The SEC today proposed amendments to the definition of “accredited investor,” one of the principal tests for who is eligible to participate in exempt private placements of securities. According to the SEC, the proposed amendments seek “to update and improve the definition to more effectively identify institutional and individual investors that have the knowledge and expertise to participate in our private capital markets.”
Besides the existing qualifications based on income or net worth, the amendments would add additional means for individuals to qualify as accredited investors by adding new categories based on their professional knowledge, experience, or certifications. In addition, the amendments would expand the list of entities that may qualify as accredited investors by, among other things, including a “catch-all” category for any entity owning in excess of $5 million in investments. The proposed amendments would also expand the list of eligible entities under the definition of “qualified institutional buyer” under Rule 144A under the Securities Act.
More specifically, the proposed amendments would make the following changes to the accredited investor definition:
- add new categories that would permit natural persons to qualify based on certain professional certifications and designations, such as a Series 7, 65 or 82 license, or other credentials issued by an accredited educational institution;
- 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; and
- 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 proposed amendments to the qualified institutional buyer definition in Rule 144A would 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 would also 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.
The proposed amendments will be subject to a 60-day public comment period, after which the SEC will decide whether to proceed to final rulemaking.