The Title II provisions of the JOBS Act, enacted through Rule 506(c) of Regulation D, ushered in a new era of capital raising by allowing issuers to engage in general solicitation. However, this expanded marketing freedom comes with an important caveat: issuers must take reasonable steps to verify that all purchasers are accredited investors. Unlike traditional private placements, self-certification is not sufficient. Issuers must collect and maintain proper documentation to demonstrate compliance, particularly in the event of an SEC audit.
This article outlines best practices for documenting accredited investor status under Title II, helping issuers meet regulatory requirements while protecting investor privacy and maintaining operational efficiency.
Why Documentation Matters
Under Rule 506(c), the burden of proof falls squarely on the issuer to validate that every investor meets the SEC’s definition of an accredited investor. Without proper records, an issuer risks disqualification from the exemption and potential enforcement action.
Proper documentation serves several purposes:
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Demonstrates compliance with the “reasonable steps” standard
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Provides an audit trail for regulatory review
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Protects against investor disputes
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Reinforces due diligence and professional credibility
Acceptable Documentation Methods
The SEC outlines a non-exclusive list of verification methods that serve as safe harbors when used properly. For each method, maintaining clear, complete, and dated documentation is critical.
1. Income-Based Verification
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Documents to Collect:
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IRS Forms: W-2, 1099, Schedule K-1, or Form 1040 (last two years)
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Written investor representation of current income expectation
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Best Practices:
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Ensure documents are from the most recent years available
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Maintain proof of the investor’s written attestation
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Confirm identity matches submitted forms
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2. Net Worth-Based Verification
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Documents to Collect:
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Asset Statements: Bank, brokerage, retirement account statements
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Liability Records: Recent credit report from a nationwide agency
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Written investor representation affirming liabilities and ownership of assets
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Best Practices:
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Use documentation dated within 90 days of the investment
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Retain signed declarations of net worth
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Avoid including primary residence in net worth calculations
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3. Third-Party Confirmation
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Acceptable Providers:
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Licensed attorneys, CPAs, SEC- or FINRA-registered investment advisers, or broker-dealers
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Required Records:
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Written confirmation letter stating that reasonable steps were taken to verify status
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Dated and signed by the third party on firm letterhead
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Best Practices:
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Validate the credentials of the third-party verifier
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Store letters in a secure, indexed format for future retrieval
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Secure Recordkeeping and Retention
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Duration: Maintain verification records for at least five years from the date of the investment
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Storage: Use secure digital platforms with encryption and access controls
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Organization: Maintain records by investor and by offering for easier audit response
Verifying and documenting accredited investor status under Title II of the JOBS Act is not a one-time formality—it is a regulatory obligation with lasting implications. Issuers must build robust systems to collect, evaluate, and securely store verification materials in accordance with SEC standards. Whether performed in-house or through a qualified third party, proper documentation is the cornerstone of a defensible and compliant Rule 506(c) offering. With careful attention to process and recordkeeping, issuers can confidently access the benefits of general solicitation while minimizing legal and operational risk.
