Some securities exemptions, such as the Regulation D, Rule 506(b) exemption (and some state securities exemptions) allow investments by a limited number of unaccredited but financially sophisticated investors whom the syndicator personally knows. Although the exemption allows this, some syndicators may still restrict their offerings to accredited investors only in order to reduce their liability.
The financial qualifications for investors will be spelled out in the “suitability” section of the Private Placement Memorandum (required if unaccredited investors are allowed), so prospective investors should always read this section of the offering documents carefully to make sure they are qualified before investing.
Accredited Investors should beware of “fudging” their qualifications. It’s surprising how many people say they’re accredited to get into a deal (when they are not) and then complain later that they weren’t qualified and shouldn’t have been allowed to invest when the deal fails. Syndication offering documents often require the investor to indemnify the Syndicator if they lie about their qualifications and it causes liability for the Syndicator later, so there could be repercussions against investors in those cases. I know of legal actions involving syndicators where this very thing was one of the issues.
Bottom line, investors need to be as truthful about their qualifications as they expect the syndicator to be about the deal, and don’t invest if you can’t afford to lose the money.