Private Offering Sponsors Failed to Ensure that Investors were Accredited
The principals of an unregistered offering agreed to pay a combined $3.4 Million in fines and penalties for selling interests to non-accredited investors. Although the investors signed subscription agreements, the SEC alleges that the investors “did not have the knowledge and experience in financial and business matters … to make them capable of evaluating the merits and risks of investments.” Moreover, the investors “did not have the income or assets necessary to qualify as accredited investor.” The SEC also charges that the respondents made misrepresentations about the underlying financial condition of the investment.
OUR TAKE: Following passage of the JOBS Act, the SEC warned that private fund sponsors could not simply rely on representations made in subscription documents. The SEC indicated that firms must conduct sufficient due diligence to ensure that Reg. D investors qualify as “accredited.”