The STO Accredited Investor and Key SEC Regulations

Posted By : Alex , on Feb, 2020

 

For many investors, a regulated Standard Token Offering (STO) is preferable for the issuing of tokens than opting for an unregulated Initial Token Offering (ICO). Many have asked the question, why file an STO through SEC Regulation A rather than a Regulation D/S? These issues are relevant to the STO accredited investor.

Regulation D and S
Regulation D is open exclusively to accredited investors. If someone is a non-accredited cryptocurrency investor, he or she may not take part in an STO. An accredited investor, according to the SEC, has a net worth individually or with his or her spouse of greater than $1 million, not counting the value of a primary residence, among other requirements.

Another way for an individual to qualify for accredited investor status if he or she is not eligible under the $1 million net worth rule is through the income criteria. A person with greater than $200,000 income in each of the last two years or joint income of $300,000 with a spouse in those years and with a reasonable expectation of obtaining the same income in the current year can qualify as an accredited investor.

A Reg S is required when a company that is filing a Reg D is seeking to provide equity to non-U.S. investors. However, non-U.S. investors do not have access to the accredited investor status under Reg S. Regulation D applies to accredited investors while Regulation S applies to a foreign national making the investment – introduction and the entire transaction takes place on foreign soil.

Some who desire to invest in an STO may not qualify under the Reg D as a high net worth STO accredited investor. The assumption is made that these SEC requirements are in place to protect non-accredited investors from the risks involved with these investments, including fraudulent securities offerings.

Regulation A
Reg A permits the participation of any investor. A Reg A offering does not require the same accredited investor criteria to be present. The SEC requires comprehensive filing and reporting requirements in exchange for permitting the participation of crowdsourced investors.

Per the terms of a Reg A Tier 2 offering, non-accredited individual investors are restricted to investing 10% of the annual income or net worth of the individual alone or combined with the spouse, whichever is greater.

All investors – not just the STO accredited investor – have access to a Reg A STO. Everyone may participate and secure a return on investment, not only those with a high net worth or high income.

For a company pursuing a Reg A filing, the reporting requirements are exceptionally high, and so is the expense and time involved to complete the process. The reason is due to the assumption that non-accredited investors need more protection than accredited investors. Non-accredited cryptocurrency investors often have more excellent knowledge about the economics and technology of cryptocurrency and blockchain-based tokens than the regulators establishing and enforcing the regulations.

Reg A qualified companies are required to file annual and semiannual reports. Filing involves higher costs for the company. The Reg A may even be considered as a mini form of Initial Public Offering (IPO) since it permits non-accredited investors in the same way as public exchanges allow IPOs. With some additional work, companies qualifying under Reg A Tier 2 can have their equity traded on the public exchanges, providing investors who are holding the equity, liquidity.

If you are looking for a way to efficiently verify accredited investor status, contact an experienced investor verification company today.

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