ARTICLE · 17 MAY 2011

OSC Expresses Concern Regarding Improper Reliance On The Accredited Investor Exemption

Stikeman Elliott LLP

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The OSC today released a staff notice expressing concern that issuers and dealers are relying on the accredited investor exemption to sell exempt securities to individual investors who do not meet the applicable requirements of the exemption.

CanadaStrategy

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The OSC today released a staff notice expressing concern that issuers and dealers are relying on the accredited investor exemption to sell exempt securities to individual investors who do not meet the applicable requirements of the exemption. According to the OSC, many dealers are failing to collect adequate know-your-client (KYC) information to reasonably determine whether the investor is an accredited investor, and today's notice is intended to set out the OSC's expectations for issuers and dealers selling securities to accredited investors.

The notice focuses on the $1,000,000 financial asset and $5,000,000 net asset tests that apply to individual investors under the definition of "accredited investor" in National Instrument 45-106 Prospectus and Registration Exemptions. Staff have expressed concern that the two concepts are being confused. The higher threshold test based on "net assets" could include an investor's personal residence or other real estate (minus

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