According to Rule 506(c), issuers must take “reasonable steps” to confirm the accredited investor status of investors. The Rule designates certain factors that must be considered by issuers in determining if a Rule 506(c) accredited investor verification process is deemed reasonable.
These are the methods of verification deemed “reasonable” and are connected with the individual’s status.
Net Worth
With the net worth method, issuers are required to evaluate:
• Brokerage or bank statements or 3rd party appraisal reports verifying the purchaser’s assets.
• Credit report to verify liabilities.
• Written statement from the prospective buyer that all liabilities have been revealed
• All evidence must be no older than 90 days.
Income
An investor may use their income as the means to verify his or her accredited investor status. This is done by examining any copies of documents showing the individual’s income, such as W2s, 1099s (usually filed by an employer or third-party), or Forms 1040 filed by the potential buyer, including the redaction of information deemed non-relevant.
Determination by Designated Third Parties.
It is recognized that an issuer had fulfilled the Rule 506(c) accredited investor verification requirement if he/she secures a written confirmation from a registered investment adviser from the SEC, broker-dealer, certified public accountant, or licensed attorney on the following basis: This individual or entity within the previous 3 months has conducted reasonable steps to confirm the accredited investor status of the buyer of securities and has determined that the buyer has obtained that status.
Current Accredited Investors
If as an accredited investor an individual buys securities under a past Rule 506(b) offering from the issuer (without general solicitation) and retains those securities, the issuer may continue recognizing the individuals as an accredited investor provided that:
The issuer obtains a certification from the investor congruent with the Rule 506(c) sale that he or she has obtained accredited investor status. However, the previous offering under Rule 506(b) must have been made prior to the Rule 506(c) effective date for the method to be available.
Rule 506(c) accredited investor verification may be determined by the above “reasonable” methods. Contact an experienced investor verification service to move forward with your verification needs.
