New SEC No-Action Letter Eases Burden on General Solicitations

New SEC No-Action Letter Eases Burden on General Solicitations

On March 12, 2025, the staff of the Division of Corporation Finance at the Securities and Exchange Commission (SEC) issued a no-action letter (NAL) recognizing the reasonableness of one method by which issuers relying on Rule 506(c) offerings under Regulation D can satisfy the rule’s accredited investor verification requirements. At a high level, the SEC staff has provided no-action relief that will significantly ease the burdens of relying on Rule 506(c) for individuals investing at least $200,000 and institutional investors investing at least $1 million (as well as making certain additional representations). This no-action relief will likely lead to more issuers (including private funds) seeking to rely on Rule 506(c), given the easier investor verification standards and the ability to engage in a “general solicitation.”

Background on Rule 506(c) and Existing Investor Verification Methods

Under Rule 506(c), an issuer is permitted to broadly solicit and generally advertise an offering without having to register the offering and sale with the SEC if the issuer takes “reasonable steps” to verify a purchaser’s accredited investor status. Prior to this NAL, the “reasonable steps” requirement under Rule 506(c) was generally met through two distinct approaches. First, under the rule itself, issuers typically obtained either direct documentation from investors or relied on written confirmation from a qualified third party, such as a lawyer, broker, or CPA. Second, 2014 guidance from the Securities Industry and Financial Markets Association (the SIFMA guidance) introduced two specific verification methods for individuals: the account balance method, which requires an existing balance of $2 million in cash and marketable securities at the firm, along with being a client for at least six months and a number of other representations; and the investment amount method, which requires an investment of at least $250,000, along with being a client for at least six months and a number of other representations.¹ The SIFMA guidance also provided guidance on verification methods for institutional investors, including making an investment in excess of $5 million (and not being formed for the purpose of making the investment and having made at least one prior investment in securities). The high thresholds set by the SIFMA guidance (particularly for institutional investors) and certain of the required additional representations, along with the fact that it was not officially blessed by the SEC staff, has meant that certain issuers (and investment advisers and broker-dealers) have wanted to see clearer guidance from the SEC.

As described in more detail below, the NAL builds on these approaches by confirming that a purchaser’s ability to meet a high minimum investment threshold, effectively the investment amount method, can serve as a sufficient proxy for verifying accredited status, provided that the issuer has no actual knowledge to the contrary. The NAL also provides much-needed certainty along with lower investment thresholds and less-burdensome representations.

Minimum Investment Amounts and Written Representations

According to the NAL, an issuer may reasonably conclude that it has taken the necessary steps to verify accredited investor status in the following circumstances:

• The purchaser agrees to invest at least $200,000 (for natural persons) or $1,000,000 (for legal entities), including a binding commitment to invest a minimum cash amount in one or more installments as and when called by the issuer.
• The purchaser provides representations confirming that the purchaser is an accredited investor and that the minimum investment amount is not financed in whole or in part by any third party solely for the purpose of making the investment.
• For an entity that qualifies as an accredited investor solely because all of its equity owners are accredited investors, the entity must agree to invest at least $1,000,000, or $200,000 per equity owner if there are fewer than five natural persons.
• The issuer does not have actual knowledge of facts that would indicate that the purchaser’s representations are untrue.²

While the NAL does not specifically address institutional investors in the categories set forth in Rules 501(a)(1) or 501(a)(2) of Regulation D, the adopting release (Release No. 33-9415, Eliminating the Prohibition Against General Solicitation and General Advertising in Rule 506 and Rule 144A Offerings) notes that registered institutional investors in Rule 501(a)(1) can be verified by checking their registration status through publicly available tools (for example, BrokerCheck). This approach would extend to the private business development companies described in Rule 501(a)(2). For employee plans that qualify as accredited solely by virtue of having total assets in excess of $5 million, in the absence of information to the contrary, it is reasonable to conclude that self certification coupled with a direct cash investment of at least $1 million is sufficient to verify accredited investor status. The SEC further acknowledged in the NAL that a purchaser’s ability to meet a high minimum investment requirement — one that only an accredited investor would be expected to satisfy without third party financing — is a relevant factor in determining whether the verification steps taken are reasonable. Consequently, the presumption that a $1 million minimum cash investment is adequate for other institutional investor categories supports the view that the same threshold would be sufficient for institutional investors listed in Rule 501(a)(1) and required to have total assets of at least $5 million.

The SEC’s NAL represents a significant step toward clarifying the framework for Rule 506(c) offerings. It is likely to ease capital-raising efforts for issuers by reducing some administrative burdens and allowing for a broader array of verification practices while maintaining investor protection standards.

 

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^[1] The first method is a documentation-based approach. Under this method, the issuer must obtain and review documentation directly provided by the investor that substantiates their financial status. For natural persons, this typically means reviewing documents that demonstrate either a net worth (excluding the primary residence) of at least $1 million or income levels that meet the prescribed thresholds (e.g., $200,000 individually or $300,000 jointly over the past two years, with a reasonable expectation of reaching the current year’s level). The issuer is responsible for evaluating the documentation, ensuring that the information is consistent and reliable, and retaining copies of these materials for compliance purposes. In essence, the documentation-based method relies on a careful internal review of the investor’s financial evidence. The second method is third-party verification. With this approach, the issuer may rely on a written confirmation from a qualified third party (such as a registered broker-dealer, investment adviser, CPA, or attorney) who has independently reviewed the investor’s financial information. The third party confirms that, based on their review of the investor’s documents (such as tax returns, financial statements, or other relevant records), the investor meets the accredited investor criteria. This method reduces the issuer’s direct administrative burden while still ensuring that a reliable, professional review has been conducted. In both methods, it is crucial that the verification is conducted prior to the investor’s participation in the offering and that any significant changes in the investor’s financial condition are appropriately reflected in updated documentation or confirmation.
^[2] Generally, 506(c) representations are valid for five years unless the issuer becomes aware of information to the contrary.

 

This informational piece, which may be considered advertising under the ethical rules of certain jurisdictions, is provided on the understanding that it does not constitute the rendering of legal advice or other professional advice by Goodwin or its lawyers. Prior results do not guarantee similar outcomes.