Accredited Investor Definition Updated by Financial Reform Bill

The House of Representatives Bill HR 4173 known as the Financial Reform Bill was passed by the United States Congress today, Thursday, July 15, 2010.  It is anticiapted that HR 4173 will be signed by President Obama and become law next week.  HR 4173 also makes the increased FDIC insurance limits permanent.

The Bill directs the Securities and Exchange Commission (SEC) to make an important change to the "Accredited Investor" definition under Rule 501 of Regulation D.  This change to the Accredited Investor definition or standard is effective immediately once President Obama signs HR 4173 into law.

The new definition of the Accredited Investor status is extremely important in the context of private placement offerings (PPMs), including Tenant-In-Common or TIC Investment Properties, since most of these TIC Investment Property offerings are limited to Accredited Investors in order to qualify for certain offering registration exemptions with the Securities and Exchange Commission (SEC).

Investors satisfied the "Accredited Investor" definition prior to HR 4173 if the investor had a net worth exceeding one million dollars ($1 million), including the value of their primary residence (home). However, the investor's net worth requirement must now be computed without (excluding) the value of their primary residence (home).

There are other provisions for meeting the "Accredited Investor" status, including income test requirements.  HR 4713 does not change the annual income test for investors, but it does require the Securities and Exchange Commission (SEC) to analyze the "Accredited Investor" definition at least every four years.

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