United States: The SEC May 'Roll Tide' With Respect To The Definition Of 'Accredited Investor'

For most Floridians, as the calendar turns to December, the letters S-E-C tend to elicit thoughts of a certain Championship Game to be played at the Georgia Dome in Atlanta. However, drowning out the bellows of the Gators and the chants of "Roll Tide" this week are the words of Chairwoman Mary Jo White of the Securities and Exchange Commission—"[the SEC] is engaged in a comprehensive review of the 'accredited investor' definition."

Indeed, Chairwoman White explained that the SEC will move ahead "relatively soon" in its review of rules governing who qualifies as an accredited investor for purposes of investing in unregistered securities. While unaccredited investors can invest in unregistered offerings, issuers have substantially greater disclosure obligations with respect to such investors and the number of unaccredited investors that can participate in an unregistered offering is limited. Chairwoman White's statements came in an appearance before the House Financial Services Committee on November 18, 2015, in which Chairwoman White stated that a staff study of the accredited investor standard would be released in the next three to four months, and the findings of which could provide the foundation for rulemaking.

The "accredited investor" standard establishes net worth and income levels necessary to qualify individuals as a sophisticated investor who can participate in private placement offerings.  To qualify as an accredited investor under today's standards, an individual must meet one of the three following criteria:

  1. Have had an individual annual income of $200,000 for the past two years with an expectation that it will continue;
  2. Have had a household annual income of $300,000 for the past two years with an expectation that it will continue; or
  3. Have a net worth of at least $1 million, excluding a primary residence.

These financial levels have not been adjusted in over 30 years, and the only notable change in the standard occurred in 2010 by amending the rule to exclude the value of an individual's primary residence in calculating the requisite level of net worth. Thus, inflation has steadily eroded the original import of these financial benchmarks, allowing millions more people over the years to join the ranks of "accredited investors." Nonetheless, critics continue to fault the criteria for needing to allow more people to invest in start-up ventures. Chairwoman White acknowledged these pundits, remarking "[c]learly what we're looking at beyond the test of net worth and income are other kinds of sophistication, experience, qualifications that certainly many, many would argue should entitle you to be an accredited investor. . . One wants to be sophisticated about and realistic about what those other criteria are that would meet investor protection concerns. We're looking quite broadly."

In that respect, the SEC Investor Advisory Committee, an advisory group established by Dodd-Frank to represent retail investors to the SEC, has previously asserted that relying on income and net-worth thresholds "oversimplifies the factors that determine whether an individual truly has the wealth and liquidity to shoulder the potential risks of private offerings." To be sure, proponents of this viewpoint believe that the SEC should scrap the income and net worth floors and instead espouse a definition of sophisticated investor that takes into account an individual's education; professional credentials, such as chartered financial analyst designation or Series 7 license; and investment experience. In short, they echo the very sentiments of Chairwoman White that "[w]e need to look more broadly and try to get away from the notion that the government's assumptions about people's capabilities and abilities should trump people's individual determinations about how to invest."

However, changing the standard for determining who qualifies as "sophisticated investors," could have drastic repercussions in the marketplace for startups, real estate limited partnerships and other investments that are not traded on exchanges. Should Chairwoman White and the SEC champion a "sophistication" requirement it would inject a potentially chilling level of uncertainty into a marketplace of unregistered securities offerings totaling more than $2 trillion during 2014. Changes in the definition will incentive currently accredited individuals, who either become unaccredited through new rules or perceive a subjective shadow of doubt cast over their prior, clearly accredited status, to direct their capital to other investments such as real estate, public stock offerings and high risk bonds instead of private placements, including those for start-up companies, limiting entrepreneurs' sources of capital and their job creating abilities.

Ultimately, the Securities and Exchange Commission is an SEC wielding far more power than the perennial college football powerhouses of the celebrated, Southeastern Conference. That is why the outcome of Chairwoman White's and the SEC's review will have lasting implications dwarfing those stemming from the outcome of Saturday's game, and any accreditation either the Gators or Crimson Tide receive.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Rebecca H. Forest
Similar Articles
Relevancy Powered by MondaqAI
Akin Gump Strauss Hauer & Feld LLP
Sheppard Mullin Richter & Hampton
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Akin Gump Strauss Hauer & Feld LLP
Sheppard Mullin Richter & Hampton
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions