February 28, 2011
In response to Section 413(a) of the Dodd-Frank Act, the Commission has taken the required steps to adjust the net worth standards for accredited investors under the Securities Act. These standards delineate investors to whom issuers may sell securities in specified private and other limited offerings without registration of the offering under the Securities Act. The financial community anxiously awaits the results of the proposed industry study and alternatives to existing rulemaking.
Over these next four years, the Commission should consider whether the income and net worth limitations that help establish the accredited investor definition should be the only standard for determining an individuals status as such.
Net worth is only one indicator of whether an investor is capable of protecting him or herself. In the wake of a crisis that claimed the wealth of a great many accredited investors, income and net worth in exclusion of other factors, is a flawed arbiter of financial sophistication.
Investors have many ways to inform themselves about the proposed merits of any particular investment and access to a myriad of ways to mitigate risk, The availability of professional advisors, angel investment groups and the accessibility of independent research and analysis challenge the conventional wisdom that a dollar amount threshold for participation in private offerings will improve investor protection.