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House Passes Expanding Access to Capital Act, Broadens Accredited Investor Definition

The House of Representatives recently passed the Expanding Access to Capital Act of 2023, a package of bills which includes legislation loosening the definition of an accredited investor for nonpublic offerings. The act passed along party lines with a vote of 212 Republicans to 205 Democrats.

One key aspect of the act is the broadening of the definition of an “accredited investor.” Under the new rules, certain clients of registered investment advisors who don’t meet the traditional income or net-worth thresholds would still be eligible to participate in private offerings. These investors could invest up to 10% of their annual income or net assets, whichever is greater.

The act was introduced by House Financial Services Committee Chairman Patrick McHenry, R-North Carolina. According to a press release from McHenry’s office, the act is intended to facilitate capital formation by strengthening public markets, helping small businesses and entrepreneurs, and creating new opportunities for all investors.

Another amendment passed as part of the act was the Improving Disclosures for Investors Act. This provision, introduced by Representative Bill Huizenga, R-Michigan, directs the Securities and Exchange Commission (“SEC”) to require the adoption of electronic disclosure rules that would allow certain registrants to send electronic disclosures to investors instead of paper copies.

The act also includes a measure allowing 403(b) plans managed under the Employee Retirement Income Security Act to include collective investment trusts (“CITs”). CITs have reportedly become more popular in defined contribution plans because they are not securities and do not need to be registered with the SEC. Therefore, they are generally less expensive to offer in retirement plans compared to other options, such as mutual funds.

Other provisions of the act include:

  • Issuers selling less than $250,000 worth of securities in a year would be exempt from registering those sales with the SEC.
  • Certain emerging growth companies would be allowed to continue operating under less stringent regulations for a longer period.
  • Raising the revenue threshold for a company to qualify as an emerging growth company to $1.5 billion.

With passage by the House, the act will now advance to the Senate, where, even with unanimous Republican support, it will need at least two additional votes from Democrats or independents to pass. It is not yet clear when the Senate will consider the bill.

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