The order provides that holders in good standing of the Series 7, Series 65 and Series 82 licenses qualify as accredited investors. In conjunction with the rule release, the SEC issued an order delineating the initial professional certifications or designations or credentials that provide accredited investor status. The update will permit natural persons to qualify as accredited investors based on certain professional certifications, designations or other credentials issued by an accredited educational institution, as designated by the Commission from time to time by order. The SEC added two new categories to the definition allowing natural persons to qualify as accredited investors. Family offices are entities that are established by families to manage their assets, plan for their families’ future, and provide other services to family members, such as tax and estate planning services family clients generally are family members, former family members, and certain key employees of the family office, as well as certain of their charitable organizations, trusts and other types of entities. Note clarifying that, in determining accredited investor status under Rule 501(a)(8), one may look through multiple levels of equity ownership to natural persons.Īdded any entity owning investments in excess of $5 million that is not formed for the specific purpose of acquiring the securities being offered.Īdded any “family office” with at least $5 million in assets under management not formed for the specific purpose of acquiring the securities offered, as well as “family clients” of a family office. Spousal equivalent is defined as a cohabitant occupying a relationship generally equivalent to that of a spouse.Īdded investment advisers registered under Section 203 of the Investment Advisers Act of 1940 (Advisers Act), state registered investment advisers or “exempt reporting advisers” (as provided under Section 203(m) or Section 203(l) of the Advisers Act).Īdded rural business investment companies (RBICs), as defined in Section 384A of the Consolidated Farm and Rural Development Act.Ĭlarified that limited liability companies not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5 million, are accredited. Note clarifying that for the purposes of the accredited investor test, natural persons may include joint income from a “spousal equivalent” when calculating joint income and may include spousal equivalents when determining net worth. We would expect this list to grow over time.Īdds those who are “knowledgeable employees,” as defined in Rule 3c-5(a)(4) under the Investment Company Act of 1940 (the Investment Company Act), of a private fund and are investing in the private fund. The SEC designated the Licensed General Securities Representative (Series 7), Licensed Investment Adviser Representative (Series 65), and Licensed Private Securities Offerings Representative (Series 82) as the initial professional certifications or designations or other credentials. A chart setting forth all of the criteria for being an accredited investor for individuals and entities, including the amendments, is included at the end of this alert.Īdds those who hold certain professional certifications or designations or other credentials issued by an accredited educational institution that the SEC designates from time to time as meeting specified criteria. The following chart provides a brief description of the updates to the accredited investor definition, which are discussed in more detail below. The new rule will go into effect 60 days after publication in the Federal Register. Most notably, the new rule will allow individuals for the first time to qualify as accredited investors based on measures of financial sophistication other than their income or net worth. The amendments passed by the SEC incorporate new categories of natural persons and entities into the definition and modify the existing list of entities that may qualify to be more inclusive, which will expand the number of investors permitted to participate in private securities offerings, including hedge funds, venture capital funds and private equity funds. The accredited investor standard establishes categories of natural persons and entities that may purchase securities offered in an SEC Rule 506 private placement without counting against the 35-purchaser limit. The final rule largely follows the SEC's amendments proposed in December 2019. On August 26, 2020, the Securities and Exchange Commission (SEC) voted 3-2 to adopt amendments to the definition of “accredited investor” in Rule 501(a) of Regulation D (Reg D) under the Securities Act of 1933 (Securities Act) and the definition of “qualified institutional buyer” under Rule 144A (Rule 144A) under the Securities Act.
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