An intelligent way to redefine an accredited investor

A bill to open up private placements to more Americans by changing the definition of what constitutes an accredited investor was introduced in the House two weeks ago.

[More:​ Legislation re-introduced in House to expand pool of accredited investors]

The bill, called the Fair Investment Opportunities for Professional Experts Act, seeks to expand the definition of an accredited investor. It is similar to a bill introduced last year that received bipartisan support in the House but stalled in the Senate because of scheduling challenges.

Right now, an individual needs a net worth in excess of $1 million, excluding home value, or an annual income of above $200,000 ($300,000 for a couple) to invest in a private offering.

new criteria

The bill would expand the criteria to allow individuals with relevant education or professional expertise in the securities business or those who have particular knowledge of a specific investment the ability to buy shares of a private offering regardless of their wealth or income. For example, a college professor with an MBA in finance would conceivably qualify, as would an engineer who wants to invest in a high-tech startup.

There have been suggestions that the accredited investment qualifications be scrapped entirely, opening up private offerings to everyone. The Securities and Exchange Commission is looking into the idea. But there have been too many cases of fraud and abuse in this area to warrant such action.

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The Fair Investment Opportunities for Professional Experts Act seems to be a better way to provide more access to private offerings, while protecting the majority of the investing public from being sold a bill of goods they don’t entirely understand.

Unfortunately, the prospects for the bill are not good. It is late in the year and the legislation might not make it through to a vote in either the House or the Senate. With 2020 being an election year, it may not reach a vote then either. But the bill is sound and should be passed in the future.

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