The Securities and Exchange Commission (the “Commission”) amended the definition of an “accredited investor” under the Securities Act of 1933. In the past, individual investors who did not meet specific income or net worth tests were denied the opportunity to invest in private markets. The amendments identify institutional and individual investors that have the knowledge and expertise to participate in those markets based on defined measures of professional knowledge, experience or certifications in addition to the existing tests for income or net worth. The amendments revise Rule 501(a), Rule 215 and Rule 144A of the Securities Act.

The amendments to the accredited investor definition in Rule 501(a):

• add a new category to the definition that permits natural persons to qualify as accredited investors based on certain professional certifications, designations or credentials or other credentials issued by an accredited educational institution, which the Commission may designate from time to time by order; 
• include as accredited investors, with respect to investments in a private fund, natural persons who are “knowledgeable employees” of the fund;
• clarify that limited liability companies with $5 million in assets may be accredited investors and add SEC- and state-registered investment advisers, exempt reporting advisers, and rural business investment companies (RBICs) to the list of entities that may qualify;
• add a new category for any entity, including Indian tribes, governmental bodies, funds, and entities organized under the laws of foreign countries, that own “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;
• add “family offices” with at least $5 million in assets under management and their “family clients,” as each term is defined under the Investment Advisers Act; and
• add the term “spousal equivalent” to the accredited investor definition, so that spousal equivalents may pool their finances for the purpose of qualifying as accredited investors.

The amendment to Rule 215 replaces the existing definition with a cross reference to the definition in Rule 501(a).

The amendments expand the definition of “qualified institutional buyer” in Rule 144A to include limited liability companies and RBICs if they meet the $100 million in securities owned and invested threshold in the definition.  The amendments also add to the list any institutional investors included in the accredited investor definition that are not otherwise enumerated in the definition of “qualified institutional buyer,” provided they satisfy the $100 million threshold.

A copy of the final rule can be found here: https://spelusolawoffice.com/wp-content/uploads/2020/10/2020-19189.pdf.