On March 12, 2025, the SEC’s Division of Corporation Finance issued a no-action letter that introduces a more flexible framework for verifying accredited investor status in offerings conducted under Rule 506(c) of Regulation D.[1] The staff agreed that issuers may reasonably rely on a purchaser’s investment amount, subject to specific conditions, as sufficient verification of accredited investor status. This new position marks a notable shift toward easing compliance burdens for private securities offerings.
Rule 506(c) allows issuers to broadly solicit and advertise private securities offerings, provided that all purchasers are accredited investors and the issuer takes “reasonable steps” to verify their status. An “accredited investor” is generally defined as an individual or entity that meets certain income, net worth, or asset-based thresholds, for example, individuals with income over $200,000 (or $300,000 with a spouse) or net worth over $1 million excluding a primary residence. Historically, verifying such status has required issuers to collect detailed personal financial information, such as tax returns, bank statements, or third-party certifications, which can be burdensome for both issuers and investors.
Under the new guidance, the SEC staff outlined the following conditions that issuers must meet to rely on minimum investment amounts as a reasonable verification method:
- Minimum Investment Thresholds:
- At least $200,000 for natural persons
- At least $1,000,000 for legal entities
- Written Representations from the Purchaser:
- The purchaser must confirm that they are an accredited investor
- The purchaser must confirm that the purchaser’s minimum investment amount (and, for purchasers that are legal entities accredited solely from the accredited investor status of all of their equity owners, the minimum investment amount of each of the purchaser’s equity owners) is not financed in whole or in part by any third party for the specific purpose of making the particular investment in the issuer
- No Actual Knowledge to the Contrary: The issuer must not have actual knowledge that:
- The purchaser is not an accredited investor, or
- The investment was financed by a third party
If all of these conditions are satisfied, the SEC staff will not recommend enforcement action for noncompliance with the Rule 506(c) verification requirements.
This no-action relief provides a more practical, streamlined path for private issuers to meet compliance obligations under Rule 506(c) without imposing excessive documentation demands on investors. By focusing on substantial investment thresholds and good-faith representations, the guidance is expected to promote broader participation in private offerings while maintaining investor protections.
Contact
Contact us today to discuss how this new guidance can benefit your next private offering and ensure your verification procedures remain compliant and efficient. Our practitioners are available to help you evaluate whether the minimum investment threshold approach is suitable for your offering, draft appropriate investor representations and documentation, and develop verification procedures that satisfy the SEC’s conditions.
This article was written by Xiaoyang Li. For more information, contact xiaoyang@bull-legal.com or schedule a consultation.
This article is for informational purposes only and does not constitute legal advice. For specific advice regarding your situation, please consult qualified counsel.
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[1] Latham & Watkins LLP, SEC No-Action Letter (Mar. 12, 2025), https://www.sec.gov/rules-regulations/no-action-interpretive-exemptive-letters/division-corporation-finance-no-action/latham-watkins-503c-031225.