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WHAT IS AN ACCREDITED

INVESTOR VERIFICATION
PROVIDER?

What is Rule 506?


Rule 506(c) also known as Accredited Crowdfunding of
Regulation D of the Securities Act of 1933, as amended
allows an issuer to use general solicitation in connection
with its private placement of securities. Rule 506(c)
requires the issuer to take reasonable steps to verify
that all of the investors in its private placement are
accredited investors. This verification requirement is in
addition to the requirement that sales only be made to
accredited investors.

Third Party Service Providers & the SEC


Since
Rule 506(c)
was
adopted
and
Accredited Crowdfunding has grown in popularity, third
party service providers have popped up offering
accredited-investor verification services. In order for
verification to be comply with the Securities and
Exchange Commissions requirements, a third party
service provider must review sensitive financial
information about the investors financial condition.

Regulation of Third Party Service Provider


The lack of regulation concerning third party verification
providers has raised significant concerns among market
participants. The accredited investor third-party
verification segment is still relatively new and there are
few if any, barriers to entry. It is no surprise to find that
there are numerous third-party verification providers
readily available through the internet who offer their
services.

Accredited Investor Verification Requirements


Verification of accredited investor status is only required
where the issuer engages in general solicitation and/or
advertising. The Securities and Exchange Commission (the
SEC)
provided
guidance
as
to
acceptable
accredited investor verification methods. The SEC also has
stated that in some circumstances, issuers can rely upon
third-party verification providers to determine whether an
investor qualifies as an accredited investor.

Acceptable Verification Methods


The SEC has provided a nonexclusive list of acceptable
verification methods for offerings under Rule 506(c). One
method is to obtain written confirmation from a securities
lawyer,
registered broker-dealer,
an
SEC-registered
investment adviser or a certified public accountant that
such person or entity has taken reasonable steps within
the prior ninety days to verify that an investor is an
accredited investor. An issuers reliance on these third
parties satisfies the verification requirement in Rule
506(c).

Independent Verification By Third Parties


Under these circumstances, the issuer can rely on the
third party verification of accredited investor status
without independent verification.
The SEC has stated, that an issuer may also rely on other
parties to complete the verification of accreditedinvestor status, if the third party takes reasonable steps
to verify that the investors are accredited investors, and
has determined that such purchasers are, in fact,
accredited investors, and the issuer has a reasonable
basis to rely upon such verification.

For further information, please contactBrenda Hamilton,Securities Attorney at


101 Plaza Real South, Suite 202 North, Boca Raton Florida,(561) 416-8956, by
email atinfo@securitieslawyer101.comor visit www.securitieslawyer101.com.
Thissecurities law blogpostis provided as a general informational service to
clients and friends ofHamilton & Associates Law Group, P.A.and should not be
construed as, and does not constitute legal advice on any specific matter, nor
does this message create an attorney-client relationship. Please note that the
prior results discussed herein do not guarantee similar outcomes.
Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Going Public Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855
www.SecuritiesLawyer101.com

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