SEC Broadens its Accredited Investor Definition But Not By Much

The US Securities and Exchange Commission (SEC) has expanded the rules of the “Accredited Investor,” which dictates who can invest in private companies such as SpaceX.

“For the first time, individuals will be permitted to participate in our private capital markets not only based on their income or net worth but also based on established, clear measures of financial sophistication,” said Chairman Jay Clayton.

Current regulations only allow those investors who have earned more than $1 million individually or over $200,000 or $300,000 annually with a spouse, with some exceptions, to invest in startups and hedge funds.

BREAKING: The SEC has released expanded rules on who qualifies as an accredited investor.

They are finally incorporating knowledge & sophistication, rather than net worth.

This is step in right direction but we need even greater access & broader rules.https://t.co/wKGbPaIovg

— Pomp 🌪 (@APompliano) August 26, 2020

According to attorney Drew Hinkes, the new list just might cover a few people who sell private placements for a living.

Now as per the SEC, the amendments to the definition includes certain professional certifications and credentials including the Series 7, Series 65, and Series 82 licenses, “knowledgeable employees” of the fund, “spousal equivalent” meaning can pool finances with significant others, and limited liability companies and family offices with $5 million in assets.

No, “accredited investor” definition hasn’t expanded by much. As SEC Commissioner “Crypto Mom” Hester Peirce puts it, “Americans shouldn't have to ask the SEC for permission to invest, but today's accredited investor rule at least offers people a path to ask permission based on their education, rather than simply telling them “no, unless you're rich.”

The US government wants poor people to buy lottery tickets, not to invest in IPOs. https://t.co/orZGtyI0GJ

— Alex Krüger (@krugermacro) August 26, 2020

“The accredited investor definition remains narrow and the Commission's posture too paternalistic. Missed opportunity in the 11th year of a bull market,” responded Karl T. Muth, who teaches law and economics at Northwestern University.