As we previously posted, the Securities and Exchange Commission’s Small Business Capital Formation Advisory Committee met last week to consider changes to the accredited investor definition, which has become a political hot potato.  In remarks to the Committee, Commissioner Uyeda encouraged the Committee to consider a few themes as they contemplated the definition, including not being restricted by the existing framework of net worth and annual income and assume that this framework needs to continue to be applied going forward; focusing on providing a broad range of investment opportunities, including private investments, to the public; and not viewing the accredited investor definition as a tool or as the only tool to prevent private companies from failing or from committing fraud.  See his full remarks.

The Committee voted in favor of three recommendations, which it will present to the SEC, and which can be summarized as follows:

  • The current net worth and income thresholds in the definition should not be indexed for inflation;
  • Non-accredited investors should be permitted to invest up to five percent of their income or net worth in private offerings annually if they meet certain sophistication criteria or pass a certification exam; and
  • The SEC should require a risk statement to be included in private placement documents.

The SEC Staff report on the accredited investor definition raised a number of questions, which will be considered, likely together with the Committee’s recommendations, as well as with any comments submitted in response to the report.  It is anticipated that the SEC will consider amendments to the definition during the course of this year.  For more on the Committee’s meeting, see the Committee’s webpage.