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SEC amends definition of ‘accredited investor’

The Securities and Exchange Commission (SEC) adopted new rules in the latter half of 2020, adding new categories for people and entities that qualify as accredited investors, allowing them to invest in certain exempt, unregistered securities offerings.

The amendments allow for increased participation in private offerings from those with substantial defined professional securities knowledge, experience, connection with the issuer, or certifications.

Examples of newly-approved accredited investors

The amendments took effect 60 days after they were published in the Federal Register. They revise Rule 501(a) and Rule 144A of the Securities Act of 1933. Among others, the changes give accredited investor status to:

  • Those with certain professional certifications, such as Series 82, Series 65 and Series 7 securities licenses
  • Directors, executive officers, or general partners of the issuer
  • Natural persons who are “knowledgeable employees” of a private investment fund
  • Investment advisors registered by states or the SEC
  • Rural business investment companies
  • Limited liability companies (LLCs) that satisfy the other requirements of the accredited investor definition
  • Entities, such as Indian tribes and other governmental bodies and funds with investments of more than $5 million
  • “Family offices,” pursuant to the Investment Advisers Act of 1940 with at least $5 million of assets under management
  • “Family clients” of a family office meeting the requirements

Definition of “spousal equivalent” adjusted

The SEC also adopted changes to rules for calculating joint net worth and joint income for spouses to qualify as accredited investors. The agency defines ”spousal equivalent” as a cohabitant in a generally equal relationship with their spouse. While spouses can purchase securities using the joint net worth test, they do not have to be purchased jointly.