Accredited Investor

Boca Raton and West Palm Beach, Florida Private Placement Investment Fraud Litigation and FINRA, AAA and Jams Arbitration Attorney, Russell L. Forkey, Esq.

This post sets forth the current (as of 6/4/11) definition of the phrase "accredited investor", as used in Regulation D of the Securities Act of 1933 (the "Act").  Please keep in mind that this information is being provided for educational purposes only.  Thus, it should not be relied upon as legal advice.  If you have any questions concerning this post, you should consult an experienced attorney.

As used in Regulation D, the term "accredited investor" is defined as follows:

a.  Accredited investor. Accredited investor shall mean any person who comes within any of the following categories, or who the issuer reasonably believes comes within any of the following categories, at the time of the sale of the securities to that person:

1.  Any bank as defined in section 3(a)(2) of the Act, or any savings and loan association or other institution as defined in section 3(a)(5)(A) of the Act whether acting in its individual or fiduciary capacity; any broker or dealer registered pursuant to section 15 of the Securities Exchange Act of 1934; any insurance company as defined in section 2(a)(13) of the Act; any investment company registered under the Investment Company Act of 1940 or a business development company as defined in section 2(a)(48) of that Act; any Small Business Investment Company licensed by the U.S. Small Business Administration under section 301(c) or (d) of the Small Business Investment Act of 1958; any plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has total assets in excess of $5,000,000; any employee benefit plan within the meaning of the Employee Retirement Income Security Act of 1974 if the investment decision is made by a plan fiduciary, as defined in section 3(21) of such act, which is either a bank, savings and loan association, insurance company, or registered investment adviser, or if the employee benefit plan has total assets in excess of $5,000,000 or, if a self-directed plan, with investment decisions made solely by persons that are accredited investors;

2.  Any private business development company as defined in section 202(a)(22) of the Investment Advisers Act of 1940;

3.  Any organization described in section 501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar business trust, or partnership, not formed for the specific purpose of acquiring the securities offered, with total assets in excess of $5,000,000;

4.  Any director, executive officer, or general partner of the issuer of the securities being offered or sold, or any director, executive officer, or general partner of a general partner of that issuer;

5.  Any natural person whose individual net worth, or joint net worth with that person's spouse, at the time of his purchase exceeds $1,000,000;

6.  Any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year;

7.  Any trust, with total assets in excess of $5,000,000, not formed for the specific purpose of acquiring the securities offered, whose purchase is directed by a sophisticated person as described in Rule 506(b)(2)(ii) and

8.  Any entity in which all of the equity owners are accredited investors.

This rule sets forth objectives standards as to what the regulations define as an accredited investor.  But, as an investor, what does it accomplish for you.  Not too much.

First, in today's world $200,000, for a single person and $300,000 for a married couple, does not buy what it used to.  Secondly, a $1,000,000 net worth, especially if you take into consideration the net value of your home or other illiquid investments,   will not help you if all the money that you place into a private placement fails.  Consequently, you should think long and hard whether or not the proposed investment is right for you and your family, taking into consideration all the terms of the "offering memorandum", including the disclosed risk factors.  Before you invest in a "private" placement, we strongly urge you to review the investment with a qualified attorney.

Effective December, 2011, the Securities and Exchange Commission adopted an amendment to the net worth definition, relating to the issue of excluding the value of an individual's home from the net worth calculation.  For a more complete discussion of this amendment, please follow the highlighted link.

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