The U.S. Securities and Exchange Commission (SEC) has issued new guidance on private offering exemptions to accredited investors, clarifying the safe harbor for verifying “accredited investor” status in a Rule 506(c) offering.
Prior to this guidance, issuers faced uncertainty about what constitutes reasonable verification measures under Rule 506(c), which permits general solicitation activities in exchange for verifying ultimate investors are accredited. The SEC Staff’s new guidance provides objective criteria and practical methods for investor-specific verification.
Under the new guidance, if an issuer does not satisfy the “non-exclusive and non-mandatory” verification safe harbors, it can apply a reasonableness standard to the specific facts and circumstances presented by the offering and investors. This involves considering factors such as the nature of the purchaser, the type of accredited investor claimed, and the terms of the offering.
The SEC Staff has also confirmed that issuers may reasonably conclude they have taken reasonable steps to verify “accredited investor” status if the offering requires a high minimum investment amount (e.g., $200,000 for natural persons or $1,000,000 for legal entities) and the purchaser provides written representations of their accredited investor status.
This new guidance is intended to simplify the verification process under Rule 506(c), reducing uncertainty and the need for burdensome due diligence. It addresses concerns about public outreach and advertising in private offerings, allowing issuers to engage in broader marketing efforts while maintaining compliance with securities laws.
The updated guidance provides clarity on Rule 506(c) exemptions, offering a valid option for issuers to participate in public outreach and advertising while ensuring the integrity of the capital-raising process.
Source: https://www.akingump.com/en/insights/alerts/sec-staff-provides-guidance-on-private-offerings-to-accredited-investors-that-permit-general-solicitation-and-other-exemptions