Expect Different

Changing Face of An "Accredited Investor"

Could the definition of an "accredited investor"?  The answer is yes, but it would have limits. 

H.R. 2187, or the “Fair Investment Opportunities for Professional Experts Act” Sponsored by Rep. David Schweikert (R-AZ) and co-sponsored by Rep. Kyrsten Sinema (D-AZ), the legislation would expand the definition of an "accredited investor." While the income and net worth limits would stay in place, the proposed legislation would broaden the scope of the current "accredited investor" definition to include any natural person:

  • who is a licensed or registered as a broker investment adviser with the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), or a state level equivalent division;
  • who is licensed attorney in good standing under the laws of the jurisdictions in which he or she is admitted to practice law;
  • who is a registered CPA in good standing under the laws of the place of his or her residence or principal office;
  • who has retained and used the services of any person referred to in numbers 1-3 above to make an investment decision relative to the subject investment being offered; or
  • who has passed an examination administered by FINRA.

On February 1, the House of Representatives approved the bill by an overwhelming 347-8 vote. The legislation now goes to the Senate Banking, Housing and Urban Affairs Committee.  

The original proposed bill was intended to change the definition of accredited investor under Rule 501 (17 C.F.R. 230.501). This is the definition we all know and the one that runs through Regulation D (including Rule 506(c)). In the current bill, the concept of changing Rule 501 has been completely abandoned. Instead the amended bill proposes to change the definition of accredited investor under Section 2(a)(15) of the Securities Act of 1933 (15 U.S.C. 77b(a)(15)). This definition, while it has always been the same as Rule 501 (see Rule 215 – 17 CFR 230.215) is only used for offerings made under Section 4(a)(5) of the 33 Act.

While I believe this is still a move in the right direction, it won't create an entirely new category of "accredited investors" for the crowdfunding space.   

Categories: Securities

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