Her backing helped House Republicans pass the bills and send them to the Senate in recent days — despite an outcry from consumer advocates and opposition from progressives including Warren and fellow Massachusetts Democrat Rep. Ayanna Pressley. Eighteen Democrats — among them, Reps. Alexandria Ocasio-Cortez (D-N.Y.) and Katie Porter (D-Calif.) — broke with Waters to vote against one of the bills when it hit the House floor late last month.
“House Financial Services passed legislation to reduce the number of people who will be covered by basic consumer protection laws,” Warren said in an interview. “That’s not good for investors, and ultimately, not good for markets.”
The conflict is exposing an internal rift on the left over the extent to which the government should dictate access to investment opportunities — similar, in some ways, to how cryptocurrency has scrambled progressives’ approach to financial regulation. The fight is poised to reveal how much sway consumer protection hardliners like Warren hold over the rest of their party when it comes to rules that impact how Americans save, speculate and build wealth.
“This was a little bit of opening the door to allow people — who can be tested, and who are smart, and who can handle this better than someone who’s a millionaire — to have a chance,” Waters told POLITICO.
The fight is being triggered by three bills that House Financial Services Chair Patrick McHenry (R-N.C.) is driving as part of a broader push to loosen Securities and Exchange Commission rules to boost capital raising for startups.
The legislation would seek to expand the number of Americans who qualify as so-called accredited investors — a category of individuals, as defined by the SEC, who can put their money into private-market investments that aren’t subject to the same transparency requirements as publicly traded companies.
The SEC’s current threshold to qualify as an accredited investor hinges in part on an individual’s economic status. They can meet it if they have a net worth of over $1 million or a $200,000 annual income. Investment professionals and corporate insiders can also qualify.
The bills Waters helped usher through the House would, among other things, enshrine the SEC’s current wealth-based cut-off, which investor watchdogs argue is too permissive as is. They would also allow more individuals to gain access to the investments after taking a test or meeting certain educational and professional criteria.
“I’ve always been a little bit uneasy about considering those who have more money” as those who “know better how to spend their money,” Waters said. “And of course, I’ve been concerned about those who don’t have very much and may be destroying their life.”
Business groups like the U.S. Chamber of Commerce are lobbying for the changes on the grounds that they expand opportunities for investors to get in early on the next great startup.
“Getting capital to the businesses that need it shouldn’t be a partisan issue,” said Evan Williams, the executive director of the Chamber’s Center for Capital Markets Competitiveness.
But investor advocates including the Consumer Federation of America and AARP have pushed for tightening restrictions to help shield Americans from the next great startup disaster, like FTX or Theranos.
They argue that even the current net worth and income thresholds — which are not tied to inflation and haven’t been updated since the 1980s — fail to safeguard investors. The number of U.S. households that qualified as accredited investors went from 1.3 million in 1983 to 16 million in 2019, according to the SEC.
Healthy Markets Association CEO Tyler Gellasch, a former SEC official who now represents institutional investors, said the big winners of the proposals are private equity and venture capital funds, as well as the executives of the companies in which they invest.
Some House Democrats who ended up voting for the legislation voiced concerns when it was first brought up in committee. Rep. Stephen Lynch (D-Mass.) said they were “voting with the Democratic lead.”
Rep. Jill Tokuda (D-Hawaii), who voted against the bill that would set up an accredited investor test, said the proposal appeared to be designed “in a manner that predetermines the certification outcome.”
“I find it concerning that this measure would not address disparities in access to information and gauge an individual’s ability to evaluate the value of those securities,” she said in a statement.
Now that the House has passed the bills, the organizations lobbying against the proposals are shifting their focus to convincing Senate Democrats to block them. While senators have yet to introduce companion legislation, there is a possibility that the proposals could be tacked on to another bill that moves through Congress, including potential must-pass legislation.
“It’s really frustrating,” said Micah Hauptman, a former SEC official who now serves as director of investor protection at the Consumer Federation of America. “Democrats say the right things about wanting to protect investors — and then they vote the wrong way.”