Benefits of a Third-Party Verify Investor Service

by | May 15, 2023 | Money And Finance

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An issuer of securities that raises funds per the requirements of Rule 506(c) is required to perform “reasonable steps” to verify the accredited status of investors. Rule 506(c) outlines a number of steps that are considered reasonable – for instance, obtaining a letter from a recognized third-party, such as the investor’s accountant, attesting that the investor meets the accredited investor requirements. Some issuers may think if they conduct reasonable steps on their own, in-house, they will save money. However, using a reputable third-party verify investor service is often the way to go for many of the reasons described below.

Using a Third-Party Investor Verification Service
One method of performing reasonable steps recognized by the SEC is to use a third party to conduct the verification process. Examples of third parties which may perform such verification include duly registered CPAs in good standing, licensed attorneys in good standing, registered broker-dealers, and SEC-registered investment advisors.

Some of the benefits afforded through the use of a third-party verify investor service include:

Protection from Liability
An important benefit of using a third-party verification service is that it helps the issuer avoid any potential liability from mishandling the verification process in-house.

Investor Security
By using a reliable third party to conduct the investor verification process, the investor can have confidence that his or her sensitive information will be reviewed and protected by professionals that understand the need for investor confidentiality. This reduces the sense of invasiveness and security concerns that many investors may have about providing their information to individuals they don’t know personally or have no experience working within a business relationship. As an investor, you can put your concerns aside using an experienced and reliable third-party reviewer, knowing that your information will be reviewed by a licensed third-party accountant or attorney.

Quick Verification Turnarounds
Third-party reviews often finish the verification process quickly with fast turnarounds. Often, the cost of using such a service will be lower than attempting to handle the verification work in-house.

Issuers intending to conduct Rule 506(c) offerings should evaluate the various methods of investor verification available and consider the upside of outsourcing this important task to a reliable third party that provides verify investor services.