Lawsuit Challenges SEC’s Accredited Investor Rule: A Turning Point for Private Market Access?
On September 9, 2025, the Investor Choice Advocates Network (ICAN) filed a lawsuit against the Securities and Exchange Commission (SEC) in the U.S. District Court for the Northern District of Texas. The case, led by ICAN’s president Nicolas Morgan, a former SEC senior trial counsel, directly challenges the accredited investor rule—a regulation that has long determined who can participate in private securities offerings.
This lawsuit could have sweeping implications for entrepreneurs, investors, and the broader private markets.
What Is the Accredited Investor Rule?
The SEC’s accredited investor rule sets income and net worth thresholds to determine who qualifies to invest in certain private placements, hedge funds, and venture capital opportunities. Currently, individuals must either:
- Earn at least $200,000 annually (or $300,000 with a spouse/partner), or
- Have a net worth exceeding $1 million, excluding their primary residence.
The intent is to protect less experienced investors from high-risk offerings. But critics argue it unfairly limits opportunity to the wealthy, excluding many knowledgeable and capable individuals.
Key Arguments in the Lawsuit
ICAN’s lawsuit claims the accredited investor rule is outdated, unfair, and unconstitutional. The complaint presents several arguments:
- Arbitrary and capricious: The rule relies on wealth as a proxy for sophistication without sufficient evidence that financial resources equal financial expertise.
- Two-tiered system: It creates privileged access for the wealthy while excluding others from potentially lucrative opportunities.
- Unconstitutional restrictions: The rule allegedly limits free speech and association by preventing entrepreneurs from seeking funding and barring investors from supporting businesses they believe in.
- Equal protection concerns: By restricting participation, the rule discriminates based on class and denies many Americans economic liberty.
- Poor measure of sophistication: Many professionals with advanced degrees or specialized expertise (e.g., engineers, economists, doctors) may be more qualified than wealthy individuals with no financial training.
- Widening inequality: By blocking broad participation, the rule perpetuates racial, gender, and geographic disparities in private market investing.
Who Is Behind the Case?
The lawsuit centers on Emily Kapszukiewicz, CEO of Owl Therapy, a healthcare startup. Despite holding a master’s degree in applied economics and earning approximately $195,000 annually, she falls just short of the income threshold. This prevented her from investing in a venture capital fund that supports medical innovation—an area where she has direct expertise.
Her story illustrates the lawsuit’s core argument: knowledge and experience matter more than raw wealth.
Legislative Context
This lawsuit follows momentum in Congress to reform the accredited investor definition. Two bills in the House of Representatives highlight this shift:
- H.R. 3394 – Would expand eligibility to professionals with relevant licenses or credentials.
- H.R. 3339 – Would allow individuals to qualify by passing a knowledge exam administered by FINRA.
These legislative efforts suggest growing bipartisan recognition that the current standard is too restrictive.
Potential Impact
If ICAN prevails, the SEC may be required to revise the accredited investor standard. Potential outcomes include:
- Broader participation in private markets – Opening doors for professionals and knowledgeable investors currently excluded.
- Greater access to innovation funding – Entrepreneurs could raise capital from a more diverse pool of investors.
- Regulatory reevaluation – The SEC might need to develop more nuanced measures of investor sophistication, beyond income and net worth.
Ultimately, this case challenges the very foundation of how the SEC defines “sophisticated investor” and could reshape access to private capital markets.
Final Thoughts
The accredited investor rule was designed to protect unsophisticated investors. But as ICAN argues, it may be time to rethink whether wealth alone is an accurate measure of financial acumen.
With a lawsuit now in motion and legislative reforms gaining traction, the next few years could bring dramatic changes in how investors gain access to private market opportunities.
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