SEC Staff Suggests ‘Accredited Investor' Test

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By Rob Tricchinelli

Dec. 18 — Securities and Exchange Commission staff recommended Dec. 18 that the agency move away from strictly using asset and net-worth thresholds to determine whether a person qualifies as an “accredited investor.”

Under Rule 501 of SEC Regulation D, accredited investors may participate in certain private offerings that are exempt from registration.

An individual qualifies if he or she has at least $200,000 in annual income over the two most recent years or $1 million in net worth, not including a primary residence. Married couples have a $300,000 income threshold.

Sophistication

The staff report recommended that the SEC “revise the accredited investor definition to allow individuals to qualify as accredited investors based on other measures of sophistication.”

This could include allowing people with a threshold level of investments or a professional certification to qualify, as well as people experienced investing in exempt offerings, “knowledgeable employees of private funds” or people who pass a test.

Both the SEC's Investor Advisory Committee (197 SLD, 10/10/14) and Advisory Committee on Small and Emerging Companies (43 SLD, 3/5/15) supported the adoption of a sophistication test.

Thresholds

The report also recommended leaving the current income and asset thresholds in place but subjecting them to limitations on unregistered-offering investments.

Staff said the agency could consider making new inflation-adjusted thresholds that wouldn't have such limitations.

A House bill by Rep. David Schweikert (R-Ariz.) would also index the income thresholds to inflation. The bill was approved by the House Financial Services Committee but its overall prognosis is uncertain (237 SLD, 12/10/15).

Comments

The SEC is asking for public comment on the recommendations in the report. No comment deadline was given.

The SEC's Divisions of Economic and Risk Analysis, and Corporation Finance compiled the report.

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

To contact the editor responsible for this story: Phyllis Diamond at pdiamond@bna.com