The SEC recently adopted amendments to the new Accredited Investor Standards that become effective on February 27, 2012. The definition of an "accredited investor" was changed under Section 413(a) of the Dodd-Frank Act on July 21, 2010. The primary change to the definition at that time was to exclude the value of an investor's primary residence from the calculation of minimum net worth when determining if an individual's net worth exceeded $1,000,000. The new amendments clarify the revised definition under Securities Act Rules 501, 215, and 506 of Reg D. What follows is a summary of the amendments.
- A person's primary residence (asset) is excluded from the calculation of minimum net worth as is the mortgage loan debt (liability) as long as the value of the primary residence equals or exceeds the total mortgage loan debt on the residence.
- If the mortgage loan outstanding is greater than the value of the primary residence then the difference must be included as a liability.
- A 60 day look-back period is included in the definition. Any increase in mortgage debt during the 60 day look-back period must be included as a liability in the net worth calculation (except new home purchases). The 60 day look-back period is the 60 day period prior to the investment date/time of the sale of securities. The purpose of the look-back provision is to deter investment sales made with funds sourced by home equity loans.
- Any individual with a "pre-emptive right to acquire" as of July 20, 2010 AND who already held securities of the issuer at that time, is grandfathered from the new definition.
View Federal Register publication of the SEC amendments
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