Private Placements: Section 4(a)(2) and Regulation D

Section 5 of the Securities Act of 1933, as amended (Securities Act), requires all offers and sales of securities to be registered with the Securities and Exchange Commission (SEC) unless there is an available registration exemption. The registration of securities is more expensive and time consuming than an offering of unregistered securities. A successful offering of registered securities also depends on the public market’s demand for them. As a result, an extensive private placement, resale, and offshore securities market has developed that relies on registration exemptions.

While the SEC has established a variety of registration exemptions, the ones most commonly used by issuers are the private placement exemptions provided by:

• Section 4(a)(2) of the Securities Act, which exempts from registration transactions by an issuer not involving a public offering.

• Rule 506 of Regulation D, which provides safe harbor exemptions under Section 4(a)(2) for private placements that meet specified objective standards.

These exemptions are not available for the resale of these securities, unlike Rule 144A, which is often mistakenly thought of as an issuer private placement exemption but is actually a resale safe harbor.

Securities sold under either Section 4(a)(2) or Regulation D are deemed to be restricted securities and are subject to transfer or resale restrictions.