Achieving USA accredited investor status?

11 Replies

I am familiar with the tests that involve one's annual income or one's net worth.

While researching the topic, I saw the following in Investopedia. 

In 2016, the U.S. Congress modified the definition of an accredited investor to include registered brokers and investment advisors. Also, if a person can demonstrate sufficient education or job experience showing his professional knowledge of unregistered securities, he too can qualify to be considered an accredited investor.

I added the bold and italic.

I have found the Investopedia site pretty good in the past. That said, I can not find the same message on the SEC site. I might have missed something on the government site.

I know that in the UK, the regulator there, the FCA, has a path which allows a non-accredited investor (the UK term: restricted retail) to progress to accredited (the UK term: sophisticated). In the USA, other than income or high net worth, how can a person who is not working in the financial sector and is not a sponsor or similar move from non-accredited to accredited? If the Investopedia entry is correct, there is a path based on building competence and or experience. I can see the logic of allowing this transition for people who have somehow demonstrated they know what they are doing.

Any comments or suggestions?

don't know for sure.. but as syndication has blown up in the US.. a cautious syndicator will want more than just education

Most will want to paper their file with a letter from your CPA stating based on his review of your tax's and financial statement you meet the standard.. this gives a syndicator a definitive defense in the case of an investor coming back on the sponsor claiming they should have known he was really not accredited.. :)

@Brian Burke   Maybe we can get Brian to Opine on this .. 

PS its my understanding the foreign investors are exempt from the accreditation rules..  Maybe some one can confirm or deny that .. However I think my securities attorney told me that a few years back when we were dealing with a lot of UK and AU investors.

@John Corey  

I thought I've seen this topic covered in another thread recently but don't recall which one. In any event, as @Jay Hinrichs correctly noted, an accredited investor status doesn't apply to foreigners. International investors have to obtain a US tax ID (f.e. EIN for your entity), open a US bank account, and pay US taxes. You'd want to hire an attorney and a CPA to help you set it up, ideally a tax attorney, but not required. All these experts must have experience dealing with international investors. I can ask around if you need recommendations. PM or email me if needed as we're already connected.

Originally posted by @Alina Trigub :

@John Corey  

I thought I've seen this topic covered in another thread recently but don't recall which one. In any event, as @Jay Hinrichs correctly noted, an accredited investor status doesn't apply to foreigners. International investors have to obtain a US tax ID (f.e. EIN for your entity), open a US bank account, and pay US taxes. You'd want to hire an attorney and a CPA to help you set it up, ideally a tax attorney, but not required. All these experts must have experience dealing with international investors. I can ask around if you need recommendations. PM or email me if needed as we're already connected.

 well at least I got one thing right this morning   LOL..  

Jay - you always get things right and help a lot of people! Greatly appreciated!! 

Originally posted by @Jay Hinrichs :
Originally posted by @Alina Trigub:

@John Corey  

I thought I've seen this topic covered in another thread recently but don't recall which one. In any event, as @Jay Hinrichs correctly noted, an accredited investor status doesn't apply to foreigners. International investors have to obtain a US tax ID (f.e. EIN for your entity), open a US bank account, and pay US taxes. You'd want to hire an attorney and a CPA to help you set it up, ideally a tax attorney, but not required. All these experts must have experience dealing with international investors. I can ask around if you need recommendations. PM or email me if needed as we're already connected.

 well at least I got one thing right this morning   LOL..  

Thanks, Jay & Alina.

1. Foreign investors do not need to be accredited. To be confirmed but looks likely based on what was shared above.

2. USA investors can meet the accredited criteria based on experience. A sponsor gets to choose who they want to take on. 

Is the above a fair summary?

Originally posted by @John Corey :

2. USA investors can meet the accredited criteria based on experience. A sponsor gets to choose who they want to take on. 

Is the above a fair summary?

This part is not correct.  A USA investor cannot meet the accredited investor standard based on experience or education alone.  There are specific income and net worth tests they must meet.  I suppose that sometime somewhere some brilliant elected lawmaker (or several) decided that money was more valuable than knowledge... 

Originally posted by @Alina Trigub :

@John Corey  

I thought I've seen this topic covered in another thread recently but don't recall which one. In any event, as @Jay Hinrichs correctly noted, an accredited investor status doesn't apply to foreigners. International investors have to obtain a US tax ID (f.e. EIN for your entity), open a US bank account, and pay US taxes. You'd want to hire an attorney and a CPA to help you set it up, ideally a tax attorney, but not required. All these experts must have experience dealing with international investors. I can ask around if you need recommendations. PM or email me if needed as we're already connected.

Yes correct

Originally posted by @Amy Wan :

Foreign investors dont need to be accredited but they DO need to qualify to invest based on the laws of the jurisdiction where they reside. Their country may have an accreditation test or otherwise.

The piece you're referring to is a bill. It never actually passed so isn't law. See here: 

https://blog.verifyinvestor.com/blog/2018/10/22/accredited-investor-change-affects-crowdfunding

As Amy has clarified-  The regulations may not require foreign investors to be accredited- but from my experience on the ground syndicators and sponsors do not make this distinction and I believe most are not even aware of it . 

Standard procedure for joining any of these offerings is confirmation of accredited investor status.

Securities laws are always highly technical, so it is critical to keep language and meaning clear.  This topic has gotten muddy.

Start with the basic premise: ALL securities must be registered.

Under Reg. D 506, the security is exempt from registration if, under (c), ALL investors are accredited investors, or have an exemption or exception (yes, there is a difference).  

This includes foreign nationals, regardless of residency or citizenship.  Under Reg. S, there are further exemptions only applicable to foreign investors, and does not require the investor be accredited.  Reg. S can be used concurrently with Reg D.  There are further requirements laid out in S7-8-97.

This is where the security has an exemption to registration under Reg. D, but only under certain conditions.  One of these conditions is who purchases the investment, an accredited investor.  Next, layer an exemption to accreditation on the investor under Reg. S.

When dealing with foreign nationals, you must also clear them with Dept. of Treasury for prohibited transactions.  This would be those sanctions we levy against countries and state actors.

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