Definition
Regulation D is a set of SEC rules promulgated under Section 4(a)(2) of the Securities Act of 1933 that provides issuers with exemptions from the requirement to register securities offerings with the SEC. Rather than subjecting an offering to the full disclosure and review process required for a public offering — which can take six to twelve months and cost millions in legal and accounting fees — Regulation D allows issuers to sell securities to qualifying investors through a streamlined private placement process. The regulation contains three operative rules (504, 506(b), and 506(c)), each with different conditions and limitations. Issuers relying on any Reg D rule must file a Form D with the SEC within 15 calendar days of the first sale of securities in the offering.
Rule 504 allows issuers to raise up to $10 million in any 12-month period from any investors, including non-accredited investors, but does not preempt state blue sky securities laws, making it impractical for national offerings. Rule 506(b) permits unlimited capital raises from up to 35 non-accredited but sophisticated investors (plus unlimited accredited investors) with no general solicitation allowed — meaning the issuer cannot publicly advertise the offering. Rule 506(c), added by the JOBS Act in 2013, permits unlimited capital raises from accredited investors only, with general solicitation and advertising fully permitted, but requires the issuer to take “reasonable steps” to verify that all purchasers are in fact accredited investors.
Key Facts
- Over 80% of all US tokenized security offerings (STOs) use Rule 506(c) as their primary exemption, based on tracking of Form D filings from 2018-2025.
- Rule 506 offerings are exempt from state securities registration under Section 18 of the Securities Act (federal preemption), enabling truly national offerings without individual state filings.
- Form D must be filed electronically via the SEC’s EDGAR system within 15 days of the first sale; failure to file may jeopardize the exemption.
- Transfer restrictions apply: securities sold under Rule 506 are “restricted securities” and may not be freely resold for 6 months (reporting companies) or 12 months (non-reporting companies) without registration or another exemption.
- Accreditation verification under 506(c) may be satisfied by: reviewing tax returns and W-2s (income test), bank/brokerage statements (net worth test), or obtaining a written confirmation from a licensed CPA, attorney, registered investment adviser, or broker-dealer.
- The SEC’s proposed “Reg D Reform” (2023 rule proposal) would require additional disclosures but has not yet been finalized.
- Investors in Reg D 506(c) offerings cannot use a secondary market unless that market is an SEC-registered ATS operated by a registered broker-dealer.
Relevance to Tokenization
Regulation D 506(c) is the workhorse exemption for the US tokenization industry because it solves two structural problems simultaneously: it allows unlimited capital raises without SEC registration, and it permits public marketing of the offering (through token websites, social media, and conferences) as long as all actual purchasers are verified accredited investors. This combination makes 506(c) uniquely suited to the digital asset market, where token projects often publicize their offerings extensively before allowing investors to commit capital.
The institutional appeal of 506(c) is significant. Major institutional STOs — including KKR’s tokenized PE fund via Securitize, Hamilton Lane’s tokenized private equity vehicle, and multiple real estate debt offerings on Arca and other platforms — all use 506(c) as their US exemption. The unlimited raise size and institutional-grade credibility of the “accredited only” requirement align with the expectations of the pension funds, endowments, and family offices that constitute the target market for large tokenized offerings.
The principal limitation of Reg D for tokenization is the exclusion of retail investors. A 506(c) offering is by definition a market for the roughly 14 million Americans who meet the accreditation threshold, leaving out the approximately 96% of the population that most advocates of financial democratization through tokenization hope to reach. Issuers seeking retail participation must look to Regulation A+ or Regulation CF, both of which carry lower raise limits and higher compliance burdens. The 12-month transfer restriction also limits the secondary market potential of Reg D tokens, though SEC-registered ATSs can facilitate trading after the restriction period expires.
Related entries: The Howey Test, Accredited Investor, ATS Registration