Pub. 4 2016 Issue 1

www.uba.org 12 “Section 4(a)(1½)” Exemption for Resales of Restricted Securities Now Codified By Thomas R. Taylor, Esq. A relatively obscure new federal statute entitled the Fixing America’s Surface Transportation Act, or the “FAST” ct, was signed into law on December 4, 2015. While primarily related to improv- ing transportation, the FAST Act amends Section 4 of the Securities Act of 1933 (the “Securities Act”) to provide for a new limited resale exemption intended to “enhance liquidity in the [private] market for company issued securities . . ..” The FAST Act amended the Securities Act and adopted a new statutory exemption codi- fied as Section 4(a)(7), which provides for private resales of restricted and control se- curities. The House Report on the FAST Act notes that Section 4(a)(7) is intended to “increase market liquidity and resolve legal uncertainty that impedes employees of private companies from selling their company issued securities . . ..” THE SECTION 4(1½ ) EXEMPTION New Section 4(a)(7) codifies the so called “Section 4(1½)” exemption under the Securities Act. Section 4(a)(7) provides a statutory basis for resales of securities by persons other than the issuer, who heretofore relied on the “Section 4(1½)” private placement exemption, which is a case law developed exemption for the resale of privately placed securities. (The so called “Section 4(1½)” exemption is not provided for in the Securities Act, but rath- er refers to transactions structured such that they comply with and rely on certain elements or principles required by Section 4(a)(1) and Section 4(a)(2) of the Securi- ties Act and provide for an amalgamation of certain of the principles required by those two statutory provisions.) While not formally provided for by the Securities Act, the “Section 4(a)(1½)” exemption has been relied on and used by securities lawyers and has developed through case law and judicial interpretation, and been recognized by the Securities and Exchange Commission (the “SEC”) for years. While new Section 4(a)(7) codifies the regis- tration exemption colloquially referred to as “Section 4(a)(1½)”, the FAST Act makes it clear that Section 4(a)(7) does not replace the “Section 4(a)(1½)” exemption.