August 11, 2010
While we concur with the excellent summary provided by Peter J. Chepucavage's comment of August 4th, 2010, members of Congress with whom we have conferred have stated that it was their intent, in excluding the personal residence form the accredited investor net worth calculation, to exclude BOTH positive and negative impacts of the primary residence, and not to have a "back door" negative impact on the presumed value of a residence that for potentially years to come may be lower in valuation than the total debt related to that primary residence. The exclusion of the primary residence was partly so established so that the issue of illiquidity, or temporarily under-valued primary residential properties, would not otherwise affect an accredited investor's ability to invest in Regulation D type offerings on the basis of "paper negative equity" in a primary residence that would be expected to continue to be the primary residence through the expected investment period anticipated when such an investment is made.
We therefore disagree with the interpretation in the CDI question and answer format referred to in Peter J. Chepucavage's comments, as published, that the "negative equity" in a primary residence should be part of an investor's net worth calculation. Calculations based upon such a theory are not only contrary to the intention of the exclusion in their entirety of primary residences, but invoke speculation and "voodoo mathematics", which should not be part of the rule making process. Also, as the decrease in the number of accredited investors will already negatively impact the 5 year depression in small business investment (as the preponderant domain of accredited investor activity is directed at small business issuers), a further dimunition of the accredited investor pool by forcing the negative equity standard into the calsulation will further depress small business capital. This is contrary to the many other initiatives of the Congress to enable all reasonable means to incent, not create more obstacles for, small business capital formation.
We strongly urge the Commission to reject any broad interpretation, and stick to the will of Congress--exclude the primary residence in total, whether equity or debt related to it.