An accredited investor is any person or entity considered financially sophisticated enough by the Securities and Exchange Commission (SEC) to accept the financial risk of investing in unregistered securities.
Under SEC law, companies and private funds cannot sell securities unless they are registered with the SEC. Some securities are exempt from registration, and the SEC let’s companies sell these unregistered securities only to accredited investors.
According to the SEC, an Accredited Investor is anyone who:
For an entity to be considered an accredited investor it must be:
The SEC defines a “sophisticated person” as someone who has sufficient knowledge and experience to fully evaluate the risks and rewards of the investment opportunity.
While everyone is free to make their own choices, the SEC created accredited investors to protect people and entities from too much financial risk. When people and entities buy unregistered securities, they bypass the checks and balances of the SEC, which makes these types of investments more risky than investing in registered securities.
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