Insights · Investor Education · February 2026

What Accredited Investors Should Know About 506(c) Funds

If you are considering an investment in a private fund, you have likely encountered the term 506(c) in offering documents. Understanding what this means and how it differs from other fund structures is important for any accredited investor evaluating opportunities.

What Is Rule 506(c)?

Rule 506(c) is a provision under SEC Regulation D that allows fund managers to publicly advertise and solicit investors. This was introduced by the JOBS Act in 2013, opening up what had previously been a word-of-mouth-only world.

The trade-off for this openness is stricter verification. Under 506(c), the fund manager must take reasonable steps to verify that every investor meets the SEC accredited investor definition. This is a higher bar than the older 506(b) structure, which relied on self-certification.

How Verification Works

Verification typically involves one of several methods: reviewing tax returns showing income above $200K individual or $300K joint for the past two years, obtaining a letter from a registered broker-dealer, SEC-registered investment adviser, licensed CPA, or attorney confirming accredited status, or reviewing financial statements showing a net worth exceeding $1M excluding the primary residence.

This process exists to protect both investors and the fund. It ensures that participants have the financial sophistication and resources appropriate for private fund investments, which carry different risk profiles than publicly traded securities.

Why 506(c) Matters for Digital Asset Funds

In the digital asset space, 506(c) is particularly relevant because it allows fund managers to build their investor base through transparent channels while maintaining regulatory compliance. This transparency benefits investors: you can research the fund, review its track record, and evaluate its service providers before ever making contact.

Compare this to 506(b) funds, which cannot advertise. You would only learn about them through personal connections or advisor referrals, limiting your ability to comparison-shop and do independent due diligence.

What to Look For

When evaluating any 506(c) fund, accredited investors should examine: the quality and independence of the fund administrator, the fund auditor and legal counsel, the fee structure and alignment of interests, the lock-up period and redemption terms, and the length and consistency of the track record.

A well-structured 506(c) fund combines the transparency benefits of public solicitation with the institutional rigor of third-party oversight. This combination is what separates professional fund management from the more opaque corners of the digital asset market.