The SEC announced a proposed rule change to Rule 501(a)(5) of Regulation D as required under Section 413(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The net worth threshhold remains at $1,000,000, but the value of the person’s primary residence must now be excluded from the calculation. For practical purposes, this change went into effect in July 2010 when Dodd-Frank became law, and what the SEC is doing now is simply fulfilling its duty under the law to update its Securities Act Rules to reflect the new standard. The proposed rule can be accessed at: http://www.sec.gov/rules/proposed/2011/33-9177.pdf.
For those active in the Regulation D private placement industry, this change could have the following implications, among others: (i) fewer individuals will meet the new 501(a)(5) test for accredited investor status and, therefore, fewer individuals will be eligible to invest in Regulation D private offerings open only to accredited investors; and (ii) sponsors, broker-dealers, registered representatives, and investment advisers will require more time to determine an individual investor’s eligibility for accredited investor status.