December 19, 2019

SEC Proposes Expanded “Accredited Investors” Def’n

As anticipated, yesterday the SEC voted to propose amendments to the definition of “accredited investors.”  The proposed amendment, issued upon a 3-2 vote, will allow more investors to participate in private offerings by adding more natural persons that will qualify based on their professional knowledge, experience or certifications. Interestingly, the proposal contemplates that these categories could be established by the SEC by order, rather than the rule itself – which would allow the SEC to establish the criteria in the future without notice & comment.  Also, the proposed amendments expand the list of entities that may qualify as accredited investors.

During the summer, Liz blogged about the SEC’s concept release that included discussion of the accredited investor definition.  As the concept release generated a flurry of comment letters, it’s hard to say whether this proposal will please everyone. As this Cooley blog notes, the statements of dissent from Commissioners Rob Jackson and Allison Lee – compared to the statements of support from Commissioners Hester Peirce and Elad Roisman – highlight the differences in views that exist about the fundamental purposes of the securities laws.

The proposal doesn’t raise the income and wealth thresholds that have existed since 1982 or suggest adjustments for inflation in the future. This WSJ article says that the lack of an inflation adjustment has contributed to the current number of qualifying households rising over time – from 1.3 million in 1983 to 16 million this year. And among the 69 questions that the SEC specifically requests people to comment on is whether the standards should be tied to geographic reasons to account for potentially lower costs of living.

We’ll be posting memos in our “Accredited Investor” Practice Area to help everyone stay up to date with the latest on the proposed changes.

SEC Proposes Expanding QIB Def’n

As mentioned in the press release about the proposed expansion of the “accredited investor” definition, the SEC also proposed expanding the definition of “qualified institutional buyers” under Rule 144A.  The expanded definition would add LLCs and RBICs (Rural Business Investment Companies) to the types of entities eligible for QIB status if they meet the securities owned and investment threshold in the definition.  There’s also a new ‘catch-all’ category that would permit institutional accredited investors under Rule 501(a), of an entity type not already included in the QIB definition, to qualify as QIBs when they satisfy the $100 million threshold.

We’ll post memos in our “Rule 144A” Practice Area as they come in.

SEC Proposes New Mining Disclosure Rules

Keeping step with the fast-approaching year-end rush, yesterday the SEC also voted to propose rules requiring mining companies to disclose payments made to foreign governments or the U.S. government for the commercial development of oil, natural gas or minerals.

The Commission is statutorily obligated to issue a rule in this area.  And, as outlined in the SEC press release about the proposed rules and in Broc’s blog back a couple of years ago, the path to these new proposed rules has been anything but smooth.  Here’s an excerpt from the SEC press release:

The Commission first adopted rules in this area in 2012, as mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”).  The 2012 rules were vacated by the U.S. District Court for the District of Columbia.  The Commission then adopted new rules in 2016, which were disapproved by a joint resolution of Congress pursuant to the Congressional Review Act.

– Lynn Jokela