Legal Blog

SEC Expands Definition of Accredited Investor for Regulation D Exempt Offerings

The Securities and Exchange Commission (SEC) has adopted revisions to the definition of “Accredited Investor,” which expands the list of individuals and entities that qualify under this definition. Under Rule 506 of Regulation D under the Securities Act of 1933, as amended, an unlimited number of individuals and entities that qualify as accredited investors may invest under this safe harbor for exempt private offerings of securities. A similar exemption is provided in Section 4(6) of the Securities Act of 1933 for offerings of securities solely to accredited investors exempt from the registration requirements of that Act.

These revisions become effective on December 8, 2020.

The revised definition for accredited investors largely focuses on the knowledge or credentials that certain individuals possess, enabling them to have deemed sophistication to invest without the perceived need for the protections afforded by a registered offering. Historically, the sophistication (either by the investor or a representative that assisted the investor) was only an element to be considered for non-accredited investors in Regulation D offerings. Instead, the investor’s financial condition was solely determinative of an investor’s ability to satisfy the definition of an accredited investor. These financial conditions were not changed under the newly-expanded definition, so individuals and entities that meet these tests will continue to qualify as accredited investors. Also, the list of entities that qualify as accredited investors has been lengthened.

The following knowledge-based criteria will enable an individual to satisfy the definition of an accredited investor even if the individual does not satisfy the otherwise required financial  criteria (generally minimum net worth of $1 million excluding principal residence or minimum annual individual income of $200,000 or $300,000 joint income):

  • Individuals that hold Series 7, 65, or 82 professional licenses from FINRA
  • Knowledgeable employees of private funds, defined as an executive officer, director, trustee, or person holding a similar position or employee whose job functions involve providing investment advisory or management services.

The SEC is granted the authority in the final rule to designate other knowledge-based credentials and certifications that would enable an individual to satisfy the expanded definition.

In addition, to satisfy the financial condition of having a minimum joint annual income of $300,000, the SEC has added the term “spousal equivalent” to include non-married individuals occupying a status that is equivalent to a spouse.

The expanded definition for entities, which generally are required to have a minimum net worth of $5 million and not be formed for the specific purpose of investing to be considered accredited investors, includes the following:

  • Registered investment advisors
  • Limited liability companies
  • Family offices and family clients whose investments are directed by an individual having knowledge and experience in financial and business matters that enable such entities to evaluate the merits and risks of the proposed investments
  • Any other entity with investments of at least $5 million

While in the proposing release for the rule revising the definition of an accredited investor, the SEC had requested comments on whether the financial thresholds in the accredited investor definition (which have not changed since 1982 other than to remove the investor’s principal residence from the calculation of net worth) should be increased or indexed for inflation, the SEC declined to do so in the final rule.


John ‘Jack’ Orrick practices in Business Transactions focuses on general corporate matters, joint venture formations, and business and tax planning, as well as representing clients in securitized equity and debt financings.

Clients turn to Jack because of his business sense and collaborative philosophy, which he uses to negotiate transactions strategically and close deals. His diverse and extensive transaction experience gives him a broad view of overall business operations, allowing him to advise clients in a variety of industries, including, but not limited to, real estate. Jack’s clients include property owners, developers, investors, owners of closely-held businesses, nonprofits and associations, financial institutions, and providers of professional services.






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