Businesses Looking For Investment Without Registration Should Ensure Accredited Investor & Other Security Practices Up-To-Date


Businesses looking to raise investment from private investors without registration in accordance with applicable federal and state securities laws requirements for publicly traded investments need to exercise care that their practices meet all requirements, particularly in light of recent changes to the regulations.

For example, many businesses looking to raise capital in a private versus publicly registered context often plan to rely upon the restriction of offers and sales to individuals who qualify as “accredited investors” and other compliance with the accredited investor exemptions to registration requirements under federal and state securities laws. 

Due to recent changes in the accredited investor regulations, however, businesses intending to rely upon the accredited investor exception may need to update their accredited investor questionnaires and other practices to avoid unintentionally running afoul of modified rules.

On December 21, 2011, the U.S. Securities and Exchange Commission adopted final rules that amended the “accredited investor” definition in the rules under the U.S. Securities Act of 1933, as amended.

The recent regulatory amendments respond to securities laws changes enacted by Section 413(a) of the U.S. Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”).

Among many other changes it enacted, Dodd-Frank requires the definition of “accredited investor” in the Securities Act rules to exclude the value of a person’s primary residence for purposes of determining whether the person qualifies as an “accredited investor” on the basis of having a net worth in excess of US $1,000,000.

Securities Act Rules 215 and 501, as amended, in response to Dodd-Frank now define “accredited investor” to include, among other things, any natural person whose individual net worth, or joint net worth with that person’s spouse, exceeds US$1,000,000, excluding the value of the investor’s primary residence.  SEC regulations provide guidance about the application of this revised requirement. 

Because of the change to the accredited investor requirements of federal securities laws, investor questionnaires may need to be updated to reflect the new definition. Investors relying on the net worth category of the accredited investor definition may also need to get valuations of their residences to determine their fair market value and may also need to disclose the value of any mortgages thereon and the timing of when such mortgages were incurred to confirm accredited investor status.

Interested persons can see a copy of the SEC’s final rule  here

If your business needs help planning for or managing business change or the legal or operational risks associated with these activities or business management, human resources, corporate ethics, and compliance practices, or other related challenges or opportunities, please contact the author of this  article, attorney Cynthia Marcotte Stamer.

Ms. Stamer is experienced with assisting businesses and other organizations, their leaders, bankruptcy creditors and trustees, investors, purchasers and others about performance, change and risk management and other related concerns involved with distressed businesses or benefit plans, bankruptcy and restructuring transactions and other corporate or business management related events. Board Certified in Labor and Employment Law by the Texas Board of Legal Specialization and Chair of the American Bar Association RPTE Employee Benefits & Other Compensation Group and a Joint Committee on Employee Benefit Council Member, Ms. Stamer has advised and represented these and other business clients on employee benefit, labor and employment, compensation, employee benefit and other personnel and staffing matters for more than 24 years. Her experience includes significant experience representing and advising clients about the planning, implementation, risk management and defense of reductions in force and other labor and employment, employee benefits, compensation, insurance, compliance and other concerns affecting transactions involving bankrupt or distressed corporations. Ms. Stamer also speaks and writes extensively on these and other related matters. Among her many publications are her recent November, 2009 publication, Calculation of Minimum Contributions Required For Single Employer Pension Plans: The Final Rules for The Measurement of Assets and Liabilities For Pension Funding Purposes under Final Treasury Regulation Section 1.430(d)” and A Proactive Approach To Hr And Benefits Planning For Mergers, Acquisitions, Downsizing, Reengineering And Other Organizational Changes.” Persons interested in a copy of either of these publications may contact Ms. Stamer. For more information about Ms. Stamer and her experience see CynthiaStamer.com.

We hope that this information is useful to you.  Solutions Law Press offers a variety of updates, publications, training and other resources to help its businesses and their leaders meet their legal and operational challenges.  If you or someone else you know would like to receive future updates about developments on these and other concerns, please register at www.cynthiastamer.com.  If you or someone else you know would like to receive future updates about developments on these and other concerns, please register at here.

©2012 Solutions Law Press.  All rights reserved.

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About Cynthia Marcotte Stamer

Management attorney and operations consultant Cynthia Marcotte Stamer uses a client objective oriented approach to help businesses, governments, associations and their leaders manage performance, operations and risks.
This entry was posted in Bankruptcy, CEO, D&O, Director Liabiloity, Employment, Internal Controls, Reengineering, Shareholder Liability, Tax, Uncategorized and tagged , , , , , , , . Bookmark the permalink.

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