Wendy Sherman: “In the debate on the bill in chief, the chair of the full committee correctly criticized the definition of accredited…”

“In the debate on the bill in chief, the chair of the full committee correctly criticized the definition of accredited investor as it occurs under current law. Accredited investor is an important concept in securities law because, Madam Chair, when you have a private offering, one that hasn't gone through the SEC process, the amount that can be raised and the number of investors you can have are related to, in large part, how many of your investors are accredited. The current definition makes you an accredited investor if you earn over $200,000 a year or have a net worth of more than $1 million. Frankly, the fact that you have that level of income or that level of wealth does not show that you have particular expertise or that your adviser team has particular expertise. While it certainly shows that you are in a position to absorb a loss, no one can afford to absorb a loss of 100 percent of their net worth. We need a different definition of accredited investor, one that does not limit that status just to those who happen to be wealthy or have a high income. The bill before us here does provide that different definition by saying you are an accredited investor, first, if you acknowledge the risks that you are taking and, second, if you are investing less than 10 percent of your net worth in the securities offering so that you can afford a loss on what, after all, is a higher risk--as many people have pointed out--offering about which you get less information.…”