Proposed Changes To The Definition Of Accredited Investor And The Definition Of Qualified Institutional Buyer

On December 18, 2019, the SEC approved a proposing release for public comment that would amend the definition of "accredited investor," as well as amend the definition of "qualified institutional buyer." Many structured note issuers include a Regulation D offering alternative in their continuous issuance programs, which would be affected by these amendments, if adopted. The Regulation D offerings typically rely on the Rule 506(b) safe harbor and allow for offers and sales to be made solely to "accredited investors." The changes set forth in the SEC's proposing release would have the effect of broadening the potential universe of individuals and entities that might qualify as accredited investors. In particular, the proposed amendments to the accredited investor definition would add new categories of natural persons based on professional knowledge, experience or certifications (such as Series 7, 65 and 82 licenses) and would leave intact the current net income and asset tests. Knowledgeable employees of private funds also would be considered accredited investors eligible to invest in their funds. The proposed amendments would also add new categories of entities, including a "catch-all" category for any entity owning in excess of $5 million in investments so long as it is not formed for purposes of investing in the offered securities. Family offices with at least $5 million of assets under management and their family clients would be considered accredited investors. Qualified institutional buyers (QIBs) would be considered accredited investors, and certain limited liability companies would also qualify as accredited investors. The proposed amendments would similarly expand the...