On May 13, 2010, an amendment was proposed to Senator Dodd’s financial regulation reform bill that would largely preserve the current state of Regulation D. The amendment, SA 4037, calls for the following:
– Maintain the current net worth criteria for Accredited Investors at $1 million dollars, excluding the value of the investor’s primary residence. This criteria would remain intact for four years, after which time the Securities & Exchange Commission (SEC) would conduct a review and determine whether to increase the criteria.
– Eliminate the current proposal of a 120-day waiting period for review and approval of offerings conducted pursuant to Rule 506.
– Adds provisions to exclude felons and “bad actors” from offering or selling securities made under Regulation D. The proposal regarding “bad actors” would take effect not later than one year after the financial regulation reform bill becomes law.
SA 4037 is welcome news for startup companies and angel investors alike. Let’s hope the amendment is adopted. The big news is the proposal to eliminate the 120-day waiting period for Reg D offerings, which would have dramatically stifled the ability of startup companies to raise much-needed capital. The proposal for a 120-day waiting period was wrong-headed and should be eliminated. On the other hand, it was too much to hope that the Accredited Investor net worth criteria would remain completely unaffected by the reform bill. A bill leaving that criteria intact even for four years would be a big win for entrepreneurs and investors. You can download the full text of the amendment here. We’ll continue to monitor developments in the U.S. Senate and post them promptly.