Corporate & Securities Law

By Jim Hamilton

In Colloquy with Alaska's Senators on Sec. 412, Chairman Dodd Agrees SEC Should Include State and Local Governments in Definition of Accredited Investor

Section 412 of the legislation requires the SRC conduct a rulemaking to implement changes to the definition of accredited investor in Regulation D. Senators Begich and Murkowski engaged in a colloquy with Senator Dodd over whether the SEC has authority under existing law to amend the definitions of accredited investor in Regulation D and related SEC rules and qualified institutional buyer in rule 144A under the Securities Act to expressly include state and local government bodies within those definitions and whether the SEC should take the opportunity presented by Section 412 to include governmental entities within those definitions. Cong. Record, May 20, 2010, S4063-4064.

Senator Murkowski said that it is in the interests of state and local governments
for the SEC to add governmental entities to the definitions of accredited investor and qualified institutional buyer when it promulgates rules pursuant to the legislation. The reasons for including governmental entities in these definitions are that governments are large and sophisticated investors with professional treasury management staffs that manage large amounts of the government?s own money and seek to invest in securities in order to prudently diversify their investment portfolios and obtain a favorable return. Many of the most attractive investments are offered only in private placements to institutional investors conducted under Regulation D or Rule 144A. Without access to these investments, the government earns a lower return and has less diversification in its investments than would be optimal. The Senators asked Chairman Dodd if he agreed that when the SEC promulgates its rules under the legislation, it should address, while taking care to ensure appropriate minimum asset protections are in place, the inclusion of state and local governments in the definitions of accredited investor and qualified institutional buyer.

In response, Senator Dodd said that the SEC certainly has existing authority to add state and local governments to the definitions of accredited investor and qualified institutional buyer under its Securities Act rules, adding that it would be appropriate for the SEC to take the opportunity presented by the rulemakings under Section 412 of the legislation to consider whether to include state and local government bodies within those definitions.

Full post as published by Jim Hamilton's World of Securities Regulation on May 27, 2010 (boomark / email).