Corporate & Securities Law

By Jim Hamilton

Bond Amendment Adjusts Accredited Investor and Reg. D Provisions in Senate Reform Bill

The Senate approved a bi-partisan amendment, SA 4056, that would raise the accredited investor amounts in the federal securities laws and eliminate the language in the underlying bill that required a 120 day SEC review period for private placements. Sponsotred by Senator Christopher Bond, the amendment promotes integrity in Regulation D private placements and protects investors from fraud by prohibiting felons and other known bad-actors from seeking to raise investment and capital in private placements.

Accredited investor status, defined in SEC regulations, is required to invest in private securities offerings. An investor must have a net worth of $1 million, including the primary residence. Originally, Section 412 of The Restoring American Financial Stability Act required the SEC to increase the dollar threshold for accredited investors to account for inflation and to adjust those figures every five years for inflation. The amendment directs the SEC to adjust the net worth needed to attain accredited investor status to $1,000,000, excluding the value of the primary residence. Within the period of four years after enactment, however, the net worth standard mustl be $1,000,000, excluding the value of the primary residence.

The amendment also directs the SEC, four years after enactment, and once every 4 years thereafter, to review the definition of accredited investor to determine whether the requirements of the definition should be adjusted or modified for the protection of investors, in the public interest, and in light of the economy. Upon completion of the review, the SEC may adjust the term accredited investor.

The amendment also provides that a GAO study on accredited investor status ordered by Section 413 can be completed within three years of enactment, extending the time from the original one year.

Originally, Section 926 restored certain authority to the states over Regulation D offerings. In addition, it provided a 120-day period for the SEC to determine whether it will review a filing before it would then go to the state regulator. The amendments eliminates the 120-day period and strips out the state authority provisions. The amendment lifts bad actor provisions into the private placement arena by directing the SEC, within one year of enactment, to adopt rules disqualifying any securities offerings under Rule 506 of Regulation D by a person convicted of any felony or misdemeanor in connection with the purchase or sale of any security or involving the making of any false filing with the SEC or subject to a final order of a State securities commission, or state or federal banking authority barring the person from the financial industry.

Full post as published by Jim Hamilton's World of Securities Regulation on May 19, 2010 (boomark / email).