The Securities and Exchange Commission issued a staff report on the accredited investor definition. The Dodd-Frank Act directed the SEC to review the accredited investor definition every four years to determine whether the definition should be modified or adjusted. The definition was previously reviewed in 2015 and 2019. This report is the third such review. It emphasizes the increased reliance on exempt offerings and, consequently, the importance of the accredited investor definition since, among other things, it is central to the Rule 506 exemptions. The Report notes that the SEC has limited information on the Regulation D market and lacks data regarding the number of natural persons who meet the financial qualifications in the accredited investor definition. The Report notes that the SEC’s estimates indicate that the percentage of US households that qualify as accredited investors has grown steadily since the definition was adopted in large measure because the thresholds in the definition have not been adjusted in order to account for inflation. The Report also notes the expanded role of retirement savings as a factor with respect to the net worth prong of the definition. The Report reviews a number of recent recommendations regarding the definition, including the recommendations from the 42nd annual SEC Government-Business Forum on Small Business Capital Formation, which suggested expanding the definition to include additional measures of sophistication, and the 2023 NASAA recommendations to narrow the definition. The Report notes that the SEC’s Investor Advisory Committee recently considered the accredited investor definition at its September 2023 meeting but the Committee did not provide its recommendations. The Report concludes by soliciting public comments. Access the full report here, https://www.sec.gov/files/review-definition-accredited-investor-2023.pdf.
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