Accredited Investor

The US Securities and Exchange Commission (SEC) identifies accredited investors in Rule 501 of Regulation D as follows:

  1. a bank, insurance company, registered investment company, business development company, or small business investment company;
  2. an employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million;
  3. a charitable organization, corporation, or partnership with assets exceeding $5 million;
  4. a director, executive officer, or general partner of the company selling the securities;
  5. a business in which all the equity owners are accredited investors;
  6. a natural person who has individual net worth, or joint net worth with the person's spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person;
  7. a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or
  8. a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.

According to Forbes magazine, "8.99 million U.S. households today have a net worth of $1 million, which could qualify them as accredited investors." ("Finally, Some Real Action on the JOBS Act," July 24, 2013.)

In response to the 2012 Jumpstart Our Business Startups Act (JOBS Act), the SEC voted 4-1 on July 10, 2013 to adopt final rules to permit general solicitation in Rule 506 offerings as long as sales are limited to "accredited investors" and the issuer takes "reasonable steps" to verify that all purchasers of the securities are accredited investors. The new Rule 506(c) will become effective on September 23, 2013.

With this change, private funds (including private equity funds, venture capital funds, hedge funds and similar investment vehicles – including private companies) that rely on Rule 506(c), face a much less onerous task in finding investors and raising capital. As long as the applicable requirements of Rule 506 and Regulation D are met, these issuers will be allowed to make potential investors aware of their offerings through advertising in published media (newspapers, magazines), seminars, mailings and via the Internet (websites, email and social media) as well as any other form of general solicitation without registering the offering as a public offering with the SEC.

High Alert Investment Management Ltd. believes this to be an accurate and up-to-date definition of "accredited investors" as outlined by the SEC in Rule 501 of Regulation D. However, before relying on any information contained here readers are encouraged to visit the SEC's website at http://www.sec.gov/answers/accred.htm.