How does Regulation D under 17 CFR 230.501 define an accredited investor? Answer in under 100 words.

Details / How it works

The definition of an accredited investor is set forth in § 230.501(a) of Regulation D. It covers a wide range of entities and natural persons that the issuer either knows or reasonably believes meet the specified criteria at the time of sale. The rule is designed to identify investors who are financially sophisticated and can bear the economic risk of private securities offerings. Key categories include:

• Institutional entities: banks, savings and loan associations, brokers, dealers, registered investment advisers, insurance companies, registered investment companies, business development companies, Small Business Investment Companies (SBICs), Rural Business Investment Companies (RBICs), and employee benefit plans with total assets over $5 million.
• Individuals: any natural person with a net worth (jointly with spouse) exceeding $1 million (excluding the primary residence), or an individual income over $200,000 (or joint income over $300,000) in each of the two most recent years with a reasonable expectation of the same in the current year.
• Insiders: directors, executive officers, and general partners of the issuer.
• Entities: charitable organizations, corporations, partnerships, or LLCs with total assets over $5 million (not formed for the specific purpose of the investment); trusts with assets over $5 million; and entities where all equity owners are accredited investors.
• Professional certifications and designations: individuals holding credentials designated by the SEC as qualifying (e.g., Series 7, 65, 82).
• Knowledgeable employees: as defined in Rule 3c-5(a)(4) under the Investment Company Act of 1940.
• Family offices and family clients: with assets under management over $5 million and directed by a financially sophisticated person.