Chief Deputy Whip Patrick McHenry (R, NC-10), the Vice Chairman of the House Financial Services Committee introduced H.R. 1839 the Reforming Access for Investments in Startup Enterprises Act of 2015 or RAISE Act. The legislation simply codifies an established legal framework for secondary markets of restricted securities to enhance market liquidity for entrepreneurs and investors.

“Secondary markets are among the most important arenas for entrepreneurs seeking capital, but the lack of liquidity in these markets has limited their viability as a tool for growing companies,” said Congressman McHenry. “My bill is a narrow and straightforward fix which, if enacted, would provide more liquidity thereby facilitating growth for investors and entrepreneurs participating in secondary markets.”

BACKGROUND: The RAISE Act of 2015 amends the Securities Act of 1933 to include Section 4(a)(7) with the existing Rule 4(a)(1 ½) legal framework for transactions involving the secondary markets. Rule 4(a)(1 ½) was developed from case law by creating a federal exemption for the resale of restricted securities in a private placement. 

Currently, a holder of securities issued in a private placement may resell the securities on a public trading market, after a holding period, pursuant to Rule 144.  However, there is not a similar codified law for private resale of restricted securities. Accordingly, this bill codifies a clear and established legal framework for these transactions to facilitate private company capital formation.