What it is
Regulation D is a set of SEC rules that lets companies and private funds raise money without registering the offering with the SEC. Rule 506(c) is one of the main paths. It allows general solicitation, meaning the issuer may advertise publicly, but every purchaser must be an accredited investor, and the issuer must take reasonable steps to verify that status.
By contrast, Rule 506(b) does not allow general solicitation. Under 506(b), an issuer may generally rely on a purchaser's self-certification, and may include a limited number of non-accredited investors who meet certain sophistication and disclosure requirements. Verification is what sets 506(c) apart.
Accredited investor status is defined in SEC Rule 501(a). Individuals may qualify through certain income or net worth tests, or through professional credentials. The August 2020 amendments added holders in good standing of Series 7, Series 65 or Series 82 licenses, and 'knowledgeable employees' of certain private funds, and added spousal equivalents for joint tests. Entities and family offices with over $5 million in investments or assets may qualify, as may registered investment advisers and exempt reporting advisers, along with other categories listed in the rule.
How it’s traditionally been approached
The SEC does not prescribe one required method. It uses a principles-based approach: the issuer looks at the facts and circumstances, such as the type of purchaser, the information available about them, and how the investor was found, and decides what steps are reasonable.
Traditionally, issuers have reviewed documents such as tax forms, pay records, bank or brokerage statements and credit reports, depending on the category being relied on. Another common route is a written confirmation from a registered broker-dealer, an SEC-registered investment adviser, a licensed attorney or a certified public accountant that they have taken reasonable steps to verify the person's status.
Some issuers use third-party verification services, and some rely on confirmation of professional licenses in good standing. Practices differ from one issuer to another, and the rules and SEC guidance can change, so it is wise to check current requirements with a qualified professional.
How the right fund manager may help
The right fund manager or professional may help you understand why you are being asked for certain documents, which accredited-investor category may apply to you, and what the issuer's process looks like from start to finish. Clear explanations can make a paperwork-heavy step feel less confusing.
A conversation is generally an opportunity to learn, not to commit. You might ask: Which Rule 501(a) category is the issuer relying on for me? What documents are accepted? Who sees my information, and how is it stored? How long does a verification typically remain valid? Is a third-party letter acceptable?
It can also help to ask about the offering itself, and to read the issuer's own offering documents carefully. Any offering is made only by the issuer through those documents. Consider speaking with your own licensed attorney, accountant or financial adviser about how this fits your situation.
The bigger picture
Sharing financial records with a stranger can feel personal, and the questions around eligibility can stir up stress, comparison or uncertainty. Taking time, asking how your data is protected, and moving at your own pace can support your peace of mind.
Money decisions are closely tied to wellbeing, and involving trusted people, such as family or your own advisers, can make the process feel steadier. If stress about finances is weighing on you, Providers.plus may help you find supportive professionals. Every approach to planning has its place, and what suits one person may not suit another.
Keep in mind
- Private fund investments are speculative and illiquid and can lose all of their value.
- Past performance does not guarantee future results.
- This page is educational only. It is not an offer to sell, or a solicitation of an offer to buy, any security, and it is not investment, legal or tax advice. Consult your own licensed advisers.
- The Hastings Fund is not a broker-dealer, funding portal or investment adviser, and does not recommend, endorse or rank any investment or manager. Tax treatment, including how K-1s or QSBS under Section 1202 may apply, depends on individual circumstances.
Not sure where to start? Answer a few gentle questions and choose who you’d like to hear from.
Create an investor account →Frequently asked questions
What is 506(c) accredited investor verification?
506(c) accredited investor verification is the step where an issuer takes reasonable steps to confirm that each purchaser in a Rule 506(c) offering is accredited. It goes beyond self-certification. The method depends on the facts and circumstances of each purchaser.
Why does Rule 506(c) require verification?
Because Rule 506(c) lets issuers use general solicitation, such as public advertising, the rule requires all purchasers to be accredited and the issuer to take reasonable steps to verify it. This is a condition of using the exemption. Rule 506(b) has no general solicitation and generally allows self-certification.
What documents are used to verify accredited investor status?
It depends on the category. Issuers have commonly looked at tax or pay records, bank and brokerage statements, or credit reports, or have accepted written confirmation from a registered broker-dealer, SEC-registered investment adviser, licensed attorney or CPA. Each issuer sets its own process, so ask what it accepts.
Can a professional license qualify someone as accredited?
Yes. Since the August 2020 amendments to Rule 501(a), individuals holding Series 7, Series 65 or Series 82 licenses in good standing can qualify, and the status can be checked by confirming the license. Knowledgeable employees of certain private funds may also qualify for investments in that fund.
What is the difference between 506(b) and 506(c)?
The main difference is that 506(b) prohibits general solicitation while 506(c) allows it. Under 506(c), all purchasers must be accredited and verified. Under 506(b), the issuer may generally rely on self-certification and may admit a limited number of non-accredited but sophisticated purchasers.
Is my information kept private during verification?
Practices vary by issuer and by any third-party service involved, so ask directly how your documents are stored, who can access them and how long they are kept. Reviewing the issuer's privacy terms is a sensible step. Your own attorney can also help you understand what you are agreeing to.
Educational resource. The Hastings Fund shares general information and connects people with independent fund managers. It is not professional advice. Talk with a qualified professional about your own situation.