Accredited Investor Certificate for Individuals – Does it Actually Exist?

by | Aug 16, 2018 | Money

The investment of money is often required to make money. In the world of investing, the opportunities available to accredited investors are more abundant than those available to non-accredited investors. The reason for this is due to the fact that the Securities and Exchange Commission (SEC) permits businesses and private funds to bypass the requirement for registration of certain investments provided they sell these investments to accredited investors. The question, however, may arise as to whether these investors are required to obtain an accredited investor certificate to prove their qualification.

A Certificate?

The fact is there is no independent body or government agency that evaluates the credentials of a prospective investor or issues a certificate that declares they have become an accredited investor. Actually, businesses that issue unregistered securities discover a prospective investor’s status or qualification before a sale by performing some due diligence.

Meeting Accreditation Standards

The income standard for accredited investor status requires that an individual has earned at least $200,000 in each of the past two years or a person with his or her spouse’s income equal at least $300,000 during the same timeframe, and a reasonable expectation of the same income level in the current year

The net worth standard requires an individual, or together with his/her spouse, have a net worth of at least $1 million, not including the value of a primary residence. However, h.indebtedness that is secured by the person’s primary residence, up to the estimated fair market value of the primary residence at the time of the sale of securities, shall not be included as a liability (except that if the amount of such indebtedness outstanding at the time of sale of securities exceeds the amount outstanding 60 days before such time, other than as a result of the acquisition of the primary residence, the amount of such excess shall be included as a liability) and indebtedness that is secured by the person’s primary residence in excess of the estimated fair market value of the primary residence at the time of the sale of securities shall be included as a liability.

Verifying Accredited Investor Status

Although no formal institution or agency administers official accreditation of an investor or provides an investor with an accredited investor certificate, the SEC (as of September 2013) does require sellers of securities to accredited investors who generally solicit an unregistered offering to take reasonable steps to verify their status.

Any person interested in participating as an accredited investor can go to a particular fund and inquire about possible investment opportunities. The issuer of securities, by taking reasonable steps, a lot of times will guide their investors to a third party accredited investor verification service provider and get their accredited investor verifications. The prospective investor will likely be required to provide financial statements and other account information that verifies the ownership of listed assets. Third party accredited investor verification service providers will likely also review the potential investor’s credit report to assess their current debts when necessary.

Although the government does not issue an accredited investor certificate to prospective investors, companies evaluating persons seeking qualification based on income will most likely need to submit W-2 forms, tax returns, and other documents that reveal wages. Other substantiating material for this purpose may include letters from reviews by SEC registered investment advisors or registered brokers, licensed attorneys, and CPAs.

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