“For the first time, individuals will be permitted to participate in our private capital markets not only based on their income or net worth, but also based on established, clear measures of financial sophistication.” SEC Chairman Jay Clayton
On Wednesday, August 26th, the SEC announced that it has amended the definition of “accredited investor” under the Securities Act of 1933. Whereas under the current definition, an individual can only qualify as an accredited investor by meeting certain net worth thresholds, once the amendments take effect one may also qualify based on meeting defined standards for professional knowledge and experience or by having certain certifications. In addition to expanding the criteria for who may qualify as an individual, the amended definition also will encompass a greater list of entities who may be considered accredited, including any entity who meets a defined investment test.
The accredited investor test, while designed by the SEC to protect investors, has long been viewed by some as a barrier to entry for participating in certain investments, most notably 506(c) exempt offerings under Regulation D. While non-accredited investors may still participate in 506(b) offerings, allowing non-accredited investors to join an offering creates additional disclosure requirements and regulatory burdens for the issuer.
The amendments come as part of the SEC’s ongoing initiative to simplify and improve the exempt offering framework, which – even as the SEC’s most regulatory-lite method for raising money – is complicated and burdensome at best, and a total barrier to raising money at worst. SEC Chairman Jay Clayton stated in the press release the amendments are the product of “years of effort by the Commission and its staff.”
The amendments will become effective 60 days after publication in the Federal Register.
Read below for the full press release and specific amendments to the Rules 501(a), Rule 215, and Rule 144 of the Securities Act.