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Can an on line secondary market investment or stock market be created off shore and US residents being able to legally invest ?

Boston, MA |

I understand that as a startup raising capital privately in the US - an investor in such startup must be considered an " Accredited Investor " meaning their high net worth is above 1 million or earning jointly more than $ 200k a year . What if the " small " person at home wanted to invest in non exchange ( NASDAQ etc ) US listed companies and have the same opportunity as those who do it currently in the secondary market . If the servers of this " virtual " startup stock exchange resided on off shore islands - would US citizens be able to invest / park their money legally with that entity ? Thanks in advance , Steve

Attorney Answers 1


Steve - there are several issues to address within your question. In order to properly answer your question, an Attorney would need more information on exactly what you are seeking to accomplish. You need to consult with an experienced Securities and Corporate Lawyer to properly answer your question.

However, there are a couple of points you make that I can clarify to at least point you in the right direction. With regards to the definition of an "Accredited Investor," the minimum requirement for a natural person have been revised by the SEC. The minimum for joint income is $300,000.00 annually, for at least the past two years. The minimum for individual income is $200,000.00, for at least the past two years. The minimum net worth is still $1 million, but with a very important change--it now EXCLUDES the value of an individual's primary residence.

Second, with respect to secondary securities markets, the terminology you use can have several different meanings. Technically, the NASDAQ or the Dow Jones exchanges are also known as secondary markets. I think the terms you are looking for are Public offerings versus Private offerings. A public company is a company traded on public exchanges such as the Dow Jones. There is no such exchange for a private company. Most investments in private companies, such as a venture capital firm investing in a tech startup, are done through private offerings. These usually require that the investor be an accredited investor (Note: the new JOBS Act might amend that requirement to allow for a limited number of non-accredited investors, but I am not sure if it has been implemented yet).

Finally, the answer to your question of whether you can by pass this requirement will most likely be no. The simple reason is that the liability of whether an investor is accredited is usually placed on the company soliciting funds, not the investor.

These materials have been prepared by Wassem M. Amin, Esq. for informational purposes only and are not legal advice. The material posted is not intended to create, and receipt of it does not constitute, a lawyer-client relationship, and readers should not act upon it without seeking professional counsel. If you are interested in seeking representation by one of the Firm’s attorneys, you should contact this attorney by telephone or email and request a consultation.

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