Lawsuit adds pressure to expand accredited investor definition

Topline

• SEC’s accredited investor standards challenged in court 

• Carta + NYSE forge strategic partnership to streamline private-to-public transition

• New Carta policy blog: Private credit’s next chapter

• Changes are coming for SEC Form D filings

• Carta virtual event: Transform Tax Savings into Startup Growth with QSBS

• Quick hits

SEC’s accredited investor standards challenged in court 

The Investor Choice Advocates Network (ICAN) sued the SEC to challenge the legality of the wealth-based accredited investor rules. The lawsuit, filed in Texas, claims that the longstanding rules are arbitrary and capricious under the Administrative Procedures Act, as they unfairly exclude individuals from participating in private market opportunities by using wealth and income as a proxy for sophistication without sufficient justification.

Background on accredited investor standard: Private markets are less transparent, less liquid, and subject to less oversight than their public-facing counterparts, raising investor protection concerns. Regulators have balanced protecting investors from risks associated with private market investing by limiting access to those who meet certain wealth and income limits as a proxy for sophistication and the ability to absorb losses. Except for a modest expansion in 2020 to extend accredited investor standards beyond financial metrics to investment professionals, these rules have largely remained unchanged since they were adopted in the 1980s, though the principles underlying the rules date back to post-Depression securities regulation.

Why it matters: Private markets have grown substantially over the past two decades, offering diversification and the potential for outsized returns to their investors. But the average investor is generally precluded from participating in private market investments due to these narrow accreditation standards. At the same time, the number of private companies has declined, leaving most investors with fewer investment opportunities. Given the shift in market dynamics and arguments in favor of better measures of sophistication, Congress, the SEC, and now the courts are considering ways to remedy these limitations while preserving investor protections. 

What’s next: Texas (and the Fifth Circuit more broadly) has become a favorable venue for challenging regulatory overreach in recent years, though more recent activity has focused on actions taken under the last administration, not longstanding precedent. A potential ruling to invalidate or require modifications to the accredited standard or require further modification could have significant impacts for the capital markets, opening up new avenues for individuals to participate in early and growth-stage investments and further blurring the lines between public and private markets—particularly in light of efforts to permit general solicitation under Regulation D. 

But we are likely to see changes to the accredited investor rule even without judicial activity. With Carta’s support and advocacy, efforts to expand measures of sophistication beyond financial metrics have passed the House with near-unanimous support, and with the Senate expected to consider capital formation legislation, these provisions will likely be signed into law this Congress. SEC Chairman Atkins is also supportive of efforts to modernize the accredited investor standard and open more private market opportunities to retail investors. A lawsuit may add pressure, but changes to accreditation standards are coming. 

Carta + NYSE forge strategic partnership to streamline private-to-public transition

Founders building world-class companies deserve a world-class path to IPO. That’s why Carta partnered with the New York Stock Exchange—the gold standard for going public—to support late-stage companies with everything from pre-IPO planning to ringing the bell.

With IPO momentum returning—and over 1,000 late-stage companies (and 85% of all U.S. unicorns!) already on Carta—we're meeting this moment with a powerful new offering for growth-stage startups preparing to go public:

• Guided, white-glove IPO transitions

• Seamless pre-IPO and secondary liquidity options

• A network of CFOs, GCs, and capital market pros

• Access to market data, investor relations, and governance tools

From formation to fundraising to ringing the NYSE bell — we’re building the future of how great companies go public.

New Carta policy blog: Private credit’s next chapter

Private credit has rapidly emerged as an alternative to traditional lending, becoming an essential component of the private market ecosystem. It provides borrowers with greater flexibility and offers investors access to higher-yield opportunities and diversification. As the demand for private credit increases, the policy landscape is also evolving, creating new opportunities and prompting a greater focus on regulation.

In our latest blog post, we examine the evolution of private credit, how changes in policy and product innovation are broadening access to it, and what ongoing market growth could signify for fund regulation and operations in the future, including:

• Recent efforts to expand retail access to private credit through registered funds and retirement accounts

• How cryptocurrency regulation could impact private credit

• Systemic risk and regulatory oversight

• How policy—and operational shifts to increase transparency and improve valuations—can enhance returns, drive liquidity, and lead to a more sustainable regulatory framework

Read the full post here.

Have you enrolled in EDGAR Next? Changes are coming for SEC Form D filings

Beginning September 15, 2025, the SEC will require all filers using its EDGAR electronic filing system—including private companies and funds that submit Form Ds—to have updated login credentials to access the system. 

What’s changing: In 2024, the SEC updated its rules to modernize the filing process, enhance security, and improve functionalities for companies and funds that submit electronic filings to the Commission. The EDGAR Next initiative replaces the legacy EDGAR login process and will require all filers to access the system through Login.gov credentials and multifactor authentication. In addition, each filing account will need to be tied to an individual user with Login.gov credentials, which means shared credentials or institutional logins will no longer work.

Why it matters: Companies and funds that raise capital in the private markets under Regulation D are required to file a Form D with the SEC within 15 days after the first sale of securities. After September 15, issuers will be unable to access EDGAR until they are enrolled in EDGAR Next. After December 19, issuers will only be able to access EDGAR after staff review and approval of Form ID.

Missing or delaying a filing because of login or credential issues could unnecessarily jeopardize compliance, draw SEC scrutiny, or impact investor confidence. For venture-backed startups, private funds, and issuers relying on timely capital formation, operational readiness is critical.

Bottom line: Don’t let this change catch you off guard. Companies and funds planning to raise capital under Reg D in late 2025 should transition ASAP to avoid last-minute filing disruptions.

Learn more from the SEC about the EDGAR Next enrollment process. 

Quick hits

• Cruz introduces AI sandbox bill. The legislation would create “AI sandboxes,” where AI companies could apply for two-year waivers from federal regulations by submitting safety and financial risk assessments. Sen. Cruz is also pushing for a state moratorium on AI regulation, which failed to get included in the tax package that passed earlier this year. 

• Nasdaq tokenization proposal: Nasdaq is seeking SEC approval to enable trading of tokenized securities on its exchange. If approved, this would allow securities on the exchange to be traded both in traditional and tokenized forms.

• Lutnick says U.S. should take a chunk of universities’ patent revenue. Commerce Secretary Howard Lutnick signaled a bold shift in federal policy by proposing the use of “march-in” rights to claim up to 50% of profits from university patents developed with federal funding. This follows the U.S. taking a stake in Intel and a cut of Nvidia’s China chip sales.

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