SEC Adopts Final Rule Modifying Net Worth Definition for "Accredited Investors"

On December 21, 2011, the U.S. Securities and Exchange Commission ("SEC") adopted a final rule modifying the net worth standard for "accredited investors." Section 413(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") requires the definition of "accredited investor" under the rules of the Securities Act of 1933 (the "Securities Act") to exclude the value of a person's primary residence for purposes of determining whether the person qualifies as an "accredited investor" on the basis of having a net worth in excess of $1.0 million. While this change in the definition of "accredited investor" became effective upon enactment of the Dodd-Frank Act, Section 413(a) required the SEC to conform its rules under the Securities Act to the new standard. The final Rule is similar to the proposed rule promulgated in January 2011, but with two important changes relating to the inclusion in the calculation of a person's net worth of incremental debt, secured by such person's primary residence, incurred during the 60 day period prior to a sale of securities and a limited grandfathering provision for certain "follow-on" offerings.

The SEC's release adopting the revised "accredited investor" definition can be found here. The final rule will become effective 60 days after its publication in the Federal Register.