Get your money for nothin’ get your chicks for free

The manager of Dire Straits earned a percentage of their royalties and he’s selling a big chunk of it to the public. For $3,970–a little cheaper if you buy in bulk–you can get 1/925 of an asset which has been paying around $296,992 per year over the last year for an annual return of about 8%* (corrected from earlier)–that’s pretty good and the prospectus argues that growth in streaming and a forthcoming Mark Knopfler tour will increase royalties.

I think it would be pretty cool to hear Sultans of Swing on the radio and shout “turn it up!” because you knew were earning but only accredited investors need apply. In related news Matt Levine has an excellent piece on accredited investor rules and his alternative:

  • Anyone can also invest in any other dumb investment; you just have to go to the local office of the SEC and get a Certificate of Dumb Investment. (Anyone who sells dumb non-approved investments without requiring this certificate from buyers goes to prison.)
  • To get that certificate, you sign a form. The form is one page with a lot of white space. It says in very large letters: “I want to buy a dumb investment. I understand that the person selling it will almost certainly steal all my money, and that I would almost certainly be better off just buying index funds, but I want to do this dumb thing anyway. I agree that I will never, under any circumstances, complain to anyone when this investment inevitably goes wrong. I understand that violating this agreement is a felony.”
  • Then you take the form to an SEC employee, who slaps you hard across the face and says “really???” And if you reply “yes really” then she gives you the certificate.
  • Then you bring the certificate to the seller and you can buy whatever dumb thing he is selling.

Comments

The last part of Mr. Levine's text was the most interesting is not on the post:

"If an article ever appears in the Wall Street Journal in which you (or your lawyer) are quoted saying that you were just a simple dentist, didn’t understand what you were buying and were swindled by the seller’s flashy sales pitch, then you go to prison.

I am open to compromise on the details. The point is that the right general approach to the problem of people buying dumb investments is to give them much, much, much clearer and starker and scarier warnings before they invest, and then much, much, much less sympathy if they do it anyway."

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I guess for now i'll settle for bookmarking and adding your RSS feed to my Google
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Slap me. I want one of those certs just to frame it for my living room. Good one!

What if masochists waste the SEC's time asking for slaps?

A certificate is probably all you'll get. Does anyone think a has-been band will increase rather than decrease in the current challenging massively over-saturated media environment? 1% is ridiculous. And didn't the original Bowie Bonds do terribly, which is why so few people attempted to securitize any other stars? It's not a sane investment, which means it's only there for signaling/fans, but even there they get a lousy deal - for $4k, you should get a signed guitar or something.

I get that it's supposed to be humor.... but humor about getting government permission for every interpersonal transaction is very, very Venezuela. It shows where your head is.

"but humor about getting government permission for every interpersonal transaction is very, very Venezuela"

Well... for many things, the government won't let you enter into exchange in the first place, so having government approval would actually be a step up. Having your hair cut by an unlicensed barber, having your meal made in an uninspected kitchen, or being able to invest in a startup without being a millionaire are all things you could do if all you had to do was sign a piece of paper and get slapped.

My name is Gary Svensson, a preacher from Minnesota. I would like to talk about the Masonry. It is a secret satanic society that manipulates political and cultural circumstances for its own deadly ends. It has allied itself with the Left to take over Brazil and use it as a permanent base against Christian America. Presidential candidte Cabo Daciolo officially warned Brazilians about the relationship between the masonry and communism. A few days later, leading centrist candidate Representative Captain Bolsonaro was the victim of a terrorist atrck. There is good reason to think it was a Chinese/Masonry sponsored act! A few days later, the vice president of communist Equatorial Guinea was caught in Brazil carrying several dozens of millions dollars. He was probably trying to influence Brazil's presidential elections.

If you want to help defeat Red China, Masonry and Satan, please send an email to five people explaining the situation to them and asking them to send an email to other five people explaining the situarion and asking them to warn other five people. Only an educated population will be able to force our authorities to acknowledge the risks a Mason/communist takeover of Brazil represent to America's survival and support centrist candidate Representative Captain Bolsonaro against communist candidate Haddad, who was handpicked by jailed former president Lula himself.

Thank you very much,

May God bless you all.

