In the SEC’s publication Facilitating Capital Formation and Expanding Investment Opportunities by Improving Access to Capital in Private Markets[1], the SEC relaxed the standards for verifying investors by including the following language:
(E) In regard to any person that the issuer previously took reasonable steps to verify as an accredited investor in accordance with this paragraph (c)(2)(ii) [which sets out the requirement to use “reasonable steps to verify” accredited investor status and non-exclusive verification methods for natural persons], so long as the issuer is not aware of information to the contrary, obtaining a written representation from such person at the time of sale that he or she qualifies as an accredited investor. A written representation under this method of verification will satisfy the issuer’s obligation to verify the person’s accredited investor status for a period of five years from the date the person was previously verified as an accredited investor.
See SEC, Facilitating Capital Formation and Expanding Investment Opportunities by Improving Access to Capital in Private Markets, Rel. No. 33-10884 (Nov. 2, 2020).
What does this mean?
If you previously verified an investor who is a natural person, and you are not aware of any information that would disqualify the same investor for a new offering, you can simply obtain a written representation from the investor at the time of sale for the new offering that the person still qualifies as an accredited investor. This verification method can be used for a period of five years from the investor’s previous verification, after which time that person would have to get re-verified.
[1] SEC Rel. No. 33-10884 (Nov. 2, 2020)
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