On March 12, 2025, the SEC's Division of Corporation Finance issued a no-action letter that quietly solved one of the most persistent friction points in private capital raising. The letter, issued in response to a request from Latham and Watkins, confirmed that issuers conducting offerings under Rule 506(c) of Regulation D can verify accredited investor status by relying on a high minimum investment amount coupled with a written representation, rather than demanding tax returns, bank statements, or third party attestations from every investor.
For the commercial real estate and private lending markets, this matters more than it might at first appear. Real estate syndicators, private fund sponsors, and growing businesses that want to market their offerings publicly have been constrained for over a decade by verification requirements that investors found intrusive and that attorneys and accountants found risky to certify. The new guidance does not eliminate the need to verify accredited investor status, but it gives issuers a practical path to do so without alienating the investors they are trying to attract.
Here is what changed, why it matters, and what commercial borrowers and capital raisers need to understand about the remaining requirements that the no-action letter did not touch.
The Two Paths Under Regulation D: 506(b) Versus 506(c)
To understand why the March 2025 guidance is significant, it helps to understand the two primary paths that private offerings take under Regulation D, which is the safe harbor from the registration requirements of the Securities Act of 1933.
Rule 506(b) is the traditional private placement route. It has been the workhorse of private capital raising for decades. An issuer relying on 506(b) can raise an unlimited amount of money from an unlimited number of accredited investors and up to 35 non accredited investors. The catch is that 506(b) prohibits general solicitation and general advertising. You cannot market the offering through newspapers, television, radio, unrestricted websites, seminars open to the public, or social media broadcasts aimed at a broad audience. Your investor pool is limited to people with whom you or your intermediaries have a pre existing, substantive relationship.
Rule 506(c) was adopted in 2013 to lift that restriction. Under 506(c), an issuer can engage in general solicitation and general advertising, marketing the offering publicly to reach a broader investor audience. The tradeoff is that all purchasers in a 506(c) offering must be accredited investors, and the issuer must take reasonable steps to verify that each purchaser qualifies as accredited. Unlike 506(b), where the issuer only needs a reasonable belief that the investor is accredited, 506(c) requires reasonable steps to verify.
The verification requirement was the provision that kept most issuers on 506(b). Despite the flexibility that general solicitation offers, the vast majority of private offerings continued to be conducted under 506(b) because the verification methods available under 506(c) were too burdensome, too intrusive, and too risky for the parties involved.
Why Rule 506(c) Was Underutilized for Over a Decade
When the SEC adopted Rule 506(c) in 2013, it provided a non exclusive list of verification methods that issuers could use to satisfy the reasonable steps requirement. The list included reviewing copies of IRS forms that report income, such as W 2s, 1099s, and personal tax returns, for investors qualifying on the income prong. For investors qualifying on the net worth prong, the methods included reviewing bank statements, brokerage statements, certificates of deposit, tax assessments, and credit reports from nationwide consumer reporting agencies, along with a written representation from the investor. Issuers could also obtain written confirmation from a registered broker dealer, an SEC registered investment adviser, a licensed attorney, or a certified public accountant stating that they had taken reasonable steps to verify the investor's accredited status and had determined that the investor qualified.
In practice, these methods created problems on both sides of the transaction. Investors were fundamentally reluctant to hand over their full tax returns, bank statements, and brokerage records to a company or fund they were investing in. The information was sensitive, the disclosure felt invasive, and the administrative burden of assembling and transmitting the documents fell on the investor. On the issuer side, attorneys and accountants were unwilling to take on the liability of making accredited investor attestations. Verifying accredited status is a novel attestation for most professionals, and the exposure of certifying to a third party's net worth or income was not a risk that service providers were eager to assume for clients they may not have represented in other contexts.
The result was that 506(c) existed as an option but was rarely the preferred path. Issuers who wanted to advertise their offerings publicly faced a verification regime that investors resisted and that professionals declined to support. Most stayed on 506(b), accepted the prohibition on general solicitation, and built their investor pools through pre existing relationships and private networks.
The March 2025 No Action Letter: A New Verification Method
The no-action letter issued on March 12, 2025, is the first interpretive guidance the SEC staff has issued on Rule 506(c) since the rule was adopted in 2013. It addresses the verification problem directly by confirming that a high minimum investment amount, combined with written representations and a lack of contrary knowledge, can constitute reasonable steps to verify accredited investor status.
Under the guidance, an issuer can reasonably conclude that it has taken reasonable steps to verify that a purchaser is an accredited investor if three conditions are met. First, the purchaser agrees to make a minimum investment of at least $200,000 in the case of a natural person, or at least $1,000,000 in the case of a legal entity. For entities that qualify as accredited because each of their equity owners is an accredited investor, the minimum is $1,000,000, or $200,000 per equity owner if the entity has fewer than five equity owners. Second, the purchaser provides written representations confirming that they are an accredited investor and that their minimum investment amount is not financed in whole or in part by any third party. Third, the issuer has no actual knowledge of any facts that indicate that the purchaser is not an accredited investor or that the minimum investment amount has been financed by a third party.
