SEC revised “accredited investor” definition

The term “accredited investor” is used in the US Securities Act and the regulations of the US Securities and Exchange Commission (SEC) to determine whether an investor is eligible to participate in private offerings of securities in the US that are exempt from registration with the SEC under certain laws and safe harbour rules.

One category of accredited investor is an individual with a net worth in excess of US$1 million. Net worth in this context would generally include the net worth of such individual's spouse. On 21 December 2011, the SEC amended the approach used to calculate an individual's net worth so as to:

• exclude as an asset, the individual's primary residence;
• include as a liability, indebtedness secured by the individual's primary residence that exceeds the estimated fair market value of the primary residence at the time of investment;
• include as a liability indebtedness secured by the individual's primary residence that was incurred within 60 days prior to the investment (other than in connection with the acquisition of the primary residence).

The amendments provide for certain limited transition provisions whereby the prior accredited investor standard will continue to apply.

As a consequence of the changes, fund documentation containing definitions of an accredited investor will need to be amended. We encourage all parties who may be affected by these changes to contact their local or US counsel to ensure that their fund documentation is up to date.

For more information, please contact:

Rory Gallaher, Partner
Tel: +852 2825 9697
rory.gallaher@deacons.com