Implications for Hedge Fund Managers of the Rule Amendments Recently Adopted by the SEC to Raise Accredited Investor Standards

On December 21, 2011, the SEC issued a final rule release (Release) in which it adopted rule amendments designed to implement the revisions to the accredited investor standards outlined in the rules under the Securities Act of 1933 (Securities Act) made by Section 413(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act).  The accredited investor standards are important to hedge fund managers because hedge funds typically rely on the safe harbor from securities registration provided by Rule 506 under the Securities Act, which generally requires that most investors qualify as “accredited investors” to qualify for the safe harbor.  This article provides a detailed analysis of the final rule amendments and catalogues the various ways in which the amendments will impact the day-to-day businesses of hedge fund managers.

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