Regulation D

Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”), the Securities and Exchange Commission (“SEC”) must review the definition of “accredited investor” every four years to determine whether it needs to be modified or adjusted. The SEC staff recently conducted its first review and issued a Report on the Review of the Definition of “Accredited Investor.”

The report provides an in-depth examination of the history of the “accredited investor” definition and discusses possible alternative approaches. The report also responds to comments on the existing definition received from various financial services industry participants, including the Investor Advisory Committee and the Advisory Committee on Small and Emerging Companies. Lastly, the report provides recommendations for potential updates and/or modifications to the existing definition.

The Securities and Exchange Commission (SEC) has adopted a new rule that redefines the standard for “accredited” investors. Required by the Dodd-Frank legislation enacted in 2010, the accredited investor standard is intended to protect less sophisticated investors in less regulated investments. The rule change, which eliminates an investor’s principal residence from consideration in determining accredited status, may dramatically affect whether some potential investors remain eligible for Regulation D offerings.

Most of the accredited investor qualification criteria remain the same, but the net worth criteria has changed. In order to qualify as an accredited investor, the qualifying net worth amount remains $1,000,000; however, the value of the investor’s principal residence must now be excluded from the calculation of the investor’s assets. In addition, subject to some exceptions, the amount of the mortgage debt on the principal residence is also excluded from the investor’s liability calculation. The overall purpose of the changes is to insure that accredited investor status is determined without regard to the value of any equity in the principal residence.
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Articles Tagged with Regulation D

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