In Print: Volume 86: Number 3
Unsophisticated Wealth: Reconsidering The SEC’s “Accredited Investor” Definition Under The 1933 Act
By Wallis K. Finger
86 Wash. U. L. Rev. 733 (2009)
(PDF)
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?
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