SEC Will Consider Financial Professionals for New Accredited Investor Definition
SEC Chair Mary Jo White, in a letter to Congressman Scott Garrett, suggested that the SEC may consider expanding the definition of “accredited investor” to include certain professionals with designated certifications or licenses. These may include CPAs, CFAs, a registered broker, and/or a registered investment adviser. According to Ms. White, the SEC has “received comments supporting your suggestion that experienced financial professionals should be deemed to be sufficiently sophisticated to participate in Rule 506 offerings, irrespective of their net worth.” The SEC will also consider whether a person who doesn’t meet the current income or net worth tests would qualify if such person relies on a finance professional: “An investor’s reliance on a registered broker or investment adviser is one of many factors that the Commission staff will consider as part of its review of the accredited investor definition.”
OUR TAKE: We believe that the “accredited investor” definition should involve an assessment of the financial sophistication of the investor or his/her adviser rather than using some proxy such as net worth or income. The SEC has already inched this way by allowing brokers and advisers to certify that a client is an “accredited investor.” The fundamental policy issue is whether Congress and the SEC want to ensure the sophistication of investors or simply limit private placement offerings.