SEC Looking to Expand the Definition of “Accredited Investor” Term

It took almost half a century for the U.S. Securities and Exchange Commission (SEC) to expand access to private security offerings.

The SEC is on the cusp of making a significant change to the definition of “accredited investor,” as three of the five commissioners voted for the issuing of a proposal for updating the definition on December 18. The general public has 60 days to express its views on whether the regulator should accept the updated definition from the proposal’s disclosure.

Accredited investors represent a category of individuals and organizations that can participate in private financial markets. 

The initial goal of the proposal was to significantly expand the types of investors who can receive specific private offerings of securities such as hedge fund offerings, private equity funds, risk capital funds, angel funds, as well as the private real estate funds.

The proposal shows promise, however, “the devil is in the details,” said Drew Hinkes, co-founder of Athena Blockchain and an attorney at Carlton Fields.

The proposal contains a timid framework for which credentials from educational institutions would be eligible, as well as one or multiple exams managed by a self-regulatory body.

As stated in the proposal, the SEC should name the specific certifications, designations or references that an investor should have in order to meet the requirements.

This proposal bears upon recommendations over the last 10 years, with few of the amendments springing from the past reports made in 2015 and 2007.

According to the proposal, roughly $1.7 trillion was raised in 2018 in Rule 506 offerings, including equity and debt, as opposed to $1.4 million collected from registered offerings, signifying a great demand for exempt offerings such as this.

One of the commissioners who voted against the proposal was Mr Allison Lee, who holds the opinion that the proposal could cause some great “risk to retail investors,” referring to elderly and retired individuals.