Accredited Investor
Quick Definition
An individual or entity that meets SEC-defined financial thresholds, qualifying them to invest in certain unregistered securities offerings.
Key Takeaways
- Income >$200K ($300K joint) OR net worth >$1M (excluding primary residence)
- Grants access to private placements, hedge funds, and unregistered offerings
- SEC expanded definition in 2020 to include certain professional certifications
- Framework assumes sufficient sophistication to bear higher investment risks
What Is Accredited Investor?
An accredited investor is a person or organization that meets specific financial criteria established by the SEC under Regulation D of the Securities Act of 1933, allowing them to participate in private placements, hedge funds, venture capital, and other investment opportunities not registered with the SEC. For individuals, the current requirements include: annual income exceeding $200,000 (or $300,000 jointly with a spouse) for the past two years with reasonable expectation of the same, OR net worth exceeding $1 million excluding the primary residence. In 2020, the SEC expanded the definition to include individuals with certain professional certifications (Series 7, Series 65, Series 82) and knowledgeable employees of private funds. The accredited investor framework assumes these investors have sufficient financial sophistication and resources to bear investment risks without the full protections of SEC registration.
Accredited Investor Example
- 1To invest in a private equity fund offering under Reg D, you must verify your status as an accredited investor with income over $200,000.
- 2The 2020 SEC update allowed holders of Series 7, 65, or 82 licenses to qualify as accredited investors regardless of wealth.
- 3Approximately 13% of U.S. households qualify as accredited investors based on the income or net worth thresholds.
Related Terms
SEC (Securities and Exchange Commission)
The primary U.S. federal agency responsible for regulating securities markets, protecting investors, and enforcing federal securities laws.
Regulation D
SEC rules that provide exemptions from registration requirements, allowing companies to raise capital through private placements.
Prospectus
A formal legal document filed with the SEC that provides detailed information about an investment offering to potential investors.
Fiduciary Duty
A legal obligation to act in the best interest of another party, placing their interests above one's own.
Material Information
Any information that a reasonable investor would consider important in making an investment decision, and that could affect a security's price.
FDIC
Independent federal agency that insures bank deposits up to $250,000 per depositor, per institution, and supervises financial institutions for safety and soundness.
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