The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2009 was passed by Congress and signed into law by President Obama on July 21, 2010.  The Act includes a change to the accredited investor net worth requirement that will immediately affect most private placement offerings of stock or other equity investments.

Recap: Regulation D under the Securities Exchange Act of 1933 provides a number of options for private placement offerings without the full-blown securities registration that is required for “going public” offerings.  Most private placement offerings are targeted to so-called “accredited investors” to take advantage of rules providing that an unlimited number of accredited investor can participate in the offering and relaxation of the information that must be provided to them.  Accredited investors are generally considered to be savvy investors who do not need the same level of protection by the SEC. 

Under the Dodd-Frank Act, there is a change to the minimum net-worth standard for accredited investors as that term applies to natural persons . Currently, the definition allows for a natural person to include the value of his or her primary residence or the primary residence held jointly with his or her spouse in the calculation of net worth to meet the $1,000,000 requirement. Effective July 21, 2010, the primary residence must be excluded from calculation of the person’s net worth when determining whether he or she qualifies as an accredited investor.  In addition, the Act requires the SEC to review other aspects of the net-worth standard for natural persons, to determine whether there should be other adjustments or modifications.

There is no grandfathering for the determination of accredited investors with respect to private placements offerings currently underway.  Therefore, everyone promoting a private placement offering must immediately revise their determinations of who is or is not an accredited investor by excluding the value of the primary residence.

Let us know if you have any questions about your private placement offering or how the Dodd-Frank Act will impact it going forward.