Net Worth Standard for Accredited Investors - Comment Letters

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Gavel.png FINAL RULE: This page refers to the proposed rulemaking on the net worth standard for accredited investors. The final rule was passed on Dec. 21, 2011. Comments on the rule proposal can be found below.
Dodd-Frank Timeline,
Net Worth Standard for Accredited Investors, SEC
Proposal Date Final Rule Issue Effective Date
January 31, 2011 December 29, 2011 February 27, 2012

Managed Funds Association - March 11, 2011[edit]

Net Worth Standard for Accredited Investors
March 11, 2011

From the comment letter:

"We believe that the Proposed Rule provides a reasonable method for implementing that statutory mandate. Accordingly, we encourage the SEC to adopt a final rule that is substantially similar to the Proposed Rule."

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Investment Adviser Association - March 9, 2011[edit]

Net Worth Standard for Accredited Investors
March 9, 2011

According to the comment letter, the association:

  • supports using the value of a natural person's primary residence as method in the proposed rule;
  • recommends "allow[ing] for subsequent investments by an investor who previously qualified as accredited but was disqualified by the change effected by section 413(a) of the Dodd-Frank Act;" and
  • "propose[s] a minimum one year grace period for follow-on investments by investors who previously qualified as accredited," as well as additional transition guidelines to curtail disruption between companies and investors.
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Investment Program Association - March 2, 2011[edit]

Net Worth Standard for Accredited Investors
March 2, 2011

The comment letter calls for additional consideration of the following categories:

  • primary residence indebtedness;
  • the distinction between “recourse” and “non-recourse” indebtedness;
  • unjustified definition adjustments “in light of the economy;” and
  • the exclusion of initially accredited investors who are no longer accredited due to Section 413.
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International Association of Small Broker Dealers and Advisors - February 9, 2011[edit]

Net Worth Standard for Accredited Investors
February 9, 2011

The comment letter focuses on the following issues:

  • "how to treat debt incurred on a home and assets purchased with that debt or as the release calls it proceeds of debt secured by primary residence incurred to invest in securities;" and
  • "the weakness of not having an alternative sophistication test."
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Real Estate Investment Securities Association - March 11, 2011[edit]

Net Worth Standard for Accredited Investors
March 11, 2011

In the comment letter, REISA recommends:

  • "excluding both the value of the primary residence as well as all indebtedness secured by the primary residence from the calculation of net worth or, in the alternative, excluding any debt that is non-recourse to the investor or his assets from the calculation of net worth regardless of whether such nonrecourse debt is less than, equal to or in excess of the value of an investor’s primary residence; and
  • including a grandfathering or transition provision for existing investments to allow investors, who previously qualified as accredited investors, to be able to continue to be treated as accredited investors so as to allow them to protect their current investments and investment positions."
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American Bar Association - March 31, 2011[edit]

Net Worth Standard for Accredited Investors
March 31, 2011

In the letter, the ABA's comments fall under the following categories:

  • proposed language for the net worth standard for accredited investors;
  • other definitional issues related to the accredited investor net worth standard, such as "primary residence" and "proceeds of debt secured by primary residence incurred to invest in securities;"
  • timing considerations; and
  • transition considerations.

Although the ABA supports the SEC's provision to exclude the "primary residence of a natural person" as a factor in determining the net worth standard, it is suggested in the comment letter that final rule language be changed to clarify the accredited investor test. The ABA believes that any other proposed changes concerning accredited investors are not necessary at this time.

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References[edit]

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