Questions about accredited investors?

Buying & Selling Real Estate
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Questions about accredited investors?

Ric King
Evanston, WY · Member since 2015 · 8 posts · 0 votes

What are the legal repercussions if you lie about being a accredited investor? And what kind of trouble can the issuer get into? What kind of forms do you get from the issuer or is it just on good faith?  I am not a accredited investor but I do plan on making this investment that requires me to be so any information on this would be greatly appreciated. 

Thanks

Ric

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Natalie KolodijBusiness Member
Moderator
Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
9y

That's a little troublesome.....and then you go on to try to sell him coaching. 

An accredited investor is someone who meets certain qualifications based on their net worth as an individual. 

The SEC originally initiated these regulations and restrictions in 1933. Per the SEC's definition 

  • "earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expects the same for the current year, OR
  • has a net worth over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence)."

The reason these folks are allowed to partake in investments that you are not, if you are not accredited, is basically the SEC placing greater liabilities on those investors to invest in riskier items because based on their wealth they are assuming those investors to be knowledgeable enough, and comfortable enough financially...that they are fully responsible and can be held to a higher standard in terms of their personal risk. 

To the SEC an accredited investor is basically someone who they're assuming knows enough to be fully responsible for their financial choices, based on the above criteria. 

It gives the company offering the investment a greater protection because if you're accredited you can't later say you...didn't understand ..or...weren't given enough information. If you're accredited you're taking full responsibility. If you sign something falsifying this qualification...you're creating liabilities for both yourself and the company offering. 

Additionally, most investments that require you to be accredited are often higher risk and more non-liquid....meaning without meeting their financial requirements a downtown (that you'd have no recourse against) could have a way larger impact than if you were making $2mil a year. 

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  • Jim Sakalis
    Investor · Flint, MI · Member since 2015 · 148 posts · 58 votes
    9y

    Ric, 

    Our industry is all about the relationships that we build. With that being said, work with people you know and trust.  In my 25+ years I have never heard of an investor being accredited.  

    I am an Entrepreneur / Investor / Team Builder / Coach

    that loves helping people reach their dreams and goals rapidly.

    I would love to give you some great tools. Provide your contact information so I can reach back to you directly

    Successfully,

    Jim Sakalis 

    1Reply
  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    9y

    Excerpt from the Wiki:

    • In the United States, to be considered an accredited investor, one must have a net worth of at least one million US dollars, excluding the value of one's primary residence, or have income at least $200,000 each year for the last two years (or $300,000 combined income if married) and have the expectation to make the ...
    0Reply
  • Brian Adams
    Syndicator of Large Apartment Buildings · Glen Mills, PA · Member since 2009 · 1k+ posts · 1k+ votes
    9y

    @Ric King, I am very concerned about your statement:

    "I am not a accredited investor but I do plan on making this investment that requires me to be so any information on this would be greatly appreciated."

    As someone who has syndicated several large deals before, personally I wouldn't want to work with you if you are blatantly misrepresenting your investor status.

    5Reply
  • Ric King
    OP
    Evanston, WY · Member since 2015 · 8 posts · 0 votes
    9y

    @Brian Adams so let's say I saved $100k so I'm still not qualified for some Investments because I'm not worth a million dollars or make 300 K year but Joe the doctor gets to gets to make these Investments because of his income ? I think everyone should be qualified for the same Investments and a company with these Investments be able to decide

    0Reply
  • Brian Adams
    Syndicator of Large Apartment Buildings · Glen Mills, PA · Member since 2009 · 1k+ posts · 1k+ votes
    9y

    @Ric King, the SEC makes these rules to protect investors.

    You can invest in a deal with Joe the doctor as a non-accredited investor assuming the issuer allows or structures the offering under Rule 506(b). Currently this rule allows an unlimited number of accredited and 35 non-accredited investors.

    I am not an attorney, but instead of making a false claim on the subscription booklet that you are accredited, you may want to seek out investment offerings that allow both accredited and non-accredited opportunities.