You've already sold me on Bolsonaro. I like your many ruses as well. You're great. Free helicopter rides for all leftists :D

Representative Captain Bolsonaro at his hospital bed after the terrorist attack. https://www.google.com.br/search?q=bolsonaro+hospital&num=40&client=tablet-android-samsung&prmd=inv&source=lnms&tbm=isch&sa=X&ved=0ahUKEwi9xMvbx9bdAhWKGJAKHXd6DGkQ_AUIESgB#imgrc=DoMcYtYW0OYVEM

He has vouched to clean Brazil up and defeat crime.

Thiago's invention of so many heartland Americans concerned with the Brazilian election is without question one of the weirdest and most committed troll jobs in internet history. I salute him.

It is like suspecting of Americans concerned with Korea in 1950 or with the moon in 1969. It is sad to see some people can't believe some people actually have some civic sense and actually care about America.

Thiago is the 21st century version of performance art.

Agreed. We should start a pool on which state his next sock puppet will purport to be from. I'm picking Nebraska.

That’s a solid choice.

He won’t do Ohio because he’s actually from Cincinatti.

I’ll guess .....South Dakota.

Utah.

A Mormon-themed Thiago story promises riches untapped.

It is sad to see people joking about America's survival.

Yes! Thank you Gary!

You are welcome!

I see our Bolsonaro army is growing here! And we are totally not the same person, because I am from Tennessee and you are from Minnesota, and those places are far apart. So we cannot be the same person!

It is sad to see the Masonry and the 50 Cent Party attacking those who talk the truth about them.

Thank you, Gary! Please do not stop figjting for our future and the future of Brazil.

We don't attack! We just drank in da club!

We can defesat Red China if we all stand together as one!

Tabarrok's post is a bit misleading, no, a lot misleading. Up until the adoption of the Securities Act of 1933, regulation of the sale of securities was governed by the states, under what were called "blue sky laws" (because the securities often were little more than speculative schemes which had no more basis than so many feet of "blue sky"). Many of the state laws required so-called "merit review": very specific, qualitative requirements on offerings, and if a company did not meet the requirements in that state then the state would not allow the company to do a registered offering, no matter how fully its faults were disclosed to investors. The Securities Act adopted an entirely different philosophy, a philosophy of disclosure, meaning that the goal of the law is only to require issuers of securities to fully disclose all material information (risks) that a reasonable investor would require in order to make up his or her mind about the potential investment. It is very much a free market based philosophy. As for "accredited investor", that is a concept in the 1934 Act regulations that allows very limited disclosure if the only offerees are "accredited investors" (i.e., they have the indicia of a sophisticated investor, mostly based on their level of income and net worth). Again, this is consistent with the philosophy of the !933 Act.

He's just quoting from Matt Levine, and Matt Levine > You.

Well that changes everything

Nice background, but that sounds very different from what Matt Levine is proposing, which might be called a "Brooklyn bridge law" rather than a "blue sky law". You're free to try to sell anything -- but you have to admit upfront that's what you're doing, without regard to facts or suitability of the investment.

I believe it was a couple of decades ago that the Boston Celtics sold shares of stock in the Celtics -- but these shares openly had no voting rights and were pretty much last in line (or maybe not in line at all) to receive any dividends or income. They were just a way for Celtic fans to say they owned a piece of the team, but this was made quite clear. They seemed popular initially, I haven't heard anything about them in years. It doesn't appear that other teams have emulated the Celtics.

Some pro and even college football teams sell seat licenses: before you can even buy season tickets, you have to own a license. And if the seats are sold out then you get put on a waiting list. I have a vague recollection that there are teams that require you to pay just to maintain your position on the waiting list, but I might be mis-remembering that.

> It doesn't appear that other teams have emulated the Celtics.

It's not quite the same, but the Green Bay Packers are owned incorporate by >300k stockholders[1], with their 2011 stock offering having $64mln of buyers. Says Wikipedia:

> [A] share of Packers stock does not share the same rights traditionally associated with common or preferred stock. It does not include an equity interest, does not pay dividends, cannot be traded, and has no protection under securities law. It also confers no season-ticket purchasing privileges. Shareholders receive nothing more than voting rights, an invitation to the corporation's annual meeting, and an opportunity to purchase exclusive shareholder-only merchandise.

