AI Changes Notice to Clients

Ben Levkov Accredited Investor

On August 26, 2020, the Securities and Exchange Commission (the SEC) adopted amendments to the definition of an “accredited investor” under Rule 501(a) of Regulation D under the Securities Act of 1933 (the “Amendments”). The Amendments become effective 60 days after they are published in the Federal Register and expand the pool of individuals and entities that qualify as accredited investors to include the following:

Qualifying Security Industry Credentials

Individuals with certain professional certifications, designations or other credentials that are in good standing will now also qualify as accredited investors under Rule 501(a)(10). The qualifying professional certifications, designations and other credentials will be designated by the SEC from time to time. Initially, the SEC has designated for qualification the following three FINRA-established professional certifications:

Knowledgeable Employees

The Amendments also expand the rule include “knowledgeable employees” of a private fund including but not limited to , trustees and advisory board members of a private fund or an affiliated person of the private fund that oversees the private fund’s investments, as well as employees of the private fund or the affiliated person of the private fund who, in connection with the employees’   regular functions or duties, have participated in the investment activities of such private fund for at least 12 months.

Practical Implications for Fund Managers:

During the pre-effective period of the Amendments, private fund managers should consider the following actions:

  • Review and update, as applicable, private fund organizational and offering documents, including subscription documents and investor questionnaires to be used upon the effective date;
  • Update private offering compliance policies and procedures; and
  • For fund managers generally soliciting/advertising their funds under Rule 506(c) of Reg D ensure sufficient methods are in place to verify accredited investor status under the new categories upon the effective date.
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