4 Frequently Asked Questions About Accredited Investors

When it comes to accredited investors, there are frequently asked questions that need clarifying. An accredited investor generally meets either an income or wealth test. They make over $200,000 annually for the past two years or have $1 million of net wealth excluding their family home equity. Here are four common queries:

1. If you're a syndication sponsor and not an accredited investor, can you still invest? The answer is yes. As a sponsor, you're considered an accredited investor under Rule 501 A.

2. Can an LLC invest? Yes, under two conditions. If all equity owners are accredited investors (Rule 501, subsection 8) or if the entity wasn't formed specifically for acquiring your offering and it has investments exceeding $5 million (Rule 501, subsection 9).

3. Can a group of accredited and non-accredited investors form an LLC to invest in a 506c? The answer is no as they are not all accredited investors and likely don't have over $5 million of net assets. However, in a 506b offering, it is possible but non-accredited investors are counted against the 35 non-accredited investor limit.

4. Can certified financial planners invest due to their credentials? Sometimes, they can. The SEC has approved certain licenses: series 7 (broker-dealer), series 65 (investment advisor representative), and series 82 (private securities seller). These license holders are considered accredited investors.

Read more about raising capital - Finding Investors for Real Estate Syndication and Private Equity Funds: https://www.moschettilaw.com/finding-investors-for-real-estate-syndication-and-private-equity-funds/

Read more about PPMs - What Is In A Private Placement Memorandum?: https://www.moschettilaw.com/private-placement-memorandum-attorney/

Moschetti Syndication Law Group is a boutique syndication law firm, serving small and growth-bound syndicators, as well as private equity firms. Our attorney, Tilden Moschetti, is determined to keep the firm’s ‘boutique’ size so we can tailor the services to each client’s unique needs without turning the firm into a faceless factory churning out private placement memorandums or passing unnecessary overhead expenses onto our clients. (As our client, you’ll only pay a fixed fee, so no surprises.) As for the client experience, we give real-time answers with Tilden Moschetti without making you book an official appointment or get passed along to associates or paralegals. We’ll work with your ambitions and overall vision to help you close the current deal and fill in that ‘missing’ piece – whatever you need – to keep adding more syndications to your portfolio. We keep syndicators syndicating (TM).

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Episode Transcript

Tilden Moschetti (00:00):
accredited investors, you probably have
questions outside of just whatis an accredited investor? This
video, we're going to go throughexactly those questions that I
hear most often.

(00:23):
So just what are those bigquestions around accredited
investors? It seemsstraightforward enough, doesn't
it? Let's go through the basicdefinition real quick, just so
that we have that on the tip ofour tongue. So we understand it
in it's all its context. Andthen we're gonna go through
those four questions. Anaccredited investor is typically

(00:44):
thought of as an individual whomeets either the income test, or
they meet than that wealth test.Now, the income test for
accredited investors is anyonewho makes over $200,000, for the
past two years, expects to makethe same amount or more this
year, or $300,000. If they'recounting the income from a

(01:08):
spouse, then that wealth test is$1 million of net wealth, which
does not include the equity inthe family home. That's the
basic definition of anaccredited investor who can
invest in a Regulation D 506. Coffering. Obviously, they can

(01:28):
invest in a 506 b offering aswell. Now a so what are those
four questions because I getthem all the time. So the first
one is, well, if I'm not aaccredited investor, but I'm
sponsoring it, how am I supposedto invest? Well, not to worry,
you actually, if you are thesponsor of a syndication, you

(01:51):
can invest yourself. Rule 501 A,which is where the Reg D talks
about what an accreditedaccredited investor is, has a
specific thing for you. So rule501, a subsection four is your
your grant of being anaccredited investor. There it

(02:12):
says, any director, executiveofficer, or general partner of
the issuer of the securitiesbeing offered or sold, or any
director, executive offerofficer or general partner of
any general partner of thatissuer is considered an
accredited investor. So if youare not an accredited investor,

(02:32):
by the definition we talkedabout earlier, you are an
accredited investor, if you arethe sponsor yourself, or if
you're part of a membership ofthe sponsor. The second question
I get a lot is What can an LLCinvest? I have a lot of
investors who just want to cometogether and pool money in order

(02:52):
to meet my minimums? The answeris yes, most of the time. An LLC
can invest. And that we find inrule 501, a subsection eight or
nine, they both apply here. Now,under eight, under 5018. It says

(03:13):
any entity in which all of theequity owners are accredited
investors. So that's gonna leadus to our next question in just
a minute. But in any of those,any entity where all of those
owners are accredited investors,basically, the note to the rule
says we can look open up theLLC, look in see who all the

(03:35):
members are. And if they all areaccredited investors, that's
fine. They're all accreditedinvestors. If under 501, a nine,
though there's anotherexception. So any entity which
is not listed above, so in thiscase in paragraphs, a eight. And

(03:56):
if that entity if that LLC wasnot formed for the specific
purpose of acquiring just you'reoffering that and they have
investments in excess of $5million, all right. So if it's
got $5 million, that it investsaround, and it was not set up

(04:16):
just to invest in yours, then itcan be considered an accredited
investor. So that other questionthat I told you we would
discuss, which I hear all thetime is, well, how about this?
Can I get a bunch of investorstogether who are accredited and

(04:37):
non accredited? They go into anLLC, and then they invest in my
506 seed? The answer is no.That's the answer. So why No,
because they're not allaccredited investors under eight
under 5018. And they alsoprobably don't have over five

(04:59):
mil billion dollars of netassets of investments that
they've invested into. And we'reonly set up for the purpose of
investing in your, your, yourentity. So under that, no, it's
not likely that you'll be ableto pull everybody. Now, if
you're doing a 506 b offering,the answer is yes. But we have
to count each non accreditedinvestor against that 35 non

(05:24):
accredited investors in every 90day period. So it counts against
that. So they can form an LLCand invest in a 506 B, but we're
still counting all the nonaccredited investors. The last
question is, well, is there somesort of I'm a certified
financial planner, or my brotherin law's a Certified Financial

(05:44):
Planner? Can he just investbecause of his credentials? He
obviously knows what he's doing?Well, the answer is, sometimes
they can, sometimes they can,the SEC has come out with rules
that are that govern this. Andthey are as it's allowed to
under 501. A, and where it'swhat it's what the SEC has said

(06:07):
there are certain licenses thatyou can have, that we will
count. So what are thoselicenses? It's a series seven,
so general, broker dealer right,they can invest in general
securities as a broker dealer,unless series seven is allowed,
also a series 65, which is aninvestment advisor

(06:30):
representative. And the third isthose who have also partake in
and are currently licensed underseries 82. So 82 allows people
to sell private securities, likeyour Regulation D offering,
those people are consideredaccredited investors just by
their licensed. Now, what'ssurprising is that they didn't

(06:50):
give this to a much widervariety of people. But the SEC
is very concerned about who theyare considering to be non
accredited investors versusaccredited investors. So those
are the rules that we live by.My name is Tilden Moschetti. I
am a securities attorney for theMoschetti syndication Law Group.
We specialize in just RegulationD offerings and helping

(07:15):
syndicators put together thoseofferings and give them all the
tools that they need to not onlybe successful in putting those
together and being compliantwith the law, but also
consulting with them to inwhatever they need in order to
truly be successful, completetheir raids and make their and
have a successful syndication orinvestment fund. If we can help

(07:36):
you I'd be happy to talk withyou. give my office a call, and
I'd love to talk with you soon.