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SEC Proposes Changes to Accredited Investor Definition
On Dec. 18, 2019, the SEC proposed amendments to the definition of "accredited investor" in Rule 501(a) of Regulation D under the Securities Act of 1933 (1933 Act). See, Amending the "Accredited Investor" Definition, SEC Release 33-10734 (Dec. 18, 2019) (proposing release). The definition of "accredited investor" uses income and net worth thresholds to identify natural persons as accredited investors. The bright line standard also identifies entities with the financial sophistication and ability to bear the risk to participate in certain securities offerings including Regulation D based on their statutes alone.
Real Estate syndication offerings often rely on Rule 506 of Regulation D to exempt such offerings from registration under the 1933 Act. Rule 506 of Regulation D requires that, with certain limited exceptions, purchasers of the securities offered are limited to accredited investors. The amendments modify certain of the existing categories of accredited investors and create certain new categories, including new categories for persons with professional certifications, knowledgeable employees of private funds, and certain family offices and their family clients.
New Categories
The following new categories of qualifying natural persons and entities would be added to the accredited investor definition:
Natural persons with professional certifications, designations or other credentials
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