SEC Amends the “Accredited Investor” Definition
On August 26, the SEC adopted amendments to the definition of “accredited investor” (as defined in Rules 215 and 501 of the Securities Act of 1933).
The SEC also adopted amendments to the definition of “qualified institutional buyer” (as defined in Rule 144A) to avoid inconsistencies. These amendments expand the eligibility requirements to allow a greater number of individuals or entities to invest in private securities.
The new definition of “accredited investor”:
- Adds a new category for natural persons holding certain professional certifications or other credentials, including Series 7, Series 65 and Series 82 licenses, who remain in good standing.
- Adds certain “knowledgeable employees,” including executive officers, directors, general partners or other natural persons serving in a similar capacity and certain employees who actively participate in the investment activities of the fund.
- Clarifies that limited liability companies with at least $5 million in assets may be accredited investors.
- Adds certain SEC- and state-registered investment advisers, exempt reporting advisers and rural business investment companies (RBICs).
- Adds a new category for any entity, including Indian tribes, governmental bodies, funds and entities organized under the laws of a foreign country with at least $5 million in assets.
- Adds certain “family offices” or “family clients” of family offices with total assets under management of at least $5 million.
- Adds the term “spousal equivalent” so that spouses may now pool their finances for the purpose of qualifying as accredited investors.
The amendments and corresponding order become effective 60 days after they are published in the Federal Register. The final amendments can be read in full here.
Co-authors Keith Kaplan, partner, and Nicole Haiem, associate, are members of the corporate & securities and fund formation practice groups at Klehr Harrison. Co-author Danielle (Russ) Sismour is an associate in the corporate & securities, mergers & acquisitions, data privacy and cybersecurity and SBA focus group practice groups.