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Dodd–Frank Act Amends the Definition of “Accredited Investor” in Rule 501(a) of Regulation D and Rule 215 for Individuals to Exclude the Value of an Individual’s Primary Residence


October 7, 2010


Section 413(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) amended the definition of “accredited investor” in Rule 501(a) of Regulation D and Rule 215 under the Securities Act of 1933, as amended (the “Securities Act”), to provide that a natural person relying upon the $1 million net worth standard (or joint net worth with that person’s spouse) is required to exclude the “value of the primary residence” of such person.  The change became effective July 21, 2010.  This change will have the effect of raising the net worth standards for individuals.  The accredited investor net income standards remain unchanged.


Subsequently, on July 23, 2010, the SEC staff adopted a compliance and disclosure interpretation clarifying that, in determining net worth for purposes of Rule 215 and Rule 501(a)(5) under the Securities Act, “the related amount of indebtedness secured by the primary residence up to its fair market value may also be excluded. Indebtedness secured by the residence in excess of the value of the home should be considered a liability and deducted from the investor’s net worth.”  This interpretation allows an investor to exclude the value of mortgage debt secured by his or her primary residence from the net worth calculation unless the debt exceeds the value of the residence, in which case the excess liability should be deducted.


Accordingly, issuers should ensure the subscription documents they use to raise capital in reliance upon Regulation D are revised to reflect the new definition of accredited investor (and related SEC interpretations) and that investors relying upon “net worth” standard to meet accredited investor status comply with the new requirement. 



For more information, please contact:


Neil R.E. Carr
Direct Dial: +1 202 587 2983

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