Under Rule 506(c) of Regulation D of the Securities Act of 1933, as amended (the “Securities Act”), general solicitation of prospective purchasers is permitted if the issuer takes reasonable steps to verify the purchasers’ accredited investor status. Rule 506(c) enumerates non-exclusive and non-mandatory methods on which issuers can rely to satisfy the verification requirement, or issuers may apply a reasonableness standard directly to the specific facts and circumstances of the particular purchasers and transaction.
On March 12, 2025, the Division of Corporation Finance of the Securities and Exchange Commission offered interpretive guidance on the reasonable steps issuers must take to verify the accredited investor status of purchasers in offerings under Rule 506(c). Specifically, the Division of Corporation Finance agreed with the view that an issuer can reasonably determine it has taken reasonable steps to verify a purchaser’s accredited investor status in a Rule 506(c) offering if the following conditions are met:
- The issuer receives from the purchaser representations that (i) the purchaser is an accredited investor and (ii) the purchaser’s minimum investment amount is not financed in whole or in part by any third party for the specific purpose of making the particular investment in the issuer;
- The issuer requires a minimum investment amount of at least $200,000 for natural persons and at least $1,000,000 for legal entities;[1] and
- The issuer has no actual knowledge of any facts that indicate any purchaser is not an accredited investor or that any purchaser’s minimum investment amount was financed in whole or in part by any third party for the specific purpose of making the particular investment in the issuer.
Accordingly, the Division of Corporation Finance’s interpretation clarifies the reasonableness standard and lessens the burden on issuers relying on the reasonableness standard when verifying the accredited investor status of purchasers of securities in a Rule 506(c) offering. A link to the no action letter is included below.
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[1] For purchasers that are legal entities accredited by total assets, the minimum investment requirement is $1,000,000. For purchasers that are legal entities accredited solely by all equity owners’ accredited investor status, the minimum investment requirement is $1,000,000 or $200,000 for each of the purchaser’s equity owners if all such equity owners are fewer than five natural persons. In either case, the minimum investment requirement may be met pursuant to a binding commitment to invest at least the minimum amount in one or more installments, as and when called by the issuer.