Bill Carleton has a good post regarding the recent comments from Keith Higgins, the Director of the Division of Corporation Finance, who spoke at the 2014 Angel Capital Association Summit. Higgins discussed the SEC’s principles-based approach with respect to meeting the requirements of new Rule 506(c).
Since the SEC’s adoption of new Rule 506(c) in September 2013 allowing general solicitation by issuing companies in certain circumstances, angel investors have been concerned about the accredited investor verification standards set forth in those new rules. The debate has centered around what actions are required by an issuing company to satisfy the requirement of taking “reasonable steps to verify” the accredited status of its investors when utilizing general solicitation as now permitted under the rule. The rule itself provides a number of safe harbors that the SEC has determined will satisfy the standard, but many of those require detailed financial information about the investor to be provided to an issuing company or third party. The Angel Capital Association has been out in front of this issue, advocating on behalf of angel investors in the SEC comment process and publishing its own guidance on verification of accredited investor status using membership in an established angel group (with various criterion spelled out).
It remains to be seen what ultimately becomes standard accepted procedures outside of the safe harbor provisions set out by the SEC, but the angel community is actively engaged in addressing the issue.