The SEC has requested comment on the definition of accredited investor. This request for comment appears in the SEC’s proposed rules on Regulation D and Form D.
Apparently the SEC is readying to change the definition, perhaps in a way that will hurt the startup community.
The SEC said this, in its proposed rules: “Many commenters stated, and we agree, that the definition of accredited investor as it relates to natural persons should be reviewed and, if necessary or appropriate, amended.”
Here are the questions they specifically asked commenters to answer.
- Are the net worth test and the income test currently provided in Rule 501(a)(5) and Rule 501(a)(6), respectively, the appropriate tests for determining whether a natural person is an accredited investor? Do such tests indicate whether an investor has such knowledge and experience in financial and business matters that he or she is capable of evaluating the merits and risks of a prospective investment? If not, what other criteria should be considered as an appropriate test for investment sophistication?
- Are the current financial thresholds in the net worth test and the income test still the appropriate thresholds for determining whether a natural person is an accredited investor? Should any revised thresholds be indexed for inflation?
- Currently, the financial thresholds in the income test and net worth test are based on fixed dollar amounts (such as having an individual income in excess of $200,000 for a natural person to qualify as an accredited investor). Should the net worth test and the income test be changed to use thresholds that are not tied to fixed dollar amounts (for example, thresholds based on a certain formula or percentage)?
If you are interested at all in this question, and the vibrancy of the startup community as a whole, I encourage you to answer these questions, and submit your answers to the SEC.
In addition, if you are interested in the issue of startup equality for same sex couples, which Dan Shapiro wrote about so eloquently in TechCrunch, now is the perfect time to articulate your opinion on this issue to the SEC as well. For more information on this issue, below are some helpful links: