Popular Topics
All Topics
- "Gun Jumping"
- "Test-the-Waters" communications
- 2016 SEC Agenda
- ABL
- Accelerated Filer
- Accelerated filers
- Access to Capital and Market Liquidity Report
- Accounting
- Accredited investor
- Advance Notice Bylaws
- Airbnb
- Alternative Trading Systems
- Annual meeting
- Annual reports
- ASC Topic 740
- Asset Management
- asset-based loan
- ATS
- Auction IPOs
- Audit committee
- Auditor attestation
- Authentication document
- BlackRock
- Blank-check companies
- Blockchain
- blue sky
- Board committees
- Board Diversity
- Board independence
- Board of Directors
- Boilerplate
- Boilerplate in securities documents
- borrower
- Broker-dealer
- Broker-dealer registration
- Broker-dealers
- Calculation of Registration Fee
- California
- California Assembly Bill 979
- Capital formation
- capital markets
- Capital raising
- CEO letters
- Certified B corporation
- Chair Mary Jo White
- Chairman’s letters
- Chairperson’s letters
- Climate Change
- coal companies
- coal company IPOs
- coal miners
- coal mining
- collateral
- Columbia Law School
- Commencement of an offering
- Compensation sharing
- Compensatory offerings
- Compensatory sales
- Compensatory securities
- Compensatory securities offerings and sales
- Compliance and Disclosure Interpretation 110.02
- conditions precedent
- conference
- Confidential filings
- Confidential information
- Confidential treatment
- Confidentiality agreements
- coronavirus
- Corporate Governance
- Corporate Law
- Corporate social responsibility
- Corporate social responsibility: CSR
- Corporate Stock-Givaway Program
- covenants
- COVID-19
- credit agreement
- Crowdfunding
- CSR
- Cyber breach
- cyber incident
- Cyber risk
- Cyber-attack
- cybersecurity
- DAO
- December 31 Fiscal year end
- Decimalization
- Definition of a Security
- Delaware corporate law
- Delaware Law
- Delaying amendment
- Description of Business
- Designer stock
- Digital Advertising
- Digital securities
- Direct listings
- Direct marketing programs
- Direct response marketing
- Director Nominees
- Director Questionnaire
- Directors
- Disclosure
- Disclosure and Reporting
- Disclosure Effectiveness Initiative
- Disclosure Obligations
- Disclosure Regime
- Disclosure regulation
- Disclosure Requirements
- Disclosure Rules
- Disclosure simplification
- Disclosure updates and simplification release
- Diversity
- Dodd Frank
- Dodd-Frank Act
- Domino's Piece of the Pie Rewards
- Domino's Pizza
- Donald Trump
- Dual Class Shares
- Dual-class Capitalization
- Dual-Class Common Stock
- Dual-class shareholder voting
- Due diligence
- earnings guidance
- Economic Growth, Regulatory Relief, and Consumer Protection Act
- EDGAR Filing Manual
- EGC
- Electronic signatures
- Emerging growth companies
- Emerging Growth Company
- engagement letter
- environment, social and governance
- Equity Market Structure
- ESG
- event of default
- events of default
- Exchange Act
- Exchange Act Rule 12b-2
- Exchange listing
- Exchanges
- executive compensation
- Exempt offerings
- Exempt securities offerings
- Exhibits to Registration Statement
- FAST Act
- FDA
- Female
- Fictitious regulators
- Filing review comments
- financial forecasts
- Financial intermediaries
- Financial sophistication
- Financial statements
- Financing Alternatives
- Finders
- Finders exception
- Finders exemption
- FINRA
- First-day pop
- Five-factor test
- Form 10-K
- Form 10-Q
- Form D
- Form S-1
- Form S-3
- Form S-4
- Founder’s letters
- Fraudulent activities
- Free Stock
- Free Stock Offerings
- FTC
- General Motors Co.
- General solicitation
- Glass Lewis
- Golden Leashes
- Greenlight Capital, Inc.
