59–006 

114TH CONGRESS REPORT " ! HOUSE OF REPRESENTATIVES 2d Session 114–406 

FAIR INVESTMENT OPPORTUNITIES FOR PROFESSIONAL 

EXPERTS ACT 

FEBRUARY 1, 2016.—Committed to the Committee of the Whole House on the State 

of the Union and ordered to be printed 

Mr. HENSARLING, from the Committee on Financial Services, 

submitted the following 

R E P O R T 

[To accompany H.R. 2187] 

[Including cost estimate of the Congressional Budget Office] 

The Committee on Financial Services, to whom was referred the 

bill (H.R. 2187) to direct the Securities and Exchange Commission 

to revise its regulations regarding the qualifications of natural persons as accredited investors, having considered the same, report favorably thereon with an amendment and recommend that the bill 

as amended do pass. 

The amendment is as follows: 

Strike all after the enacting clause and insert the following: 

SECTION 1. SHORT TITLE. 

This Act may be cited as the ‘‘Fair Investment Opportunities for Professional Experts Act’’. 

SEC. 2. DEFINITION OF ACCREDITED INVESTOR. 

Section 2(a)(15) of the Securities Act of 1933 (15 U.S.C. 77b(a)(15) is amended— 

(1) by redesignating clauses (i) and (ii) as subparagraphs (A) and (F), respectively; 

(2) in subparagraph (A) (as so redesignated), by striking ‘‘; or’’ and inserting 

a semicolon, and inserting after such subparagraph the following: 

‘‘(B) any natural person whose individual net worth, or joint net worth 

with that person’s spouse, exceeds $1,000,000 (which amount, along with 

the amounts set forth in subparagraph (C), shall be adjusted for inflation 

by the Commission every five years to the nearest $10,000 to reflect the 

change in the Consumer Price Index for All Urban Consumers published by 

the Bureau of Labor Statistics) where, for purposes of calculating net worth 

under this subparagraph— 

‘‘(i) the person’s primary residence shall not be included as an asset; 

‘‘(ii) indebtedness that is secured by the person’s primary residence, 

up to the estimated fair market value of the primary residence at the 

time of the sale of securities, shall not be included as a liability (except 

that if the amount of such indebtedness outstanding at the time of sale 


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of securities exceeds the amount outstanding 60 days before such time, 

other than as a result of the acquisition of the primary residence, the 

amount of such excess shall be included as a liability); and 

‘‘(iii) indebtedness that is secured by the person’s primary residence 

in excess of the estimated fair market value of the primary residence 

at the time of the sale of securities shall be included as a liability; 

‘‘(C) any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person’s spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year; 

‘‘(D) any natural person who is currently licensed or registered as a 

broker or investment adviser by the Commission, the Financial Industry 

Regulatory Authority, or an equivalent self-regulatory organization (as defined in section 3(a)(26) of the Securities Exchange Act of 1934), or the securities division of a State or the equivalent State division responsible for 

licensing or registration of individuals in connection with securities activities; 

‘‘(E) any natural person the Commission determines, by regulation, to 

have demonstrable education or job experience to qualify such person as 

having professional knowledge of a subject related to a particular investment, and whose education or job experience is verified by the Financial Industry Regulatory Authority or an equivalent self-regulatory organization 

(as defined in section 3(a)(26) of the Securities Exchange Act of 1934); or’’. 

PURPOSE AND SUMMARY

Introduced by Representative Schweikert on April 30, 2015, H.R. 

2187, the Fair Investment Opportunities for Professional Experts 

Act, amends the definition of accredited investor under the Securities Act of 1933 (Securities Act). H.R. 2187 modifies the definition 

to include: (1) persons whose individual net worth, including their 

spouse’s, exceeds $1,000,000, excluding the value of their primary 

residence (which amount, together with the individual income 

amounts described below, shall be adjusted for inflation every five 

years); (2) persons with an individual income greater than $200,000 

or $300,000 for joint income; (3) persons who are licensed in the securities industry (such as a registered broker or investment adviser) with the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA) or the State; and 

(4) persons whom the SEC determines by regulation to have demonstrable education or job experience to qualify such person as 

having professional knowledge of a subject related to a particular 

investment. For the latter category, the FINRA would verify the 

person’s education or job experience. 

