Individuals with sufficient financial resources may have access to certain investment opportunities unavailable to the general public, including unregistered securities and limited edition tokens, as long as they qualify as accredited investors.. Accredited investors are defined by the U.S. Securities and Exchange Commission (SEC) in Regulation D, Rule 501. Does the law include an accredited investor test or require certificate of some kind? We will answer this question below.
Accredited Investor Requirements
To meet accredited investor requirements, you are required to verify one or more aspects of your wealth. These requirements ensure that any person or entity that wants to invest in unregistered securities can accommodate the risk of these investments. For individuals, the standard qualifications to be identified as an accredited investor include:
- More than $200,000 USD in annual income for the previous two years (or more than $300,000 USD with a spouse), and an expectation of the same or greater income in the current yearr.
- More than $1 million USD in net worth as an individual or with a spouse, not counting the value of the primary residence and discounting all other liabilities.
Certain trusts and entities can also qualify as accredited investors. These standards include:
- Any entity in which each of the equity owners is an accredited investor.
- A trust having more than $5 million in total assets and not created specifically for the purpose of purchasing the securities under consideration.
Test or Certificate Issued?
No government-supplied accredited investor test or certificate is issued to an individual seeking to qualify as an accredited investor.
According to the SEC, however, certain reasonable steps are required by the issuer of securities to verify the accredited investor status of someone seeking to purchase those securities.
A standard procedure for verifying accredited investor status includes having the investor provide certain personal data. In order to verify that the prospective investor qualifies as an accredited investor based on their assets or income, the seller or issuer may request the necessary supporting documents.
For investors qualifying based on annual income these may include tax returns, W-2 forms, or letters from investment brokers, certified personal accountants, tax attorneys, and advisors.
For investors qualifying based on the net worth criteria, these may include documents such as financial statements, appraisals of property, or other official documentation. A U.S. credit report is also required under law if it’s available.
It is the responsibility of businesses to ensure that investors qualify for accredited investor status at the time they purchase their securities. They can only accept investments from those investors who can handle the risks associated with unregistered deals.
