According to a statement released on August 26, 2020, by the Chairman of the United States Securities and Exchange Commission, Jay Clayton, for the first time, individuals would be allowed to participate in private capital markets not only based on their income or net worth but also based on established, and transparent measures of financial sophistication. He added that they have expanded and updated the list of entities, including tribal governments and other organizations that may qualify to participate in selected private offerings.
The amendments revise Rule 501(a), Rule 215, and Rule 144A of the Securities Act.
The amendments to the accredited investor definition in Rule 501(a):
a) Add a new category that permits natural persons to qualify as accredited investors based on selected professional certifications, designations or credentials, or others issued by an accredited educational institution the Commission may designate from time to time by order. The Commission defined holders in good standing of the Series 7, Series 65, and Series 82 licenses as qualifying natural persons, by order, in conjunction with the adoption of these amendments.
b) This approach provides the Commission with the flexibility to reevaluate or add certifications, designations, or credentials in the future.
c) Include as accredited investors, concerning investments in a private fund, natural persons who are knowledgeable employees of the fund.
d) Clarify that limited liability companies with $5 million in assets may be accredited, investors.†
e) Add SEC- and state-registered investment advisers, exempt reporting advisers, and rural business investment companies (RBICs) to the list of entities that may qualify.
f) Add a new category for any entity, including Indian tribes, governmental bodies, funds, and entities organized under the laws of foreign countries, that own investments, as defined in Rule 2a51-1(b) under the Investment Company Act, over $5 million and not formed for the specific purpose of investing in the securities offered.
g) Add family offices with at least $5 million in assets under management and their family clients, as each term defined under the Investment Advisers Act.
h) Add the term spousal equivalent to the definition of the accredited investor so that spousal equivalents may pool their finances to qualify as accredited investors.
The amendment to Rule 215 replaces the existing definition with a cross-reference to Rule 501(a) definition. The amendments expand the qualified institutional buyer definition in Rule 144A to include limited liability companies and RBICs if they meet the $100 million in securities owned and invested threshold definition. The amendments also add to the list any institutional investors included in the accredited investor definition not otherwise enumerated in qualified institutional buyer definition provided they satisfy the $100 million thresholds. The Commission also adopted conforming amendments to Rule 163B under the Securities Act and Rule 15g-1 under the Exchange Act.