As of September 23, 2013, all investors participating as Accredited investors in Regulation D, Rule 506c (and the legacy Rule 506b) private placement offered by CFG must verify, through presentation of third-party validated information, that their financial status qualifies them as an Accredited Investor. In the past, self-verification by the Investor was sufficient. After September 23, 2013, self-verification is no longer sufficient to qualify as an Accredited Investor, third party verification is required under newly the adopted SEC Rule 506c.
The non-exclusive and non-mandatory verification methods (i.e. the SEC authorizes that CFG can determine the best manner for each investor on a case by case basis) may be broken out into three categories:
1) Reasonable steps to directly verify income. An issuer may verify income by reviewing any Internal Revenue Service form that reports the purchaser's income for the two most recent years and obtaining a written representation from the purchaser that the purchaser has a reasonable expectation of reaching the income level necessary to qualify as an accredited investor during the current year. Examples of acceptable Internal Revenue Service forms include Form W-2, Form 1099, Schedule K-1 to Form 1065, and Form 1040.
2) Reasonable steps to directly verify net worth. An issuer may rely on the following types of documentation dated within the prior three months of the purchase of the security to establish net worth, plus a written representation from the purchaser that all liabilities necessary to make a determination of net worth have been disclosed.
- With respect to assets: bank statements, brokerage statements and other statements of securities holdings, certificates of deposit, tax assessments, and appraisal reports issued by independent third parties; and
- With respect to liabilities: a consumer report from at least one of the nationwide consumer reporting agencies.
3) Third party verification. As an alternative to the foregoing approaches to collecting direct information from a purchaser as to income or net worth, the issuer may accept a written confirmation from one of the following persons or entities that the person or entity has taken reasonable steps to verify that the purchaser is an accredited investor within the prior three months and has determined that the purchaser is an accredited investor.
- A registered broker dealer;
- An investment advisor registered with the Securities and Exchange Commission;
- A certified public accountant.
- A licensed attorney; or
If qualification of an accredited investor is based on joint income or net worth with a spouse, any certification will have to be provided both by the investor and by the spouse.
As the verification requirement is recently effective, presents potential criminal liability by investors who misrepresent their status and is a very important part of compliance by issuers of private securities, investors are encouraged to treat such verification very seriously.