Subject: File No. S7-04-11
From: Thaddeus Rusk
Affiliation: Real Estate Operator

February 26, 2011

Thank you for allowing my comments.

An example loosely based on people I know:

Couple A: very stable salaries of $145k each and interest of $9k, has no children or independant children, owns $1000k primary residence free and clear, owns $950k in liquid investments (money markets, short term CD's, etc.)

True net worth: 1,950k
Total income: $299k
Disposable income: 90k

Couple B: one is self-employed with taxable income varying from $50k to $300k (but can't meet income test), other cares for four minor children, owns $1000k home with $1000k mortgages, owns 950k net worth completely in illiquid business assets and 100k cash.

True net worth: $1,050k
Total income: $150k (5-yr average)
Disposable income: nearly $0

Couple C: combined income $40k from wages, owns no home, has few other assets, but through many one-time events (inheritances, scratch-offs, claims settlements) has received more than $300k for the past two years and is notified of another one-time event exceeding $300k to be paid next year.

True net worth: over $300k for brief periods, but averages about $80k (2 new cars)
Total income: over $300k (last 2yr and expected next year)
Disposable income: varies

Which couple is better suited for a $50k real estate LLC investment?

Couple B meets the net worth test, but is strained to live on their unstable income, so I would consider them unfit for my offering.

Couple C meets the income test, but is fair from being a sophisticated investor, so I would consider them unfit for my offering.

Couple A meets neither the income test, nor the net worth test, even though they could sustain a lockup or loss much better than the other two couples. I may consider them suitable for my offering.

What is the purpose of the "accredited investor" definition?

1. to screen for sophisticated investors suitable for alternative investments through private equity entities?, or
2. to screen for ability to sustain complete loss of investment in such entities?, or
3. to screen for ability to sustain inaccessability to invested capital (lockup) in such entities?

Any attempt to tighten the "accredited investor" definition will lead to less capital available for venture capital, hedge funds, real estate and private equity investments and of course more capital available for broker-dealers, commodity pools, collectibles, bank CD's, money funds and mutual funds. Is this the way to manage risk of unsophisticated investors in an age where "non-accredited" investors can place their entire net worth at risk in margined accounts consisting of futures contracts, options and leveraged ETF's?