Securities Attorney Laura Anthony Talks Accredited Investor Definition; Quoted in PIPEs Report

Jan 26, 2016, 08:00 ET from Legal & Compliance, LLC

WEST PALM BEACH, Florida, January 26, 2016 /PRNewswire/ --

According to the Securities and Exchange Commission (SEC), the definition of "accredited investor" provides the backbone to the Regulation D exemptions and is "intended to encompass those persons whose financial sophistication and ability to sustain the risk of loss of investment or ability to fend for themselves render the protections of the Securities Act's registration process unnecessary."  Accredited investors include high income and net worth individuals, banks, insurance companies, employee benefit plans, and trusts.

This sounds simple enough.

However, the meaning of the term Accredited Investor was adopted in 1982 and, except for an amendment in 2011 that excludes an individual's primary residence from their net worth calculation, has not changed since.  The SEC has recently released a 116-page report that may indeed precipitate a game changer for Small-Cap financiers.  

The actual recommendations by the SEC staff in the report are broad-based, conceptual and non-specific. However, these broad recommendations, when viewed in the same light as the more detailed aspects of the SEC report, have sparked speculation and apprehension for many small-cap financiers.

The concern for small and emerging growth businesses is that a change in terminology could make it more difficult to raise capital for private placements because fewer investors would qualify as being "accredited." Recently, the lead story of The PIPEs Report, titled "Accredited Investor Definition Reviewed," by Bill Meagher, confirmed that industry insiders are worried.  

Securities attorney Laura Anthony, founding partner of the law firm Legal & Compliance, LLC, said, "I think there is some concern that what the staff has proposed could make the definition too exclusive, too prohibited. We need a larger pool of investors, not a smaller one."    

Currently the definition of "accredited investor" entails a bright line numerical test for individuals: a minimum $1,000,000 net worth, not including principal residence, and $200,000 in income. For spousal investors the income threshold increases to $300,000 in joint income. Among its many broad recommendations, the SEC staff recommends adding investment limitations for individuals meeting these thresholds and adding higher thresholds without investment limitations. The SEC also recommends indexing the thresholds for inflation going forward.

It is a widely-held belief that small and emerging growth companies create the most new jobs and are critical to domestic economic growth. These same small and emerging growth companies rely heavily on the Regulation D exemptions when seed funding and financing incipient-stage growth activities.

In 2013 10% of U.S. households qualified as accredited investors. Adjusting the financial tests for inflation could conceivably reduce this percentage of accredited investors by 64%. This radical reduction in the amount of accredited investors could prove devastating to the small-cap sector.    

Securities attorney Laura Anthony is the founder of Legal & Compliance, LLC, a traditional bricks-and-mortar corporate and securities law firm with a strong internet presence. She is also the creator of and the producer and host of LawCast.  

Legal & Compliance, LLC focuses on going public transactions, complex corporate transactions and ongoing legal support for both private and public companies. The firm has grown rapidly since its inception in 2001.      

Securities attorney Laura Anthony and her experienced legal team provide ongoing corporate counsel to small NASDAQ and NYSE MKT companies and small and mid-size OTC issuers as well as private companies going public on the over-the-counter market, such as the OTCBB, OTCQB and OTCQX. Legal & Compliance, LLC is a comprehensive corporate, securities and business transactions law firm assisting clients in all aspects of commerce, including initial public offerings, reverse mergers, registered public offerings, mergers and acquisitions, exempt private offerings, all forms of complex corporate finance transactions, compliance with national exchange rules and regulations such as NASDAQ and NYSE MKT, compliance with the over-the-counter market trading platforms such as OTCQB, compliance with FINRA and DTC, strategic planning for unique management and ownership issues, and broad-scope legal services. Laura Anthony, Esq., is also the creator and author of and the host of, The Securities Law Network.  

Laura Anthony, Esq.
Founding Partner
Legal & Compliance, LLC

SOURCE Legal & Compliance, LLC