Investments

Acting SEC Chair: Startups Need More Access, Overhaul Of ‘Accredited’ Investor Standard Needed

The acting chairman of the Securities and Exchange Commission (SEC) has said that his agency should let more investors be designated as accredited so that they can take stakes in private firms, among them marquee names such as Lyft and Airbnb.

The Wall Street Journal reported that Michael Piwowar, the acting head of the SEC, has said that the restrictions on such accreditation should be rolled back a bit, embracing investors of more moderate well than has been mandated previously.  The standards that are in place also are such that such private placements and deals are limited to wealthier investors — and yes, said the SEC executive, they do not protect investors from risks tied to investments in such deals.

The rules that are in place are a few decades old and state that investors should have a net worth of $1 million (not including real estate that is their primary residence) or earn $200,000 annually.

“In my view, there is a glaring need to move beyond the artificial distinction between ‘accredited’ and ‘nonaccredited’ investors,” Piwowar said Friday during a speech given to the Practicing Law Institute conference. “I question the notion that nonaccredited investors are truly protected by regulations that prevent them from investing in high-risk, high-return securities available only to the Davos jet-set.”

The SEC has said that 12 million households would qualify to be accredited investors. Relaxing some of the regulations would mean that the investor pool would widen and that they would also have more choice of investors.

In the meantime, the SEC is working a bit understaffed, with two full-time members where traditionally there have been five so no real rulemaking activity is likely to come soon, said the WSJ.

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