The practical effect is significant. An investor who can write a $200,000 check and represents in writing that they are accredited and that the funds are their own can be admitted to a 506(c) offering without producing tax returns, bank statements, brokerage records, or a letter from their CPA or attorney. The minimum investment amount itself becomes the verification mechanism, on the logic that an investor who can commit $200,000 of unborrowed funds to a private offering is reasonably likely to meet the accredited investor thresholds.
What This Replaces and What It Does Not
The no-action letter does not eliminate the existing verification methods. Issuers can still use tax returns, financial statements, credit reports, and third party confirmations from brokers, attorneys, and accountants if they choose. What the letter adds is a new method that is simpler, less intrusive, and more acceptable to investors. For many offerings, it will become the default approach.
It is important to understand what the guidance does not do. The SEC's own educational materials, updated as recently as April 2026, make clear that self-certification by an investor alone, such as checking a box on a subscription agreement without any other knowledge of the investor's financial circumstances, is not sufficient to meet either the reasonable belief standard under 506(b) or the reasonable steps to verify requirement under 506(c). The minimum investment method is different from mere self-certification because it combines the written representation with a substantive financial commitment that itself serves as evidence of accredited status. The $200,000 threshold is not arbitrary. It is tied to the income prong of the accredited investor definition, which requires $200,000 in annual income for an individual or $300,000 jointly with a spouse. An investor committing $200,000 to a single private placement is making a financial commitment that is consistent with meeting that income threshold.
Issuers should also note that the no-action letter is fact-specific. The SEC staff agreed with the conclusion based on the specific conditions described in the Latham and Watkins request. While the guidance is broadly applicable, issuers should structure their offerings to match the conditions described in the letter and should consult securities counsel to confirm that their documentation and procedures align with the relief.
Remaining Requirements the Guidance Did Not Touch
The no-action letter eases the verification burden, but it does not eliminate the other obligations that come with a 506(c) offering. Issers transitioning from 506(b) to 506(c) or conducting their first general solicitation offering need to account for several requirements that remain in place.
State blue sky filings and fees still apply. Rule 506(c) provides federal preemption from state registration and qualification, but states retain the authority to require notice filings and collect fees. The number of states in which filings and fees are required may increase when an issuer engages in general solicitation, because the offering reaches a broader geographic audience. Issuers need to budget for state notice filings in each state where investors are solicited or reside, and the cost can add up quickly across multiple jurisdictions.
The antifraud provisions of the federal securities laws still apply in full. General solicitation gives issuers a broader platform to market their offerings, but every statement made in that marketing is subject to the antifraud rules. Misleading projections, unsupported claims about projected returns, and omissions of material facts carry the same liability in a 506(c) offering as they do in any other securities offering. The broader the audience, the more carefully the marketing materials need to be reviewed.
The Investment Company Act of 1940 still applies. Issuers that might be classified as investment companies need to confirm they qualify for an exemption, such as the Section 3(c)(1) or 3(c)(7) exemptions available to private funds, before conducting any offering under 506(c). General solicitation does not change the analysis of whether an entity is an investment company.
For offerings that reach investors outside the United States, foreign restrictions on public marketing still apply. Many jurisdictions have their own rules governing the marketing of securities to their residents, and general solicitation conducted from the United States can trigger those rules. Issuers with international investor bases need to coordinate their 506(c) offerings with applicable foreign securities laws.
Form D filing requirements remain. An issuer conducting a 506(c) offering must file a Form D with the SEC within 15 days after the first sale of securities in the offering, the same requirement that applies to 506(b) offerings.
The Broader Context: A Deregulation Trend at the SEC
The March 2025 no-action letter is not an isolated action. It is part of a broader pattern of SEC rulemaking and guidance under Chairman Paul Atkins that is aimed at reducing friction in capital formation and making it easier for companies to raise money in the private and public markets.
In May 2026, the SEC proposed a comprehensive Registered Offering Reform package that would dramatically expand the number of companies eligible to use Form S-3 for shelf registrations, eliminate the one year seasoning requirement that currently prevents newly public companies from using Form S-3, and extend state securities law preemption to cover all registered offerings. The proposal represents the most significant rethinking of the registered offering framework since the SEC's 2005 Securities Offering Reform. While these changes apply to registered offerings rather than private placements, they signal the agency's direction: reducing barriers to capital raising across the board.
