Practitioners advising clients on Regulation D offerings should be aware of recent guidance from the SEC's Division of Corporation Finance ("Corp Fin") that provides a potentially less burdensome method for verifying accredited investor status under Rule 506(c). In a March 12, 2025, no-action letter issued to Latham & Watkins LLP, Corp Fin indicated that relying on a high minimum investment amount, combined with specific investor representations, can constitute the "reasonable steps" required for verification.

While Rule 506(c) permits general solicitation for private offerings, it mandates that issuers take "reasonable steps to verify" that all purchasers are indeed accredited investors. This verification requirement often involves collecting sensitive financial documents, leading to increased costs, delays, and investor reluctance compared to Rule 506(b) offerings (which prohibit general solicitation but allow for investor self-certification). Consequently, many issuers, especially earlier-stage companies, have historically preferred Rule 506(b).

The Latham & Watkins no-action letter outlines a verification pathway based on the following elements:

1. High Minimum Investment: A substantial investment amount can itself be a key indicator of accredited status. The guidance references the requesting firm's proposed thresholds as potentially reasonable: $200,000 for natural persons and $1,000,000 for entities (with variations for entities accredited via their owners).
2. Specific Investor Representations: The investor must provide written representations confirming (a) they meet the relevant Rule 501(a) accredited investor definition(s), and (b) the investment is not being financed by a third party solely to meet the minimum threshold.
3. No Contradictory Knowledge: The issuer cannot have actual knowledge suggesting the investor is not accredited or that the representations are false.
4. Method Flexibility: Nothing in the no-action letter appears to rule out Issuers using this high-minimum approach for some investors while employing traditional verification methods (e.g., reviewing tax returns or bank statements) for others within the same offering.

This guidance introduces valuable flexibility for Rule 506(c) offerings:

• Enhanced Attractiveness of Rule 506(c): For offerings targeting investors likely to meet the high minimums, this method can significantly streamline the verification process, making Rule 506(c) a more viable option, particularly for larger rounds seeking broad solicitation.
• Client Assessment: Evaluating whether this approach fits a client's fundraising strategy requires analyzing their target investors' typical investment size and profile. Very early-stage rounds with smaller check sizes may still find Rule 506(b) or traditional Rule 506(c) verification more suitable.
• Offering Structure: Counsel can advise clients on potentially combining offering types (e.g., starting with Rule 506(b) and later transitioning to Rule 506(c) using this verification method, mindful of integration rules) or using mixed verification methods within a single Rule 506(c) offering.
• Fundraising Impact: The guidance may also simplify capital raising for private funds utilizing Rule 506(c) by easing the verification for high-commitment limited partners.

The recent Corp Fin no-action letter provides welcome clarification and offers a practical alternative for satisfying the Rule 506(c) verification requirement in appropriate circumstances. While it does not eliminate the need for careful analysis of each offering's specifics, it presents an additional tool for counsel advising issuers and funds navigating Regulation D.

Trey Woodall is a corporate and securities attorney at Riggs Davie PLC in Nashville. He counsels clients on corporate and securities transactions, including mergers and acquisitions, entity formation, capital raising transactions and private fund formation. Woodall also mentors law students at the Belmont University College of Law; volunteers with the American Inn of Court program; and serves on the advisory board for the Tomorrow Fund of the Community Foundation of Middle Tennessee.

Alexander Davie is a member of Riggs Davie PLC in Nashville and serves in the firm's corporate and securities practice. He represents investment advisers, private equity funds, venture capital funds, hedge funds, real estate partnership syndicators, securities brokers and other entities with regard to private offerings of securities and complex federal and state securities regulatory matters. He also works extensively with technology companies, including startups and emerging growth companies, as well as businesses in other industries, providing legal counsel on company formation, mergers and acquisitions, technology transactions, equity compensation and venture capital financings.