Question: A national bank purchases $100,000 of securities from a Regulation D issuer and distributes the securities equally among ten trust accounts for which it acts as trustee. Is the bank an accredited investor?

Answer: Yes. Rule 501(a)(1) accredits a bank acting in a fiduciary capacity. [Jan. 26, 2009]

Question: An ERISA employee benefit plan will purchase securities being offered under Regulation D. The plan has less than $5,000,000 in total assets and its investment decisions are made by a plan trustee that is not a bank, insurance company, or registered investment adviser. Does the plan qualify as an accredited investor?

Answer: The plan would not satisfy the requirements of Rule 501(a)(1), which accredits an ERISA plan that has a plan fiduciary that is a bank, insurance company, or registered investment adviser or that has total assets in excess of $5,000,000. Unless it satisfied another provision of Rule 501(a)(1), it would not be an accredited investor. [Jan. 26, 2009]

Question: Would an ERISA plan qualify as an accredited investor under Rule 501(a)(1) if it had less than $5 million in assets but had an arrangement through its trustee with a registered investment adviser to receive investment advice, when the ultimate investment decision is made by the trustee?

Answer: The plan would not qualify as an accredited investor under Rule 501(a)(1) if the ultimate investment decision is made by the trustee. However, if the arrangement gave the registered investment adviser full discretion to make investment decisions for the plan, the plan would then qualify as an accredited investor. It should be noted that the failure of a plan to qualify under Rule 501(a)(1) would not preclude it from attempting to qualify under other provisions of Rule 501(a) as an accredited investor. [Jan. 26, 2009]

Question: Although not specified in the list of organizations in Rule 501(a)(3), may a limited liability company be treated as an “accredited investor” as defined in that rule if it satisfies the other requirements of the definition?

Answer: Yes. See the Wolf, Block, Schorr and Solis-Cohen no-action letter (Dec. 11, 1996) issued by the Division. [Jan. 26, 2009]

Question: Rule 501(a)(8) accredits any entity in which all of the equity owners are accredited investors. In some cases, an equity owner is itself an entity rather than a natural person. If the owner-entity does not qualify on its own merits as an accredited investor, may the issuer look through the owner-entity to its natural person owners to determine whether they are all accredited investors?

Answer: Yes. An issuer can look through various forms of equity ownership to natural persons in judging accreditation under Rule 501(a)(8). [Jan. 26, 2009]

Question: Under Rule 501(a)(8), an entity is an accredited investor if all its equity owners are accredited investors. If one director of a corporate investor holds one qualifying share of the entity’s stock and is not an accredited investor, would the corporate investor be considered accredited under this provision?

Answer: No, the corporate investor would not be considered accredited. Rule 501(a)(8) requires “all of the equity owners” to be accredited investors. The director is an equity owner and is not accredited. Note that the director cannot be accredited under Rule 501(a)(4). That provision extends accreditation to a director of the issuer, not of the investor. [Jan. 26, 2009]

Question: A state run, not-for-profit hospital has total assets in excess of $5,000,000. Because it is a state agency, the hospital is exempt from federal income taxation. Rule 501(a)(3) accredits any organization described in Section 501(c)(3) of the Internal Revenue Code that has total assets in excess of $5,000,000. Is the hospital accredited under Rule 501(a)(3)?

Answer: Yes. This category does not require that the investor have received a ruling on tax status under Section 501(c)(3) of the Internal Revenue Code. Rather, Rule 501(a)(3) accredits an investor that falls within the substantive description in that section. See the Voluntary Hospitals of America, Inc. no-action letter (Nov. 30, 1982) issued by the Division. [Jan. 26, 2009]

Question: A not-for-profit, tax exempt hospital with total assets of $3,000,000 is purchasing securities in a Regulation D offering. The hospital controls a subsidiary with total assets of $3,000,000. Under generally accepted accounting principles, the hospital may combine its financial statements with those of its subsidiary. Is the hospital accredited? Would the result be the same if one hospital were a holding company with financial statements that are combined with those of an affiliated hospital, where the affiliated hospital is not technically a subsidiary?

