A modest proposal for verification of accredited investor statusBy http://profile.typepad.com/1237764140s22740 // August 22, 2012 in Accredited Investor Definition, Angels, General Solicitation, JOBS Act, Reg D
Intro: I expected to be writing today about the SEC open meeting that was to have discussed the lifting of the prohibition on general solicitation in Rule 506 offerings, and the concomitant mandate for new means to verify accredited investor status. That meeting has been put off a week. In the meantime, here is a post I wrote over the weekend and wasn't sure would be ripe until the meeting had occured. But maybe it is just as well to float the idea ahead of time.
Crazy, impractical idea, and probably a fallback, only to be floated, if ever, after the verification rules are proposed and are clearly too onerous, investment-chilling: give the individual angel investor the option - not a requirement, but the option - of checking a box on her 1040, that says, "I hereby request that the IRS verify to an SEC database that the income I have reported for this year and the prior two tax years meet or exceed the annual income requirement to qualify me as an accredited investor under Regulation D."
An issuer would then enjoy a presumption that said investor is accredited, which presumption would only be defeated by actual knowledge on the part of the issuer or any of its control persons that the investor would not meet the accredited investor test in the current year.
Why would an investor elect to involve the IRS and have her name displayed publicly in an SEC database?
Because she wants to invest in angel deals but does not want to give her tax returns or brokerage statements or any other personal information to any start up. She may not want to give such information to any private certifying body, either.
And she has to report her income to the IRS anyway.
The President could say, "we're bypassing government regulation by letting the well heeled check a box, and presto, every entrepreneur in America can automatically know, that person is qualified for startup and high risk investing."
Tea Party conservatives might say, "yet again the government reaches into areas where it has no business." Mitt Romney would check the box but add a footnote to his return, saying he wanted his election revoked after two years.
There has got to be a way, a relatively painless way, for accredited investors to "opt out" of being protected.
Image: Brian Herzog / Flickr.