America; The Land of Opportunity or so we’ve been told. One of the allures that keeps drawing immigrants to our borders is the possibility of a better economic tomorrow, a cultural rife with upward social mobility. Sadly, there are ceilings that have been put in place to prevent the uprising of the common man towards the upper echelons of the financial ecosystem. I’m of course referring to the classist Accredited Investor status from the Securities and Exchange Commission (SEC).
To the uninitiated, being an Accredited Investor means that you get to invest in opportunities that mere commoners are legally barred from. The most common form of this is buying equity in companies that are not public yet. The company, usually a start-up, can go to venture capitalists to raise the funds they need. Individuals who are accredited investors (who I’ll be focusing on in this article; individuals) can also throw their dollars into the fray, thus claiming a piece of that sweet, juicy equity in the process.
The socialized (eww…government expenditures) SEC posted the requirements on their website on how one can become accredited. For individuals, the requirements are to earn at least $200,000 per year ($300,000 for couples), have a net worth of $1 million, and to hold a Series 7, Series 65 or Series 82 license. The government busybodies state these requirements demonstrate the financial sophistication of the investor.
If these obstacles seem unusually high, that’s because they are. The median income for individuals in the United States is around $37,000, while the median household income is around $70,000. This is a far cry from the $200,000 for individuals or $300,000 for couples needed to invest in the future of America. The average net worth of American household is around $120,000, and this number is likely including home equity (though that’s speculation on my part), so the accredited investor threshold of $1 million is even further away.
The licensing requirement to show financial sophistication is also patronizing; the government is essentially belittling the intelligence of their citizens by not allowing the unwashed masses to invest in these companies. This nanny-state governance at its finest. It’s not the government’s place to tell us what is a reckless investment. If I were conspiratorially minded, I’d say that this is all a ploy just to get Americans to stay out of the market and buy low-yield bonds (eww…low-yields).
The alphabet boys have intentionally placed the bar high enough so that few commoners can realistically clear the bar. Thus, the government is essentially skewing who can win by artificially picking who can-and more importantly, cannot– play in the game. The government has no business regulating who can and cannot make risky investments. If one wants to place their children’s college fund on a YOLO bet company in Silicon Valley, then that is their American right to do so. Artificially limiting what people can invest in is not only morally wrong, it also isn’t repeated in the real estate market. Either the common man is smart enough to place risky bets or he isn’t; the federal lackeys need to pick one side of the fence and stick to it already.
Not only is the accredited investor tag inherently classist, it is counter-productive. Let’s say for the sake of argument that our friend Average Joe lives in a parallel universe where everything is the same except the accredited investor concept doesn’t exist (read: he lives in a freer society). Average Joe took a courageous chance and invested in a pre-IPO tech company that needed some fresh capital (Bravo, Joe!). The tech company grows and expands, eventually going public and becoming worth hundreds of millions of dollars. Average Joe’s grit and valor are rewarded with a savory equity stake that he sells off on the public market. That’s right, Average Joe realizes a capital gain and now needs to pay taxes on it. Taxes, that to be clear, the federal government gets to collect. Now, let’s snap back to reality; Average Joe misses out on the lucrative investment because he has been crushed by undue government regulation (after all, he is not sophisticated!), and hence never has equity in that company. He cannot sell that which he doesn’t have, and hence has no capital gain to tax. In this real scenario the government loses out on tax revenue.
Let’s pretend we have another friend, named Founding Fred. Founding Fred has a brilliant idea that will completely disrupt the WiFi-enabled toaster market, but he needs more capital. In the parallel universe described in the last paragraph, he could raise capital without going public by pitching venture capitalists and Average Joe. Average Joe takes the courageous chance and invests in Founding Fred’s company, along with the VC’s. Thus, Founding Fred now has far more capital to bring his WiFi-enabled toasters to market, thus disrupting the corporate fat-cats over at Cuisinart! Now, let’s snap back to reality; Founding Fred can only pitch to accredited investors, thus limiting his potential pool of funding significantly. As a result, Founding Fred has far less capital to deploy (doubly so in this current economy, where VC money is drying up) and hence creates far less jobs (less income taxes), has lower production, resulting in fewer sales (less sales taxes) and his company has lower earnings (less corporate taxes; HA just kidding, we don’t do that!). The accredited investor program hurts all of us.
The average American deserves to have a chance to make large capital gains in the market, without the nanny-state government putting ceilings in place. Given the stagnation of wages in this country, combined with the 8% inflation rate we had in 2022, it’s no wonder that people are hungry for more money. The still-high housing market combined with the ever-present rate hikes are squeezing the middle class, along with the rising cost of tuition and loan debt. The average American needs a way out, and repealing the accredited investor requirement is one such avenue for relief. Admittedly, progress has been made with the advent of the Regulation CF introduced in 2016. However, gradually improving the flawed regulation isn’t the answer; the regulation never should’ve existed in the first place.
It is to the government’s benefit to get out of the way of the average American and let them invest in risky pre-IPO companies. The government’s guise of protecting Americans from themselves rings even more hollow now that widespread sports-betting has taken hold, via DraftKings and other similar betting companies. The government is okay with citizens making wild bets on sports games, yet will not let that same citizen buy into a company they believe in. Call your local senator, it’s time to legalize risk-taking!
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