The passage of the Jumpstart Our Business Startups (JOBS) Act marked a pivotal moment for capital formation in the United States. Title II of the JOBS Act, implemented in 2013, opened the door for broader investor outreach by allowing the general solicitation of private offerings—providing that issuers sell only to verified accredited investors. While this reform expanded opportunities for capital raising, it also introduced stricter verification obligations that issuers must meet to remain compliant with SEC regulations.
Understanding Title II of the JOBS Act
Title II specifically amended Rule 506 of Regulation D by introducing Rule 506(c), which allows issuers to promote their offerings publicly. In exchange for this broader access to potential investors, issuers are required to take reasonable steps to verify that all purchasers are accredited investors—merely relying on self-certification is no longer sufficient.
Although this places a greater compliance burden on issuers, it encourages transparency and investor protection in private markets.
Accredited Investor Criteria
Under SEC law, an accredited investor may include:
- Individuals with an income exceeding $200,000 USD ($300,000 USD jointly with a spouse or spousal equivalent) for the two years prior to the review and a reasonable expectation of the same income in the current year.
- Individuals with a net worth exceeding $1 million USD, excluding the primary residence, but including any liabilities against the primary residence made 60 days prior to the review.
- Entities with assets over $5 million USD or where all the equity owners are accredited investors.
Issuers must go beyond simple declarations and verify these qualifications through objective, documented evidence.
SEC-Approved Verification Methods
The SEC provides a non-exclusive list of methods to meet the verification requirement under Rule 506(c). These include:
- Income verification: Reviewing IRS forms such as W-2s, 1099s, or tax returns for the two most recent years prior to the review.
- Net worth verification: Examining bank/ brokerage statements, asset valuations/ownership evidence, and credit reports to calculate assets and liabilities.
- Third-party confirmations: Obtaining written verification from a registered broker-dealer, SEC-registered investment adviser, CPA, or licensed attorney certifying the investor’s accreditation status.
Each method must be applied in a manner that reflects the issuer’s risk tolerance and the facts and circumstances of the offering.
Best Practices for Title II Compliance
To reduce legal exposure and streamline verification, issuers should adopt structured compliance protocols:
- Develop a documented verification process aligned with SEC standards.
- Maintain written records of all verification steps and communications with investors.
- Avoid over-reliance on investor self-certifications or checkboxes.
- Re-verify investors if a long period has passed since their original verification (generally, documents older than 90 days may not suffice).
- Engage qualified professionals when necessary to validate investor status or to review verification procedures for legal adequacy.
Minimizing Operational Risk
While investor verification under Title II JOBS Act can be complex, technology and automation have helped reduce the friction associated with legal compliance. Issuers must balance efficiency with diligence to ensure their verification process is robust. Otherwise, it may invalidate the exemption and lead to regulatory penalties, investor disputes, or reputational harm.
Title II of the JOBS Act represents a transformative opportunity for issuers seeking to raise capital using modern marketing methods. However, this freedom comes with the responsibility of rigorously verifying investor qualifications. By following SEC criteria and establishing strong internal compliance practices, issuers can take full advantage of Rule 506(c) while minimizing operational risk and ensuring investor trust.
