Venture Capitalists Sweat Out Possibility Of New Rules
from the raising-the-bar dept
As the SEC is considering new rules that would try to cut down on fraud happening in hedge funds is worrying some venture capitalists as well. Specifically, they're worried about the SEC setting up more stringent qualifications for the types of people allowed to invest in these sorts of funds. Right now, you're supposed to be an accredited investors ($1 million in assets or $200k/year salary), but there's some flexibility. While most limited partners in VC funds easily qualify even with a much higher bar, the VCs are worried about no longer being able to make exceptions. Specifically, VC firms usually like to let seasoned executives from certain companies invest, so that they can tap their expertise in helping their portfolio companies. They also like to "reward" executives within their portfolio companies by letting them invest as well. Of course, I wonder how raising this bar actually does anything at all to "prevent fraud". It seems to only limit fraud to folks who are even richer. Are we legislating that fraud is only okay if it's the very rich who get scammed? Or is the assumption that, the richer you are, the less likely you are to be tricked by a fraud?
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That's exactly right. The US securities laws are based on proper disclosure, not substantive fairness. The general theory is that people with that much money are either smart enough to figure out what a good investment is or capable of hiring someone to figure it out for them.
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