George, I am disappointed by the superficial assumptions which you make here, which I feel serve to obscure rather than clarify the issue.

(Before going on, grellas is a lawyer and one I respect due to his extensive experience, while I am not only not a lawyer, I have no qualifications of any kind on such matters and the following is nothing but my personal opinion. If you need guidance in this area then you should be consulting someone qualified to practice securities law instead of wasting your valuable time reading my upstart ideas.)

First, the relevant material we're talking about. The text of the bill is to be found here: http://banking.senate.gov/public/_files/ChairmansMark31510AY...

The relevant sections are #412 and #413, as follows:

SEC. 412. ADJUSTING THE ACCREDITED INVESTOR STANDARD FOR INFLATION.

The Commission shall, by rule—
(1) increase the financial threshold for an accredited investor, as set forth in the rules of the Commission under the Securities Act of 1933, by calculating an amount that is greater than the amount in effect on the date of enactment of this Act of $200,000 income for a natural person (or $300,000 for a couple) and $1,000,000 in assets, as the Commission determines is appropriate and in the public interest, in light of price inflation since those figures were determined; and (2) adjust that threshold not less frequently than once every 5 years, to reflect the percentage increase in the cost of living.

SEC. 413. GAO STUDY AND REPORT ON ACCREDITED INVESTORS.
The Comptroller General of the United States shall conduct a study on the appropriate criteria for determining the financial thresholds or other criteria needed to qualify for accredited investor status and eligibility to invest in private funds, and shall submit a report to the Committee on Banking, Housing, and Urban Affairs of the Senate and the Committee on Financial Services of the House of Representatives on the results of such study not later than 1 year after the date of enactment of this Act.

'Commission' here refers to the Securities and Exchange Commission. Accreditation criteria as they currently stand are set out in rule 501 of Regulation D of the SEC's rules, under the authority of the Securities Act 1933. You can read those criteria here: http://www.law.uc.edu/CCL/33ActRls/rule501.html

Now, to my argument.

First of all, the proposed bill lets the SEC itself recalculate the financial threshold for a natural person to be an accredited investor. As I am sure you are aware, the SEC proposed raising that threshold to $2.5 million in investment assets back in December 2006 (primarily as a prophylactic against fraud by hedge fund managers) but abandoned the idea following the feedback they received during the public consultation period. I fail to see how requiring the accreditation threshold to keep pace with inflation and tasking the GAO with a review of current practices - to which both attorneys and entrepreneurs will presumably contribute - is a bad thing.

Perhaps your specific objection is to the suggestion that the SEC consider CPI in its reassessment of thresholds from the limits established in 1982. I would respond that pointing out that requiring consideration of the changes in CPI is very different from mandating their use as a metric, and only uses inflation as a rationale for future long-term maintenance of threshold amounts.

Incidentally, even if such thresholds were imposed by fiat tomorrow, are we really to believe that the risk of any given to investors is only 43% of that which it was in 1982? Is it logical to maintain a fixed dollar amount as the threshold for individual participation in offerings? Surely a period of inflation which further eroded the real value of that threshold would not in any way improve investors' collective security. I cannot fathom that investment risk declines in direct proportion to the purchasing power of the currency.

In any case, Regulation D also provides that becoming a director, partner, or executive offer in a business venture confers accreditation status, as does certification of an entity as a business development company in accordance with the Investment Company Act of 1940. So as a purely practical matter, someone of middling means who might not qualify as an accredited investor under future revisions of the income or asset thresholds could still invest in a startup by the fairly simple expedient of joining the startup in one of the capacities mentioned above.

Your allusions to predatory trial lawyers and obscure motives trouble me; rather than discussing the likely outcome of changes in the law (but rather assuming the shrinkage of the investor pool as a fact), you engage in a kind of ad-hominem by proxy, casting aspersions on the proponents of change without addressing the substantive issues in their proposal.

I know you are not giving legal or political advice here, just expressing a brief reaction to these proposals. I do not think you are a conspiracy theorist or someone who seeks to mislead, and that your concerns on behalf of current and future clients are real. Nor am I a proponent of reform at all costs, or oblivious to the potential headaches for those seeking to raise capital - as an independent filmmaker of extremely modest means, these proposals could affect my ability to raise capital too. But I fundamentally disagree with your suggestion that this bill represents a covert attempt to enrich trial lawyers at the expense of honest entrepreneurs.