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Dear Members and Friends,

The IPA today submitted a to the Securities and Exchange Commission (“SEC”) regarding proposed amendments to the accredited investor definition. This proposal was the SEC’s first step in a broader effort to improve and harmonize the exempt securities offering framework following the SEC’s June 2019 “.” The IPA submitted a on the Concept Release on September 24, 2019.

Our comment letter on the accredited investor definition makes the following points:

  • The IPA commends the SEC for retaining the current dollar limits and not including an inflation adjustment. Including individuals with Series 7, 65, and 82 licenses is an appropriate first step in expanding the definition. However, similarly qualified and sophisticated individuals, such as those with the Series 66, 3 and 6 licenses, or with CPA and CFA designations, should also be included.
  • The IPA believes that the SEC correctly included “knowledgeable employees,” as defined by Rule 3c-5 of the Investment Company Act of 1940 (“1940 Act”), under the expanded definition. As it currently stands, a “knowledgeable employee” of the issuer would be a qualified purchaser under the 1940 Act, but potentially not an accredited investor.
  • The IPA continues to oppose recommendations such as adding investment limitations to the current dollar thresholds or replacing the $5 million assets test with a $5 million investments test.
  • The IPA suggests two areas where the SEC can further expand the definition while balancing its interest in investor protection:
    • First, the SEC should include individuals or entities advised by a financial professional, such as a registered investment adviser, that acts as a fiduciary in making the investment. We also suggest that clients advised by a broker-dealer should be similarly treated, as Regulation Best Interest provides the same fiduciary-like standard to broker-dealers, and is a more cost effective solution for long-hold private investments.
    • Second, the SEC should take additional steps to harmonize how defined contribution plans and defined benefit plans are treated under the SEC’s “qualified purchaser” guidance by effectively eliminating “look through” requirements. This change will put plan fiduciaries in a better position to evaluate private funds and to provide clear and meaningful disclosure to plan participants.

On March 4, 2020 the SEC voted to approve a second set of rule amendments following the June 2019 Concept Release. This details substantial additional changes to exempt offerings. Comments are due 60 days after publication in the Federal Register.

In a posted online, the SEC stated there were four major aspects to the proposal.

  • Create one “broadly applicable rule” that describes how issuers would move securities from one type of exemption to another and ultimately to a registered offering.
  • Increase offering limits for exempt offerings that are known as Regulation A, Regulation Crowdfunding, and Rule 504 offerings, and revise certain individual investment limits.
  • Set “clear and consistent rules” regarding communications between investors and issuers and specifically delineate how to conduct certain “demo day” activities without violating the SEC’s prohibition on general solicitation.
  • Reduce differences between exemptions related to disclosure, eligibility, and bad actor disqualification.

The IPA will be reviewing the March 4 proposal and submitting comments to the SEC on behalf of our members. We look forward to continuing the important ongoing dialogue around common sense changes to the private marketplace.


Anya Coverman
SVP, Government Affairs and General Counsel
Institute for Portfolio Alternatives