BACKGROUND AND NEED FOR LEGISLATION

Smaller companies and emerging companies play a significant 

role as drivers of U.S. economic activity, innovation and job creation. According to the SEC Advisory Committee on Small and 

Emerging Companies, the majority of net new jobs in the United 

States are generated by companies less than five years old, with 

these companies continuing to add jobs as they mature. Their ability to raise capital in the private markets is critical to the economic 

well-being of the United States. 

Under existing law, companies can raise funds through public 

and private offerings. The Securities Act requires companies that 

are publicly offering securities for investment to register the offering of the securities with the SEC and provide investors with all 

material information necessary to make an investment decision. 

Consequently, the statute prohibits a company from selling securiVerDate Sep 11 2014 23:43 Feb 02, 2016 Jkt 059006 PO 00000 Frm 00002 Fmt 6659 Sfmt 6602 E:\HR\OC\HR406.XXX HR406

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ties unless the company has the government’s authorization, or is 

subject to an exemption. 

The Securities Act does contain exemptions from registration and 

authorizes the SEC to provide by rule additional exemptions in 

order for companies to raise capital through private offerings. Regulation D, which provides such exemptions, is based on a Securities 

Act provision that states that the obligation to register with the 

government will not apply to any ‘‘transactions by an issuer not involving any public offering.’’ The Supreme Court addressed the definition of a public offering in 1953. The Court stated that the exemption—when an offering would be considered private—should 

turn on whether ‘‘the particular class of persons affected needs the 

protection’’ of the securities laws and should be utilized only by 

persons who can ‘‘fend for themselves.’’ 

Consequently, to codify the concept that only persons who can 

‘‘fend for themselves’’ may participate in a private offering, the 

SEC adopted the term ‘‘accredited investor’’ in 1982. Under the 

SEC’s standards, an investor’s financial status is a proxy for his 

ability to fend for himself. Thus, a natural person is accredited if 

that person: (1) 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 (2) has a net worth 

over $1 million, either alone or together with a spouse (excluding 

the value of the person’s primary residence). 

The Importance of the Regulation D Markets 

Generally, small companies face significant obstacles when raising funds in the U.S. public capital markets. These obstacles are 

often attributable to the proportionately larger burden that securities regulations—written for large public companies—place on 

small companies when they seek to go public. Beyond the costs directly impacting smaller companies in accessing capital, the stifling 

regulatory environment has restricted bank and other traditional 

financing for these companies. 

Indeed, the increasing costs of going public in the U.S. have impacted the competitiveness of the U.S. capital markets. Concerns 

about the competitiveness of these markets have been expressed 

since before the financial crisis. In 2007, a report issued by a bipartisan U.S. Chamber of Commerce committee noted that the United 

States was steadily losing market share to other international financial centers. Additionally, in 2006, the Committee on Capital 

Markets Regulation, an independent and non-partisan research organization led by Harvard Law School Professor Hal Scott, issued 

a pair of reports calling attention to the declining competitiveness 

of the U.S. securities markets. The group cited a significant decline 

in the U.S. share of equity raised in global public markets, a precipitous drop in the U.S. share of the twenty largest global Initial 

Public Offerings (IPOs), and a raft of statistics indicating that foreign and domestic issuers were taking steps to raise capital either 

privately or in overseas markets rather than in the U.S. public equity markets. Recently, the Committee on Capital Markets Regulation stated that the competitiveness of the U.S. capital markets is 

at a historic low. 

Robust private markets have helped pick up the slack for an IPO 

process that has grown too burdensome. Today, the private securiVerDate Sep 11 2014 23:43 Feb 02, 2016 Jkt 059006 PO 00000 Frm 00003 Fmt 6659 Sfmt 6602 E:\HR\OC\HR406.XXX HR406

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ties markets rival the public markets in size, and the vast majority 

of private offerings are conducted in reliance on Rule 506 of Regulation D. The SEC’s Division of Economic and Risk Analysis 

(DERA) noted that ‘‘amounts raised through unregistered securities 

offerings have outpaced the level of capital formation through registered securities offerings during recent years, and totaled more 

than $2 trillion during 2014.’’ Furthermore, DERA has noted that 

‘‘the importance of the Regulation D market is magnified when considering that approximately two-thirds of Reg D offerings represent 

new equity capital . . . which is a more permanent source of capital than debt, and thus more likely to reflect new investment as 

opposed to the refinancing of existing investment.’’ 

