One of the ongoing debates in our country is what role our government should play in protecting the rights of consumers in the marketplace. The groundswell of people pushing for Sen. Elizabeth Warren to enter the 2016 presidential race is coming largely from her work on consumer-protection issues. While I applaud government efforts to protect consumers from fraudulent business practices, I find some efforts to limit or reduce consumer rights in the name of protection to be disingenuous, perhaps fraudulent themselves.
In January, new legislation was introduced in the Minnesota Legislature that would open up business investment opportunities to everyone in our state in a way that is now only open to wealthy individuals. While this proposed legislation is modeled after similar bills already passed in 14 states and has the backing of more than two dozen business groups and associations including the Twin Cities Metro Independent Business Alliance, opposition in the name of consumer protection has arisen from some likely places. I’ll discuss this in a minute, but first, some context.
In 1933, following the stock market crash of 1929, Congress passed the Securities Act (’33 Act). The ’33 Act was designed to regulate the sale of securities (stock, loans and other securities) by requiring companies that want to solicit the sale of securities in their company to follow specific disclosure requirements. Prior to the ‘33 Act, there was limited regulation of these types of transactions and consumers had little recourse if they were victims of fraudulent business practices in the sale of such securities. The ideal of protecting the average consumer in this way was certainly noble, but the results over the last 80 years may not have been what the lawmakers expected.
Left average consumer out
While the ‘33 Act did address the issue of disclosure by companies, it also created a system that, for 80 years, has prevented the average consumer from taking advantage of the wealth creation that business investments offer. A strong argument can be made for the ’33 Act contributing to the obscene level of wealth disparity that currently exists in our country. How is that possible? It goes something like this:
Because of the ’33 Act, companies wanting to publicly solicit securities investments are required to file extensive disclosure documents regarding their business and the securities they’re offering. The idea behind which is that these disclosure documents will somehow protect consumers from fraudulent business practices. In reality, these requirements have made the cost of offering securities so expensive that companies can only afford to sell large amounts of securities to wealthy individuals and institutions. How many of you reading this were able to get in on Google or Facebook’s initial public offerings?
Today, after 80 years of perpetuating the status quo, the proposed MNvest legislation provides an opportunity to break open this rigged system, and allow any consumer the right to benefit from investing in local Minnesota businesses. And yet the same cry of consumer protection, as voiced in 1933, is being raised by Commerce Department Chairman Mike Rothman and former Director of State Securities Robert Moilanen in MinnPost commentaries.
Don’t get me wrong. I’m not against reasonable regulation to ensure the proper disclosure of information by companies seeking investment, but to restrict the rights of over 90 percent of consumers in the name of protection is about as Big Brother as you can get. Those questioning MNvest talk about evil companies wanting to bilk grandmothers out of their precious retirement money. Could this happen? Sure, but this already happens. The MNvest legislation would create an investment process that is much more open and transparent than what currently exists.
And instead of faceless transactions with businesses consumers have no personal connection to, the companies raising money through MNvest would be Minnesota companies — the vast majority small, local businesses unable to secure funding through traditional sources like bank loans. The owners of these businesses are our neighbors, the parents of kids who attend school with our own. How many of us live next door to the CEO of a Fortune 500 company?
I understand that the Commerce Department is concerned; it’s the department’s job to monitor and enforce securities laws and regulations. But why should their concerns trump the rights of consumers? Who are they to say who should and should not have the right to benefit from security investment opportunities? Isn’t it time to break the stranglehold that the 80-year-old Securities Act of 1933 created and let every consumer decide where and how to invest their hard-earned money?
Let’s figure this out in the name of consumer rights and equal opportunity. Go to www.mnvest.org to find out more and add your name in support of creating a shared equity economy here in Minnesota.
Chris Hanson is co-founder & CEO, thedatabank, gbc. (General Benefit Corporation) and president of Twin Cities MetroIBA. Hanson is one of the principals behind the MNVest legislation.
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