CSG Law Alert: SEC Guidance Allows for Self-Certification by Accredited Investors
The U.S. Securities and Exchange Commission (the “SEC”), through its Division of Corporation Finance’s Office of Small Business Policy, issued a No Action Letter on March 12, 2025, in response to a request for Rule 506(c) Interpretative Guidance (the “No Action Letter”), which may allow companies to reach a broader pool of investors in connection with a private placement offering.
Regulation D of the U.S. Securities Act of 1933 (“Regulation D”) is a safe harbor from registration with the U.S. Securities and Exchange Commission that is often relied on by companies that conduct private offerings. Rule 506(c) of Regulation D (“Rule 506(c)”) allows for the use of general solicitation and general advertising in connection with private placements, provided that, among other requirements, the issuer offers the securities to accredited investors and takes “reasonable steps” to verify that all of the investors qualify as “accredited investors” pursuant to SEC rules and regulations.
The No Action Letter provides that, under certain circumstances, issuers administering private offerings pursuant to Rule 506(c) may rely on the self-certifications of purchasers who invest high amounts as a factor in determining whether an issuer has taken reasonable steps to verify that a purchaser is an accredited investor. This type of self-accreditation function has historically been reserved for Rule 506(b) offerings, not 506(c) offerings. Prior to the No Action Letter, the process for verifying prospective investors’ accredited status in 506(c) offerings was perceived as burdensome, deterring many companies from utilizing the attractiveness of the Rule 506(c) safe harbor, which allows issuers to publicly advertise private placements and reach a broad pool of potential investors. By providing issuers the flexibility to consider investors’ self-certifications of their accredited status when making a high investment amount, administrative and compliance barriers for issuers previously in place might be significantly reduced, potentially making it easier for companies to raise capital through advertised private offerings.
Although the No Action Letter provides greater flexibility for companies seeking to raise capital and rely on the Rule 506(c) safe harbor, it is important to note that this is not a formal rule or regulation issued by the SEC. Additionally, there may be additional state or regulatory filings that need to be made in connection with a private placement. The No Action Letter also states that a high investment amount is only one potential factor an issuer may rely on to meet its burden of verifying accredited investor status under Rule 506(c). An important disqualifying factor is if the purchaser’s minimum investment amount is financed in whole or in part by any third party for the specific purpose of making the particular investment in the issuer.
Importantly for EB-5 stakeholders, the No Action Letter contemplates a minimum investment threshold for a high investment amount as at least $200,000. Because the qualifying amount for an EB-5 investment is at least $800,000, the recent insight from the SEC’s No Action Letter could have significant impact on how EB-5 issuers choose to conduct their offerings in the United States.
For more information, please reach out to your CSG Law attorney to discuss.