SEC Clarifies Rule 506(c): A New Era of Flexibility and Efficiency in Accredited Investor Verification

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On March 12, 2025, the U.S. Securities and Exchange Commission (SEC) issued a no-action letter that marks a pivotal development for issuers relying on Rule 506(c) of Regulation D. Historically regarded as one of the more burdensome capital raising exemptions due to its rigorous accredited investor verification requirements, Rule 506(c) has now entered a new phase—one defined by streamlined compliance, increased operational flexibility, and broader access to digital fundraising platforms.

As corporate and securities counsel to a wide range of private funds and investment vehicles, we view the SEC’s interpretive shift as both practical and long overdue. The no-action letter provides critical clarity for fund managers and sponsors seeking to raise capital under Rule 506(c) while maintaining a compliant and investor-friendly process.

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Key Developments: Verification Simplified

Previous Framework: 

Prior to the no-action letter, issuers were required to undertake “reasonable steps” to verify an investor’s accredited status—typically entailing the review of sensitive personal financial documents such as tax returns, W-2s, brokerage statements, or obtaining written confirmations from third-party professionals (e.g., attorneys, CPAs). While designed to protect the integrity of the offering, the intrusive nature of these procedures often deterred potential investors and delayed capital deployment.

Current Standards Under the No-Action Letter: 

Pursuant to the SEC’s updated guidance, issuers may now verify accredited status through (i) reliance on high minimum investment thresholds—$1,000,000 for entities and $200,000 for individuals—and (ii) obtaining written representations from the investor attesting to their accredited status, so long as the issuer has no actual knowledge to the contrary. This significantly reduces procedural friction and facilitates a more investor-friendly onboarding experience without compromising regulatory safeguards.

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Compliance Burdens Eased for Fund Managers

For private fund sponsors and capital raisers, the no-action letter represents a meaningful reduction in compliance burdens. The enhanced flexibility in verification procedures lowers legal and operational costs, minimizes onboarding delays, and allows managers to operate with greater efficiency in their capital formation strategies.

This updated framework also reflects the realities of today’s capital markets. By reducing the administrative overhead typically associated with accredited investor verification, fund managers are better positioned to reach a wider pool of investors without compromising compliance integrity.

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Digital Platforms and Broader Outreach

The modernization of Rule 506(c) compliance under the no-action letter is particularly beneficial for issuers leveraging online platforms and digital marketing channels. With less invasive verification procedures, issuers can now utilize Rule 506(c) to its full potential—advertising their offerings publicly while maintaining regulatory compliance. This opens the door for broader outreach strategies, greater scalability, and reduced delays in capital raising campaigns.

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Practical Considerations for Issuers

Issuers and fund sponsors seeking to utilize Rule 506(c) should evaluate how the revised guidance fits into their broader fundraising and compliance frameworks. Key action items include:

• Updating Subscription Documents to include compliant accredited investor representations under the revised standards;

• Modifying Internal Policies to reflect reliance on investment thresholds and issuer knowledge;

• Reviewing Fund Marketing Strategies to optimize use of digital platforms under the new framework;

• Consulting Counsel to ensure continued compliance with anti-fraud provisions and other securities law obligations.

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Conclusion

The SEC’s no-action letter offers a welcome recalibration of Rule 506(c), bringing it in line with modern fundraising dynamics while preserving the core investor protections of the accredited investor framework. Issuers now have greater latitude to structure, market, and close investment offerings swiftly and efficiently.

Our Corporate and Securities practice remains at the forefront of these regulatory shifts. We routinely advise fund managers, capital raisers, and private issuers on the strategic use of Regulation D exemptions, fund formation, and securities compliance. Should your firm seek to capitalize on these recent developments, we stand ready to provide tailored legal guidance that aligns with your business objectives.

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For further information and legal expertise, please visit our website or schedule a meeting with Keiretsu’s Brianna Gonzalez here!

Disclaimer: 

Tax disclaimer: The information provided in this communication is for informational purposes only and does not constitute tax advice. It is recommended that you consult with a qualified tax professional or accountant before making any tax-related decisions. The contents of this message are based on current tax laws and regulations, which may be subject to change. Neither Keiretsu Law nor any of its employees or affiliates shall be liable for any actions taken or not taken based on the information provided.