Which one of the following statements about accredited investors is NOT true (choose one): a. If...

Which one of the following statements about accredited investors is NOT true (choose one):

a. If start-ups want funding from angels or VCs, they must ensure these investors are accredited.

b. The SEC does not officially certify accredited investors for each transaction.

c. A start-up can get funding from its founders, even if they are not accredited.

d. If start-ups issue an IPO, they must ensure that investors are accredited.

e. Accredited investors must have enough personal financial strength to endure losses.

Solutions

Expert Solution

d. If start-ups issue an IPO, they must ensure that investors are accredited.

REASON:

An accredited or sophisticated investor is an investor with a special status under financial regulation laws. The definition of an accredited investor (if any), and the consequences of being classified as such, vary between countries. Generally, accredited investors include high-net-worth individuals, banks, financial institutions and other large corporations, who have access to complex and higher-risk investments such as venture capital, hedge funds and angel investments.
Under U.S. law, securities cannot be offered for sale unless they are either registered with the SEC or there is an exemption from registration. Only selling to accredited investors provides one such exemption.
An accredited investor can invest in certain unregistered investments, such as private equity, venture capital, and hedge funds.

Examples of accredited and non-accredited investors

To illustrate how this works, consider these two examples.

A married man with a net worth of $800,000 wants to invest in a hedge fund. He earned $250,000 two years ago, but his wife didn't work. Last year, he earned $160,000 and his wife earned $200,000, for a total of $360,000, and the couple expects about the same amount of earnings this year. Because the income test requires that investors use only one method (single or joint) to satisfy the income test, this investor would not meet the requirements of an accredited investor.
A retired married couple has about $2 million in investment assets, but since they no longer work, they have no earned income. However, since this couple has a net worth greater than $1 million, they would still qualify as accredited investors because of their net worth

jeff jeffy answered 1 year ago

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