Small and emerging companies rely on private placements to 

raise capital in a cost-effective manner without being subject to 

SEC rules and regulations that are increasing in burden and scope, 

and which are reducing U.S. competitiveness globally. H.R. 2187 

recognizes that a robust and enhanced set of private offering exemptions under Regulation D is crucial to allow a company to access the U.S. capital markets while still remaining private as long 

as it so desires. Accordingly, H.R. 2187 ensures that the private 

capital markets will remain a cost-effective alternative to the public markets. 

The Need To Amend the Definition of Accredited Investor 

Title IV of the Dodd-Frank Wall Street Reform and Consumer 

Protection Act (Dodd-Frank Act) directed the SEC to adjust the net 

worth standard for an accredited investor who is a natural person 

by excluding the value of the investor’s primary residence from his 

net worth calculation. This directive narrowed the pool of accredited investors by making it more difficult for investors to satisfy 

the net worth test. In addition, the Dodd-Frank Act required the 

SEC to review the accredited investor definition every four years 

and directed the Government Accountability Office to conduct a 

study on the appropriate criteria for determining which individuals 

should qualify for accredited investor status. The Dodd-Frank Act 

also established a new Investor Advisor Committee to advise the 

SEC on a number of issues, including a set of recommendations related to the accredited investor definition. 

In the fall of 2015, the Investor Advisor Committee recommended 

changes to the definition of accredited investor to allow investors 

to participate in private offerings even though they do not satisfy 

the net worth test. The Committee suggested that individuals could 

be accredited investors if they had adequate financial sophistication, education or professional credentials, or expertise as demonstrated by the successful completion of an exam demonstrating 

their investment knowledge. 

The SEC Advisory Committee on Small and Emerging Companies provided its own set of recommendations regarding the definition of accredited investor. The Committee on Small and Emerging 

Companies noted that some have argued that the accredited investor financial thresholds should be increased to prevent fraud 

against investors who may be unable to fend for themselves. However, the Committee on Small and Emerging Companies strongly 

disagreed with that notion and noted that there is no ‘‘substantial 

evidence suggesting that the current definition of accredited invesVerDate Sep 11 2014 23:43 Feb 02, 2016 Jkt 059006 PO 00000 Frm 00004 Fmt 6659 Sfmt 6602 E:\HR\OC\HR406.XXX HR406

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tor has contributed to the ability of fraudsters to commit fraud or 

has resulted in greater exposure for potential victims.’’ Indeed, the 

Committee on Small and Emerging Companies noted that the connection between fraud and the current accredited investor threshold is ‘‘tenuous at best.’’ 

The SEC has failed to act on capital formation initiatives in a 

timely manner, including to ensure that individuals with the risk 

appetite and ability to understand private offerings may be permitted to invest. Accordingly, H.R. 2187 amends the definition of 

accredited investor to account for educational or professional expertise. 

Additionally, H.R. 2187 codifies the existing monetary thresholds 

established by the SEC—both with respect to net worth and income—and thereby prevents the SEC from increasing the financial 

requirements for the purpose of limiting the pool of potential investors that would satisfy the definition of an accredited investor. Nevertheless, H.R. 2187 contemplates modest adjustments over time to 

the current thresholds because it requires the SEC to adjust such 

thresholds for inflation every five years to the nearest $10,000. If 

H.R. 2187 is enacted into law, the Committee will closely monitor 

its implementation to ensure that, as the SEC adjusts the monetary thresholds, persons who previously qualified as accredited investors shall not lose such status as a result of any inflation adjustment. 

HEARINGS

The Committee on Financial Services’ Subcommittee on Capital 

Markets and Government Sponsored Enterprises held a hearing examining matters relating to H.R. 2187 on June 16, 2015. 

COMMITTEE CONSIDERATION

The Committee on Financial Services met in open session on December 8, 2015 and December 9, 2015, and ordered H.R. 2187 to 

be reported favorably to the House as amended by a recorded vote 

of 54 yeas to 2 nays (recorded vote no. FC–82), a quorum being 

present. The Committee adopted an amendment in the nature of a 

substitute offered by Representative Schweikert, as amended as set 

forth immediately below, by a voice vote. The Committee adopted 

an amendment to the amendment in the nature of a substitute offered by Representative Waters by a voice vote. 

