The SEC proposed specific rules implementing the Dodd-Frank requirement that the “accredited investor” definition exclude the value of an individual’s primary residence.  The proposal would deduct the value of an investor’s primary residence after excluding indebtedness secured by the property up to its fair market value.  The SEC declined to offer a specific definition of “primary residence.”  It also declined to consider the use of the proceeds of the debt secured by the property (e.g. home equity lines used to buy securities).  The SEC made clear that excluding the value of the primary residence took effect last July upon passage of Dodd-Frank.  Although a fund need not forcibly redeem investors that met the definition at the time of investment, any follow-on investment must satisfy the new standard.  The proposals amend Rule 215 and Regulation D.

OUR TAKE: The SEC threw fund sponsors a bone by not requiring a deduction for home mortgage debt in excess of fair market value.  We believe that the SEC should allow follow-on investments based on whether an investor was accredited at the time of initial investment.   

 http://www.sec.gov/rules/proposed/2011/33-9177.pdf