    0Reply
  • Natalie KolodijBusiness Member
    Moderator
    Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
    9y

    That's a little troublesome.....and then you go on to try to sell him coaching. 

    An accredited investor is someone who meets certain qualifications based on their net worth as an individual. 

    The SEC originally initiated these regulations and restrictions in 1933. Per the SEC's definition 

    • "earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expects the same for the current year, OR
    • has a net worth over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence)."

    The reason these folks are allowed to partake in investments that you are not, if you are not accredited, is basically the SEC placing greater liabilities on those investors to invest in riskier items because based on their wealth they are assuming those investors to be knowledgeable enough, and comfortable enough financially...that they are fully responsible and can be held to a higher standard in terms of their personal risk. 

    To the SEC an accredited investor is basically someone who they're assuming knows enough to be fully responsible for their financial choices, based on the above criteria. 

    It gives the company offering the investment a greater protection because if you're accredited you can't later say you...didn't understand ..or...weren't given enough information. If you're accredited you're taking full responsibility. If you sign something falsifying this qualification...you're creating liabilities for both yourself and the company offering. 

    Additionally, most investments that require you to be accredited are often higher risk and more non-liquid....meaning without meeting their financial requirements a downtown (that you'd have no recourse against) could have a way larger impact than if you were making $2mil a year. 

    Podcast Guest on Show Pay Less Tax to the IRS This Year With THESE Real Estate Tax Strategies
    Kolodij Tax & Consulting
    WebsiteView Page
    11Reply
  • Ric King
    OP
    Evanston, WY · Member since 2015 · 8 posts · 0 votes
    9y

    As an equity Trader I understand why the SEC makes these rules. And I know the qualifications for for them. I know I'm not the only one who's ever thought about this. As someone who loves to short futures I am very aware of risk. I feel like no one's answered my question, so  I put my money in company XYZ and the sec gets wind of it what happens? will I be able to sell my share at fair market value or is the contract null and void and I get my original investment back? Or I'm out 100k? I know I'm not the only one who has thought about this if someone has any experience in any of this and would like to send me a private message instead I'm open to that or if they would like to post that's ok too.

    0Reply
  • Natalie KolodijBusiness Member
    Moderator
    Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
    9y

    You're an equities trader? 

    Then this would be you committing securities fraud. You're literally lining your self up to end up on an episode of American Greed one day. Just...play by the rules dude. Why are you literally coming here asking for help on being skeezy. 

    @John Thedford We could use some ethics speech up in here.

    Podcast Guest on Show Pay Less Tax to the IRS This Year With THESE Real Estate Tax Strategies
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    8Reply
  • Jim Sakalis
    Investor · Flint, MI · Member since 2015 · 148 posts · 58 votes
    9y

    @Natalie,

    Thanks for the education on what accredited investor is.  I will plead ignorant since I have bought hundreds of properties without having to be accredited nor anyone ever asking me to be. 

    I wasn't trying to sell him on any coaching. I simply offer to help people free of charge.  It's obvious that someone who has to jump through hoops to buy and sell real estate needs some coaching.

    Best of luck to you both, Jim

    2Reply
  • John Thedford
    Real Estate Broker · Naples, FL · Member since 2013 · 9k+ posts · 6k+ votes
    9y

    @Natalie Kolodij

    My job is with the unlicensed brokers misbehaving:)
    Securities fraudsters generally get free room and board..at our expense. American Greed is a pretty interesting show. Note how the stars NEVER end up doing well:) but that doesn't stop others from playing the same old games! 

    @Bill Gulley ...I am sure he has ideas on the posts.

    0Reply
  • Ric King
    OP
    Evanston, WY · Member since 2015 · 8 posts · 0 votes
    9y

    This investment has nothing to do with stock market. We will say more like a DPP investment raising capital from acredited investors. Im familiar with the laws that involve the stock market. I broke the PDT rule 1 time so I familiar with that, but not with what I'm looking at investing in.

