By Jim Dowd, CrowdFunding Beat Guest Contributor and Managing Director of North Capital With the rapid growth of the Internet, the JOBS Act has enabled accredited investors to find and support private investment ventures online, allowingonline. This allows issuers to overcome geographical limitations and helpsing intermediaries create a powerful deal flow with virtually unlimited reach. With this new market comes a new challenge: how to keep secure investors’ sensitive financial data secure.
Digital security is breached more often than most people realize. According to statistics from StopTheHacker.com:
- Hackers can crack a six-character lowercase password in 10 minutes (but with two extra characters and a few capital letters, the time to crack the password jumps to 3 years);
- A recent survey reported that 90 percent of businesses have suffered some form of computer hack;
- More than 30,000 websites are infected with some type of malware every day—most belonging to small or mid-sized businesses.
In addition, the FTC reports that:
- There has been an 81% increase in identity theft complaints since 2000;
- An average identity theft victim will spend 330 hours repairing the damage;
- 66% of identity theft victims have their personal information used by thieves to open new credit accounts;
- 70% of identity theft victims have difficulty eliminating negative information in their credit records—or they are never able to get rid of it;
- 12% of identity theft victims have arrest warrants issued in their names for financial crimes committed by the person who stole their identity;
Hacking and identity theft pose a significant risk to investors working through online platforms. If financial data is accessed, hackers could gain access to credit card numbers or even bank account numbers, resulting in devastating financial losses and potentially serious legal issues.
Securely verifying accredited investors: What defines “accredited” ?
While the JOBS Act has unlocked new opportunities for businesses and investors, this access to deal flow comes with more stringent screening requirements to screenfor potential investors.
Under Title II of the JOBS Act, an investor must be verified as an accredited investor.
The term “accredited investor” is defined in Rule 501 of the Securities Act of 1933, and includes:
- Any individual who has earned $200,000 annually for the past two years; or
- Who, with a spouse, earned $300,000 jointly for each of the past two years; or
- Any individual with a net worth of $1 million or more, excluding the value of their primary residence.
The guidelines for determining accredited investor status are set by the Securities and Exchange Commission (SEC) and reviewed every four years.
Solving security problems for online investment platforms
Verifying accredited status requires an investor to exchange personal financial information with an authorized person, such as a lawyer, broker dealer, accountant, financial advisor, or the issuer itself.
Due to the proliferation of financial platforms and the lack of a centralized location for tracking accredited investor status, there is a higher risk of leakage or identity theft. It is essential for investors to work with a verification firm that can provide advanced digital security and keep safeguard sensitive data safe from cyber thieves and hackers.
Some verification firms are providing the secure solutions needed to protect investors and their data. North Capital Private Securities, a registered broker dealer and member FINRA and SIPC, has developed a proprietary service through its affiliated Accredited.AM portal, to determine confirm an investor’s accredited status and keep secure sensitive information safe.
Once an investor is verified, North Capital provides a letter of attestation that can be used withsubmitted to any issuer, investment platform, bank, or broker-dealer that requires verification to comply with Rule 506c of the JOBS Act. Recipients can authenticate the letter to ensure that it is genuineits legitimacy. Verification only has to be done once, and is valid for at least three months from the date of issuance.
Jim Dowd, Managing Director of North Capital, believes that consolidating verification will reduce risk for investors. “By reducing the amount of personal financial information circulating online, and especially by eliminating the emailing of sensitive financial information, we expect to substantially reduce the risk of identity theft related to online private offerings.” North Capital offers the service at no charge to individual investors.
Although tThere is no known instance of identify theft from a funding platform. But with, the number of participants and deals are increasing by the day. , Iit is only a matter of time before someone reports a data breach. Investors should ensure that the platforms they deal withuse have policies in place to protect their confidential data, and that their confidential financial information is protected..