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Posted by on Jul 9, 2019 in Money And Finance |

Accredited Investor Status – What is Necessary to Qualify

Accredited Investor Status – What is Necessary to Qualify

There are different ways in which an investor can qualify as an accredited investor as defined by Rule 501 of Regulation D.

Ever since the Jumpstart Our Business Startups Act (or JOBS Act) went into effect in September 2013, investors who wish to qualifyas accredited investors under the rules for 506(c) private placements, must verify their accredited investor status. Under Rule 506(c), third-party verification is an option, whereas previously – and under the new Rule 506(b) – investors could self-certify.

There are three categories encompassing the non-exclusive and non-mandatory verification methods. These include:

Verifying Income
An investor can be verified if they show evidence that they have earned income of at least $200,000 for the most recent two years (or $300,000 with a spouse), along with his or her written representation that they have areasonable expectation of meeting the same income threshold in the current year. Evidence for this method can include tax returns, W-2’s, etc.

Verifying Net Worth
In order to be verified under net worth, an investor can submit the types of documentation listed below. Evidence must be dated within three months previous to the date of review, and they must also submit a written representation that all liabilities related to a net worth determination have been submitted:

  • Regarding liabilities – a consumer credit report issued from one of the consumer credit reporting agencies.
  • Regarding assets – bank statements, tax assessments, certificates of deposit, brokerage statements, appraisal reports from independent third parties, and other statements of securities holdings.

If joint net worth with a spouse is the criteria used to establish one’s status as an accredited investor, the spouse’s credit report and disclosure of liabilities is also required.

Verifying by Third-Party
Alternatively, an investor can obtain a written confirmation from one of the entities or persons listed below that the person or entity has taken reasonable steps to confirm their accredited investor status, and has concluded the purchaser does qualify as an accredited investor.

  • Certified public accountant
  • Investment advisor registered with the SEC
  • Registered broker-dealer
  • Licensed attorney

r deIt is important for issuers of private securities to understand the various requirements related to verifying the status of investors. These matters must be handled correctly in order to operate in accordance with the law.