Capital formation in the private markets often turns on a tradeoff between marketing flexibility and investor verification rigor. The key distinction is whether the issuer is relying on an exemption pathway that permits broad outreach or one that depends on a more controlled offering environment. Understanding how verification expectations change under the Title II JOBS Act versus traditional private placements helps issuers design a process that is both compliant and operationally workable.
1) Core regulatory distinction: solicitation and verification
Traditional private placements—most commonly conducted under Rule 506(b) of Regulation D or under the broader principles of Section 4(a)(2)—generally prohibit general solicitation. Because the offering is not marketed publicly, issuers typically focus on (i) maintaining a pre-existing substantive relationship where appropriate, (ii) documenting communications and investor onboarding, and (iii) establishing a reasonable basis for investor status through questionnaires and representations.
By contrast, offerings enabled by the Title II JOBS Act (implemented primarily through Rule 506(c)) allow general solicitation, including public-facing marketing. That expanded reach comes with a heightened expectation: the issuer must take “reasonable steps” to verify that all purchasers are accredited investors. A signed representation alone is not sufficient.
2) What “verification” looks like in practice
Traditional methods (non-public offerings):
- Investor questionnaires and subscription agreements containing accredited investor representations
- Consistency checks (e.g., occupation, investment experience, entity type) to support a reasonable belief
- Escalation only when there is “reason to doubt” (inconsistencies, incomplete responses, or atypical facts)
506(c) verification (publicly marketed offerings):
- A documented verification process tailored to the investor’s profile, the offering’s terms, and how the investor was sourced
- Use of objective evidence rather than reliance on attestations alone
- Robust recordkeeping to demonstrate the steps taken and the basis for the conclusion
The SEC has described non-exclusive verification approaches commonly used in 506(c) contexts, including review of income documentation (such as tax forms), review of assets and liabilities for net worth (often paired with a credit report), or obtaining written confirmation from certain regulated or licensed professionals who have taken reasonable steps to verify status.
3) Operational impact: investor experience, privacy, and timing
Verification intensity directly affects the onboarding experience. Traditional private placements can be faster and less intrusive for investors, while 506(c) verification may require more sensitive documentation, structured review, and careful data handling. Issuers should plan for:
- Clear, plain-language investor instructions
- Secure collection and retention protocols
- Defined turnaround times and escalation rules for edge cases
4) Choosing the right approach
Issuers evaluating a Title II JOBS Act-style marketing posture versus a traditional private placement typically weigh:
- Capital raising strategy: broad outreach vs. limited network
- Compliance posture: verification burden vs. solicitation restrictions
- Investor mix: institutions and repeat investors vs. diverse retail-accredited participants
- Timeline and staffing: internal capacity to review evidence and maintain an audit-ready file
Regardless of pathway, the most defensible approach is consistent documentation: standardized intake, disciplined exception handling, and records that clearly show who was accepted, on what basis, and when.