Answer: Yes to both questions under Rule 501(a)(3). When the financial statements of a subsidiary or affiliate may be combined with those of the investor under generally accepted accounting principles, the assets of the subsidiary or affiliate may be added to those of the investor in computing total assets for purposes of Rule 501(a)(3). [Jan. 26, 2009]

Question: The executive officer of a parent of the corporate general partner of the issuer is investing in the Regulation D offering. Is that individual an accredited investor?

Answer: Rule 501(a)(4) accredits only the directors and executive officers of the general partner itself. Unless the executive officer of the parent can be deemed an executive officer of the subsidiary, that individual is not an accredited investor. See the Prometheus Development Co., Inc. no-action letter (Nov. 6, 1985) issued by the Division. [Jan. 26, 2009]

Question: Must property be held jointly between spouses to be included in the joint net worth calculation in Rule 501(a)(5), and must the securities be purchased jointly by spouses for the investor to be considered “accredited” under the joint net worth standard?

Answer: No. Joint net worth can be the aggregate net worth of an investor and the investor’s spouse; such property need not be held jointly; and the purchase need not be made jointly for an investor to qualify under the joint net worth standard. [Jan. 26, 2009]

Question: A corporation with a net worth of $2,000,000 purchases securities in a Regulation D offering. Is the corporation an accredited investor under Rule 501(a)(5)?

Answer: No. Rule 501(a)(5) is limited to “natural” persons. [Jan. 26, 2009]

[withdrawn, July 22, 2010]

Question: May the value of vested employee stock options be included in a person’s net worth under the definition of accredited investor in Rule 501(a)(5)?

Answer: Yes. Net worth is simply the excess of assets over liabilities. The value of vested employee stock options may be included in the net worth calculation under Rule 501(a)(5). [Jan. 26, 2009]

Question: For purposes of the income test in Rule 501(a)(6), may a natural person satisfy the test for the requisite three-year period by satisfying either the individual income test or the joint income test in each of the three years and neither of the tests in all three years?

Answer: If the person has had the same marital status for all three years, then no. A natural person must satisfy Rule 501(a)(6) based on that person’s satisfying the $200,000 individual income test for all three years or the $300,000 joint income test with that person’s spouse for all three years. If a person has been married for some but not all of the three years, however, he or she may satisfy the rule on the basis of the joint income test for the years during which the person was married and on the basis of the individual income test for the other years. [Jan. 26, 2009]

Question: Does the term “income” in Rule 501(a)(6) include amounts contributed on the participant’s behalf to a profit-sharing plan or pension plan to the extent that a participant’s rights to benefits attributable to such contributions are vested?

Answer: Yes. See the Raymond, James & Associates, Inc. no-action letter (Nov. 19, 1984) issued by the Division. [Jan. 26, 2009]

Question: May a purchaser include unrealized capital appreciation in calculating income for purposes of Rule 501(a)(6)?

Answer: Generally, no. See Securities Act Release No. 6455, Question No. 23 (Mar. 3, 1983). [Jan. 26, 2009]

Question: Who are the equity owners of a limited partnership?

Answer: The limited partners. [Jan. 26, 2009]

Question: May a trust qualify as an accredited investor under Rule 501(a)(1)?

Answer: Only indirectly. Although a trust standing alone cannot be accredited under Rule 501(a)(1), if a bank is its trustee and makes the investment on behalf of the trust, the trust will in effect be accredited by virtue of the provision in Rule 501(a)(1) that accredits a bank acting in a fiduciary capacity. Furthermore, a trust having a bank as a co-trustee is an accredited investor as interpreted under Rule 501(a)(1) so long as the bank is “acting” in its fiduciary capacity on behalf of the trust in reference to the investment decision and the trust follows the bank’s direction. See the Nemo Capital Partners L.P. no-action letter (Mar. 11, 1987) issued by the Division. [Jan. 26, 2009]

Question: A trustee of a trust has a net worth of $1,500,000. Is the trustee’s purchase of securities for the trust that of an accredited investor under Rule 501(a)(5)?

