Accredited Investor Rule to Get a Facelift, Maybe…

Ken Degraw, CPA, CFP, CFE – Partner – WithumSmith+Brown, CPAs

Just when you thought Democrats and Republicans couldn’t agree to do much of anything comes a 347-8 vote in the House of Representatives.

Dodd-Frank called for the SEC to regularly review the accredited investor rule. While the SEC staff has been paying attention to the issue, there has been no major movement on the issue prior to this bill passing the House.

So let’s back up…what’s an accredited investor?

Under the Securities Act of 1933 an exemption was carved out for companies looking to sell their securities without registering with the SEC. The exception most often used falls under Regulation D, which allows a company to sell its securities to “Accredited Investors.” The full definition can be found on the SEC’s web site at . However, the basics as they relate to individual investors are: 1.) they must have a net worth that exceeds $1,000,000, without considering their residence or 2.) they have income exceeding $200,000 in the two most recent years and a reasonable expectation that will continue in the current year.

Under the bill that passed the House, HR 2187 the “Fair Investment Opportunities for Professional Experts Act,” the definition has been expanded to include those with securities licenses and those who have demonstrable education or professional knowledge of a subject related to a specific security. It also adjusts the net worth limitation in $10,000 increments for inflation.

This change, if passed by the Senate and signed by the President, would allow individuals currently barred from participating in the private placement market to become market participants.

If you have questions, please contact your regular Withum partner.


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