The accredited investor definition per the 1933 Securities Act expanded on December 8, 2020, with amendments adopted to Rule 501, Rule 144A, and other related rules. The amendments were largely accepted and adopted as offered. They enlarge the range of natural persons and entities eligible to invest in private securities offerings not bound by registration under the Securities Act.
Some of the changes to the accredited investor definition include the following:
Knowledgeable Employee
A “Knowledgeable Employee” of a private fund, but only for investments in that fund. Knowledgeable Employee is: (i) an executive officer, director, trustee, general partner, advisory board member, or person serving in a similar capacity, of the private fund or an affiliated management person of the private fund; or (ii) an employee of the private fund or an affiliated management person of the private fund (other than an employee performing solely clerical, secretarial or administrative functions with regard to such company or its investments) who, in connection with his or her regular functions or duties, participates in the investment activities of such private fund, other private funds, or investment companies the investment activities of which are managed by such affiliated management person of the private fund, provided that such employee has been performing such functions and duties for or on behalf of the private fund or the affiliated management person of the private fund, or substantially similar functions or duties for or on behalf of another company for at least 12 months. Note that this accreditation verification is limited to the issuer’s current offering only.
Natural Persons Possessing Certain Professional Designations and Certifications
On periodic occasions, the SEC can submit orders designating specific credentials, certificates, or designations held by natural persons that qualify those persons as accredited investors. Those holders in good standing with Series 7, 65, and 82 licenses now qualify for accredited investor status. Per the amendments, the SEC considers numerous attributes when evaluating other professional designations for accredited investors’ status.
Certain Enumerated Entities
The following entities were added to the accredited investor definition:
- Rural business investment companies (RBICs) per Section 384A of the Consolidated Farm and Rural Development Act
- State of federal registered investment advisors, including reporting advisors, without regard to the volume of assets under management
- Limited liability companies with assets in excess of $5 million USD not created for the goal of obtaining the offered securities and any entity with a minimum of $5 million USD in investments that have not been formed for the purpose of investing in the offered securities, in order to include foreign entities, Native American tribes, local government bodies, and entities not covered under Rule 501.
Family Offices and their Family Clients
Under the Advisers Act, family offices are defined and fall under the accredited investor definition as long as the office currently has a minimum of $5 million USD in assets under management and:
- It was not created for the purpose of acquiring the securities offered, and
- Was assigned to make the investment by an individual with sufficient knowledge and experience in business and financial matters such that the family office can assess the risks and benefits of the investments.
With the modified definition of an accredited investor, more individuals and entities can now participate in profitable opportunities once out of reach.
