Accredited Investors: A Need for Increased Protection in Private Offerings

Christopher R. Zimmerman | October 1, 2019

On June 19, 2019, the SEC released a report examining, in part, the adequacy of the accredited investor definition contained within Regulation D of the Securities Act of 1933 and soliciting public comment on potential changes to that definition. This Note argues that the current accredited investor definition, which determines who may invest in a private offering, does not adequately protect retail investors. Implemented in 1982 with fixed wealth requirements to qualify, the accredited investor definition has never been significantly revised, despite four decades of inflation that dramatically increased the percentage of households who meet the qualifications of an “accredited investor.” Market developments have also increased the risk of investing in private offerings. These risks heighten the necessity for the accredited investor definition accurately to identify a group of investors who can evaluate the merits of a private offering and sustain any potential losses. To ensure that the accredited investor definition performs that job adequately, the SEC must revise the definition to meet the needs of the modern investing landscape. Specifically, this Note proposes that the accredited investor definition should require higher income and net worth thresholds that increase with the rate of inflation and that exclude retirement accounts from their calculation.