As anticipated, yesterday the SEC voted to propose amendments to the definition of “accredited investors.” The proposed amendment, issued upon a 3-2 vote, will allow more investors to participate in private offerings by adding more natural persons that will qualify based on their professional knowledge, experience or certifications. Interestingly, the proposal contemplates that these categories could be established by the SEC by order, rather than the rule itself – which would allow the SEC to establish the criteria in the future without notice & comment. Also, the proposed amendments expand the list of entities that may qualify as accredited investors.
During the summer, Liz wrote about the SEC’s concept release that included discussion of the accredited investor definition. As the concept release generated a flurry of comment letters, it’s hard to say whether this proposal will please everyone. As a recent Cooley blog notes, the statements of dissent from Commissioners Rob Jackson and Allison Lee – compared to the statements of support from Commissioners Hester Peirce and Elad Roisman – highlight the differences in views that exist about the fundamental purposes of the securities laws.
The proposal doesn’t raise the income and wealth thresholds that have existed since 1982 or suggest adjustments for inflation in the future. A WSJ article says that the lack of an inflation adjustment has contributed to the current number of qualifying households rising over time – from 1.3 million in 1983 to 16 million this year. And among the 69 questions that the SEC specifically requests people to comment on is whether the standards should be tied to geographic reasons to account for potentially lower costs of living.
We’ll be posting memos in our “Accredited Investor” Practice Area to help everyone stay up to date with the latest on the proposed changes.
-Lynn Jokela, TheCorporateCounsel.net December 19, 2019
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