To attract additional funding the company can offer an IPO. This is when the Securities and Exchange Commission (SEC) steps in-with detailed filing and disclosure requirements-in its attempt to prevent fraud and protect the investor from misrepre- sentation. This does not mean, however, that the SEC pre- vents IPOs from being poor deals. An IPO can be legal and still be a poor investment or an outright liability (it goes down in value). The Securities Act of 1933 and the Securities Exchange Act of 1934 were adopted to regulate this type of investment and to protect the investor from fraudulent or high-risk 246 Rich Dad's Guide to Investing investments, as well as broker mismanagement. The SEC was formed to oversee the issuance of securities as well as the securities industry. The regulations for stock issues apply to public issues as well as certain private issues of stock. There are certain ex- emptions from the regulations that we have not covered. For now, it is important to understand the definition of ac- credited investor. The accredited investor may invest in certain types of securities that a non-accredited, non-so- phisticated investor cannot because the "accredited" sta- tus implies that the investor can withstand a higher level of monetary risk than the non-accredited investor. Robert has discussed the accredited investor requirements of an individual or couple related to income or net worth. Any director, executive officer, or general partner of the is- suer of the stock will also be considered an accredited in- vestor even if that person does not meet the income or net worth requirements. This will become a very important distinction when we discuss the "inside investor." In fact, this is the path often taken by the inside and ultimate investor. Chapter 23 The Qualified Investor Rich dad defined the qualified investor as a person who has money as well as some knowledge about investing. A qualified investor is usually an accredited investor who has also in- vested in financial education. As it relates to the stock market, for example, he said qualified investors would include most professional stock traders. Through their education, they have learned and understand the difference between funda- mental investing and technical investing. 1, Fundamental investing: Rich Dad said, "a fun- damental investor reduces risk looking for value and growth by looking at the financials of the company." The most important consideration for selecting a good stock for investment is the future earnings potential of the company. A fundamental investor carefully reviews the financial statements of any company before invest- ing in it. The fundamental investor also takes into ac- count the outlook for the economy as a whole as well as the specific industry in which the company is in- volved. The direction of interest rates is a very impor- tant factor in fundamental analysis.