Capital Raising Education Series: Part 8 | Featuring: Investment Law Group (Brent Gillett) and Exponential AUM (Brian Connell)
What this video covers: A practitioner-level conversation with a fund attorney on the nuances of Regulation D, the mechanics of 506(c) verification, common compliance pitfalls, and how the choice of exemption intersects with real-world marketing decisions including podcasts, websites, and newsletters.
The Regulatory Foundation
Regulation D was added to the Securities Act of 1933 in 1982, creating Rule 506(b). Rule 506(c) came later with the JOBS Act in 2013. Both exempt managers from registering securities with the SEC, a process that would otherwise require the time and expense of a mutual fund-style registration. Both require Form D filings and prohibit bad actors from participating in the offering.
506(c) Verification: What it Actually Means
Under 506(c), you must take reasonable steps to verify that each investor is accredited before they invest. The SEC has established non-exclusive safe harbors: reviewing tax returns, bank statements, or obtaining written confirmation from a licensed CPA, attorney, or investment advisor. Under updated SEC guidance, investors committing $200,000 or more (individuals) or $1 million or more (entities) may now self-certify, removing the most common source of friction.
Common Pitfalls
Under 506(b):
- Accidentally engaging in general solicitation (easy to do on social media). A post visible beyond your closed network can violate the rule
- Hosting investor events where attendees bring guests who do not have a pre-existing relationship with you
- Putting performance data or fund-specific language on a public website
Under 506(c):
- Failing to maintain adequate records of investor verification for those who do not meet the $200K/$1M thresholds
- Failing to file or update Form D. The SEC has recently brought enforcement actions for this
What You Can Say on a Podcast
Under 506(b), you can discuss your investment methodology and market views but cannot mention your fund name, solicit investments, or share performance. Under 506(c), you can go further, including referencing the fund and directing interested listeners to contact you. This is one of the clearest practical differences between the two exemptions.
Switching Exemptions
Moving from 506(b) to 506(c) requires updating your Form D filing and potentially your subscription documents. Depending on how your offering documents are drafted, you may not need to touch them at all, just file an updated Form D. The switch is effective immediately. Going the other direction is significantly more complex and generally not recommended once you have conditioned the marketplace under 506(c).
If this video raised questions about how any of these topics apply to your fund, Steve Vlasak is happy to help. You can contact Steve directly at svlasak@richeymay.com.
Dive into the other topics in this Capital Raising Education series:
- Part 1: Rule 506(b) vs. 506(c) — Which One Is Right for You?
- Part 2: Allocating Money and the Due Diligence Process
- Part 3: Considerations for IRA Investment into Fund Structures
- Part 4: What to Do With Investor Contacts — A Look Into CRM
- Part 5: Updating Your Marketing Toolkit
- Part 6: The Perfect Pitchbook
- Part 7: Contributed Securities
- Part 9: The Human Edge in Capital Raising
