On March 12, 2025, the staff of the Securities and Exchange Commission (SEC) issued a series of updates to the Securities Act Rules Compliance and Disclosure Interpretations (C&DIs), primarily affecting exempt offerings under Regulation D, Regulation A, and Regulation Crowdfunding, while withdrawing several older C&DIs. These updates to C&DIs aim to streamline private offerings and align with the SEC’s recent efforts to provide greater flexibility for capital-raising transactions. On the same day, the staff of the SEC also issued a no-action letter providing new interpretive guidance on the verification of accredited investor status in offerings conducted under Rule 506(c) of Regulation D under the Securities Act of 1933, as amended (Securities Act) (which involve the use of general solicitation and advertising). This Alert focuses on questions 256.35 and 256.36 of the new C&DIs (SEC guidance) and the no-action letter, each of which relate to raising capital under Rule 506(c) of Regulation D.

Guidance on Rule 506(c) Offerings

For companies looking to raise capital without the complexity and cost of a public offering, Regulation D under the Securities Act offers a key exemption from registering an offering with the SEC. Under Rule 506(c) of Regulation D issuers may engage in general solicitation and general advertising in connection with an offering so long as issuers take “reasonable steps” to verify the accredited investor status of all investors.

Because of the extra due diligence required for verification that can lead to higher compliance costs, Rule 506(c) is used less frequently than Rule 506(b) under Regulation D, which prohibits general solicitation or general advertising. The SEC guidance clarifies that the list of verification methods in Rule 506(c) are not exclusive or mandatory and that the verification process should be a facts and circumstances analysis. According to the SEC guidance, relevant factors to consider in determining whether reasonable steps are taken to verify the status of investors include the following:

1. The nature of the purchaser and the type of accredited investor they claim to be;
2. The amount and type of information the issuer has about the purchaser; and
3. The nature of the offering, including how the purchaser was solicited and the terms of the offering (e.g., a minimum investment amount).

The SEC staff notes that these factors are interconnected. The more likely an investor appears to be accredited, the fewer steps the issuer may need to take to verify investor status, and vice versa.

In the related no-action letter, the SEC also acknowledged that a high minimum investment amount “is a relevant factor in verifying accredited investor status.” The request that prompted the no-action letter suggested a threshold of $200,000 for individuals and $1 million for legal entities as a minimum investment amount.

In addition to the high minimum investment, investors must provide written representations that (i) they are an accredited investor and (ii) the minimum investment is not financed, in whole or part, by a third party for the specific purpose of making the particular investment in the issuer. An issuer must also have “no actual knowledge” indicating an investor is not accredited or that the investment is being financed by a third party for the specific purpose of making the particular investment in the issuer.

What This Means for Capital Raising

The SEC guidance and no-action letter provide more flexibility to certain issuers seeking to raise private capital by means of general solicitation and advertising under Rule 506(c). With the ability to rely on a minimum investment amount and written representations, offerings under Rule 506(c) are expected to become less burdensome for issuers looking to raise capital broadly from investors willing to commit to a high minimum investment.