GAO Issues Report on Criteria for Qualifying as an Accredited Investor (with Lofchie Comment)
As mandated by Dodd-Frank, GAO has issued a report regarding the SEC criteria for qualifying as an "accredited investor," the standard that generally allows the person to participate in private placements.
The report examines market participants' views on the existing criteria for accredited investor status as well as alternative criteria. Participants with whom GAO spoke identified adding liquid investments and use of a registered adviser as attractive alternative criteria. The report discusses potential other criteria, such as education; e.g., having an MBA. In addition, the report considers the possibility of altering the existing criteria, for example by raising or lowering the current income or net worth standards. In its conclusion, the GAO indicates that the SEC intends to consider the alternative criteria in reviewing the definition of accredited investor.
Lofchie Comment: The discussion in the report reflects an attempt to weigh potentially conflicting policy goals: (i) on the one hand, raising the accredited investor standard may better protect investors; (ii) on the other hand, expanding the standard fosters capital formation, particularly for small businesses. Firms and issuers that are engaged in the sale of private placements to private individuals should review the report with a view to being able to comment on any future proposed rule change.