On December 21, 2011, the SEC adopted a final rule (“Final Rule”) to amend the net worth standard in the definition of “accredited investor” under the Securities Act of 1933 to conform the definition to the requirements of Section 413(a) of the 2010 Dodd-Frank Wall Street Reform and Consumer Act. Since July 21, 2010, Dodd-Frank has required that a person’s primary residence be excluded when calculating whether the $1 million net worth standard has been met. The Final Rule formally revises the SEC’s accredited investor definition and clarifies how debt secured by a person’s primary residence will be treated.
Under the Final Rule, for the purposes of calculating net worth:
A person may rely on the prior “accredited investor” definition in connection with a purchase of securities under a previously acquired right to purchase such securities, if a person:
The Final Rule will take effect on February 27, 2012. Both private and public companies raising funds pursuant to an exemption from registration will want to revise their subscription documents to reflect the specifics of the Final Rule.
This article is provided for general informational purposes only and should not be construed as legal advice or legal opinion on any specific facts or circumstances. You are urged to consult a lawyer concerning any specific legal questions you may have.
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