Golden Outpost | Good for the encryption industry? The US SEC modernizes the definition of "accredited investor"

On August 26, 2020, Washington, D.C., the U.S. Securities and Exchange Commission (SEC) announced amendments to the Securities Act to define "accredited investors."

The SEC noted that this is one of the primary criteria for determining who is eligible to participate in our private capital markets. Historically, individual investors who did not meet certain income or net worth tests, regardless of their financial status, were denied the opportunity to invest in our diverse and expansive private markets (to date, accredited investors' net worth $1 million cap, excluding personal residence, or income of at least $200,000 in the past two years). The amendments update and refine definitions to more effectively identify institutional and individual investors who have the knowledge and expertise to participate in these markets.

SEC Chairman Jay Clayton noted in the release that today's amendments are the product of years of work by the Commission and its staff to consider and analyze ways to revise the definition of an accredited investor. This will, for the first time, allow individuals to participate in our private capital markets based not only on their income or net worth, but also on the basis of sophisticated, well-defined financial instruments. I am also pleased that we have expanded and updated the list of entities that may be eligible to participate in certain private placements.  

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2. USDC Treasury issued an additional 16.95 million USDC on the Ethereum network.

3. In November, the average daily trading volume of Grayscale Bitcoin Trust increased by 165% compared with the previous month.

4. Tether newly issued 150 million USDT on the TRON network.

5. Gemini co-founder: Not a Bitcoin maximalist, optimistic about Ethereum and DeFi projects.

6. Report: In 2020, the cryptocurrency revenue on the darknet market has reached 1.5 billion US dollars.

7. Copper CEO: Facebook's Diem stablecoin brings new risks to the global financial system.

8. The net short position of CME leveraged funds continued to increase.

9. Cardano plans to implement a hard fork in mid-December. [2020/12/6 14:11:02]

The amendment allows investors to qualify for accredited investor status based on established expertise, experience or credentials, as well as existing income or net worth tests. The amendment also expands the list of entities that may qualify as an accredited investor, including allowing any entity that meets the investment test to qualify.  

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This is the first time in the past 40 years that the SEC has lowered the threshold for investing in private securities. In layman's terms, it can be seen as a normative change in the SEC's debate on whether "wealth is more important" or "talent is more important".

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Specifically, the amendments modify Sections 501(a), 215, and 144A of the Securities Act.

Amendment to the definition of accredited investor in Rule 501(a): Adds a new category to the definition to allow a natural person to qualify as an accredited investor based on certain professional credentials, designations, or qualifications or other credentials issued by an accredited educational institution investors, which the Commission may designate from time to time; as accredited investors for investments in a private fund, shall include natural persons who are "knowledge employees" of the fund; clarify that a limited liability corporation with $5 million in assets may be Accredited investors, and adding SEC and state-registered investment advisors, exempt reporting advisors, and rural business investment companies (RBICs) to the list of potentially eligible entities; pursuant to Section 2a51-1(b) of the Investment Company Act , adding a new category for any entity (including Indian tribes, government agencies, funds, and entities organized under foreign law) that has an "investment" in excess of $5 million and that is not established for the specific purpose of investing in the securities offered; Investment Advisers Act definition, adding "family office" and its "family clients" with at least $5 million in assets under management; adding the term "spouse equivalent" to the definition of accredited investor so that spouse equivalents can Pool its funds for the purpose of qualified accredited investors.

The amendment to Rule 215 replaces the existing definition with a cross-reference to the definition in Rule 501(a).

The amendments expand the definition of "qualified institutional purchasers" in Rule 144A to include LLCs and RBICs, so long as they meet the $100 million threshold for owning and holding securities in the definition. The amendments also add to the list any institutional investors included in the definition of accredited investors that are not enumerated in the definition of "qualified institutional purchaser" as long as they meet the $100 million threshold.

Separately, the amendment allows for greater inclusion of cryptocurrencies in individual 401(k) plans and provides diversification of individual portfolios. The 401k plan is also called the 401K clause. The 401k plan began in the early 1980s. It is a fully funded pension insurance system established by employees and employers who jointly pay contributions.

Notably, this is a significant move for Bitcoin and crypto enthusiasts, as many regulated areas such as Grayscale Trust, Bakkt, etc. are limited to accredited and institutional investors. Jacob Franek, co-founder of data analytics firm Coinmetricsde, said that with new standards, looser policies will lead to more adoption of regulated crypto products.

The amendment and order will take effect 60 days after publication in the Federal Register. (This article is compiled from sec official news)

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