Just before the holidays, the SEC released a report detailing a review conducted by the SEC staff of the accredited investor standard. As a quick recap, the accredited investor standard is, for individuals, a net worth of at least $1 million (either alone or in conjunction with one’s spouse) or an annual income of at least $200,000 for the past 2 years with a reasonable expectation of such income in the current year (or $300,000 in conjunction with one’s spouse); for companies, trusts, and other legal entities, the accredited investor standards typically require assets of at least $5 million.
The purpose of the review, conducted pursuant to the Dodd-Frank Act, is to determine whether the accredited investor standard should be modified in order to achieve the securities regulations’ objectives of protection of the investing public. The report published in 2015 is the first report drafted under Dodd-Frank, and is the first meaningful review of the accredited investor standard since its adoption in 1982. In particular, the review looks at whether the financial standards of the accredited investor rule are still effective to protect the investing public, given the changes in the economy, and whether other standards should be adopted in addition to or in place of the financial limitations. The report’s proposed standards include consideration of an investor’s investment history, current investments, professional and educational background, and the use of an “accredited investor” examination to qualify investors. The report addresses many criticisms of the accredited investor rule as being solely focused on an investor’s financial ability to absorb risk of loss, instead of whether the investor is actually capable of evaluating the merits and risks of a potential investment.
The SEC’s report discussing the review of the accredited investor standard, and suggested revisions to the rule, can be read here: http://www.sec.gov/corpfin/reportspubs/special-studies/review-definition-of-accredited-investor-12-18-2015.pdf. The SEC is also seeking public comment on the proposals contained in the report, as well as general comments on the accredited investor standard, which can be submitted at the following link: http://www.sec.gov/cgi-bin/ruling-comments?ruling=4692&rule_path=/comments/4-692&file_num=4-692&action=Show_Form&title=Report%20on%20the%20Review%20of%20the%20Definition%20of%20%27Accredited%20Investor%27