Rule 506(c) Accredited Investor Verification Just Got Easier

The SEC has issued new interpretive guidance that significantly eases the verification requirements for accredited investors in private funds offered under Regulation D, Rule 506(c). The new interpretation should help streamline capital raising and reduce compliance burdens for issuers relying on this exemption, which could be particularly beneficial for many Qualified Opportunity Funds (QOFs).

Background On Rule 506(c)

Rule 506(c), a part of Regulation D under the Securities Act of 1933, allows deal sponsors and fund manager to advertise their investment offerings, provided they take reasonable steps to verify that all investors are accredited investors. Historically, issuers have faced compliance hurdles when verifying investor status, creating friction during the investor subscription process, and therefore limiting the use of Rule 506(c) in some instances when issuers prefer the less tedious Rule 506(b).

The SEC’s New Interpretation

On March 12, 2025, the SEC issued a pivotal no-action letter in response to Latham & Watkins LLP, fundamentally altering the accredited investor verification landscape. According to the no-action letter and related compliance interpretations (Questions 256.35 and 256.36), issuers can now benefit from additional safe harbors when verifying investor status.

Key Points From The Latham & Watkins Correspondence

Latham & Watkins’ letter to the SEC’s Division of Corporation Finance requested that the SEC agree that “an issuer will have taken reasonable steps to verify a purchaser’s accredited investor status in a Rule 506(c) offering if the issuer requires purchasers to agree to the minimum investment amounts” of $200,000 for individuals and $1 million for entities.

The SEC responded that they agree with this interpretation. If an individual invests at least $200,000 into a 506(c) offering, the individual merely has to self-attest that he is an accredited investor. No further third-party verification is required.

Detailed Clarifications: Compliance & Disclosure Interpretations

Along with the March 12 no-action letter, the SEC also issued two related Compliance & Disclosure Interpretations — 256.35 and 256.36.

In Question 256.35, the SEC reiterated their view from a 2020 Securities Act release that the list of methods of verification in Rule 506(c)(2)(ii) are “non-exclusive and non-mandatory,” and that applying the reasonableness standard to accredited investor verification does not always necessitate one of the listed methods.

In Question 256.36, the SEC states that a 506(c) issuer “may be able to reasonably conclude that reasonable steps to verify have been taken when an offering requires a high minimum investment amount.”

These clarifications should significantly reduce friction associated with new investor onboarding, particularly for investors meeting a high minimum investment.

Relevance For Qualified Opportunity Funds

For Qualified Opportunity Funds, the SEC’s new interpretation of Rule 506(c) represents an especially impactful development. QOFs, often engaged in significant capital-raising activities to invest in Opportunity Zones, may benefit greatly from streamlined processes. Many Opportunity Zone fund issuers rely on the Rule 506(c) exemption to raise capital, so that they can advertise to a wide audience of investors.

Simplified accredited investor verification not only lowers compliance costs but also enables more effective general solicitation, thereby potentially accelerating investment inflows into underserved communities. As QOFs frequently rely on raising capital from accredited investors, these eased verification rules will enhance their ability to efficiently pool capital, deploy investments promptly, and maximize community impact

Key Insights From Fund Playbook

A new podcast episode from Fund Playbook — New SEC Rule Change Helps 506(c) Fundraising — provided critical perspectives on the practical implications, including the following three key takeaways:

1. Investor verification is now significantly easier. Fund managers raising capital under 506(c) no longer need to verify accredited investor status for individuals investing at least $200,000 or entities investing at least $1 million. Instead, investors can self-certify, eliminating a major compliance burden and speeding up the onboarding process. For investors, the subscription process should feel less invasive.
2. More regulatory changes could be on the horizon. The SEC’s decision signals a broader trend of reducing regulatory friction in private capital markets. Perhaps additional updates may follow, including potential adjustments to non-accredited investor participation and further refinements to compliance rules for private funds.
3. This new interpretative guidance makes 506(c) funds more attractive. Previously, many fund managers avoided Rule 506(c) exemptions because of the additional verification requirements compared to Rule 506(b). Now, with self-certification allowed for High Net Worth investors, more sponsors may shift to Rule 506(c) to take advantage of the ability to publicly market their offerings.

Conclusion

The SEC’s no-action letter and accompanying C&DIs marks a significant regulatory milestone, providing issuers, including Qualified Opportunity Funds, with practical accredited investor verification relief under Rule 506(c). This change should encourage greater use of general solicitation and advertising, as it will simplify accredited investor verification, and enhance overall market efficiency. Issuers and investors alike will benefit substantially from reduced compliance complexities, potentially accelerating growth in private fund capital raising and investments directed toward Opportunity Zones.