SEC Calls for Comment on the Concept of Investor Accreditation

The SEC publishes Concept Release on Harmonization of Securities Offering Exemptions

June 20, 2019 | Written By The ALTI Team

The US Securities and Exchange Commission issued a concept release on June 18th that reviews the framework for exempt offerings, including several exemptions from registration under the Securities Act of 1933 that affect capital raising. The SEC is seeking the public’s comment on possible ways to “simplify, harmonize, and improve the exempt offering framework to promote capital formation and expand investment opportunities while maintaining appropriate investor protections.”

Background

The Securities Act of 1933 requires that the offer and sale of securities be registered with the SEC unless the offer/sale falls under an applicable exemption. The purpose of the registration is to provide “investors with full and fair disclosure of material information” so that investors can make well-informed decisions. However, because Congress recognized the existence of specific situations where there is no practical need for registration they built in exceptions to these rules. Regulation D details the exemptions and is frequently used to allow qualified or accredited investors to invest in less-regulated securities.


Over time, and specifically due to changes enacted by the Jumpstart Our Business Startups Act of 2012, Fixing America’s Surface Transportation Act of 2015, and the Economic Growth, and Regulatory Relief Act of 2018, this exemption framework has grown increasingly and unnecessarily complex.

Review of "Accredited Investor" Definition

Per The Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC is required to revisit the definition of “accredited investor” once every 4 years. Tuesday's concept release is intended to fulfill this requirement.


The SEC is now looking for public feedback on multiple facets of the current framework. They are trying to determine whether the framework is “consistent, accessible, and effective for both issuers and investors” or needs to be simplified and improved. They are also looking to consider whether the “limitations on who can invest in certain exempt offerings, or the amount they can invest, provide an appropriate level of investor protection or pose an undue obstacle to capital formation or investor access to investment opportunities.” Other aspects they are considering revising are whether the SEC should take steps to expand issuers’ ability to “raise capital through pooled investment funds, and whether retail investors should be allowed greater exposure to growth stage issuers through pooled investment funds in light of the potential advantages of investing through such funds, including the ability to have an interest in a diversified portfolio.”


The comment period will remain open for 90 days from the publication in the Federal Register that was released Tuesday, June 18th.


Read the Press Release Here:

https://www.sec.gov/news/press-release/2019-97


Read the Concept Release Here:

https://www.sec.gov/rules/concept/2019/33-10649.pdf