Answer: No. Except where a bank is a trustee, the trust is deemed the purchaser, not the trustee. The trust is not a “natural” person. [Jan. 26, 2009]

Question: May a trust be accredited under Rule 501(a)(8) if all of its beneficiaries are accredited investors?

Answer: Generally, no. Rule 501(a)(8) accredits any entity if all of its “equity owners” are accredited investors. This provision does not apply to the beneficiaries of a conventional trust. The result may be different, however, in the case of certain non-conventional trusts where, as a result of powers retained by the grantors, a trust as a legal entity would be deemed not to exist. The result also would be different in the case of a business trust, a real estate investment trust, or other similar entities. Thus, where the grantors of a revocable trust are accredited investors under Rule 501(a)(5) (e.g., the net worth of each exceeds $1,000,000) and the trust may be amended or revoked at any time by the grantors, the trust as a legal entity would be deemed not to exist, and the trust would be deemed accredited, because the grantors would be deemed the equity owners of the trust’s assets. See the Lawrence B. Rabkin, Esq. no-action letter (July 16, 1982) issued by the Division. [Jan. 26, 2009]

Question: If the participant in an Individual Retirement Account is an accredited investor, is the account accredited under Rule 501(a)(8)?

Answer: Yes. [Jan. 26, 2009]

Question: If all participants of an employee benefit or retirement plan are accredited investors under any of the categories of Rule 501 except Rule 501(a)(8), is the plan deemed accredited?

Answer: Yes. See the Thomas Byrne Swartz no-action letter (June 10, 1982) issued by the Division. [Jan. 26, 2009]

Question: Are there circumstances under which the grantor of an irrevocable trust would be considered the equity owner of the trust under Rule 501(a)(8)?

Answer: The grantor of an irrevocable trust with the following characteristics could be considered the equity owner of the trust:

See the Herbert S. Wander no-action letter (Nov. 25, 1983) and the Herrick, Feinstein LLP no-action letter (Jan. 5, 2001) issued by the Division. [Jan. 26, 2009]

Question: In computing the various dollar amount ceilings for sales under Regulation D, is a sale that was subsequently rescinded (e.g., because it was found that the investor was not “accredited”) required to be counted?

Answer: No. [Jan. 26, 2009]

Question: In calculating the aggregate offering price under Rule 504, should an issuer include any additional capital contributions or assessments which investors will be obligated to meet, despite the fact that the issuer may never make such assessments?

Answer: Yes. [Jan. 26, 2009*]

Question: In purchasing interests in an oil and gas partnership, investors agree to pay mandatory assessments. The assessments, essentially installment payments, are non-contingent and investors will be personally liable for their payment. Must the issuer include the assessments in the aggregate offering price?

Answer: Yes. See the Kim R. Clark, Esq. no-action letter (Nov. 8, 1982) issued by the Division. [Jan. 26, 2009]

Question: In computing the aggregate offering price of an offering under Rule 504, is a limited partnership issuer required to aggregate sales by other limited partnerships solely because the other partnerships have the same general partner?

Answer: No. [Jan. 26, 2009*]

Question: In computing the aggregate offering price limitation for Rule 504, is a limited partnership issuer required to include purchases of limited partnership interests by active general partners?

Answer:  No. Since the general partners are essentially financing their own efforts, and not investing in those of others, any limited partnership interests so purchased are not deemed securities for purposes of this computation. [Jan. 26, 2009*]

Question: Where the investors pay for their securities in installments and these payments include an interest component, must the issuer include interest payments in the “aggregate offering price”?

Answer: No. The interest payments are not deemed to be consideration for the issuance of the securities. [Jan. 26, 2009]

Question: An offering of interests in an oil and gas limited partnership provides for additional voluntary assessments. These assessments, undetermined at the time of the offering, may be called at the general partner’s discretion for developmental drilling activities. Must the assessments be included in the aggregate offering price, and, if so, in what amount?

