SEC adopts new net worth standard for accredited investors

WASHINGTON, DC (Reuters) - U.S. securities regulators adopted new rules on Wednesday designed to protect less sophisticated people from investing in private placements and other securities offerings with less regulatory oversight.

The U.S. Securities and Exchange Commission's new rule, which was required by last year's Dodd-Frank Wall Street overhaul law, would exclude the value of a person's home from net worth calculations that are used to determine who is an "accredited investor." Only accredited investors who have a net worth of $1 million or more can participate in certain private placements and offerings that are not registered and do not require certain disclosures.

The rule comes on the heels of the 2007-2009 financial crisis, where home values plummeted and many investors lost money in sophisticated, mortgage-related securities instruments.

The SEC said it had made a few amendments to the final rule in response to comments from the public.

In one instance, the SEC agreed to "grandfather" people who were previously deemed "accredited investors" to continue relying on the old definition to qualify for certain follow-on investments.

The agency also tweaked language related to the treatment of borrowing secured by a primary residence for calculating one's net worth.

Under the final rule, indebtedness secured by a person's home up to the estimated fair market value of the home will not be treated as a liability unless the borrowing occurs in the 60 days preceding the purchase of the exempt securities offering.

"This is intended to prevent manipulation of the net worth standard, by eliminating the ability of individuals to artificially inflate net worth under the new definition by borrowing against home equity shortly before participating in an exempt securities offering," the SEC said.

The new net worth standard will take effect 60 days after it is published in the Federal Register. The SEC will also review the "accredited investor" definition every four years to see if it needs to be updated.

With Wednesday's rulemaking, the SEC said it has now proposed or adopted more than three-quarters of the nearly 100 rules required under the Dodd-Frank law.

(Reporting By Sarah N. Lynch; Editing by Gary Hill)