SEC Excludes Primary Residence for Determining Accredited Investor Status

On December 21, 2011, the Securities and Exchange Commission ("SEC") amended its rules to implement Section 413(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act").¹ Section 413(a) requires that the value of a person's primary residence be excluded from the net worth calculation used to determine the person's "accredited investor" status. The final rule is the same as the proposed rule as to the exclusion of the primary residence under the net worth test and the treatment of indebtedness secured by the primary residence.² The adopted rule differs from the proposed rule with the addition of: (1) a grandfathering provision that permits the application of the former accredited investor standard in certain limited circumstances and (2) a provision addressing the treatment of incremental debt secured by the primary residence that is incurred in the 60 days before the sale of the securities in the private offering.