- the nature of the purchaser and the type of accredited investor that the purchaser claims to be;
- the amount and type of information that the issuer has about the purchaser; and
- the nature of the offering, such as the manner in which the purchaser was solicited to participate in the offering, and the terms of the offering, such as a minimum investment amount.
To provide some “real-world” context to these methods, the SEC gave the following examples that may be deemed sufficient for issuers targeting natural persons as potential investors:
- When relying on income as the basis for establishing accreditation, the issuer may review IRS forms that report revenue for the previous two (2) years, and obtain a written confirmation from the purchaser representing that he or she expects to reach the same income level in the current year.
- When relying on net worth, the issuer may review financial statements, brokerage statements, etc. from third parties in order to verify assets; a consumer report from at least one consumer reporting agency; and a written confirmation from the purchaser that all liabilities to make a net worth determination have been disclosed (information cannot be older than (3) three months).
- The issuer obtains a written confirmation from a broker-dealer, a registered investment adviser, a licensed attorney or a CPA that such person has taken reasonable steps in the prior (3) three months to verify that the purchaser is an accredited investor.
When relying on Rule 506(c), issuers should take all necessary steps, non-exclusive to the steps above, to verify that the purchaser is indeed an accredited investor. Failure to do so may result in the loss of the Regulation D exemption and, potentially, the loss of the Securities Act Section 4(2) private placement exemption as well. For further information on this topic, contact us at firstname.lastname@example.org or (619) 298-2880.