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October 22, 2019

Legislation re-introduced in House to expand pool of accredited investors

Legislation that would allow more investors to purchase unregistered securities faces some of the same legislative obstacles that stymied last year’s measure.

Reps. French Hill, R-Ark., and David Schweikert, R-Ariz., introduced the Fair Investment Opportunities for Professional Experts Act (H.R. 4762) last Friday. It would expand the criteria for determining accredited investors eligible to participate in the private capital markets.

Under the bill, people with relevant education or professional expertise and those who have demonstrated understanding of the sector related to the private offering would be able to buy shares, regardless of their wealth or income. For instance, retail investment advisers and brokers would qualify under the new rules as would a doctor who wants to invest in a medical-device startup company.

Under current rules, accredited investors must meet certain income and net worth thresholds.

Proponents of expanding the accredited investor pool say that doing so would help emerging companies raise capital and allow more investors to take advantage of good investment opportunities.

“This will provide both greater investment opportunities for more Americans and will enable entrepreneurs to create more jobs,” Mr. Hill said in a statement.

Last year, a similar bill was part of a package that gained overwhelming bipartisan approval in a vote on the House floor. It stalled in the Senate because it could not find a spot on the legislative calendar.

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Political obstacles again line the road to enactment. There is little floor time left this year in the House or Senate, and the window will be tight next year with the election looming. Both chambers also could soon be consumed by impeachment proceedings in addition to having to pass a federal budget to keep the government open.

“Given the legislative priorities of the current [House] Financial Services Committee and the House leadership, we are not optimistic for the future of H.R. 4762 but are hopeful that it will receive consideration and support,” John Harrison, executive director of the Alternative and Direct Investment Securities Association, said in a statement. “It is an important piece of legislation and worthy of bipartisan backing and passage into law.”

The Institute for Portfolio Alternatives also backs the bill and acknowledges the difficult political environment.

“I think it’s going to be tough,” said Anya Coverman, IPA senior vice president and general counsel. “We believe this is a bipartisan issue. Hopefully, there will be a push to put together a package in the Senate Banking Committee that this will be a part of.”

As the House bill is launched, the Securities and Exchange Commission is taking a look at ways to open private placements to more ordinary investors.

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