Summary
Most private fund managers use Rule 506(b) because they are not engaging in general solicitation and instead rely on their pre-existing relationships; however, if you want to publicly market your fund (e.g., website pages, press releases, social media), you must rely on Rule 506(c). Before March 2025, you typically had to verify that each of your investors was accredited, for example, by obtaining a letter from their lawyer or accountant or reviewing their tax returns. In March 2025, the SEC issued a no-action letter stating that if an individual invests at least $200,000 and a company invests at least $1,000,000, you can rely on their representations in the subscription agreement that they are accredited and that the minimum investment amount was not financed by a third party. For any investors who invest less than those amounts, you'll still need to verify by another permissible method. If you want to switch to 506(c), you should file a Form D amendment, update your fund documents, and include those representations in your subscription agreement. Below is a detailed overview of the SEC no-action letter.
SEC Staff Guidance: Minimum Investment Amounts as a Basis for Rule 506(c) Verification
Published: March 12, 2025 — For informational purposes only; not legal advice.
On March 12, 2025, the SEC's Division of Corporation Finance (Office of Small Business Policy) issued a no-action letter regarding Rule 506(c) of Regulation D. Based on the facts presented, the staff indicated an issuer may reasonably conclude it has taken reasonable steps to verify purchasers' accredited investor status where high minimum investment amounts are used together with specified written representations and the issuer has no actual knowledge of facts indicating otherwise. The response reflects staff views only and is not a rule or Commission action.
Background
Rule 506(c) permits general solicitation if (i) all purchasers are accredited investors and (ii) the issuer takes reasonable steps to verify that status. Since adoption in 2013, the Commission has recognized that a high minimum investment amount can be a relevant factor in determining what constitutes reasonable steps, depending on the facts and circumstances.
Staff Position (as described in the SEC materials)
Subject to the conditions described in the incoming letter, the staff agreed an issuer could satisfy Rule 506(c)'s verification requirement where:
- Minimum investment amounts meet or exceed $200,000 for natural persons and $1,000,000 for legal entities (binding capital commitments may be included in these amounts).
- The issuer obtains written representations that the purchaser is an accredited investor (identifying the applicable Rule 501(a) category) and that the minimum investment amount is not financed in whole or in part by any third party for the specific purpose of making the investment in the issuer.
- The issuer has no actual knowledge of facts indicating otherwise, including no knowledge that a purchaser is not accredited or that the minimum amount was financed for the specific purpose of the investment.
Look-Through Entities (Rule 501(a)(8))
If a purchaser is accredited solely because each equity owner is accredited, the incoming letter contemplates owner-level confirmations and a look-through minimum (e.g., for entities with fewer than five natural-person owners, at least $200,000 per owner, or $1,000,000 in the aggregate), together with the same financing and "no actual knowledge" conditions.
Non-exclusive: The staff's response is one permissible approach. Issuers may continue to use other verification methods under Rule 506(c). The letter does not create new obligations and does not bind the Commission or a court.
Practical Implementation
1. Set offering minimums
State minimum investment or commitment thresholds in the offering materials consistent with the above amounts, if you intend to rely on this approach.
2. Integrate purchaser confirmations
In your onboarding/subscription process, obtain purchaser confirmations identifying the Rule 501(a) basis for accreditation and addressing third-party financing with respect to the minimum amount (and, where applicable, owner-level confirmations for look-through entities).
3. Assess for "facts indicating otherwise"
Maintain records sufficient to support the issuer's lack of actual knowledge of facts indicating otherwise. Where information calls a purchaser's status or financing representation into question, apply alternative verification methods permitted by Rule 506(c).
4. Recordkeeping
Retain evidence of minimum investments/commitments and executed confirmations consistent with your compliance program.
Cross-Border Marketing
Public communications undertaken for a Rule 506(c) offering in the U.S. may affect the availability of reverse-solicitation positions in certain non-U.S. jurisdictions (e.g., under AIFMD/MiFID II in the EU/UK). Consider local regimes before disseminating broadly.