The Dodd-Frank Act mandated that the GAO conduct a study regarding the “accredited investor” standard in order to understand whether the existing criteria serves the intended purpose or whether alternative criteria should be considered. The report was recently released and can be accessed here: http://gao.gov/products/GAO-13-640?source=ra. In addition to reviewing data, the GAO conducted interviews with market participants.
In connection with the SEC’s proposal to relax the ban on general solicitation released in August 2012, various commenters expressed their concern that the “accredited investor” standard should be reviewed, especially if general solicitation and general advertising were to be permitted in connection with private offerings. Again, more recently, in connection with the SEC’s open meeting to approve final rules to amend Rule 506, an SEC Commissioner urged the SEC to review the “accredited investor” standard. The SEC’s proposal regarding private offerings seeks comment on the standard.
In connection with its study, the GAO considered whether there should be an investments owned criterion added to the standard, or a tiered approach that would limit investments to a fixed percentage of an individual’s net worth (this sounds similar to the approach used in connection with crowdfunded investments under Title III of the JOBS Act). The GAO also considered whether the standard should be modified to introduce a sophistication or financial literacy prong. In its report, the GAO notes that market participants seemed to consider a minimum investments owned criterion as practicable.
This is not the first time that the standard has been under consideration. For example, in 2007, when the SEC considered amendments to Regulation D, it had considered a new category of larger accredited investors. Of course, more recently, in 2010, the Dodd-Frank Act modified the definition slightly and also required that the SEC revisit and review the standard at least every four years. In light of the considerable debate regarding the appropriate balance between facilitating capital formation and protecting investors, it is reasonable to expect that the accredited investor standard will be revised soon.