It’s Not 1972 Anymore: Let’s Get Rid of SEC Accredited Investor Regulations

Apr 29, 2021

The Great Depression left a mark. The collapse of an overheated public stock market caused the worst worldwide depression in modern history. Stemming from that rules were created over a period of decades to protect us from ourselves. Clearly, we weren’t competent enough to wisely invest our own money. These rules still obstruct our ability to invest our own money in private companies to this day.

SEC Accredited Investor rules today require investors in private companies to either have an income of $200,000 per year in two subsequent years or a net worth greater than $1,000,000 not including a primary residence. This restriction originated in the early 1970s and stems from Depression-era thinking that we need the government to protect us from how we invest our own money, especially in private companies. Reason for hope grew in 2012 with the Jobs Act. The enabling regulations from that Act for offerings to non-accredited investors took three years to rollout and for equity-based crowdfunding the process is nearly as onerous as an IPO.  Equity-based crowdfunding is just now growing with any kind of real velocity.  

The intellectual hypocrisy in all of this is that gambling is legal in many forms in most states. Last time I checked no one is checking to see if gamblers are torching their life savings at the Blackjack table or in the $25 slots. Cryptocurrency is another fine example. Anyone with a Coinbase account can pour all their money into the latest crypto rage whether the currency makes any sense or not. Dogecoin, anyone? There are no accreditation rules for buying crypto.

Moreover, these rules were codified at a time when access to multiple sources of information to do due diligence on a company or a market was not available.  Only financial professionals could provide this vaunted wisdom to the unclean masses. Today, all the information in the world is available to anyone with interest who has access to the Internet. What’s a Reddit? Feel the pain, hedge fund short sellers. 

Some of the inertia around opening this up to a broader audience is likely similar to the reason we never get a simplified tax code – these regs are essentially the full employment act for lawyers and accountants. These powerful lobbies have no interest in simplifying anything.  

Who does this SEC accreditation restriction disproportionately impact? Minorities, women, and high education not yet accredited potential investors are shut out. This must change. The time has come.  Did I mention this is your own money?

By eliminating the SEC Accreditation Rules, a more inclusive and broader set of early-stage investors will be available to help grow great small businesses and startups in our local communities. Speak up and let’s get this done! If you want to learn more, check out the Arkansas Entrepreneurial Policy Map.