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Search Results for: accredited investor

SEC Issues Staff Report On Accredited Investor Definition

January 23, 2024

On December 15, 2023, the SEC issued a staff report on the accredited investor definition.  The report comes three years after the most recent amendments to the accredited investor definition (see HERE).

The Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) requires the SEC to review the accredited investor definition, as relates to natural persons, at least once every four years to determine whether the definition should be modified or adjusted.  The last two reports can be read HERE and HERE.

The current report focuses on the composition of the accredited investor demographic, including since the last definition amendments; the extent to which accredited investors have the financial sophistication, ability to sustain the risk of loss of investment, and access to information that have traditionally been associated with an ability to fend for themselves; and accredited investor participation in exempt offerings.

I’ve included the complete current accredited investor definition at the end of this blog.

Background

All

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SEC Adopts Amendments To Accredited Investor Definition

September 8, 2020

The much anticipated amendments to the accredited investor definition and definition of qualified institutional buyer under Rule 144A were adopted by the SEC on August 26, 2020.  The amendments come almost five years after the SEC published a report on the definition of “accredited investors” ( see HERE)  and nine months after it published the proposed amendments (see HERE).  The rule changes also took into account the input and comment letters received in response to the SEC’s concept release and request for public comment on ways to simplify, harmonize and improve the exempt offering framework (see HERE).

As a whole industry insiders, including myself, are pleased with the rule changes and believe it will open up private investment opportunities to a wider class of sophisticated investors, while still maintaining investor protections.  As the SEC pointed out historically, individual investors who do not meet specific income or net worth tests, regardless of their financial sophistication, have been denied

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SEC Proposes Amendments To The Accredited Investor Definition

January 7, 2020

Four years after issuing its report on the definition of “accredited investors” in December 2015, the SEC has published a proposed rule amendment to the definition.  See HERE for my blog on the SEC’s report.  The amendments were anticipated following an in-depth discussion on the definition contained in the SEC’s Concept Release on Private Offerings published in July 2019 (see HERE)

As a whole industry insiders, including myself, are pleased with the proposal and believe it will open up private investment opportunities to a wider class of sophisticated investors, while still maintaining investor protections.  In the rule amendment release the SEC cites numerous comment letters suggesting and supporting many of the proposed amendments including one from the Crowdfunding Professionals Association (CfPA), Legislative & Regulatory Affairs Division, a committee I sit on and for which I participated in the preparation of the comment letter.

The current test for individual accredited investors is a bright line income or net

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SEC Advisory Committee On Small And Emerging Companies Issues Further Recommendations On Accredited Investor Definition

August 2, 2016

On July 19, 2016, the SEC Advisory Committee on Small and Emerging Companies (the “Advisory Committee”) met and drafted its recommendations and response to the SEC report on the definition of accredited investor.  The subject of changes to the definition of accredited investor has been debated in a series of reports, recommendations, proposals and comment letters since early 2015.

On December 18, 2015, the SEC issued a 118-page report on the definition of “accredited investor” (the “report”).  The report follows the March 2015 SEC Advisory Committee recommendations related to the definition.  The SEC is reviewing the definition of “accredited investor” as directed by the Dodd-Frank Act, which requires that the SEC review the definition as relates to “natural persons” every four years to determine if it should be modified or adjusted.  See my blog HERE on the report and additional background on the subject.

At the July 19 meeting, the Advisory Committee finalized a draft of a letter

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SEC Issues Report On Accredited Investor Definition

January 12, 2016

On December 18, 2015, the SEC issued a 118-page report on the definition of “Accredited Investor” (the “Report”). The report follows the March 2015 SEC Advisory Committee on Small and Emerging Companies (the “Advisory Committee”) recommendations related to the definition. The SEC is reviewing the definition of “accredited investor” as directed by the Dodd-Frank Act, which requires that the SEC review the definition as relates to “natural persons” every four years to determine if it should be modified or adjusted.

The definition of “accredited investor” has not been comprehensively re-examined by regulators since its adoption in 1982; however, in 2011 the Dodd-Frank Act amended the definition to exclude a person’s primary residence from the net worth test of accreditation.

