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, it is anticipated that investors will also be allowed to exclude the value of any mortgages or other debt secured by the primary residence in calculating their net worth.
Regulation D
Under Regulation D of the Securities Act of 1933, the disclosure requirements for offerings made strictly to accredited investors are less comprehensive, and accordingly less expensive, than offerings which include non-accredited investors. Moreover, the increased disclosure requirements are applicable if even one non-accredited investor is offered the investment, regardless of whether they subsequent accept the offer and become an investor. In addition to detailed disclosure requirements related to the business, its financial history and the control persons background, offerings made to non-accredited investors must include financial statements, which in most cases must be audited.
Dodd-Frank Act
In addition, the Dodd-Frank Act has eliminated many exemptions from the requirement to be registered as a financial advisor. In particular, the previous “private advisor” exemption has been eliminated. The private advisor exemption allowed advisors to avoid SEC registration if they did not advise a business development company, had fewer than fifteen (15) clients and did not hold themselves out to the public as an investment advisor. The elimination of the private advisor exemption becomes effective July 21, 2011.
Securities Attorney Laura Anthony
Securities attorney Laura Anthony provides expert legal advice and ongoing corporate counsel to small public Companies as well as private Companies seeking to go public on the Over the Counter Bulletin Board Exchange (OTCBB). Ms. Anthony counsels private and small public Companies nationwide regarding reverse mergers, due diligence on public shells, corporate transactions and all aspects of securities law.
Ms. Anthony is the Founding Partner of Legal & Compliance, LLC, a national corporate, securities and civil litigation law firm based in West Palm Beach, Florida. The firm’s corporate and securities attorneys provide technical legal services to small and mid-size private and public (OTCBB) Companies, entrepreneurs, and business professionals nationwide. Contact us today for a FREE consultation!