COMMITTEE VOTES

Clause 3(b) of rule XIII of the Rules of the House of Representatives requires the Committee to list the record votes on the motion 

to report legislation and amendments thereto. The sole record vote 

was a motion by Chairman Hensarling to report the bill favorably 

to the House as amended. The motion was agreed to by a recorded 

vote of 54 yeas to 2 nays (recorded vote no. FC–82), a quorum 

being present. 


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COMMITTEE OVERSIGHT FINDINGS

Pursuant to clause 3(c)(1) of rule XIII of the Rules of the House 

of Representatives, the findings and recommendations of the Committee based on oversight activities under clause 2(b)(1) of rule X 

of the Rules of the House of Representatives, are incorporated in 

the descriptive portions of this report. 

PERFORMANCE GOALS AND OBJECTIVES

Pursuant to clause 3(c)(4) of rule XIII of the Rules of the House 

of Representatives, the Committee states that H.R. 2187 will promote capital formation and increase investment opportunities for 

more Americans by expanding the accredited investor definition 

that exists under current law. 

NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX

EXPENDITURES

In compliance with clause 3(c)(2) of rule XIII of the Rules of the 

House of Representatives, the Committee adopts as its own the estimate of new budget authority, entitlement authority, or tax expenditures or revenues contained in the cost estimate prepared by 

the Director of the Congressional Budget Office pursuant to section 

402 of the Congressional Budget Act of 1974. 

COMMITTEE COST ESTIMATE

The Committee adopts as its own the cost estimate prepared by 

the Director of the Congressional Budget Office pursuant to section 

402 of the Congressional Budget Act of 1974. 

CONGRESSIONAL BUDGET OFFICE ESTIMATES

Pursuant to clause 3(c)(3) of rule XIII of the Rules of the House 

of Representatives, the following is the cost estimate provided by 

the Congressional Budget Office pursuant to section 402 of the 

Congressional Budget Act of 1974: 

U.S. CONGRESS, 

CONGRESSIONAL BUDGET OFFICE, 

Washington, DC, January 15, 2016. 

Hon. JEB HENSARLING, Chairman, Committee on Financial Services, 

House of Representatives, Washington, DC. 

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 2187, a bill to direct the 

Securities and Exchange Commission to revise its regulations regarding the qualifications of natural persons as accredited investors. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contact is Susan Willie. 

Sincerely, 

ROBERT A. SUNSHINE, (For Keith Hall, Director). 

Enclosure. 


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H.R. 2187—A bill to direct the Securities and Exchange Commission to revise its regulations regarding the qualifications of natural persons as accredited investors 

Current law provides a number of exemptions from the requirement that securities be registered with the Securities and Exchange Commission (SEC) prior to being sold to the public. Central 

to those exemptions is the accredited investor, a person with sufficient financial sophistication and ability to sustain the risk of loss 

so as to render the protections from the registration process unnecessary. Accredited investors may participate in investment opportunities not available to non-accredited investors. 

H.R. 2187 would broaden the definition of the accredited investor 

to include licensed brokers or investment advisors and individuals 

with professional knowledge related to a particular investment that 

is verified by certain regulatory authorities. 

Based on information from the SEC, CBO estimates that implementing H.R. 2187 would cost less than $500,000 over the 2016– 

2020 period for rulemaking activities related to the change in definition. Under current law, the SEC is authorized to collect fees sufficient to offset its annual appropriation; therefore, we estimate 

that implementing H.R. 2187 would have a negligible effect on net 

discretionary costs, assuming appropriation actions consistent with 

that authority. 

Enacting H.R. 2187 would not affect direct spending or revenues; 

therefore, pay-as-you-go procedures do not apply. CBO estimates 

that enacting H.R. 2187 would not increase net direct spending or 

on-budget deficits in any of the four consecutive 10-year periods beginning in 2026. 

H.R. 2187 contains no intergovernmental or private-sector mandates as defined in the Unfunded Mandates Reform Act and would 

not affect the budgets of state, local, or tribal governments. 

