April 18, 2012
Title II of the JOBS Act will eliminate the prohibition against general solicitation and advertisement in the context of Reg. D, Rule 506 offerings where all purchasers are limited to accredited investors. On or before July 4, 2012 the Commission is to create rules which shall require reasonable steps to be taken by the issuer of securities to verify that purchasers are accredited investors. The question becomes, what steps are reasonable?
Congress obviously intended to allow issuers to engage in general solicitation and advertisements where actual purchasers are limited to accredited investors. On the one hand burdensome verification rules will thwart this purpose (e.g., requiring accredited investors to provide to issuers copies of tax returns, evidence of asset values such as bank/mutual fund statements/house appraisals). On the other hand mere self-accreditation by investors of their accredited investor status, without something more, will also thwart Congress intent by enabling dishonest non-accredited investors to purchase securities intended only for accredited investors.
I would urge a balanced rulemaking approach, which is consistent with most pre-JOBS Act practices by requiring those who claim to be accredited investors to disclose their total assets (exclusive of the value of a principal residence for individuals), for trusts to disclose the sophistication/qualification of the person(s) making investment decisions, for individuals to disclose their income for the past 2 years, and for individuals to disclose whether they are an officer, director, or general partner of the issuer. The person(s) making the disclosure should also do so under oath substantially in the following format: "Pursuant to 28 USC 1746 the undersigned hereby declares, certifies, verifies, and states under penalty of perjury under the laws of the United States of America that the foregoing is true and correct." I believe this balanced approach, avoiding the extremes of over-verification and under-verification, to be most in conformity with Congress intent and therefore urge rules to be adopted by the Commission that are consistent therewith.
John C. Nimmer, Esq.