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Startup investors seek gay-couple equality from SEC

A sign for the Securities and Exchange Commission (SEC) is pictured in the foyer of the Fort Worth Regional Office in Fort Worth, Texas June
A sign for the Securities and Exchange Commission (SEC) is pictured in the foyer of the Fort Worth Regional Office in Fort Worth, Texas June

By Sarah N. Lynch

WASHINGTON (Reuters) - A group of startup investors and venture capitalists are asking U.S. Securities and Exchange Commission Chair Mary Jo White to ensure investment rights equality for gay couples.

In a September 4 letter, more than 50 people with a campaign known as StartupEquality.org urged the SEC to afford gay couples the same rights as straight couples to invest in private placements and other startups.

At issue is an SEC rule that defines who is eligible to participate in private stock offerings.

That rule says only "accredited investors" who meet certain income or net worth thresholds are eligible. Under the rule, a married couple can combine their incomes to meet the accredited investor definition.

In June, the U.S. Supreme Court ruled in a landmark decision that struck down a federal law that denied federal benefits to legally married gay and lesbian couples.

StartupEquality.org is concerned that gay couples in states that do not allow gay marriage could effectively be locked out of the start-up market.

As the rule is currently written, the investors said they fear couples joined in civil unions or domestic partnerships, rather than technically married, could be prevented from qualifying as "accredited investors."

"If you are not an 'accredited investor,' you are effectively shut out of early stage investing," the investors wrote.

StartupEquality.org's letter was submitted to the SEC in response to a July proposal to require hedge funds and other firms offering private stock deals to provide regulators with more information on the nature of their ads and steps they took to verify they were only advertising to qualified accredited investors.

Part of that proposal also asks the public to comment on whether changes are needed in the SEC's definition of accredited investor.

StartupQuality.org's letter urges the SEC to tweak its accredited investor rule to define the term "spouse" more broadly so that it will cover a domestic partner, designated beneficiary, husband or wife - regardless of gender or sexual orientation.

"This problem is urgent," the investors wrote.

"For the sake of justice, and to protect the integrity of capital formation for America's innovation economy, we respectfully urge you to adopt the clarifying rule."

SEC spokesman John Nester declined to comment on the letter.

He noted that the 2010 Dodd-Frank Wall Street reform law requires the SEC to revisit and consider revisions to the accredited investor definition every four years.

The last change the SEC made to the definition was in 2011, after the agency moved to exclude the home value in the calculation of net worth.

By law, the SEC is not able to make changes to the definition of accredited investor until 2014.

It will likely consider making some changes next year, especially after the Government Accountability Office in July issued a report urging the SEC to modernize the accredited investor definition.

(Reporting by Sarah N. Lynch; editing by Andrew Hay)

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