NEED TO MEET: PHILIP SEGAL, Founder, Charles Griffin Intelligence

That category is now beginning to develop, as corporate investigators such as Philip Segal expand their practices to take in the due diligence of prospective limited partners. Segal sees a business opportunity to expand his firm’s services to a larger group of fund sponsors, he said. “They’re going to bear some responsibility for making sure that people investing with them have enough money to do that.”

Segal, a journalist-turned-lawyer who is the founder of Charles Griffin Intelligence, a New York-based consulting firm specializing in corporate due diligence, is looking at a provision of the Jumpstart Our Business Startups Act that eliminates the prohibition against general marketing of fund investments while also still limiting fund investments to accredited investors.

The law requires fund managers to demonstrate, among other things, that their investors are truly accredited and financially sophisticated. Charles Griffin Intelligence says its Accredited Investor Verification Service will examine investors’ professional licenses, U.S. securities filings, court records, and conduct on-site court searches for filings that are not available online.

An investor might be able to supply a bank’s certification verifying a $1 million account, for instance, but the individual could be in litigation that affects those assets. Likewise, the owner of a company that looks clean might be found to have changed its name from a brand that had problems or might be linked to other companies with problems.

Although the firm has marketed the new service primarily to hedge funds, the issues are the same for private equity or anyone who takes advantage of the Regulation D Section 506 safe harbor exemption for marketing, Segal said. “We’re in the people business. We get people’s stories,” he said. “What we offer is proper due diligence on a person.”

The Securities and Exchange Commission is behind schedule to deliver the rules, and former SEC Chairwoman Mary Schapiro was known to be concerned about investor protection issues that the JOBS Act appeared to open up. Mary Jo White, the commission’s new chairwoman, has promised to step up the pace of rulemaking, but the commission also is behind on enacting Dodd-Frank rules, a law that passed nearly two years earlier.

“I don’t think a lot of people know how much (information on investors) they’re going to want until the rules come out,” Segal said. “There’s a pretty persuasive case they’re going to have to do more than they have been used to doing.”

Even a person who meets the criteria for accredited investors may not be financially sophisticated, Segal said. “In my experience, there is a large swath of people with a million or two to invest and don’t know what they’re doing.”

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