The Securities and Exchange Commission recently announced that it has amended its rules to exclude the value of a person’s home from net worth calculations used to determine whether an individual may invest in certain unregistered securities offerings. The changes were made to conform the SEC’s definition of an “accredited investor” to the requirements of the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act.
Under the amended rule, the value of an individual’s primary residence will not count as an asset when calculating net worth to determine “accredited investor” status.
SEC rules permit certain private and limited offerings to be made without registration, and without requiring specified disclosures, if sales are made only to “accredited investors.” One way individuals may qualify as “accredited investors” is by having a net worth, alone or together with their spouse, of at least $1 million.
This change is a positive step for the protective of investors. Including the value of someone’s home in this calculation (as had previously been done) only lowered the bar for what was required to be considered an “accredited investor.” This permitted unscrupulous financial advisors to sell high-risk and complicated private placement investments to investors who had no business investing in private placements. The purpose of the “accredited investor” standard was to protect investors and to ensure that private placement investments (which are unregulated by the SEC) are only offered to the most sophisticated of investors who, presumably, do not need the regulatory protection of the SEC in the way that the general public does
One of the most common types of securities fraud cases filed before FINRA involve these unregulated private placement investments. Hopefully, this change will make it more difficult for brokerage firms to take advantage of unsophisticated investors that only qualified as “accredited investors” due to their net worth (which is clearly no real measure of a person’s sophistication).
This information, which is publicly available on the SEC’s website, is being provided by The White Law Group. The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Boca Raton, Florida. To speak with a securities attorney, please call 312-238-9650.
For more information on The White Law Group, please visit the firm’s website at http://www.whitesecuritieslaw.com.