Since 1982 the SEC has instituted a regulatory scheme wherein only persons with $1mn in assets and $200k in earnings for 3 years would be permitted to invest in unregistered securities offerings. At that time only about 2% of the population would have been able to comply with this requirement, effectively strangling the private offering space. Today, due to inflation adjustments around 10% of the population would be deemed accredited. This situation substantially increases the availability of capital to start-ups. Nonetheless, this arbitrary wealth requirement has restricted the ability of 90% of the middle class to access potentially viable offerings in the private securities market. A public offering is one which would be available to everyone, regardless of wealth, and has, presumably been vetted by the SEC. The present paternalistic attitude with regards to investment availability has severely restricted the ability of otherwise sophisticated and capable investors to place funds with solid unregistered projects that have the capacity to provide similar or greater returns to public offerings. There are many reasons, not to register an offering, and such a decision in no way reflects the viability of the venture or competence of the founders.

Numerous adjustments or revisions to the accredited investor schemata have been proposed, some of which include increasing the wealth threshold levels to comport with inflation, providing required disclosures, limiting the way wealth is counted (such as excluding retirement accounts from being including in the estate), and requiring financial tests to determine sophistication instead of wealth-based tests. In any case, such requirements assume that people with a certain pre-determined quantity assets are more capable of evaluating investments and more able to bear losses, both assumptions may be false in many if not most cases. No regulatory agency prevents the purchase of luxury items, over-payment for real estate, taking on unaffordable personal debt, or gambling one’s estate away; Americans are generally deemed to be in control of their own assets. No one can or should the decision to waste or give away one’s estate. Therefore, what the accredited investor requirement has done is limit the ability of certain investors to access highly profitable investments and substantially increase their net worth.

When purchasing a home certain legal requirements must be complied with which show the duration of the loan, monthly payments, interest to be paid, pre-payment penalties, and other salient terms of the loan. This type of disclosure requirement is much more prudent and economical over a wealth based test in a society where access to information has generally been equalized due to the internet. The wealthiest cannot be presumed to be most worthy of access to profit-making opportunities; the loss of capital would affect far more an accredited investor who invests 20% of his net worth rather than a non-accredited investor who invests 2% of his net worth. It is such a proportionality of investment to total assets which should be implemented as an alternative criterion, in addition to mandatory disclosure requirements.

For example, one such due diligence requirement to allow full public access to private placement may be to require the retention of legal counsel to evaluate and write an opinion on a prospective investment. Such an impartial evaluation would be subject to ethical obligations on the part of the attorney to disclose the viability of the project, potential for profits and losses, and a sound legal plan to proceed. Such an opinion would be accompanied by a letter to the issuer that an opinion has been issued to the prospective investor. In addition, a letter from a CPA or financial advisor who is familiar with an investor’s estate, may be mandated which states that the potential investment amount is a specific portion of the investor’s assets in relation to the whole, and that the loss of such investment would not significantly impact the investor’s lifestyle. The maximum investment bar may be set similarly to tax brackets, wherein certain net worth investors may invest up to a certain proportion of their net assets in a given investment.   

The questions remain: why not allow a person who does not have $1mn in assets to invest $5k in a risky investment? Why does the government treat free people in a way that limits access to venture capital and limits the ability of the middle class to increase its collective wealth? Are the elite Wall Street money masters afraid of the middle class gaining financial power? Are they only interested in allowing the middle class to remain in debt for credit card obligation, homes, cars, and other items which may be ill advised to purchase without a commensurate right to make speculative but highly profitable investments? Why are only publicly offered securities deemed ‘safe’ for the public to purchase? How many public company scams and failures have we seen? How many private offering scams have we seen where presumably wealthy and astute accredited investors were not capable of properly evaluating the investment and lost much of their net worth thereby removing them from accredited investor status? How many times have we witnessed the regulators totally and utterly fail in their oversight functions which permitted so many investors and debtors to lose everything, including their homestead properties?

The sad reality is that the middle class is not properly educated with respect to financial and economic activities and investing. They hardly understand the difference between “asset” and “liability” between “debt” and “income”, and between “passive income” and “active income”, and this can all be presumed to be intentional. The truth of the matter is that the powers that be do not want the middle class to obtain greater financial power and equal access to investment opportunities. Debt and lack of education are the weapons used to oppress the middle and lower classes, but the information age is ripe for change. The crypto revolution has highlighted the ability of average, non-accredited persons to utilize their creativity to bring forth a new asset class which allowed many persons a very substantial net worth increase (and yes many have lost vast amounts). By the time the SEC stepped in it was too late to ban the new asset class, since the most potent crypto-assets had already become decentralized, negating their status as securities. The cryptocurrency revolution showed that the regulators are unable to control every aspect of the investment market, and this sector is ripe for new opportunities available to those who are able to educated themselves, until the public demands its freedom of financial self-determination back from the unelected administrative state bureaucrats.