PeerStreet's goal is to level the playing field and allow people to access real estate debt as an asset class. Due to regulatory requirements, we are required to follow the SEC's policies and allow only accredited investors on our platform. To better educate our investors about what this means and why, read below to learn about these federal laws. This information will help clarify the definition of an accredited investor.
Net worth of $1m
Income of $200k+
"Accredited Investor" is a term designated and defined by the Securities and Exchange Commission (SEC). Under the federal law Regulation D in the Securities Act of 1933, certain companies are exempt from registering the sale of securities, which are typically forms of stocks or bonds, and in the case of PeerStreet, real estate debt. If exempt, companies are required to sell only to accredited investors. The law was designed to protect those individuals without a certain net-worth from major loss of liquidity, when purchasing an unregistered security. Accredited investors and accredited investor platforms are viewed as more sophisticated, capable of taking on the risk that some securities present.
This rule also applies to entities, which include, banks, partnerships, corporations, nonprofits and trusts. PeerStreet is considered a "private placement" investment opportunity, unlike government bonds, and thus subject to slightly different federal policies. However, since our investments are backed by collateral, real estate, this structure helps mitigate the risks involved.
Accredited Investor Requirements
Who can qualify to be considered an accredited investor? The SEC outlines some scenarios that an individual must fulfill in order to purchase unregistered securities. An accredited investor can either qualify based on income or net-worth, either individually and jointly with their spouse. Here are the two ways to define accredited investors, taken directly from the SEC website:
- One who has earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expects the same for the current year, OR
- One who has a net worth over $1 million, either alone or together with a spouse (excluding the value of the person's primary residence).
For the first scenario, the individual must have satisfied this requirement for three consecutive years and has reasonable belief that this income will be achieved again for the coming year. For an entity to be considered an accredited investor, it must hold assets totaling over $5 million. Those looking to calculate their net-worth, can use this explanatory table on the SEC's website.
Regulation D
These regulatory standards have roots that go far back into the evolution of America's banking industry. The Securities Act of 1933, only four years after the stock market crash of 1929 and in the thick of the Great Depression, made certain stipulations concerning how securities are sold. Companies must either be registered with the SEC or meet one of three exemptions, which are outlined by Regulation D (or Reg D). Companies filing for an exemption, must submit a Form D, which can be found publicly on the EDGAR Database.
PeerStreet operates under an exemption listed in Regulation D. It has been recently reported that changes to The Securities Act of 1933 is currently under review by the SEC. The Jumpstart Our Businesses Act of 2012 (JOBS Act), has also contributed to the momentum building to change how these federal laws are structured, potentially, as well as the standards to be considered an accredited investor. Some finance professionals have emphasized that the law should change to also include individuals who have a certain level of education to fulfill the accredited investor requirements.
