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![]() The final rule creates a new category of accredited investors for certain “family offices” and their “family clients,” each as defined in rule 202(a)(11)(G)-1 under the Investment Advisers Act of 1940 (“Advisers Act”). This catch-all category is intended to capture all existing entity forms not included in the existing definition, such as Native American tribes and governmental bodies, as well as those entity types that may be created in the future.įamily Offices and Family Clients. ![]() Under the final rule, “any” entity will be able to qualify as an accredited investor if it (1) owns more than $5 million in “investments,” as defined in Rule 2a51-1(b) under the Investment Company Act, and (2) was not formed for the specific purpose of acquiring the securities offered. These are the same individuals that qualify as knowledgeable employees for purposes of Section 3(c)(1) and Section 3(c)(7) of the Investment Company Act.Ĭatch-All for Entities Owning More than $5 Million in Investments. ![]() The amendments will allow individuals who are “knowledgeable employees,” as defined in Rule 3c-5 under the Investment Company Act of 1940 (the “Investment Company Act”), of an issuer to qualify as accredited investors of that issuer. In determining whether to qualify additional professional certifications, designations, or credentials under the new category, the SEC will consider (1) whether it requires an examination administered by a self-regulatory organization, industry body, or accredited educational institution, (2) whether the examination is designed to reliably and validly demonstrate an individual’s comprehension and sophistication in the areas of securities and investing, (3) whether persons obtaining such certification, designation, or credential can reasonably be expected to have sufficient knowledge and experience in financial and business matters to evaluate the merits and risks of a prospective investment, and (4) whether the relevant self-regulatory organization or other industry body has made information publicly available to indicate that an individual holds the certification or designation (e.g., FINRA’s BrokerCheck or the SEC’s Investment Adviser Public Disclosure database), or whether an individual’s certification or designation is otherwise independently verifiable. Individuals holding such licenses in good standing qualify as accredited investors even if they do not meet the income or net worth standards in the accredited investor definition. (“FINRA”): (1) the Licensed General Securities Representative (Series 7) (2) the Licensed Investment Adviser Representative (Series 65) and (3) the Licensed Private Securities Offerings Representative (Series 82). In the final rule, consistent with commenters’ suggestions, the SEC clarified that it will provide notice and an opportunity for public comment prior to issuing any final order regarding future designations of qualifying credentials.Īn initial set of designations were adopted in a separate order for the following certifications or designations administered by the Financial Industry Regulatory Authority, Inc. Such designations will be issued by an SEC order and posted to the SEC website, as modified from time to time. Under a new category in the amended definition, natural persons will be able to qualify as accredited investors based on certain professional certifications, designations, or credentials from an accredited educational institution that the SEC designates as qualifying an individual for accredited investor status. Professional Certifications, Designations, or Credentials. The SEC expanded the categories of accredited investors for both natural persons and entities. The final rule will become effective 60 days after publication in the Federal Register. The amendments, which were initially proposed on December 18, 2019, were adopted substantially as proposed with a few modifications, which we discuss below. The amendments create new categories of accredited investors, including those that qualify irrespective of wealth, on the basis that they have the requisite ability to assess an investment opportunity, and codify certain staff interpretative positions. On August 26, 2020, the Securities and Exchange Commission (the “SEC”) adopted amendments to the definition of “accredited investor” in Rule 501(a) of Regulation D under the Securities Act of 1933 (“Securities Act”), which expand the category of investors eligible to participate in private offerings under Regulation D.
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