September 13, 2012
Dear Securities Exchange Commission:
I am an attorney who specializes in private placement offerings. For the proposed regulations regarding Rule 506 advertising to work, they need safe harbors defined for verifying accredited investor status. That way an offeror can be sure it is satisfying the requirements for verification. In addition, without safe harbors enforcement is going to be difficult and time-consuming, given that the regulator would have to make case-by-case determinations of whether the verification methods used were adequate.
My suggestion is to require that all potential investors sign an investor questionnaire plus satisfy at least one of the methods set out below, most of which are based on the SECs proposed ways that verification be handled.
Everyone is used to doing investor questionnaires and the questionnaires provide an offeror with information that can help determine whether a potential investor is qualified.
In addition, to the questionnaire, at least one of the following would also need to be satisfied:
1. The investor provides W-2's for the last two years and signs a statement saying that projected income for the current year is expected to meet the accredited investor income standards.
2. Specific information about the average compensation earned at the purchaser's workplace by persons at the level of the purchaser's seniority is publicly available – and the offeror retain a copy of that information.
3. Verification of a person's status as an accredited investor by a third party, such as a broker-dealer, attorney or accountant – or a business that verifies accredited investor status – provided that the issuer has a reasonable basis to rely on such third-party verification. That reasonable basis may be in the form of a signed statement by the third party.
4. The investor invests at least $100,000. (This is 10% of $1 million and correlates to a 10% provision in the JOBS Act regarding investors and crowdfunding.)
Very truly yours,
Bruce E. Methven