Section Section 4(1½) Exemption

Section 4(1½) exemption is a hybrid exemption developed through case law and SEC No-Action Letters that is commonly referred to as the “Section 4(1½) exemption” (referred to as such because such case law and No-Action Letters predated the revision to the Securities Act of 1933 (the "Act") pursuant to Section 201 of the Jumpstart Our Business Startups Act), under which a person purchasing securities from an issuer is not an underwriter for purposes of Section 4(a)(1) of the Act if such person resells the securities in transactions that would meet the exemption under Section 4(a)(2) of the Act so long as the purchaser did not originally purchase with a view to distribution.  The inquiry as to the availability of the Section 4(1½) exemption requires the analysis of the following factors:

1. Holding Period of Securities being Sold.  The longer the holding period, the greater the likelihood that the Section 4(1½) exemption applies.

2. Amount Sold.  Sales of large blocks of stock are permissible if the other requirements of the exemption are met.

3. Purchasers.  Each offeree should be sophisticated with respect to business and financial matters, as well as with respect to the particular investment being offered.  Also, the fewer the number of offerees, the greater the chance for an exemption.

4. Access to Information.  Each offeree should have access to the type of information that would be disclosed in a private placement memorandum.

5. Manner of Offering.  General solicitations and advertising should be avoided.

6. Restrictions on Resale.  The securities received by the purchasers should be restricted as to their transfer and should bear an appropriate legend reflecting this fact.