Section 413(a) of the Dodd-Frank Act requires the definition of “accredited investor” under various SEC rules promulgated under the Securities Act of 1933 to exclude the value of a person’s primary residence for purposes of determining whether the person qualifies as an ‘‘accredited investor’’ on the basis of having a net worth in excess of $1 million. The change in the definition was effective upon enactment of the Dodd-Frank Act, which become law on July 21, 2010. The SEC has now proposed rule amendments to conform to the Dodd-Frank Act’s new requirements for individuals to qualify as accredited investors on the basis of net worth. The proposed amendments expand on the statutory language of Dodd-Frank to clarify that net worth is calculated by excluding only the investor’s net equity in the primary residence. As proposed, the amended definition of accredited investor with respect to the net worth test would read as follows:

 Any natural person whose individual net worth, or joint net worth with that person’s spouse, at the time of purchase, exceeds $1,000,000, excluding the value of the primary residence of such natural person, calculated by subtracting from the estimated fair market value of the property the amount of debt secured by the property, up to the estimated fair market value of the property.

The release discussed a number of alternative approaches to calculating the value of a primary residence that the SEC chose not to adopt, including for example, excluding the fair market value of the residence without netting out secured indebtedness. The SEC is seeking comment on the proposed method of calculating the value of the residence. Additionally, the SEC considered a number of other related amendments that have not been included in the proposal, but with respect to which the SEC is seeking comments. These include, among others, whether the SEC should define the term “primary residence” for the purposes of the amended rules, and whether the calculation of net worth should be made as of a specified date before the sale of securities under Regulation D (e.g., 30, 60, or 90 days) as well as at the time of sale.