SEC Issues Compliance and Disclosure Interpretation of Rule 506(c)

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On November 13, 2013, the Securities and Exchange Commission (the “SEC”) Division of Corporation Finance issued several useful Compliance and Disclosure Interpretations related to Rule 506(c) of the JOBS Act.

The Rule 506(c) Compliance and Disclosure Interpretations are summarized below.

If, prior to the effective date of Rule 506(c), an issuer started its offering in reliance on what was formerly Rule 506 (now Rule 506(b)), and that issuer now wants to continue the same offering under Rule 506(c) then the issuer must file an amendment to its previously filed Form D and check the box indicating that is now relying on the exemption afforded by Rule 506(c). It should be noted that where an issuer continues to rely on what was formerly Rule 506 now Rule 506(b it is not required to file an amended Form D.

If an issuer in a Rule 506(c) offering takes reasonable steps to verify that an investor is an accredited investor, and has a reasonable belief that the investor is an accredited investor at the time of the sale of its securities, but then later discovers that the investor did not meet the criteria for any category of accredited investor, the issuer may still rely upon Rule 506(c) for the offering.

If an issuer intends to conduct an offering under Rule 506(c) it must satisfy the reasonable steps to verify accredited investor status even where all investors are accredited. The accredited verification requirement is separate from and independent of the requirement that sales be limited to accredited investors.

If an issuer chooses to verify the accredited investor status of an investor using the non-exclusive net worth verification method and reviews the relevant documentation dated within the required prior three month period, but by the time of the purchase the previously submitted documentation is no longer dated within the prior three months, then the issuer can not rely on the previously submitted documentation to satisfy the net worth verification method. The issuer may, however, determine it has taken reasonable steps to verify the purchaser’s accredited investor status under the principles-based method of accredited investor verification.

The non-exclusive third-party verification method may be satisfied by written confirmation from an attorney or certified public accountant licensed or duly registered in good standing in a foreign jurisdiction.

An issuer that starts an offering with the intention of relying on Rule 506(c) but does not engage in any form of general solicitation may subsequently rely on Rule 506(b) for the offering if the conditions of Rule 506(b) are satisfied with respect to all sales of securities that have occurred and the issuer amends any previously filed Form D to check the box indicating that it is relying on the exemption afforded by Rule 506(b).

If the conditions of Rule 506(c) are not satisfied in a Rule 506(c) offering and the issuer has engaged in general solicitation, then the issuer will not be able to claim the private offering exemption under Section 4(a)(2).

If an issuer starts an offering under Rule 506(b), it may subsequently rely on Rule 506(c) for the offering, provided the conditions of Rule 506(c) are satisfied with respect to all sales of securities in the offering and the issuer amends any previously filed Form D to check the box indicating that it is relying on the exemption afforded by Rule 506(c).

For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, by email at [email protected] or visit   This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute, legal and compliance advice on any specific matter, nor does this message create an attorney-client relationship. Please note that the prior results discussed herein do not guarantee similar outcomes.

Hamilton & Associates | Securities Lawyers
Brenda Hamilton, Securities Attorney
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Boca Raton, Florida 33432
Telephone: (561) 416-8956
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