SEC Panel Re-Defines the Threshold for Private Placement Investments

Posted on October 24th, 2014 at 12:54 PM
SEC Panel Re-Defines the Threshold for Private Placement Investments

From the Desk of Jim Eccleston at Eccleston Law Offices:

The SEC Investor Advisory Committee (IAC) voted to broaden the definition of sophisticated investors who can participate in private offerings. The current threshold requires individuals that earn at least $200,000 annually or have a net worth of $1 million excluding their primary residence.

The IAC has asserted that the current threshold “oversimplifies the factors that determine whether an individual truly has the wealth and liquidity to shoulder the potential risks of private offerings.”  For example, this threshold doesn’t provide adequate protection for investors whose net worth is based on a retirement nest egg or on illiquid holdings, such as farmland.

As a result, the IAC is considering two approaches to implement the change.  One approach is to remove the income and net worth floors and instead consider a definition of sophisticated investor which takes into account an individual's education, professional credentials (such as the Chartered Financial Analyst designation or a Series 7 license), and investment experience.

Another approach is to maintain income and net worth standards, but limit participation in private placements to a certain percentage of an investor's income or assets.

Additionally, the IAC is considering whether to shift responsibility for verifying accredited investor status from the securities issuers to third parties, who could include brokers, investment advisers, accountants and attorneys.

Finally, the IAC recommended that the current limit on the number of non-accredited investors who can participate in private offerings should remain intact but that non-accredited investors should receive stronger protections.

The attorneys of Eccleston Law Offices represent investors and advisers nationwide in securities and employment matters. Our attorneys draw on a combined experience of nearly 50 years in delivering the highest quality legal services.

Related Attorneys: James J. Eccleston

Tags: SEC IAC, SEC, Securities and Exchange Commission, IAC, Investor Advisory Committee,

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