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.