International investors have always contributed in an important way to delivering capital to private placement offers. Under Regulation D, the private placement market is huge. Since September 2013 when Title II of the JOBS Act went into effect all the way until the end of 2014, more than $1.5 trillion was raised under Regulation D. This can partly be attributed to the new Rule 506(c), which permits general solicitation – aka advertising. The caveat is that all investors are required to be verified as “accredited investors” under the existing rule. This applies to international accredited investor verification as well.
Foreign investors who seek to participate in 506(c) private placements are required to meet the accreditation standards laid out by the Securities and Exchange Commission (SEC), just like U.S. investors. Crowdfunding platforms also must conduct “reasonable steps” to prove that an investor qualifies as accredited.
The SEC has published a number of Compliance and Disclosure Interpretations (CD&Is) to help explain how the investor verification process must be carried out.
About Rule 506(c)
As part of Title II of the JOBS Act, Rule 506(c) was adopted in 2013. This rule permits issuers of securities to advertise and generally solicit when offering new securities for sale . These securities may be marketed to any person, as long as the purchasers are accredited investors. The issuer is required to take “reasonable steps” to verify the investor’s accredited status. Securities law and SEC guidance has described these reasonable steps as follows:
CD&I’s Affecting International Accredited Investor Verification
According to 255.48
If the income of a purchaser is not reported in U.S. dollars, the issuers may utilize the exchange rate that was in effect on the last day of the year for which the income is being verified, or the average exchange rate for that entire year may be used.
According to 260.36
International tax forms reporting income may be used if the penalties for reporting information falsely in a foreign jurisdiction compared to penalties imposed by the IRS.
According to 260.38
If you depend on a consumer report from an international (non-U.S.) consumer reporting agency, then:
* The international (non-U.S,) consumer reporting agency must carry out functions that are similar to the functions carried out by a domestic (U.S.) consumer reporting agency, and:
* Additional steps should be implemented as required to determine the liabilities of the purchaser
According to 260.09
Written confirmations submitted by a foreign registered or licensed attorney or certified public accountant in good standing may be a part of a nonexclusive list of verification methods provided.
Following these CD&Is above will help ensure a smooth process when verifying international accredited investors.
