A company can choose not to use that exemption, and instead do things the official, open way: issue securities to the general public accompanied by the required disclosures. That allows the company to take investment from anyone, while also protecting the public by ensuring that that the offering is above-board and accompanied by enough information for the public to make an informed investment decision.
To what extent is a person legally allowed to take advantage of another person's ignorance or bad decisions?
Let's go extreme here. Should there be an age of consent? Yes, because we need to protect children from being taken advantage of because of their ignorance and likelihood of making bad decisions.
Thus we have already determined that, at least in some cases, the government's role IS to protect people from their own ignorance or bad decisions.
>adults should have the freedom to invest in whatever they want
What happens at 18 that means we can protect the child but not the adult? While growing knowledge and wisdom and an increase in brain maturity means we can lessen our protections, there is no justification from going from full protection to no protection on their 18th birthday (or whatever birthday you consider someone to become an adult).
Now, I'll accept that we can't protect them fully and this protectionism must be weighed against freedoms. But this is why a ponzi scheme is illegal while a lottery is not (assuming the lottery follows regulations). There is an issue with regulatory capture that we need to remain vigilant of.
To the extent that the person taking advantage doesn't lie or otherwise deceive to exploit the other's ignorance or bad decisions.
Would this mean that using attractive people in advertising is now banned because the average person is ignorant of how the attractiveness in an advertisement impacts their impression of that advertisement? Those making the add are keenly aware of this and use it to their advantage.
The SEC, just like now. You could argue they aren't as good at it as they should be, but that doesn't really change anything.
There are limits of what you can invest here, as opposed to the normal stock market where there aren't. So at least that's a plus. Nobody will in fact be able to lose their life savings here. Just 10% of it.
How about used car dealers? Should we prevent non accredited investors from buying used cars? After all, a car represents one of the worst investments with no chance of capital appreciation. How about Rent to Own shops? Those prey on the stupidity of poorer people.
Let's support freedom and let adults make their own choices, good or bad. Unless we want to ban Keno, the lottery, pay day loans, penny stocks, and let the government manage everyone's money. Of course given the government's inability to manage their pocketbook, I would suspect that the average American is more intelligent in terms of investment screening than the U.S. government. Remember Solydra?
Freedom means even the freedom to be stupid.