SEC Adopts New Net Worth Standard for Accredited Investors

On December 21, 2011, the Securities and Exchange Commission ("SEC") amended its rules to exclude the value of a person's home for purposes of calculating net worth when determining whether an individual qualifies as an "accredited investor" in certain securities offerings exempt from registration under federal securities laws, including Regulation D private placement exemptions. This rule reflects the requirements of Section 413(a) of the Dodd-Frank Act and generally follows the Proposing Release issued by the SEC in January 2011 ("Proposing Release").

The "accredited investor" standards are used in determining whether certain exemptions from registration under the Securities Act of 1933 are available for private and other limited offerings. An individual may qualify as an "accredited investor" by having a net worth, alone or together with their spouse, of at least $1 million at the time of the sale of securities. The recent amendment by the SEC excludes the value of an individual’s primary residence as an asset and the debt secured by the primary residence as a liability from the net worth calculation used to determine whether that individual is an "accredited investor." However, the individual must include the amount of indebtedness secured by his or her primary residence to the extent that the indebtedness exceeds the value of the primary residence. Of note, the "value" of a primary residence is not required to be based upon a third party opinion on valuation; all that is required is an estimate of fair market value ("FMV")....