Section 413 of the Dodd-Frank Act directs the SEC to adjust the net worth standard in the definition of accredited investor used in Regulation D. Regulation D is often used, including by small businesses, to raise capital. It provides an exemption from having to comply with the registration requirements of the Securities Act, which can be costly and time consuming.
Prior to the adoption of the Dodd-Frank Act, a person was an accredited investor if a person had a net worth, or a joint net worth of a person and any spouse, of not less than $1,000,000. Section 413 modifies this standard by excluding the value of the person’s primary residence from the net worth calculation. The $1,000,000 standard excluding the value of a person’s primary residence was immediately applicable upon adoption of the Act.
While Regulation D provides an exemption from having to comply with the registration requirements under federal securities laws, companies raising capital must also comply with securities laws of the state in which an investor resides. Those state laws are often referred to as “blue-sky” laws. As a result of Dodd-Frank, some states are having to modify their blue sky laws. For instance, Oregon has proposed an amendment to its administrative rules to align its definition with Dodd-Frank. The Oregon rules apparently repeat the text of the definition of accredited investor in its entirety, thus necessitating an amendment.
The Minnesota statute is structured differently from Oregon, however. Minn. Stat. § 80A.41(1) defines an accredited investor “as the term is defined in Rule 501(a) of Regulation D adopted pursuant to the Securities Act of 1933.” The related blue sky rule uses the same approach.
The Dodd-Frank Act effectively amended the definition of “accredited investor” upon enactment. As a result, it likely is not necessary for Minnesota to amend its statute and rules like Oregon. We believe those conducting exempt offerings in Minnesota should interpret the statute accordingly.