Various and Sundry From the Week That Was

GAO’s Accredited Investor Study

Section 415 of the Dodd-Frank Wall Street Reform and Consumer Protection Act requires that the Government Accountability Office “conduct a study on the appropriate criteria for determining the financial thresholds or other criteria needed to qualify for accredited investor status and eligibility to invest in private funds … ” by the third anniversary of the Act’s enactment (or July 21, 2013; it’s sometimes hard to believe that it’s been three years already).

GAO released the results of its study on Thursday, concluding and entitling the report: Alternative Criteria for Qualifying As An Accredited Investor Should Be Considered.

The report recommends eight alternative criteria grouped into two main categories.

Category I – Financial Resources 

    • Liquid investments requirement. Investors would have to have a minimum dollar amount of investment in liquid assets (that is, assets that can be easily sold, are marketable, and the value of which can be verified by a financial institution).
    • Fixed-percentage investment. Investors would be limited in their investments in single, nonpublic securities offerings to a certain percentage of their individual net worth or income.

Category II – Understanding of Financial Risk

    • Licenses/certification. Investors would have to demonstrate knowledge of financial risks related to private placement investments to receive licenses from regulators or authorized third parties.
    • Investor sophistication test. Investors would complete SEC-approved investor education classes and pass a test that would qualify them as accredited.
    • Self-certifying as a sophisticated investor. Investors would self-certify based on standards such as membership in a network of investment groups, work experience, or investment experience.
    • Education. Investors would qualify as accredited based on an advanced degree in business or finance, a chartered financial analyst credential, or similar designation.
    • Opt-in provision. Investors would sign a statement that waives significant rights to file a complaint or seek compensation unless there is fraud on the part of the issuer.
    • Registered investment adviser requirement. Investors who wished to invest in private placement offerings would have to use the services of registered investment advisers to manage their investment accounts.

The Commission, in its comments to the report, noted that the staff will factor in the GAO’s recommendations when conducting its own review of the definition of accredited investor in 2014 (as mandated by Section 413 of the Dodd-Frank Act). In particular, the Commission will consider the GAO’s recommendations related to liquid investment requirements and registered investment advisor requirements.

Disclosure Guidance Regarding Non-Traded REITs

On Tuesday the Division of Corporation Finance issued disclosure guidance summarizing the staff’s observations in its review of Securities Act and Exchange Act filings of non-traded real estate investment trusts (REITs).

Commissioner Nominees

On Thursday the Senate Banking Committee unanimously voted to confirm Commissioner nominees Kara M. Stein (Democrat), currently Legal Counsel and Senior Policy Advisor to Senator Jack Reed, and Dr. Michael Piwowar (Republican), currently the Chief Economist for the Senate Banking Committee, as replacements for Commissioners Walter and Paredes. The next order of business is confirmation by the full Senate, which Reuters notes should be non-controversial.

The Committee also voted to confirm Chairman White for a full five-year term.

Cyber Crime and Securities Exchanges

According to a report released by the International Organization of Securities Commissions and World Federation of Exchanges on Tuesday, over half of 46 securities exchanges surveyed by OICU-IOSCO and WFE have experienced a cyber attack last year.

The most common and most disruptive attacks being denial-of-service attacks and malicious software (viruses).

Exchange Reported Cyber Attacks

Working at the SEC

Finally, it doesn’t look like the Commission will be receiving any workplace recognition awards this year, coming in 19th out of 22 among similarly sized federal agencies in a GAO a survey on employee satisfaction and commitment (see also Reuters).

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