If you are involved in the private placement of
securities, then you have been waiting to hear how the SEC was going to change
the definition of "accredited investor."
Section 413(a) of the Dodd-Frank Wall Street Reform and
Consumer Protection Act requires the definitions of "accredited investor" to
exclude the value of a person's primary residence for purposes of determining
whether the person qualifies as an "accredited investor" on the basis of having
a net worth in excess of $1 million. Previously, the standards required a
minimum net worth of more than $1,000,000, but permitted the primary residence
to be included in the calculation.
Other than changing the calculation of net worth change
mandated by Dodd-Frank, the SEC has declined to change the definition.
The other test for determining qualification was an
individual income in excess of $200,000 in each of the two most recent years
(or joint income with a spouse in excess of $300,000). I expected those number
to nearly double to keep pace with inflation.
Section 415 of the Dodd-Frank Act requires the
Comptroller General of the United States to conduct a "Study and Report on
Accredited Investors" examining "the appropriate criteria for determining the
financial thresholds or other criteria needed to qualify for accredited
investor status and eligibility to invest in private funds." That study is not
due for three years. The SEC indicated that they will likely use the results of
that study when they once again address the accredited investor standard in 4
years, as allowed under Dodd-Frank.
It seems to me that the SEC found an opportunity to
reduce its rulemaking agenda, by not significantly changing a rule. Maybe this
is the first sign of the SEC creaking under the weight of the Dodd-Frank
additional commentary on developments in compliance and ethics, visit Compliance Building,
a blog hosted by Doug Cornelius.