Accredited investor laws are the bane of many in the crypto industry, who see them as preventing small investors from accessing big opportunities. Whe
Accredited investor laws are the bane of many in the crypto industry, who see them as preventing small investors from accessing big opportunities. When Celsius was recently forced to cut off access to U.S. citizens who were not accredited investors, many cried foul.
Did it help some users avoid the current crisis? Or do accredited investor laws go too far in saving users from themselves — and from profits, too?
Two weeks ago, as speculation about Celsius’ solvency began to mount, users started experiencing trouble withdrawing money from their accounts. Though Celsius CEO and founder Alex Mashinsky appeared to initially write the issues off as baseless rumors, the company soon announced a “temporary halt” on withdrawals. Users were — and, as of the time of writing, remain — unable to access their funds, which are, at least in theory, still earning interest.
Magazine had interviewed Mashinsky about investor accreditation on May 25 before Celsius ran into serious problems in the public area. The resulting drama makes the topic all the more timely. So, what does Mashinsky have to say about accredited investor laws?
Papers, please
Those even casually researching early investment opportunities — crypto or otherwise — are sure to have encountered queries about their “accreditation” as investors. How exactly does one get accredited, and why does it matter — after all, why should anyone need to get permission to invest their own money?
Roughly comparable accredited investor laws exist in many jurisdictions around the world, but nowhere do they appear to be as serious and prominent as in the United States, where the minimum threshold to be allowed to invest in many opportunities calls for $1 million in investable assets beyond one’s primary residence or annual income exceeding $200,000. A brief study of United States-based private investment funds might lead one to conclude that investment opportunities unavailable on the stock market are not meant for the commoners, who, by definition, lack accreditation.
The US Accredited Investor law discriminates & takes opportunities to gain wealth away from >90% of the population. The governments reckless printing & mismanagement of money has created inflation of 8.5% & this law makes sure only the excessively wealthy can hedge against it.
— Scott Kirk (@ScottKirk7) April 12, 2022
According to Jake Chervinsky, a lawyer and head of policy at the Blockchain Association, accredited investor laws came about as a consequence of the initial public offering process, which was put in place in the 1930s in response to “the speculative bubble of the 1920s when issuers took advantage of post-war prosperity to sell worthless securities to irrational investors.”
“The goal was to give investors full and fair disclosure of material information so they could make informed decisions about their investments,” but the process became so expensive that companies complained, resulting in an exemption for “private placements” by accredited investors who were in less need of protection. Notably, many consider ICOs in the crypto world little more than an attempt to work around the IPO regulations.
There are two sides to the logic: On one hand, accredited investors are more likely to have a solid enough grasp on business so as to make educated bets and avoid falling for scams, and on the other, such investors can afford to lose money when risky investments don’t work out.
The rules, however, have many calling foul — the rich have the opportunity to get richer, while the poor are not even trusted to invest their own money. At worst, people see the system as one that is intended to keep the little guy down.
5/ To ease the burden on small businesses that wanted to raise capital by issuing securities, the SEC adopted Regulation D in 1982.
Reg D provides an exemption from the registration requirement for “private placements” of securities with accredited investors.
— Jake Chervinsky (@jchervinsky) April 25, 2019
“They’re made to kind of protect retail. Of course, many in the crypto space don’t see it that way,” explains Mashinsky. In April, the firm had to ban non-accredited U.S. investors from taking advantage of its yield products, which allow users to deposit tokens and earn interest on them. In the eyes of regulators, Celsius’ product was apparently too risky for average people.
Events have subsequently turned out to lend credence to the regulators’ position.
Accredited investor rules are closely tied to Know Your Customer and Anti-Money Laundering rules, which require companies to know who they are dealing with. ”It’s not like one or two rules; it’s probably like 100 different rules,” he says. Many companies just block all American users and investors due to the…
cointelegraph.com