All investors on the Glass Box MKT platform must qualify as “accredited investors” as defined by the Securities Act of 1933, as amended (the “Securities Act”).
What is an accredited investor?
An accredited investor is a person or a legal entity that is allowed to participate in investments not registered with the U.S. Securities and Exchange Commission. The rule is meant to help validate that such investors have the sophistication and means to invest in potentially riskier investments, and weather any subsequent losses.
According to the Securities Act, an individual accredited investor is anyone who either:
Legal entities that can be considered an accredited investor include banks, investment broker-dealers, insurance companies, any entity in which all equity owners are accredited investors, and trusts with assets that exceed $5 million. The Securities Act also allows individuals who are a general partner, executive officer, or director for the issuer of unregistered securities to become accredited investors.
Why do you have to be an accredited investor?
The rules regarding accredited investors are governed by SEC Rule 501 under Regulation D of the Securities Act of 1933, a government response to the Great Depression. The complete text of Rule 501 can be found here:
7 CFR § 230.501 - Definitions and terms used in Regulation D. | CFR | US Law | LII / Legal Information Institute (cornell.edu).
Also known as the “truth in securities” law, this rule improved financial disclosure requirements so investors would be better informed about the investments to which they are subscribing. It also tightened rules prohibiting fraud and misrepresentation in the sale of securities.
The accredited investor exemption seeks to ensure that all participating investors are financially sophisticated and able to fend for themselves or sustain the risk of loss, thus rendering unnecessary the protections that come from a registered offering.
How do I prove I’m an accredited investor?
There’s no universal certification to prove accredited investor status. Instead, companies selling investments to accredited investors are required to take steps to verify the status of their investors at the time of their offering. The Glass Box portal system assists issuers with administering this process.