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Blog

The Simplicity of the Verification Process for Both Issuers and Investors

Mihir Gandhi

Market demand for easier access to capital has resulted in a new type of exemption from what many businesses viewed as overly burdensome securities rules. The JOBS Act (Jumpstart Our Business Startups Act) created Rule 506(c) of Regulation D, opening the door for previously prohibited advertising and general solicitation in the capital raising process.

The one catch is that all Rule 506 (c) investors must be verified as accredited investors, and unlike the pre-existing Rule 506 exemption which has now been renamed to Rule 506(b), which prohibited general solicitation but permitted investors to self-certify as accredited investors, Rule 506 (c) issuers must take "reasonable steps" to verify that all of their investors are accredited.

Many are confused about how to properly verify, and believe that it's extremely onerous.  It can be, but the reasonable steps verification process can be quite simple sometimes as well, whether you're an investor or an issuer.  For issuers, ordering a legally compliant verification that constitutes "reasonable steps" compliance can be done in as little as two minutes on VerifyInvestor.com.  For investors, there are only four different ways for an individual investor to be verified as accredited.

Professional Letter
An investor may obtain written confirmation from a registered investment advisor, certified public accountant, or licensed attorney, certifying that the investor is indeed an accredited investor. There can be a fee for obtaining this type of letter, and many of these professionals may have difficulty providing such a letter if they do not have the proper training.

Insider Method
The easiest, and least likely, of the four ways to verify accredited status, comes into play when an investor is general partner, executive officer or director of the securities being offered, or a general partner of the issuer. For publicly traded companies, this information may already be readily assessable.  Otherwise, corporate documents such as charter documents, resolutions, incumbency certificates, etc., may be provided.

Income Method
An investor can also provide government or other official tax records that show the investor's income for the last two years has met the threshold of $200,000 annually, or $300,000 when combined with a spouse. The investor will also need to represent that there is a reasonable expectation of achieving the same minimum income in the current year.

Net Worth Method
A natural person with a net worth, either alone or together with a spouse, in excess of $1 million or more. The positive value of the primary residence is not eligible to be included in this calculation, but liabilities on the primary residence to the extent not exceeding the positive value and not incurred in the last 60 days are also not included in this calculation.

For entity investors, there are many more categories of "accredited investor", but those that qualify will generally have an even easier time verifying themselves.

VerifyInvestor.com is a reliable provider of verification services for both issuers and individual investors.