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In the U.S., the term accredited investor is used by the Securities and Exchange Commission (SEC) under Regulation D to refer to investors who are financially sophisticated and have a reduced need for the protection provided by regulatory disclosure filings.
Rule 506(d) states that any Bad Actor who has engaged in a disqualifying event cannot be a part of any offer made under Regulation D. These disqualifying events don't just affect the individual in question. If you make any offering with a Bad Actor as part of your issuing team, the SEC disqualifies the offering.
Accredited investors are generally large financial institutions, such as investment banks, or high net-worth individuals. Rule 506 bans general solicitation of the securities. That is, issuers may not advertise their offering to a broad audience.
Rule 504 is not a common method of privately placing securities because the $5,000,000 cap is unattractive to many large issuers. Rule 506, which restricts who can purchase securities in a private placement but does not cap the offering amount, is the more common method of private placement under Regulation D.
The company cannot use general solicitation or advertising to market the securities. The company may sell its securities to an unlimited number of "accredited investors" and up to 35 other purchasers.
If you are accredited based on income, you will need to provide documentation in the form of tax returns, W-2s, or other official documents that show you meet the required income threshold for the prior two years.
To confirm their status as an accredited investor, an investor can submit official documents for net worth and income verification, including: Tax returns. Pay stubs. Financial statements. IRS forms. Credit report. Brokerage statements. Tax assessments.
Reviewing bank statements, brokerage statements, and other similar reports to determine net worth. Obtaining written confirmation of the investor's accredited investor status from one of the following persons: a registered broker-dealer, an investment adviser registered with the SEC, a licensed attorney, or a CPA.