Staff Compliance & Disclosure Interpretations - Regulation D Due Diligence
Staff Compliance & Disclosure Interpretations - Regulation D Due Diligence
On 12 Mar. 2025, the staff of the Division of Corporation Finance issued amended interpretations concerning accredited investor due diligence standards and the Regulation D safe harbor to section 4 of the Act.
Question 256.35
Question:
If an issuer does not satisfy any of the verification safe harbors in Rule 506(c)(2)(ii), are there other methods an issuer can use that will satisfy the requirement to take reasonable steps to verify accredited investor status?
Answer:
Yes. The list of methods of verification in Rule 506(c)(2)(ii) are “non-exclusive and non-mandatory.” Specifically, . . . . Securities Act Release No. 9415 (July 10, 2013) [March 12, 2025]
Question 256.36
Question:
An issuer is conducting a Rule 506(c) offering where each accredited investor is required to make a high minimum investment in cash.
Do the terms of the offering, in particular the minimum investment amounts, satisfy the reasonable steps to verify requirement of Rule 506(c)(2)(ii) for purchasers meeting the minimum investment amount? The issuer has no actual knowledge of any facts indicating that any purchaser is not an accredited investor and the issuer has confirmed with each purchaser that its investment is not being financed in whole or part with funds from a third party.
Answer:
Whether the issuer has taken reasonable steps to verify that a purchaser is an accredited investor is an objective determination by the issuer (or those acting on its behalf), in the context of the particular facts and circumstances. See Securities Act Release No. 9415 (July 10, 2013); and Question 256.35. Depending on the facts and circumstances, the issuer may be able to reasonably conclude that reasonable steps to verify have been taken when an offering requires a high minimum investment amount. As explained in Securities Act Release No. 9415 (July 10, 2013), “if the terms of the offering require a high minimum investment amount and a purchaser is able to meet those terms, then the likelihood of that purchaser satisfying the definition of accredited investor may be sufficiently high such that, absent any facts that indicate that the purchaser is not an accredited investor, it may be reasonable for the issuer to take fewer steps to verify or, in certain cases, no additional steps to verify accredited investor status other than to confirm that the purchaser’s cash investment is not being financed by a third party.” . . . . [March 12, 2025]
See also Capital, Investment Banking, and Broker-dealers.