The accredited investor (AI) definition is a crucial component of the private placement market. As required by the Dodd-Frank Act, the Securities and Exchange Commission (SEC) staff is reviewing the AI definition to determine whether to recommend changes to the SEC.
In addition, the House of Representatives is now also considering legislation that would expand the AI definition. The proposed legislation is titled the Fair Investment Opportunities for Professional Experts Act and is H.R. 2187 (AI Bill).
The AI Bill calls for the SEC to develop criteria to be used by FINRA to prepare and administer a test. Persons passing this test would be AIs. The proposed legislation states that the subjects covered by the test could include the following:
- The different types of securities
- The disclosure obligations of public companies as compared to private companies
- Corporate governance structures
- The components of a financial statement
The AI Bill would also afford AI status to a natural person who falls within one of the following categories or retains a person within one of the following categories to make investment decisions for him or her:
- Registered broker-dealer
- Registered investment advisor
- Attorney
- Certified public accountant
The concepts in the proposed legislation have also been suggested in several of the comment letters to the SEC in connection with its review of the AI definition.
A hearing on this bill was held on June 16, 2015, in the House Financial Services Capital Markets Subcommittee.
Click here for our article summarizing the various changes that are being considered and a discussion of this legislative proposal.