Firm News

Client Alert -- Dodd-Frank Wall Street Reform and Consumer Protection Act

07.23.10

President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”) on July 21, 2010. While many of the provisions do not go into effect until a year from now, the new law changes the definition of an “accredited investor” under Regulation D of the Securities Act of 1933 immediately.

Rule 506 of Regulation D (“Rule 506”) generally requires investors to be “accredited” in order to purchase interests in private funds relying on Rule 506 for the registration exemption. Prior to the Act, a natural person was deemed “accredited” if he had $200,000 in annual income (or $300,000 jointly with a spouse) or a net worth of $1,000,000. Under the Act, a natural person’s primary residence must now be excluded when determining his net worth. Further, at least once every four years, the SEC is required to review and adjust the definition of “accredited investor.” As a result, the definition of an “accredited investor” will be subject to the SEC’s further interpretation.

All clients who are sponsors of private investment funds, advisors to sponsors of private funds, or sponsors of other private placements relying on Rule 506 should revise their offering documents to comply with the Act. We recommend that you contact us as soon as possible to assist in making these changes.

If you have any questions, please contact Lauane C. Addis at 312-377-7853.

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