Monday, December 21, 2015
SEC Staff Recommends Updates to Accredited Investor DefinitionBy: Marianne Hudson, ACA Executive Director December 18 was a very big day for angel investors. Not only did the SEC put out a staff report that recommends tweaks to the accredited investor definition, but Congress passed a big tax act that makes permanent the 100% exemption of capital gains. Here’s what you need to know in connected blog posts: Accredited Investor Definition – A mix of gifts and lumps of coal in our stockings Not far from the US Capitol Building, the SEC quietly released a report from its staff on the Accredited Investor definition on the same day. As many angels will remember, the SEC is required to study the definition by Congress in the Dodd-Frank Act. Time will tell if this staff report fully addresses the requirement or if it informs future rulemaking by SEC Commissioners. To ACA’s delight, some of the recommendations in the report actually match what our leadership has suggested in multiple meetings and letters, such as allowing people who are sophisticated but don’t meet financial thresholds to be accredited. As in many things, however, there are also some recommendations in the report that are different than most angels would like. All in all, the SEC staff’s report could have been much worse – for instance it does not include increasing financial thresholds for income to $450,000 and wealth to $2.5 million as some organizations advocated. Here are the main summary points, taken directly from the report: The Commission should revise the financial thresholds requirements for natural persons to qualify as accredited investors and the list-based approach for entities to qualify as accredited investors. The Commission could consider the following approaches to address concerns with how the current definition identifies accredited investor natural persons and entities:
The Commission should revise the accredited investor definition to allow individuals to qualify as accredited investors based on other measures of sophistication. The Commission could consider the following approaches to identify individuals who could qualify as accredited investors based on criteria other than income and net worth:
The issue ACA will work on learning more about is the “subject to Investment limitations” in the first bullet in the summary report. ACA Board member Kevin Laws summarizes everything this way: “They are recommending capping the total investment of the current definition of accredited investor and creating a new tier above that is uncapped, indexing all limits to inflation but going from this point forward (not going backward), and adding a sophistication test.” “If this report were adopted,” he notes, “the new accredited investor definition would be as follows:
ACA and the angel community will have the opportunity to comment on these recommendations, and we’ll do so as we study it in more detail. Stay tuned. Tax Benefits - The holiday party starts early with a gift from Congress |