Accredited Investor Definition Review Act

Floor Speech

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Mr. SHERMAN. Mr. Speaker, I rise in support of H.R. 1579, and I yield myself such time as I may consume.

The Accredited Investor Definition Review Act is, of course, sponsored by the gentleman from Michigan. The accredited investor definition is out of date and needs changing. A lot of these comments relate to the comments I made on the previous bill.

The current definition is based on wealth, which is not really a proxy for an individual's knowledge or experience. It may, in part, be a proxy for their ability to absorb losses; but the wealth standard was established in 1982 and hasn't been revised, so it was either wrong then or it is wrong now.

Further, the amount of wealth required to meet the accredited investor threshold, of course, has been eroded and, as I said speaking of the prior bill, has gone from 2 percent of our Nation to 20 percent of our Nation.

So we need to define who Wall Street can sell risky and illiquid products to, and not those who have created a nest egg, which is so much smaller than the nest egg in terms of purchasing value that we required when these standards were developed.

The SEC may establish a definition to protect working families from these high-risk products, while allowing those who are knowledgeable to make the investment.

Mr. Huizenga's Accredited Investor Definition Review Act reaffirms the authority of the SEC to review the credentials that will qualify an accredited investor and update the list of credentials. This ensures that the definition is not stagnant and changes with the times.

As a result, more investors will have access to private markets while ensuring that they have the adequate knowledge base to understand the risks involved.

I would add that perhaps wealth shouldn't be an entryway to investments. It should be exclusively based on one's knowledge. If we did that, we would want to look not only at the knowledge of the investor, but the knowledge of their advisers, but only if those advisers were truly independent, because an investor being advised by someone who earns a commission or someone who gets referrals from the promoter is not a truly independent adviser.

So this bill moves us forward to doing something that should have been done many years ago. We are stuck with rules drafted in 1982. This bill requires the SEC to begin the process of revising those rules. I urge my colleagues to vote ``yes'' on this important bill.

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Mr. SHERMAN. Mr. Speaker, I have no further speakers and I am prepared to close. I yield myself the balance of my time.

I want to respond to the comments from the gentleman from Michigan to some degree. I think I speak for the majority of the Democratic Caucus that we have a balanced view. We want investor protection, and we want investments to be made in private offerings by those who understand the risk and understand the company they are investing in.

The idea that we would open the door to every investment and allow an unlimited number of people with no particular expertise or meeting other standards would mean that we wouldn't have any initial public offerings. Every company would become a public company. We wouldn't have an SEC. That is not where we want to go.

This bill is consistent with that balanced view. The gentleman from Michigan also says he thinks the SEC is being distracted and is not carrying out its core mission.

Just today, they went after a crypto exchange, and I can't think of anything more essential to their core mission.

Another controversy is whether investors in public companies will be given information about the environmental and carbon effects of the company. Many investors want that information, and giving investors information that many of them want is a core definition of the SEC.

Finally, the gentleman from Michigan puts forward a very inaccurate view of our current law. It is not true that you can't invest in your brother-in-law's pizzeria unless you have a million dollars in net worth. If that were true, I couldn't get a pizza on Ventura Boulevard.

The fact is that we do allow up to 35 unaccredited investors in private offerings, and the vast majority of what we think of as the really small businesses, the ones up and down Ventura Boulevard--the pizzeria, the restaurant, whatever--fit into that category.

We do have a securities law system that works pretty well. We can improve it. This bill does that. The SEC should amend its accredited investor definition to better protect investors and retirees from being solicited for high-risk, unsustainable products just because they meet an asset threshold that hasn't been revised in 40 years.

I urge the SEC to review that asset threshold as part of the periodic review required by this bill.

Mr. Speaker, I urge my colleagues to support this bill and to support a balanced investor protection regime, and I yield back the balance of my time.

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