SEC Provides Guidance on Accredited Investor Definition

On March 12, the Securities and Exchange Commission (SEC) Division of Corporate Finance issued a no-action letter clarifying what “reasonable steps” means to verify an individual’s accredited investor status as required under amended Rule 506(c) of Regulation D under the Securities Act of 1933. The clarification provides that an issuer can be found to have taken reasonable steps if:

• For individuals, a minimum investment of at least $200,000 and the issuer obtains written representations that the purchaser is an accredited investor and that the minimum investment amount is not financed by a third party.
• For entities, a minimum investment of $1,000,000 and written representations that the purchaser is an accredited investor and that the minimum investment amount is not financed by a third party.
• There is no knowledge of facts that would prove any of the above as false or contrary to the purchaser(s) representations.

A Ropes & Gray client alert notes that for certain Investment Company Act of 1940 registered funds, the guidance would “ease compliance burdens associated with offering, maintaining and operating privately placed funds that are registered.”

Click here to view the SEC’s no-action letter on Rule 506(c) interpretive guidance.
Click here to read a client from Ropes & Gray covering the SEC guidance.