The CBO staff contact for this estimate is Susan Willie. The estimate was approved by H. Samuel Papenfuss, Deputy Assistant Director for Budget Analysis. 

FEDERAL MANDATES STATEMENT

The Committee adopts as its own the estimate of Federal mandates prepared by the Director of the Congressional Budget Office 

pursuant to section 423 of the Unfunded Mandates Reform Act. 

ADVISORY COMMITTEE STATEMENT

No advisory committees within the meaning of section 5(b) of the 

Federal Advisory Committee Act were created by this legislation. 

APPLICABILITY TO LEGISLATIVE BRANCH

The Committee finds that the legislation does not relate to the 

terms and conditions of employment or access to public services or 

accommodations within the meaning of section 102(b)(3) of the Congressional Accountability Act. 


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EARMARK IDENTIFICATION

H.R. 2187 does not contain any congressional earmarks, limited 

tax benefits, or limited tariff benefits as defined in clause 9 of rule 

XXI. 

DUPLICATION OF FEDERAL PROGRAMS

Pursuant to section 3(g) of H. Res. 5, 114th Cong. (2015), the 

Committee states that no provision of H.R. 2187 establishes or reauthorizes a program of the Federal Government known to be duplicative of another Federal program, a program that was included 

in any report from the Government Accountability Office to Congress pursuant to section 21 of Public Law 111–139, or a program 

related to a program identified in the most recent Catalog of Federal Domestic Assistance. 

DISCLOSURE OF DIRECTED RULEMAKING

Pursuant to section 3(i) of H. Res. 5, 114th Cong. (2015), the 

Committee states that H.R. 2187 contains no directed rulemaking. 

SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short title 

This section cites H.R. 2187 as the ‘‘Fair Investment Opportunities for Professional Experts Act.’’ 

Section 2. Definition of accredited investor 

This section amends the definition of accredited investor in Section 2 of the Securities Act of 1933 by inserting four additional 

methods in which a person can be qualified as an accredited investor. First, any natural person whose individual net worth, or joint 

net worth with their spouse, exceeds $1,000,000 satisfies the definition; however the value of the person’s primary residence owed individually or jointly with his or her spouse is excluded from the net 

worth calculation. Second, a natural person who had an individual 

income in excess of $200,000 in each of the two most recent years 

or joint income with that person’s spouse in excess of $300,000, and 

has a reasonable expectation of reaching the same income level in 

the current year, can be an accredited investor. The SEC must adjust the net worth and income amounts for inflation every five 

years. Third, any natural person who generally holds a current financial services related license registered with the SEC, FINRA, or 

issued by a State, also can be an accredited investor. Finally, any 

natural person that the SEC determines by regulation to have demonstrable education or job experience to qualify such person as 

having professional knowledge of a subject related to a given investment can be an accredited investor. However, FINRA must 

verify the related education or job experience. 

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of the 

House of Representatives, changes in existing law made by the bill, 

as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italic, 


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and existing law in which no change is proposed is shown in 

roman): 

SECTION 2 OF THE SECURITIES ACT OF 1933 

DEFINITIONS

SEC. 2. (a) DEFINITIONS.—When used in this title, unless the context otherwise requires— 

(1) The term ‘‘security’’ means any note, stock, treasury 

stock, security future, security-based swap, bond, debenture, 

evidence of indebtedness, certificate of interest or participation 

in any profit-sharing agreement, collateral-trust certificate, 

preorganization certificate or subscription, transferable share, 

investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or 

other mineral rights, any put, call, straddle, option, or privilege 

on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value 

thereof), or any put, call, straddle, option, or privilege entered 

into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly 

known as a ‘‘security’’, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any 

of the foregoing. 

(2) The term ‘‘person’’ means an individual, a corporation, a 

partnership, an association, a joint-stock company, a trust, any 

unincorporated organization, or a government or political subdivision thereof. As used in this paragraph the term ‘‘trust’’ 

shall include only a trust where the interest or interests of the 

beneficiary or beneficiaries are evidenced by a security. 

(3) The term ‘‘sale’’ or ‘‘sell’’ shall include every contract of 

sale or disposition of a security or interest in a security, for 

value. The term ‘‘offer to sell’’, ‘‘offer for sale’’, or ‘‘offer’’ shall 

include every attempt or offer to dispose of, or solicitation of 

an offer to buy, a security or interest in a security, for value. 

