Subject: File No. S7-25-06
From: J Cleckner

June 13, 2007

Unintended Consequences of Revising the Accredited Investor Standard

1. Negative Impact on the Environment
a. Proposed rule prevents current accredited investor with $1-2.4 million in investments (CAI) from paying for capping an oil well that is being shut down in the future. The environment suffers if the well is not capped.
2. Disqualifying savvy investors
a. Proposed rule prevents CAI with prior Regulation D experience from investing but permits newly accredited investor (NAI) with no prior experience to invest. It makes no sense that a NAI with no experience is smart enough to invest in Regulation D investments but a CAI with prior experience is not.
3. Forcing Investors to lose Interest
a. A CAI must invest the entire amount in an investment prior to the proposed rule going into effect because there is no grandfathering. The investor loses the interest on the capital that is invested early.
4. Forcing Investors to Lose Capital
a. If the proposed rule goes into effect after the initial investment is made but before the final investment, the CAI may lose the entire initial investment. Oil deals frequently have two or more investments required: First the drilling and second the completion. If both investments are not made, the investor no longer participates in any revenue. The second investment is required only if the oil well appears to be commercially viable. The proposed rule would prevent the CAI from completing the investment in exactly the type of lower risk investment the CAI wants: a well that will produce.
b. The proposed rule will also prevent the CAI from paying for a refracture job. These jobs typically cost 5-10% of the original investment and rejuvenate the well yielding additional production. For some types of wells the production is actually higher than the original production. This is another, lower risk investment because the original production is only 15-30% of the oil or gas in the reservoir.

Conclusion: The proposed rule hurts investors in the above situations.

Solution Grandfather current accredited investors.