506(b) vs. 506(c): How Different Is the Investor Verification Process?

Question

One area that seems to confuse a lot of newer passive investors is the difference between being accredited and having that status verified.

In a 506(b) offering, issuers generally rely on a reasonable belief that an investor is accredited. In a 506(c) offering, issuers can market the deal publicly, but they must take reasonable steps to verify that purchasers are accredited.

What I've been curious about is the practical side of that difference.

For those who have invested in both 506(b) and 506(c) deals:

• How different was the onboarding process?
• Did the verification requirements catch you by surprise?
• Did sponsors generally accept existing verification letters, or require a new review?

How different was the onboarding process?

Did the verification requirements catch you by surprise?

Did sponsors generally accept existing verification letters, or require a new review?

I'd be interested in hearing real-world experiences from investors and sponsors.

Don Konipol · Answer

We’ve syndicated both 506b and 506 c deals. For 506b the investor is for all intents and purposes “self accredited”. They sign a statement that they’re accredited; are not obligated to provide any proof, and unless the sponsor has reason to believe the self accredited statement is u true, the investor can invest in the deal.

For 506c, proof must be provided, although quite frankly the proof isn’t all that burdensome. The 4 main ways to provide verification are any one of the following; tax returns, financial institution statements, letter from CPA, letter from attorney.

Chris Seveney · Answer

We recently had an investor refuse to invest because they did not want to provide any type of accreditation from a third party, nor provide their own verification. Their response was, "The other people I invest with, just take my word for it." That is great, but when you try and follow the rules, this is one of those instances where I'd rather be safe than sorry.

Divin Kanyama · Answer

@Narasimha Alwala The practical distinction I’d emphasize is that qualifying as accredited and documenting that qualification are separate steps. One nuance worth highlighting: 506(b) isn’t simply “check a box,” either—the issuer still needs a reasonable basis for its belief. For 506(c), a qualifying CPA or attorney confirmation is one verification route, so investors don’t necessarily need to send their underlying financial records directly to every sponsor.

On existing letters, I wouldn’t assume either automatic acceptance or a mandatory fresh review for every deal. Under the SEC’s specified third-party confirmation method, the professional must have verified the investor within the prior three months; that isn’t a universal expiration rule for every verification approach. I’d ask for the sponsor’s accepted methods, documentation requirements, and timing before starting the subscription process. Clear instructions upfront would make the extra step feel less like a surprise and help investors plan around privacy and closing deadlines.

Narasimha Alwala · Answer

Thanks, Divin. I appreciate the additional nuance.

That's a helpful distinction between being accredited and documenting accredited status. The clarification around third-party verification letters and the three-month lookback period is especially useful, since that's an area that often seems misunderstood.

I also agree that understanding a sponsor's verification requirements upfront can help avoid surprises and make the process smoother for investors.

Thanks for sharing your perspective.

506(b) vs. 506(c): How Different Is the Investor Verification Process?

506(b) vs. 506(c): How Different Is the Investor Verification Process?

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