Net Worth Standard for Accredited Investors: SEC Adopts Amendments to the Definition of “Accredited Investor” Under the Securities Act Pursuant to Dodd-Frank Section 413(a)

Sullivan & Cromwell LLP - December 23, 2011

On December 21, 2011 the SEC adopted amendments to the “accredited investor” definitions in Regulation D and Rule 215, to exclude the value of a person’s primary residence for purposes of determining whether the person qualifies as an “accredited investor” on the basis of having a net worth in excess of $1 million. This change to the net worth standard was effective upon enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act on July 20, 2010, but Section 413(a) of that Act also required the SEC to revise its Securities Act rules to reflect the new standard. In adopting these amendments, the SEC added two provisions to the definitions it had proposed in January 2011:

  • a provision treating as a liability, for purposes of the net worth test, incremental debt secured by the primary residence that is incurred within 60 days before the sale of securities to the individual, other than as a result of the acquisition of the primary residence; and
  • a grandfathering provision that permits qualification as an accredited investor using the former accredited investor net worth test where an investor is exercising a right to purchase securities, and the investor held securities of the issuer, and the right to purchase, on July 20, 2010.