Achieving USA accredited investor status?

Question

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?

Amy Wan · Answer

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

Brian Burke · Answer

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...

Jerel Ehlert · Answer

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.

John Corey · Answer

I disagree with the idea that the laws discriminate in a bad way. They definitely discriminate. The working assumption is investors of limited means need protecting from themselves. Similar to minors not being able to drink alcohol, purchase pornography or sign legal contracts. Many laws work this way. What is good for the general case will work against a specific individual or specific situation.The law does not stop anyone from being a sponsor of a deal. That means the 'small investor' can focus on finding a deal and raising funds from accredited investors even through the 'small investor' would not pass the test for accredited.

The J.O.B.S. Act did open up crowdfunding for the retail investors ('small investors') while putting caps or limits. Like training wheels when learning to ride a bicycle or testing things in a sandbox before releasing it to the public.

There is a balance required. And the regulations tend to trail or lack the market. In the USA we set regulations to reduce problems not to define what should be best in the future. The marketplace invents things and the regulators reduce the nasty elements or aspects after they have developed. This is better than everything is banned until a regulator provides a green light.

Matt Millard · Answer

@John Corey

These laws are very discriminatory & unfair to small knowledgeable investors starting out & a huge hassle.

Something needs to change!

But a country with hundreds of Trillions in liabilities fiddles while Rome burns.

At least one doesn’t have to be wealthy or high income or accredited to buy silver.

Although TX has a sales tax for purchases on under $1k that is very regressive & discriminatory!

John Corey · Answer

@Jerel Ehlert I love it that you clarified the details on this. Thanks

Saul L. · Answer

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.

Marisa R. · Answer

Yes correct

John Corey · Answer

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?

Achieving USA accredited investor status?

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