Abstract

Purpose - To explain amendments to the definition of ''accredited investor'' approved by the SEC in August 2020 and to describe the impact of the changes.

Design/methodology/approach - Explains how the amendments expand the pool of qualified investors in various subsections of the definition, explains related amendments, and then discusses the implications of the changes.

Findings - The amendments, among other things: (i) permit natural persons to qualify as accredited investors based on certain professional credentials or, for investments in private funds, based on ''knowledgeable employee'' status''; (ii) add LLCs and other specified entity types to the list of potentiallyqualifying entities, and add a ''catch-all'' category for unspecified entities (although with different quantitative standards); (iii) add the term ''spousal equivalent'' to the definition; and (iv) codify certain related staff interpretive positions. In addition, the amendments revise the definition of ''qualified institutional buyer'' to include additional entity types to avoid inconsistencies with the new accredited investor definition.

Originality/value - Expert analysis and guidance from experienced securities attorneys who counsel clients on all manner of SEC regulatory policy matters.

Keywords US Securities and Exchange Commission (SEC), Accredited investor, Private fund investments, Qualified institutional buyer, Regulation D of the Securities Act of 1933, Rule 144A of the Securities Act of 1933

Paper type Technical paper

On August 26, 2020, the SEC approved Amendments (available at: www.sec.gov/ rules/final/2020/33-10824.pdf) to the definition of "accredited investor." This definition is a central component of several exemptions from Securities Act of 1933 (Securities Act) registration, including Rules 506(b) and 506(c) of Regulation D, and plays an important role in other federal and state securities law contexts. Qualifying as an accredited investor is significant because accredited investors may participate in investment opportunities that are generally not available to non-accredited investors, including certain investments in private companies and offerings by certain hedge funds, private equity funds, and venture capital funds. The Amendments become effective 60 days after publication in the Federal Register.

As discussed more fully below, the Amendments, among other things:

  • permit natural persons to qualify as accredited investors based on certain professional credentials or, with respect to investments in private funds, based on the person's status as a "knowledgeable employee" of the fund;
  • add limited liability companies and other specified entity types to the list of entities that may qualify as accredited investors, and add a "catch-all" category for unspecified entities that may qualify (although with different quantitative standards);

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