Re-Writing U.S. Accreditation Laws
Updated: Jun 12
There is a better path forward than what states like Wyoming and Colorado are trying to achieve, which attempt to circumvent SEC investor protections.
The SEC rules protecting investors actually prohibit small investors. Just because someone has less than $1,000,000 saved and $200,000 in annual income for two years doesn’t make them dumb, nor does having that amount of wealth make someone savvy. I know LOTS of non-savvy rich people. Furthermore, what happens if someone’s wealth or income falls just under $1,000,000 net worth or under the $200,000 minimum income by $1? Are they then no longer savvy as an investor? It makes NO SENSE.
Perhaps becoming accredited should be determined from learning about risks and investment best-practices, and then passing a test.
Think about it. Someone can study for a series 63 & 79, work for a broker as an agent for two years and become a broker of securities. A real estate agent can take a test to be an agent and work under the supervision of a broker and eventually become a real estate broker.
Why in the world can’t someone become accredited by learning about investment risk? To not make education the deciding factor in this implies people born sans silver spoons are and remain non-savvy so long as they don’t have a trust fund or a high-paying job and savings; that makes no sense. An individual should be able to gain accredited status via education.
Why is it that a person can go into any casino in the world, knowing potentially nothing about gambling and can wager every dime they have, max out their credit cards and take a 2nd mortgage against their home, only to lose it to a single spin of the wheel, roll of the dice or flip of a card, but they cannot invest in a startup because they might lose their money? Perhaps only accredited investors and professional gamblers should be able to enter casinos. You can see how the accredited investor laws are currently stupid.
Colorado somehow got around the Drug Enforcement Agency when they legalized recreational marijuana use in their state. I doubt registering your company in Colorado or Wyoming will stop the SEC from shutting down an non-compliant security, nor cover the blue-sky laws surrounding private company investment, meant to protect investors in individual states. In the same line of thinking, Colorado cannot sell marijuana outside of Colorado. If a company domiciles in the state they won't be able to sell outside the state.
My petition to states like Wyoming and Colorado, where they are stating through their recent legislation that they know better than the SEC the definition of a “utility” token, is to throw that illogical thinking in the trash. Instead they should pursue a new definition in their own state of what accreditation is, offering an education-based path to becoming accredited. THAT would be revolutionary. THAT would change the landscape and allow the small investor to participate in a private company security offering.
Colorado and Wyoming should stop smoking the marijuana they legalized and realize they are absolutely wrong in their thinking and they are taking an approach that is based on patently false ideas.
There is a very straight path forward to allow the public to invest in digital assets representing securities. Each state should create an educational system that allows their own citizens to become accredited. Other states would follow until, like marijuana, you eventually may reach a tipping point where the federal government relents and agrees to implement those policies.
People keep looking for zebras but this is really just a horse. If it fails the Howey Test or pays a dividend it IS A SECURITY.
That said, non-accredited investors may legally buy and sell non-security tokens on compliant exchanges.
If a token is not sold to fund operations, does not represent a real estate investment or some such private opportunity, does not fail the Howey Test, and does not pay a dividend it is likely NOT A SECURITY.
If it is a replacement for a fiat currency, is a commodity or coupon it is likely NOT A SECURITY. You can read about this in a Memo I penned with the help of retired SEC Commissioner Roel Campos and his team of top attorneys at Hughes, Hubbard & Reed, titled “Zen & the Art of Compliant Coin Maintenance,” which explains in detail with citations the difference between securities and compliant cryptocurrency.
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Thanks for reading, sharing and thinking about this post.
John Gotts Genius, Husband & Farmer
Founder of AngelTrades.com and the foremost expert on compliant digital assets.