to verify accredited investors status? tremely vague, Rule 506(c) contains four specific methods of verifying accredited investor status. These methods, if used, are deemed to satisfy the verification requirement contained in Rule 506(c). However, companies are not required to use the safe harbor methods and can use the general reasonableness standard. Below is a brief summary of the four safe harbor methods: obtain copies of IRS forms from the past two years that report income, including Form W-2, Form 1099, Schedule K-1, and a filed copy of Form 1040. A representation from the investor regarding current income should also be obtained. can obtain items such as bank state- ments, brokerage statements, tax assessments and appraisal reports dated within the last three months and obtain a representation from the investor concerning liabilities. Documentation of liabilities must also include a credit report from at least one of the major credit agencies. a company may obtain a written confirmation of an investor's accred- ited investor status from a registered broker-dealer, an SEC registered in- vestment advisor, a licensed attorney, a certified public accountant and, possibly, a third party certification service. The representation should in- dicate that the third party has, within the previous three months, taken reasonable steps to verify that the investor is accredited. requirement if an investor who previ- ously invested in a company's prior offering under Rule 506 invests in a subsequent offering and certifies that the investor continues to qualify as an accredited investor. helpful, it is unfortunate that the SEC required the use of a credit report with respect to verifying net worth. We believe that few investors will agree to provide a credit report. It is also burdensome to require re-certifications of net worth every three months. Finally, some investors will be reluctant to provide specific information regarding their income. Therefore, we believe that third party confirmation will likely become the most utilized of the safe harbor verification methods. content of advertising or solicitation methods? advertising materials, it is unclear whether this rule will be finalized and there is currently no specific guidance regarding advertising content or solicitation methods. Nevertheless, companies should use common sense in developing advertisements and in determining the methods of general solicitation. Legends similar to the legends described in the SEC's proposed rule should be included in any written advertising or communications. Additionally, companies should not make statements that cannot be substantiated and should avoid statements regarding future performance. Misleading information contained in advertisements could subject a company to claims from investors and securities regulators for violation of anti-fraud rules. Finally, other laws may impose restrictions example, there are restrictions on phone and email solicitations under various state and federal laws. Also, if the company will be utilizing broker-dealers, the Financial Industry Regulatory Authority (FINRA) imposes specific rules regarding advertising content. certain felons and other "bad actors" (and companies where these individuals have a significant ownership interest or control rights) from participating in securities offerings under Rule 506. pre-offering due diligence on the part of companies and their counsel to ensure that principals of the company are not subject to such restrictions. Finally, the SEC issued proposed rules with several other requirements. additional burdensome requirements (including pre-submission of general solicitation materials to the SEC), the proposed rules have not been finalized and it is unclear whether the rules will be finalized in their current form. pdf/BILLS-112hr3606enr.pdf eral solicitation or advertising. We believe that many companies will continue to use Rule 506(b) because it is less burdensome than Rule 506(c). ing bad actors can be found at: www.sec.gov/rules/ final/2013/33-9414.pdf posed/2013/33-9416.pdf |