January 29, 2014
i am writing to you as an attorney who advises technology and other growing business that need investor capital.
Please revisit the recently adopted regulations implementing the verification of accredited investors in Rule 506 offerings that allow public solicitation. The current rule is not working. We cannot find third parties who are willing to certify that an investor is an accredited investor. No third party such as an accountant or attorney, has enough information to make such a certification. For example, an accountant or an attorney might be familiar with the gross income or gross assets of a client, but will not be familiar with the liability side of the balance sheet or the deductions that might pertain to gross income. Accordingly, third parties will not certify as to accredited investor status.
If the rule were changed to allow the attorney or accountant to rely on written representations by the client regarding income, assets and liabilities, then attorneys and accountants might be more willing to provide certification. however, this would simply be another form of self-certification now used under Rule 506 for accredited investors.
Furthermore, investors are highly reluctant to provide sensitive financial information to third parties, including the offeror, in particular. In my experience, investors will simply "pass" on an investment opportunity rather than disclose such sensitive information.
Accordingly, the benefits to small businesses that need to raise capital that we expected from the JOBS Act are completely lacking. Virtually no one is benefiting from the change in the law. Self-certification of accredited investor status under Rule 506 for offerings without public solicitation worked (and continues to work) just fine. Please change Rule 506 to allow self-certification in 506 offerings with Public Solicitation. You may even add the qualification that the investor in self-certifying must do so under penalty of perjury.
If you do this, then many small business will benefit from the enactment of the JOBS Act who cannot now derive any benefit.
Very truly yours,
Russell M. Frandsen