What is the purpose or (more importantly) the benefit of the federal designation “Accredited Investor” ??
Posted by admin in Finance Monday, 18 April 2011 14:41 3 Comments
We’ve all heard the term “Accredited Investor” which is defined by a series of requirements set forth by the Federal government of the United States and other countries.
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What is the purpose of such a designation and is it possible that it is simply a bottleneck for true “Free Markets” / “Open Economy” ?
The purpose is to restrict possible investors for certain products to only those able to withstand potential losses associated with them…. primarily Hedge funds..
the assumption is: if you have less than a million$ net worth or make less than 200k per year… you don’t have the $ available should anything traumatic occur.
yes it is a bottleneck/ restriction on open markets…
but seeing how most individual take on more risk than they realize .. and often more than they can financially afford… i see it as a reasonable one
Accredited Investors
Under the Securities Act of 1933, a company that offers or sells its securities must register the securities with the SEC or find an exemption from the registration requirements. The Act provides companies with a number of exemptions. For some of the exemptions, such as rules 505 and 506 of Regulation D, a company may sell its securities to what are known as “accredited investors.”
The federal securities laws define the term accredited investor in Rule 501 of Regulation D as:
a bank, insurance company, registered investment company, business development company, or small business investment company;
an employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million;
a charitable organization, corporation, or partnership with assets exceeding $5 million;
a director, executive officer, or general partner of the company selling the securities;
a business in which all the equity owners are accredited investors;
a natural person who has individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase;
a natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or
a trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases a sophisticated person makes.
It means Wall Street can screw you out of even more fees than they do with the General Public.