Comment by elamje | Hacker News Reader

Comment by elamje | Hacker News Reader

My biggest problem with this is that I have had multiple opportunities as a young professional to invest in my friends’ small funds, only to be turned away at the last minute when they decided to only accept accredited investors.

On the other hand, I could participate in sh*tcoin ICO’s, get rich quick “courses”, and become a real estate “investor” by attending presentations at a Holiday Inn conference room.

The law as it currently stands, does not work, period.

I’ve been prevented from investing in the funds and businesses of my high integrity friends, while being allowed to participate in lotteries, gambling, MLMs, ICOs, the list goes on...

I was really hoping this would be a huge announcement, but unfortunately its a couple tiny steps towards the ultimate end goal of opening up private markets to individuals.

Many people like to reference scams that this law helps avoid, but I call BS.

Has it limited some cons from raising money from middle class people, yes. Has it limited a lot of middle class people from participating in areas with the highest returns, yes.

I’ve read about several people that weren’t accredited checking the box anyways, and no enforcement actually happens, which makes me think it’s a BS regulation to begin with.

> I’ve read about several people that weren’t accredited checking the box anyways, and no enforcement actually happens

That's because it's not a prohibition on individuals as it wouldn't be constitutional. It is a prohibition on issuers, who can face civil and criminal sanctions while also having the entire offering rescinded retroactively. The government effectively achieves what they were going for either way. (A strategy to curb/steer any behavior is to regulate the intermediary.)

So if you, the individual, want to lie and constructively get into a private offering and be quiet like an actual wealthy investor, there is no consequence except you might overextend yourself due to the minimum investment amount set by the issuer.

Regarding law, the government can still place any number of restrictions on issuers, but the current law does not work and I think it can be argued that it "chills speech", and doesn't make sense. Always remember, the entire SEC is a creature of the New Deal, and although this is heralded in our history books, most of the new deal was quickly declared unconstitutional, and the rest wasn't challenged. Here we have something that doesn't affect rich people and they might not be aware of it, while issuers are prohibited from marketing to poor people and poor people generally aren't aware of it either. There are just a few upper middle class people that get to say "what the heck is this"

Good explanation of it. I’ve yet to find a single case this has actually happened for.

I get the gut feeling that the SEC doesn’t have the audit capacity to focus on the likely smaller deals where non accredited people lie.

Please share any cases you’ve found

Thats because you are looking for the wrong thing.

Companies and individuals get fined and sanctioned for non-exempt offerings of securities all the time all day every day.

Non-exempt means that the issuer either didn't bother to care, or tried to comply with a registration exemption but failed. One way of failing is the inclusion of non-accredited investors. Depending on the exemption being leveraged.

No sanction will say “aha we found non accredited investors” it will just say the exemption wasn't used correctly.

Sometimes its just a fine.

Sometime the sanction is proper registration and financial reporting like a publicly traded company has to. This is often a death knell to small issuers due to the time and expense of ongoing compliance as well as unsavory information that deters future investment, which is why so much energy goes into avoiding it, even in VC backed companies which now aim to go public at the end of their growth cycle.

And in egregious cases the company and individuals behind it will have a criminal securities fraud and wire fraud charge.

Its not because a “poor person” lied. You really have nothing to worry about.

''Companies and individuals get fined and sanctioned for non-exempt offerings of securities all the time all day every day.''

where are those published?

Some here

https://www.sec.gov/page/litigation

I dont think SEC reports all

All states have an equivalent agency

CFTC gets involved sometimes and there are some capital offerings and issuance solely under its purview

I checked that link but can't find a single one concerning non-accredited investors. Can you post one? I want to get familiar with this matter.

As I detailed to the other person I was replying to, you won't find that. Try to re-read what I wrote.

If you are looking for that you are looking for the wrong thing. If you are on the fence about trying to qualify for a private investment because "law" its not your problem.

But if you are issuing an investment, it definitely is your problem.

I understand but then show me an example it has become a problem for those that issuid an investment and accepted a non accredited person.

A sanction from the regulator will say that the issuer "sold to investors without registering the security with the regulatory body" or "without an applicable exemption", because the issuer tried to rely on an exemption but the regulatory disagreed. Not all the reasons that the regulator disagreed will be stated.

Sorry man, not everything that occurs and why it occurs is on Google for your independent review. You just have to talk to people, and lawyers, and come to an average-right conclusion.

Maybe there is some blog somewhere about someone talking about their fine from the SEC or a case study, but its unlikely because people don't want to out themselves like that, or typically settlements (in general, not necessarily with regulator) bar people from talking about them.

"sold to investors without registering the security with the regulatory body" I knew you would say that, because there are countless judgements against companies to be easily found with that exact scenario. That's actually not the same situation as finding out a non accredited individual was allowed to purchase a security in a private offering. And "without an applicable exemption" is too vague and can mean anything. No way to know.

What happens when a VC does their due diligence in a later investment, sees you in the mix, and bails?

I’m fairly sure a place I worked at had this problem, and it held up funding for a long time.

A VC will want to completely restructure a non-compliant offering and may bail because of that.

A VC won't bail from a compliant offering because they checked people on the cap table that said they were accredited at the time, they will bail because there are a lot of people on the cap table to begin with.

Of course, to people outside of the US, what was going on in the US was obvious. They should just get rid of these socialist laws which are supposedly designed to protect your comrades but which actually serve the interests of a small number of politically connected elite by hindering mobility... Let's face it, what you have in the US is textbook communism.

It's ironic that Russia today is more capitalist than the US... It's like both countries lost the cold war against each other.

Regulation is tantamount to communism and socialism? Ownership is still private in the US but has rules on what can be done. Russia has state ownership in many of that country's companies.

Regulations designed to protect people from themselves are inherently socialist... The fact that these regulations actually end up creating a moat around the elites (by locking regular people out of opportunities) is inherently communist.

This is exactly what the Soviet political elites did to keep living the good life at the expense of their poor citizens; all under the pretext of protecting people from themselves.

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