SEC Provides Rule 506(c) Guidance for Accredited Investor Verification

On March 12, 2025, the Securities and Exchange Commission (the “SEC”)  Division of Corporation Finance issued a no-action letter providing SEC guidance as to Rule 506(c) of Regulation D of the Securities Act of 1933 (the “Securities Act”).  The SEC guidance provides private and public companies with an easier path to rely on Rule 506(c) and advertise and raise investment funds from investors publicly and privately pursuant to the Rule 506(c) exemption. Unlike Rule 506(c), Rule 506(b) of Regulation D places limits on general solicitation and advertising.

Regulation D provides an attractive alternative to the registration requirements of the Securities Act and is the most commonly used SEC exemption. Issuers in 506(c) offerings may engage in general advertising/solicitation, provided that the offering is limited only to accredited investors and the issuer takes reasonable steps to verify that each investor is accredited.

The no-action letter provides helpful guidance on the verification of accredited investor status in Rule 506(c) of Regulation D. Specifically, the SEC staff indicates that issuers may rely on minimum investment amounts in Rule 506(c) offerings as a way to verify a purchaser’s accredited investor status. In the SEC no-action guidance, the SEC staff indicated that the minimum investment amounts should be at least $200,000 for natural persons and at least $1 million for corporate entities.

Prior to the SEC guidance, market participants had limited guidance from the SEC staff on 506(c) verification requirements. Rule 506(c)(2)(ii) provides a nonexclusive list of documents that could be used for accredited investor verification. This list includes two years of income tax returns, bank statements, brokerage statements and third-party appraisals, a consumer report from one of the nationwide consumer reporting agencies, and/or written confirmations from brokers, attorneys, or accountants.

Many investors were uncomfortable providing these sensitive materials and, as such, have been reluctant to participate in Rule 506(c) offerings. 

The SEC guidance permits Rule 506(c) accredited investor verification as follows:

• Minimum Investment of $200,000 for individuals and $1 million for entities: The SEC guidance allows issuers to rely on minimum investment amounts of at least $200,000 for natural persons and at least $1 million for corporate entities and considers this a reasonable step to verify Rule 506(c) accredited investor status.
• Written Representations: Issuers conducting Rule 506(c) offerings must obtain representations from the purchaser confirming that it is an accredited investor who has not financed its investment through a third party.
• No Actual Knowledge: The issuer must have no actual knowledge of any facts that indicate a purchaser (1) is not an accredited investor or (2) has financed the investment.

The SEC guidance in response to the no-action letter is the first that the SEC staff has issued on interpreting Rule 506(c)’s verification requirements since the rule was adopted. The guidance streamlines the verification process for many issuers conducting 506(c) offerings and provides an easier path for companies to advertise and raise investment funds from investors relying on Rule 506(c).

This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes. For more information about this securities law blog post or to speak with a Securities Attorney, please contact Brenda Hamilton at 200 E Palmetto Rd, Suite 103, Boca Raton, Florida, (561) 416-8956, or by email at [email protected].

Hamilton & Associates | Securities Attorneys
Brenda Hamilton, Securities Attorney
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Boca Raton, Florida 33432
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