On March 12, 2025, the staff of the Division of Corporate Finance (the staff) of the US Securities and Exchange Commission (the SEC) concurrently issued a no-action letter and interpretive guidance via new Compliance and Disclosure Interpretations (C&DIs) that helpfully clarify and expand the circumstances in which "accredited investor" status may be verified through investor self-certification when the minimum investment amount of an offering crosses applicable thresholds.

The private offering safe harbor afforded by Rule 506(c) of Regulation D (Rule 506(c)) under the Securities Act of 1933, as amended (the Securities Act), allows for the use of general solicitation and general advertising in connection with private placements, provided that, among other requirements, the issuer takes "reasonable steps" to verify that all of the participating purchasers qualify as "accredited investors" pursuant to SEC rules and regulations.¹ This accredited investor verification requirement has historically been viewed as materially limiting the usefulness of the Rule 506(c) safe harbor, as the requirement has been understood to necessitate the undertaking of an oftentimes administratively burdensome manual verification process of each participating investor's status and qualifications, including, for example, the collection and review of individual purchasers' tax returns to confirm income eligibility thresholds had been met or requiring the engagement of third-party services to confirm ownership of assets (as relying solely on representations delivered by the investors themselves with respect to such qualifications and metrics was deemed insufficient in terms of conducting the "reasonable steps" verification process required by Rule 506(c)).

Significantly however, the recent no-action letter and C&DIs confirm that an issuer may now reasonably conclude in the context of an offering under Rule 506(c) that it has taken reasonable steps to verify a purchaser's status as an accredited investor in circumstances where:

• the purchaser has agreed to make a minimum investment of (i) $200,000 if the purchaser is a natural person or (ii) $1,000,000 if the purchaser is an entity (including, in each case, with confirmation from the purchaser that if such purchase is being made via a capital commitment, that such commitment is binding);
• the purchaser provides representations both that (i) it is an accredited investor and that (ii) it is not receiving thirdparty financing in whole or in part with respect to the purchase; and
• the issuer does not have any actual knowledge indicating that the purchaser is not in fact an accredited investor or that any of its provided representations (including as to the lack of thirdparty financing) are untrue.

Although the no-action letter and C&DIs, by simplifying the accredited investor verification process in certain circumstances, are expected to enhance the attractiveness of the Rule 506(c) exemption for issuers conducting private offerings, it is important to note that if a Rule 506(c) offering fails to qualify for the safe harbor for any reason, and the issuer has already engaged in general solicitation with respect to such offering (as would normally be permitted under Rule 506(c)), neither the exemption provided by Rule 506(b) of Regulation D (Rule 506(b)),² which allows issuers to raise unlimited capital from accredited investors and up to 35 non-accredited investors (provided there has been no general solicitation or advertising), nor the general private placement exemption provided by Section 4(a)(2) of the Securities Act, for transactions not involving a public offering, would be available as fallback options with respect to the potentially busted securities law exemption – it is therefore crucial that issuers consult with counsel as early in the process as possible to ensure any potential offering is structured and conducted in a manner in which the availability of an exemption from registration is not called into question.

1 Rule 506(c)(2)(ii).

2 Issuers seeking to avoid burdensome accredited investor verification processes have historically turned to Rule 506(b) as the securities law exemption of choice – between July 1, 2020, and June 30, 2021 (the latest period for which data is available), issuers raised approximately $1.9 trillion under Rule 506(b), compared to $124 billion under Rule 506(c). https://carta.com/learn/private-funds/regulations/regulation-d.