In order to claim the Rule 506(c) exemption, the issuer of the securities you want to purchase must be able to demonstrate that it took “reasonable steps” to ensure that all investors are Accredited within 90 days of the investment.
The SEC, in its final rule regarding requirements for compliance with Rule 506(c), offered some non-exclusive methods that issuers could use to verify Accredited status for natural persons, which include such things as:
- Verifying income from the past two years’ tax returns and written assertions that the income is expected to continue;
- Verification of assets by reviewing statement balances from brokerage houses or banks, reviewing tax assessments/third-party appraisals of real estate holdings and verification of liabilities through an investor’s credit report; or
- Obtaining a written confirmation from a securities broker-dealer, registered investment adviser, licensed attorney or CPA, who attests to have taken reasonable steps to verify the investor’s Accredited status within the past 90 days and that the person is, in fact, Accredited; and
- There is an exemption for investors who previously invested with an issuer as an Accredited investor.
Bottom line, this isn’t simply the issuer trying to dig into your private affairs; they are required to receive this information or refuse your investment.
Simply stated: If you want to invest, you have to pass the test.