    0Reply
  • Ric King
    OP
    Evanston, WY · Member since 2015 · 8 posts · 0 votes
    9y

    I do appreciate all the comments this is not some Ponzi scheme or ripping off old ladies it's just me trying to take advantage of what I would call a great investment opportunity for me and my family.

    0Reply
  • Natalie KolodijBusiness Member
    Moderator
    Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
    9y

    To the best of my knowledge there really is no ....repercussions s in place if you lie about being the accredited investor. 

    It can fully void an SEC filing of the company in which you're investing if it comes out though. Often the reason they require accredited investors is because it is just a requirement of the type of filing they use to offer the investment. It can cause them a huge liability/issue. 

    That's all my current information on the SEC based on every episode of American Green, an accounting degree, and my studying for the CPA exam. *exits stage left*

    Podcast Guest on Show Pay Less Tax to the IRS This Year With THESE Real Estate Tax Strategies
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    1Reply
  • Ric King
    OP
    Evanston, WY · Member since 2015 · 8 posts · 0 votes
    9y
    Originally posted by @Natalie Kolodij:

    *exits stage left*

    Exits to the right not left of stage lol! Good luck with your CPA exams

    0Reply
  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    9y
    Originally posted by @Ric King:

    What are the legal repercussions if you lie about being a accredited investor? And what kind of trouble can the issuer get into? What kind of forms do you get from the issuer or is it just on good faith?  I am not a accredited investor but I do plan on making this investment that requires me to be so any information on this would be greatly appreciated. 

    Thanks

    Ric

     Forget it, they can't just take your word for it, what you show will be verified, you must prove income and assets, if you lie, that is securities fraud. The issuer can have the fund disqualified, fined and/or jailed, so don't mess with them.  :)

    0Reply
  • Justin B.
    Investor · Gaithersburg, MD · Member since 2013 · 660 posts · 441 votes
    9y

    Ric,

    Don't invest in an accredited investor only deal if you aren't one.  I certainly understand the concern around wanting to invest in a good deal but not being able to qualify.  But, it's the law. A lot of deals allow unaccredited investors, but as others have said, only a certain amount or the unaccredited investors are limited to a certain $ amount.  If it's truly an accredited investor only deal, you're out of luck.

    The best advice you can ever get is "Don't mess with the SEC".  As any kind of investor, the worst thing you can do is to get on the wrong side of the SEC.  Bill said it well.  Whoever is putting together the investment is required to ensure investors who say they are accredited actually are.  If they don't do this, they get in big trouble and are at huge risk.

    Here is the dilemma you are in.  Your problem point wouldn't be the SEC, it's whoever you are investing with.  If you aren't an accredited investor, the people who put together the investment will see that and refuse to take your money (because they don't want to get in trouble).  The only way to invest would be to blatantly lie, as in falsify financial documents and now you're committing a crime.

    The last piece is if you submit your true financial documents or they just take your word for it and don't check and they let you invest, you should turn around and run.  That means they are taking shortcuts and probably can't find enough accredited investors to get funded.  Just one of those is a really good reason for you not to invest.

    0Reply
  • Ryland Taniguchi
    San Francisco, CA · Member since 2015 · 786 posts · 717 votes
    9y

    Anytime you manage or pool money for other people, it is a "security" and requires registration documentation to the SEC.

    The 1933 Securities Act has some exemptions called Safe Harbors. Examples of exemptions include the rule 506(c) that only allow accredited investors. If a fund files a Reg D to get an exemption, they could lose their exemption even if they had one non-accredited investor their fund. From a fund perspective, it is very dangerous and not worth getting even one non-accredited investor as they could then be in violation of securities laws.

