SEC – Remarks by Commissioner Lee at 2021 Section 19(d) Conference – Private Markets, updating accredited investor thresholds, and revisiting revisions to Regulation D, Form D, Rule 156

May 21, 2021

Regulation BI
SEC, FINRA, and States have been actively focusing on Reg BI compliance in examinations. Focus on employing effective analytical techniques to test the effectiveness of disclosures.

Gamification of Trading
App-based investing platforms distort investor perception of real-life consequences, as push notifications resulted in 40 times more trading than that on other platforms. Trading of riskier options products increased to nearly 88 times that of other platforms. Query whether more fulsome disclosures would be sufficient to address the potential conflicts of interest that may routinely put retail investors at a structural disadvantage.

Should move swiftly to establish a framework that will produce consistent, comparable, and reliable climate-related disclosure investors need to price risk, allocate capital. They encouraged States to submit comment letters on climate risk disclosure.

Accredited Investor Wealth Threshold
First key private market reform – The commission should modernize accredited investor wealth thresholds, which have not been updated since 1983. Since then, there has been a 550% increase in households that qualify as accredited. Data reveals that the wealth thresholds no longer function as they were intended. The stated SEC should update the thresholds, and index them to inflation going forward.

Overdue Reforms to Regulation
The second key private market reform, to enhance data available by implementing overdue reforms. Despite its size and significance, SEC has relatively little visibility into the private market. Overdue reforms include 2013 proposed revisions to Reg D, Form D, Rule 156. Consider conditioning availability of Rule 506(c) exemption on filing Form D, as the rule is viewed as optional since there is no real consequence for failing to file the form. Requiring filing Form D in advance of Rule 506(c) offering, and a closing amendment for Rule 506(b) and (c) offerings (currently, filing required within 15 days of the first sale). Require additional information collected on Form D, such as the number/type of accredited investors who bought securities, methods used to verify accredited investor status. Consider requiring the use of legends on Rule 506(c) written general solicitation materials and the filing of such materials with the Commission to better inform investors.

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