A bill passed Feb. 1 by the U.S. House of Representatives would expand the definition of “accredited investor” to include a knowledge and education category.
The definition of accredited investor determines which investors are allowed to participate in private securities offerings not registered with the Securities and Exchange Commission.
The Fair Investment Opportunities for Professional Experts Act (H. R. 2187), which was introduced by Rep. David Schweikert, R-Ariz., in April, passed by a vote of 347 to 8, and is now under consideration by the Senate Committee on Banking, Housing and Urban Affairs.
The House bill expands the list of accredited investors to include the following individuals, whether or not they meet income or net worth requirements:
- Brokers or investment advisors licensed or registered with the SEC, the Financial Industry Regulatory Authority or other self-regulatory organization, or any state regulatory authority
- Any other natural person the SEC determines by rule to have professional knowledge related to an investment and whose education and job experience is verified by FINRA or another self-regulatory body
The bill also incorporates income and net worth requirements for natural persons found in the SEC’s Rule 501(a) of Regulation D, and adds language requiring the agency to adjust these dollar thresholds for inflation every five years, based on the Consumer Price Index.
Rules 501(a)(5) and 501(a)(6) provide that accredited investors are individuals with a net worth of more than $1 million (excluding the value of their primary residences), and those with an individual income greater than $200,000 in each of the two most recent years (or joint income with their spouses in excess of $300,000) and with a reasonable expectation of reaching the same income level in the current year.
Updating the accredited investor definition has been a priority for both Congress and the SEC since the passage of the Dodd-Frank Act.
Under Dodd-Frank, the SEC is directed to review the definition as it relates to natural persons every four years. The agency released an official report in December that included 11 possible revisions to Rule 501(a).