According to the United States Securities Act of 1933, an accredited investor is a high net worth person or business that meets the following financial qualifications:

--    An individual or married couple whose net worth is greater than $1 million

--    An individual whose income exceeded $200,000, or a married couple whose income exceeded $300,000, in the previous two years

--    A bank or insurance company or certain investment and business companies

--    An employee benefit plan with assets over $5 million, managed by qualified personnel

--    A charitable entity with assets over $5 million

--    A trust with assets over $5 million

--    A high-ranking officer of the company offering the securities

--    A business owned by accredited investors

These qualifications indicate that the investor has the necessary knowledge for understanding higher risk securities offerings. Many securities offerings, such as hedge funds or angel investor groups, are only available to accredited investors.

After the 1929 stock market crash, Congress determined the securities industry needed more effective regulation. It passed the Securities Act of 1933, requiring that investors receive significant information about securities offerings and prohibiting any fraudulent activity.

Congress then passed the Securities Exchange Act of 1934 to regulate the secondary trading of securities. This law established the United States Securities and Exchange Commission (SEC) as an agency to enforce the federal securities laws.

In the United States, securities offerings must be registered with the SEC. However, some businesses may meet certain exemptions that allow them to avoid the tedious and costly registration process. As part of the exemption, the companies must follow certain rules, including selling their securities primarily to accredited investors.

Specifically, Regulation D of the Securities Act of 1933 details the rules for an exemption and contains the definition of an accredited investor. Certain rules dictate the kind and number of investors who may be approached with the non-registered offerings. For example, companies using Rule 506 exemption may sell their securities to an unlimited number of accredited investors, but only up to 35 non-accredited, though sophisticated, investors. For more information on accredited investors, visit:

--          http://www.sec.gov/answers/accred.htm