As of March 12, 2025, the U.S. Securities and Exchange Commission (SEC) has made a significant move that could reshape the landscape for capital raisers using Rule 506(c) under Regulation D. This update is not just a minor tweak; it’s a game changer for those looking to verify accredited investors efficiently. In this post, we’ll explore the implications of the SEC’s no-action letter, the changes to verification processes, and how you can leverage this powerful investment tool. 

Understanding Rule 506(c): A Brief Overview 

Rule 506(c) allows issuers to raise an unlimited amount of money from accredited investors while publicly soliciting their offerings. However, the previous verification requirements posed hurdles for many issuers. The SEC‘s recent clarifications aim to alleviate these challenges, making the process smoother and more accessible. 

The Landscape Before the SEC’s Update 

Strict Compliance Requirements 

Prior to the SEC’s no-action letter, issuers faced stringent compliance requirements to verify the status of accredited investors. This often involved collecting sensitive information such as tax returns, bank statements, and third-party attestations. For many, this process was not only time-consuming but also intrusive, leading to delays and potential investor discomfort. 

Challenges in Investor Onboarding 

The complexity of these requirements created barriers for fund managers, limiting their ability to efficiently onboard investors. Consequently, many issuers struggled to maintain momentum in their fundraising efforts, which is crucial in a competitive market. 

The SEC’s No-Action Letter: What’s Changed? 

New Verification Methods 

The SEC’s recent letter introduces a more flexible approach to verifying accredited investors. Issuers can now rely on high minimum investment thresholds—$1 million for entities and $200,000 for individuals—alongside written representations from investors attesting to their accredited status. This is a monumental shift that simplifies the verification process significantly. 

Reduced Compliance Burdens 

With the SEC’s update, compliance burdens are reduced, making Rule 506(c) more accessible for fund managers. This is particularly beneficial for those managing privately placed funds registered under the Investment Company Act of 1940. The clarity provided by the SEC allows issuers to focus on what truly matters—raising capital and building investor relationships. 

Enhanced Online Fundraising Capabilities 

The streamlined verification process also opens the door for issuers to market their offerings more effectively online. With fewer invasive requirements, issuers can expand their reach and attract a broader network of potential investors, reducing delays in onboarding and enhancing overall fundraising efficiency. 

Leveraging Rule 506(c) for Your Business 

Choosing the Right Exemption 

To capitalize on these changes, it’s essential to understand how to effectively utilize Rule 506(c) as part of your capital-raising strategy. Our article, “How to Choose the Right Exemption for Your Capital Raise,” provides an in-depth look at selecting the appropriate federal securities exemptions for your fundraising efforts. 

Expert Guidance for Fund Formation 

Navigating the complexities of Regulation D can be daunting. Our Corporate and Securities team is here to help. We specialize in guiding lenders through the intricacies of capital-raising options, ensuring that you choose the best path for your business. If you’re looking for expert-led guidance on your fund-formation strategy, don’t hesitate to reach out. 

A New Era for Capital Raising 

The SEC’s no-action letter represents a significant advancement for capital raisers utilizing Rule 506(c). By simplifying the verification process and reducing compliance burdens, the SEC has made it easier for issuers to connect with accredited investors. As you explore the opportunities presented by this update, remember that expert guidance can make all the difference in successfully navigating the capital-raising landscape. Embrace this change and position your business for growth in the evolving investment environment and contact LawVisory for assistance.