Financial Reform Law Tweaks Reg. D definition of “Accredited Investor”

Posted in Real Estate Syndications on July 21, 2010

The Dodd-Frank Wall Street Reform and Consumer Protection Act (HR 4173) has been passed by the United States Congress and sent to the President for his signature.  Once signed into law, Regulation D sponsors and syndicators must take immediate action to update their offering documents to comply with the law's revision to the definition of "Accredited Investor," the target audience for most Regulation D private placements.

In short, the revised definition of "Accredited Investor" now excludes the value of an individual's primary residence from the calculation of the $1,000,000 net worth test under Rule 501(a)(5). According to reports from the Real Estate Securities Investment Association, the SEC has indicated that this change will go into effect immediately upon President Obama’s signature of the bill. Therefore, Regulation D sponsors must take immediate action to update their offering documents, investor questionnaires, and subscription agreements to incorporate this new information.  This would apply to offerings currently in progress as well those planned for future release.

Another change to Regulation D resulting from the financial reform law is to incorporate certain "bad boy" disqualifiers preventing certain issuers with a record of judgments against them from relying on Regulation D exemptions for their capital raising efforts.  

Proposed Changes to Reg. D Definition of Accredited Investor

Posted in Real Estate Syndications on June 4, 2010

It seemed inevitable that the recent push for financial reform would reach Regulation D, the big question was how much of an impact would there be once the dust settled. At the moment, it appears Regulation D will remain intact in all material respects, with only modest revisions to the definition of "accredited investor" (interestingly, the SEC had proposed somewhat similar revisions a few years ago, but never promulgated them in final form).

Here's a summary of what the latest proposed amendment does, with respect to the Reg D accredited investor definition:

• mandates an immediate change to the Rule 501(a) accredited investor definition for individual investors, to exclude the value of one's principal residence from the net worth threshold of $1 million;
• contemplates (but does not require) that the SEC may review the definition as a whole (including, presumably, the annual income requirements to adjust for inflation); and
• requires that there be no adjustments to any accredited investor definition that raise the net worth threshold in excess $1 million, less the value of one's principal residence, for a period of four years.

Stay tuned to see what the final language in the bill looks like.