> Why can't they be held responsible for the foolishness of their actions?
Because it's politically difficult. Sometimes, infeasible. The public often pays for defrauded grandmas' mistakes.
There are also positive externalities to stable business environments. Diligence costs money. Putting some of that cost on the issuer, once, is more efficient than each investor incurring it. Consistent rules around fraud and disclosure thus prompt new capital formation.
The best examples of the need for this protection are the cesspools that are ICOs.
But she can buy lottery tickets without understanding that her odds of a profit are worse than jumping on an ICO? Seems hypocritical to me.
I'm no expert about legal matters. I'd appreciate if someone else can chime in here. But I found this with a brief search:
"To be an accredited investor, a person must have an annual income exceeding $200,000, or $300,000 for joint income, for the last two years with expectation of earning the same or higher income in the current year."
Let's say you're smart but poor. So, even after doing your research, you have to be richer to get richer? Again, seems hypocritical and feels like it does less to protect people.
Now, let's say the SEC develops a test for an accredited investor status. How is the SEC supposed to test that you can assess good business ideas/risk efficiently? Some of the smartest people took bets that seems insanely risky and were considered stupid. I don't think there's a test able to judge this.
As an aside: It would be cool if hacker news could let you attach a flair to your profile for an area of expertise, and then you could request input from people with a specific flair who are also commenting on a thread.
You sort of answered your own question. Yes, there are people who are smart but poor. But they are significantly outnumbered by those who are poor but don't have great financial/investment sense. Since there isn't really a good way to differentiate between the two, you have to choose between letting many people be scammed to enable the few to invest or prevent the few from investing to protect the majority.
In your argument, the sum of all wealth for the lower class is what's being optimized for here, which you claim is a good thing. We can prevent the most money loss by restricting movement of capital. I happen to disagree with this but's let's table that and look at an analogy.
Say you take that argument and apply it to education. Poor people are generally less educated. Does that mean we should optimize limited budgeting resources to only teach to the average denominator to maximize total knowledge among lower classes (increasing value among many, just as we did with your previous argument)? This means the needs of many outweigh the ability of a few to move up.
I don't think it makes sense to hold back a few ambitious people for the good of everyone, when those few are not adversely responsible for other people's losses.
> How is the SEC supposed to test that you can assess good business ideas/risk efficiently?
Diligence costs money. Legal diligence costs more money. Deep, expensive diligence is pretty much required for private market investing, setting a lower-bound threshold on transaction sizes.
Someone who can’t make that minimum size will thus either invest (a) more than they can lose or (b) based on insufficient diligence. The first leads to getting screwed and second leads to getting screwed.
Erm... okay, but grandma couldn't have invested in WeWork unless she was an accredited investor, and if she's an accredited investor, I'm not so sure we need to be feeling a lot of sympathy for her greed.
Because it's politically difficult. Sometimes, infeasible. The public often pays for defrauded grandmas' mistakes.
There are also positive externalities to stable business environments. Diligence costs money. Putting some of that cost on the issuer, once, is more efficient than each investor incurring it. Consistent rules around fraud and disclosure thus prompt new capital formation.
The best examples of the need for this protection are the cesspools that are ICOs.