Hacker News Reader

Comment by whataretensors | Hacker News Reader

"No minimum investor qualifications. Most legitimate private investment opportunities require you to be an accredited investor. You should be highly skeptical of investment opportunities that do not ask about your salary or net worth."

This is a ridiculous regulation that prohibits class mobility as software eats the world. Apparently being middle class means you are too stupid to realize you are being scammed, but if you are rich you get first pick.

View on HN

To further elaborate - a young student putting in $1000 in facebook seed round would now be a millionaire. Not unthinkable for someone like a young Warren Buffet. The government has successfully regulated the future to the top 1%, while claiming it's for the public good.

Title IV (Regulation A+) of the JOBS Act

OK sure, but it assumes that young student would be able to discriminate a money-making investment from a money-losing one-- something the best VC's in the business, who vet tech deals all day every day, struggle to do.

Imagine you repeal all accredited investment regs overnight. Which of these seems likely:

- everyone in america invests $1000 in a future facebook, ten years later we're a nation of millionaires.

- 10% of the middle class (a huge number of people) wholly or partially cashes out retirement funds to put too much money into speculative early stage startups chasing fantastic returns. They lose it. Kids lose college funds, adults lose retirement funds, and we / society / government has to pick up the tab when such people get too old to work.

The point is, it's easy to attack these regulations as a barrier to opportunity and an unfair impediment to your right to do whatever you want with your own money. That's fair as far as it goes, but you also have to grapple with the real consequences of changing the policy. I have a hard time with your analysis that accredited investment rules have no "public good."

Phrased differently,the view on the ground in middle America is this: lots of middle-class people buy lottery tickets. Why do you suppose they do that?

Young Warren Buffet could.

I can go to Vegas and lose all my money on dice. There aren't laws to prevent this. Why are there laws to prevent my ability to invest?

The regulation makes more sense as a way to keep the opportunities exclusive to the powerful, while regulators get to claim a moral high ground.

In many places in the United States, there actually are laws to prevent gambling.

That’s clearly a straw man argument.

A) The federal government doesn’t ban gambling.

B) As far as I’m aware there isn’t a single place in this country where gambling is/isn’t allowed for those with specific net worths.

It's not a strawman. The parent is suggesting that we as a people have no problem with allowing low-income or low-net-worth people to gamble (pointing to the acceptance of Las Vegas as evidence). Then an equivalence is drawn between gambling and securities investing. By pointing out that, in fact, 31 states make commercial casinos illegal[1], I am refuting the suggestion that gambling is considered acceptable, which weakens the argument that securities investing should be acceptable as well.

[1] https://en.wikipedia.org/wiki/Gambling_in_the_United_States

Meanwhile 44 states run lotteries. Apparently gambling is acceptable in principle, just not competition with the states' games.

https://en.wikipedia.org/wiki/Lotteries_in_the_United_States

I'm not sure it's that simple. There's a wide spectrum of types of gambling, and equal variation in the laws regulating those types. Going to Vegas and losing your money on dice sounds like commercial casinos, which is why I chose to highlight it. Most states do have lotteries, as you point out, and gambling where the proceeds go to charity is also legal in most states (see previous sources in this thread). Once you start shifting the type of gambling, though, you also get further from the analogy at hand. One way to look at it is that providing revenue for education or charities could be seen as a public good that outweighs the undesirability of gambling.

To take it back to the original argument, the question is then to decide where investing sits on that spectrum. I am not sure, but I do think there are enough reasonable differences between investing in securities, commercial casino gambling, and lotteries to expect that they may have different regulations.

You already have the opportunity to bankrupt yourself with lottery tickets and casinos, yet most people don't.

Casinos offer better odds than early stage startups you have no connection with or control over, and aren't allowed to market themselves as investment opportunities either

Perhaps then it makes more sense to regulate those seeking money instead of those investing?

The regulation does regulate those seeking money.

Non-accredited investors are still perfectly entitled to invest their money in their friends and family's startups and/or more heavily-regulated IPOs, but startups aren't allowed to solicit the investments from the public, and have limitations on how much they can take from how many non-accredited investors.

If you're middle class, being hurt by a stupid investment could mean losing your house & retirement savings and yes, the state globally won't benefit from that.

Besides, historic numbers [1] show that passive ETFs outperform actively managed funds as a trend, so the original idea behind accredited investors was "if you want to play the high-risk game, at least don't put your last chip on the table".

[1] http://www.investopedia.com/articles/investing/030916/buffet...

The rich can be destroyed by investing more than they can afford as well.

Index funds beating managed hedge funds has nothing to do with inability to invest disposable income in startups.

> The rich can be destroyed by investing more than they can afford as well.

They have shell companies that protect them from this.

Shell companies are used to optimize taxes and cap liabilities (note the recent legislation on passive foreign investment companies), they don't have much to do with protecting against investment risks.

On April 5, 2012, President Obama signed a landmark piece of bi-partisan legislation called The JOBS Act into law. The JOBS Act greatly expanded entrepreneurs’ access to capital, allowing them to go to the crowd and publicly advertise their capital raises.

Initially, private companies could only crowdfund from accredited investors, the wealthiest 2% of Americans. On June 19, 2015, three years after the JOBS Act was initially signed into law, Title IV (Regulation A+) of the JOBS Act went into effect. For the first time, Title IV allows private growth-stage companies to raise money from all Americans.

https://www.seedinvest.com/blog/jobs-act/raising-capital-reg...

I'm aware of the JOBS act. It's still a different system than the rich get to use.

Edit: not sure why I'm downvoted. Middle class can't invest in filecoin, for instance, even though the top tier can.

I don't see this any different than advertising laws. Given the nature of capitalism, people will always try to bamboozle each other and if the benefit of bamboozling someone is high enough, we get really smart bamboozlers. I think it's natural to plan ahead and prevent this.

I have seen enough "super-smart" investors pretending to be dumb, unsophisticated and to have never been told of the risks when an investment goes bad not to have some sympathy for these investor sophistication thresholds.

Yes and no. You are right it limits positive mobility. But there are really two kinds of people here. One kind expects to be handed success to them without them doing any work. It is correct to protect these people as much as possible. They'll probably still end up losing their money, though.

The second group of people know that they need to work, learn and plan to succeed. These are the people that may be slowed down by the regulation. But they are able to overcome any given set of static rules anyways, so it's only a slowdown at best.

In the end any kind of rules are not just there to protect the stupid, but also to establish the people currently at the top. It's selfish, but when you end up at the top, would you do it otherwise? I probably wouldn't.

Reply on news.ycombinator.com