SEC PROPOSES AMENDMENTS TO REGULATION D

The SEC has proposed amendments to Regulation D which would add to the definition of "Accredited Investor", would waive restrictions on general advertising in certain limited circumstances, and would expand certain "bad actor" disqualification provisions. The Commission also requested further comment on its previous proposal to add a new category of "Accredited Investor" in order to raise investor qualification standards with respect to investments in "pooled investment vehicles"

The proposal amends the definition of "Accredited Investor" to add as a new category any individual who owns certain qualifying investments, excluding a personal residence, in an amount equal to or exceeding $750,000. A new category for entities would include any entity that has at least $5 million in investments. The Commission has also requested additional comments to their previous proposal to increase to $2.5 million the threshold net worth test for individual accredited investor status.

The proposal also allows certain very limited advertising (Tombstone ads announcing the issuer's name and a brief description of the issuer's business) in cases of offerings limited to "Large Accredited Investors". Individual investors with annual income of at least $400,000 for the last two years ($600,000 for joint income with a spouse) with the expectation of earning such income in the current year, or more than $2.5 million in qualifying investments, and entities having at least $10 million in investments, would qualify as "large Accredited Investors" under the new proposal. It should be noted that "pooled investment vehicles" relying on Section 3(c)(1) or 3(c)(7) of the Investment Company Act of 1940 would not be eligible to rely on the new advertising exception.

The Commission has also proposed a broad expansion of the "bad actor" disqualification rules which are currently only applicable to Rule 505 offerings. The expansion would prevent certain persons, their affiliates and other categories of persons and entities from utilizing the provisions of Regulation D. As this expansion of the disqualification rules could adversely affect a large number of persons and entities from utilizing the Regulation D exemptions, the SEC has requested comments as to whether other alternatives, such as mandatory disclosure of certain prior events, would be equally effective.

For further information regarding this topic please contact Richard Lepowsky at (212) 233-3620 or Michael Present at (212) 779-3207