SEC Staff Provides Guidance on Private Offerings to Accredited Investors That Permit General Solicitation and Other Exemptions
On March 12, 2025, the U.S. Securities and Exchange Commission (SEC)’s Division of Corporation Finance (SEC Staff) published new and revised Compliance and Disclosure Interpretations (C&DIs) regarding private offering exemptions. In particular, the SEC Staff published two new C&DIs under Rule 502 (Questions 256.35 and 256.36) of the Securities Act of 1933 (Securities Act), effectively providing a new safe harbor for verifying “accredited investor” status in a Rule 506(c) offering. This new safe harbor may enable broader public outreach and advertising efforts by private issuers of securities.
Background
In 2012, as part of an overall economic stimulus effort, Congress directed the SEC to eliminate prohibitions on “general solicitation” in private placements of securities conducted under the registration exemption afforded by Regulation D under the Securities Act. The SEC’s response was Rule 506(c), adopted in 2013, which permits an issuer conducting a private placement under Regulation D to engage in general solicitation activities, so long as that issuer takes reasonable steps to verify that all ultimate investors in the offering are accredited investors.
While the SEC Staff provided several examples of reasonable verification measures in the adopting release, the industry perceived the objective examples to be overly burdensome and the subjective guidance to be too risky. As a result, Rule 506(c) offerings have been relatively rare.
New Guidance
The SEC Staff’s new guidance effectively provides a safe harbor for verifying “accredited investor” status in a Rule 506(c) offering.
Question 256.35 states that if an issuer does not satisfy any of the “non-exclusive and non-mandatory” verification safe harbors in Rule 506(c)(2)(ii), then it can apply the reasonableness standard directly to the specific facts and circumstances presented by the offering and the investors. The issuer should consider (1) the nature of the purchaser and the type of accredited investor that the purchaser claims to be, (2) the amount and type of information that the issuer has about the purchaser, and (3) the nature of the offering, such as the manner in which the purchaser was solicited to participate in the offering, and the terms of the offering, such as a minimum investment amount.
Question 256.36 states that when an issuer is conducting a Rule 506(c) offering, then depending on the facts and circumstances, the issuer may be able to reasonably conclude that reasonable steps to verify “accredited investor” status have been taken if the offering requires a high minimum investment amount. A related no-action letter provides additional detail regarding relevant conditions that would increase the likelihood that a purchaser is accredited. Under the no-action letter, SEC Staff agreed that an issuer could reasonably conclude that it has taken reasonably steps to verify “accredited investor” status if:
- the purchaser agrees to make a minimum investment of $200,000 (in the case of a natural person) or $1,000,000 (in the case of a legal entity),
- the purchaser provides written representations as to their “accredited investor” status and the fact that their minimum investment amount is not financed in whole or in part by any third party, and
- the issuer has no actual knowledge of any facts that indicate that any purchaser is not an accredited investor or that the minimum investment amount of any purchaser is financed in whole or in part by any third-party.
This concept is not wholly novel, as the SEC’s adopting release in 2013 discussed situations where a large minimum investment amount could be a proxy for adequate verification measures, but many issuers were unwilling to accept the uncertainty resulting from the SEC’s decision not to provide any objective criteria.
However, issuers should still proceed carefully in using Rule 506(c). Public statements can become sources of liability on antifraud theories, so substantive pre-approvals and reviews of outreach efforts will need to be considered.
Impact
This new SEC Staff guidance allows issuers to simplify the “accredited investor” verification process under Rule 506(c) (which permits issuers to broadly solicit and generally advertise an offering) by relying on high minimum investment amounts and purchasers’ written representations, reducing uncertainty and the need for burdensome due diligence. This addresses the concerns that many legal and compliance practitioners have with the need for greater public outreach, as most private offerings in the United States continue to rely on Rule 506(b) (which prohibits general solicitation and advertising). By providing objective criteria and practical methods for investor-specific verification, the SEC Staff is breathing new life into Rule 506(c) and offering a valid option for issuers to engage in public outreach.
Additional Information
See below for the full list of the recently updated C&DIs relating to private offering exemptions published on March 12, 2025:
- Securities Act Rules C&DIs
- Section 182. Rules 251 to 263
- Section 254. Regulation D Interpretations of General Applicability
- Section 255. Rule 501 — Definitions and Terms Used in Regulation D
- Section 256. Rule 502 — General Conditions to be Met
- Section 257. Rules 503 and 503T– Filing of Notice of Sales
- Section 258. Rule 504 — Exemption for Limited Offerings and Sales of Securities Not Exceeding $10,000,000
- Section 260. Rule 506 — Exemption for Limited Offers and Sales Without Regard to Dollar Amount of Offering
- Securities Act Sections C&DIs
- Section 234. Securities Act Section 4(2)
- Regulation Crowdfunding C&DIs
- Rule 100: Crowdfunding exemption and requirements
- Rule 204: Advertising
- Securities Act Forms C&DIs
- Section 130. Form D
