Rule 506(c)

Example

A manager announces a $25M fund on its website and at a conference, then closes 20 LPs. For twelve of them the fund obtains a recent letter from a CPA, attorney or verification service confirming accreditation. For the other eight, each writing a minimum cheque of $1M, the fund relies on the high-minimum-investment route from the SEC staff's March 2025 letter: a written representation that the investor is accredited and that the money is not financed by a third party. Each piece of evidence is filed against the LP. One LP is later found not to be accredited; because the fund took reasonable steps and reasonably believed otherwise, the exemption holds.

Confused with

Rule 506(b). The quieter alternative: no advertising, self-certification accepted. Most first funds raised through a network use it. Switching from 506(b) to 506(c) mid-offering is possible; the reverse is not.

Verification versus KYC. Verification establishes that the LP qualifies to invest. KYC establishes who the LP is and where the money came from. Both go in the file; neither substitutes for the other.

In practice

506(c) suits managers raising from strangers: emerging managers using demo days or online platforms, and funds that want to talk about the raise in public. The cost is friction. Some LPs resent handing over tax returns or bank statements, which is why a third-party letter or the high-minimum route is the usual compromise. Form D records which exemption was used, and it cannot be both.