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Articles : Accredited Investor Today Not Tomorrow

Accredited Investor Today Not Tomorrow

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By Gisella Rivera

Beginning July 21, 2010, who can buy and to whom companies can  sell privately placed securities changed when President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). Individual investors can no longer include the value of their primary residence when calculating their net worth for purposes of determining whether they are eligible, as “accredited investors,” to purchase unregistered and unlisted securities issued by companies in private placements.

Under the U.S. Securities Act of 1933 (the “Securities Act”), an individual investor qualifies as an accredited investor when, at the time of purchase, he has a net worth (or a joint net worth with his spouse) that is at least $1,000,0002 or an income of $200,000 (or a joint income with his spouse of $300,000) in each of the two most recent years and has a reasonable expectation of reaching the same income level in the year of investment

This change is meant to address concerns by U.S. regulators that an increasing number of individual investors qualified as accredited investors primarily due to inflation and rising real estate prices. Regulators were apprehensive that individual investors to whom offers of privately placed securities were made did not have, at the time of purchase, the requisite sophistication and financial knowledge necessary to fully understand the risks underlying such investments…