Investor Protection

Proposal to Expand “Accredited Investor” Definition Could Endanger Public Markets and Investors

CFA urges Securities and Exchange Commission to Protect Investors and the Public Markets

Washington, D.C. – The Securities and Exchange Commission (SEC or the Commission) recently proposed revisions to the definition of “accredited investor.” In response, and building on their previous comments, CFA Director of Investor Protection Barbara Roper and Financial Services Counsel Micah Hauptman submitted comments expressing their concerns.

In their letter, they discuss how the expansion of the accredited investor definition is expanding private capital raising at the expense of our public markets, causing harm to both investors and our economy. The letter criticizes the Commission for its failure to conduct a careful analysis of the current definition’s effectiveness, including the “shockingly superficial” analysis on which the Commission has based its decision not to adjust income and net worth thresholds in the definition to reflect inflation. While CFA acknowledged that including a financial sophistication requirement in the accredited investor definition is theoretically sound, they said the Commission’s proposal is deeply flawed. CFA also strongly opposed including any investor that is advised by a broker-dealer or investment advisor in the accredited investor definition.

Current evidence suggests that our public markets are in serious decline. Roper and Hauptman called upon the Commission to promote carefully thought out policies to restore an appropriate balance between public and private markets in order to ensure investors are adequately protected, to promote sustainable, productive capital formation, and to ensure the overall health of our economy.

“Had the Commission based its proposal on a more robust analysis, the proposed changes would not remotely resemble the proposals we have before us in this Release,” the letter states. “First and foremost, the Commission would have been forced to seriously consider the impact that inflation has had and continues to have on a definition that relies on financial thresholds that are not indexed to inflation. Second, it would have had to consider the potentially harmful impact on Americans’ retirement security of encouraging the marketing of private securities to retirement savers who qualify as accredited investors based on savings they must rely on for income throughout several decades of retirement. Third, it would have had to consider the risks to the economy posed by a huge and rapidly growing private market about which the Commission lacks even the most basic information regarding who invests, how and why they invest, how those investments fare, and what the long-term impact is on sustainable job creation and capital formation. Unfortunately, this proposal fails to address any of those serious concerns.”