At the recent Small Business Forum at the SEC held this past November one of the hot topics of discussion was the definition of an “Accredited Investor”. As it stands today, an accredited investor is a wealthy sort that earns over $200,000 per year or happens to have $1 million in his or her bank account. This definition has been the qualifier for individuals being allowed to invest in certain private placements; risky yet potentially very lucrative opportunities to generate wealth. This definition has been in place since the early 1980’s but is currently up for a refresher.
Now the current definition oddly enough excludes the vast majority of the population. There is no qualifier for ability or intellect as the creators, for some obtuse reason, decided to disenfranchise over 90% of the population. Effectively young securities lawyers, many doctors, finance professors and more, have been determined as unable to evaluate risk. This has created an incredibly ridiculous situation as the government has decided these individuals are simply too dull to decide for themselves as to how to invest their money. Of course these same individuals could run over to the race track or hit Vegas for a few days.
Finally some common sense is percolating to the top as the vast majority of level-headed policy makers and thought leaders believe it is time to fix this form of class injustice. Believe it or not – there are some policy types who still want the block people from the choice of investing in private placements.
Below is a pragmatic presentation delivered by Jean Peters, representing the Angel Capital Association, how advocates maintaining the current wealth qualifiers but recommends anyone who is “sophisticated” to participate in a now segregated investment class. Definitely worth a review.
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