Comment by JumpCrisscross | Hacker News Reader

Comment by JumpCrisscross | Hacker News Reader

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> the SEC should show that it protects everyone's rights

One sure-fire way to get the SEC to go absolutely ballistic is to hurt mom-and-pop investors. This is why the commission was founded [1] and why securities law maintains "accredited investor" thresholds, controversial as they are.

> Is there a straightforward way to do an Edgar filing that doesn't require a bunch of training?

Securities lawyers are a few thousand dollars well spent. That said, the SEC has online self-help resources [2] and an online filing portal [3].

> How much do the company registrations and filings actually cost?

It depends on how much you raise. Right now it's 0.01159% [4].

> an ICO can be created at no cost

Until shit hits the fan. Then everyone needs to hire a lawyer. An SEC complaint, on the other hand, triggers investigations and potentially enforcement actions paid for by the filing fees, amongst other things. It's a public good that helps keep companies honest.

> how would fees and filings have actually protected anyone?

The SEC is constantly litigating [5], launching proceedings [6] and helping resolve failed companies [7] on behalf of investors. Audit requirements stop lots of crap before they get too serious, too.

> Does the SEC have technical staff or software capable of evaluating Ethereum contracts for validity or safety?

The SEC doesn't evaluate filings for fitness, just completeness. Its mantra is disclosure and transparency. That lets investors come up with their own informed conclusions. Especially small ones who can't afford corporate lawyers to pull managers' teeth.

[1] http://www.columbia.edu/~hcs14/SEC.htm

[2] https://www.sec.gov/info/edgar/guidance

[3] https://www.filermanagement.edgarfiling.sec.gov/Welcome/EDGA...

[4] https://www.sec.gov/ofm/Article/feeamt.html

[5] https://www.sec.gov/litigation/litreleases.shtml

[6] https://www.sec.gov/litigation/admin.shtml

[7] https://www.sec.gov/divisions/enforce/receiverships.htm

>> How much do the company registrations and filings actually cost? >It depends on how much you raise. Right now it's 0.01159% [4].

Those might be the fees. The cost of a registration is much higher. Gotta put food on the table of all those lawyers and accountants.

https://www.pwc.com/us/en/deals/publications/assets/pwc-cost...

Certainly, money can be raised more cheaply with exemptions, but those come with their own tradeoffs.

Why shouldn't mom-and-pop get the choice to invest in SEC regulated companies? If you like what the SEC has to offer, you can keep it. Taking away that choice seems paternalistic at best, corrupt at worst.

So this is kind of an oddly phrased question. It's probably better to think of things in terms of offerings instead of companies. One company might have different offerings using different mechanisms to raise money. And different people can participate in different offerings. Pretty much anybody can participate in a registered offering or a Reg A offering, often called a mini-registration.

A Reg D offering is however limited to accredited investors. With Reg D the SEC is basically saying "We won't require as much disclosure from you, but you'll have to raise money from a more sophisticated investor, ostensibly."

Edit: spelling

Should they also have the choice to take non-FDA approved drugs?

Securities is my go-to example of government regulation that has a net-positive market effect. Whatever we lose in market efficiency we more than make up for in market confidence.

If I were to apply the idea initially expressed to your comment it would be to say "why not give people the choice to invest in non-SEC regulated markets." If the effect is net-positive, than why would you have to force people to choose SEC regulated markets.

Obviously if it was not actually positive then not having the choice is pretty crappy.

For sure. Regulation without justification is "pretty crappy". The starting point should always be "no regulation". Occasionally, we override the starting point following the occurrence of massive market failure, where market forces simply are insufficient to apply the right pressure to actors involved.

In environmental regulations, we had the Love Canal which exposed a lot of school children to toxic waste. The market failed, we responded was CERCLA and the EPA.

In the case of securities regulation, the market failure was a big one in 1929. We responded with major legislation in 1933. And in general, that legislation has been a rousing success. But it's important to note that the goal of security regulation, of preventing crappy investments, isn't just to protect mom-and-pop, but also to prevent against another 1929. In my mind, it's really hard to argue that the effect of US securities regulation hasn't been a net positive.

Do you remember when it was legal to smoke in bars? Every bar was filled with smoke. Sure a bar could opt in to going smoke free, but basically none did because it would drive potential customers away.

I guess my point is that market forces prevented bars from being smoke free, and what you suggest would lead to basically no SEC regulated investments.

I would say yes. :)

Keep in mind that having this right available will kill people.

Anything looks horrible if your analysis includes all costs and excludes all benefits.

> Why shouldn't mom-and-pop get the choice to invest in SEC regulated companies?

When retail, i.e. unaccredited investors, get hurt (a) there are more of them and (b) it more often than not puts them into dire, sometimes existential, straits. The latter leads to political backlash and instability, e.g. the 1930s.

Basically, you must have a nest egg to act as a safety cushion before you can invest in risky things. This makes sense on another level, in that doing diligence on un-registered companies is expensive. That, in turn, drives a minimum practical investment size.

People are going to make bad investments, no matter how much the SEC restricts. There are a huge number of non-securities investments available, and people pour huge amounts of money in them. A government is never going to be able to protect individuals from their own bad judgment.

All these regulations do is drive up the cost of directly accessing public capital markets (at last count, $6 million to do an IPO), and contribute to growing income disparity [1].

[1] https://www.brookings.edu/research/make-elites-compete-why-t...

> All these regulations do is drive up the cost of directly accessing public capital markets (at last count, $6 million to do an IPO), and contribute to growing income disparity

There's a fair argument in weighing the upsides and the downsides of registration requirements. But saying the downsides are "all these regulations do" is intellectually dishonest. Lots of scams get stopped, or at least quarantined, by these regulations. The speed with which the ICO market went from zero to bullshit only seems to re-inforce the prudence of these rules.

> $6 million to do an IPO

Having watched private companies spend much more than that to raise private capital, I think it's safe to say filing fees aren't the primary problem the public markets have.

It's not intellectually dishonest, because I'm commenting on the net effect. If people are getting scammed just as much, but from other sources, then "all they do" is the net effect on the negative side.

But fair enough: if you constrain this new internet sector, then you could conceivably reduce scams, just by virtue of forcing people into higher-friction areas of the economy, where less can practically be transacted. I'm sure Cuba has pretty low scam volumes by the same virtue.

>Having watched private companies spend much more than that to raise private capital, I think it's safe to say filing fees aren't the primary problem the public markets have.

Many private companies spend FAR less than that to raise private capital. To claim that a $6 million fee for entry is not going to disenfranchise a huge subset of the population is intellectually dishonest.

I'm not sure what a "non-securities investments" in the US securities scheme would look like. An "investment contract" is sort of the catch all category for everything that tries not to look like a security, but actually is one. If something is an investment, I can't imagine that it's not a security.

The Howey Test defines an investment contract more narrowly than you imply. People lose absolutely staggering amounts of money each year on bad investments. Money is like water. It flows around these regulations. The detours just add friction that slows innovation, and diverts capital to fees for legal/accounting professionals.

> The Howey Test defines an investment contract more narrowly than you imply

I mean, maybe?

An investment of money, managed by somebody else, with the expectation of profits. I feel like that covers most things we would typically consider to be investments. Aside from something like, "I bought this piece of art... as an investment." Maybe I'm just missing some obvious examples?

Case law defines each of those points. This elaborates more on that:

http://coinbase.com/legal/securities-law-framework.pdf

And yet plenty of first-world countries allow non-millionaires to invest in these companies, and it seems to work just fine.

It's not the government's business to decide what people do with their money.

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