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SECURITIES AND EXCHANGE COMMISSION

ADVISORY COMMITTEE ON 

SMALL AND EMERGING COMPANIES

Washington, DC 20549-3628

 July __, 2016

The Honorable Mary Jo White

Chair

U. S. Securities and Exchange Commission

100 F Street, N.E.

Washington, DC 20549-1070

Dear Chair White:

As you know, the Securities and Exchange Commission organized the Advisory Committee on 

Small and Emerging Companies to provide the Commission with advice on the Commission’s 

rules, regulations, and policies with regard to its mission of protecting investors, maintaining 

fair, orderly, and efficient markets, and facilitating capital formation, as they relate to the 

following: 

(1) capital raising by emerging privately held small businesses and publicly traded 

companies with less than $250 million in public market capitalization;

(2) trading in the securities of such businesses and companies; and 

(3) public reporting and corporate governance requirements to which such businesses 

and companies are subject.

On behalf of the Advisory Committee, we are pleased to submit the enclosed recommendations 

regarding the definition of “accredited investor.” These recommendations were discussed at an 

Advisory Committee meeting held on May 18, 2016 and approved by the members of the 

Advisory Committee present and voting at a meeting held on July 19, 2016. 

We and the other members of the Advisory Committee are prepared to provide any additional 

assistance that the Commission or its staff may request with respect to these recommendations.

Respectfully submitted on behalf of the Advisory Committee,

Stephen M. Graham Sara Hanks

Committee Co-Chair Committee Co-Chair
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Members of the Advisory Committee

Robert Aguilar

Xavier Gutierrez

Brian Hahn

Kyle Hauptman

Jenny Kassan

Catherine V. Mott

Jonathan Nelson*

Patrick Reardon

Lisa Shimkat

Tisha R. Tallman*

Annemarie Tierney

Gregory C. Yadley

Laura Yamanaka

Non-voting members

Michael Pieciak

Mark Walsh

* Not present at the meeting held on May 18, 2016.

**Not present at the meeting held on July 19, 2016.

Enclosure

cc: Commissioner Kara M. Stein

Commissioner Michael S. Piwowar

Keith Higgins

Elizabeth Murphy

Sebastian Gomez

Julie Davis
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U.S. Securities and Exchange Commission 

Advisory Committee on Small and Emerging Companies 

Recommendations Regarding the Accredited Investor Definition

From the May 18, 2016 and July 19, 2016 Meetings

AFTER CONSIDERING THAT: 

1. The Advisory Committee’s objective is to provide the U.S. Securities and Exchange 

Commission (the “Commission”) with advice on its rules, regulations and policies with 

regard to its mission of protecting investors, maintaining fair, orderly and efficient markets, 

and facilitating capital formation, as they relate to, among other things, capital raising by 

emerging privately held small businesses (“emerging companies”).

2. Emerging companies play a significant role as drivers of U.S. economic activity, innovation 

and job creation. Their ability to raise capital in the unregistered securities markets is critical 

to the economic well-being of the United States.

3. The exemptions from registration available in Regulation D under the Securities Act of 1933 

are the most widely used transactional exemptions for securities offerings by issuers. In 

2015, issuers utilizing Regulation D raised over $1.35 trillion, an amount comparable to what 

was raised in registered offerings. 

4. The “accredited investor” definition is a centerpiece of Regulation D. It is intended to 

encompass those persons whose financial sophistication and ability to sustain the risk of loss 

of investment or ability to fend for themselves render the protections of the Securities Act’s 

registration process unnecessary. Under Securities Act Rule 501(a), a natural person is 

accredited if that person:

• earned income that exceeded $200,000 (or $300,000 together with a spouse) in each 

of the prior two years, and reasonably expects the same for the current year, or

• has a net worth over $1 million, either alone or together with a spouse (excluding the 

value of the person’s primary residence).

5. In March 2015, the Advisory Committee made recommendations to the Commission as the

Commission staff reviewed the definition of accredited investor. At the core of those

recommendations was the statement that “the primary goal should be to ‘do no harm’ to the 

private offering ecosystem.”

6. If the individual income and net worth thresholds underlying the definition of accredited 

investor were raised significantly, it would considerably decrease the number of households 

that qualify as accredited investors. This decrease would have a disparate impact on those 

areas having a lower cost of living, and those areas already often coincide with regions of 
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lower venture capital activity. The Committee also is concerned that a decrease in the 

accredited investor pool would have a disproportionate effect on women and minority 

entrepreneurs. 

7. Some commentators have urged that the accredited investor thresholds be increased in order 

to prevent fraud against investors who may be unable to fend for themselves. The Committee 

is not aware of any evidence suggesting that fraud in the private markets is driven or affected 

by the levels at which the accredited investor definition is set. 

THE COMMITTEE RECOMMENDS THAT: 

1. The core of the Advisory Committee’s 2015 recommendation regarding the definition of 

“accredited investor” in Rule 501 remains the same: the overarching goal of any changes the 

Commission might consider should be to “do no harm” to the private offering ecosystem. 

2. The Commission should not change the current financial thresholds in the definition except

to adjust on a going–forward basis to reflect inflation. 

3. The Committee would support expanding the definition to take into account measures of 

non-financial sophistication, regardless of income or net worth, thereby expanding rather 

than contracting the pool of accredited investors. 

4. Simplicity and certainty are vital to the utility of any expanded definition of accredited 

investor. Accordingly, any non-financial criteria should be able to be ascertained with 

certainty. 

5. The Commission should continue to gather data on this subject for ongoing analysis of what 

attributes best encompass those persons whose financial sophistication and ability to sustain the 

risk of loss of investment or ability to fend for themselves render the protections of the Securities 

Act’s registration process unnecessary.