The Investor Choice Advocates Network (ICAN) has filed a lawsuit to challenge the current definition of an Accredited Investor.
Under current rules, only affluent investors may participate in certain private securities offerings. Typically, the most successful private firms leverage Regulation D (Reg D) to raise private growth capital. These firms pursue private investors prior to becoming a public company. As promising private firms seek to remain private for as long as possible due to overregulation and excessive costs of becoming public, this means that the majority of the population may not participate in these offerings.
The Accredited Investor rule defines an individual as accredited if they earn over $200,000 a year, or over $300,000 if married. Alternatively, an individual may have a net worth of over $1 million, not counting a primary residence. While the SEC has opened up the rule somewhat in recent years, the rule effectively determines who can invest based on the size of a bank account, rather than a determination of whether they can understand and manage the risk. Some insiders have posited the rule as undermining wealth creation for individuals not qualifying, thus discriminating on the basis of wealth.
the Accredited Investor rule effectively determines who can invest based on the size of a bank account, rather than a determination of whether they can understand and manage the risk
ICAN founder and CEO Nicolas Morgan says the SEC has been warned for years that the Accredited Investor rule “widens the wealth gap” while blocking funding from reaching entrepreneurs.
“Though policymakers and regulators continue to discuss reform, meaningful change has yet to materialize—making this lawsuit the next, and most powerful, step.”
ICAN states what should be evident to all. The current Accredited Investor rule fails both common sense and the Constitution.
ICAN states what should be evident to all. The current Accredited Investor rule fails both common sense and the Constitution
ICAN highlights that the rule divides Americans into two classes: the wealthy and everyone else. It also blocks entrepreneurs from seeking investors, impacting free speach. It also violates federal law as Congress never intended to discriminate and disenfranchise the population based on wealth.
ICAN has made removing the punitive rule a “signature priority.” While there have been rumblings at the SEC for years that it will fix the erroneous rule, so far, the Commission has failed to act. In fact, during the last administration, the SEC sought to increase the barrier and thus make it more discriminatory. Congress has pursued several bills aiming to right this wrong, but again, the legislative branch has failed in its mission.
Examples of why the Accredited Investor rule fails based on merit are profound and self-evident. Consider a finance professor who has not yet met the salary hurdle or saved over a million dollars. Or, experts in a field that have explicit expertise to determine whether or not a securities offering is a good investment. Many members of Congress (starting salary of $174,000/year), as well as employees at the SEC, do not meet the wealth threshold. And they are the ones making the rule. You get the government you elect, I guess.
Mark Hiraide, ICAN’s Senior Legal Director & Policy Counsel, and former securities regulator, says this case is critical:
“A court ruling can do more than fix policy—it can set constitutional guardrails to ensure regulators can never again impose arbitrary barriers that shut ordinary Americans out of their own markets. America’s markets work best when they are open to everyone—not just the wealthy few.”
America’s markets work best when they are open to everyone—not just the wealthy few
This is a clear case of Main Street vs Big Brother government, where policymakers have missed the mark for decades. It should be apparent that discriminating against anyone is wrong, but perhaps this lawsuit will spur decision-makers to address this prejudicial rule.
See ICAN Accredited Investor legal filing challenging the SEC here.