Client Alert- SEC Expands Private Offering Investor PoolAug 28, 2020
- FisherBroyles News
The Securities and Exchange Commission (the “SEC”) has adopted amendments to the definition of “accredited investor” (“AI”) in Regulation D under the Securities Act of 1933 (the “Act”) to add new categories of qualifying investors to private offerings. The amendments represent an acceptance by the SEC that wealth should not be the only means of qualifying natural persons for investment opportunities and also serve to codify certain interpretations of the staff of the SEC, e.g., to specifically include limited liability companies with $5 million in assets and allow spousal equivalents to jointly calculate net worth and income. The SEC also approved amendments to Rule 144A under the Act (“Rule 144A”) that expand the definition of “qualified institutional buyer” (“QIB”). The amendments were proposed in December 2019 and have been largely adopted as proposed. They will become effective 180 days after publication in the Federal Register.
The changes to the definitions of AI and QIB will increase the pool of potential investors for private equity, hedge funds and other issuers in offerings conducted pursuant to Regulation D and Rule 144A and necessitate revisions to many offering and subscription materials as well as other transactional documents.
AIs. Specifically, the amendments expand the definition of AI in Rule 501 (“Rule 501”) of Regulation D in several significant areas:
- Knowledgeable Employees and other natural persons: Will include persons holding certain professional certifications or designations or other credentials or based on their status as a private fund’s “knowledgeable employee,” as defined under the Investment Company Act of 1940 (“ICA”). Also included are persons holding certain FINRA licenses – Series 7, 65 and 82.
- Registered Investment Advisers, Family Offices and Family Office Clients: (i) SEC or state registered and SEC-exempt reporting advisers that are acting for their own account; (ii) family offices as defined under Investment Advisers Act with at least $5 million in assets under management; and (iii) their family clients.
- Spousal Equivalents: Will allow “spousal equivalents,” i.e., a cohabitant occupying a relationship generally equivalent to that of a spouse, to pool their income for purposes of meeting the joint income and net worth tests in Rule 501.
- Other Entities with $5 Million in Investments: Will add a new category for any entity not formed for the purpose of investing in the securities offered that owns investments as defined in the ICA in excess of $5 million.
QIBs. The amendments also expand the definition of QIB in Rule 144A to include limited liability companies and Rural Business Investment Companies and any institutional investors included in the AI definition in Rule 501 that are not otherwise enumerated in the definition of “qualified institutional buyer,” provided, in each case that they satisfy the $100 million threshold in Rule 144A.
Rules 215, 163B and Exchange Act Rule 15g-1: The amendments include revising Rule 215 under the Act to replace the existing definition with a cross reference to the definition in Rule 501 and conforming amendments to Rule 163B under the Act and to Rule 15g-1 under the Securities Exchange Act of 1934.
About FisherBroyles, LLP
Founded in 2002, FisherBroyles, LLP is the first and world’s largest distributed law firm partnership. The Next Generation Law Firm® has grown to hundreds of partners in 23 offices globally. The FisherBroyles’ efficient and cost-effective Law Firm 2.0® model leverages talent and technology instead of unnecessary overhead that does not add value to our clients, all without sacrificing BigLaw quality. Visit our website at www.fisherbroyles.com to learn more about our firm’s unique approach and how we can best meet your legal needs.
These materials have been prepared for informational purposes only, are not legal advice, and under rules applicable to the professional conduct of attorneys in various jurisdictions may be considered advertising materials. This information is not intended to create an attorney-client or similar relationship. Whether you need legal services and which lawyer you select are important decisions that should not be based on these materials alone.
© 2020 FisherBroyles LLP