On August 26, 2020 the Securities and Exchange Commission (“SEC”) adopted amendments to the “accredited investor” definition, which is a principal test used to determine who is eligible to participate in the US private capital markets. These amendments revise Rule 501(a), Rule 215, and Rule 144A of the Securities Act of 1933.
These new amendments will allow for the first time someone to become an accredited investor, regardless of wealth or income. Now, a natural person may qualify as an accredited investor based upon certain professional qualifications, designations, or credentials or other credentials issued by an accredited educational institution which the SEC may designate at its discretion. The Commission also designated holders of the Series 7, Series 65, and Series 82 licenses, who are in good standing, as qualifying natural persons. The amendments also add that limited liability companies with $5 million in assets, SEC- and state-registered investment advisers, exempt reporting advisers, and rural business investment companies (“RBIC”) to the list of entities that may qualify. Additionally, “family offices” with at least $5 million in assets under management and their “family clients” (as both are defined under the Investment Advisors Act) may now qualify as accredited investors.
Rule 144A was amended to expand the definition of “qualified institutional buyer, which may now include limited liability companies and RBIC’s if they meet the $100 million in securities owned and invested threshold. Further, the amendments add any institutional investors included in the accredited investor definition that are not otherwise enumerated in the definition of “qualified institutional buyer” on the condition they satisfy the $100 million threshold. The amendment to Rule 215 replaces the existing definition with a cross reference to the definition in Rule 501(a).
“Today’s amendments are the product of years of effort by the Commission and its staff to consider and analyze approaches to revising the accredited investor definition,” said Chairman Jay Clayton. “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. I am also pleased that we have expanded and updated the list of entities, including tribal governments and other organizations, that may qualify to participate in certain private offerings.”
These amendments took effect on Monday October 26, 2020.
For more information on the SEC’s recent amendments and the revised definition of “accredited investor,” please contact the attorneys at Rock Fusco & Connelly, LLC.