IndyBar: SEC Eases Investor Verification for Private Capital Raises

By Chelsea Spickelmier and Geralyn Denger, The BAM Companies LLC

The U.S. Securities and Exchange Commission (SEC) has issued new guidance that significantly streamlines investor verification for companies raising capital through private offerings, particularly benefiting private funds. This clarification, detailed in a March 12, 2025, no-action letter to Latham & Watkins LLP, addresses a long-standing challenge within Rule 506(c) of Regulation D.

Rule 506(c) permits companies to broadly solicit and advertise their offerings, a key advantage over its counterpart, Rule 506(b), which does not allow general solicitation. However, Rule 506(c) has been vastly underutilized due to a cumbersome requirement: issuers have to take “reasonable steps to verify” that all investors are “accredited investors.” This often involves collecting sensitive financial documents, making the process potentially intrusive for investors and burdensome for issuers. Consequently, in November 2024, SEC Commissioner Hester Peirce noted that Rule 506(c) raised only $169 billion annually, a tiny fraction of the $2.7 trillion raised under Rule 506(b).

An “accredited investor” as defined in Rule 501 of Regulation D under the Securities Act of 1933 generally means, for natural persons, having a net worth exceeding $1 million (excluding primary residence) or an annual income exceeding $200,000 (or $300,000 with a spouse) for the past two years, with an expectation of the same in the current year. Various entities, such as trusts with over $5 million in assets or entities where all equity owners are accredited investors, also qualify. Historically, satisfying the “reasonable steps to verify” requirement meant issuers often reviewed tax returns, bank statements, or obtained third-party confirmations from attorneys or accountants. This administrative burden often deters companies from utilizing Rule 506(c)’s general solicitation benefits.

The March 2025 no-action letter directly addresses this challenge. The SEC’s Division of Corporation Finance affirmed that an issuer can be deemed to have taken “reasonable steps to verify” accredited investor status under specific conditions. This new guidance hinges on a combination of factors: a high minimum investment amount, robust purchaser representations, and the absence of third-party financing for the specific purpose of the investment. The legal community has generally interpreted a high minimum investment amount to be at least $200,000 for natural persons and $1,000,000 for legal entities. When coupled with explicit written representations from the purchaser confirming their accredited investor status and affirming that their investment is not improperly financed, fewer, if any, additional verification steps may be necessary. Crucially, the issuer must also have no actual knowledge of any facts indicating that a purchaser is not an accredited investor or that the investment is improperly financed.

This clarification is expected to reduce administrative burdens for companies, accelerate capital raising efforts, and encourage broader use of general solicitation under Rule 506(c). However, companies must remember that this streamlined method is conditional. For offerings below these new investment thresholds, traditional verification methods (such as reviewing financial documents) are still required. The guidance also does not exempt issuers from state securities laws or other federal regulations.

This development marks a significant step by the SEC to adapt its guidance on regulations to market realities, aiming to foster capital commitments by making it easier for eligible companies to access a wider pool of accredited investors.•

Chelsea Spickelmier serves as Associate General Counsel at BAM Capital, where she advises on legal aspects of acquisitions, dispositions, financing, regulatory compliance, and operational matters. Prior to joining BAM, Spickelmier honed her skills at Taft Stettinius & Hollister LLP, advising on complex real estate transactions, including acquisitions, dispositions, leasing, and development across various asset classes. A Certified Civil Mediator, Spickelmier excels in negotiating complex contracts and navigating evolving legal landscapes. She holds a Juris Doctor from Indiana University Robert H. McKinney School of Law and a bachelor’s degree from Indiana University Bloomington. She is an active member of IndyBar and is a graduate of IndyBar’s Bar Leader Series Class XIX.

Geralyn Denger serves as Corporate Counsel at The BAM Companies, a vertically integrated real estate firm specializing in the acquisition and management of multifamily apartment communities with investment opportunities for accredited investors. She is responsible for the legal aspects of acquisitions, dispositions, and joint ventures, facilitating complex real estate transactions. She contributes to the company’s strategic direction by overseeing daily legal functions and providing counsel on operations and business transactions. Prior to joining The BAM Companies, Denger worked at a firm specializing in multi-family housing litigation. Her expertise lies in providing practical, effective solutions for clients and streamlining complex legal issues to advance business objectives. Geralyn earned her Juris Doctor from Rutgers Law School in May 2021. She also holds a Bachelor of Science from Purdue University, awarded in May 2018.