Yesterday, the Securities and Exchange Commission (SEC) posted a video on X discussing the recent Staff review of the definition of an Accredited Investor. The video states that the review of fhe definition is mandated to take place every four years, according to Dodd-Frank.
The definition aims to determine if an individual can bear the loss of an investment as well as having sufficient sophistication.
The video states that the Staff review noted that if the wealth threshold had been adjusted for inflation, the hurdle would rise from the current $1 million to $3 million (not including a primary residence).
When considering the income hurdles, an individual would need to earn a salary of $607,000 from the current $200,000.
If married, the current $300,000 hurdle would jump to $911,00.
Additionally, the video claims that if adjusted for inflation, the percentage of households deemed to be Accredited would go from 18% to 5.5%. This is contrasted to the 1.8% of households being Accredited in 1983.
While the SEC claims the Staff Review of the definition does not advocate any changes, clearly, the leadership of the Commission wants to do exactly that. While few people are claiming the current definition is causing harm, the political nature of the Commission seems poised to make changes without sufficient justification.
Meanwhile, in the past, SEC Advisory Committees have called for an expansion of the definition as private markets have grown dramatically while public markets have stalled – largely due to excessive regulation and costly compliance requirements. Today, a company strives to remain private for as long as possible, which effectively disenfranchises a large segment of the population from participating in these securities offerings.
The SEC also alludes to potential changes to Reg D, which currently only requires a simple notice filing. This simplicity of the requirements is one of the reasons private markets in the US are the most robust in the world.
You may watch the video below and read the SEC Staff Review of the definition of an Accredited Investor here.
Watch a summary of the SEC’s recent review of the accredited investor definition. Our #SECSmallBiz Team explains why the definition and this review are important. pic.twitter.com/I6bWowcQKV
— U.S. Securities and Exchange Commission (@SECGov) January 9, 2024