A central problem with securities regulation is that you want companies to be able to raise money and ordinary investors to have access to good, lucrative investments, but you don’t want ordinary investors to get ripped off. It’s hard to get it right. There are various controversies regarding, for example, the volume and types of disclosure public companies must provide, or on who will become a “qualified investor» and buy shares of private companies. Making it easier to sell shares has obvious benefits, but it also opens the door to fraud.

It’s tempting to try to get around this with a rule like “anyone can sell any stock to anyone, as long as it’s not a scam.” Obviously the devil is in the details, and I don’t think anyone really understands that. But if you try an approach like this – generally permissive rules allowing companies to sell securities to ordinary investors without onerous disclosure and review requirements – you could, for example, exclude people with a history of scams. Many securities scams seem to be the work of repeat crooks: there are people who go to jail for securities fraud, get out, and immediately start a new fraud – so surely they should not be able to sell securities to ordinary investors without full disclosure.