accredited investor

SEC Modernizes the Accredited Investor Definition


The Securities and Exchange Commission (SEC) amended the definition of “accredited investor” to more effectively identify institutional and individual investors that have the knowledge and expertise to participate in private capital markets. The amendments allow individuals to qualify as accredited investors based on measures of financial sophistication, including professional knowledge, experience or certification, as well as existing tests for income or net worth. The updates to the definition also expand the entities that may qualify as accredited investors. Release.

SEC Issues Staff Report on Accredited Investor Definition

On December 18, the Securities and Exchange Commission issued a staff report (the “Report”) on the definition of “accredited investor” set forth in Rule 501(a) of Regulation D under the Securities Act of 1933. The Dodd-Frank Wall Street Reform and Consumer Protection Act directs the Commission to review the accredited investor definition as it relates to natural persons every four years to determine whether the definition should be modified or adjusted. Staff from the Divisions of Corporation Finance and Economic and Risk Analysis prepared the Report in connection with the first review of the definition.

The Report examines the history of the accredited investor definition and considers comments on the definition received from a variety of sources, including public commenters, the SEC’s Investor Advisory Committee and its Advisory Committee on Small and Emerging Companies. The Report considers alternative approaches to defining “accredited investor,” provides staff recommendations for potential updates and modifications to the existing definition and analyzes the impact potential approaches may have on the pool of accredited investors.

The primary recommendations of the Report are:

  • The Commission should revise the financial thresholds, requirements for natural persons to qualify as accredited investors and the list-based approach for entities to qualify as accredited investors.
  • The Commission should revise the accredited investor definition to allow individuals to qualify  as accredited investors based on other measures of sophistication besides their net worth and income.

The Report suggests detailed alternate approaches to implementing these recommendations.

The Commission is inviting members of the public to provide comments on the accredited investor definition, generally, and specifically on the staff recommendations contained in the Report, although a deadline for submitting comments has not been set.

SEC Proposed Rules on Accredited Investor Net Worth Standard

On January 25, the SEC proposed amendments to its rules to conform the definition of “accredited investor” to the requirements of the Dodd-Frank Act. The proposals would exclude the value of an individual’s primary residence when calculating net worth and clarify the treatment of indebtedness secured by the residence in the net worth calculation. SEC Release. SEC Proposed Rule.

Dodd-Frank Act: SEC Developments

On July 23, the SEC updated its interpretation of the Securities Act of 1933 to indicate that Section 413(a) of the Dodd-Frank Act, which changes the net worth standard for an accredited investor as set forth in Regulation D of the Securities Act, is effective immediately. SEC Compliance and Disclosure Interpretations: Securities Act Rules.    

On July 27, the SEC announced that it will accept comments on the relevant provisions of the Dodd-Frank Act at this time, before the agency even proposes its regulatory reform rules and amendments. This new process is intended to provide expanded opportunity for public comment and greater transparency and accountability. SEC Release regarding comments.