SEC No-Action Letter Expands Scope of Rule 506(c) Offerings
The U.S. Securities and Exchange Commission recently issued interpretive guidance through a no-action letter, confirming that companies utilizing Rule 506(c) of Regulation D can fulfill accredited investor verification requirements by enabling investors to self-certify when investing a minimum amount. This new guidance simplifies the process for private funds conducting Rule 506(c) offerings by eliminating the need for more complex verification procedures such as obtaining IRS forms, bank statements, credit reports, or verification letters from various professionals.
The minimum investment amounts required for investors under this new guidance are $200,000 for individuals and $1 million for entities, with binding capital commitments counting towards these minimums. This means that most sponsors can now take advantage of this streamlined approach when conducting Rule 506(c) offerings. To ensure compliance with the Rule, private fund issuers must obtain written representations from investors confirming their accredited status and that their investment is not financed by any third party for the specific purpose of investing in the issuer.
Additionally, the private fund must set minimum investment amounts of at least $200,000 for individuals and $1 million for entities, along with having no knowledge that any purchaser is not an accredited investor or that their investment was financed by a third party. Previously, the stringent verification requirements of Rule 506(c) limited the number of offerings using this provision, especially for high-net-worth clients and intermediary clients. This new guidance is expected to boost the popularity of Rule 506(c) offerings in the market by simplifying the verification process.
The clarification provided by the SEC’s no-action letter will allow private funds to streamline their offerings under Rule 506(c) and attract a wider range of investors. This change is significant for private fund sponsors who have long struggled with the complexities of the verification process. By removing the barriers that previously hindered Rule 506(c) offerings, the SEC’s guidance is poised to make a significant impact on the market and increase the prevalence of these offerings.
If you have any inquiries or require further information regarding this new guidance, please reach out to the Kirkland IFG and regulatory attorneys for assistance. The updated guidelines will offer greater flexibility and efficiency for private funds engaging in Rule 506(c) offerings, ultimately benefiting both issuers and investors alike.
