SEC: Amending the “Accredited Investor” Definition

On August 26, 2020, the SEC adopted amendments to the “accredited investor” definition, which expands the definition to include for the first time natural persons who are financially sophisticated without having to meet minimum financial conditions.  To begin, the SEC by order issued on the same day will include within the Accredited Investor definition holders in good standing of the Series 7, Series 65 and Series 82 licenses.  In addition, the SEC has the necessary authority to further certifications and designations in the future.

 

SECURITIES AND EXCHANGE COMMISSION FINAL RULE

 

The amendments, which are set to take effect within 60 days, also expand the scope of the definition by adding the following:

  • include as accredited investors, with respect to investments in a private fund, natural persons who are “knowledgeable employees” of the fund;
  • clarify that limited liability companies with $5 million in assets may be accredited investors and add SEC- and state-registered investment advisers, exempt reporting advisers, and rural business investment companies (RBICs) to the list of entities that may qualify;
  • add a new category for any entity, 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;
  • add “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; and
  • add the term “spousal equivalent” to the accredited investor definition, so that spousal equivalents may pool their finances for the purpose of qualifying as accredited investors.

 

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About the Author:

Matt Lisle is General Counsel, CAO of DrawBridge Lending / DBL Digital. A seasoned financial industry veteran with a J.D. from Loyola University School of Law and a BA from Colgate University, Matt has 23 years’ experience as an attorney and compliance officer in the commodity futures industry, including 5 years as chief Compliance Officer for ABN AMRO Clearing. Mr. Lisle holds a Series 3 Registration.