By: Tom Scriven

New York, New York – In a recent No Action Letter, the Securities and Exchange Commission (SEC) staff took a significant step towards simplifying investor verification requirements for private funds, companies and other issuers raising capital relying on Rule 506(c) of Regulation D.

This development may expand the use of Rule 506(c), which permits general solicitation in private offerings but has seen limited adoption due to concerns about its verification requirements.

Background

Rule 506(c) of Regulation D allows issuers to conduct general solicitation and advertising in connection with a securities offering, provided that sales are limited to accredited investors. However, issuers must take “reasonable steps” to verify investors’ accredited status, a requirement historically viewed as more burdensome than the self-certification permitted under Rule 506(b), which prohibits general solicitation.

Key Elements of the New Guidance

In a no-action letter dated March 12, 2025, the SEC staff stated that an issuer may rely on self-certification of “accredited investor” status to fulfill the requirement in Rule 506(c) provided that the following additional requirements are satisfied:

1. High Minimum Investment Threshold: Participation in the offering must be subject to the following minimum investment amounts:
   • At least $200,000 for natural persons and
   • At least $1 million for legal entities
2. Written Representations from Investors: Investors participating in the offering must provide representations that:
   • They are an accredited investor and
   • Their investment is not financed by a third party for the specific purpose of making the particular investment in the issuer.

The issuer must not have actual knowledge contradicting the foregoing investor representations.

Practical Implications

The above guidance was issued by the SEC staff in a no action letter with respect to a particular issuer and, as such, has no legal force or effect. The guidance, nonetheless, informs how the current SEC Staff is likely to interpret Rule 506(c)’s verification requirement and thus may warrant a reconsideration of Rule 506(c) by certain issuers for future offerings.

Additional Considerations for Implementation

Transitioning an Ongoing Rule 506(b) Offering to a Rule 506(c) Offering

Issuers with a live Rule 506(b) offering who choose to transition to a Rule 506(c) offering generally would need to take the following steps, in addition to complying with Rule 506(c)’s verification requirements:

• File an amended Form D reporting the transition to reliance on Rule 506(c), rather than Rule 506(b).
• Apply verification requirements to all new investors.
• Update offering materials to remove statements regarding the absence of general solicitation or other statements that are relevant only if the offering is being conducted in reliance on Rule 506(b).

Marketing Rule Compliance

Issuers relying on Rule 506(c) must ensure that marketing materials distributed in connection with the offering comply with the Investment Advisers Act’s Marketing Rule (Rule 206(4)-1), if managed by an SEC-registered investment adviser. This includes adhering to requirements for past and hypothetical performance disclosures.

Compliance with State “Blue Sky” Laws and Requirements of Non-U.S. Jurisdictions

In addition, issuers relying on Rule 506(c) should be mindful of other requirements and considerations associated with relying on Rule 506(c), such as compliance with states’ “blue sky” laws and legal requirements associated with marketing securities in non-U.S. jurisdictions.

To discuss how this new guidance may impact your fundraising strategy, please contact a member of the RPCK investment funds practice group.

Please note that this alert is for informational purposes only and does not constitute legal advice.