The US Securities and Exchange Commission (SEC) has issued a new no-action letter that enables private fund managers to rely on self-certification from accredited investors, sparking hopes of reviving the underutilized 506(c) rule.
Under this revised guidance, fund managers will assume that investors who meet the minimum accreditation standards – such as $200,000 for an individual or $1 million for a company – are eligible to invest in private funds.
This move aims to increase market participation and reduce barriers for retail investors. The new rule also helps companies preserve their fundraising rights if they inadvertently disclose private placement activities.
Industry experts view this development as significant, with Latham & Watkins partner Nadia Sager stating, “We think this is a very big deal.”
The 506(c) rule has historically been underutilized due to its unclear requirements for verifying accredited investor status. The SEC’s decision may boost market acceptance and promote capital formation.
Previously, only 6% of fund raises came under 506(c), largely due to the complexity of the certification process. Industry advocates argue that a more streamlined approach will help protect investors while encouraging participation from a broader range of qualified individuals.
The new guidance begins a new era for this type of fundraising and is seen as a positive step by regulators, who want to promote capital formation while protecting investors.
Source: https://www.privatefundscfo.com/sec-greenlights-self-certification-in-private-funds