The Dodd-Frank Act requires the SEC to review the definition of an Accredited Investor as it relates to individuals every 4 years to determine whether the definition should be modified or adjusted for the protection of investors. Late last year, the SEC issued a 118-page report on its review of the definition of an Accredited Investor.
In its report, SEC staff recommended revisions to the financial threshold requirements for individuals and the list-based approach for entities to qualify as Accredited Investors. Specific recommendations for individuals included, among others, the following: (i) leaving the current income and net worth thresholds in place, subject to investment limitations; and (ii) creating new inflation-adjusted income and net worth thresholds that are not subject to investment limitations. For entities, SEC staff recommended replacing the $5 million assets test with a $5 million investments test and including all entities rather than certain enumerated types of entities. SEC staff also recommended alternative tests to meet the Accredited Investor standard (aside from financial requirements), which included investment experience, professional credentials and even an Accredited Investor examination.
Additionally, in February of this year, the House overwhelmingly approved by a vote of 347-8 expanding the definition of an Accredited Investor. Following its report in December and the House’s vote, the SEC has remained quiet regarding the Accredited Investor standard. However, it should not come as a surprise if the SEC proposes significant modifications to the Accredited Investor standard before the end of the year.