Recent legislative changes make it more important than ever for film makers to know for sure, what is an accredited investor? The Securities and Exchange Commission recently eliminated the prohibition against general solicitation and general advertising in certain securities offerings. Companies are now permitted to use general solicitation and general advertising to offer securities under Rule 506 of Regulation D of the Securities Act and Rule 144A of the Securities Act. More info: JOBS Act and Film Financing. The US government did this in order to reduce barriers for small companies raising capital.
You have your script, director and are ready to make your movie. You even took the appropriate steps to create a Private Placement Memorandum (PPM), and are ready to publicly advertise, also known as "general solicitation," your offer to accredited investors. Who are they?
In summary, an accredited investor makes $200,000 per year (or $300,000 with a spouse) or has a net worth of $1 million. The new rule permitting general solicitation of Rule 506 private placements includes a requirement that the issuer (that's you, the filmmaker) "take reasonable steps to verify" all purchasers are Accredited Investors. So, what is an accredited investor and how do you take these 'reasonable' steps in order to satisfy the SEC?
The first thing to know is that self-certification is not deemed reasonable. You may not just take someone's word that they meet the legal guidelines qualifying them as an accredited investor.
If you can’t just take someone’s word for it, what are reasonable steps you may take to verify an investor?
Some of those steps could include:
- Pay stubs
- Recent income tax returns/reporting forms
- Doing a broker check on the FINRA site to verify status
- Bank/Brokerage statements
- Credit reports
There are going to be some investors that do not want to share this information with you. If this is the case, there are other options. You can obtain written confirmation from one of the following:
- A registered broker dealer
- SEC registered investment adviser
- Licensed attorney
- Certified public accountant
Your Idea on the Big Screen
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