and the collaboration among investors
demonstrates a certain degree of
financial sophistication.
The PCMA submits that the ASC should
approve certain angel groups as ‘
designated angel groups’ and allow members
of such groups, subject to certain
requirements have satisfied the definition of AI. To be a ‘designated angel
group’, the ASC would have to develop
standards by which such groups may
qualify. A member of a ‘designated angel
group’ would then be an eligible AI
provided that they have been a member
for at least a specified period of time and
taken an Angel Investor Course.
The PCMA believes that as an alternative to an Accredited Investor Exam,
angel groups could prepare a qualification exam (i.e., Angel Investor Course
Exam), that satisfies the ASC curriculum requirements (to be developed by
the ASC in consultation with the
National Angel Capital Organization)
and, if it such an exam was successfully
completed by an individual, they would
then be qualified as an AI.
Self-Certified Investors
Another approach the ASC could
consider in changing the AI definition
would be to allow investors to self-certify
certain matters, as they do in the UK, as
discussed below.
The PCMA submits that the ASC should
also permit individuals to self-certify
they are a sophisticated investor as they
do in the United Kingdom (the “UK”)
which the PCMA submits should be
sufficient to satisfy the AI definition.
The UK permits self-certification by an
individual who is a “sophisticated
investor” and its criteria are set out in
Schedule B.
Self-Certified Restricted Investor
The PCMA submits that the ASC should
also permit individuals to self-certify
they are a sophisticated investor as they
do in the UK which would satisfy the AI
An example of the type of Restricted
Investor Certificate a qualified investor
completes in the UK that would have to
be tailored for Alberta securities law is
set out in Schedule C.
d) Challenges associated with confirming accredited investor status
The PCMA believes it is important that
alternative means be provided to verify
that an individual is an AI. Many EMDs
have compliance processes used for
determining the income and assets of an
investor that make up part of their KYC
forms. Some EMDs use a spreadsheet as
an information gathering tool to obtain
more detailed information about an
investor’s assets and liabilities to
determine whether they satisfy various
financial thresholds as an AI under the
AI Exemption or an “eligible investor”
(“EI”) under the OM Exemption.
Unless there is a glaring red flag, an
EMD typically does not request a copy of
an investor’s income tax return or
notice of assessment. Many investors
consider such information ‘highly’
confidential and do not feel comfortable
providing it to a third party. Accordingly,
despite reasonable efforts of an EMD to
correctly verify the AI status of an
investor, and the investor signing
various documents attesting to being an
AI, the investor may provide inaccurate
information to satisfy the AI Exemption.
The impact of any incorrect information
may adversely impact reliance on the AI
Exemption. In such circumstances,
doubt would be cast on the EMD’s
procedures for AI verification which
could result in regulatory or enforce-
ment action.
For the above reasons, the PCMA
believes the ASC should allow third
parties, or the ASC itself, to verify an
investors status as an AI or EI which
could be relied upon by an issuer and/or
registrant in connection with any trade
under the AI Exemption or OM Exemption respectively as applicable.
The PCMA has set out in Schedule D
various considerations involving AI
verification that the ASC should
consider.
e) Registration exemption for finders
The PCMA agrees that SMEs raising
modest amounts of capital have significant difficulty in attracting a registered
dealer, such as an EMD, to sell their
offering. We also agree that these
difficulties are exacerbated in rural or
smaller communities given the
geographical distance to a registered
dealer.
The PCMA, however, also recognizes
that the regulatory compliance burden
placed on EMDs is too great relative to
the time, money and effort required by
an EMD to raise small amounts of
capital for SMEs. It takes considerable
effort for an EMD to complete due
diligence on an issuer and its offering,
albeit a SME, who often cannot afford
skilled and experienced legal counsel or
auditors to help them with structuring
and preparing all offering documents.
This will be exacerbated if the ASC and
other CSA members implement some or
all of the proposed Client Focussed
Reforms. Such added compliance
burdens are forcing EMDs to look at
larger or institutional quality issuers
