Sunday, September 28, 2014


This Fall, the Securities & Exchange Commission will continue to discuss a proposed change on the regulations governing the required minimum wealth that Accredited Investors must hold, to allow them to invest in exempt (unregistered) securities. The question is: will this change result in more, or less, financial crime, involving financial fraud ?

As you know, to be an Accredited Investor, one must:
(A) Have earned at least $200,000, during the past two years, with an expectation that it will continue, or...
(B) have a total household income of at least $300,00, for the same period, for a married couple, or...
(C) Have investable assets of at least one million dollars, exclusive of real estate holdings.

The proposals seem to going in this direction:
(1) $500,000 in income for the past two years, or...
(2) $2.5m in liquid assets, exclusive of real estate.

While the agency's intent, in the proposed increase in the floor, for designation as an Accredited Investor, there may be an unexpected, and unwelcome, result here.

(A)  Those investors who qualified before, but are now under the minimum, but still want to invest, could be driven to investments that contain a larger number of fraudulent operations, than they would have seen with exempt securities. Investment opportunities, which are later found to be fraudulent, might blossom, and target those now-disenfranchised investors, to their damage and detriment.
(B) Those with more than the $200,000 previously required, may be pooling their funds with others in similar situations, meaning those in the $200-$495,000 range, are look for alternative investments that do not cater to Qualified Investors, due to either high risk, or fraud.

We should take a hard look at the potential financial crime fallout, which could occur if the definition of Accredited Investor is raised, and see whether the possible increase in financial crime can be suppressed, whether through a high-profile public awareness campaign, or some other steps, to insure that good intentions do not result in an increase in investment fraud.

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