SEC Issues Guidance on Use of Minimum Investment Amounts for Verifying Accredited Investor Status Under Rule 506(c)

On March 12, 2025, the U.S. Securities and Exchange Commission’s (SEC) Division of Corporation Finance issued a no-action letter in response to a request seeking interpretative guidance on verifying accredited investor status in securities offerings under Rule 506(c) of Regulation D. The letter provides some clarity regarding the steps an issuer must take to verify accredited investor status by using high minimum investment amounts, coupled with certain written representations and related conditions.

Key Points

• High Minimum Investment Amounts: The SEC agreed that a high minimum investment amount is a relevant factor in verifying accredited investor status. Specifically, the SEC noted that if the terms of the offering require a high minimum investment amount and a purchaser is able to meet those terms, it may be reasonable for the issuer to take fewer steps to verify the purchaser's accredited investor status. In particular, the issuer should require a minimum investment of at least $200,000 for individual persons and at least $1 million for legal entities.
• Written Representations: The issuer must obtain written representations from the purchaser confirming their accreditation status and that their minimum investment amount is not financed by a third party for the specific purpose of making the investment.
• No Actual Knowledge of Contrary Facts: The issuer must have no actual knowledge of any facts indicating that the purchaser is not an accredited investor or that the minimum investment amount is financed by a third party.

The Impact

This guidance is expected to facilitate more efficient and effective capital-raising activities under Rule 506(c). From a practical perspective, it provides greater flexibility and clarity for issuers in verifying accredited investor status. Issuers can now consider using high minimum investment amounts as a key factor in their verification process, reducing the need for additional verification steps (such as requiring external accredited investor representation letters). This approach can streamline the process of soliciting accredited investors and enhance the efficiency of capital-raising efforts.

It is important to note that SEC no-action letters have no legal force or effect and do not alter or amend applicable law. However, practitioners often rely on them when analyzing federal laws and regulations as they provide valuable insights into the SEC's interpretative stance.

Please reach out to a member of Orrick’s Private Investment Funds Group if you have any questions.