Debates about the “accredited investor” definition (as defined in Section 501 of the Securities Act of 1933) continue. On October 9th, the Securities and Exchange Commission’s Investor Advisory Committee (the “IAC”) issued its recommendations. The recommendations reflected the IAC’s belief that the current definition does not “achieve the goal of identifying a class of individuals who do not need the [Securities Act of 1933] protections in order to be able to make an informed investment decision and protect their own interests.” The IAC is calling on the Securities and Exchange Commission (the “SEC” or “Commission”) to revise the definition in a way that “would better protect vulnerable investors” but not “unnecessarily” limit capital to private offerings.
What this means is not particularly clear given the recommendations made. In one instance the IAC seems to support the expansion of the definition to enable individuals to qualify as accredited investors based on their financial sophistication (e.g., professional credentials, investment experience, or a test of relevant financial knowledge). Other recommendations seem to seek to reduce the pool of individuals that would be able to qualify. One recommendation suggests limiting the percentage of an individual’s income or assets that could be invested in private offerings and excluding certain assets from the threshold test (e.g., retirement accounts).
How the SEC will respond to the IAC’s recommendations is unknown. The SEC released the topics to be covered at its annual Government-Business Forum on Small Business Capital Formation next month and the accredited investor definition is on the agenda–sponsors of private offerings and individuals who want to take charge of their available investment possibilities should plan to attend.