Dodd-Frank ("Dank") Part III: "Accredited Investor" Definition Changed
By David Feldman at 17 July, 2010, 8:28 am
Another meaningful change in the Dank bill affecting smaller companies: the definition of accredited investor as used in SEC Regulation D. When an offering is made under Reg D, a safe harbor is created assuring that the offering is not treated as a public offering. A key to this determination is to see how many accredited vs. non-accredited investors are purchasing securities in the offering. An “all-accredited” deal has no specific information delivery requirements and has been a valuable tool for smaller companies in capital formation.
The definition of accredited investor, however, came into effect in 1982. If you are an individual, you are accredited if you (a) are a director, executive officer, or general partner of the issuer of the securities being offered or sold, or a director, executive officer, or general partner of a general partner of that issuer, or (b) earned $200,000 (or $300,000 including your spouse) in the last two years, and expect to do so in the current year, or (c) have a net worth (alone or with spouse) in excess of $1 million. The Dank provision will remove the value of your primary residence from the $1 million calculation. So you now need a $1 million net worth excluding your primary residence. Frankly I am a little surprised they didn’t also deal with the income standard, since $200,000 in 1982 obviously is not the same as $200,000 today. The SEC is also given a once every four years opportunity to make other changes if it is for the benefit of investor protection. They can also change the definition if it’s in the public interest, among other things.
Still researching…more to come…
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