The Consumer Federation of America and Americans for Financial Reform have written a response to the Security and Exchange Commission's December 2015 staff report on the definition of accredited investor.  For many years, efforts to update the definition of accredited investor have gone nowhere, with one side arguing to strengthen protections for investors by raising the outdated financial thresholds on which the definition is based and the other side arguing to retain the existing thresholds in order to preserve the flow of capital to private offerings. We congratulate the Commission staff for looking beyond this narrow argument in drafting this report.  The report reflects a reasonably thorough review of the various approaches that could be adopted to update the definition, including options to strengthen the definition’s investor protections without unnecessarily sacrificing capital formation.

On the other hand, the study suffers from major shortcomings that seriously undermine its usefulness in providing the basis for further regulatory action. We believe it is possible to update the definition of accredited investor so that it better protects investors without threatening the flow of capital to the secondary market. We further believe that the recommendations of the Investor Advisory Committee provide a sound basis for Commission action in this area. We urge the Commission to move forward with reforms in this area by first filling in the gaps in this study in order to lay the foundation for sound policy.