Verifying Accredited Investor Status May Have Just Gotten Easier
For startups and funds navigating the capital-raising ecosystem, verifying that an investor qualifies as “accredited” has long been a speed bump in an otherwise streamlined process. While Rule 506(c) of Regulation D opened the door to general solicitation and advertising, it came with a significant string attached: issuers must take “reasonable steps” to verify that all purchasers are, in fact, accredited investors.
But a newly issued no-action letter from the SEC, dated March 12, 2025, may be a game-changer for 506(c) offerings. The letter suggests a potentially simpler pathway for complying with the verification requirement—one that could spare issuers from jumping through hoops involving third-party verification services, CPA letters, or other burdensome documentation.
The Three-Part Test for Verification
In the Latham & Watkins no-action letter, the SEC’s Division of Corporation Finance considered whether certain representations and warranties made by investors could suffice as a reasonable method for verifying accredited investor status. The SEC indicated it would not recommend enforcement action if an issuer under Rule 506(c) treated an investor as accredited, provided that:
(1) the minimum investment amount is substantial—at least $200,000 for individuals and $1 million for entities;
(2) the investor represents and warrants that they are not using third-party financing to fund the investment, and that they are in fact an accredited investor as defined in Rule 501(a) of Regulation D;
(3) the issuer has no actual knowledge that these representations are false.
Importantly, when an entity is relying on the accredited status of its underlying owners—say, an LLC formed by a group of angel investors—then each beneficial owner must satisfy the same representations and not be known by the issuer to be non-accredited.
A Departure from Traditional Verification
This streamlined approach offers a compelling alternative to existing practices, which have typically relied on platforms like VerifyInvestor or required an investor to obtain a letter from a CPA, attorney, or broker-dealer—all of which add time, cost, and friction to an otherwise routine process.
If followed, this framework could meaningfully reduce the compliance burden for issuers who are conducting Rule 506(c) offerings, especially those targeting professional or repeat investors writing sizable checks. By focusing on investor representations and a high minimum investment threshold, issuers could reasonably rely on self-certification without running afoul of the SEC’s “reasonable steps” requirement—so long as they don’t have actual knowledge that the investor’s representations are false.
Why This Matters for Founders and Funds
It’s a nuanced but important shift. Historically, Rule 506(c) has offered greater fundraising flexibility (especially for online or publicly marketed offerings), but that benefit has been partially offset by the challenges of verifying investor status in a way that satisfies regulators. This no-action letter suggests that if investors are putting meaningful capital at stake and affirming their eligibility, the SEC may consider that sufficient—at least in certain circumstances.
What Are the Limitations?
There are a few important caveats. First, no-action letters are not binding precedent and technically apply only to the facts and parties presented in the specific request—in this case, Latham & Watkins and their client. The SEC is not rewriting Regulation D; it is simply stating that, in this instance, it would not pursue enforcement action based on the described facts.
That said, market participants often treat no-action letters as persuasive authority, especially when navigating gray areas. As with many areas of securities law, practical application often comes down to risk tolerance and best practices—not black-and-white rules. And of course, actual knowledge still matters. If an issuer suspects that an investor is misrepresenting their status, relying on a warranty alone likely won’t cut it. Due diligence, in some form, remains essential.
A Step Toward Modernization
This development is particularly relevant given the broader momentum around modernizing the accredited investor definition and improving capital access for early-stage companies. The SEC has been slowly expanding the accredited investor criteria—including adding professional certifications and investment credentials in recent rulemaking—but verifying status in practice has remained stubbornly antiquated.
With this no-action letter, the SEC appears open to more practical, investor-friendly pathways—at least when the facts support a reasonable assumption of eligibility.
The Bottom Line
For startups raising capital under 506(c), especially those relying on large, well-known investors, this new guidance may offer a welcome easing of administrative hurdles. For funds and syndicates, it may open up faster allocation processes. And for securities counsel (like us), it’s a promising step toward aligning regulatory compliance with real-world deal mechanics.
The March 2025 SEC no-action letter doesn’t eliminate the need for thoughtful compliance—it simply expands the toolkit available to issuers. By establishing a new informal safe harbor based on investor reps, check size, and the absence of actual knowledge, the SEC is providing a path to verification that’s more business-friendly without undermining investor protections.
At Montague Law, we help clients structure Regulation D offerings with precision—whether under 506(b), 506(c), or in more novel digital asset contexts. If you’re navigating accredited investor verification in a live offering or building a repeatable fundraising process, we’d be happy to advise.
👉 Contact our team to learn how this guidance may apply to your raise.
Authored by Eric Preston, Senior Associate Attorney (IL & MI)
