"Under SEC law, a company that offers its own securities must register these investments with the SEC before it can sell them unless it meets an exception. One of those exceptions is selling unregistered investments to accredited investors.
To become an accredited investor the (SEC) requires certain wealth, income or knowledge requirements. The investor must fall into one of three categories. Firms selling unregistered securities must put investors through their own screening process to determine if investors can be considered an accredited investor.
The Verifying Individual or Entity should take reasonable steps to verify and determined that an Investor is an "accredited investor" as such term is defined in Rule 501 of the Securities Act, and hereby provides written confirmation. This letter serves to help the Entity determine status, take Investor statements regarding information, and waiver of claims."
Virginia Accredited Investor Qualification and Verification Requirements for Reg D, Rule 506(c) Offerings
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Rule 506(c) sets out a principles-based method for accredited investor verification, requiring an objective determination by the issuer as to whether the steps taken in verification were ?reasonable? in context of the particular facts and circumstances of each purchaser and transaction.
The company cannot use general solicitation or advertising to market the securities. The company may sell its securities to an unlimited number of "accredited investors" and up to 35 other purchasers.
Reviewing bank statements, brokerage statements, and other similar reports to determine net worth. Obtaining written confirmation of the investor's accredited investor status from one of the following persons: a registered broker-dealer, an investment adviser registered with the SEC, a licensed attorney, or a CPA.
Rule 506(c) allows companies to generally advertise their offerings to a potential investor using the internet, social media, websites, TV campaigns, radio ads, etc. This is in contrast to Rule 506(b) (which is the same as the old Rule 506 before the JOBS Act came in) which does not allow general solicitation at all.
To confirm their status as an accredited investor, an investor can submit official documents for net worth and income verification, including: Tax returns. Pay stubs. Financial statements. IRS forms. Credit report. Brokerage statements. Tax assessments.
In a Rule 506(b) offering, the issuer may take the investor's word that he, she, or it is accredited, unless the issuer has reason to believe the investor is lying. In a Rule 506(c) offering, the issuer must take reasonable steps to verify that every investor is accredited.
Under Rule 506(c), there are no limits to how much money fund managers can raise or how much each investor can invest. It simply depends on how much the VCs can?and want to?raise. This is no different than Rule 506(b).
Rule 506(c) permits issuers to broadly solicit and generally advertise an offering, provided that: all purchasers in the offering are accredited investors. the issuer takes reasonable steps to verify purchasers' accredited investor status and. certain other conditions in Regulation D are satisfied.