Thursday, June 27, 2013

Should the Accredited Investor definition be revised?

As you have all undoubtedly heard or read, yesterday the Supreme Court ruled to invalidate key provisions of the Defense Against Marriage Act (DOMA).

The 1996 DOMA, signed into law by President Clinton, denied federal recognition of same-sex marriages for the purposes of receiving federal benefits, such as Social Security survivor's benefits, insurance benefits, immigration and tax filing. Section 3 of DOMA defined marriage as "a legal union between one man and one woman, as husband and wife" and a spouse was defined as "a person of the opposite sex who is a husband or a wife". The Supreme Court's decision means that now same-sex couples, who are legally married, are entitled to the same benefits as opposite sex married couples.

For some securities attorneys, this raises an interesting question that relates to the definition of an "accredited investor" under Rule 501(a) of the Securities Act. According to the Rule, the definition of an "accredited investor" includes (a) "any natural person whose individual net worth, or join net worth with that person's spouse, exceeds $1,000,000" and (b) "any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of those years and has a reasonable expectation of reaching the same income level in the current year."

Although the term "spouse" is not defined in the Securities Act, it is reasonable to assume, in my opinion, that the definition of a "spouse" also includes a spouse in a same-sex marriage, so long as the couple is legally married.  The definition does not, however, currently extend to domestic partners or partners in a civil union.  Such change, however, is unlikely to come.  Given the delay in the SEC rule-making process (we are still waiting for the final rules regarding the ban on general solicitation and advertising and proposed rules on crowdfunding), expansion of the definition of a "spouse" will hardly be ever viewed as a priority.  

This article is not a legal advice, and was written for general informational purposes only. If you have questions or comments about the article or are interested in learning more about this topic, feel free to contact its author, Arina Shulga. Ms. Shulga is the founder of Shulga Law Firm, P.C., a New York-based boutique law firm specializing in advising individual and corporate clients on aspects of business, corporate, securities, and intellectual property law.

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