THE BLOG

Let Us Cross the Street

02/27/2013 06:38 pm ET | Updated Apr 29, 2013

The new JOBS Act will let millions of Americans "cross Wall Street" from the borrowing side to the investing side. But self-appointed nannies are blocking the way.

In 1974 the SEC issued regulations allowing only the wealthiest Americans, so-called "accredited investors," to invest in private companies. Prospective investors had to prove they had sufficient wealth before a broker could even show them a potential investment. So-called non-accredited investors (those with insufficient income or net worth) were not even allowed to know about the opportunity. The companies and the brokerage firms representing them were not allowed to advertise the fact they were raising money. From that time until today those "accredited" Americans have earned 30 trillion dollars of wealth (and we now refer to them as the "1 %"). The people who were not allowed to invest in private companies have borrowed 15 trillion dollars (the 99%) -- all to get the same things the wealthy wanted: a nice house, a nice car and a good education for their kids.

Then one day, it occurred to President Obama and leaders of both parties that America would be better off if everyone could invest in private companies since these small "startups" are the engine of growth for the economy. They got together and passed the JOBS Act (Jumpstart Our Business Startups Act) that allows small companies to raise money from more investors to keep the cost of investment low, allows "non-accredited investors" (the non-wealthy) to invest a portion of their income in private companies, and for the first time lets private companies generally advertise to the public that they are raising money. A majority of both parties passed the JOBS Act and the president signed it in a big event in the Rose Garden.

As a result of the law being passed, the SEC now has to write regulations detailing how the new provisions would go into effect. How will companies know who is accredited and who is not? What kind of advertising will be allowed and what "warnings" will be required (like "past performance is no guarantee of future performance," for example.) The Congress gave the SEC a deadline for writing the regulations because the economic benefits of the law were expected to be huge and everyone wanted to get started.

But when the SEC tried to publish regulations some people stopped them by accusing the SEC of being "anti-investor" if they passed regulations allowing the new advertising and letting non-accredited people be investors instead of borrowers. This was strange since no one had appointed these critics as guardians of investors. (It is more likely they are protectors of mutual funds who oppose general advertising by their competitors in private investments.) In fact, since everyone can be an investor, the only group that represents everyone is... Congress, the same Congress that overwhelmingly passed the law. And there have never been any similar advertising bans, protections or warnings about borrowing money one cannot afford to repay (see the sub-prime crisis).

Now the SEC has violated Congress' deadline for issuing the regulations and the wealthiest Americans are still the only ones who can invest in private companies. What is the problem? The self-appointed protectors argue that allowing investors to learn of opportunities to invest in private companies is bad for them. After all, they might invest and lose all their money. Of course by this logic we should not allow advertising of any investments in public companies either since you can lose those investments too. By the same logic we should not allow car advertising since people may buy cars and die in a crash. And we should not allow advertising of casinos since people will certainly lose their money there. Or we should not allow advertising of government sponsored lotteries since you are guaranteed to lose your money there unless you are one in a hundred million lucky. (Trust me the odds of winning in a private company investment are much better than that.)

One oft-quoted critic, Barbara Roper of the Consumer Federation of America, actually said "... I don't think anyone who is being honest about it really thinks that income of $200,000 means you are either financially sophisticated or wealthy enough to withstand losses," Roper said. "It's a joke."

Well, just how rich should you have to be to risk your own money on an investment in a new business bringing jobs to your community or in a new health company working on a potential cure for your disease? Why should the government limit your freedom to risk your money to make money in a new company when it doesn't limit your freedom to gamble it away, give it away or borrow more than you are worth on credit cards, houses and cars? And, anyone can risk any or all of their money in the public stock market whether they are rich or sophisticated, drunk or sober. Why, Ms. Roper, is that OK but investing in the private economy somehow requires being one of the "one percent" of wealthiest Americans? Why should someone born into great wealth be allowed to invest in private companies but someone with an entrepreneurial spirit, a Ph.D. or even a Nobel prize not be allowed to unless they have millions of dollars?

The main difference between investing in startups and all these other ways to spend your money is that investing grows the economy. With the government broke and big companies laying off workers, growing the private economy is the only path to lower unemployment and economic recovery. Think Apple. Think Google. Think Facebook. All these big companies started as small ones. And the people who made the most money were the ones who bought them when they were small startups. And trust me, that wasn't you.

But it could be, if the SEC will do its job, not repeal administratively what Congress enacted and the president signed and stop listening to people who think we need investing nannies to keep us from crossing Wall Street from the borrower side to the investor side.

I will look both ways and I will watch for traffic. But for goodness sakes, let go of my hand.

Greg Simon is CEO of Poliwogg, a company formed under the JOBS Act to raise investments from accredited and non-accredited investors in health, community enterprises and high yield assets. He formerly was the chief domestic policy advisor to Vice President Al Gore from 1993-1997.