- Hart-Scott-Rodino
- HSR Act
- Impersonators of genuine firms
- Incorporation by reference
- Indications of Interest
- Influencer Marketing
- Information asymmetry
- Initial coin offering
- Initial listing requirements
- Initial public offerings
- Insider Trading
- Integration
- interest
- Interest rate system
- Interest rates
- Intrastate offerings
- Investment banking
- Investment Company Act
- Investor Advisory Committee
- Investor Alert
- IPO
- IPO disclosure
- IPO drawbacks
- IPO pricing
- IPOs
- ISS
- Item 101
- Item 103
- Item 103 of Regulation S-K
- Item 105
- Item 401 of Regulation S-K
- Item 501(b)(7)
- Item 601(b)(24) of Regulation S-K
- James Mackintosh
- JOBS Act
- Ken Langone
- Large Accelerated Filer
- Larry Fink’s 2019 letter to CEOs
- Legal proceedings
- lender
- LGBTQ+
- LIBOR
- line of credit
- loan agreement
- Loan Agreements
- Loan transactions
- Loans
- Loyalty Programs
- Lyft, Inc.
- MAE
- Management
- management disclosure and analysis
- Management; Executive officers and directors
- Mark Cuban
- Material contract exhibits
- Material nonpublic information
- MD&A
- Mergers & Acquisitions
- Modernization
- Multi-Class Shares
- NASDAQ
- Nasdaq Independence Rules
- Nasdaq Listing Rules
- Nomination Letter
- Non-accelerated Filer
- Non-GAAP Financial Measures
- NSMIA
- NYSE
- Offering fees
- Offering statement on Form 1-A
- Offering statement on Form C
- Ordinary Course Covenant
- OTC
- OTC Market Group
- OTC Pink
- OTC quoted companies
- OTCQB
- Paid-for Research
- pandemic
- Pay Ratio Disclosure
- Pay Ratio Rule
- perfection certificate
- Periodic reports
- Perpetual dual-class stock
- Power of Attorney
- Prescriptive-based disclosure
- Primary issuances
- Principal Executive Offices
- Principles-based disclosure
- Private Equity
- Private fund knowledgeable employees
- Private placements
- Prof. John C. Coffee, Jr.
- Proposed Rule 5605(f)
- Prospectuses
- proxy advisory firms
- Proxy Contests
- Proxy fights
- Proxy materials
- Proxy statement
- Proxy voting
- Public benefit corporation
- Public Companies
- Public company acquisitions
- Public Float
- Public M&A
- Public offerings
- Purpose & Profit
- Purpose of the corporation
- Qualified institutional buyer
- Reference interest rates
- Reg S-K
- Registered offerings
- Registration Filing Fee
- Registration statement
- Registration statements
- Regulation A activity
- Regulation A+
- Regulation Crowdfunding
- Regulation D
- Regulation FD
- Regulation of finders
- Regulation S
- Regulation S-K
- Regulation S-K Item 10(f)(1)
- Regulation S-T
- Regulations S-K
- Regulatory Entrepreneurship
- Release No. 34-90112
- Reporting Category
- representations
- resource extraction antigraft rule
- restricted stock
- Reverse mergers
- revolver
- Rights offerings
- Risk Factors
- Rule 10b-5
- Rule 10b5-1 plan
- Rule 144A
- Rule 14a-4
- Rule 163B under the Securities Act of 1933
- Rule 21F-17
- Rule 24b-2 under the Securities Exchange Act of 1934
- Rule 253(f)
- Rule 302(b)
- Rule 4(a)(2) offering
- Rule 406 under the Securities Act of 1933
- Rule 473 under the Securities Act of 1933
- Rule 483 under the Securities Act of 1933
- Rule 506(b)
- Rule 506(c)
- Rule 701
- S&P Dow Jones
- Safe Harbor
- SAFEs
- Sarbanes-Oxley Act §404(b)
- Say-on-Pay Frequency Vote
- SEC
- SEC approval of offerings
- SEC Comments
- SEC Commissioner Robert J. Jackson Jr.
