SEC Proposes New Accredited Investor Definition

In August last year I blogged regarding how when the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) was signed into law, a natuarl person was no longer permitted to include the value of his or her primary residence in determining if they meet the $1 million net income test for an accredited investor.  As a result, any equity an investor has in their primary residence cannot be used in the net worth calculation for an accredited investor.  However, the exact language of the new net worth standard for an accredited investor was left up to the SEC.  Today, the SEC announced its new proposed definition for the net worth standard for an accredited investor.  Under the new proposed definition an accredited investor based on net worth is “any natural person whose individual net worth, or joint net worth with that person’s spouse, at the time of purchase, exceeds $1,000,000, excluding the value of the primary residence of such natural person, calculated by subtracting from the estimated fair market value of the property the amount of debt secured by the property, up to the estimated fair market value of the property.”  Since this rule change, if not the exact definition, have been in effect for months, most offering documents have already accounted for this change, but the actual proposed definition is still interesting to see in print.  The actual definition, once finalized, will remain in effect for at least the next 4 years, at which time the SEC is mandated to review to determine continued applicability.  However, any future definition cannot take the net worth requirement under $1 million.  Stay tuned for any updates.