The U.S. Securities and Exchange Commission has issued guidance on the “reasonable steps” required to verify accredited investor status in private offerings conducted under Rule 506(c) of Regulation D.
The SEC guidance by the Office of Small Business Policy in the Division of Corporation Finance was in response to a March 6, 2025, letter from Latham & Watkins LLP.
In the letter, four partners from Latham & Watkins sought asked if requiring purchasers to meet a substantial minimum investment, alongside their written affirmations of accredited status and the absence of third-party financing, would be sufficient verification of accredited investor status.
“We agree that a high minimum investment amount is a relevant factor in verifying accredited investor status,” the SEC said in its response. The agency referenced its prior guidance in Securities Act of 1933 Release No. 9415, which suggested that a high minimum investment – $200,000 for natural persons and at least $1 million for legal entities – implies a high likelihood of accredited investor status.
The SEC’s response highlighted the importance of written representations from purchasers, confirming their accreditation under relevant rules for natural persons and/or legal entities. These representations must also state the investment is not financed by a third party.
In its response, the SEC noted the guidance is predicated on the issuer having no prior knowledge indicating that a purchaser is not accredited or that the investment is financed by a third party.
“Whether an issuer has taken reasonable steps to verify that a purchaser is an accredited investor is an objective determination by the issuer (or those acting on its behalf), in the context of the particular facts and circumstances of each purchaser and transaction,” the SEC clarified. “Based on the representations in your letter, we agree the issuer could reasonably conclude that it has taken reasonable steps to verify that purchasers of securities sold in an offering under Rule 506(c) of Regulation D are accredited investors.”
The SEC was careful to note, however, that its guidance does not create new rules or obligations: “This letter reflects the views of the staff of the Division of Corporation Finance. It is not a rule, regulation, or statement of the Commission, and the Commission has neither approved nor disapproved its content. This letter, like all staff statements, has no legal force or effect: it does not alter or amend applicable law, and it creates no new or additional obligations for any person.”
The agency also stressed that any deviation from the facts presented in the Latham & Watkins letter could lead to a different conclusion.
The guidance to Latham & Watkins may provide clarity for issuers seeking to utilize Rule 506(c) for private offerings, potentially streamlining accredited investor verification processes while maintaining investor protection.
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