This is a link to a letter the Securities Committee of the WSBA sent to Senator Dodd as well as other legislators voicing the Committee's dismay over proposed Section 926: Letter to Sen. Dodd from the WSBA in opposition to Section 926 of the “Restoring American Financial Stability Act of 2010”
One aspect of the bill that has not been widely discussed concerns a problem with the definition of accredited investor in Rule 501. The thresholds for net worth ($1 million) and annual income ($200,000 for singles or $300,000 for couples) were set in 1982 when the CPI stood at around 96.5. Section 412 of the bill instructs the SEC to adjust these thresholds for inflation. In February 2010, the CPI was 216.741. That means that if the bill in enacted into law, to be accredited an investor would now be required to have a net worth of around $2.25 million or annual income (if married) of approximately $675,000. This would, of course, drastically reduce the size of the pool of investors that start-ups could access for "traditional" (accredited investor only) Rule 506 private placements.
I wonder if Section 926 (requiring SEC or state regulatory review) is a decoy and the real goal is to enact Section 412 and hereby adjust thresholds for 28 years of inflation.
John A. Myer is a corporate and securities lawyer with Myer Law PLLC in Seattle, Washington. This posting does not constitute legal advice.