Securities Act § 4 — Exempt Transactions (15 U.S.C. § 77d)

Overview

Section 4 of the Securities Act of 1933 exempts certain transactions from the registration requirements of Securities Act § 5 — Registration Requirement (15 U.S.C. § 77e). Unlike Securities Act § 3 — Exempt Securities (15 U.S.C. § 77c), which exempts entire classes of securities, § 4 exemptions apply only to specific transactions — the security may still require registration when resold.

Key principle: Transaction exemptions turn on who is selling, to whom, and under what circumstances — not on the nature of the security itself.

§ 4(a)(1) — Transactions by Non-Issuers, Non-Underwriters, Non-Dealers

Exempts transactions by any person other than an issuer, underwriter, or dealer.

• Covers ordinary secondary market trading by investors (e.g., selling stock on an exchange)
• Does not cover sales by:
  • Issuers: the company that issued the securities
  • Underwriters: persons who purchase from an issuer with a view to distribution, or offer/sell for an issuer in connection with distribution
  • Dealers: professional securities dealers (though dealers have a separate exemption under § 4(a)(3))
• An affiliate of the issuer selling into the market may be treated as an “underwriter” even if not technically one, and thus loses this exemption — must rely on Rule 144

§ 4(a)(2) — Private Placements (Transactions Not Involving a Public Offering)

Exempts “transactions by an issuer not involving any public offering.”

Ralston Purina Test

SEC v. Ralston Purina Co. (1953): The question is whether the offerees need the protection of registration. Persons who have access to the same kind of information that registration would disclose do not need protection. This is a facts-and-circumstances test.

Factors Courts and SEC Consider

1. Number of offerees: Smaller number favors exemption (no hard cap)
2. Sophistication of offerees: Must be able to fend for themselves (financial sophistication, access to information)
3. Relationship between issuer and offerees: Preexisting relationship favored
4. Nature and manner of offering: No general solicitation or advertising
5. Access to information: Offerees must have or be able to obtain information equivalent to a registration statement

Regulation D Safe Harbors

The SEC adopted Regulation D to provide clearer safe harbors for § 4(a)(2):

• Rule 504: Offerings up to $10 million in 12 months to any number of investors
• Rule 506(b): Unlimited amount; up to 35 non-accredited but sophisticated investors + unlimited accredited investors; no general solicitation
• Rule 506(c): Unlimited amount; accredited investors only; general solicitation permitted if issuer verifies accredited status

Accredited investor (Rule 501(a)): Includes individuals with net worth > $1M(excludingprimaryresidence)orincome>$200K ($300K joint), institutional investors, and certain knowledgeable employees.

§ 4(a)(3) — Dealer Transactions

Exempts dealer transactions occurring more than 40 days (or 90 days for IPOs) after the first bona fide offering to the public. Prevents dealers from being deemed underwriters in aftermarket trading.

§ 4(a)(5) / § 4(a)(6) — Regulation Crowdfunding

§ 4(a)(6) (added by JOBS Act 2012, implemented by Regulation CF):

• Exempts offers and sales of securities through an SEC-registered funding portal or broker-dealer
• Annual aggregate limit: $5 million per issuer (per 12 months)
• Investor limits based on annual income/net worth
• Investors must hold for 1 year before resale
• Requires disclosure of financial information scaled to offering size
• No general solicitation outside the portal

§ 4(a)(7) — Resales of Restricted Securities

Added by FAST Act (2015). Exempts resales of restricted securities if:

• Seller is not the issuer
• Securities are of a class listed on a national exchange (or issuer has filed Exchange Act reports for 180 days)
• Sale is to an accredited investor
• No general solicitation
• Seller provides basic issuer information to buyer
• Securities remain “restricted” in buyer’s hands

Provides a statutory complement to Rule 144 for resales.

§ 4(a)(1½) — “Section 4(a)(1½)” Exemption

Judicially-created (not in statute) exemption for resales of restricted securities by non-issuers under circumstances analogous to a § 4(a)(2) private placement. Largely superseded by § 4(a)(7) after 2015.

Distinction from § 3 Exemptions

	§ 3	§ 4
What is exempt	The security	The transaction
Resale	Always exempt	Securities remain restricted
Basis	Nature of security	Who sells/to whom
Example	Treasury bonds	Private placement to institutions

Related Pages

• Securities Act § 3 — Exempt Securities (15 U.S.C. § 77c)
• Securities Act § 5 — Registration Requirement (15 U.S.C. § 77e)
• Securities Act § 11 — Civil Liability (15 U.S.C. § 77k)
• Securities Act § 12 — Civil Liability for Selling (15 U.S.C. § 77l)
• Securities Act of 1933 (15 U.S.C. §§ 77a–77aa)

Courses

• Securities Regulation