SEC Releases Two CDIs Regarding Accredited Investors:-  We wrote here yesterday about the inaugural SEC evaluation of the current definition of an accredited investor. This rule put into place by Dodd-Frank in 2010 initiated guidelines for a regular review of the definition which hadn’t been significantly changed since 1982 when the term was first defined.

YetSEC CDIs the SEC does have the authority to issue Compliance and Disclosure Interpretations, or CDIs to help companies more clearly decipher rules and regulations issued by the SEC as it relates to evaluating an accredited investor’s financials to determine if the individual or entity does in fact meet the accredited investor requirements.

One of the clarifications released this month addresses income. Currently, an individual must provide evidence of at least $200,000 in income for the previous two years with the expectation that amount or more will continue in the future. The CDI released earlier this month explains how income received in non-U.S. currency is to be calculated. The investor is allowed to use either the exchange rate as of the last day of the year or use the average exchange rate for that same tax year.  The most recent filed federal income tax returns will be used to document at least $200,000 in annual income. This income is for each year and is typically not averaged over a two year period. For instance, Year 1 reports $50,000 in income while Year 2 shows $350,000 filed with the IRS. Both returns must show the minimum.

Another CDI was issued regarding assets.  The accredited investor must be able to document at least $1 million in assets from sources other than the investor’s primary residence. If there are assets held jointly by others, for example a spouse, the assets that may be counted toward the $1 million minimum can be used by only to the extent of the investor’s percentage of ownership of the asset.