The Securities and Exchange Commission just pried open the door to investing in fledgling cryptocurrency companies without being wealthy.
Ever since the agency’s crackdown on initial coin offerings, the only way to participate in the private capital markets used to raise money for startups is to meet the definition of an “accredited investor”—which boiled down to “be a millionaire” for individuals or an “entity” with at least $5 million.
This is because selling to accredited investors falls under the Regulation D exemptions to the Securities Act of 1933, which are far looser than the requirements for a traditional initial public offering (IPO).
In December, SEC Commissioner Hester Peirce—also known as Crypto Mom—likened this to including “investors that spend their days cruising around in a Ferrari that Daddy bought them, yet excludes investors whose weeks are spent earning money and weekends are spent figuring out how best to invest it.”
While the rule changes broadening the definition of an accredited investor fall far short of the more expansive criteria Peirce advocated, the Aug. 26 announcement opens it to investors meeting “defined measures of professional knowledge, experience or certifications in addition to the existing tests for income or net worth.”
That said, it’s a very narrow crack, limited to holders of Series 7, Series 65, and Series 82 professional licenses for brokers and other financial professionals. It also allows people who are “knowledgeable employees” of a private fund to invest in it—and only it. Beyond that, there were some clarifications and the addition of Indian tribal governing bodies and funds.
“Americans shouldn’t have to ask the SEC for permission to invest, but today’s accredited investor rule at least offers people a path to ask permission based on their education, rather than simply telling them ‘no, unless you’re rich,’” Peirce tweeted out following today’s announcement.
SEC Chairman Jay Clayton called the amendments the product of years of work by the SEC.
The changes also opened the door to broader expansions of accredited investors.
“This approach provides the Commission with flexibility to reevaluate or add certifications, designations, or credentials in the future,” the announcement said. “Members of the public may wish to propose for the Commission’s consideration additional certifications, designations or credentials that satisfy the attributes set out in the new rule.”