On December 18, 2019, the Securities and Exchange Commission (SEC) voted to propose amendments to the definition of “accredited investor” in Rule 501(a) of Regulation D under the Securities Act of 1933, as amended, one of the principal tests for eligibility to participate in most private offerings. According to the SEC’s press release, the proposal seeks to update and improve the definition to more effectively identify institutional and individual investors that have the knowledge and expertise to participate in our private capital markets.

SEC Chairman Jay Clayton stated “The current test for individual accredited investor status takes a binary approach to who does and does not qualify based only a person’s income or net worth. Modernization of this approach is long overdue. The proposal would add additional means for individuals to qualify to participate in our private capital markets based on established, clear measures of financial sophistication.”

The proposed amendments would expand the categories of natural persons and entities that may qualify as accredited investors. The following table provides a comparison of the categories of accredited investors under existing Rule 501(a) of Regulation D and the proposed amendments to these categories.

Accredited Investor

The SEC is accepting public comments on the proposed amendments within 60 days of their publication in the Federal Register. The proposed rule can be found here