On Friday, Oct. 30, the SEC issued the long-awaited rules regarding Title III of the JOBS Act, better known as “equity crowdfunding.”
I am equally annoyed and understanding at how long we have waited for these rules to be issued.
The U.S. Congress had little grasp on the enormity of what they were passing when they voted for the JOBS Act. The act was created with the intention of altering the way Americans are able to invest and ushering in a new “Owner Economy,” where average citizens of moderate income will be able to walk down the street and say “I own part of that coffee shop,” “I own part of that car dealership” or “I own part of that office building” – a pleasure and opportunity currently reserved for the top three percent of our society.
With real and open equity crowdfunding, we’re sitting on the edge of a revolution in both ownership and investing. Thus, it’s unsurprising that it has taken the SEC three and a half years to figure out how to allow this new reality without dismantling the entire structure of investment that our government enforces today.
But, like most things that the SEC does, the rules that came out on the 30th are needlessly complicated. There are tight limitations for people who make less than $100K per year or have a net worth below the same amount. There are different limitations for those that make more than $100K and less than $200K. The tightest possible restriction holds investors to an accumulative maximum of $2,000 in a given calendar year that can be invested in all crowdfunded offerings.
Even with the new rules, folks who make certain amounts of money are unable to take advantage of great investment opportunities or participate (in a real and substantial way) in businesses and real estate in their own community. Sponsors seeking money from the crowd will also be deterred, as the rules require so many investors to make a project work. The cost of managing and reporting to countless investors can be the final nail in the coffin for small projects. That being said, sponsors of great investment opportunities will continue to seek tried-and-true investment resources (read “old boys club”) to get their projects funded. In this situation, a private network of wealthy individuals will gradually get richer while the rest of the population stands on the outside looking in. How can we truly live in a free country if the playing field to achieve wealth is so uneven?
So let’s just go ahead and call the rules issued by the SEC what they are: discriminatory. In a country where a person’s yearly income and net worth are so closely tied to their race or gender, we prohibit investors from taking full advantage of growing his or her wealth. Ultimately, we are codifying a system that makes the rich richer and the dispossessed even more dispossessed. It’s contrary to a free society. It’s un-American and it must be changed.
I believe that the rules regarding accredited and non-accredited investors are condescending, and when you really take a moment to understand them, serve to accomplish the opposite of the SEC’s goals. I have two daughters. My heart sinks a little bit when they turn the corner at the end of my block and they ride their bikes out of view. My oldest is going off to college next year, and that, too, gives me angst. I know that stopping these experiences, just because I’m afraid of the negative possibilities, will limit their growth as human beings and cut them off from all of the opportunity the world has to offer.
Right now, the SEC is acting like an overly concerned helicopter parent to American non-accredited investors.
Right now, they are building unreasonably high walls at the end of the block and are forbidding the college applications to be sent out, just because something bad might happen. They are right to be concerned; bad stuff does happen. But like Dory said to Marlin in Finding Nemo, “Well, you can’t never let anything happen to him [Nemo]. Then nothing would ever happen to him.”
Unless we make the rules of non-accredited investing the same as those for accredited investors, we will perpetuate the wealth and income inequality that threatens our country.
I’m not saying there shouldn’t be rules for investors. I’m saying that the rules should be exactly the same, regardless of what someone’s yearly income or net worth is. If a non-accredited investor is held to only putting 10 percent of their yearly income into a crowdfunding venture, then the same limitation should be true for an accredited investor.
Imagine for a moment we were talking about any other group of American citizens. Let’s say we had different rules stipulating how a black person, or a gay person, or a woman could invest their money. The discrimination of these policies would be self-evident.
However, the Federal Government and the SEC have little problem making a different set of rules for those with low incomes or a low net-worth. We know that levels of pay for woman and minorities are often lower because of a biased and discriminatory society, yet we compound this inequality by saying to the very people, who are already discriminated against, that they must now face an additional discrimination in the fact that this low pay shuts them out of several avenues of wealth building.
It is wrong and it is discriminatory.
If I had to say one thing to the SEC, it’d be: Take the restrictions off of the investors and put it on people like me. Put the onus on the creators of crowdfunding portals and sponsors of offerings. Make us register and put up a bond before operating. Make us file intrusive applications. Hold our feet to the fire before we can even advertise an offering.
The burden should be on the offering institution rather than the investor, who is simply trying to support local businesses and make local decisions with their investment dollars.