    0Reply
  • David Luu
    Member since 2019 · 62 posts · 12 votes
    6y

    I know this is an old thread, wanted to piggy back a related question in case others have good thoughts on this. I haven't found much feedback on this online so far. So the related Q is: if you're an unaccredited investor, there are $ limitations to investing in these non-registered securities that typically are for accredited investors. Similar to lieing about being accredited, what if instead, you being unaccredited, over invest beyond the limit? Any repercussions to that? Although the organization offering the investments may do the tracking to not allow you to over invest, so that be be the safeguard. But it's also not clear I think on that law whether the limit is an annual limit or lifetime limit against your income or net worth (e.g. 10% of your income if over $100k, else 5%), where for lifetime, you're stuck with limit until you move up the ladder in income or network to invest more again. And it's also not clear if the limit is against each organization offering such securities, or whether it's the aggregate total across all such organizations if you were to invest in such security types with multiple firms. Because obviously, each firm can only check your investment with them and not other firms.

    Not advocating this, but wouldn't this indirectly be a (unethical/illegal?) workaround to somewhat be like an accredited investor if you invest more than your limits by diversifying across multiple firms for these security types where possible, maxing out the unaccredited investor limit at each firm. Where such firms be startups, crowdfunders (e.g. FundRise, DiversyFund, CrowdStreet, RealtyMogul, etc.).

    Just trying to get a clear answer to what one can truly invest up to as a non-accredited investor, who wants to not under invest and not over invest either.

    0Reply
  • Amy Wan
    Attorney · Los Angeles, CA · Member since 2016 · 284 posts · 314 votes
    6y

    This thread has many troubling statements, from potential investors wanting to make misrepresentations to real estate coaches who have never heard of “accredited investors”.

    Ric, there are plenty of options that allow you to make investments as a non-accredited investor. Offerings under Reg A, Reg CF, and select 506b deals (in the sponsor’s discretion) will take non-accredited funds. Please don’t lie and put sponsors at risk.

    1Reply
  • Anand Chandrasekaran
    Member since 2020 · 1 post · 0 votes
    5y

    Hello all

    This is an interesting thread. I am seeing a similar situation with a current investment opportunity but the difference is the company is asking the investor's to self accredit themselves by signing an agreement and that the company is not liable or the company does not have the responsibility to verify the status of the investors. I see many of my acquaintances who are not accredited investors signing the document. Does that mean if SEC finds out, they can't go after the company? What will happen to the investor who signed the agreement?  

    0Reply
  • Bryan Price
    Rental Property Investor · Longview, TX · Member since 2020 · 33 posts · 9 votes
    5y

    @Amy Wan following!

    0Reply
  • Aly W.
    Investor · Middletown, NJ · Member since 2008 · 2k+ posts · 1k+ votes
    5y

    I understand accredited assets can also include Heloc funds; if the rate is low enough on a Heloc, and the return in a syndicated deal is 3 or 4 points higher, it could be worth using. Depending on risk tolerance, presumably :)

    1Reply
  • Chris Davis
    Rental Property Investor · FL · Member since 2021 · 1 post · 0 votes
    5y

    If I could add another question regarding ramifications of misrepresenting yourself as an accredited investor. In above comments, the consensus was don't misrepresent yourself because you could hurt the company. What happens to the misrepresented investor when the company hurts itself to the point it's now getting investigated by the state who is asking the investors to provide information?

    1) A few years ago, three families I know falsely stated they were accredited investors on the initial stock purchase document for some startup in CA (their net worth was NOT greater than or remotely close to $1m).

    2) The share purchase document they signed and sent back to the company had like three pages saying THOU SHALL BE AN ACCREDITED INVESTOR.

    3) The investors lost all their money. The company did shady stuff and it is now being investigated by the state.

    4) CA Dept of Financial Protection sent out a questionnaire to the investors who really want to answer it honestly.

    Two of the families basically lost their whole life savings and then some - one guy became a raging alcoholic and lost his family farm, another lost his business and filed bankruptcy on loans he personally guaranteed aka the bank is taking everything he personally owns. So, you could say they would loooove to testify in court.

    Question: The families are curious of any possible ramifications against them when they NOW accurately state they were NOT accredited investors "at the time of the investment with the subjects."

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