The House Subcommittee on Capital Markets, part of the House Financial Services Committee, has hit the ground running in the new Congress. As was reported earlier, the Subcommittee has scheduled a hearing on access to capital and entrepreneurship. On the same day, the Subcommittee will also address the longstanding shortcomings in the definition of an accredited investor.
Currently, an accredited investor must surpass certain wealth hurdles to qualify. In brief, an individual must earn more than $200,000 a year or have a net worth of over $1 million (not counting a primary residence). If you are married, the income hurdle goes higher to $300,000. These criteria is widely recognized as a poor metric as sophistication is a better measure of financial acumen. The Subcommittee will address this shortcoming while proposing legislation to fix the issue which disenfranchised tens of millions of potential investors.
This is an issue that should garner bipartisan support because only the very extreme oppose allowing sophisticated investors access to private markets – a sector of finance that has boomed as firms seek to remain private as long as possible due to the cost and time required to be public.
The hearing is entitled “Sophistication or Discrimination? How the Accredited Investor Definition Unfairly Limits Investment Access for the Non-wealthy and the Need for Reform.”
The hearing witnesses currently scheduled to testify include:
- Eli Velasquez, Founder & Managing Partner, Investors of Color Network
- Omi Bell, Founder, Black Girl Ventures
- David Olivencia, CEO & Co-Founder, Angeles Investors
- Jennifer Schulp, Director of Financial Regulation Studies, Center for Monetary and Financial Alternatives, Cato Institute
The legislation, of which some is overlapping, should get sufficient support in the Republican-controlled House.
The hearing is scheduled to take place at 10 AM ET, Wednesday, February 8, 2023. The hearing will be live-streamed on the Committee website.
The proposed bills are below.
- H.R. ___, the “Fair Investment Opportunities for Professional Experts Act” (Rep. Hill)
- to expand the definition of “accredited investor” to include individuals with certain licenses and qualifying education or job experience.
- H.R. ___, the “Equal Opportunity for All Investors Act of 2023” (Rep. McHenry)
- to expand the definition of “accredited investor” to include individuals that are certified through an examination established by the SEC.
- H.R. ___, the “Accredited Investor Definition Review Act” (Rep. Huizenga)
- to require the SEC to review the list of certifications, designations, and credentials for individuals to qualify as an accredited investor and add additional certifications, designations, and credentials to such list which the SEC determines are substantially similar to the existing ones within 18 months and every five years thereafter.
- H.R. ___, the “Accredited Investor Self-Certification Act” (Rep. Davidson)
- to require the SEC to create a form that would allow individuals qualify as an “accredited investor” by self-certifying that they understand the risks of investment in private issuers.
- H.R. ___, the “Investment Opportunity Expansion Act”
- to expand the definition of “accredited investor” to include individuals who invest 10% or less of the greater of their net assets or annual income in a private offering.
- H.R. ___, to expand the definition of “accredited investor” to include individuals receiving individualized investment advice or individualized investment recommendations with respect to a private offering from a professional who qualifies as an accredited investor.
- H.R. ___, the “Increasing Investor Opportunities Act” (Rep. Wagner)
- to amend the Investment Act of 1940 to allow a closed-end fund to invest up to all its assets in private funds.
- H.R. ___, the “Gig Worker Equity Compensation Act” (Rep. McHenry)
- to expand Securities Act Rule 701 to include gig workers and preempt state laws that mischaracterize gig workers as employees.