An SEC final rule amending the definitions of "accredited investor" in Rule 501(a) of Regulation D ("Rules Governing the Limited Offer and Sale of Securities Without Registration") and "qualified institutional buyer" in Rule 144A ("Private resales of securities to institutions") was published in the Federal Register. The final rule is intended to increase accessibility to private capital markets.

As previously covered, the amendments to the "accredited investor" definition will:

  • add new categories allowing natural persons to qualify as accredited investors based on certain professional certifications and designations, such as a Series 7, 65 or 82 license, or other credentials issued by an accredited educational institution;
  • add a new category for investments in a private fund based on a person's status as a "knowledgeable employee" of the fund;
  • expand the current list of entities that may qualify as accredited investors to include limited liability companies with at least $5 million in assets, registered investment advisers, exempt reporting advisers and rural business investment companies ("RBICs");
  • introduce a new category for any entity, including a tribal government, owning investments in excess of $5 million and that was not formed for the specific purpose of investing in the securities offered;
  • add "family offices" with at least $5 million in assets under management and their "family clients" (as each term is defined under the Advisers Act); and
  • add the term "spousal equivalent" to the accredited investor definition by allowing spousal equivalents to pool their finances for the purpose of qualifying as accredited investors.

The changes to the "qualified institutional buyer" definition will:

  • expand the types of entities eligible for qualified institutional buyer status to include certain limited liability companies and RBICs, if they meet the $100 million in securities owned and investment threshold in the definition; and
  • add a "catch-all" category permitting certain institutional accredited investors to be qualified institutional buyers after satisfying the $100 million threshold.

The final rule goes into effect on December 8, 2020.

Primary Sources

  1. Federal Register: Accredited Investor Definition

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