President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Bill”) into law on July 21, 2010. While the Bill will have wide-reaching implications for a variety of financial players and structures, one particular provision of the Bill has immediate impact on theatrical producers and, specifically, their investors.
Effective immediately, the Bill revises one of the definitions of an “accredited investor” under the Securities Act of 1933 (the “Securities Act”) and ultimately effects which individuals may qualify as investors for producers hoping to raise capital pursuant to an exemption to the Securities Act promulgated by Regulation D (“Reg D”). Specifically, in determining if a natural person is an “accredited investor” because he or she has a net worth of at least $1 million, the value of such person’s primary residence can no longer be included in the $1 million net worth calculation. Previously, a natural person’s primary residence (net of any mortgage) was included in calculating a natural person’s net worth. The other definitions of “accredited investor” under the Securities Act remain the same. Accordingly, both current and potential theatrical investors who might have qualified as “accredited investors” in the past solely because of the net worth test will not be deemed “accredited investors” for future productions. Ultimately, such investors may be prevented from investing altogether if the producers elect not to accept non-accredited investors for a particular production or if the number of non-accredited investors investing in such production has surpassed the applicable threshold as permitted by Reg D. Absent further clarification from the Securities and Exchange Commission, it is likely that the new definition of “accredited investor” will only apply to new investments or existing investors who make additional capital contributions to an entity.
For more information about the Dodd-Frank bill or how it may effect your business, please see Baker Hostetler’s Executive Alert: Congress Passes Finalized Financial Reform Bill. If you would like to discuss these issues further as they pertain to the theater industry, please contact Douglas M. Nevin (212.589.4637 or ).
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