The SEC staff this month issued a report on definition of “accredited investor.” The report, which was issued as part of a review mandated by the Dodd-Frank Act, recommended that the Commission consider any one or more of the following methods of revising the accredited investor definition (quoted from the report):
• The Commission should revise the financial thresholds requirements for natural persons to qualify as accredited investors and the list-based approach for entities to qualify as accredited investors. The Commission could consider the following approaches to address concerns with how the current definition identifies accredited investor natural persons and entities:
o Leave the current income and net worth thresholds in place, subject to investment limitations.
o Create new, additional inflation-adjusted income and net worth thresholds that are not subject to investment limitations.
o Index all financial thresholds for inflation on a going-forward basis.
o Permit spousal equivalents to pool their finances for purposes of qualifying as accredited investors.
o Revise the definition as it applies to entities by replacing the $5 million assets test with a $5 million investments test and including all entities rather than specifically enumerated types of entities.
o Grandfather issuers’ existing investors that are accredited investors under the current definition with respect to future offerings of their securities.
• The Commission should revise the accredited investor definition to allow individuals to qualify as accredited investors based on other measures of sophistication. The Commission could consider the following approaches to identify individuals who could qualify as accredited investors based on criteria other than income and net worth:
o Permit individuals with a minimum amount of investments to qualify as accredited investors.
o Permit individuals with certain professional credentials to qualify as accredited investors.
o Permit individuals with experience investing in exempt offerings to qualify as accredited investors.
o Permit knowledgeable employees of private funds to qualify as accredited investors for investments in their employer’s funds.
o Permit individuals who pass an accredited investor examination to qualify as accredited investors.