- SEC disclosure
- SEC disgorgement
- SEC Division of Economics and Risk Analysis
- SEC Filing Deadlines
- SEC Filing Reviews
- SEC Form 10
- SEC Office of Investor Education and Advocacy
- SEC Release No. 33-10591
- SEC Report of Investigation
- SEC Rule 152
- SEC shutdown
- Section 11(a) of the Securities Act of 1933
- Section 21F
- Section 8(a) of the Securities Act of 1933
- securities
- Securities & Exchange Commission
- Securities Act
- Securities Act of 1933
- Securities Act Rule 257
- Securities Act Rule 405
- Securities Act Section 17(b)
- Securities Exchange Act
- Securities Exchange Act of 1934
- Securities litigation
- Securities offerings
- securities transactions
- Severance Agreements
- Sexual harassment
- Sexual misconduct
- Shareholder Activism
- shareholder activists
- Shareholder nominations
- Shareholder rights
- Shareholder voting
- Shareholder Voting Rights
- Signatures in Registration Statement
- Simple Agreement for Future Equity
- Small business
- Small-cap
- Small-cap Companies
- Small-cap Issuers
- Smaller reporting companies
- Smaller reporting company
- Snap IPO
- Social Capital Hedosophia
- Social Media
- Social Media Marketing
- SOFR
- SPAC
- SPAC's
- Special Purpose Acquisition Company
- Special situations
- Spin-offs
- Sponsorship
- Spotify
- SRC
- Staff Accounting Bulletin (SAB) No. 118
- Staleness date
- Startups
- State securities laws
- stock options
- Stock Ownership Guidelines
- Stock Promotion Schemes
- Strategic spin-offs
- Sunset provisions
- Supreme Court
- Sustainability
- Switch, Inc.
- T+2
- Targeted stocks
- Tax Cuts and Jobs Act
- Tech IPOs
- Tech M&A
- Tech unicorns
- term loan
- term sheet
- Termination or Completion of an offering
- The CLS Blue Sky Blog
- The Wall Street Journal
- Third Party Payments
- Tick Pilot
- Tick Size
- Tick Size Pilot Program
- Tick Sizes
- Token sales
- Tracking stocks
- Trade Settlement
- Trading
- trading platforms
- Transaction-based compensation
- U.S. dollar LIBOR
- U.S. federal income tax reform
- Uber Technologies, Inc.
- Underrepresented Minority
- Underwriting allocations
- Underwriting fees
- Undisclosed Fees
- Unequal Voting Rights
- Universal proxy ballots
- Unregistered finders
- Unregistered offerings
- Unregistered Soliciting Entities
- Uplisting
- US Supreme Court
- Use of boilerplate
- venture capital
- venture capital investors
- venture capital terms
- Venture exchanges
- Verification of accredited status
- Virtual currency
- voting control
- voting power
- warranties
- Whistleblower Program
- Whistleblowers
- “Tandy” Representations
- “Testing the Waters”
Recent Posts
- Delaware Chancery Court Provides Important Guidance on COVID-19’s Impact on a Buyer’s Obligation to Close:
- New York State Updates State Securities Regulations
- Nasdaq Proposes New Listing Rules Related to Board Diversity
- SEC Adopts Amendments to Permit the Use of Electronic Signatures for SEC Filings
- The SEC Rebuilds the Integration Principles Guiding Concurrent Private and Public Offerings of Securities
- The SEC Proposes a Safe Harbor for Permissible Capital-Raising Activities by Unregistered Finders
- SEC Issues 100th Whistleblower Award Just Days after Adopting Amendments to Whistleblower Program
- SEC Reduces Registration Filing Fee Beginning in October 2020
- The SEC Amends Regulation S-K Disclosure Rules to Empower Companies to Determine What and How Much Disclosure is Appropriate for Shareholders and Investors
- Negotiating Loan Documents for Borrowers – Part VI
Archives
- December 2020
- November 2020
- October 2020
- September 2020
- August 2020
- July 2020
- June 2020
- May 2020
- April 2020
- March 2020
Contact Us
(212) 451-2300
www.olshanlaw.com
The SEC Proposes to Amend the Accredited Investor Definition to Find a Place for Sophisticated, Informed Investors
The SEC proposes rules to add a new category for individuals to qualify as accredited investors based on professional certifications and designations or credentials that show “financial sophistication.” The SEC requests public input on exactly which industry exams, academic degrees and levels of job experience should be considered.
