updated about 1 year ago
As of September 23, 2013, Issuers of securities offered pursuant to Rule 506(c) of Regulation D are required to verify that all investors in the offering qualify as Accredited Investors. This verification requirement applies to all purchasers – individual investors and entities.
An acceptable form of verification of Accredited Investor status is written confirmation from one of the following persons or entities that the person or entity has taken reasonable steps to verify that the purchaser is an Accredited Investor within the prior three months and has determined that the purchaser is an Accredited Investor:
- A Registered Broker-Dealer;
- An Investment Advisor Registered with the Securities and Exchange Commission;
- A Licensed Attorney; or
- A Certified Public Accountant.
If qualification of an Accredited Investor is based on joint income or net worth with a spouse, any certification will have to be provided both by the investor and by the spouse.
The verification requirement presents potential criminal liability for investors who misrepresent their status and is a very important part of compliance by issuers of private securities. Investors are encouraged to treat such verification very seriously.
Accredited Investor Qualifications
The federal securities laws define the term Accredited Investor as:
- A natural person who has an individual net worth, or joint net worth with the person’s spouse, that exceeds $1 million at the time of the purchase, excluding the value of the primary residence of such person; or
- A natural person with income exceeding $200,000 in each of the two most recent years or joint income with a spouse exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year; or
- A bank, insurance company, registered investment company, business development company, or small business investment company; or
- An employee benefit plan, within the meaning of the Employee Retirement Income Security Act, if a bank, insurance company, or registered investment adviser makes the investment decisions, or if the plan has total assets in excess of $5 million; or
- A charitable organization, corporation, or partnership with assets exceeding $5 million; or
- A director, executive officer, or general partner of the company selling the securities; or
- A business in which all the equity owners are Accredited Investors; or
- A trust with assets in excess of $5 million, not formed to acquire the securities offered, whose purchases are made by a sophisticated person.