A top U.S. regulator on Thursday decried a push by some investor advocates to change the rules that define who can qualify to invest in riskier private security deals, saying it is straining resources and that "millionaires can fend for themselves."
"I am baffled by continued insistence from some quarters that we need to significantly revise the accredited investor definition" Securities and Exchange Commission member Daniel Gallagher, a Republican, told a forum on small business capital formation.
"The obsession with protecting millionaires, potentially at the cost of hindering wildly successful and critically important private markets, strains logic and reason," he added, generating some applause.
Gallagher's comments come as the SEC is mulling whether or not it should make changes to the definition of "accredited investor."
That critical definition determines who can invest in private offerings of stock or debt that are typically subject to less financial disclosure, and thus are riskier.
The rule states that to qualify as an accredited investor, an individual must have a net worth of $1 million, excluding the value of a primary residence, an individual annual income over $200,000 or a combined household income of $300,000.
Since the rule was written in the 1980s, the SEC has tinkered with the definition only once.
The commission excluded the home value in the net worth calculation in late 2011, after the change was mandated by the 2010 Dodd-Frank Wall Street reform law.
But the law also requires the SEC to revisit the definition to consider potential changes every four years – a process that is now underway.
Last month, an investor advisory committee that makes policy recommendations to the SEC voted to suggest some changes to the definition.
The proposal aims to better protect people with less financial literacy from investing their nest eggs in riskier private deals.
It calls for drawing limits on who can be an accredited investor based on a person's financial sophistication and trading experience, among other factors.
This approach, the panel said, might make more sense than the current definition, which relies on income and net worth standards that could be viewed as arbitrary and may not fully protect less-sophisticated investors.
Gallagher said he is not yet persuaded changes are warranted, and said the exclusion of the home value from the net worth calculation already marked a significant change.
