Regulation D Rule 506(c)

Rule 506(c) is the Regulation D exemption, created by the JOBS Act in 2013, that permits issuers to use general solicitation and advertising to market a private placement, publicly promoting the offering through websites, social media, email campaigns, seminars, and advertisements, something the older Rule 506(b) prohibits. The trade-off is twofold: under 506(c), all purchasers must be accredited investors (there is no allowance for non-accredited investors as 506(b) permits), and the issuer must take "reasonable steps to verify" each investor's accredited status rather than accepting self-certification. Acceptable verification methods include reviewing tax returns, W-2s, bank and brokerage statements, or a credit report, or obtaining a written confirmation from the investor's CPA, attorney, registered investment adviser, or broker-dealer. Like 506(b), a 506(c) offering can raise an unlimited amount of capital, the securities are restricted and generally illiquid, the offering is a covered security that preempts state registration (with Form D notice filings still required), and resale is limited under Rule 144. For real estate sponsors, 506(c) is attractive because it allows open marketing of Delaware Statutory Trusts, Opportunity Zone funds, and other offerings to reach a wider pool of accredited investors, which is why many platforms that advertise offerings publicly require investors to complete accreditation verification before investing. Investors in 506(c) deals should expect to provide documentation of their accredited status and should review the offering's private placement memorandum.