Thank you, Chairman Schapiro.
Before us is a recommendation concerning the definition of “accredited investor.” The recommendation proposes amending the accredited investor definition to exclude the value of a person’s primary residence when calculating net worth. The proposal goes toward implementing Section 413(a) of the Dodd-Frank Act.
I support the recommendation, although I do find one effect of the rule change troublesome.
As the release explains, an investor who, as a result of the new net worth standard, loses his or her “accredited” status may not be allowed to make a subsequent investment in a company or a fund the investor had earlier invested in through a prior Regulation D offering. This could disadvantage the investor in a range of respects. The investor’s economic interest, for example, could be diluted if he or she cannot participate in a subsequent round of financing; and the investor could be frustrated in exercising certain contractual rights he or she enjoys as an existing investor.
Issuers, too, could be disadvantaged. It could be more difficult and costly for a company or a fund to raise capital if certain current investors cannot invest in future offerings.
The proposing release seeks comment on a number of items, including the impact on investors and issuers of the transition to the new net worth standard. As always, I look forward to considering the comments we will receive.
Regarding the transition, one question I hope commenters will address is this: Should the Commission “grandfather” an investor’s accredited status for the focused purpose of allowing an investor who does not satisfy the new net worth standard to make follow-on investments in a company or a fund that the investor is already invested in?
In concluding, I join my colleagues in thanking the staff — particularly those from the Division of Corporation Finance — for your hard work on this and the many other Dodd-Frank-related rulemakings.