Regulation D of the Securities Act of 1933 provides critical exemptions that allow issuers to raise capital without registering with the SEC. However, these exemptions come with a clear expectation: issuers must take “reasonable steps” to verify that all investors meet the definition of an accredited investor. Proper documentation is not only a compliance requirement but also a vital risk management practice to demonstrate due diligence if regulators review the offering.
Understanding Regulation D Verification Obligations
Under Rule 506(c) of Regulation D, issuers can broadly solicit investors, but every participant must be verified as accredited. The SEC does not prescribe a one-size-fits-all process, but it does require that issuers retain clear and contemporaneous evidence showing how verification was conducted. Without adequate records, an issuer’s exemption claim can be challenged, even if all investors were in fact accredited.
Essential Documentation to Collect
Issuers should maintain comprehensive, verifiable documentation that supports each investor’s accredited status. Depending on the type of investor, this may include:
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Income Verification: Copies of IRS forms such as W-2s, 1099s, K-1s, or filed tax returns for the past two years, along with written confirmation of an expectation to maintain the same income level in the current year.
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Net Worth Verification: Recent bank or brokerage statements, appraisals of real property, or other assets, paired with credit reports showing liabilities. The documentation must clearly indicate that the individual’s net worth exceeds $1 million USD, excluding their primary residence.
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Third-Party Confirmation: Written statements from licensed professionals,such as CPAs, attorneys, or registered investment advisers, attesting that they have verified the investor’s accredited status within the prior 90 days.
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Entity Verification: For corporations, partnerships, or trusts, organizational documents and financial statements showing total assets exceeding the accredited investor thresholds.
All documents should be dated, securely stored, and associated directly with the investor’s subscription record.
Maintaining Records for Compliance Confidence
Regulation D does not specify how long records must be kept, but best practices suggest maintaining verification files for at least five to seven years after the offering’s completion. Issuers should create an internal policy outlining how documents are received, reviewed, and retained—preferably through encrypted storage solutions that maintain both confidentiality and audit readiness.
Documentation should include:
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Verification checklists showing who reviewed the materials and when.
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Investor questionnaires signed by each participant.
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Evidence of any updates if verification was re-conducted after 90 days.
Maintaining an audit trail ensures issuers can demonstrate to regulators that their verification steps were reasonable and consistently applied.
Balancing Investor Privacy and Regulatory Expectations
Because Regulation D verification involves sensitive financial data, issuers must handle documentation under strict privacy standards. Secure transmission (e.g., encrypted uploads) and restricted access to verification data are crucial to maintaining investor trust while satisfying compliance obligations.
Final Thoughts
Effective documentation under Regulation D protects both issuers and investors. A disciplined approach to collecting, reviewing, and maintaining accredited investor evidence, supported by sound privacy practices, demonstrates regulatory diligence and minimizes the risk of exemption challenges. Whether performed in-house or with third-party assistance, well-organized due diligence records are an issuer’s strongest defense in today’s heightened compliance environment.
