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SEC Modifies Standard for Accredited Investors

Tuesday, January 10, 2012

The U.S. Securities and Exchange Commission (“SEC”) has modified the rules used to determine whether an individual is qualified as an accredited investor. To qualify as an “accredited investor” an investor must have a net worth, alone or with a spouse, greater than or equal to $1 million, excluding the value of the home. The rule also excludes from the $1 million net worth calculation, any liabilities secured by the individual’s primary residence. If the secured liabilities exceed the fair market value of the primary residence, then the indebtedness that is greater than the value of the residence is applied against the individual’s net worth. In addition, secured loans must have originated more than 60 days prior to the purchase of the unregistered security to prevent individuals from taking out a second line of equity on their home in order to invest in unregistered securities. This new rule will go into effect 60 days after it has been published in the Federal Register.

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