SEC Staff Provides Guidance on Accredited Investor Verification in General Solicitation Securities Offerings
On March 12, 2025, the staff of the Division of Corporation Finance of the U.S. Securities and Exchange Commission (the “SEC”) issued a no-action letter to Latham & Watkins LLP, providing interpretive guidance on verifying accredited investor status under Rule 506(c) of Regulation D. The no-action letter clarifies that issuers can rely on minimum investment amounts, coupled with certain written representations and conditions, as a factor in taking reasonable steps to verify that purchasers in a Rule 506(c) offering are accredited investors.[1]
Background
Rule 506(c) of Regulation D permits issuers to use general solicitation or general advertising to offer securities to potential investors, provided that the issuer takes reasonable steps to verify that all purchasers are accredited investors.[2] Accredited investors are persons or entities that meet certain wealth or financial sophistication criteria, including having an annual income of over $200,000 or a net worth of over $1 million for individuals or having total assets of over $5 million for entities.
However, Rule 506(c) also imposes a verification requirement not present in the more traditional Rule 506(b) offering, which allows issuers to raise unlimited funds from accredited investors, and up to 35 non-accredited investors (subject to certain disclosure obligations), with whom a pre-existing substantive relationship exists but prohibits general solicitation. The verification requirement was intended to protect investors and ensure that only those who can bear the risk of investing in unregistered securities are able to participate in general solicitation offerings.
The SEC did not prescribe a uniform method of verification for Rule 506(c) offerings but instead provided a principles-based approach that requires issuers to take reasonable steps to verify accredited investor status, considering the facts and circumstances of each offering and each purchaser.[3] However, such verification has proven burdensome to issuers who may incur additional costs and delays, while some investors may be reluctant to share sensitive personal or financial information with issuers or third parties. The result has been an underuse of general solicitation offerings relative to traditional private placements without general solicitation.[4]
No-Action Letter
In response to a request from Latham & Watkins LLP, the SEC staff agreed that a high minimum investment amount is a relevant factor in verifying accredited investor status, and that an issuer could reasonably conclude that it has taken reasonable steps to verify that purchasers in a Rule 506(c) offering are accredited investors if the issuer requires the following:
Written representation that the purchaser is an accredited investor and that the purchaser’s minimum investment amount is not financed by any third party for the specific purpose of making the investment in the issuer.
For natural persons, a minimum investment amount of at least $200,000.
For entities accredited by total assets, a minimum investment amount of at least $1,000,000.
For entities accredited solely by all equity owners’ accredited investor status, the preceding purchaser requirements would apply to each equity owner. In particular, if all of the purchaser’s equity owners are fewer than five natural persons, the purchaser’s minimum investment would be $200,000 per equity owner.
In addition, the issuer must have no actual knowledge of any facts that indicate that any purchaser is not an accredited investor or that any purchaser’s minimum investment amount was financed by any third party for the specific purpose of making the investment in the issuer.[5]
Implications
The no-action letter provides clarification and a practical alternative for issuers seeking to verify accredited investor status in Rule 506(c) offerings. By relying on minimum investment amounts and written representations, issuers can avoid the burden and uncertainty of obtaining and reviewing other forms of verification, such as financial documents or third-party confirmations, and can respect the privacy and preferences of purchasers who may not wish to disclose such information. The no-action letter also recognizes that a high minimum investment amount is indicative of a purchaser’s financial sophistication and ability to bear the risk of loss, and that the likelihood of a purchaser being an accredited investor increases with the amount of the investment.[6]
However, as explicitly stated therein, the no-action letter “is not a rule, regulation, or statement of” the SEC, and the SEC has “neither approved nor disapproved its content.” As is generally the case with no-action letters, relief is provided to the requester based on the specific facts and circumstances set forth in the request. Therefore, the no-action letter does not eliminate the need for issuers to consider the facts and circumstances of each offering and each purchaser, and to apply the reasonableness standard in verifying accredited investor status, particularly in light of the potential liability for making a Rule 506(c) offering to a purchaser who turns out to be a non-accredited investor. Nevertheless, the no-action letter is significant in its potential impact and broad application for companies wishing to raise capital through general solicitation offerings.
PierFerd will continue to monitor the developments and guidance regarding Rule 506(c) offerings and the verification of accredited investor status. If you have any questions or would like to discuss the implications of the no-action letter for your business, please contact Ahpaly Coradin at ahpaly.coradin@pierferd.com, Michael Pierson at michael.pierson@pierferd.com or your regular PierFerd contact for assistance.
This publication and/or any linked publications herein do not constitute legal, accounting, or other professional advice or opinions on specific facts or matters and, accordingly, the author(s) and PierFerd assume no liability whatsoever in connection with its use. Pursuant to applicable rules of professional conduct, this publication may constitute Attorney Advertising. © 2025 Pierson Ferdinand LLP.
[1] SEC.gov | No Action Letter: Latham & Watkins
[2] The SEC adopted Rule 506(c) in 2013, pursuant to the mandate of the JOBS Act of 2012, to facilitate capital raising and broaden the pool of potential investors for private companies.
[3] The SEC also provided four non-exclusive and non-mandatory examples of verification methods for natural persons, such as reviewing tax returns, bank statements, or third-party confirmations. See Release No. 33-9415, Eliminating the Prohibition Against General Solicitation and General Advertising in Rule 506 and Rule 144A Offerings (July 10, 2013).
[5] See generally latham-watkins506c-031225-incoming.pdf
[6] Supra n. 1.
