Subject: File No. S7-08-19
From: Leonard A Grover
Affiliation: Founder/CEO of FinToolbox (

July 10, 2019

I would like to thank the Commission for considering my prior public comment (referred to as the "Grover Letter" in the latest concept release). As stated in that comment, I would strongly recommend that the Commission broaden the definition to include those who pass a "sophistication" test. It is unfair that sophisticated investors are locked out of compelling investment opportunities merely because of their current income or net worth. In addition, the current accredited investor criteria severely limits the pool of investors that can participate in most private company fundraising rounds, thereby limiting small business capital formation.

Adding a sophistication test, as an alternative way to qualify as an accredited investor, would expand the accredited investor definition to facilitate the participation of a new cohort of sophisticated investors in private company capital formation without increasing the risk that unsophisticated investors would be placed into securities that are unsuitable for them. If the sophistication test is properly construed, the net result would be improving small business capital formation while giving sophisticated investors access to new asset classes (such as venture capital and private equity) that have performed very well historically (arguably outperforming the public markets over many time horizons)(1)(2).

The concept release discusses several possible alternatives for measuring investor sophistication, including: passing a dedicated accredited investor examination, passing one or more FINRA exams, having credentials such as a CPA, CFA, CMA, or CIMA certification, obtaining an MBA degree, or being advised by a sophisticated financial professional. Regardless of the specific sophistication criteria that the SEC selects, it should be sufficiently easy to verify that it does not place an enhanced compliance burden on issuers relative to the net worth an income tests (lest issuers limit access to offerings to avoid the additional burden). In addition, there should be an inexpensive and straightforward path for sophisticated investors to qualify (otherwise only a small fraction of eligible investors would expend the effort and cost).

At the very least, given that the FINRA Series 65 and Series 7 exams are used to test the knowledge of securities industries professionals, passing either exam would be a strong indicator that an individual is adequately knowledgeable about securities to invest on his/her own behalf. While sponsorship by a firm in the securities industry may be required to take either exam, the SEC could allow FINRA to offer the exams to unsponsored individuals for the purpose of qualifying as accredited investors. This has the advantage of not requiring a newly created "accredited investor" test, and is substantially less difficult and expensive for prospective investors to complete than an MBA degree or an industry certification (like a CPA, CFA, etc.). FINRA could provide a certificate to individuals who pass either exam, for the purposes of qualifying as accredited investors, which they could, in turn, show to issuers. This would make it very easy for issuers to verify accredited investor status.

If a separate dedicated test is used to test investor sophistication, it should be inexpensive to take and easy to verify an individual's status. Similarly, if professional qualifications are used, they should be qualifications that issuers can easily verify.

It is unfair that the accredited investor rule limits many of the best investment opportunities only to high income and net worth households. Allowing other sophisticated investors access to these investments benefits them, but it also benefits businesses that rely on private offerings to raise capital. Using a sophistication test would continue to protect unsophisticated investors by maintaining the status quo, from their perspective, thereby allowing the SEC to realize these benefits without risking any additional harm to unsophisticated market participants.

(1) American Investment Council Performance Update 2018 Q4 (

(2) What do Venture Capitalists do? How Well Have They Done? By Steve Kaplan, University of Chicago Booth School of Business (