SEC Proposes to Expand Accredited Investor Definition

On December 18, 2019, the U.S. Securities and Exchange Commission (SEC) proposed to expand the definition of accredited investor. The proposed amendments would ultimately allow more investors to participate in private offerings. More specifically, the proposed amendments to the accredited investor definition would:

  • add new categories to the definition that would permit natural persons to qualify as accredited investors based on certain professional certifications and designations, such as a Series 7, 65 or 82 license, or other credentials issued by an accredited educational institution;
  • with respect to investments in a private fund, add a new category based on the person’s status as a “knowledgeable employee” of the fund;
  • add limited liability companies that meet certain conditions, registered investment advisers and rural business investment companies (RBICs) to the current list of entities that may qualify as accredited investors;
  • add a new category for any entity, including Indian tribes, owning “investments,” as defined in Rule 2a51-1(b) under the Investment Company Act, in excess of $5 million that were not formed for the specific purpose of investing in the securities offered;
  • add “family offices” with at least $5 million in assets under management and their “family clients,” as each term is defined under the Investment Advisers Act; and
  • add the term “spousal equivalent” to the accredited investor definition, so that spousal equivalents may pool their finances for the purpose of qualifying as accredited investors.

The proposal is subject to a 60-day public comment period. 

BrownWinick will continue to monitor any rule changes that impact the capital raising process.  If you have any questions, please contact any attorney in the BrownWinick Growth Capital practice group.