Marketing Activities Under Rule 506(c)
Navigating Marketing Activities Under Rule 506(c): What Fund Managers Need to Know
The SEC’s recent no-action letter has made Rule 506(c) a more attractive alternative to Rule 506(b). While 506(c) has always been available, many fund managers have preferred 506(b) due to the burdensome investor verification requirements. The recent no-action letter has eased compliance by providing limited flexibility in accredited investor verification, particularly when a minimum investment threshold is met. This change makes it easier for investor relations teams to actively market their funds and allows emerging fund managers to reach a broader audience without relying on costly placement agents.
However, just because fund managers can market their funds more freely doesn’t mean they can do so without restrictions. While Rule 506(c) provides more flexibility in how fund managers solicit investors, they must still adhere to SEC regulations to remain compliant.
Below are some key do’s and don’ts for fund managers seeking to rely on 506(c).
What Fund Managers Can Do Under Rule 506(c)
Publicly Advertise the Fund Offering – Unlike Rule 506(b), fund managers can broadly solicit and advertise their offerings through various public channels, including:
Websites and landing pages
Social media platforms (LinkedIn, Twitter, Instagram, etc.)
Podcasts and interviews
Online ads (Google Ads, Facebook Ads, etc.)
Email campaigns and newsletters
Press releases and media coverage
Host Public Webinars and Events – Managers can openly discuss their fund’s investment strategy, structure and terms at:
Conferences and industry events
Public webinars and online Q&A sessions
Investment summits
Podcasts and YouTube videos
Engage Influencers and Third-Party Marketers – The use of paid promoters and referral networks is permitted, provided appropriate disclosures are made in accordance with SEC rules.
Utilize General Social Media Outreach – Managers can discuss fund details and investor opportunities via posts, videos and paid advertisements.
Leverage Email and Direct Messaging Campaigns – Outreach can be conducted at scale, including LinkedIn messaging and email marketing.
Direct Prospective Investors to a Public Offering Page – Unlike 506(b), which requires password-protected pages, managers can host investment details on a publicly accessible website.
What Fund Managers Still Cannot Do
Make False or Misleading Statements – Any claims about fund performance, risk factors, or expected returns must be factual, substantiated, and presented in a balanced manner.
Cherry-Pick Performance Data – Managers cannot selectively highlight only successful investments without providing full context or appropriate disclaimers.
Provide Unverified Testimonials or Endorsements Without Proper Disclosures – Any use of testimonials or endorsements from past investors must comply with the SEC’s Marketing Rule, including proper disclosures of conflicts of interest and compensation arrangements.
Misrepresent the Fund’s Track Record – Historical performance must be accurate, and any hypothetical or projected performance must be clearly labeled as such with appropriate risk disclosures.
Fail to Disclose Compensation to Promoters or Influencers – If third parties, such as referral partners, are compensated for promoting the fund, full disclosure of the compensation arrangement must be provided to investors.
Solicit Non-Accredited Investors – Even with general solicitation allowed, only accredited investors are permitted to invest. Verification remains mandatory, even under the no-action relief, which allows self-certification only under specific conditions.
Use Deceptive or High-Pressure Sales Tactics – Fund managers must avoid misleading or aggressive marketing techniques that could be perceived as coercive or manipulative.
Ignore Record-Keeping Requirements – Compliance with SEC record-keeping rules, including maintaining all marketing materials and investor communications, remains mandatory.
Final Thoughts
While Rule 506(c) provides fund managers with unprecedented marketing flexibility, it does not eliminate regulatory oversight. Fund managers must still comply with SEC regulations, particularly regarding investor verification and anti-fraud provisions. If you are not a registered investment adviser, the SEC’s Marketing Rule may not technically apply, but adhering to its principles can help avoid regulatory scrutiny. Key principles include fair and balanced presentation of performance data and clear risk disclosures.
Additionally, state securities laws (Blue Sky laws) may impose additional restrictions that fund managers must consider.
Finally, fund managers marketing outside the United States should carefully review applicable regulations in those jurisdictions, as international marketing rules may conflict with U.S. rules or impose additional compliance obligations.
