SEC Raises Hedge Fund Minimum to $2.5 Million

In a move that it says is designed to protect investors, the SEC voted December 13 to raise the asset accreditation minimum for investors in investments such as hedge funds, private equity, and venture capital from $1 million to $2.5 million. Under the proposed rule, investors are not allowed to count real estate, such as their homes, toward the $2.5 million minimum. SEC Chairman Christopher Cox told reporters the day before the December 13 meeting that concerns about the “retailization” of hedge funds prompted the SEC to raise the accredited investor standard, which has been stuck at $1 million since 1982.

The SEC also voted for an antifraud provision under the Investment Advisers Act of 1940 that would make it “fraudulent, deceptive, or manipulative…for an advisor in a pooled investment vehicle to make false or misleading statements or to otherwise defraud investors or prospective investors in that pool.”

Both proposals are out for a 60-day comment period.

In addition, the SEC voted to publish for comment, jointly with the Federal Reserve, rules to implement the bank broker provisions of the Securities Exchange Act of 1934. The Fed will consider the proposal at its December 18 meeting. The SEC also voted to publish for public comment a companion proposal concerning certain bank dealer activities and other related matters. The SEC said that to ensure the Commission will have time to carefully consider public comment, it also extended the temporary exemption of banks from the definition of “broker” until July 2, 2007.