Answer: Because it is unclear that the assessments will ever be called, and because if they are called, it is unclear at what level, the issuer is not required to include the assessments in the aggregate offering price. In fact, the assessments will be consideration received for the issuance of additional securities in the limited partnership. The issuance will need to be considered along with the original issuance for possible integration, or, if not integrated, must be registered or find its own exemption from registration. [Jan. 26, 2009]

Question: As part of their purchase of securities, investors deliver irrevocable letters of credit. Must the letters of credit be included in the aggregate offering price?

Answer: Yes. If these letters of credit were drawn against, the amounts involved would be considered part of the aggregate offering price. For this reason, in planning the transaction, the issuer should consider the full amount of the letters of credit in calculating the aggregate offering price. [Jan. 26, 2009]

Question:  Do non-U.S. investors need to be counted under Rule 501(e) in calculating whether an issuer has exceeded the limit of 35 non-accredited investors in a Rule 506(b) offering under Regulation D?

Answer: As explained in Rule 500(g), if the foreign offering meets the safe harbor conditions set forth in Regulation S relating to offerings made outside the United States, then the foreign offering is not required to comply with the conditions of Regulation D, including those limiting the number of investors. But if the issuer elects to rely on Regulation D for offers and sales to non-U.S. investors, the issuer must count the non-U.S. investors in calculating whether it meets the conditions of Regulation D limiting the number of investors. [Jan. 26, 2009*]

Question: For purposes of calculating the number of purchasers in an offering under Regulation D, may an individual and the individual’s IRA be regarded as a single purchaser?

Answer: Yes. Furthermore, if an individual purchases stock in an offering both directly and indirectly through a self-directed employee savings plan, the individual will count as only one purchaser if non-accredited. See the Lane Enterprises, Inc. no-action letter (Feb. 9, 1987) issued by the Division. [Jan. 26, 2009]

Question: A group of trusts with no current beneficiaries, separately created for estate tax planning purposes, will have the same set of beneficiaries and the same trustees. May the group be treated as a single purchaser under Regulation D?

Answer: Yes. [Jan. 26, 2009]

Question: Two trusts purchase securities in a Regulation D offering. The beneficiaries of these trusts are related and share the same principal residence. Even though Rule 501(e)(1), which governs the calculation of the number of purchasers, does not specifically exempt either trust from the count, does its policy of exempting related purchasers with the same residence justify counting the trusts as one purchaser?

Answer: Yes. Similarly, where a parent and a trust benefiting a child who shares the parent’s residence purchase securities in a Regulation D offering, the issuer may count these two investors as one purchaser. [Jan. 26, 2009]

Question: Rule 501(e)(2) provides that in determining the number of purchasers in an offering under Regulation D, “each beneficial owner of equity securities or equity interests” in a corporation, partnership or other entity that was organized for the specific purpose of acquiring the securities offered “shall count as a separate purchaser for all provisions of Regulation D”. This means that the rules for counting individual purchasers would apply to each such beneficial owner. Would a beneficial owner who also happens to be an accredited investor, for instance, be excluded from the count?

Answer: Yes. [Jan. 26, 2009]

Question: Would a not-for-profit corporation formed for the specific purpose of an investment be counted as a single purchaser under Regulation D where the members were not equity owners and could not regain any part of their investment or receive any return thereon?

Answer: Yes. [Jan. 26, 2009]

Question: One purchaser in a Rule 506 offering is an accredited investor. Another is a first cousin of that investor sharing the same principal residence. Each purchaser is making his own investment decision. How must the issuer count these purchasers for purposes of meeting the 35 purchaser limitation?

Answer: The issuer is not required to count either investor. The accredited investor may be excluded under Rule 501(e)(1)(iv), and the first cousin may then be excluded under Rule 501(e)(1)(i). The issuer must satisfy all other conditions of Regulation D, however, with respect to purchasers that have been excluded from the count. Thus, for instance, the issuer would have to ensure the sophistication of the first cousin under Rule 506(b)(2)(ii). [Jan. 26, 2009]

Question: An accredited investor in a Rule 506 offering will have the securities she acquires placed in her name and that of her spouse. The spouse will not make an investment decision with respect to the acquisition. How many purchasers will be involved?

