Comments Due on SEC Proposed Amendments to Definition of Accredited Investor

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On January 25, 2011, the Securities and Exchange Commission(“SEC”) released for public comment its proposed amendments to the definition of “accredited investor,” for purposes of certain private placement exemptions such as Regulation D, which align with the definition set forth by the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”). Most significantly, the proposed amendments reflect the requirements of Section 413(a) of the Dodd-Frank Act which requires an investor to exclude the value of his or her primary residence when calculating net worth to determine whether the accredited investor standard has been satisfied.

It should be noted that these requirements came into effect upon enactment of the Dodd-Frank Act, and the SEC is proposing to amend its rules to reflect the new standard and clarify the treatment of indebtedness secured by the primary residence in the calculation of net worth. An investor is accredited when net worth, or joint net worth with an investor’s spouse, exceeds $1 million. The Dodd-Frank Act changes and these new amendments to the rules have the impact of causing individuals who were formerly accredited to no longer meet the requirements. The SEC also proposes to exclude the value of debt secured by the primary residence in the net worth calculation.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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