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How To Verify Accredited Investors - YouTube
Channel: Trowbridge Law
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[Music]
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[Music]
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the
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founding partners at showbridge law
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group and today
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i am going to walk you through the
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process of verifying
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an investor's accredited status
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so um for those that don't really know
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me that well
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before i graduate law school actually
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during law school
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uh i had a summer internship at a
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company called
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patch of land um they
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are basically a 506 c issuer so
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uh they you know their real estate
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crowdfunding
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uh portal if you will or platform
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um and because they're a 5060 issuer
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they can only raise money from
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accredited investors
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and they need to take reasonable steps
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to verify
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each investor's accredited status well
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when i was working there as a legal
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intern
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one of my main jobs was verifying
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investors
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going through the process to make sure
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that each investor
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that was on the portal was accredited
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because that's the rule right you have
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to take reasonable steps
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to verify them and that was me that was
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the reasonable steps
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so let me walk you through the process
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that i went through
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uh well there's two main ways that a
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person can qualify
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as a credit investor so a person as in
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a human being not talking about entities
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entities kind of have their own
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categories for qualifying as accredited
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so if you're individual it's either net
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worth or income
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net worth you need to have a net worth
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over a million dollars
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and when i was at patch of land what i
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would look at
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to verify someone's net worth um well
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first of all you have to verify their
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assets
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and then you have to verify their
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liabilities and assets
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liabilities if that was over a million
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then they're accredited
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so assets common documents that i would
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ask
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for from the investor would be bank
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statements
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uh investment account statements
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retirement account statements
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um basically whatever the investor
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wanted to use as
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their assets real estate investment real
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estate so
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under the rules you can't use your
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primary residence but if you have
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investment real estate you could use
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those to count towards your
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net worth but if you're using real
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estate then it's only the
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uh the equity in the property you can't
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use the entire value you have to
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subtract
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outstanding loan balance to get the
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net positive uh value of the property
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so add up all those things uh bank
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statements um
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investment accounts retirement accounts
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uh investment property
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um oh some weird ones that i would
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i saw were personal property right so
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some people were kind of close to the
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million dollar threshold and
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i had a few people that wanted to use
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their cars so
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first of all they had to show proof that
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they owned the car and then i would ask
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them to do like a
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kelly blue book value of their car to
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get the approximate value
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uh i had another guy that wanted to use
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uh jewelry so he had a few rolexes
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that he owned um you know show proof
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that he owned the rolexes and then i
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asked him to get
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um like a third-party appraisal or show
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me
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somewhere the value of those rolexes
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anyways add up all those assets
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and then liabilities what we would do is
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uh we would ask them to pull a credit
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report you get a free credit report from
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one of the three agencies so
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investor had to pull a credit report so
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i would look at the credit report just
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add up all the liabilities take all
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their assets as is my liabilities
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million dollars he's credited
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that's not worth income though so for
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income to be accredited
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if you are single um it's two hundred
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thousand dollars of gross
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income for the previous two calendar
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years and you reasonably believe you're
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going to exceed that
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this year so right now it's 2021
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uh so you know your income had to be
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over two hundred thousand dollars for
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2019 and 2020
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and you believe you're gonna exceed that
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again this year 2021
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or if you're married um you can combine
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your income
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and your combined income has to be over
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three hundred thousand dollars
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so when i was verifying income what i
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looked at
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often times were tax returns uh w2s
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pay stubs every once in a while k ones
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basically anything showing earned income
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right
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uh and if those uh were over
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200 000 single or 300 000
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uh married for the previous two years
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and they check a box and say
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oh i think i'm gonna exceed that again
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this year
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they're accredited those are the two
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main ways for people uh to that you know
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i went through
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for verifying their credit status
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entities though can get a little
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complicated generally
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speaking if an entity has over five
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million dollars in
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assets uh so not net worth just assets
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uh it's accredited so if i was verifying
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an entity they just had to show
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combined assets um from different
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accounts or whatever
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you know assets the company owned those
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assets total or five million dollars
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then they would be accredited that
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entity would be accredited the other way
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an entity can qualify as accredited is
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if
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all the equity or beneficial owners
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of the company are accredited either you
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know by net worth or income or some
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other method
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then that entity itself collectively is
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also accredited
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so example you know we had an llc
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that was trying to invest as the llc
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right and it was owned by three family
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members
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each one of those family members had to
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provide me with documents that showed
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they were each accredited
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before we would allow the llc to invest
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on the platform
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that is basically it that was part of my
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job at
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old company i know now it's changed a
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little bit because previously
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we would have to do that verification
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process every
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90 days right so even though an investor
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invested
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previously i verified them after 90 days
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and they want to invest again
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unfortunately i would have to re-verify
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them for
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income you know it's not that hard
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because we already have their
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tax returns so we could see the previous
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two years so they just have to re-say
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that
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i believe i'm going to exceed that again
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this year
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but for net worth i mean things change
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right so
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um we had to ask for their bank
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statements again their credit report
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again and
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you can only get so many free credit
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reports so uh it was kind of hard
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you know with to re-verify someone after
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90 days for
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net worth recently though the sec has
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kind of changed that rule
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so um you don't have to redo it every 90
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days
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now as long as you verify that investor
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the first time
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and you have no reason to believe that
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their status has changed
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and the investor checks a box that says
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i'm still accredited
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uh you can rely on that for i believe
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five years going forward so you can keep
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doing that for five years
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uh which is huge five years versus 90
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days that's that's
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night and day right completely different
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um so
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i think that new rule is gonna make it
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way easier for
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uh not only investors but issuers that
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are doing 506 c
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offerings to attract more investors
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right the verification process is going
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to be
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way easier i mean it's going to be the
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same up front but as soon as an investor
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is verified
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way easier to keep them in your database
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uh to send them
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the next 506 c deal because you don't
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have to
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to verify them again uh so and that's a
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great change that the sec made
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anyways uh that is all i got
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for you today hopefully learned a little
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bit about
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accredited investors and verifying them
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under rule 506c
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it's thursday it's always thursday when
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i'm on
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so that means we got another episode of
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tlg talks
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uh today at noon so go check that out
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on our youtube page as always feel free
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to reach out to us here
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or go to our website schedule free
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consultation
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happy to talk to you and answer whatever
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questions you might have
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thank you for tuning in i'll see you
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guys next week
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you
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