Compliance and Regulatory Alerts - 08-31-20

SEC Amends Definition of “Accredited Investor”

In an effort to broaden investment opportunities in private funds, the SEC expanded the definition of “accredited investor” to include a host of “natural persons” and other entities that would not otherwise qualify under the current rigorous disclosure and procedural requirements. The revised definition is intended to increase the number of investors that will have access to private investments.

In the 3-2 vote held on August 26, 2020, the Commissioners amended the definition by:

  • creating a new category for individuals holding certain professional certifications, designations or other credentials (including FINRA Series 7, 65 or 82 licenses);
  • adding a new category based on an individual’s status as a "knowledgeable employee" of a private fund;
  • expanding an existing category to include limited liability companies with assets in excess of $5 million, registered investment advisers, exempt reporting advisers and rural business investment companies (“RBICs”);
  • creating a new category for "family offices" with at least $5 million in assets under management (and their "family clients”); and
  • allowing couples in a “spousal equivalent” relationship to pool their finances for the purpose of qualifying as accredited investors.

The SEC also amended the definition of “qualified institutional buyer” to include limited liability companies and RBICs if they meet certain (unchanged) investment thresholds contained in the definition.

The SEC stated that the changes to these definitions “permit investors with reliable alternative indicators of financial sophistication to participate” in investments in “areas of the economy that disproportionately create new jobs, foster innovation, and provide for growth opportunities.”

The effective date for these amendments is 60 days after publication in the Federal Register. Bates Group will keep you apprised. 

 
Bates practice leaders, consultants and experts offer services to assist our clients’ compliance, risk, supervision, audit and business teams. Contact us today to learn more:
 

Robert Lavigne, Managing Director, Bates Compliance – rlavigne@batesgroup.com

Rory O’Connor, Director, Bates Compliance (RIA compliance) – roconnor@batesgroup.com

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