Congressman Emmer: The Accredited Investor Definition is “Absurd”

Congressman Tom Emmer, a member of the House Committee on Financial Services, has distributed a tweet calling the definition of an Accredited Investor “absurd.”

If an individual qualifies as an Accredited Investor, they may participate in private securities offerings issued under Regulation D (Reg D 506c/b). Many, if not most, public companies raised capital using Reg D before they became a publicly traded firm. But these private securities are only available to the very wealthy individuals today.

As the more fortunate among the population have learned, if you jump ahead of the investment queue – capital gains can be accrued to a far greater degree. Yes, investing in early-stage ventures is risky, and investors must understand this risk, but going public today has become more of an exit opportunity for  big money VCs.

According to the definition, an individual is “Accredited” if they earn over $200,000 a year or they have a net worth of over $1 million  – not including their primary residence. If the individual is married that salary threshold jumps to $300,000.

The current leadership at the Securities and Exchange Commission wants to review the definition and most likely move it higher meaning even fewer people will have access to these securities offerings – making them even more exclusive while disenfranchising the vast majority of the population.

The shortcomings in the current definition are understandable to all. Wealth, or a sizable bank account, is not an indicator of sophistication or financial acumen.  Some policymakers would like to add a “sophistication” qualification, like an advanced degree or perhaps a self-qualification test (like the UK). Others want to do away with the definition altogether. Yet under the guise of investor protection or the belief that the federal government should decide how you spend your own money, some policymakers are determined to make the hurdles higher. This goal is being pursued without understanding the impact it will have on the overall economy – as innovators must have access to growth capital to drive prosperity and jobs. If you are concerned about what is happening at the SEC, we suggest you contact your local representatives and tell them so. You get the government you elect.



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