Accredited Investor Verification and ICO, ITOs and TGEs

A person or entity that is able to purchase non-registered securities by meeting specific requirements or criteria (e.g. net worth, income, value of assets, or other status) is defined as an accredited investor.

Verification Process

The Issuer of securities has an obligation to verify that particular investors have adhered to the process of accredited investor verification. This process is not generally complicated, however, it does require the completion of specific forms which must be reviewed by the issuer along with supporting evidence. If the Issuer of securities does not have a process in place that adheres to regulatory guidelines, the Issuer can utilize a third-party accredited investor verification service, or allow one of the following entities to handle this verification work:

* Licensed attorney

* Registered broker-dealer

* SEC registered investment adviser

* Certified public accountant

Relationship with ICOs, ITOs and TGEs

The latest in bitcoin capital raising strategies involves the use of Initial Coin Offerings (ICOs), Initial Token Offerings (ITOs), and Token Generation Events (TGEs). As it concerns these offerings, memorandums related to private placements have been replaced with white papers from the Issuer. They reflect the various aspects of the standard business plan. However, at the same time they are often lacking in certain specifics.

SEC Direction

In the third quarter of 2017, the U.S. Securities Exchange Commission (SEC) along with numerous non-U.S. jurisdiction regulators addressed the issue of the ever-expanding number of distributor ledger-based and crypto currency capital raising efforts. They advised Issuers using tokens or distributed ledger business model, who seek to bypass traditional private placement avenues that they likely need to adhere to traditional accredited investor verification processes.

In an effort to avoid the traditional accredited investor verification procedures, numerous entrepreneurs operating in the virtual currency space have made the argument that these are not securities. However, those who are implementing capital raising ventures through ICOs or other types of similar offerings may have to defend their position to the SEC or other regulators of securities within those areas that protect respective investors and govern the activity of Issuers. According to SEC guidelines, accredited investor verification procedures also applied to offerings connected with virtual currencies that are generally solicited under Rule 506(c).

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