Written by The White Law Group• February 13, 2023• 6:27 pm• Blog, Securities Fraud Articles

Accredited Investor Rule

SEC Plans to Amend the Accredited Investor Definition by Increasing Thresholds

The Securities and Exchange Comission‘s accredited investor rule determines who is eligible to invest in private, often early-stage companies that aren’t publicly traded. Individuals can meet the SEC’s threshold for the standard through financial and professional criteria.

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Individuals or couples can qualify as accredited investors using the following:

Having a net worth of more than $1 million when excluding the value of a primary residence.
Having an individual income over $200,000 or a joint income of more than $300,000 in each of the two prior years and a reasonable expectation of a similar income above that threshold for the current year.

Professional criteria can allow individuals to qualify as accredited investors if they have the following:

Securities-related certificates or credentials, such as the general securities representative license Series 7, the investment adviser representative license Series 65, or the private securities offerings representative license Series 82.
Directors, executive officers or general partners of the company selling the securities.
“Family client” of a “family office” that qualifies as an accredited investor.
Investing in a private fund and are considered knowledgeable employees of the fund.

Corporations, partnerships, LLCs, trusts, 501(c)(3) organizations, employee benefit plans and a “family office” or “family client of that office owning investments in excess of $5 million may be able to qualify if they meet certain standards. An entity’s equity owners may also qualify.

Further, investment advisors with SEC or state registrations and banks, savings and loan associations, insurance firms, registered investment companies, business development companies, small business investment companies or rural business investment companies also qualify.

Lawmakers Debate Accredited Investor Rule

According to an article in the DI Wireon February 13, 2023, a U.S. House of Representatives hearing last week highlighted current policy on whether the definition of “accredited investor” should be amended further, focusing on upcoming expected rulemaking by the SEC anticipated in April 2023.

The question is whether the accredited investor rule ensures the sophistication of investors and protects low-income investors from higher-risk, illiquid investments or unfairly limits their access to investments that could potentially generate high returns.

The SEC is reportedly planning to issue an update to the financial thresholds in the accredited investor definition in April. According to the SEC’s rulemaking agenda, SEC Chairman Gary Gensler intends to amend the accredited investor definition by increasing the annual income and net worth thresholds.

Last February, the SEC reportedly announced that it would begin to seek public comment to further amend the financial thresholds of the accredited investor definition, one of the principal tests for determining who is eligible to participate in U.S. private securities offerings.

According to the article, the Dodd-Frank Act, in 2010, directed the SEC to adjust the calculation of a natural person’s net worth by excluding the value of a person’s primary residence from the calculation, limiting how many people could invest.

The agency reportedly extended the accredited investor definition in 2020 to include individuals who failed to meet the net worth or income thresholds, but who could demonstrate defined measures of professional knowledge, experience or certifications.

High-Risk, Illiquid Private Placement Investments

The purpose of Regulation D is to allow small to midsize companies an opportunity to raise capital from investors with less expense and reporting requirements than traditional means, making it quite popular.

Since they are not traded on any exchange, Private placement offerings are typically illiquid investments. There are often legal or contractual restrictions on your ability to transfer your holdings, and even if sale of your holdings is permitted there may be no buyers. You may need to hold these securities for an indefinite period of time.

Companies that issue unlisted securities may provide little or no transparency into their ongoing operations and financial condition. Some investments may make periodic distributions, but some may not make any.

To learn more about investing in private placement investments, please see:

Regulation D Private Placement Fraud Attorneys

Free Consultation with a Securities Attorney

This information is being provided by The White Law Group. The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm dedicated to helping investors in claims in all 50 states against their financial professional or brokerage firm. Since the firm launched in 2010, it has handled over 700 FINRA arbitration cases.

The Financial Industry Regulatory Authority (FINRA), overseen by the SEC, provides regulatory services to the financial industry by licensing and regulating broker-dealers. FINRA also operates the largest dispute resolution forum in the securities industry. FINRA Dispute Resolution is the forum for almost all disputes between investors, brokerage firms and brokers.

Our firm represents investors in all types of securities related claims, including claims involving stock fraud, broker misrepresentation, churning, unsuitable investments, selling away, and unauthorized trading, among many others.

With over 40 years of securities law experience, including experience working at FINRA and the SEC, The White Law Group has the expertise to help investors defrauded in securities, investment attempt to recover their investment losses.