SEC May Expand Definition of Investor as Related to Private Placements

The Advisory Committee on Small and Emerging Companies within the Securities & Exchange Commission (SEC) is recommending the SEC to expand its definition of an “accredited investor" in relationship to private placements. The committee is suggesting that the definition of the term also include a person’s financial sophistication.

The small business-focused committee is suggesting that basic income and wealth-based criteria should remain the same, but criteria should include individuals who have demonstrated expertise in securities and investing regardless of their personal wealth.

For example, individuals who have passed certain tests, like the Series 7 examination authorizing stockbrokers to trade securities, as well as those who have passed Series 65 and Series 82 tests and chartered financial analyst examinations, would qualify as competent to invest in private placements.

The committee is also recommending that industry-specific standards be investigated to allow participation by investors competent in that specific industry to invest when he or she might otherwise not be allowed to.

Currently, private placement sales are limited to investors who earn at least $200,000 annually ($300,000 for a married couple), or have a net worth of $1 million, excluding the value of their home. The rules are based on reasoning that wealthier individuals are more able to make informed decisions about investing without the disclosures required of publicly traded companies and more able to tolerate the risks of such investments.

Private placement offerings raised $1.35 trillion in 2015, a figure comparable to money raised via registered offerings.

Want to learn more about navigating the market of private placements?

The attorneys at Dimond Kaplan & Rothstein, P.A. have recovered more than $100 million from banks and brokerage firms for their wrongful actions.

If you invested in a private placement and lost money, you may have certain legal rights that require your immediate attention. Contact us today to schedule a free consultation.

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