The United States Securities and Exchange Commission (“SEC”) adopted amendments to the definitions of both accredited investor under Securities Act of 1933 (“Securities Act”) Regulation D Rule 501 and qualified institutional buyer (“QIB”) under Securities Act Rule 144A.
Under the new accredited investor definition, the following parties would now be considered accredited investors: (1) designated professionals, such as those persons currently holding, in good standing, the FINRA Series 7, Series 65 and Series 82 licenses, others may follow; (2) private fund knowledgeable employees, including, but not limited to, executive officers, directors, general partners, trustees, advisory board members, or other affiliated fund persons overseeing the fund’s investments or investment activities, but it does not include those persons performing solely clerical, secretarial or administrative functions; (3) rural business investment companies (RBICs); (4) family offices and family clients; and (5) entities meeting $5 million investment threshold. The SEC also indicated that limited liability companies (“LLC”) meeting the $5 million asset test are accredited investors, and that their managers were considered executive officers. QIBs now include: (1) LLCs, who own and invest at least $100 million in securities of non-affiliated issuers; and (2) any institutional investor meeting the $100 million threshold.
The SEC did not change the current dollar test limits. However, the SEC permitted those persons, who cohabit together to be considered a “spousal equivalent,” for the purposes of determining accredited investors, thus, allowing the pooling of resources for the test.
This was a modest movement by the SEC to broaden the definitions of both accredited investors and QIBs. It will be interesting to see if these definitional changes actually expands the pool of investors. Nonetheless, it is critical that those persons seeking to raise money from investors seek out securities counsel to ensure proper adherence to these new definitions, among other things.
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