SEC Adopts Amendments to “Accredited Investor” Definition

August 31, 2020

On August 26, 2020, the SEC adopted amendments to the definition of “accredited investor” in Rule 501(a) of Regulation D, expanding the pool of investors who may participate in private securities offerings. The amendments were proposed on December 18, 2019, and were adopted substantially as proposed.

According to the SEC’s press release, “Historically, individual investors who do not meet specific income or net worth tests, regardless of their financial sophistication, have been denied the opportunity to invest in our multifaceted and vast private markets. The amendments update and improve the definition to more effectively identify institutional and individual investors that have the knowledge and expertise to participate in those markets.”

Among other things, the amendments:

  • Permit individuals to qualify as accredited investors based on certain professional certifications, designations or credentials or other credentials issued by an accredited educational institution, which the SEC may designate from time to time by order; and
  • Add a new category to the definition that includes any entity owning investments in excess of $5 million that was not formed for the specific purpose of acquiring the securities being offered.

Concurrently with the adoption of the amendments, the SEC issued an order designating holders in good standing of the Series 7, Series 65 and Series 82 licenses as qualifying for accredited investor status as contemplated by the first bullet point above.

The amendments and the SEC’s order will become effective 60 days after publication in the Federal Register.

For a more detailed discussion of the amendments as originally proposed, see this previous update.

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