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SEC’s Investor Advisory Committee at Odds over Accredited Investor Definition

As efforts to update the “accredited investor” definition continue, members of the U.S. Securities and Exchange Commission’s (“SEC”) Investor Advisory Committee (“the Committee”) remain at an impasse on what changes should be made. During its recent meeting, Committee members acknowledged that a consensus on the definition’s first update in over 30 years will not occur anytime soon.

The proposed revision to “accredited investor” stems from SEC’s Release No. 33-9415, Eliminating the Prohibition Against General Solicitation and General Advertising in Rule 506 and Rule 144A Offerings. While the SEC removed the marketing ban on private offerings provision from the rule, Release No. 33-9415 gave companies additional access to capital markets by allowing the promoting of limited offerings of securities to investors who met the SEC’s regulations accredited investor definition.

Currently, the “accredited investor” definition applies to people with a net worth equal to over $1 million. Qualified individuals also include those with income over $200,000 in each of the previous two years, and with an expectation that they’ll make the same amount in the present year. For married couples, the income limit is $300,000. With Release No. 33-9415 in place, regulators now want to ensure which investors are eligible for accreditation and broaden the definition. In addition, some advocates feel the current definition does not reflect inflation adjustments, and needs to be revised to reflect such price increases and protect various investors after the adoption of Release No. 33-9415. While some opponents agree with adjusting the definition to reflect inflation, a complete overhaul of the 1982 “accredited investor” version is unrealistic.

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