The U.S. equity markets are irreparably broken and need to scrapped and created anew
The U.S. securities laws have been in place for many years, and while they were originally created to protect investors, they also have the unintended consequence of creating barriers to entry for non-accredited investors.
Conceptually, the laws were designed to protect investors from fraudulent activity and to ensure that they receive accurate and complete information about an investment they are making. However, the laws also create a two-tier system that gives preferential treatment to the wealthy and well-connected investors.
The most notorious example of this discrimination is the SEC’s Regulation D, which limits the amount of money that non-accredited investors can invest in certain securities. A non-accredited investor is defined as someone with a net worth (not including the value of their primary residence) of less than $1 million or an annual income of less than $200,000. This means that the average person who is trying to invest in a company or a startup is not able to participate in the same way or have the same level of access to the same deals as an accredited investor.
Furthermore, the SEC’s rules state that non-accredited investors must be provided with additional disclosures and have a lower investment threshold. This means that non-accredited investors have to jump through additional hoops in order to be able to invest in certain deals, including receiving certain disclosures and material information about a particular investment before they can make a decision about whether or not to invest. This means that non-accredited investors have less time to do their due diligence and are often at a disadvantage compared to accredited investors, who have access to more information and more time to make an informed decision. This is an unfair burden that can often make it more expensive and time consuming for non-accredited investors to invest in the same deals that accredited investors can.
The SEC also requires that, as a general rule, all financial advisors who work with retail investors, most of whom are non-accredited, must be registered with the SEC and must be held to a higher standard of care. This means that non-accredited investors are less likely to find a financial advisor who is willing to work with them, which further limits the access that non-accredited investors have to certain investments.
Lastly, in addition to the limitations discussed above, the SEC imposes additional restrictions on non-accredited investors, including the requirement that they cannot invest more than 10% of their net worth in a particular investment. This restriction further limits the ability of non-accredited investors to diversify their investments and to take advantage of potentially lucrative opportunities.
In summary, the U.S. securities laws unfairly discriminate against non-accredited investors by creating a two-tier system that gives preferential treatment to the wealthy and well-connected. The laws impose additional burdens on non-accredited investors, limit their access to certain investments, and require them to receive additional disclosures and material information before they can make an informed decision. As a result, the U.S. securities laws create an unequal playing field that can prevent non-accredited investors from participating in certain investments, and this is an unfair barrier to entry that needs to be addressed to return our equity markets to basic fairness.