Question 1

Can you lie about being an accredited investor, qualified client, or qualified purchaser?

Accepted Answer

No, you can't lie. While the investment issuer is ultimately responsible for abiding by the relevant regulations, you could potentially face civil and/or criminal consequences for submitting fraudulent documentation and lying on applications to a financial entity.

The investment entity could be severely penalized for not properly vetting investors to accurately confirm their eligibility. It would also damage their reputation and it could financially harm other investors as well because it would jeopardize the success of the investment vehicle. Honesty and proper due diligence is in everyone's best interest.

Question 2

What are qualified institutional buyers (QIBs)?

Accepted Answer

Qualified institutional buyers (QIBs) include large institutional investors such as banks, mutual funds, insurance companies, and pension funds, among others, who meet monetary requirements and other specific criteria. These institutional investors need to manage or own at least $100 million in securities to be classified as a QIB. There are other qualifications and restrictions. For example, banks have a lower threshold of $25 million and registered broker-dealers have a $10 million threshold.

Essentially, these are larger entities that can bear the high investment risk associated with certain securities and are therefore exempt from some registration and disclosure requirements under securities laws.

As the name implies, this designation is not applicable to non-institutional investors. As described in the above article, the highest designation of non-institutional investors is the qualified purchaser investor status.

Key Concepts

What are Accredited Investors, Qualified Clients and Qualified Purchasers?