Big News for the Private Capital Markets!

The SEC has issued NEW guidance on VERIFIED ACCREDITED INVESTOR status under Rule 506(c), and it's a game-changer!

For those in the know, Rule 506(c) allows for general solicitation in private offerings, but the "reasonable steps to verify" accredited investor status has always been a hurdle.

Well, the SEC's Division of Corporation Finance has listened!

On March 12, 2025, they provided a no-action letter (to Latham & Watkins LLP) and updated their CDIs, offering a new pathway for verification based on minimum investment amounts!

Here's the gist:

• For individuals: A minimum investment of $200,000 can now be a significant factor in verification.
• For certain entities: A minimum investment of $1,000,000 can help streamline the process.

Issuers will still need written representations from purchasers confirming their accredited status and that the minimum investment isn't financed by a third party specifically for this investment.

Crucially, issuers must have no actual knowledge indicating otherwise!

What does this mean?

• Reduced burden: Potentially less need for intrusive financial document collection for high-net-worth investors.
• Smoother process: Could lead to a more efficient subscription experience.
• Increased utilization: May encourage more issuers to leverage the benefits of general solicitation under 506(c).

Of course, there are still important considerations! Issuers need to maintain robust compliance programs, be mindful of the "no actual knowledge" standard, and remember that this is just one potential pathway.

This update is a welcome step towards making Rule 506(c) a more practical tool for capital formation.
 

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