The SEC’s Division of Corporation Finance has issued a no-action letter addressing verification methods for accredited investors under Rule 506(c) of Regulation D.
Key Points:
The Division concurred that issuers can take reasonable steps to verify accredited investor status by requiring minimum investment amounts when combined with specific written representations from purchasers.
The SEC previously noted that high minimum investment requirements, absent contrary information, may allow issuers to take fewer or no additional verification steps if the investment isn’t financed by third parties.
For this verification approach to be valid, purchasers must provide written representations regarding their accreditation status under applicable provisions of Rule 501 and confirmation that their investment isn’t financed by third parties specifically for this purpose.
Additionally, the issuer must have no actual knowledge contradicting these representations.
The Division emphasized that verification remains an objective determination based on the specific facts and circumstances of each purchaser and transaction.
This no-action letter provides important clarification for issuers conducting Rule 506(c) offerings, potentially simplifying the verification process while maintaining investor protections.