The terms defined in this paragraph and the term ‘‘offer to 

buy’’ as used in subsection (c) of section 5 shall not include preliminary negotiations or agreements between an issuer (or any 

person directly or indirectly controlling or controlled by an 

issuer, or under direct or indirect common control with an 

issuer) and any underwriter or among underwriters who are or 

are to be in privity of contract with an issuer (or any person 

directly or indirectly controlling or controlled by an issuer, or 

under direct or indirect common control with an issuer). Any 

security given or delivered with, or as a bonus on account of, 

any purchase of securities or any other thing, shall be conclusively presumed to constitute a part of the subject of such purchase and to have been offered and sold for value. The issue 

or transfer of a right or privilege, when originally issued or 

transferred with a security, giving the holder of such security 

the right to convert such security into another security of the 

same issuer or of another person, or giving a right to subscribe 

to another security of the same issuer or of another person, 


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which right cannot be exercised until some future date, shall 

not be deemed to be an offer or sale of such other security; but 

the issue or transfer of such other security upon the exercise 

of such right of conversion or subscription shall be deemed a 

sale of such other security. Any offer or sale of a security futures product by or on behalf of the issuer of the securities underlying the security futures product, an affiliate of the issuer, 

or an underwriter, shall constitute a contract for sale of, sale 

of, offer for sale, or offer to sell the underlying securities. Any 

offer or sale of a security-based swap by or on behalf of the 

issuer of the securities upon which such security-based swap is 

based or is referenced, an affiliate of the issuer, or an underwriter, shall constitute a contract for sale of, sale of, offer for 

sale, or offer to sell such securities. The publication or distribution by a broker or dealer of a research report about an emerging growth company that is the subject of a proposed public offering of the common equity securities of such emerging growth 

company pursuant to a registration statement that the issuer 

proposes to file, or has filed, or that is effective shall be 

deemed for purposes of paragraph (10) of this subsection and 

section 5(c) not to constitute an offer for sale or offer to sell a 

security, even if the broker or dealer is participating or will 

participate in the registered offering of the securities of the 

issuer. As used in this paragraph, the term ‘‘research report’’ 

means a written, electronic, or oral communication that includes information, opinions, or recommendations with respect 

to securities of an issuer or an analysis of a security or an 

issuer, whether or not it provides information reasonably sufficient upon which to base an investment decision. 

(4) The term ‘‘issuer’’ means every person who issues or proposes to issue any security; except that with respect to certificates of deposit, voting-trust certificates, or collateral-trust certificates, or with respect to certificates of interest or shares in 

an unincorporated investment trust not having a board of directors (or persons performing similar functions) or of the 

fixed, restricted management, or unit type, the term ‘‘issuer’’ 

means the person or persons performing the acts and assuming 

the duties of depositor or manager pursuant to the provisions 

of the trust or other agreement or instrument under which 

such securities are issued; except that in the case of an unincorporated association which provides by its articles for limited 

liability of any or all of its members, or in the case of a trust, 

committee, or other legal entity, the trustees or members 

thereof shall not be individually liable as issuers of any security issued by the association, trust, committee, or other legal 

entity; except that with respect to equipment-trust certificates 

or like securities, the term ‘‘issuer’’ means the person by whom 

the equipment or property is or is to be used; and except that 

with respect to fractional undivided interests in oil, gas, or 

other mineral rights, the term ‘‘issuer’’ means the owner of any 

such right or of any interest in such right (whether whole or 

fractional) who creates fractional interests therein for the purpose of public offering. 

(5) The term ‘‘Commission’’ means the Securities and Exchange Commission. 


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(6) The term ‘‘Territory’’ means Puerto Rico, the Virgin Islands, and the insular possessions of the United States. 

(7) The term ‘‘interstate commerce’’ means trade or commerce in securities or any transportation or communication relating thereto among the several States or between the District 

of Columbia or any Territory of the United States and any 

State or other Territory, or between any foreign country and 

any State, Territory, or the District of Columbia, or within the 

District of Columbia. 

