Rule 506(c) creates a path for more general solicitations in the context of exempt offerings of securities under Regulation D. Recent interpretive guidance from the U.S. Securities and Exchange Commission (SEC) has clarified how issuers can satisfy the accredited investor verification requirement under Rule 506(c) of Regulation D. This guidance may make it significantly easier for companies to make use of this Rule when raising capital from accredited investors.
Rule 506(c) of Regulation D under the Securities Act of 1933 allows issuers to engage in broader general solicitation and advertising as compared with the other exemptions available under Regulation D which do not permit any advertising or general solicitation. The essential requirements of Rule 506(c) remain:
- All purchasers must be accredited investors, and
- The issuer must take “reasonable steps to verify” that each purchaser is accredited.
While Rule 506(c) has long offered the potential for broader outreach than traditional private placements under Rule 506(b), many issuers have been reluctant to rely on it. The primary concern has been uncertainty around what constitutes “reasonable steps” to verify accredited investor status and the perceived burden and awkwardness of collecting and reviewing sensitive investor documentation. Prior to this interpretive guidance, the generally accepted belief was that issuers had to obtain third-party support for an investor being accredited. That third-party support could include letters from financial advisors and accountants or financial documentation such as account statements. The interpretive guidance to Rule 506(c) does away with this process.
New SEC No-Action Letter and Staff Interpretations
On March 12, 2025, the SEC’s Division of Corporation Finance issued a no-action letter and updated compliance and disclosure interpretations that provide welcome clarity on acceptable verification practices under Rule 506(c).
Under this guidance, issuers may reasonably conclude that they have satisfied the verification requirement where they:
- Written Investor Representations
The sponsor obtains written representations from each prospective investor confirming that the investor:- Is an accredited investor; and
- Is not specifically financing, in whole or in part, the minimum investment amount.
- Minimum Investment Amount
The prospective investor’s minimum investment amount—whether made directly or through a binding capital commitment—must be:- At least $200,000 for natural persons; or
- At least $1,000,000 for legal entities.
- No Contrary Actual Knowledge
The sponsor must not have actual knowledge of any facts indicating that:- A prospective investor is not an accredited investor; or
- A prospective investor has used third-party financing specifically to fund the minimum investment amount.
Notably, the SEC indicated that minimum investment thresholds of at least $200,000 for natural persons and $1 million for entities, when combined with investor representations confirming accredited status and the absence of third-party financing, may be sufficient in appropriate circumstances. The principal takeaway is that the relaxed verification standards apply where the offering is directed at individual investors who can make a $200,000 investment.
These standards offer a more objective and practical approach to verification than earlier practices that often relied on intrusive documentation such as tax returns, bank statements or third-party verification letters.
Practical Impacts for Issuers and Sponsors
Not a Bright-Line Rule
It is important to keep in mind that the SEC’s guidance is interpretive and fact-specific. It does not establish a formal safe harbor or replace the underlying statutory requirement to take reasonable steps to verify accredited investor status. Different facts and circumstances may lead to different conclusions, and the guidance does not eliminate potential liability under the federal securities laws.
Practical Steps for Issuers Considering Rule 506(c)
Issuers evaluating whether to rely on Rule 506(c) should consider the following actions:
- Review Offering Terms: Assess whether minimum investment thresholds ($200,000 for individual investors and $1 million for entities) align with your investor base and fundraising objectives.
- Update Subscription Agreements: Ensure that offering documents (particularly the subscription agreement) include appropriate written representations regarding accredited investor status and sources of investment funds.
- Document Verification Decisions: Maintain clear records of how verification determinations are made, particularly if relying on minimum investment criteria.
- Coordinate with Marketing Plans: If general solicitation will be used — through digital campaigns, events, or press outreach — confirm that marketing efforts align with Rule 506(c) compliance standards.
- Address Related Compliance Obligations: Even when relying on Rule 506(c), issuers must continue to comply with state notice filings (“blue sky” laws) and antifraud requirements.
Bottom Line
The SEC’s recent interpretive guidance meaningfully improves the practical usability of Rule 506(c) for exempt securities offerings. While Rule 506(b) remains a well-established option for traditional private placements, the increased clarity around accredited investor verification may prompt more issuers to consider broader capital-raising strategies under Rule 506(c).