SEC Staff Confirms the Use of Digital Attestations Through a Tokenized Security in Rule 506(c) Offerings

Over the past six months, Seward & Kissel has been engaged in conversations with the staff of the Securities and Exchange Commission’s Division of Corporation Finance (the “Staff”) where we requested guidance as to whether blockchain technology could be utilized in an offering conducted pursuant to Rule 506(c) of Regulation D promulgated under the Securities Act of 1933, as amended. In particular, we sought the Staff’s confirmation that an issuer obtaining representations from purchasers regarding their “accredited investor” status and the financing of their minimum investment programmatically through a tokenized security using a digital attestation (“Tokenized Representations”) constitutes reasonable steps to verify accredited investor status described in the Staff’s March 12, 2025 no-action letter to Latham & Watkins LLP (the “No Action Letter”). ^[1] We are pleased to report that the Staff has now released guidance (the “Staff Interpretation”)^[2] relevant to our request confirming that Tokenized Representations are a satisfactory method of obtaining the foregoing purchaser representations in a Rule 506(c) offering.

Rule 506(c) permits issuers to engage in “general solicitation” and “general advertising” in connection with an unregistered securities offering provided that they take reasonable steps to verify that all purchasers are accredited investors. The No Action Letter significantly streamlined the accredited investor verification process by permitting issuers, under specified conditions, to satisfy Rule 506(c)’s reasonable-steps-to-verify requirement without obtaining and reviewing supporting documentation, where purchasers (i) satisfy minimum investment thresholds and (ii) provide written representations regarding their accredited investor status and that a third party did not finance the purchaser’s minimum investment amount for the purpose of making the investment. However, the No Action Letter did not specifically address our blockchain technology request.

The Staff Interpretation now provides an important clarification for issuers seeking to implement tokenized securities offerings, providing additional regulatory clarity that may encourage broader use of tokenized securities infrastructure in Rule 506(c) offerings. In particular, it confirms that the written representations described above may be obtained through a tokenized security using a digital attestation, reducing uncertainty regarding the use of tokenized securities infrastructure to implement the streamlined verification approach recognized in the No Action Letter. This development has particular significance for tokenized offerings that utilize permissioned token standards designed to enforce transfer restrictions and investor eligibility requirements, because the aforementioned Rule 506(c) written representations can be obtained, recorded and evidenced through the same token protocol-based systems used to issue, hold and transfer tokenized securities. As a result, issuers can incorporate aspects of the streamlined verification approach recognized in the No Action Letter directly into the tokenized offering process, including:

• More streamlined collection and evidencing of purchaser representations regarding accredited investor status and the lack of financing of minimum investment amounts; and
• Enhanced recordkeeping and auditability of the verification process through token protocol-based records.

However, issuers seeking to rely on the Staff Interpretation should ensure that they retain sufficient records of the process used through any token standard protocol. As the Staff emphasized, whether an issuer has taken reasonable steps to verify accredited investor status remains an objective determination by the issuer (or those acting on its behalf) based on the particular facts and circumstances of the offering.

If you have any questions regarding the Staff Interpretation, or would like assistance in structuring a tokenized offering, please contact Anthony Tu-Sekine, at (202) 661-7150 or at tu-sekine@sewkis.com, Kris Swiatek, at (212) 574-1670 or at swiatek@sewkis.com, Walter Van Dorn, at (212) 574-1590 or vandorn@sewkis.com, or your primary contact at Seward & Kissel.