Section 4(1 ½) or Section 4(a)(1 ½) is a form of private placement resale of securities whose resale is otherwise restricted. It is not a formal section of the Securities Act but rather is a method of private placement resale which relies on Section 4(a)(1) and Section 4(a)(2) of the Securities Act. Congress since codified Section 4(1 ½) in Section 4(a)(7) of the Securities Act.
Section 4(a)(2) allows issuers to sell securities in a non-public offering (i.e. a private placement) without filing a registration statement. Section 4(a)(2) is only available to issuers, however. Holders of securities issued in a Section 4(a)(2) private placement generally cannot freely resell such securities. Section 4(a)(1) exempts the seller from filing a registration statement if the sale is by “any person other than an issuer, underwriter, or dealer.” That is, a holder of securities issued in a private placement can freely resell such securities in a private sale without a registration statement provided they are not an underwriter. Section 2(a)(11) defines “underwriter” as an individual who acquires securities with a view to distribution. Therefore, an individual may resell a security issued in a private placement under Section 4(a)(1) if they satisfy Section 4(a)(2)’s requirement that the sale be non-public. This is so because the reselling individual will not be “distributing” the securities and therefore will not meet Section 2(a)(11)’s definition of an underwriter.
[Last updated in February of 2022 by the Wex Definitions Team]