(8) The term ‘‘registration statement’’ means the statement 

provided for in section 6, and includes any amendment thereto 

and any report, document, or memorandum filed as part of 

such statement or incorporated therein by reference. 

(9) The term ‘‘write’’ or ‘‘written’’ shall include printed, 

lithographed, or any means of graphic communication. 

(10) The term ‘‘prospectus’’ means any prospectus, notice, circular, advertisement, letter, or communication, written or by 

radio or television, which offers any security for sale or confirms the sale of any security; except that (a) a communication 

sent or given after the effective date of the registration statement (other than a prospectus permitted under subsection (b) 

of section 10) shall not be deemed a prospectus if it is proved 

that prior to or at the same time with such communication a 

written prospectus meeting the requirements of subsection (a) 

of section 10 at the time of such communication was sent or 

given to the person to whom the communication was made, 

and (b) a notice, circular, advertisement, letter, or communication in respect of a security shall not be deemed to be a prospectus if it states from whom a written prospectus meeting 

the requirements of section 10 may be obtained and, in addition, does no more than identify the security, state the price 

thereof, state by whom orders will be executed, and contain 

such other information as the Commission, by rules or regulations deemed necessary or appropriate in the public interest 

and for the protection of investors, and subject to such terms 

and conditions as may be prescribed therein, may permit. 

(11) The term ‘‘underwriter’’ means any person who has purchased from an issuer with a view to, or offers or sells for an 

issuer in connection with, the distribution of any security, or 

participates or has a direct or indirect participation in any 

such undertaking, or participates or has a participation in the 

direct or indirect underwriting of any such undertaking; but 

such term shall not include a person whose interest is limited 

to a commission from an underwriter or dealer not in excess 

of the usual and customary distributors’ or sellers’ commission. 

As used in this paragraph the term ‘‘issuer’’ shall include, in 

addition to an issuer, any person directly or indirectly controlling or controlled by the issuer, or any person under direct or 

indirect common control with the issuer. 

(12) The term ‘‘dealer’’ means any person who engages either 

for all or part of his time, directly or indirectly, as agent, 

broker, or principal, in the business of offering, buying, selling, 

or otherwise dealing or trading in securities issued by another 

person. 


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(13) The term ‘‘insurance company’’ means a company which 

is organized as an insurance company, whose primary and predominant business activity is the writing of insurance or the 

reinsuring of risks underwritten by insurance companies, and 

which is subject to supervision by the insurance commissioner, 

or a similar official or agency, of a State or territory or the District of Columbia; or any receiver or similar official or any liquidating agent for such company, in his capacity as such. 

(14) The term ‘‘separate account’’ means an account established and maintained by an insurance company pursuant to 

the laws of any State or territory of the United States, the District of Columbia, or of Canada or any province thereof, under 

which income, gains and losses, whether or not realized, from 

assets allocated to such account, are, in accordance with the 

applicable contract, credited to or charged against such account 

without regard to other income, gains, or losses of the insurance company. 

(15) The term ‘‘accredited investor’’ shall mean— 

ø(i)¿ (A) a bank as defined in section 3(a)(2) whether acting in its individual or fiduciary capacity; an insurance 

company as defined in paragraph (13) of this subsection; 

an investment company registered under the Investment 

Company Act of 1940 or a business development company 

as defined in section 2(a)(48) of that Act; a Small Business 

Investment Company licensed by the Small Business Administration; or an employee benefit plan, including an individual retirement account, which is subject to the provisions of the Employee Retirement Income Security Act of 

1974, if the investment decision is made by a plan fiduciary, as defined in section 3(21) of such Act, which is either a bank, insurance company, or registered investment 

adviserø; or¿; 

(B) any natural person whose individual net worth, or 

joint net worth with that person’s spouse, exceeds 

$1,000,000 (which amount, along with the amounts set 

forth in subparagraph (C), shall be adjusted for inflation 

by the Commission every five years to the nearest $10,000 

to reflect the change in the Consumer Price Index for All 

Urban Consumers published by the Bureau of Labor Statistics) where, for purposes of calculating net worth under this 

subparagraph— 

(i) the person’s primary residence shall not be included as an asset; 

