⚖️ New SEC No-Action Letter on 506(c)

Raising money via "public solicitation" may have just gotten easier

Author

Michael Huseby
March 14, 2025

Happy Friday, Funds Family!

Apologies for the brief post this week, but we rushed to get this newsworthy piece out the door before our deadline.

🚨 Big news just dropped with respect to Rule 506(c). If you’re not sure what 506(c) is, check out our previous article on the ⚖️ Securities Act before reading on.

But first…

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Thanks for reading, now let’s jump into the article 😃 

⚖️ March 12, 2025 SEC No-Action Letter

In an 🔗 SEC no-action letter dated March 12, 2025, the SEC suggested that a 506(c) issuer could assume that investors in a 506(c) offering were accredited if all of the following were true (as outlined in 🔗 the initial letter from my old firm, Latham & Watkins):

  1. Minimum check size. The minimum check size was $200k for individuals / $1 million for entities.

  2. Investor representations. The investor reps + warrants that (i) the investment is not financed by a third party and (ii) the investor is accredited.

  3. No knowledge of fraud. The issuer has no actual knowledge that the investor reps in point 2 above are untrue.

If an entity is accredited because each of its owners is accredited, then each underlying owner must be considered for points 2 and 3 above.

👀 What does this mean?

This suggests that, for funds with minimum investments of at least these amounts ($200k for individuals and $1 million for entities), the 506(c) verification process (e.g., using an online platform or having the investor get a certified letter from their CPA/other professional) might no longer be necessary.

506(c) is an exemption under Regulation D of the Securities Act that permits fundraisers to "publicly solicit" investors. This includes social media posts, podcasts, and advertisements.

In short, it looks like public solicitation just got a lot easier.

⚠️ Note: This is just a no-action letter, not statutory law or regulation. It’s technically only applicable to the issuer who submitted the initial letter. However, lawyers often rely on no-action letters when advising clients. Conservative sponsors may still wish to obtain third-party verification of each investor’s accredited status. Talk to your lawyer!

 / WRAPPING THE CASE

  1. The SEC just issued a no-action letter confirming that a combination of (i) minimum investment amounts, (ii) certain investor representations, and (iii) no issuer knowledge of fraud might be sufficient to assume accredited investor status for 506(c) fundraises.

  2. Check with your lawyer before doing anything!

Thanks for reading, everyone.

Have a great weekend! 🙌 

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