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Initial Staff Guidance on Revised Net Worth Test for “Accredited Investor”

In our post dated July 19, we noted that as a result of the adoption of the Wall Street Reform Act, one of the definitions of “Accredited Investor” was amended to exclude from the calculation of an investor’s net worth the value of the his or her primary residence.  In late July, the SEC Staff offered interpretive guidance with this new provision.  The staff noted that Section 413 of the new act does not take into account mortgages and other indebtedness that may be secured by an investor’s primary residence. Until such time of issuance of amendments to Regulation D to reflect the new accredited investor standard, the staff indicated that any such secured indebtedness, in an amount up to the “fair market value of the residence, should be excluded in calculating an individual’s net worth.”  However, “any such secured indebtedness in excess of ‘fair market value’ of the residence should be ‘considered a liability and deducted from the investor’s net worth.’”

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