On March 12, 2025, the U.S. Securities and Exchange Commission (SEC) staff issued a no-action letter providing private fund sponsors with a more streamlined approach to relying on Rule 506(c). This guidance, centered on minimum investment thresholds and investor representations, has the potential to make Rule 506(c) a more practical fundraising option for fund sponsors.
Implemented in 2013 under the Jumpstart Our Business Startups (JOBS) Act, Rule 506(c) permits issuers to engage in general solicitation and advertising when offering securities, provided they take “reasonable steps” to verify that all purchasers are accredited investors. Despite the rule’s intent to expand fundraising opportunities, its adoption has been limited due to the administrative burdens associated with the verification process.
SEC Commissioner Hester Peirce recently highlighted this disparity, noting that issuers raised approximately $169 billion annually under Rule 506(c) compared to $2.7 trillion under Rule 506(b), which does not permit general solicitation. The added verification requirements, including reviewing tax returns and bank statements or obtaining verification letters, have deterred many fund sponsors from utilizing Rule 506(c) despite its potential to access a wider investor pool for capital raising.
The SEC’s no-action letter introduces an alternative verification method designed to ease compliance with Rule 506(c). Under this framework, an issuer must:
This approach provides a more objective and standardized means of verifying accredited investor status, reducing administrative burden for fund sponsors.
While this development simplifies the verification process, private fund sponsors should carefully evaluate the broader implications before adopting Rule 506(c). Compliance with the Investment Advisers Act of 1940 (Advisers Act) remains essential, particularly in light of the SEC’s Marketing Rule and antifraud provisions.
Private fund sponsors considering a Rule 506(c) offering should:
The SEC’s updated guidance will likely generate renewed interest in Rule 506(c) offerings, particularly among mid-market and emerging managers seeking to expand their investor base. Whether this change leads to broader adoption of general solicitation remains to be seen, but it is a significant step in reducing one of the key operational hurdles associated with Rule 506(c).
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