New guidance from the SEC makes capital raising easier for 506(c) funds by loosening accredited investor verification rules. This March 2025 change to Reg D Rule 506(c) is a game changer for private funds and real estate syndications.
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Episode Transcript Summary
New guidance from the Securities & Exchange Commission is set to make fundraising easier for 506(c) funds by removing some of the friction involved in verifying accredited investor status. In this Fund Playbook breaking news episode, Jimmy Atkinson breaks down the March 12, 2025, SEC no-action letter, explaining what this means for private funds, real estate syndications, and investors. The ruling changes how investor accreditation is verified, significantly streamlining the process for fund managers and LPs.
Background on 506(c) and Investor Verification
Regulation D, Rule 506(c) was introduced in 2012 under the JOBS Act to allow private funds and real estate syndicators to publicly advertise investment offerings while limiting participation to accredited investors.
Previously, fund managers had to manually verify each investor’s accreditation status using third-party documentation, such as bank statements, tax returns, CPA or attorney letters, or brokerage statements.
This verification process added friction, was viewed as invasive by many investors, and was one of the primary reasons some sponsors preferred 506(b) over 506(c).
The SEC’s No-Action Letter: Key Changes
On March 6, 2025, the law firm Latham & Watkins submitted a request for SEC clarification on investor accreditation requirements. The SEC responded on March 12, 2025, issuing a no-action letter that provides new guidance on how fund managers can verify accredited investor status.
The key change:
- For funds with a minimum investment of $200,000 for individuals, or $1 million for entities, investor accreditation verification is no longer required.
- Investors in these funds can now self-certify their accredited status instead of providing third-party documentation.
The SEC’s reasoning:
- If an investor is writing a $200,000 check (or $1 million for an entity), it is a reasonable assumption that they qualify as an accredited investor.
- This simplifies compliance and removes a significant hurdle in the capital-raising process for many 506(c) funds.
What This Means for Fund Managers and Investors
Raising capital becomes easier. By removing the third-party verification requirement, fund managers can onboard investors more quickly and with less friction. This change narrows the gap between 506(c) and 506(b), making 506(c) a more attractive option.
There are clearer compliance standards. The previous requirement to take “reasonable steps” to verify accredited investor status was vague and led to inconsistent application across funds. This new bright-line test provides a clear and simple standard that removes uncertainty.
This may lead to a shift from 506(b) to 506(c). One of the primary reasons sponsors continued using 506(b) was the simpler onboarding process—investors could self-certify their accreditation, unlike with 506(c). With this change, more fund managers may switch to 506(c) to take advantage of the ability to publicly advertise their funds while avoiding previous compliance headaches.
Open Questions and Legal Considerations
During the live discussion, several key legal questions were raised.
- Does this change apply to all investments below $200,000? No, for investments under $200,000, fund managers may still need third-party verification or additional due diligence.
- Do funds still need a self-certification from investors? Yes, the SEC still requires written confirmation from investors that they meet accreditation criteria.
- Does this apply to Opportunity Zone funds? Yes, the change applies to all 506(c) offerings, including many Opportunity Zone funds.
Industry Reaction and Future Implications
This ruling signals a more fund-friendly SEC. Over the past few years, the SEC has been gradually expanding investor eligibility and reducing regulatory burdens on private funds.
More changes could be coming. There is speculation that the SEC may further relax rules around non-accredited investor participation in alternative assets.
Fund managers may shift strategies. With fewer obstacles, publicly marketing 506(c) offerings will likely become more common in private equity, venture capital, and real estate syndications.
Final Takeaways
Investors writing checks of $200,000 or more (or $1 million or more for entities) no longer need third-party verification for 506(c) offerings.
This significantly reduces friction in capital raising and makes 506(c) a more attractive option.
Fund managers still need written self-certification from investors but no longer require CPA letters, tax returns, or other documentation.
This could accelerate a shift from 506(b) to 506(c) funds, as managers take advantage of the ability to publicly market their offerings.
More regulatory changes could be coming, as the SEC continues to refine its approach to alternative investments.
Additional Resources
- SEC No-Action Letter: Latham & Watkins (March 12, 2025) – Full Text
- SEC Compliance & Disclosure Interpretation: Question 256.35
- SEC Compliance & Disclosure Interpretation: Question 256.36
This ruling marks a major win for fund managers and investors, removing one of the biggest obstacles to raising capital under Reg D Rule 506(c), while keeping investor protections in place. Expect more funds to take advantage of this change in the coming months.