Verification of Investor Accreditation and Sophistication

When Must a Representative Confirm a Customer's Investor Status?

• Before a customer can purchase into a private placement, the representative confirms the customer's investor status, accredited investor status or, for a purchaser who is not accredited in a no-solicitation offering, the sophistication standard, as part of completing the customer's investment profile.
• That confirmation typically draws on the customer's own representations together with supporting financial documentation, such as tax filings or account statements.
• The accredited-investor categories and the sophistication standard themselves are covered in the private-offerings chapter, not here, because confirming a customer's status and defining what the status requires are two different tested skills.

Does Self-Certification Alone Satisfy the Verification Duty?

• In a general-solicitation offering, where the issuer may advertise the offering publicly, a customer's own signed statement claiming accredited status does not by itself satisfy the rule.
• The issuer must take reasonable steps to verify accredited status with objective evidence before the sale, using the methods covered in the private-offerings chapter.
• A placement agent's firm usually carries out that work on the issuer's behalf. The duty the rule imposes still belongs to the issuer.
• In a no-solicitation offering, by contrast, a reasonable belief based on the customer's own representations can be enough to establish accredited status. The heightened, evidence-based verification duty belongs specifically to the general-solicitation offering type.
• The name is shorthand. What that offering bans is general solicitation, not every approach. A firm may still contact a prospect it already has a real, substantive relationship with.

Exam Tip: Gotchas

• Verification does not mean the same thing in every private placement. A general-solicitation offering requires the issuer to take reasonable steps to confirm status with objective evidence; a no-solicitation offering does not impose that same heightened duty.
• Read the duty-bearer carefully. The rule puts the reasonable-steps duty on the issuer, not on the representative's firm, even though the firm usually does the work.
• The documents a firm actually uses to gather and record this information, the investor questionnaire and the representations inside the subscription agreement, are covered in the customer documentation and screening unit. This section covers the verification standard itself, not the paperwork that satisfies it.
• A qualified institutional buyer certification letter does not belong here. It proves a different status, under a different rule, for a different kind of purchase.

What Should You Check on Exam Day?

• Match the verification standard to the offering type: mandatory reasonable steps for a general-solicitation offering, reasonable belief for a no-solicitation offering.
• Confirm a scenario names supporting documentation or a reasonable-steps method rather than a bare investor self-certification, which does not satisfy the verification duty in a general-solicitation offering on its own.
• Remember confirming status is a step inside building the investment profile, not a separate task performed after the profile is complete.