Last week the SEC issued a staff report seeking reaction to proposed amendments to the definition of an “accredited investor.”
Regulation D is the most relied-upon exemption from SEC (and typically State) registration requirements for the sale of securities, and Reg D relies primarily upon one definition: that of “accredited investor.” For individuals that means you and spouse have a net worth of $1M or earn $200K (combined $300K)/year.
Possible amendments: limit investments per issuer to a percentage of income or net worth (borrowed concept from new crowd funding rule?); adjusting thresholds for inflation, once or ongoing by indexing; expanding the spousal pooling to cover all marriage/civil union arrangements; grandfathering existing investors who today qualify; setting an additional standard for experienced investors or certain professionals.
The financial standards now in effect date to the Reg’s adoption (although a few years back an amendment excluded primary residence equity as part of the net worth calculation), so marking the financial triggers to market makes some sense; we have not been subject to great inflation of late, but it has been many years and with the Fed now advancing interest rates some greater inflation is reasonable to anticipate. Capping investment per issuer is more problematical; is it prudence (albeit externally enforced), or meddling in personal decisions (someone is rich enough to invest in speculation but the government will tell you just how much).
Most intriguing is establishing an alternate approach: you may not be rich, but you are pretty smart based on experience or professional credentials so, go for it! This is a faint echo of the law prior to Reg D, when the registration exemption under Section 4(2) of the ’33 Act was defined under common law and where courts would sometimes consider both how rich and how smart an investor was in order to avoid declaring an offering as needing registration. Problem in those days was: we never knew how rich OR how smart you had to be, and whether being sophisticated trumped near-poverty.