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Legal Alert: SEC Expands “Accredited Investor” Definition

LEGAL ALERT

On August 26, 2020, the Securities and Exchange Commission (“SEC”) adopted final rule amendments (“Final Rule”) to the definition of “accredited investor” provided in Rule 501(a) of Regulation D of the Securities Act of 1933. These amendments expand the access of individuals and entities to private investment opportunities. Qualifying as an “accredited investor” is a gating requirement to participate in many U.S. private company security offerings and private funds.

Under the final rule, new “accredited investor” categories include:

  • persons who hold certain professional certifications, such as FINRA Series 7, 65 or 82 licenses;
  • “knowledgeable employees” of a private fund manager for the purpose of investing in the fund;
  • SEC and state-registered investment advisors;
  • investment advisors exempt from registration under Section 203(l) or (m) of the Investment Advisers Act of 1940;
  • rural business investment companies;
  • limited liability companies with total assets in excess of $5 million and which were not formed for the specific purpose of acquiring the securities being offered;
  • a family office with at least $5 million of assets under management and which was not formed for the specific purpose of acquiring the securities being offered and its family clients; and
  • any other entity owning investments in excess of $5 million and which was not formed for the specific purpose of acquiring the securities being offered.

The Final Rule does not change the long-established income and net worth thresholds for individuals to qualify as an “accredited investor.”

The final rule will become effective 60 days after publication in the Federal Register. The SEC did not indicate that voluntary early adoption of the rule would be permitted.

 

For more information about this SEC rule or U.S. or cross-border private placements, reach out to grIP Advisor and Mei & Mark LLP Head of Corporate Jed Weiner at jweiner@meimark.com.

grIP is Mei & Mark LLP’s venture capital and emerging company platform. grIP’s expert advisors for business growth include seasoned Mei & Mark lawyers and leading experts in intellectual property, finance, fundraising, marketing, social media, pricing, go-to-market, media, financial modeling, product management, supply chain, biotech and government contracts.