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Difficulty: EasyMarket Participants and Investor Classifications

An individual investor is seeking to participate in a private placement of unregistered securities offered under Regulation D. Which of the following criteria qualifies an individual as an accredited investor based on net worth?

  1. A net worth exceeding $1,000,000, individually or jointly with a spouse, excluding the value of the primary residenceAnswer
  2. B
    Owning and investing at least $100,000,000 in securities on a discretionary basis
  3. C
    An annual individual income of at least $100,000 in each of the two most recent years with an expectation of the same in the current year
  4. D
    Registration with a self-regulatory organization (SRO) as an executive with criminal prosecution powers

Answer

A net worth exceeding $1,000,000, individually or jointly with a spouse, excluding the value of the primary residence
Under SEC rules, an individual qualifies as an accredited investor if they have a net worth exceeding 1,000,000,individuallyorjointlywithaspouse,excludingthevalueoftheirprimaryresidence.Alternatively,anindividualqualifieswithanannualincomeexceeding1,000,000, individually or jointly with a spouse, excluding the value of their primary residence. Alternatively, an individual qualifies with an annual income exceeding 200,000 ($300,000 jointly) for the last two years.

Step-by-Step Solution

1
Identify the relevant regulation governing accredited investor status.
Regulation D Rule 501 defines accredited investor criteria for private placements.
Accredited investor status determines eligibility for private offerings exempt from SEC registration.
2
Evaluate the specific financial net worth threshold required for individuals.
The requirement is a net worth exceeding $1,000,000, excluding primary residence equity.
Dodd-Frank amendments explicitly exclude the value of the primary residence to prevent inflated real estate values from qualifying retail investors without sufficient financial sophistication.

Key Concept

Accredited Investor Qualification Criteria
Estimated Time:45s
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Topics

Market Participants and Investor Classifications

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