SEC Revises ‘Accredited Investor’ Definition

If a company wishes to raise funds by selling or offering its securities it must register those securities with the Securities and Exchange Commission. However, there are numerous exemptions to this requirement to register.

There are different regulatory frameworks with different requirements and limitations, including the amount of money that can be raised, the amount of disclosure required and the amount of solicitation and advertising that can be undertaken. One of the most important limitation is the number of non-accredited investors you can sell to. This limitation is particularly important to Reg D offerings.

In simple terms, an accredited investor is a certain type of high worth individual or entity.

The SEC’s revision became effective December 8, 2020, thereby expanding the pool of investors available for exempt offerings.

To wit, the SEC has added these natural persons:

  • those holding one or more professional certifications or designations or other credentials that the SEC has designated as qualifying an individual for accredited investor status
  • those who are “knowledgeable employees” of the private-fund issuer of the securities being offered or sold

And these entities:

  • SEC and state-registered investment advisers and rural business investment companies
  • certain limited liability companies
  • certain ‘family offices’, as defined under the Investment Advisers Act
  • certain ‘family clients’, as defined under the Investment Advisers Act

In addition, the SEC has clarified the calculation of ‘joint net worth’ for the purpose of determining accredited investor stature.

If you have any questions, please do not hesitate to reach out to me, Alan N. Walter