(ii) indebtedness that is secured by the person’s primary residence, up to the estimated fair market value 

of the primary residence at the time of the sale of securities, shall not be included as a liability (except that 

if the amount of such indebtedness outstanding at the 

time of sale of securities exceeds the amount outstanding 60 days before such time, other than as a result of the acquisition of the primary residence, the 

amount of such excess shall be included as a liability); 

and 

(iii) indebtedness that is secured by the person’s primary residence in excess of the estimated fair market 


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value of the primary residence at the time of the sale 

of securities shall be included as a liability; 

(C) any natural person who had an individual income in excess of $200,000 in each of the two most recent years or 

joint income with that person’s spouse in excess of $300,000 

in each of those years and has a reasonable expectation of 

reaching the same income level in the current year; 

(D) any natural person who is currently licensed or registered as a broker or investment adviser by the Commission, the Financial Industry Regulatory Authority, or an 

equivalent self-regulatory organization (as defined in section 3(a)(26) of the Securities Exchange Act of 1934), or the 

securities division of a State or the equivalent State division responsible for licensing or registration of individuals 

in connection with securities activities; 

(E) any natural person the Commission determines, by 

regulation, to have demonstrable education or job experience to qualify such person as having professional knowledge of a subject related to a particular investment, and 

whose education or job experience is verified by the Financial Industry Regulatory Authority or an equivalent selfregulatory organization (as defined in section 3(a)(26) of 

the Securities Exchange Act of 1934); or 

ø(ii)¿ (F) any person who, on the basis of such factors as 

financial sophistication, net worth, knowledge, and experience in financial matters, or amount of assets under management qualifies as an accredited investor under rules 

and regulations which the Commission shall prescribe. 

(16) The terms ‘‘security future’’, ‘‘narrow-based security 

index’’, and ‘‘security futures product’’ have the same meanings 

as provided in section 3(a)(55) of the Securities Exchange Act 

of 1934. 

(17) The terms ‘‘swap’’ and ‘‘security-based swap’’ have the 

same meanings as in section 1a of the Commodity Exchange 

Act (7 U.S.C. 1a). 

(18) The terms ‘‘purchase’’ or ‘‘sale’’ of a security-based swap 

shall be deemed to mean the execution, termination (prior to 

its scheduled maturity date), assignment, exchange, or similar 

transfer or conveyance of, or extinguishing of rights or obligations under, a security-based swap, as the context may require. 

(19) The term ‘‘emerging growth company’’ means an issuer 

that had total annual gross revenues of less than 

$1,000,000,000 (as such amount is indexed for inflation every 

5 years by the Commission to reflect the change in the Consumer Price Index for All Urban Consumers published by the 

Bureau of Labor Statistics, setting the threshold to the nearest 

1,000,000) during its most recently completed fiscal year. An 

issuer that is an emerging growth company as of the first day 

of that fiscal year shall continue to be deemed an emerging 

growth company until the earliest of— 

(A) the last day of the fiscal year of the issuer during 

which it had total annual gross revenues of $1,000,000,000 

(as such amount is indexed for inflation every 5 years by 

the Commission to reflect the change in the Consumer 

Price Index for All Urban Consumers published by the BuVerDate Sep 11 2014 23:43 Feb 02, 2016 Jkt 059006 PO 00000 Frm 00014 Fmt 6659 Sfmt 6601 E:\HR\OC\HR406.XXX HR406

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reau of Labor Statistics, setting the threshold to the nearest 1,000,000) or more; 

(B) the last day of the fiscal year of the issuer following 

the fifth anniversary of the date of the first sale of common equity securities of the issuer pursuant to an effective 

registration statement under this title; 

(C) the date on which such issuer has, during the pre- vious 3-year period, issued more than $1,000,000,000 in 

non-convertible debt; or 

(D) the date on which such issuer is deemed to be a 

‘‘large accelerated filer’’, as defined in section 240.12b–2 of 

title 17, Code of Federal Regulations, or any successor 

thereto. 

(b) CONSIDERATION OF PROMOTION OF EFFICIENCY, COMPETITION, 

AND CAPITAL FORMATION.—Whenever pursuant to this title the 

Commission is engaged in rulemaking and is required to consider 

or determine whether an action is necessary or appropriate in the 

public interest, the Commission shall also consider, in addition to 

the protection of investors, whether the action will promote efficiency, competition, and capital formation. 

Æ 


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