Article prepared by and republished courtesy of our colleagues Larry W. Nishnick, Bradley E. Phipps, Kevin R. Bettsteller, Brittney Bennett and David Kurlander; originally published here: https://www.dlapiper.com/en/us/insights/publications/2020/09/sec-adopts-changes-to-accredited-investor-definition/
The SEC recently adopted amendments to the long-standing definition of “accredited investor,” an important qualification standard under the securities laws that determines what types of investors may invest in certain kinds of private securities offerings, including securities offerings to natural persons and entities conducted pursuant to Rules 506(b) and 506(c) of Regulation D under the Securities Act of 1933 and “qualified institutional buyers” for Rule 144A under the Securities Act and other important federal and state securities law exemptions. The final rule adopted by the SEC is substantially similar to the proposed rule with a few teaks based on comments it received as part of the adoption process.
The current definition of “accredited investor” has been in place without any significant update since 1985. At a high level, the rule broadens the categories of individuals and entities that qualify by adding categories of eligibility based on their professional knowledge, experience or certifications and allows these investors to further qualify as “accredited investors” thereby making them eligible to participate in private capital markets. The stated purpose of the amendments is to “update and improve the definition to more effectively identify institutional and individual investors that have the knowledge and expertise to participate in those markets.” Ultimately, the amendments allow individuals and entities to participate in private capital markets not only based on their income or net worth, but also based on established, clear measures of financial sophistication.
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