SEC Eases Accredited Investor Verification for Rule 506(c) Offerings
In a move aimed at simplifying capital-raising efforts, the U.S. Securities and Exchange Commission (SEC) has issued new guidance easing the verification process for accredited investors under Regulation D, Rule 506(c).
Background on Rule 506(c)
Rule 506(c), established under the Jumpstart Our Business Startups (JOBS) Act of 2012, permits issuers to engage in general solicitation and advertising when offering securities, provided that all purchasers are accredited investors and the issuer takes reasonable steps to verify this status.
New SEC Guidance
On March 12, 2025, the SEC issued a no-action letter clarifying that issuers can now rely on high minimum investment thresholds coupled with written representations from investors to satisfy the accredited investor verification requirement. Specifically:
Natural Persons: A minimum investment of at least $200,000, along with a written representation confirming accredited investor status and that the investment is not financed by a third party.
Legal Entities: A minimum investment of at least $1,000,000, with similar written representations as required for natural persons.
Issuers must also ensure they have no actual knowledge of any facts indicating that a purchaser is not an accredited investor or that the investment is financed by a third party.
Implications for Capital Raising
This development is expected to reduce compliance burdens for issuers, making Rule 506(c) offerings more accessible. By allowing reliance on substantial investment amounts and investor attestations, the SEC aims to encourage broader use of general solicitation, potentially increasing capital flow into private markets.
Industry Response
Legal experts view this as a significant shift. Kevin S. Kim, a securities attorney, noted that the new guidance "streamlines the accredited investor verification process," thereby "easing compliance burdens and streamlining online fundraising for issuers."
Conclusion
The SEC's updated guidance on Rule 506(c) represents a pivotal change in the regulatory landscape, simplifying the process for issuers to verify accredited investors. This move is anticipated to facilitate capital formation and expand investment opportunities within the private securities market.
