On December 18, 2019, the United States Securities and Exchange Commission (SEC) voted to propose amendments (the Proposed Amendments) to the definition of accredited investor under United States securities laws (the US AI Definition), one of the primary tests for who is eligible to participate in the United States private capital markets. According to the SEC, the Proposed Amendments seek to update and improve the US AI Definition to more effectively identify investors that have the knowledge and expertise to participate in the United States private capital markets.
We believe that modernization of the current approach in the United States as well as Canada - which takes a binary approach to determine who qualifies as an accredited investor based only on a person’s income or net worth - is long overdue, and are hopeful that Canadians securities regulators will announce similar initiatives soon.
Among other things, the Proposed Amendments would:
Add new categories to the US AI Definition that would permit natural persons to qualify as accredited investors based on certain professional certifications and designations
With respect to investments in a private fund, add a new category to the US AI Definition based on the person’s status as a “knowledgeable employee” of the fund
Add to the US AI Definition limited liability companies that meet certain conditions, registered investment advisers and rural business investment companies to the current list of entities that may qualify as accredited investors
Add a new category to the US AI Definition for any entity, including Indian tribes, owning “investments,” as defined in 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” to the US AI Definition, as each term is defined under the Investment Advisers Act
Add the term “spousal equivalent” to the US AI Definition, so that spousal equivalents may pool their finances for the purpose of qualifying as accredited investors
The proposal will be subject to a 60-day public comment period. To submit comments on the Proposed Amendments, use the SEC’s Internet submission form or send an email to rule-comments@sec.gov.
You can view the full SEC press release here.
DISCLAIMER: This post is intended to convey general information about legal issues and developments as of the date above. It does not constitute legal advice and must not be treated or relied on as such.