Navigating the complexities of private offerings just got a bit easier. On March 12, 2025, the SEC’s Division of Corporation Finance released a no-action letter providing much-needed clarity on how issuers can satisfy the accredited investor verification requirements under Rule 506(c) of Regulation D. This development expands the permissible methods of verification, granting fund sponsors and issuers more flexibility, especially when relying on general solicitation. 

In this post, we dive into what the SEC’s letter means, the new flexibility granted, and why this matters to investment advisers. 

Understanding the SEC’s No-Action Letter: What Changed? 

Rule 506(c) allows issuers to broadly advertise their private offerings but requires “reasonable steps” to verify that all investors are accredited. Traditionally, this meant collecting personal financial documentation or using costly third-party verifiers, which could create operational hurdles. 

The SEC’s no-action letter clarifies that issuers can now rely more on high minimum investment thresholds coupled with investor representations, provided they do not have actual knowledge contradicting such claims. This means that fund sponsors can reduce invasive documentation collection and expensive third-party checks without sacrificing compliance. 

Key Standards by Investor Type 

The letter outlines a tiered approach based on investor type and investment amount. Natural persons must invest at least $200,000, affirm accredited investor status, and ensure no third−party financing, with the issuer lacking contradicting knowledge. Entities accredited by assets require a minimum $1,000,000 investment, with similar affirmation and conditions. Entities with all equity owners accredited must invest $1,000,000 in aggregate or $200,000 per owner (if five or fewer owners), affirm all owners’ accredited status, and confirm no third-party financing, under the same issuer knowledge condition.  

This framework expands flexibility while stressing the importance of honesty and due diligence. 

No New Safe Harbor, But Meaningful Operational Relief 

It’s important to note that this letter does not establish a new safe harbor under Rule 506(c). Instead, it confirms that under the rule’s existing principles-based framework, issuers may satisfy their verification duties using this flexible approach in appropriate cases. 

Issuers must still assess each situation carefully, remain alert to any red flags or inconsistent information, and exercise judgment based on facts and circumstances. 

Why Investment Advisers Should Pay Attention 

For investment advisers involved in private placements, this update offers several benefits: 

• Simplified Investor Onboarding: Reduced need for collecting sensitive financial documents lowers administrative burden. 

• Broader Access Through General Solicitation: Easier accredited investor verification facilitates reaching a wider audience. 

• Cost Savings: Less dependence on expensive third-party verification services improves operational efficiency. 

However, advisers must remain vigilant to their continuing obligations, including: 

• Compliance with state notice filings. 

• Adherence to anti-fraud rules. 

• Ensuring marketing materials respect any jurisdictional restrictions, especially for foreign investors. 

Conclusion 

The SEC’s no-action letter on accredited investor verification under Rule 506(c) marks an important evolution in simplifying private offering compliance. By recognizing the reasonableness of using high minimum investments combined with investor representations, the SEC helps investment advisers streamline the fundraising process without compromising investor protection. 

As with all regulatory updates, maintaining careful compliance and exercising sound judgment remain paramount. Investment advisers should update their verification practices accordingly to take advantage of this relief while continuing to safeguard their clients and comply with all relevant rules. 

Staying informed and adaptable is key—embrace the SEC’s updated guidance to improve your private offering strategies today! 

Download the complete First Quarter 2025 Regulatory Update today to find out more.