United States

SEC proposes to amend definition of "accredited investor"

FINANCIAL REPORTING INSIGHTS  | 

The SEC recently issued a proposed rule, Amending the “Accredited Investor” Definition, which, if finalized, would add new categories of qualifying natural persons and entities and make certain other modifications to the existing definition of “accredited investor” in the SEC’s rules. In particular, the proposed amendments to the “accredited investor” definition would:

  • Add new categories to the definition that would permit natural persons to qualify as accredited investors based on certain professional certifications and designations
  • With respect to investments in a private fund, add a new category based on the person’s status as a “knowledgeable employee” of the fund
  • Add limited liability companies that meet certain conditions, registered investment advisers and rural business investment companies (RBICs) to the current list of entities that may qualify as accredited investors
  • Add a new category for any entity, including Indian tribes, owning “investments,” as defined in Rule 2a51-1(b) under the Investment Company Act, in excess of $5 million and that was not formed for the specific purpose of investing in the securities offered
  • Add “family offices” with at least $5 million in assets under management and their “family clients,” as each term is defined under the Investment Advisers Act
  • Add the term “spousal equivalent” to the accredited investor definition, so that spousal equivalents may pool their finances for the purpose of qualifying as accredited investors

The SEC also proposed amendments to the “qualified institutional buyer” definition in Rule 144A under the Securities Act of 1933 to add limited liability companies and RBICs to the types of entities that are eligible for qualified institutional buyer status if they meet the $100 million in securities owned and investment threshold in the definition. The proposed amendments also would add a “catch-all” category that would permit institutional accredited investors under Rule 501(a), of an entity type not already included in the qualified institutional buyer definition, to qualify as qualified institutional buyers when they satisfy the $100 million threshold.

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