Equal Opportunity for All Investors Act of 2023

Floor Speech

Mr. Speaker, I rise in support of H.R. 2797, the Equal Opportunity for All Investors Act, sponsored by the gentleman from Nebraska. The accredited investor framework serves to protect the general public from investing in high-risk, illiquid, private securities because they lack the safeguards that are a feature of public securities.

Unlike our public capital markets, companies do not provide anywhere near the same financial and other disclosures to investors for private offerings. Private securities also do not offer the same legal protections for investors.

The SEC and State securities regulators do not have the same ability to police the private markets as they can the public markets. The general rationale behind the comparative lack of regulations governing private securities is that institutional investors like private equity funds, hedge funds, banks, and others can demand the disclosures from the company in exchange for their investment and have significant legal resources to hold the company accountable.

These Wall Street players and other big-money investors don't necessarily need the same level of protections when investing as compared to retail investors like working families do. The accredited investor definition ensures that those who are eligible to invest in private securities do, in fact, have the knowledge to know these heightened risks.

Initially, the SEC defined accredited investors to be those who possess an intimate understanding of the risk and had the knowledge base to decide whether to invest in these particular types of securities.

However, the companies needing to raise capital privately and the underwriters and intermediaries facilitating these capital-raising activities argued for a simpler approach, so the SEC adopted the current definition which is based on financial resources.

Today, an accredited investor must meet three criteria: They must have a net worth either individually or with a spouse exceeding $1 million, excluding the value of their home; make more than $200,000 a year or $300,000 with a spouse; or since 2020, hold certain professional certifications or designations, such as being an investment adviser or broker.

This bill being considered under suspension today aims to return to the original concept of accredited investor, which is that investors in these high-risk investment offerings should be fully aware and knowledgeable of the risks involved.

We all know that just because you have a million dollars, it doesn't mean that you understand the complexities of investing. This is why it is important for the SEC to also update the current thresholds so that Wall Street intermediaries are not able to sell unregulated securities to individuals who have become accredited solely based on the inflated value of their retirement assets.

For example, unfortunately, there are millions of accredited investors who are now being solicited to invest in products they have little knowledge about and the SEC should act to amend the definition of the accredited investors to protect those investors.

On the other hand, we have heard from some investors who really want to try their luck with some of these risky and illiquid investments, but they do not qualify as an accredited investor because they don't meet the wealth or the income test.

The Equal Opportunity for All Investors Act would solve the latter part of this problem by allowing an individual to qualify as an accredited investor if they pass an exam that ensures they are sufficiently versed in the risk of investing in the private markets.

Generally, private markets are understood to have a higher potential for total loss and can be significantly illiquid than the public markets, so having a deep understanding of these risks is necessary to navigate the space. In addition, there are fewer protections for investors when things go wrong with an investment.

With this change, any investor who wants to invest in private securities can now do so if they can pass this test, which would establish they are keenly aware of the particular risks related to high-risk and illiquid securities, as well as the conflicts of interests presented when financial professionals sell these products to investors.

Mr. Speaker, I thank Mr. Flood and Chair McHenry for working with me to ensure that the test in this bill is established by the SEC and that it contains specific, robust elements that witnesses at previous committee hearings talked about when discussing how they teach and mentor their budding investors. I am also pleased that the tests in this bill would be available free of charge.

I think that this bill will solve the problem of people who are ready to invest, who are not millionaires, they are not billionaires, but they are smart and they know how to determine what the risks are. If they are prepared to take them, then let them do so.

Mr. Speaker, I urge my colleagues to vote ``yes'' on this bill, and I reserve the balance of my time.

Mr. Speaker, it is important to appropriately tailor the accredited investor definition to protect those who do not have the requisite knowledge to make certain investments while creating a pathway for those who have demonstrable knowledge about the risk associated with investing in private securities.

I believe this bill would ensure that those who possess the knowledge and risk appetite for privately-issued securities are able to invest in those.

Mr. Speaker, I, again, urge my colleagues to support this bill that is offered by Mr. Flood and Mr. Nickel, and I yield back the balance of my time.

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