State securities regulators are urging the SEC not to move forward with its proposal to expand access to high-risk private securities offerings to individual investors—particularly to seniors living on fixed incomes from retirement savings—without additional investor protections and oversight.

In a comment letter delivered to the SEC late yesterday, the North American Securities Administrators Association (NASAA) said the agency’s proposal to amend its definition of accredited investors falls short of increasing the protections and regulatory oversight Main Street investors would need if the proposal is approved as drafted.

“The proposal is a deregulatory effort that is singularly focused on expanding the private markets while showing little regard for its potential adverse effects on retail investors and the public markets,” wrote Christopher W. Gerold, NASAA president and chief of the New Jersey Bureau of Securities. “The commission should not move forward with the proposal as currently presented.”

Gerold said that although the proposed expansions of accredited investor status regarding certain organizations or entities are not unreasonable, the SEC’s proposal “widely misses the mark” in its proposed treatment of individual investors.  

NASAA also wants the SEC to raise the income and net worth thresholds for individual investors who are considered “accredited investors” since thresholds have not been adjusted to account for inflation since 1982. Over nearly 40 years since, inflation has significantly deteriorated these thresholds leading, to a dramatic increase in the percentage of U.S. households that qualify as accredited investors, the organization said.

In 1982, for example approximately 1.6% of American households qualified to be offered high-risk private securities, compared to about 13% (or 16 million) today.

“It is implausible that 16 million American households currently have both the financial sophistication and the capacity to bear the kinds of investment losses that courts and prior commissions have considered essential prerequisites for participation in private offerings,” Gerold wrote.

Where the SEC would set a minimum assets threshold of $5 million, NASAA wants the threshold raised to $10 million. “A $10 million threshold would be more likely to capture investors who can reasonably be expected to have the sophistication and ability to withstand economic losses as to enable them to fend for themselves,” Gerold said.

He said state securities regulators are particularly concerned that many elderly Americans may meet current thresholds solely through asset accumulation and savings, making their exposure to illiquid, high-risk private offerings ill-advised. “The proposal does nothing to protect these investors,” Gerold wrote.

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