The current definition of an accredited investor was introduced in 1982. The definition establishes a net worth standard, with an alternative annual income standard, to identify those persons who are sufficiently affluent to make independent judgments about the wisdom of investing in unregistered securities offerings.

The current rules establish an individual net worth standard of $1,000,000 (excluding the value of the principal residence) and an alternative annual income standard of $200,000 per year for an individual and $300,000 for a married couple. These figures have gone without adjustment since 1982; it is estimated that over 12,000,000 US individuals are now accredited under these guidelines.

The SEC Advisory Committee on Small and Emerging Companies is reviewing this situation. The work appears to be an effort to ward off a more drastic legislative revision of the rules that might significantly reduce the number of investors eligible to participate in the funding of small businesses. The Dodd-Frank Act requires the SEC to review the accredited investor definition every four years. Most of the recent dialog has been between groups concerned about fraudulent schemes aimed at well-to-do retirees and other groups equally concerned about diminishing the pool of capital available for US businesses.

The Advisory Committee on Small and Emerging Companies convened on December 17, 2014; the developing consensus seems to involve indexing base figures for inflation, with annual inflation adjustments to the accredited investor standards. Keep your eyes out for further announcements later in 2015.

This article originally appeared in the February 2015 edition of the ACBA Business Section Newsletter, edited by Tom Maier

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