Finance

SEC proposes allowing more investors access to private companies

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Key Points
  • The U.S. Securities and Exchange Commission proposed changes to its decades-old definition of a professional investor in order to allow more Americans to buy shares in private companies.
  • The agency hopes the changes will boost retail investors' access to the swelling pool of companies which are staying private for longer and longer.
  • The move has sparked worries among some investor advocates who say even seasoned investors struggle to spot problems with private companies.
The U.S. Securities and Exchange Commission in Washington, D.C.
Adam Jeffery | CNBC

The U.S. Securities and Exchange Commission on Wednesday proposed changes to itsdecades-old definition of a professional investor in order to allow more Americans to buy shares in private companies.

The agency hopes the changes will boost retail investors'access to the swelling pool of companies that are staying private for longer and longer, but it has sparked worries among some investor advocates who say even seasoned investors struggle to spot problems with private companies.

Under current SEC rules, individuals who wish to put their money into the high-risk, high-yield private markets must earn an individual annual income over $200,000, or a combined $300,000 in shared annual income between spouses, as well as hold at least $1 million in assets, excluding one's home.

These standards qualify the "accredited investor" designation.

Wednesday's proposed changes, which are subject to public consultation, would broaden the definition to include a test of an investor's sophistication level "based on professional knowledge, experience, or certifications," the agency said.

The SEC said it was not clear yet how many people would meet the expanded definition, but it is seeking to capture eligible investors, like employees of hedge funds and holders of Series 7 and other licenses, who may not qualify based solely on income and wealth, but are "knowledgeable" of the risk in private offerings.

The SEC's proposal would not seek to raise the definition's current income or wealth requirements, but seeks comment on whether any thresholds should be lowered in parts of the United States where income levels may be lower.