In a recent speech SEC Commissioner and acting Chairman Michael Piwowar argued that the SEC should dispense with the “accredited investor” definition for private offerings. He asserted that the “artificial distinction” between “accredited” and “non-accredited” investors hurts lower-income investors because they are deprived of higher-yielding investments that offer portfolio diversification. He maintained that this artificial distinction does more harm than good by “exacerbating inequalities of wealth and opportunity.” In the same speech, Mr. Piwowar also questioned corporate penalties but not against advisers and broker-dealers, which are regulated entities whose shareholders should fully understand the regulatory risk to the stock price.
OUR TAKE: Back in 2013, the SEC changed Rule 506 to allow general solicitation so long as issuers only targeted “accredited investors.” (See “SEC Allows Private Fund General Solicitation with Conditions”). Mr. Piwowar’s suggestion to eliminate the “accredited investor” definition, thereby opening private funds to retail investors, would have far-reaching implications for fund-raising, compliance, and civil litigation.