In recent weeks, President Trump has taken steps to draw investments to the United States. His proposed gold card would allow foreign investors to buy legal status in the US for $ 5 million. In his common address to Congress, he paid tribute to a direct investment of $ 200 billion from Japan’s Softbank.
While there is nothing wrong with requesting offshore investments, the government lacks a key source for investment at home. The accredited investor rule – which says individuals must have a net worth of more than $ 1 million or an annual income that exceeds $ 200,000 – closes too many Americans out of our most lucrative securities markets. It’s time to change that.
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In the United States, securities are largely falling into two categories: public and private. Public securities trade freely on national stock exchanges and are open to all investors, but they are extremely cumbersome to issue. Businesses are required to navigate extensive regulatory and compliance needs to “become public”. Their alternative is to stay private and many companies like Stripe and SpaceX choose to do just that.
However, private markets come with a catch. On the other hand, to facilitate the regulatory burden, they limit access to accredited investors. This means that 80% of US households that do not qualify is effectively closed out. As more companies choose to become private, more everyday Americans are prevented from building wealth with them.
In the old days, public markets were the deepest and most reliable sources of capital for large companies with high growth. This was great to the public because it meant they had access to the best investments. However, times have changed.
According to the SEC Commissioner Hester Peirce, “the once ambition goal of becoming a public company seems to have lost its brilliance.” In recent years, private markets have grown by about twice as much of the global public stock markets.
And a single Sec rule is the blame.
The accredited investor rule
The accredited investor rule, 17 CFR § 230.501 (A), is a SEC regulation that limits access to private investment. It sets criteria that investors must fulfill to participate in offers such as regulation D, the primary exemptions that private companies use to raise capital. In fact, the rule blocks millions of Americans in investing in the most promising companies.
Lawyers defend this rule openly. “Knowledge cannot protect people from potential losses … Only financial resources can,” says Patrick Woodall, director of politics by Americans for financial reform, told The Wall Street Journal Last year.
We disagree. This paternalistic view assumes that the public must be “protected” from itself. But the accredited investor rule does not protect the public. It locks them on the basis of investing in companies that create the future such as Openai, anthropic and confusion.
The test
Last year sponsored Senator Tim Scott Strengthening Main Street in the America Act (Emsaa), which, among other things, suggests Test-in Accredited investor definition.
A test-in policy has clear advantages. First it is fair. Any American passing can invest. Secondly, wider access to private markets is allowed to share more Americans in the country’s financial success. If we build here, everyone should be able to buy in. Third, expanding private markets is making them more useful.
But Senator Scott’s bill is unnecessary-a test-in accredited investor rule does not require new legislation. SEC already has the power to implement it through SEC. 2 (a) (15) of the Securities Act of 1933. Because of this, it is unlikely that a change in the rule on these reasons is encountered by considerable legal resistance. By changing the accredited investor rule, SEC can transform private markets through regulation alone. It should start tomorrow.
