SEC Committee Wants to Expand Accredited Investor Definition
A Securities and Exchange Commission advisory committee is recommending that the regulator expand the pool of people who can be considered an accredited investor eligible to buy unregistered securities, according to a draft release from the committee.
The Advisory Committee on Small and Emerging Companies suggests that the SEC should broaden the definition of an accredited investor by taking into account the “non-financial sophistication” of the investor. But the committee also urged the regulator to keep the current financial threshold the same, according to its press release.
As the rule currently stands, investors are only considered accredited if they earn over $200,000 annually – or $300,000 for a married couple – or have a net worth over $1 million (excluding the value of a primary residence), according Securities Act Rule 501(a). The rule exists to protect “unsophisticated” investors from fraud. But while suggesting changes based on an investor’s knowledge or experience, the committee argued that raising the financial threshold would disproportionately affect women and minority entrepreneurs seeking investors’ funds while not actually serving to better prevent fraud.
“The Committee is not aware of any evidence suggesting that fraud in the private markets is driven or affected by the levels at which the accredited investor definition is set,” it said in the press release.
Tuesday the committee made a suggestion which it believes would allow for investors with greater knowledge of investing to be included in the rule. The committee voted to approve a recommendation that the accredited investor definition be extended to anyone with a Series 7, 65 or 82 license, as well as to those holding a chartered financial analyst designation or “similar credential,” InvestmentNews writes. Advisors tell the publication they support the recommendation because the alternative — lowering the income and net-worth thresholds — could attract unsophisticated investors.
The recommendation is non-binding, InvestmentNews notes. But SEC Chairwoman Mary Jo White, who was at the meeting, said that a revision of the accredited investor definition is a priority for the regulator, according to the publication. She also questioned whether a bigger pool of investors merits a limit on how much they can put toward Regulation D securities, InvestmentNews writes. Regulation D offerings are securities designed to help small companies access the capital markets. Stephen M. Graham, co-chair of the committee, replied that he could see a reason for such limits but didn’t know what they could be, according to the publication.
Some industry stakeholders have made different recommendations to expand the amount of capital available for small companies. The SEC, which must review the definition every four years as per the Dodd-Frank Act, released a report on the matter in December seeking comments, as reported previously. In response, the Investment Adviser Association, for example, recommended that the SEC extend the accredited investor definition to include anyone working with a professional advisor, as reported previously.