Securities Act Updates: Vol. I
Last week, the Securities and Exchange Commission updated their rules regarding the Securities Act. Their site, found here, features a page of common issues involved with offering under their various regulations. On July 3rd, they added eleven new issues, the most pertinent of which we’ll go over in the next few days.
If the SEC’s content is difficult to understand, don’t worry; we’ll be translating all of these issues from legalese.
Question: If a purchaser’s annual income is not reported in U.S. dollars, what exchange rate should an issuer use to determine whether the purchaser’s income meets the income test for qualifying as an accredited investor?
Answer: The issuer may use either the exchange rate that is in effect on the last day of the year for which income is being determined or the average exchange rate for that year.
Translation: This one is pretty self-explanatory. Basically, if an investor provides you with financial details in another currency, you have to convert those numbers to the USD. Currency exchange rates are always changing, so to make your calculation you can either use the exchange rate from the final day of your last fiscal year, or the average exchange rate for that year.
Tip: If it’s a close call whether or not this investor will meet accreditation requirements, use the exchange rate that favors the foreign currency to do your calculations. This will result in larger net worth, income, and liquidity statistics that could push the investor to accredited status. If it’s very close, be absolutely certain your calculations are correct and well-documented before bringing the investor on; the last thing you need is trouble with the SEC. Also, make sure the exchange rate is not drastically different from the current one, as you don’t want your investor to lack the necessary funds to invest because of a less favorable exchange rate.
Be sure to check back tomorrow for our next overview of the SEC’s Securities Act Updates.