Regulation D (SEC)

Regulation D (Reg D) is a set of rules promulgated by the SEC under Sections 3(b) and 4(a)(2) of the Securities Act of 1933, providing safe harbours for private placements of securities exempt from the registration requirements that apply to public offerings. Because registration is prohibitively expensive and time-consuming for early-stage issuers, Reg D is the most commonly used framework for security token offerings (STOs) targeting US investors.

Rule 504: Small Offerings

Rule 504 permits offerings of up to $10 million in securities in any 12-month period, with no restrictions on the type of investor (accredited or non-accredited). However, Rule 504 does not provide a federal resale exemption — issuers must comply with state securities laws (Blue Sky laws) for each state in which offers are made, significantly increasing compliance burden. Rule 504 is rarely used in security token offerings because state-by-state Blue Sky compliance is operationally complex, and the $10 million cap limits its utility for meaningful capital raises.

Rule 506(b): Traditional Private Placement

Rule 506(b) is the most widely used Reg D exemption. It permits unlimited offering size with:

• Sales to up to 35 non-accredited but sophisticated investors and an unlimited number of accredited investors
• No general solicitation or advertising: Issuers may not use broad marketing methods (advertising, public seminars, websites open to the public, social media) to attract investors
• Issuers must provide non-accredited investors with substantial disclosure equivalent to registration-statement disclosure
• No mandatory Form D filing timeline, but Form D must be filed with the SEC within 15 days of the first sale

The prohibition on general solicitation makes 506(b) suitable for issuers with established investor networks but unsuitable for broad public token marketing campaigns.

Rule 506(c): Advertised Private Placement (Accredited Investors Only)

Introduced by the JOBS Act 2012 and effective 2013, Rule 506(c) permits general solicitation and advertising but imposes two key conditions:

• All purchasers must be accredited investors
• Issuers must take reasonable steps to verify accredited investor status — reliance on self-certification alone is insufficient. Acceptable verification methods include: reviewing tax returns, bank statements, or brokerage account statements confirming income or net worth; obtaining written confirmation from a registered broker-dealer, investment adviser, attorney, or CPA; or using a third-party accreditation verification service

Rule 506(c) is particularly relevant to security token platforms that market broadly online. The accredited-only restriction limits the investor base but removes the cap on offering size and permits open marketing.

Form D Filing

Issuers relying on Rules 504, 506(b), or 506(c) must file a Form D with the SEC within 15 days of the first sale of securities. Form D is a brief notice that identifies the issuer, the offering size, the exemption relied upon, and the use of proceeds. Form D is publicly searchable on the SEC’s EDGAR database and is commonly the first public record of a security token offering.

Transfer Restrictions and Lock-Up

Reg D securities are restricted securities under Rule 144: they cannot be freely resold into the public market without registration or a valid resale exemption. The standard lock-up for 506(b) and 506(c) securities is six months for reporting companies and 12 months for non-reporting companies. In security token architectures, this lock-up is enforced by programming a time-based transfer restriction into the smart contract — investors’ tokens are held in a locked state and can only be transferred to other eligible investors during the lock-up period.

Relationship to Regulation S

For issuers seeking to raise capital from non-US investors simultaneously with a US private placement, Regulation S provides the offshore safe harbour. Reg D and Reg S are commonly combined: US accredited investors purchase under Rule 506(c), while offshore investors purchase under Reg S, with the entire offering structured as a single raise.

Related entries: Accredited Investor, Regulation S, Regulation A+, Security Token Offering (STO)

See also: United States Jurisdiction Overview

Primary source: SEC Regulation D