balanced by an appropriate professional or educational background that would give the investor the ability to judge risk, though I don’t think this has functionally changed the definition yet in the field.
If your net worth is $20M and you're investing $20,000, losing all of it clearly wouldn't bankrupt you. If your net worth is $20,000 and you're investing $20,000, losing all of it clearly would bankrupt you.
But then you say to the person with $20,000 that they can't invest $500. Which is kind of nonsense.
People act like all of these companies trying to cash in on the crypto gold rush are on the up and up, but historically when there's a gold rush, there are unscrupulous actors seeking to cheat and steal from unsuspecting marks.
We can throw up our hands and just say 'free market' and 'caveat emptor', but if too much money gets roped into a financial bubble, when it bursts it hurts everybody.
So right now there are crypto firms making all kinds of claims about how their assets are backed, or how consumer money is safe in their little DeFi account. It is, and should be in the SEC's (and the NYAG's) purview to regulate that.
The crypto market is maturing and it's a shame that people like you seem to want to cut it off before it fully matures.
Truth of the matter is that in the financial industry there are always cutthroat and dishonest players trying to find a novel way to bilk people and yet more people trying to make a buck in a reckless manner that endangers consumer money.
Ultimately it's not about crippling the crypto industry, it's about preventing fraud irresponsibility. Other financial sectors have to do this, crypto should be no different.
These markets are prone to scams and counterfeit. In response, various appraisal services rose up (like Beckett) that promise to verify the authenticity of these cards. They've managed to build community trust over time and are now a staple of the industry.
The same thing will happen with DeFi, it just needs room to grow and mature. I think your opinion will change once heavyweights like Visa join the club (see below).
https://www.coindesk.com/business/2021/09/30/visa-unveils-pr...
They also abuse these privileges all the time.
“ To be an accredited investor, a person must have an annual income exceeding $200,000 ($300,000 for joint income) for the last two years”
If the crypto companies focused their efforts on accredited investors there would be less of a panic about crypto. But most of them come in with a populist rhetoric that sounds like a political movement: they want to bring high growth, high risk investing to the masses, they want to offer something highly speculative to the average person. In other words, they want to try to make an end run around the thousands of laws that we have in place to make sure that the average citizen doesn't get bilked in some scam.
It's the pseudo-political element that is getting crypto into trouble. If they simply said "This is highly speculative and only accredited investors should look at this opportunity" then the crypto companies would be on safer legal ground. But it would be difficult to pump up the price of these cryptocurrencies if the bulk of crypto enthusiasts were taking such a moderate line.