Congress and the SEC have also been exploring updates to the exempt offering rules more broadly. Proposals under consideration include allowing individuals to qualify as accredited investors through education and testing rather than solely through wealth and income thresholds, potential Regulation A reforms, and adjustments to the per investor investment limits under Regulation Crowdfunding. The accredited investor definition itself, which has been criticized for using income and net worth thresholds that have not been adjusted for inflation since they were adopted in 1982, may see reform in the coming rulemaking cycles.
For private capital markets, the cumulative effect of these changes is a regulatory environment that is gradually becoming more permissive. The 506(c) verification guidance is one piece of that shift, but it is the piece that most directly affects the day to day mechanics of raising private capital.
Who Benefits and How
The no-action letter has practical implications across several segments of the capital markets that intersect with commercial real estate and business lending.
Real estate syndicators are among the most direct beneficiaries. Syndicators who raise capital for individual real estate projects, whether multifamily acquisitions, office repositionings, industrial developments, or value add portfolios, have historically been constrained by 506(b)'s prohibition on general solicitation. Marketing a specific deal to a broad audience required either a pre existing relationship with every investor or a transition to 506(c) with its verification burden. The minimum investment method gives syndicators a practical way to market deals publicly while keeping the verification process manageable for investors. A syndicator setting a $200,000 minimum investment can now admit investors who self certify their accredited status and represent that their investment is unborrowed, without demanding tax returns or financial statements.
Private fund sponsors benefit similarly. The prohibition against general solicitation under 506(b) has historically constrained the ability of private fund sponsors to communicate publicly during active fundraising periods. A relatively small number of private fund sponsors have opted to use 506(c) for their fund offerings, largely because of the verification friction. The new guidance makes 506(c) more attractive for fund sponsors who want to market their funds through public channels, including industry conferences, published research, and media appearances during fundraising.
Growing businesses raising growth capital also benefit. Start-ups and early stage companies that want to market investment opportunities to a broader audience can now do so under 506(c) with a verification process that does not require every prospective investor to hand over sensitive financial documents. The minimum investment method aligns well with the economics of early stage investing, where minimum check sizes of $200,000 or more are common in institutional and accredited angel rounds.
For borrowers in the commercial real estate and business lending markets, the connection is indirect but real. Many commercial projects are financed through a combination of senior debt and private equity, and the equity component is often raised through Regulation D offerings. When the SEC reduces the friction in raising that equity, it expands the pool of capital available for projects, which can affect deal velocity, pricing, and the structure of the capital stack.
What Issuers Should Do Now
For issuers considering a 506(c) offering under the new guidance, several practical steps are worth taking before launching a general solicitation campaign. Review your subscription documents and investor qualification questionnaires to ensure they capture the written representations required by the no-action letter: accredited investor status, the source of funds representation, and the confirmation that the investment is not financed by a third party. Set your minimum investment amount at or above the thresholds in the letter, which is $200,000 for natural persons and $1,000,000 for legal entities, with the per equity owner alternative for entities with fewer than five owners. Confirm that your marketing materials comply with the antifraud provisions, and have securities counsel review them before publication. Map out the state blue sky filing requirements for the states where you expect to solicit investors, and budget for the filing fees. If your offering may reach investors outside the United States, coordinate with counsel on the applicable foreign securities laws.
For issuers with ongoing 506(b) offerings, the no-action letter also opens a transition path. An issuer that has been conducting an offering under 506(b) can transition to 506(c) for future sales in the same offering, provided that all future purchasers are verified as accredited investors under the 506(c) standard. The minimum investment method gives issuers a way to make that transition without going back to existing investors for verification documents.
The Bottom Line for Capital Raising
The SEC's March 2025 no-action letter on Rule 506(c) is the most practically significant change to private offering mechanics since the rule was adopted in 2013. It does not rewrite the regulation, but it resolves the verification problem that kept most issuers on 506(b) for over a decade. For real estate syndicators, private fund sponsors, and growing businesses, the ability to market offerings publicly while verifying accredited status through a minimum investment amount and a written representation is a meaningful expansion of the tools available for raising capital.
The change comes with responsibilities that remain in place. State filings, antifraud compliance, Investment Company Act considerations, and foreign jurisdiction rules all continue to apply. But the core friction, the one that made investors refuse to participate and professionals refuse to certify, has been addressed. Issuers who structure their offerings to match the conditions in the no-action letter can now take advantage of general solicitation without the verification burden that made it impractical.
As the SEC continues its broader deregulation agenda, with Registered Offering Reform proposals moving through the rulemaking process and potential changes to the accredited investor definition under consideration, the private capital markets are entering a period of structural change. Borrowers and capital raisers who understand the current rules and position themselves for the changes ahead will be better equipped to access the capital they need on terms that work for their projects.
