The Dodd-Frank Act amended the accredited investor definition in Regulation D under the Securities Act of 1933 to exclude the value of a person’s primary residence in calculating whether a natural person meets the $1 million net worth requirement. Prior to the effectiveness of the Dodd-Frank Act, a person was permitted, under the accredited investor definition, to include the value of his primary residence in calculating his net worth.

On January 25, 2011, as required by the Dodd-Frank Act, the SEC issued proposed rules clarifying how the amended $1 million net worth requirement for natural persons is to be calculated. According to the proposed rules, a person’s net worth is calculated by subtracting from the estimated fair market value of the property the amount of debt secured by the property, up to the estimated fair market value of the property.

Although the SEC’s proposed rules supplement Section 413(a) of the Dodd-Frank Act, the revised accredited investor standard excluding the value of a person’s primary residence was effective upon the enactment of the Dodd-Frank Act.

In addition to amending the definition of accredited investor, the proposed rules provide that an investor who loses his or her “accredited” status as a result of the new net worth standard would not be allowed to make a subsequent investment in a company or a fund that the investor had previously invested in through a prior Regulation D offering. In the proposed release the SEC requested comments whether it should adopt any transition or other rules providing that an investor who previously qualified as an accredited investor may continue to qualify as an accredited investor for purposes of subsequent or “follow-on” investments, such as investments to protect his or her proportionate interest in a company.

Comments on the proposed rules should be received on or before March 11, 2011.