Rule 506(c) under Regulation D gives issuers a valuable benefit: the ability to publicly market a private securities offering. That flexibility comes with a clear condition sales must be limited to accredited investors, and the issuer must complete Reasonable Steps Verification of each purchaser’s accredited status. Treating this requirement as a core compliance control, rather than a paperwork step, helps preserve the exemption and reduces legal and regulatory risk.
RSV is the “price” of general solicitation
Traditional private offerings typically avoid broad advertising. In contrast, Reg D 506(c) permits general solicitation, but only if the issuer can demonstrate that it took reasonable steps to verify accredited investor status. A simple investor questionnaire or “check-the-box” certification is generally not enough when general solicitation is used. If verification is weak or inconsistently applied, the offering may be viewed as failing to meet the conditions of the exemption—creating exposure to claims of an unregistered offering and potential investor rescission demands.
Verification is judged on facts and circumstances
The standard is intentionally flexible. What’s “reasonable” depends on the investor type, the information available to the issuer, and the way the investor entered the deal. For example, an investor sourced from a broadly advertised campaign may warrant more robust verification than one coming through a pre-existing, well-documented relationship. This is why issuers benefit from having a consistent process and a clear record of what was reviewed and why the conclusion was reasonable.
Common verification approaches
In practice, verification often falls into three categories:
- Document-based review: Using objective financial documentation to support accredited status (commonly tied to income or net worth).
- Third-party confirmation: Relying on written confirmation from certain licensed or regulated professionals who have taken steps to verify status.
- Principles-based assessment: Applying a documented risk-based approach using reliable information about the investor and the transaction, while escalating when anything appears inconsistent or incomplete.
Each approach can be workable, but issuers should focus on consistency, quality of evidence, and retaining a defensible audit trail.
Why issuers and professionals should treat RSV as risk management
Strong verification practices do more than satisfy a rule. They can:
- Protect the issuer’s ability to rely on Reg D 506(c) when marketing publicly
- Reduce the chance of enforcement scrutiny tied to general solicitation
- Create cleaner diligence records for future financings, audits, or acquisitions
- Improve operational discipline by preventing “closing before confirming eligibility”
Practical best practices
A well-run program typically includes written procedures, workflow controls that prevent accepting funds before verification is complete, clear escalation rules for red flags, and secure record retention. Issuers should also ensure that anyone involved in fundraising understands the difference between generating interest and completing a compliant sale.
In short, Reasonable Steps Verification is a central safeguard in Reg D 506(c) offerings. When handled with structure and documentation, it supports compliant advertising while helping issuers and financial professionals manage regulatory and reputational risk.
