Why Choose a Third-Party Reviewer to Validate an Investor?
Mihir Gandhi
When you need to obtain verification for an accredited investor, or wish to request self-verification, a third-party review company may be the right choice for you. Consulting a third-party reviewer that you have a reasonable basis to rely upon is one of the “reasonable steps” validation methods approved by the United States Securities and Exchange Commission (SEC). To ensure Rule 506(c) private offerings are lawful and SEC-compliant, issuers are obligated to take action and obtain proof of investor accreditation. The proper third-party reviewer can provide safe, reasonably-priced, and speedy services, allowing purchasers and issuers to cover their bases and continue with securities sales and purchases securely.
Methods of Verification
If you’re looking to verify the status of an investor, the SEC provided a list of options issuers can review before proceeding with the sale of private securities. The method of verification you select is up to you, as there are no mandatory guidelines to follow so long as you can later prove that you took “reasonable steps.” However, to safeguard your right to publicly fundraise in the future, it's important not to accept funds in private offerings through general solicitation until an investor's accredited status has been verified. To do this, you can collect financial documents from an investor and verify their income, net worth, assets, or already-established accredited status.
Security for Investors
Consulting a third-party review company is also a SEC-approved method of accreditation verification and offers several advantages. It is only approved, however, if one has a reasonable basis to rely on the third-party’s verification. When it comes to providing proof of accreditation, many investors aren't comfortable giving issuers access to their personal financial documents, such as bank statements, tax information, etc. Reliable third-party review organizations offer complete confidentiality for investors, which lessens security concerns and sense of invasiveness. If you're an investor, you can rest easy knowing your information will be reviewed by a licensed third-party attorney or accountant.
Fast, Cost-Efficient Services
Another benefit of third-party review services is the fact a company may be able to avoid the liability of improperly handling the verification internally. Additionally, third-party review services often can provide quick delivery and turnaround of the verification reviews. In many cases, the cost of using a third-party review service will be less than the cost of handling the compliance internally as well. Companies seeking to conduct Rule 506(c) offerings should certainly investigate the various ways of verification they can use, and strongly consider outsourcing the compliance to reasonably reliable third-party review services that specialize in accredited investor verification reviews.
Updated 3/3/2022
Using a third-party reviewer for accredited investor verification remains an important way to stay compliant with the SEC. The SEC constantly updates and amends the accredited investor definition, so it becomes increasingly difficult to keep up with the latest version as time goes on. We always stay ahead of the curb and implement all new changes to the law the day they become law.
Additionally, VerifyInvestor.com’s costs remain low, much lower than hiring and retaining a third-party expert to conduct reviews. With an easy-to-use interface and online-oriented process, getting investors reviewed in the age of remote business is the best possible option for most funds.