New York Business Lawyers

In a shakeup that can reset thirty years of financial standards regarding who is eligible under the securities laws to make high risk private investments, all businesses should be aware that this change can severely undermine their ability to raise capital from investors.  For nearly thirty years, rule 501 of Regulation D has set forth the definition of an “accredited investor” (which is the law’s way of saying “rich person who can absorb the risk associated with a private high risk investment.”)  The current definition established 1982 currently states that an individual who has earned $200K in the past 3 years with a reasonable expectation of earning the same amount in the current year (there are other standards as well, but this is the main one).  Such a party will receive far lesser legal scrutiny and protection under the securities laws.  Hence these parties are the prime candidates from a legal perspective to invest in private businesses (e.g., tech startup, feature indie film).

Senator Dodd (through the Restoring-American-Financial-Stability-Act-of-2010) for reasons that are laudable but certainly debatable wants to change $200K to $400K, meaning that the pool of accredited investors will shrink exponentially by definition.  In the current economic climate, financial scandals notwithstanding, the prime job creation engine are the startup or expanding business that accordingly needs to raise capital.  By changing the 501 definition, the law will penalize these efforts and harm the recovery that is delicately underway.  Not only should New York and other businesses remain vigilant they should oppose this measure vociferously.