The SEC now permits public marketing of private placements, without burdensome investor wealth verification requirements, if the investment is big enough. On March 12, 2025, the U.S. Securities and Exchange Commission (SEC) issued a no-action letter (No Action letter) confirming that a large minimum investment amount, when coupled with a written representation, satisfies an issuer’s obligation to verify the purchaser’s status as an accredited investor under Regulation D Rule 506(c) (General Solicitation Offering).[1] Issuers conducting General Solicitation Offerings are required under Rule 506(c)(2)(ii) to “take reasonable steps to verify that purchasers of securities sold in [General Solicitation Offerings] are accredited investors” by confirming, based on factors other than investor self-certification, that purchasers meet wealth thresholds. The No Action Letter reduces the burden in certain circumstances placed upon issuers in General Solicitation Offerings to verify that purchasers’ wealth thresholds are satisfied.
背景
Rule 506(c) permits issuers to market and generally advertise offerings – a general solicitation – on the private placement condition that (i) each of the purchasers are accredited investors, (ii) the issuer takes reasonable steps to verify purchasers’ accredited investor status, and (iii) various other conditions under Regulation D are satisfied. The industry has almost exclusively relied on Rule 506(b), which does not permit general solicitation, but allows issuers to forgo the onerous process of verifying purchasers’ accredited investor status under Rule 506(c) by reliance on investor self-certification.
Interpretive Letter and Industry Impact
The No Action Letter reinforces Securities Act Release No. 9415 issued by the Commission in July 2013, in which the Commission found it reasonable for issuers to infer from a purchaser’s high minimum investment amount that the investor was an accredited investor with “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.”[2]
The No Action Letter is a signal to issuers that it is not necessary to take additional steps such as reviewing public filings, pay stubs, tax filings, and third-party verifications to verify a purchaser’s accredited investor status. Issuers will, however, need to obtain a written representation from the purchaser that they are an accredited investor under Rule 501(a) and that the investment amount was not financed by a third party for the purpose of the investment. Further, an issuer must have no knowledge that such representations are false and should require purchasers to agree to certain minimum investment amounts that are reasonably determined by the issuer to be sufficiently high. While the SEC did not explicitly endorse any specific amounts as meeting that threshold, setting the minimum investment amounts at (i) at least $200,000 for natural persons and (ii) at least $1,000,000 for legal entities[3] consistent with those in the no-action request would presumably allow issuers to meet the requirement. The SEC did not specifically address whether the availability of the relief would be affected if the investment minimums were waived for particular investors. For the avoidance of doubt, a Form D should still be filed indicating reliance on Rule 506(c). The No-Action Letter does not relieve issuers from compliance with non-U.S. laws, state laws, or regulations imposed by other agencies, such as the Commodity Futures Trading Commission, which also governs private placements.
Big Picture
The No Action Letter will reduce the administrative burden placed on issuers seeking to make General Solicitation Offerings and will likely encourage more fund sponsors to make broad solicitations and generally advertise offerings under Rule 506(c). In addition, the relief may allow issuers to speak more freely about their offerings publicly (including via the internet) without having to worry about inadvertently mentioning the previously prohibited descriptions of their private funds or similar products. A study conducted by the Federal Reserve Board’s Survey of Consumer Finances found that approximately 24 million U.S. households (18.5% of U.S. households) qualified as accredited investors in 2022.[4] Absent a change to the definition of accredited investors, the number of qualifying households is expected to grow. Although investor sophistication, reporting obligations, and liquidity will remain barriers, the No Action Letter may lead to increased use of General Solicitation Offerings to attract the growing number of accredited investors in the United States.
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Should you have any questions regarding the contents of this alert, please do not hesitate to contact a member of Foley’s Fund Formation and Investment Management team.
[1] Available at https://www.sec.gov/rules-regulations/no-action-interpretive-exemptive-letters/division-corporation-finance-no-action/latham-watkins-503c-031225, hereinafter, the “Latham and Watkins Letter”.
[2] U.S. Securities and Exchange Commission, Final Rule: Eliminating the Prohibition Against General Solicitation and General Advertising in Rule 506 and Rule 144A Offerings, Release No. 33-9415 (July 2013), available at https://www.sec.gov/files/rules/final/2013/33-9415.pdf, at 28.
[3] Latham and Watkins Letter, supra note 1.
[4] “Review of the “Accredited Investor” Definition under the Dodd-Frank Act” (December 14, 2023) available at https://www.sec.gov/files/review-definition-accredited-investor-2023.pdf.
