SEC Proposes To Raise The Standard For Accredited Investors

On January 25, 2011 the Securities and Exchange Commission (SEC) voted to propose amendments to its rules to conform the definition of “accredited investor” to the requirements of the Dodd-Frank Act. Under the amendment, the value of an investor’s primary home would not be taken into consideration when determining whether the individual was an accredited investor. Accredited investors can participate in private and limited offerings that are exempted from registration requirements. The amount of $1 million to qualify as an accredited investor can be satisfied alone or together with a spouse.

The reason this is so important is that brokerage firms attempt to defend their recommendations of high risk, illiquid private placements based on the fact that the customer is an accredited investor because the value of their primary residence was included in arriving at the $1 million dollar net worth requirement. Often the only reason the customer would be considered to be an accredited investor would be because of the inclusion of the value of their home in the calculation

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