Answer: The accredited investor may be excluded from the count under Rule 501(e)(1)(iv) and the spouse may be excluded under Rule 501(e)(1)(i). The issuer may also take the position, however, that the spouse should not be deemed a purchaser at all because he did not make any investment decision, and because the placement of the securities in joint name may simply be a tax or estate planning technique. [Jan. 26, 2009]

Question: An investor in a Rule 506 offering is an investment partnership that is not accredited under Rule 501(a)(8). Although the partnership was organized two years earlier and has made investments in a number of offerings, not all the partners have participated in each investment. With each proposed investment by the partnership, individual partners have received a copy of the disclosure document and have made a decision whether or not to participate. How do the provisions of Regulation D apply to the partnership as an investor?

Answer: The partnership may not be treated as a single purchaser. Rule 501(e)(2) provides that if the partnership is organized for the specific purpose of acquiring the securities offered, then each beneficial owner of equity interests should be counted as a separate purchaser. Because the individual partners elect whether or not to participate in each investment, the partnership is deemed to be organized for the specific purpose of acquiring the securities in each investment. See the Madison Partners Ltd. 1982-1 no-action letter (Jan. 18, 1982) and the Kenai Oil & Gas, Inc. no-action letter (Apr. 27, 1979) issued by the Division. Thus, the issuer must look through the partnership to the partners participating in the investment. The issuer must satisfy the conditions of Rule 506 as to each partner. [Jan. 26, 2009]

Question: For purposes of Regulation D, may an executive officer of the parent of the issuer be deemed an executive officer of the issuer if such officer meets the definition of “executive officer” set forth in Rule 405?

Answer: Yes. [Jan. 26, 2009]

Question: Is a manager of an LLC considered an executive officer under Rule 501(f) and therefore an accredited investor?

Answer: Yes, so long as the manager of the LLC performs a policy making function for the issuer, the manager will be considered an executive officer of the issuer and therefore an accredited investor under Rule 501(a)(4). [Jan. 26, 2009]

Question: May a lawyer in the law firm representing the issuer serve as a purchaser representative for an investor so long as that lawyer is not an affiliate, director, officer, employee, or 10 percent stockholder of the issuer and so long as the lawyer discloses to the purchaser such relationship and any other material relationship with the issuer?

Answer: Yes. [Jan. 26, 2009]

Question: May the officer of a corporate general partner of the issuer qualify as a purchaser representative under Rule 501(i)?

Answer: Not unless the purchaser has a relationship with the officer enumerated in paragraph (i), (ii) or (iii) of Rule 501(i)(1). Rule 501(i) provides that “an affiliate, director, officer or other employee of the issuer” may not be a purchaser representative unless the purchaser has one of those three enumerated relationships with the representative. An officer or director of a corporate general partner comes within the scope of “affiliate, director, officer or other employee of the issuer.” [Jan. 26, 2009*]

Question: May the issuer in a Regulation D offering pay the fees of the purchaser representative?

Answer: Yes. Nothing in Regulation D prohibits the payment by the issuer of the purchaser representative’s fees. Rule 501(i)(4), however, requires the disclosure of this fact. Note 3 to Rule 501(i) points out that disclosure of a material relationship between the purchaser representative and the issuer will not relieve the purchaser representative of the obligation to act in the interest of the purchaser. [Jan. 26, 2009*]

[withdrawn, February 27, 2012]

Question: If a purchaser's annual income is not reported in U.S. dollars, what exchange rate should an issuer use to determine whether the purchaser's income meets the income test for qualifying as an accredited investor?

Answer: The issuer may use either the exchange rate that is in effect on the last day of the year for which income is being determined or the average exchange rate for that year. [July 3, 2014]

Question: Can assets in an account or property held jointly with another person who is not the purchaser's spouse be included in determining whether the purchaser satisfies the net worth test in Rule 501(a)(5)?

Answer: Yes, assets in an account or property held jointly with a person who is not the purchaser's spouse may be included in the calculation for the net worth test, but only to the extent of his or her percentage ownership of the account or property. [July 3, 2014]