Rule 506(c) and Accredited Investor Verification: What Issuers Must Document
Rule 506(c) flips the trade-off of Regulation D: issuers may publicly advertise their offering, but every single investor must be verified as accredited — self-certification is not enough. That verification obligation is the operational cost of general solicitation.
Acceptable verification methods
The SEC recognizes several ways to satisfy the verification requirement: reviewing tax returns or W-2s to confirm the income test, reviewing bank and brokerage statements alongside a credit report to confirm the net-worth test, or obtaining a written confirmation from a registered broker-dealer, SEC-registered investment adviser, licensed attorney, or certified public accountant that they have verified the investor's status within the prior three months.
Why documentation matters
If an issuer fails to take reasonable steps to verify accredited status and a non-accredited investor slips through, the entire 506(c) exemption for that offering can be jeopardized. Reasonable steps are judged on the facts — the amount and type of investment, the nature of the verification, and the information the issuer already possesses about the investor.
Building the workflow
Most issuers running a 506(c) raise use a third-party verification service or work with counsel to build a standardized documentation flow: request the appropriate proof, log the verification method used, and retain records for each investor before accepting funds.
Practical takeaway
General solicitation under 506(c) can meaningfully expand your investor funnel, but only if the verification workflow is built before the marketing starts — retrofitting compliance after outreach begins is where most issuers get into trouble.
This article is provided for general informational and educational purposes only and does not constitute legal, financial, tax, or investment advice. Nothing here is an offer to sell or a solicitation to buy any security. Consult qualified securities counsel before relying on any exemption or filing deadline discussed above.