Divide Among SEC Shows on ‘Accredited Investors'

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By Rob Tricchinelli

May 18 — Securities and Exchange Commission staff are working on changes to the definition of an “accredited investor,” but May 18 comments by commissioners foreshadow possible divisions as the agency tries to progress on the issue.

The Dodd-Frank Act requires the SEC to periodically review that definition, which defines a pool of investors who may partake in certain unregistered securities sales.

“I have asked the staff to prepare recommendations on how the commission should modify the definition,” SEC Chairman Mary Jo White said May 18 at a meeting of the agency's Advisory Committee on Small and Emerging Companies.

The qualifying threshold for an individual is $200,000 in net income over the two most recent years or $1 million in net worth excluding a primary residence. For married couples, the level is $300,000 in income to be considered accredited.

Stein, Piwowar

A central challenge for the commission is to “craft a definition that’s flexible enough to differentiate between investors,” Commissioner Kara Stein said.

Commissioner Michael Piwowar openly wondered whether the agency should get rid of the concept of accredited and non-accredited investors altogether, calling it an “artificial distinction” into “arbitrary categories.”

By prohibiting non-accredited investors from participating in unregistered offerings that carry a higher risk, the agency could also be limiting their return potential and stifling their ability to diversify investments, Piwowar said.

“Even a well-intentioned investor protection policy can ultimately harm the very investors the policy is intended to protect,” he added.

Various of the agency's advisory committee's have recommended changes to the definition, including the addition of a sophistication test, and the Division of Corporation Finance has offered a preview of how a new definition might look if it incorporates such tests (244 SLD, 12/21/15).

To contact the reporter on this story: Rob Tricchinelli in Washington at rtricchinelli@bna.com

To contact the editor responsible for this story: Susan Jenkins at sjenkins@bna.com