For too many years at the SEC, investments by non-accredited investors in unregistered offerings have been on par with any one of the seven Deadly Sins. But now, there may finally be room in heaven for “financially sophisticated” but previously non-accredited investors to try their luck in today’s private capital markets.
The Proposed Amended Definition
On December 18, 2019, the SEC published proposals to expand the definition of “accredited investor” in Rule 501(a) of Regulation D under the Securities Act to permit additional investors to participate in various private offerings and at potentially higher amounts. The accredited investor definition is a central concept in deciding who may invest in a traditional private placement under Rule 506(b) and a generally-solicited private placement under Rule 506(c) for both private companies and publicly-traded companies, as well as private equity funds, venture capital funds and hedge funds. The definition is also used in determining investment amount limits in other exempt offerings including an offering made under Tier 2 of Regulation A and Regulation Crowdfunding.
The SEC’s proposal would amend the accredited investor definition by:
- adding new categories in the definition that would permit natural persons to qualify as accredited investors based on certain professional certifications or designations or other credentials arising out of an examination administered by a self-regulatory or other industry body such as FINRA or issued by an accredited educational institution, or in connection with investments in a private fund, as a “knowledgeable employee” of the private fund;
- adding certain entity types to the current list of entities that may qualify as accredited investors and a new category for any entity with “investments,” as defined in Rule 2a51-1(b) under the Investment Company Act, in excess of $5 million and that was not formed for the specific purpose of investing in the securities offered;
- adding family offices with at least $5 million in assets under management and their family clients to the definition; and
- adding the term “spousal equivalent” to the definition, so that spousal equivalents may pool their finances for the purpose of qualifying as accredited investors.
The proposed amendments to the accredited investor definition, however, do not include changes to the current income and net worth thresholds to identify individuals as accredited investors.
The SEC has also proposed to expand the list of entities that are eligible to qualify as “qualified institutional buyers” under Rule 144A and add a “catch-all” category that would permit institutional accredited investors under Rule 501(a), of an entity type not already included in the qualified institutional buyer definition, to qualify as qualified institutional buyers when they satisfy the $100 million threshold.
Benefits of the Amended Definition in Various Offerings
Regulation D Private Placements. According to the SEC, the proposed amendments would benefit issuers that conduct private offerings under Rule 506(b) (which has no limit on the number of purchasers who are accredited investors and limits the number of non-accredited investors to 35 per offering) and Rule 506(c) (under which purchasers are exclusively accredited investors) by expanding the pool of accredited investors, improving the ability of issuers to raise capital in the exempt markets and reducing the competition between issuers for investors, thereby likely resulting in overall increased capital raising in the private offering market. The SEC further indicated that by selectively eliminating restrictions on these sophisticated and informed investors who do not need the protections provided by registration under the Securities Act, there would be little downside to enacting the amendments.
In addition, the amendments to the accredited investor definition could increase capital raising under Rule 504 of Regulation D. Under Rule 504 of Regulation D, issuers are permitted to use general solicitation or general advertising to offer and sell securities when (i) offers and sales are made pursuant to state law exemptions from registration that permit general solicitation and general advertising and (ii) sales are made only to accredited investors.
Generally, it is expected that these proposed amendments would be most valuable to firms that face greater uncertainty about investor interest in their prospective Regulation D offerings, particularly issuers that are smaller, in early stages of development or in geographic areas that currently have lower concentrations of accredited investors. Accordingly, large and well-established public issuers are less likely to benefit from these amendments.
