SEC Approves Update of “Accredited Investor” and “Qualified Institutional Buyer” Definitions

On August 26, 2020, the Securities and Exchange Commission (the “SEC”) voted 3-2 to adopt its proposed revisions to expand the definition of “accredited investor” (“AI”) and “qualified institutional buyer” (“QIB”), which marked the first major revision since 1982.  The revisions included:  (i)  the new definition of AI allows an individual who holds certain professional certifications to qualify; the SEC has initially designated Series 7, 82 and 65 as qualifying licenses;  (ii) “Knowledgeable Employees,” as defined in Rule 3c-5(a)(4) of the Investment Company Act, of a fund as qualifying (and a jointly investing spouse), and such a person can invest in a fund with less than $5 million NAV without the fund losing its AI status;  (iii) jointly investing spouses can take the other’s designation;  (iv) entities that are registered as, or exempt, investment advisers;  (v) rural business investment companies;  (vi) LLCs with at least $5 million in assets under management;  (vii) entities (including tribes, government bodies, funds and foreign entities) with at least $5 million assets under management so long as not formed for the purpose of investing in the offered securities;  (viii) “Family Offices” with at least $5 million assets under management so long as not formed for the purpose of investing in the offered securities and “Family Clients” investing through such offices; and (ix) corresponding changes to the definition of QIB so long as the $100 million threshold is maintained.  The dissenters issued a statement concerned about the rules not further expanding the definitions to update certain monetary thresholds and to evidence concerns for investment by seniors, so it is possible that in the future there will be other changes.