• SEC Releases Proposed Rule on Net Worth Standard for Accredited Investors to Implement Dodd-Frank Act
  • February 8, 2011 | Authors: John M. Bibona; Jessica Forbes; Gregory P. Gnall
  • Law Firm: Fried, Frank, Harris, Shriver & Jacobson LLP - New York Office
  • On January 25, 2011, the Securities and Exchange Commission (the “SEC”) released a proposed rule on the net worth standard for accredited investors to reflect the requirements of Section 413(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”). The rule delineates the net worth standard for accredited investors to whom issuers may sell securities in specified private and other limited offerings without registration of the offering under the Securities Act of 1933 (the “Securities Act”). The rule requires the net worth standard for an accredited investor in the Securities Act Rule 501(a)(5) of Regulation D and Securities Act Rule 215(e) to exclude the value of the investor’s primary residence for the purpose of determining whether the investor qualifies as an accredited investor on the basis of having a net worth in excess of $1 million. Previously, this standard required a minimum net worth of more than $1 million, but permitted the primary residence to be included in calculating the net worth of an accredited investor. The adjustment to the net worth standard was effective upon enactment by operation of the Dodd-Frank Act, but the Dodd- Frank Act also requires the SEC to revise current Securities Act rules to reflect the new standard.