A recent staff letter from the U.S. Securities and Exchange Commission (SEC) in March 2025 suggests a significant streamlining of how private funds and other issuers verify accredited investor status in offerings that use general solicitation under Rule 506(c) of Regulation D. A new "safe harbor" for accredited investor verification utilitzing high investment thresholds and written representations is created, though it comes with important limitations and ongoing regulatory considerations.
Background: Rule 506(c) and Accredited Investor Verification
Rule 506(c), established under the Jumpstart Our Business Startups Act of 2012, allows issuers to broadly market investment opportunities, known as general solicitation, without registering the offering, provided that all purchasers are accredited investors and the issuer takes "reasonable steps to verify" that status. Historically, this verification process has been seen as burdensome, requiring issuers to review sensitive financial documents or obtain third-party confirmations.
The March SEC Staff Letter: A New Verification Avenue
In March 2025, the SEC staff issued a letter permitting issuers to satisfy the accredited investor verification requirement by:
- setting the minimum investment at at least $200,000 for individual investors and at least $1 million for legal entities; or
- requesting a written representations confirming the investor's accredited investor status and that their investment is not financed by a third party for the specific purpose of making the investment (with certain exceptions for pre-existing financing arrangements or broader credit facilities).
This approach provides a streamlined "safe harbor" for verification, relying on high minimum investment thresholds and self-certification from investors. For entities like feeder funds, the representations must "look through" to the underlying investors, adding some complexity in practice.
Implications for Private Fund Sponsors and Issuers
The new guidance could make general solicitation more attractive for private fund sponsors and other issuers, especially since many private funds already require investments at or above these thresholds. The ability to market more broadly, such as through public communications or events, may increase awareness and participation in private offerings. However, the high minimum investment amounts mean this pathway is less accessible for retail or even many high-net-worth investors. The change is most meaningful for offerings targeting institutional or ultra-high-net-worth individuals. Introducing greater flexibility to facilitate broader participation, especially in the most profitable segments of the alternative asset market, would further support capital formation and investor access.
Looking Ahead
The SEC staff's letter signals a willingness to make general solicitation more practical, potentially expanding private market access over time. However, sponsors should proceed cautiously, given the serious consequences of non-compliance and the challenges of reversing course once a general solicitation has begun.
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