Senator Dodd’s Bill for the Establishment of an Oligarchy
Senator Chris Dodd (D-Connecticut) is working hard in Washington…. to make sure that only those who are already Rich and Powerful will have a shot at being rich and powerful.
From Rick Tumlinson at Huffington Post:
- Start-ups have to register with the Security Exchange Commission and then wait 4 months minimum for it to review their filing. This is a lifetime in the fast moving world of start-ups. (Keep in mind you and your employees are living hand to mouth everyday there is no money coming in.)
- Accredited investors (those who can legally invest in start-ups) would be limited to those with assets of over2.5 million (up from1 million) or a personal income of450,000 (up from250,000). This knocks mom and dad and uncle Bill right out of the game for most entrepreneurs. How many multi-millionaires in your family and close friends?
- Removing the federal pre-emption which provides a single set of national regulations and forcing companies to deal with state-by-state variations in rules. Most start-ups are kitchen table corporations at first. We have no money to pay lawyers to figure things out for us. That’s why we are looking for funds in the first place. Duh!
This is so egregiously wrongheaded and economically counterproductive on so many levels that it’s hard to know where to begin. Even the big money Obama backers of Silicon Valley are calling this bill “insane” . There’s literally no upside to these provisions which limit the field of potential start-up investors to a professional insider’s club skilled at wheedling favors from the SEC behind closed doors. That may be the objective of these rules.
You middle-class serfs can get back to the fields now. Creating start-ups and making investments are not for your kind.
April 6th, 2010 at 3:51 am
We have six more months of him… then he can go to Comrade Hugo’s camps to check on the rebellious serfs there. Pressure Shelby, Corker, and the other Republicans to cut a deal with the conservative and moderate Democrats to shove this crap right back down Dodd’s throat. Otherwise, you get stupidity like this when policy is crafted in an ideological vacuum, much like all the "free markets fix everything" idiocy that infected well-intentioned deregulation and helped get us to the cliff in the first place.
April 6th, 2010 at 4:40 am
[…] redundant, in light of David Foster’s post below which inspired me to post this on my own blog, but Lexington Green strongly felt that the point could stand repeating ( or shouting from the […]
April 6th, 2010 at 11:56 pm
I don’t know enough of the details to comment on the bill, but I would just add that the 1 million dollar threshold for accredited investors has not changed in decades so, adjusting for inflation, this is arguably something long overdue (assuming the original limit had any merit). With that in mind, investors often find it worthwhile to avoid SEC regulation and do intrastate offerings, in which case the accredited investor provision doesn’t apply anyway. There can also be advantages to removing some federal preemption in that SEC will have less on its plate and small entrepreneurs (I mean people with less capital, not shorter people) may find it easier to do small offerings without worrying about the SEC coming knocking later on and telling them that they needed to register but didn’t.
April 7th, 2010 at 1:23 am
I agree that the figure has not been adjusted in decades and the SEC has declined to raise it for reasons unknown to me (it is a regulatory requirement, not statutory). Even at the current level, I am not convinced that "accreditation" serves any rational economic purpose since most angel investments are small seed money amounts that are vital primarily because of when they are made. The proposed change in Dodd’s bill would disqualify 77 % of current accredited angel investors from making future investments. That’s incredibly destructive in terms of marginal effects.
I am trying to find out more – at present, no one who is well versed in angel investment in the blogosphere or media seems to know why this provision was added to a bill purportedly designed to address the misdeeds of mega-banks or who did wrote it under Dodd’s imprimatur as Chairman.
April 7th, 2010 at 2:43 am
My understanding is that accreditation is just a broad brush to differentiate "sophisticated" investors who do not need SEC "protection" from the great unwashed non-sophisticated gruffs who need protection from folks like Bernie Madoff (make sense now? LOL).
I’d be curious to see if the bill reduces other rules for non-accredited investors, thus offsetting the effect of raising the threshold. For example, say there is a law that says "if you offer X to non-accredited investors, then you need to jump through 15 hoops; otherwise you only jump through 5 hoops." If this law replaced "15" with "8" then the compliance cost of offering a security to non-accredited investors may fall and offset the impact of raising the threshold to 2.5 million. The lower of hoop numbers may also justify raising the threshold "sophistication" level since, theoretically, more hoops = more protection. But, I guess it’s a long shot that the number of hoops will fall, so that’s just a wild guess from me.
Regarding the 4-month wait, I suspect there will be an option to accelerate the offering just as most underwriters already do. There is a 20-day wait for issuing securities, but underwriters almost always get permission to accelerate in order to ensure an IPO is made on a specific date. It doesn’t seem all that much of a long-shot to think that a similar provision might be made when this bill goes into effect.
I hope this doesn’t sound like I’m supporting ANYTHING that Chris Dodd has done, is doing, or will ever do (other than leave office).
April 9th, 2010 at 1:51 am
[…] Senator Dodd’s bill for the establishment of an oligarchy Senator Chris Dodd (D-Connecticut) is working hard in Washington… to make sure that only those who are already rich and powerful will have a shot at being rich and powerful. […]