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Alternative Market Briefing

SEC adopts new rules for accredited investors

Wednesday, February 15, 2012

Bailey McCann, Opalesque New York :

The U.S. Securities and Exchange Commission (SEC) has adopted new amendments to the Securities Act of 1933 that will change the way the regulator determines who qualifies as an accredited investor. The rule changes are required in order to comply with financial reforms outlined in the Dodd-Frank Act.

Currently, the SEC allows certain private and limited offerings to be made to investors without registration and without requiring specific disclosures, provided that the offering is made only to what the regulator calls, "accredited investors." These offerings are common place for hedge funds and private equity funds. Prior to Dodd-Frank, for an individual to be deemed an accredited investor, they had to have a net worth of at least $1m. The regulator could use a variety of assets including the value of an individual’s home to determine if they met the threshold.

Among the expansive changes proposed by Dodd-Frank, the value of an individual’s primary home can no longer be included in calculations of net worth. In order to comply with this change, the SEC has had to alter the formula for determining accredited investor status.

Under the new calculation, the amount owed on one’s primary home is not included as a liability to net worth, unless an individual has purchased the new, primary home within 60 days before purchasing securities in a limited offering......................

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