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Chart of the Day / US SEC Wants to Allow all Investors in on Private Deals

US SEC Wants to Allow all Investors in on Private Deals

September 3, 2018

We all have the same goal when it comes to trading.

Like most investors, one of your top goals has been to enjoy a financially secure retirement at whatever age you choose.  That being the case, it stands to reason that your retirement “nest egg” should ideally generate above-market returns, often with below-market risk.

Typically, that includes investing in publicly traded stocks.  But that could soon change.

In fact, the U.S. wants to make it easier for everyday investors to invest in private companies, including some of the world’s biggest startups.  They want to give investors access to companies that have been out of their reach even though they haven’t gone public.

For years, the SEC blocked access to private deals to smaller investors, who had to first meet income and net-worth requirements to participate. Even companies like Uber Technologies Inc. and Airbnb Inc. have often shunned average investors, opting for private investments.

According to US SEC Commission Chairman Jay Clayton:

“The fact that Uber, Airbnb and other larger tech companies are staying private longer has robbed individual investors of the ability to get access to potentially high-return investments, as well as cut off a needed funding source for less-well-known companies that would like to go public. To remedy that, Clayton has proposed loosening regulations, which he says are discouraging companies from going public, but have also limited fraud,” as quoted by Bloomberg.

The SEC Concept Release

In coming months, the US SEC will release its “concept release,” which will seek public comment on how to expand access to private stock sales.

According to The Wall Street Journal:

“If more retail investors got access to companies before they launched an initial public offering, the move would create another alternative for companies that already have ample access to private cash…”

However, one of the features of the private market has been the ability to limit hype, note analysts.  If the US SEC were to open the private market to everyday investors, that ability could go away and “fraudsters looking to take advantage of limited disclosure requirements are sure to flood in,” says Bloomberg.

While there are sizable opportunities to be found in the private market, there are risks.

And with risks comes the opportunity for significant fraud and loss.  It’s just something to be aware of if the US SEC Commission Chairman gets his way.