Regulation D Rule 506(b)

Rule 506(b) is the most widely used exemption under Regulation D of the Securities Act, allowing an issuer to raise an unlimited amount of capital in a private placement without registering the securities with the SEC. Under 506(b), the issuer may sell to an unlimited number of accredited investors plus up to 35 non-accredited investors who are financially sophisticated (and who must receive specified disclosure documents). The defining restriction of 506(b) is that the issuer may not engage in general solicitation or general advertising, meaning it cannot publicly market the offering through advertisements, public websites, social media, or seminars open to the public; instead it must rely on a pre-existing, substantive relationship with prospective investors. In exchange for this marketing limitation, 506(b) allows issuers to accept an investor's self-certification of accredited status without the more rigorous verification that Rule 506(c) requires. Most traditional real estate syndications, Delaware Statutory Trusts, and similar private offerings historically used 506(b), distributing the offering through broker-dealers and registered representatives to investors with whom a relationship already exists. Securities sold under 506(b) are "restricted" and generally illiquid, with resale limited under Rule 144. The exemption is a federal preemption of state registration (a "covered security"), though issuers must still make notice filings (Form D) and comply with state notice-filing and fee requirements. Investors should review the private placement memorandum carefully, as 506(b) offerings rely on disclosure rather than registration.