Amendments to the accredited investor definition also impact several other capital formation structures and related trading liquidity and public reporting matters.
Regulation A. As accredited investors are not subject to investment limits under Tier 2 of Regulation A, expanding the pool of accredited investors could enable issuers that are conducting offerings under Tier 2 of Regulation A to raise capital faster and at a lower cost.
Rule 144A. Expanding the definition of qualified institutional buyer under Rule 144A may increase the number of potential buyers of Rule 144A securities from financial intermediaries, thereby facilitating capital formation in this market by issuers conducting Rule 144A exempt offerings.
In addition to the effects on the ability to raise capital, the proposed amendments may have a positive effect on the liquidity of securities issued in unregistered offerings. Since the proposed amendments to the qualified institutional buyer definition would expand the pool of potential purchasers in resale transactions, it could facilitate greater resale of Rule 144A securities by holders of such securities. This could increase demand for Rule 144A securities and have an impact on the price and liquidity of these securities when offered and sold by the issuer in Rule 144A offerings and in subsequent resale transactions.
Regulation Crowdfunding. An expanded accredited investor definition could impact resales under Rule 501 of Regulation Crowdfunding during the one-year resale restriction period, thus potentially affecting the liquidity discount for such securities. Securities purchased in a crowdfunding transaction generally cannot be resold for a period of one year, unless they are transferred to an accredited investor. An expanded pool of accredited investors as a result of the proposed amendments could make it easier for holders of such securities to find a buyer, potentially leading to a lower liquidity discount.
Verification of Accredited Status. Another potential benefit to issuers interested in raising capital through Rule 506(c) offerings is that the proposed amendments would provide them with additional ways to verify an investor’s status as an accredited investor. Issuers conducting offerings under Rule 506(c) are required to take reasonable steps to verify the accredited investor status of all purchasers in the offering. Compliance with this verification requirement has been cited as a potential impediment to the use of Rule 506(c) to raise capital despite the ability to use general solicitation when conducting these types of offerings. To the extent that issuers face challenges complying with this requirement, the proposed amendments would provide them with additional avenues to meet this requirement, such as through professional certifications.
Testing the Waters. The proposed amendments would increase the number of potential investors with whom issuers undertaking a registered offering may be able to communicate under Section 5(d) of the Securities Act and Securities Act Rule 163B (the “testing the waters” provisions). By increasing the pool of potential institutional accredited investors and qualified institutional buyers, the proposed amendments would allow certain issuers to gather valuable information about investor interest before a potential registered offering. This could result in a more efficient and potentially lower-cost, lower-risk capital raising process for such issuers.
Non-Reporting Status. Under Section 12(g) of the Exchange Act, an issuer (other than a bank) is required to register a class of equity securities under the Exchange Act if, on the last day of its fiscal year, it has more than $10 million in total assets and the securities are “held of record” by either 2,000 or more persons, or 500 or more persons who are not accredited investors. To the extent that the proposed amendments increase the pool of accredited investors, issuers may be able to raise the capital that they need by selling securities to fewer non-accredited investors, which could enable these issuers to avoid becoming an Exchange Act reporting company for a longer period.
Private Fund Employees. Finally, a proposed amendment to the accredited investor definition would allow knowledgeable employees of private funds to qualify as accredited investors for purposes of investing in offerings without the funds themselves losing accredited investor status when the funds have assets of $5 million or less. This proposed amendment would potentially allow these private funds the ability to offer knowledgeable employees performance incentives, such as investing in the fund.
The SEC requests public comments to the accredited investor definition amendments and, importantly, in response to specific questions posed by the SEC such as which professional certifications or academic degrees should count in determining accredited investor status.The proposed amendments will be subject to a 60-day public comment period following publication of the release in the Federal Register. To submit comments, one can use the SEC’s Internet submission form or send an email to rule-comments@sec.gov.