[1] https://en.wikipedia.org/wiki/Green_Bay_Packers,_Inc.

Levine's point, if he has one, is that lots of fine folks are being left out of great investments because they aren't "accredited investors" and, therefore, are denied the right to lose their shirts, I mean invest in the next Google. Actually, securities are sold every day to investors who don't qualify as "accredited investors", it's just that nobody knows it. The point of the rule isn't so much to protect unsuspecting investors, but the companies that issue securities: as long as the issuer limits the offering to "accredited investors", the issuer has insurance against being sued (although not for fraud, that's something else entirely). When I do a non-registered (with the SEC) securities offering, I comply with the applicable exemption from registration (including the exemption for "private offerings") in order to insulate my client from claims of selling an unregistered (with the SEC) security and, therefore, has absolute liability for any losses suffered by the investors. Again, the 1933 Act is based on a philosophy of disclosure (the issuer makes the required disclosure and he is home free), not the merits of the offering. Offerings limited to "accredited investors" require far less disclosure, on the assumption that "accredited investors" are sophisticated and will obtain whatever information they deem necessary to make the investment. Arguably, the criteria ($200,000 annual income, $1 million net worth excluding the home) are inadequate. But what Mr. Levine is arguing is that there should not be any criteria at all, just a willingness to acknowledge that one is a fool and willing to make stupid investments and bear the risk of loss. Implicit is that issuers of securities should bear no responsibility to investors, no responsibility to provide disclosure of the risks and no responsibility if the investment is nothing more than "blue sky". No nanny state for Levine. What he (and most libertarians overlook) is that confidence in markets is necessary for healthy markets, especially financial markets. The 1933 Act was a minimal intrusion to achieve confidence. Levine and his fellow travelers have a short memory.

If you read the full Levine article, you'll see that you have mischaracterized Levine's rationale. The meta-observation is that private equity is the future and public stocks are the past. If only accredited investors can invest in private equity, then you condemn the small fry to lower returns; that's "unfair." From reading all of Mr. Levine's oeuvre, you'll find that he finds "fairness" as a criterion to be laughable (and he gets a lot of laughs out the concept). The little guy will never be on the same footing as the big guy, and pretending they can be by setting "accredited investor standards" is where Mr. Levine's arrow is aimed. The SEC Chairman has spoken of making participation in private markets available to all; Mr. Levine's point is: Go ahead... It won't actually narrow the return gap, but if we're going to go that way, we need to eliminate the whinging gap.

How do you figure 1.3%?
296,992*(1/925)*(1/3790) ~= 8.1%

I came here to ask this same thing!

Ugh, you are correct. Thanks. Fixed!

It's 8.1% interest, but your principal is not protected. For it to be an internal rate of return of 8.1%, you need to be able to recover your principal. If you assume the value of the investment goes to 0 over 20 years, and hold the yearly payment flat, it looks more like a 5.1% IRR.

Funniest thing I've read in awhile!

The SEC employee is a "she".
The seller of the dumb investment is a "he".

I suppose both men and women can be equally offended at the characterizations.

Everyone should read Matt Levine's daily columns.

Does anyone really know how well accredited investors do? Perusing google scholar there appears to be a lack of actual data on average ROI etc. Some observers suggest that the SEC's accredited investors produce an adverse impact on minority access to start-up investing opportunities. Would eliminating or discouraging accredited investing reduce startup capital? And what about crowd-funding? Should crowdfunding participants get slapped in the face? If you want to eliminate investment in non-regulated financial instruments, wouldn't you want to also proffer some model for how startup funding would be regulated?

Crowdfunding is explicitly not an investment.

These guys would beg to differ: https://www.crowdfunder.com/

desculpe, wrong link: https://www.investopedia.com/terms/i/investment-crowdfunding.asp

https://getyarn.io/yarn-clip/96513aaf-8b18-4b74-8cc1-72e99fe02a2f

https://getyarn.io/yarn-clip/6366ec8c-d4f5-4090-b916-55725c329906

David Bowie did this first in 1997. Nothing new here.

I never want to hear that song again.

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