SEC No-Action Letter on Confirming “Accredited Investor” Under Rule 506(c) Exemption

On March 12, 2025, the Securities and Exchange Commission (the “SEC”) issued a no-action letter in response to a request from Latham & Watkins giving a bit more color on the diligence required for an issuer to determine that an investor is an “accredited investor” for purposes of qualifying for the Rule 506(c) private placement exemption under Regulation D. The exemption allows general solicitation if the investors are all accredited investors but requires a fair amount of diligence by the issuer that the investors are all accredited (other than self-certification by the investors) to qualify for the rule. The SEC has now said it will take no action, under the Latham & Watkins request, for certain high value investors (at least $200,000 for individuals and $1,000,000 for legal entities) so long as the investor self-certifies that (i) it is an accredited investor and (ii) the investment is not financed by third parties for the specific purpose of making the investment, and (iii) the issuer does not have actual knowledge contradicting these certifications. While this guidance does not specifically cover all kinds of investors and other matters, or other rules that might apply, particularly in foreign jurisdictions, it does give more of a safe harbor for high value investors and may lead to a greater use of Rule 506(c).