For the most part, non-accredited investors are NOT allowed to invest in Regulation D offerings, including both 506(b) and 506(c).
But there is one exception for 506(b) offerings where the SEC allows up to a maximum of 35 non-accredited investors to participate. Issuers are still not allowed to advertise the investment offering to these non-accredited investors and they must be existing relationships of the issuer.
The SEC rule on this states the following for 506(b) offerings:
- Securities may not be sold to more than 35 non-accredited investors.
- All non-accredited investors must meet the legal standard of having sufficient knowledge and experience in financial and business matters to be capable of evaluating the merits and risks of the prospective investment.
And when these non-accredited investors are participating in the offering, the following rules will apply:
- The issuer must give any non-accredited investors disclosure documents that generally contain the same type of information as provided in Regulation A offerings.
- They must also give any non-accredited investors financial statement information specified in Rule 506.
- And lastly, the issuer should be available to answer questions from prospective purchasers who are non-accredited investors.
For more on this specific provision of Rule 506(b), you can learn more by visiting the SEC’s website and reading their article on: Private placements – Rule 506(b).