Accredited investors are a special group. They are treated differently by financial advisers, banks and other financial institutions, investment companies, Wall Street, government agencies and the law. So what are they?
First, some background:
In 1929, something very bad happened. On October 29th of that year, what is infamously known as Black Tuesday, the U.S. stock market crashed, originating the Great Depression. Worldwide, economies suffered through the 1930’s and even into the early 1940’s in some countries. It is also said to have been the precursor that set the stage for World War II.
In 1933, the U.S. Congress decided they needed to institute legislation for better controls over the financial markets in America. So they passed the Securities Act of 1933, the first major federal legislation to regulate the offer and sale of securities. The Act, still in effect today, requires companies issuing securities to register these with the government and disclose significant information about their company and the details of their security offerings. The goal being: to provide potential investors with sufficient information to make an informed investment decision.
The Act took this a step further. It developed a definition that investors must meet in order to be permitted invest in certain types of investments. This group is now called Accredited Investors.
So, here’s the definition of Accredited Investors according to the Securities Act of 1933:
“For an individual to be considered an accredited investor, they must have a net worth of at least one million U.S. dollars or have made at least $200,000 each year for the last two years ($300,000 with his or her spouse if married) and have the expectation to make the same amount this year.”
Congress passed the Securities Act of 1934, which, among other things, created the U.S. Securities and Exchange Commission(SEC). The SEC’s purpose is to regulate our stock markets and prevent abuses relative to corporate reporting and the offering and sale of securities. It has the authority to administer laws that govern the securities industry, including the Securities Act of 1933 and a number of other laws that were subsequently passed since that time.