SEC Proposes Amendments to “Accredited Investor” Definition

January 6, 2020

On December 18, the SEC proposed amendments to the definition of “accredited investor” in Rule 501(a) of Regulation D to allow more investors to participate in private securities offerings.

The SEC’s press release quotes Chairman Jay Clayton: “The current test for individual accredited investor status takes a binary approach to who does and does not qualify based only a person’s income (greater than $200,000) or net worth (greater than $1 million).  Modernization of this approach is long overdue. The proposal would add additional means for individuals to qualify to participate in our private capital markets based on established, clear measures of financial sophistication.”

Among other things, the proposed amendments would:

  • Add new categories to the definition that would permit natural persons to qualify as accredited investors based on certain professional certifications and designations, such as a Series 7, 65 or 82 license, or other credentials issued by an accredited educational institution;
  • With respect to investments in a private fund, add a new category based on the person’s status as a “knowledgeable employee” of the fund; and
  • Add the term “spousal equivalent” to the accredited investor definition, so that spousal equivalents may pool their finances for the purpose of qualifying as accredited investors.

Notably, the proposed amendments would neither raise the existing income and wealth requirements nor adjust them for inflation.  According to an analysis by The Wall Street Journal, the number of households who meet the current definition rose to 16 million in 2019 from 1.31 million in 1983.

The proposal is subject to a 60-day public comment period.

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