SEC Says Private Investor Standards May Be Out of Date

December 18, 2015

The U.S. Securities and Exchange Commission (SEC) says it may be time to change the rules governing who can participate as “accredited investors” in private securities transactions. One change being discussed is an increase in income and wealth levels of participants, according to Law360.

The comments, contained in a recently-released SEC staff report, said those rules have not been changed or reviewed since 1982, when they were first adopted.

Fenwick partner Stephen M. Graham, who co-chairs the SEC’s Advisory Committee on Small and Emerging Companies, spoke with Law360 about the proposed changes. He said the SEC’s staff recommendations do not appear to differ significantly from the aims of the committee. But he said radical changes in the definition would not be a good idea.

“There is a sector of our economy that is highly dependent on these financings by angel investors that fit the definition of an accredited investor,” he said. “This is one part of the capital formation ecosystem for small and emerging companies that actually works.”

The definition review was required under the Dodd-Frank Act.

Investors are accredited if their annual incomes exceed $200,000, or if their net worth exceeds $1 million (not including the value of their primary residences). But the SEC staff said those amounts are less valuable now than they were in 1982, when the rules were first adopted.

According to the staff report, the SEC might consider other ways in which investors might demonstrate their abilities to cope with the risks of registration-exempt securities. The SEC will accept public comments on the staff proposals.

Graham’s service on the SEC advisory committee earned him inclusion on the Washington Post’s list of the nineteen most influential people in D.C. who can affect your small business.

The full articles are available through the Law360 and Washington Post websites.​​