Accreditation Expansion: Who’s Included in the Latest SEC Amendment?


By Stefan Kwiecinski

Accredited investors are individuals or entities who are allowed to deal in securities that may not be registered with financial authorities. In the world of high-growth ventures, this means unique access to funds and venture deals.

Contrary to what the name might suggest, one does not need to ‘apply’ for accreditation — it is rather a threshold. Being individually accredited in most cases means possessing a net worth of at least $1 million or having an income of at least $200,000 each year for the last two years. The intent is to restrict unregistered securities to financially sophisticated investors who have a reduced need for the protection provided by regulatory disclosure filings.

For an entity to be considered accredited, it has to be a private business development company or have assets exceeding $5 million. Also, if an organization has owners who are accredited investors, the entity itself is accredited. 

Yesterday, the SEC announced amendments to expand these thresholds beyond just wealth qualifications. The spirit of this amendment is to include individuals and entities who would generally be considered financially sophisticated but might not have a large bank account. Now included in the definition are:

Certain Credential Holders: “Natural persons to qualify as accredited investors based on certain professional certifications, designations or credentials or other credentials issued by an accredited educational institution, which the Commission may designate from time to time by order.  In conjunction with the adoption of the amendments, the Commission designated by order holders in good standing of the Series 7, Series 65, and Series 82 licenses as qualifying natural persons.  This approach provides the Commission with flexibility to reevaluate or add certifications, designations, or credentials in the future.  Members of the public may wish to propose for the Commission’s consideration additional certifications, designations or credentials that satisfy the attributes set out in the new rule.”

Knowledgeable Employees: “With respect to investments in a private fund, natural persons who are “knowledgeable employees” of the fund.”

Spouses: “Spousal equivalents may pool their finances for the purpose of qualifying as accredited investors.”

Tribal Entities:  “Including Indian tribes, governmental bodies, funds, and entities organized under the laws of foreign countries, that own “investments,” as defined in Rule 2a51-1(b) under the Investment Company Act, in excess of $5 million and that was not formed for the specific purpose of investing in the securities offered.”

Family Offices: “With at least $5 million in assets under management and their “family clients,” as each term is defined under the Investment Advisers Act.”

Read the full amendment here.

Disclaimer: The information in this article is provided for general informational purposes only, and may not reflect the current or full securities law in your jurisdiction. No information contained in this post should be construed as legal advice from Venture First LLC or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through this article without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.

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