Wealth and Knowledge: Strengthening the Economy by Expanding the Qualified Purchaser "Sophisticated" Standard Under the Investment Company Act of 1940.

This Note traces the government's effort to balance the need for investments with the need for regulating the economy. Regulations of the financial industry, largely in response to economic crises such as the Great Depression and the 2008 recession, have focused on limiting investments deemed too risky for the general public to "sophisticated" investors. Struggling to define "sophisticated," Congress and the SEC opted for criteria based on the investor's net worth with narrow exceptions for highly knowledgeable but lower-net-worth individuals. Recent legislation and interpretation of that legislation have expanded these narrow exceptions, suggesting the trend is moving towards investor eligibility criteria based on sophistication measures beyond net-worth. This change is a positive one for investors, businesses, and the economy as a whole. However, the benefits of the current efforts to expand the definition of "sophisticated" cannot be realized because legislative incentives for investment managers continue to limit investment opportunities to only the very rich without regard for knowledge or expertise. This Note proposes that Congress should expand the Qualified Purchaser standard under the Investment Company Act of 1940 to allow sophisticated but lower-net-worth individuals to invest in hedge funds. [ABSTRACT FROM AUTHOR]