August 4, 2019
CAUTION: This email originated from outside of the organization. Do not click links or open attachments unless you recognize the sender and know the content is safe.
Hi,
I'm an individual retail investor (self-directed) and using email because your web form said I wasn't authorized to access the page after I clicked on Continue. Below are my comments.
- Stephen R Steciak
***************************
(1) Accredited Investor -- Keep the $1 million net worth requirement exclusive of primary residence, but count a degree from an accredited college or the holding of a government-issued securities license as the equivalent of so many dollars in the net worth calculation. Have a "cooling off period" of time (as the Federal Trade Commission has for contracts sold door-to-door) before "sudden wealth" (lottery winnings, inheritances, professional sports contracts, stock options [IPOs]) counts in the net worth calculation.
Context -- To qualify for my professional engineering license in California (I'm retired now and no longer licensed to practice engineering), I needed 15 years of relevant experience before I could take the exam. A degree from an accredited college counted as so many years of experience toward this work requirement.
(2) Investment Risk Categories -- Just as society has figured out the risk level for events such as earthquakes and hurricanes, consider establishing risk categories for investments. For example, a "Category 0" risk might be securities issued by the United States Treasury (and annuities issued by a state-regulated insurance company). A "Category 1" risk might be investment grade registered securities. A "Category 2" risk might be speculative grade registered securities. A "Category 3" risk might be what is considered a Reg A+ offering now. A "Category 4" risk risk might be what is considered a Reg CF offering now. A "Category 5" risk might be what is considered a Reg D (506b and 506c) offering now and available only to accredited investors.
Establish the investor and issuer requirements for each category and outsource the enforcement to private parties (as FINRA does for broker-dealers and Reg CF portals, and those making Reg D 506c offerings for the accreditation status of their investors). Use plain language to explain these requirements. For example, the "Characteristics & Risks of Standardized Options" document needs to be rewritten in plain English to make it understandable and useful to the investing public.
Examples -- What difference does it make if a Reg CF offering is a "new" offering or a "previously owned" offering (other than a "previously owned" offering might have a track record that can be examined by prospective buyers)? What difference does it make if a Reg CF offering is for a single business only or a collection of businesses (a "Reg CF mutual fund," meaning there might be a greater chance of at least one of the businesses being successful so the offering does not turn out to be a total loss)? Either way, Reg CF offerings are risky with no guarantee of a market for them. While capital formation might be good for the economy, not every new business idea deserves to be funded, which is what free and transparent markets are good at figuring out. Once a Reg CF business demonstrates its success, it can then go through the process of becoming registered and listed on an exchange.
(3) Deputize Social Media -- It's already illegal to commit mail fraud and wire fraud. Why not explicitly add online fraud to this list? Social media and web site hosts could scan user content with bot software to look for suspicious language ("guaranteed not to lose") and flag it for further review. Consider crowdsourcing securities law enforcement. Implement a "see something, say something" functionality on the FINRA site or make the Submit a Tip feature on the SEC site more visible. Right now, people can report fraud after the fact. Make it easier for people to report suspicious activity before someone gets ripped off.
Context -- Image processing software in security cameras looks for suspicious behavior and then alerts someone in the command center for further investigation. Automation-assisted law enforcement is practical today thanks to smarter computers.