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86 Wash. U. L. Rev. 733 (2008-2009)
Unsophisticated Wealth: Reconsidering the SEC's Accredited Investor Definition under the 1933 Act

handle is hein.journals/walq86 and id is 739 raw text is: UNSOPHISTICATED WEALTH: RECONSIDERING THE SEC'S ACCREDITED INVESTOR DEFINITION UNDER THE 1933 ACT I. INTRODUCTION Paris Hilton almost certainly can purchase unregulated securities issued by hedge funds or other private investment vehicles. Although her training and sophistication in the field of high-stakes financial transactions may be limited, the Securities and Exchange Commission (the SEC or the Commission) would leave her to her own devices if she chose to invest in private offerings. On the other hand, assume Sheryl has an M.B.A. from Harvard and is a graduate of one of the country's leading Ph.D. programs in financial systems analysis. After all of this schooling, Sheryl is long on debt and short on assets. She has several offers to work at the nation's most prestigious investment brokerages. But if Sheryl wants to invest in a private offering, the SEC regulations will not allow it. Sheryl is barred from investing in private offerings because, unlike Paris Hilton, Sheryl does not have sufficient income or net worth to be an accredited investor. Though ironic, this hypothetical contrast demonstrates the current state of securities law in the United States. The apparent incongruity of this example warrants a closer examination of the SEC's accredited investor definition and raises the question: is there a better way? The SEC regulates and oversees the purchase and sale of securities.1 Under Section 4 of Securities Act of 1933 (the 1933 Act)2 or Regulation D,3 promulgated under the 1933 Act, certain securities offerings are exempt from registration requirements, so long as certain offering conditions are met.4 One such condition is that investors participating in private offerings generally must be accredited.5 Under the current definition, an accredited investor is one whose individual net worth, or joint net worth with that person's spouse, at the time of his purchase 1. See generally Louis Loss, JOEL SELIGMAN & TROY PAREDES, SECURITIES REGULATION (4th ed. 2006). 2. 15 U.S.C. § 77d (2000). 3. Regulation D, 17 C.F.R. §§ 230.501-.508 (2007). 4. Id. For information regarding the registration requirements for publicly offered securities, see infra notes 33-34 and accompanying text. 5. Rule 504, 17 C.F.R. § 230.504 (2007); Rule 505, 17 C.F.R. § 230.505 (2007); Rule 506, 17 C.F.R. § 230.506 (2007); see also infra note 57.

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