Although the Report contains detailed discussions on the various aspects of the definition of an accredited investor, the history of the different aspects of the definition, a discussion of different approaches taken in other U.S. regulations and in foreign

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SEC Advisory Committee On Small And Emerging Companies’ Recommendations On Accredited Investor Definition

March 17, 2015

On December 17, 2014 and again on March 4, 2015, the SEC Advisory Committee on Small and Emerging Companies (the “Advisory Committee”) met and finalized its recommendation to the SEC regarding the definition of “accredited investor.”  The Advisory Committee unanimously approved the recommendation, which is decidedly pro small business and supportive of facilitating capital formation, and communicated such recommendation to the SEC in a letter dated March 9, 2015 (the “Letter”).  The Letter contains a pragmatic discussion of the importance of small business capital formation, the importance of the “accredited investor” definition, and the lack of connection between the definition and fraud prevention.

As set forth in the Advisory Committee Letter, the committee was organized by the SEC to provide advice on SEC rules, regulations and policies regarding “its mission of protecting investors, maintaining fair, orderly and efficient markets and facilitating capital formation” as related to “(i) capital raising by emerging privately held small businesses and publicly traded companies

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SEC Extends Valuable Guidance to Determine and Verify Accredited Investors

July 15, 2014

We thank each and every one of our Securities-Law-Blog.com readers for your devotion and positive interaction. Without you, writing these blogs just wouldn’t be exciting. Nominate Securities Law Blog for this year’s ABA Journal Blawg 100 and keep the dynamic energy flowing. Our readers are our greatest strength. Click Here to nominate.

On July 3, 2014, the SEC updated its Division of Corporation Finance Compliance and Disclosure Interpretations ) to provide guidance as to the determination and verification of accredited investor status for purposes of Rule 506 offering.  The SEC published six new C&DI’s on the topic.

Background

Effective September 23, 2013, the SEC adopted final rules eliminating the prohibition against general solicitation and advertising in Rules 506 and 144A offerings as required by Title II of the JOBS Act.  For a complete discussion of the final rules, please see my blog Here.

Title II of the JOBS Act required the SEC to amend Rule 506 of Regulation D

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Implementation Of The Elimination Of The Prohibition Against Advertising For Private Accredited Investor Offerings And The Crowdfunding Act, Continues To Be Delayed

February 27, 2013

The annual “SEC Speaks” conference, in which Securities and Exchange Commission (SEC) representatives review the agency’s efforts over the past year and preview the year to come, was held on February 22-23, 2013.

During the conference the SEC laid out the numerous items on its agenda for the year to come and beyond.  The list included the careful implementation of the various titles of the JOBS Act, including Title II and Title III.

Title II of the JOBS Act provides that the SEC will amend Section 4(2) of the Securities Act of 1933 and Regulation D promulgated there under, to eliminate the prohibition on general solicitation and general advertising in a Rule 506 offering, so long as all purchasers in such offering are accredited investors.  Although on August 29, 2012 the SEC published proposed rules implementing Title II, those rules have been met with numerous comments and opposition and it is entirely unclear how the SEC shall proceed. 

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What is an Accredited Investor or a Qualified Institutional Investor Anyway?

July 12, 2012

ABA Journal’s 10th Annual Blawg 100

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Title II of the JOBS Act provides that the SEC will amend Section 4(2) of the Securities Act of 1933 and Regulation D promulgated there under, to eliminate the prohibition on general solicitation and general advertising in a Rule 506 offering, so long as all purchasers in such offering are accredited investors. The JOBS Act directs the SEC to make the same amendment to Rule 144A so long as all purchasers in the Rule 144A offering are qualified institutional buyers.  Neither a Rule 506 offering nor a Rule 144A offering will be considered a public offering (i.e. will lose its exemption) by virtue of a general solicitation or general advertising so long as the issuer has taken reasonable steps to verify that purchasers are either accredited investors or qualified institutional buyers, respectively.  Since it would be impossible to ensure that only accredited investors, or qualified institutional buyers, receive, review or become aware of

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Dodd-Frank Act Changes Definition Of Accredited Investor Effective Immediately

August 13, 2010

On July 21, 2010, President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). After many revisions, the final Dodd-Frank Act has only minor effects on securities Issuers and their investors. The primary change, which takes effect immediately, is a modification to the definition of “accredited investor” contained in the Securities Act of 1933. In particular: (i) as it relates to natural persons, the $1,000,000 net worth standard must now be calculated excluding the value of the primary residence of such natural person; and (2) the Securities and Exchange Commission (SEC) has been mandated to review the entire accredited investor definition within four (4) years and make appropriate changes within that time, without additional act of Congress.

Increased Net Worth Requirements

This change effectively increases the net worth requirements for investors, whose largest asset is often their primary residence. Although the SEC has not yet issued any guidance or other information on the change,

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