506(c) Asset-Based Third Party Verification For "Reasonable" Threshold For Accredited Investors

[Bryan Hancock]

I have been doing a lot of research about the new 506(c) third party verification services of late. We had a call with Crowdentials last week and we are set up to speak with CrowdBouncer next week. Nobody in the industry seems to be offering contractual indemnification for their screening services if a non-accredited investor slips through the cracks. Crowdentials did offer a high, medium, and low risk rating from their product based on how the investor was found and answers they gave to several questions.

What seems to be common is that verifying accreditation based on income is easier because they can audit tax returns or get accountants to verify said income in some cases. Most accountants will not be allowed to provide these comfort letters because Camico, the dominant E&O underwriter has told them not to do it. There seem to be many that are still doing it anyway either because they're not informed about the Camico stance or they have a different underwriter.

I'm not sure what percentage of the accredited investor population is eliminated by focusing solely on income-based accreditation, but I would think it is at least half. Does anyone know of any services that are offering asset-based screening? I am not sure how they'd do this without an audit CPA license given that you need to count both assets and liabilities and potentially more difficult things like contingent liabilities.

The preferred path that I have seen thus far is for folks to do a Regulation A offering to solicit maximal interest and/or test the waters in states that allow for it. They then down-select folks based on their accreditation and issue a follow-on Regulation D offering that carves out non-accredited investor risk. Any thoughts on that?