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SEC Commissioner Thinks "Millionaires Can Fend For Themselves"

In his opening remarks to the 2014 Government-Business Forum on Small Business Capital Formation, Commissioner Daniel M. Gallagher stated regarding changes to the accredited investor definition:

Frankly, I have yet to be persuaded that this is an issue that we should be taking up at this time.

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I am baffled by continued insistence from some quarters that we need to significantly revise the accredited investor definition.

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This obsession with "protecting" millionaires-potentially at the cost of hindering the wildly-successful and critically-important private markets-strains logic and reason. Millionaires can fend for themselves.

Commissioner Gallagher is one of five SEC Commissioners appointed by the President for a five-year term to enforce the nation's securities laws, ostensibly to protect the investing public. His comments can be found at www.sec.gov/News/Page/List/Page/1356125649569 .

Currently the SEC defines "accredited investors" to include: Individuals who have earned at least $200,000 a year for the past two years ($300,000 jointly with spouse) and expect to earn that amount in the current year, and have a personal net worth (excluding one's primary residence) of at least $1 Million. The accredited investor standard was created to keep smaller, unsophisticated investors, i.e, those who can least afford large losses, out of high-risk private placements, developmental-stage, startup companies or other risky ventures.

Commissioner Gallagher's comments encapsulate the age-old financial myth - that rich people must be sophisticated and smart investors who can "fend for themselves". Many investment professionals and his colleagues at the SEC do not agree. The SEC Investor Advisory Committee recommends that the SEC replace the income and net worth-based standard for a definition which considers factors such as education and investment and professional experience. Being rich does not make you a knowledgeable and sophisticated investor. It just makes you rich.

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