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New guidance issued by the SEC staff could mean that general publicity about private offerings of securities made pursuant to Regulation D will become more common in the United States.
Regulation D provides several different safe harbors from SEC registration, under Rule 504, Rule 506(b) and Rule 506(c), for certain private offerings of securities. Historically, the SEC has required Regulation D offerings to remain private, meaning no “general solicitation” or “general advertising” (“GSGA”) about such offers – such as publicity in newspapers or magazines, or in unrestricted public websites – was permitted in the United States.
In 2012, however, the US JOBS Act directed the SEC to permit GSGA in connection with Regulation D offerings as well as in Rule 144A offerings. While the SEC did so straightforwardly with respect to Rule 144A, rather than eliminating the GSGA prohibition for all Regulation D safe harbors, the SEC opted to retain the GSGA prohibition with respect to offerings made under Rule 504 (limited to offerings of up to $10 million) and Rule 506(b) (no size limit and sales permitted to “accredited investors” and up to 35 non-accredited investors), and instead created a new safe harbor under Rule 506(c) that allows GSGA. However, under Rule 506(c), the issuer must also take “reasonable steps to verify” that the purchasers are accredited investors. By contrast, under Rule 506(b), the issuer only has to have a “reasonable belief” that the purchases are accredited investors.
Rule 506(c) provides several non-mandatory and non-exclusive methods – such as obtaining tax returns or bank statements – of verifying that a natural person is an accredited investor (i.e., that they meet certain income, net worth, or professional certification requirements). Purchasers are often unwilling, however, to disclose such sensitive financial documents, and the market has not yet developed less onerous verifications methods that issuers are comfortable would be acceptable to the SEC. Consequently, it is not surprising that ten years on, Rule 506(b) remains far more popular than Rule 506(c). Based on data provided by the SEC’s Division of Economic and Risk Analysis, between July 1, 2022 and June 30, 2023, companies raised $2.7 trillion in Rule 506(b) offerings compared to $169 billion in Rule 506(c) offerings.
On March 12, 2025, however, the SEC staff issued a no-action letter and a new Compliance and Disclosure Interpretation (“CDI”) concurring with the position that in an offering conducted under Rule 506(c), an issuer could reasonably conclude that it had taken reasonable steps to verify a purchaser's accredited investor status if the issuer:
In new Question 256.36, the staff noted that as explained in Securities Act Release No. 9415 (July 10, 2013), “if the terms of the offering require a high minimum investment amount and a purchaser is able to meet those terms, then the likelihood of that purchaser satisfying the definition of accredited investor may be sufficiently high such that, absent any facts that indicate that the purchaser is not an accredited investor, it may be reasonable for the issuer to take fewer steps to verify or, in certain cases, no additional steps to verify accredited investor status other than to confirm that the purchaser's cash investment is not being financed by a third party."
The SEC also issued another new CDI, Question 256.35, confirming that the verification safe harbors in Rule 506(c)(2)(ii) are “non-exclusive and non-mandatory" and “issuers . . . are not required to use any of the methods set forth in the nonexclusive list and can apply the reasonableness standard directly to the specific facts and circumstances presented by the offering and the investors."
We expect that the accredited investor self-certification procedure, which does not depend on the disclosure of tax forms or bank statements, will prove popular with investors seeking to participate in private placements. This could means a significant increase in offerings under Rule 506(c), which does not limit publicity in the United States, at the expense of offerings under Rule 506(b), which requires the issuer to set up significant restrictions on communications.