On August 26, the Securities and Exchange Commission adopted amendments to the definition of “accredited investor” in Rule 501(a) of Regulation D. The amendments, which go into effect on October 26, effect the following changes:
- Permit natural persons to qualify as accredited investors based on professional certifications or credentials, including future credentials issued by an accredited educational institution and others as designated by the SEC. Persons immediately designated are holders of FINRA Series 7, 65 and 82 licenses.
- Include as accredited investors persons who are “knowledgeable employees” of a private investment fund with respect to investing in the fund
- Clarify that limited liability companies with $5 million in assets may be accredited investors
- Provide that SEC and state-registered investment advisers, exempt reporting advisers, and rural investment companies (BBICs) are also entities that may be accredited investors
- Add a new category for any entity organized under the laws of another country that owns investments in excess of $5 million and was not formed for the specific purpose of investing in the securities being offered
- Add family offices with at least $5 million in assets under management, along with “family clients” as accredited investors
- Add “spousal equivalent” to the accredited investor definition, so that such persons may pool their income or net worth for purposes of meeting one of the financial tests. Previously, the rule required persons to be married in order to aggregate their income or assets.
- Expand the definition of “qualified institutional buyer” under Rule 144A to include limited liability companies and RBICs that meet the $100 million threshold, and add to the definition any institutional investor that satisfied this threshold.
While not dramatic, these changes not only increase the current pool of accredited investors, but also allow for increases in the future as the SEC adds person in the professional designation category.The amendments also reflect the understanding that sophistication can be presumed from certain professional qualifications without regard to the existing financial tests (net worth in excess of $1 million, exclusive of personal residence, or annual income in excess of $200,000 for individuals).