11 Jul Details of New Regulation D Rules Part I: Verifying Accredited Investor Status

As I wade through the newly passed and proposed rules relating to private securities offerings I will post some tidbits of note. This entry focuses on the “safe harbors.” In the new rule ending the ban on general solicitation, while the SEC did not mandate a particular method of verifying someone’s status as an accredited investor, they offered four ways to be sure that you have done what is necessary if the investor is an individual. As we recall, to be able to do advertising and general solicitation in a private offering all investors have to be accredited. Here are the four safe harbors:

1. To verify at least $200,000 income or $300,000 with your spouse, pretty much any IRS form disclosing income would work, including W-2, K-1 or Form 1040. You can exclude personal information unrelated to income such as your social security number.

2. To verify net worth above $1 million (not counting principal residence or mortgage thereon), (a) to check assets use bank statements, brokerage statements, or appraisals and (b) to check liabilities, a standard credit report, combined with a representation from the investor that he has disclosed all liabilities.

3. Get a letter from a broker-dealer, attorney, or CPA that the person writing the letter took reasonable steps to verify the person’s accredited status and the person is accredited.

4. Someone who invested in the same company before passing the new rule invests again and certifies themselves to be accredited.

More to come!