The SEC Issues Game-Changing Update for Reg D Rule 506(c)

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Capital raisers utilizing the notoriously complex Rule 506(c) under Regulation D for their investment vehicles can now verify investors with ease. On March 12, 2025, the U.S. Securities and Exchange Commission (SEC) issued a no-action letter, the “Letter”, clarifying and expanding the accredited investor verification methods under Rule 506(c).

The newly issued SEC interpretations also provide flexibility for issuers offering fund products, fewer compliance restrictions, and clearer standards for investors. Read all about the latest changes to Rule 506(c), and how you can utilize this powerful investment tool, below.

Verifying Accredited Investors under Rule 506(c): Then vs. Now

Before the Letter, issuers were required to follow strict compliance requirements to verify investors, making Rule 506(c) time-consuming and intrusive for issuers. From updated verification requirements to the usage of online platforms for fundraising, here’s what has changed.

Verification Requirements: Issuers were required to take “reasonable steps” to verify accredited investor status, these steps included providing tax returns, third-party attestations, and bank statements. Following the Letter, Issuers can now rely on high minimum investment thresholds ($1M for entities, $200K for individuals), and written representations from the investor to attest their status as an accredited investor, provided that the issuer has no actual knowledge to the contrary. This is a significant development that will greatly reduce the time required to onboard accredited investors onto a 506(c) offering.

Ease of Compliance Burdens: The additional flexibility provided by the Letter eases compliance burdens and makes Rule 506(c) more accessible to fund managers maintaining, operating, and offering privately placed funds registered under the Investment Company Act of 1940 (1940 Act-Only Funds).

Online Platforms & Fundraising: The streamlined nature of the new verification requirements makes it much easier for issuers to market their offerings online, reduce delays in investor onboarding, and expand their offerings to a wider network of investors due to the less invasive nature of the new verification process.

How to Utilize Rule 506(c) as a Tool for Your Business

To learn more about how to utilize Rule 506(c) and how to select the right exemption for your capital raise, our article How to Choose the Right Exemption for Your Capital Raise provides a detailed look at which federal securities exemptions are the most popular amongst private lenders, and how to select the right exemption for your business.

Our Corporate and Securities team is adept at guiding lenders through the complexities of Regulation D, and other capital-raising options. If you’re looking for expert-led guidance for your fund-formation strategy, contact us today.

Questions about this article? Reach out to our team below.
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