19th November 2020
Victoria B. Bantz, Esq. and Laura Fodor, Esq. (Burns, Figa & Will)
On August 26, 2020, the Securities and Exchange Commission (the “SEC”) adopted amendments to the definition of “accredited investor” under Rules 215 and 501(a) of the Securities Act of 1933, as amended (the “Securities Act”) as well as amendments to the definition of “qualified institutional buyer” under Rules 144A and 163B of the Securities Act and Rule 15g-1 of the Securities Exchange Act of 1934 (the “Exchange Act”). These amendments were published in the Federal Register on October 9, 2020 (85 FR 64277), and become effective on December 8, 2020. MSI's Denver law member Burns, Figa & Will P.C. provides an update.
In an effort to promote capital formation while still ensuring adequate investor protection, the amended definition expands the categories of persons who are eligible to participate in private placements that do not have specific disclosure requirements. Previously, the accredited investor definition focused on investors meeting certain income or net worth thresholds. Now, in addition to the previous qualifications, the SEC has recognized that notwithstanding the financial thresholds, investors my qualify as accredited investors due to their ability to assess an investment opportunity.
The definition of accredited investor in Rule 501(a) now includes individuals holding certain professional certifications, as well as certain private fund employees, limited liability companies, investment advisers, and governmental entities. Securities Act Rule 215 and Exchange Act Rule 15g-1 are amended to replace the existing definition with a cross-reference to Rule 501(a). The new categories of accredited investors are as follows:
• Rule 501(a)(1) was amended to include all SEC- and state-registered investment advisers and exempt reporting advisers, as well as Rural Business Investment Companies (“RBIC”) as defined in Section 384A of the Consolidated Farm and Rural Development Act.
• Rule 501(a)(3) was amended to include limited liability companies with total assets in excess of $5 million that are not formed for the specific purpose of acquiring the securities being offered.
• Rule 501(a)(9) was amended to include any entity owning investments in excess of $5 million that is not formed for the specific purpose of acquiring the securities being offered.
Read the full article (pdf)
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