New 'Risk Disclosure Act' Lets Investors Self-Certify for Private Deals: SEC to Roll Out New Rules by Next Year

The "Risk Disclosure and Investor Attestation Act" changes who gets to be an "accredited investor"—basically, someone who can invest in private companies that aren't publicly traded. Right now, you need a certain income or net worth to qualify. This bill adds another way: if you sign a form saying you understand the risks, you're in. The Securities and Exchange Commission (SEC) has one year to create this form, and it can't be longer than two pages. (SEC. 2)

New Path to Private Investments

This bill essentially opens up private investment opportunities to more people. Previously, only those with $200,000 annual income ($300,000 for joint filers), or a net worth over $1 million (excluding their primary home), could easily invest in private offerings. Now, if you can show you understand the risks—even if you don't meet those financial benchmarks—you can get in on these deals.

Real-World Impact: Opportunities and Risks

Imagine a software developer who's been closely following a startup and wants to invest. They get the tech, they see the potential, but they don't have the income history yet. This bill could let them invest, provided they sign that attestation. Or think of a small business owner who wants to diversify their investments beyond the stock market. Now they have another avenue. The bill could allow people to invest in companies they believe in, even if they're not traditionally wealthy.

However, here's the catch: private investments can be risky. They're not as heavily regulated as public stocks, and you could lose your entire investment. The two-page attestation form is supposed to make sure you understand this. But will it be enough? Will it truly capture the complexities of these investments? That's up to the SEC to figure out, and their rules will be key. (SEC. 2) The bill also amends the Securities Act of 1933, which is the foundational law governing securities transactions. This change sits alongside those existing regulations, adding a new layer to who can participate in private markets.

Implementation Challenges

While the idea is to open up opportunities, there are practical concerns. How will the SEC ensure the form isn't just a box-ticking exercise? How will they prevent companies from pressuring people to sign? And how will they educate potential investors about what they're actually signing up for? These are all challenges that the SEC will need to address in its rule-making process.