On June 3, 2022, the SEC adopted amendments to the EDGAR filing rules, including requiring the electronic filing of Form 144. This is not something that I would normally blog about; however, as the change will directly impact securities counsel, it is worth a short explanation. Also, since the original amendment to require the electronic filing of Form 144 was part of a proposed Rule 144 amendment that would have eliminated tacking in calculating the holding period for variable rate convertible instruments, it is definitely newsworthy.
Form 144
Rule 144 requires the filing of a Form 144 – Notice of Proposed Sale – by affiliates when the amount to be sold under Rule 144 by the affiliate during any three-month period exceeds 5,000 shares or units or has an aggregate sales price in excess of $50,000. A person filing a Form 144 must have a bona fide intention to sell the securities referred to in the form within a reasonable time after the filing of the Form 144.
A Form 144 must be signed by the person for whose account the securities are to be sold and shall be transmitted for filing concurrently with either the placing with a broker of an order to execute a sale of securities in reliance upon the rule or the execution directly with a market maker of such a sale. Historically, a Form 144 was always prepared and filed by the brokerage firm that was executing trades on behalf of the affiliate. In fact, up until recently, my firm had only prepared and filed about a dozen Form 144’s over a 20-year span.
Brokerage firms, however, are not traditionally EDGAR filers and will not likely take on this role. Accordingly, the requirement to file a Form 144 will shift to either in-house or outside securities counsel. It is important for practitioners to add the filing of the Form 144 to their procedures when assisting with an affiliate stock sale along with the usual compliance with insider trading policies, filing of a Form 4, checking Section 16 short swing profit compliance, and preparing an opinion letter.
Also, practitioners need to be cognizant of timing issues. As of now, a Form 144 is deemed filed when it is put in a mailbox for delivery to the SEC. When the new EDGAR filing rules take place, counsel will need to educate affiliates to be sure that they communicate when an order is placed so that a filing may be completed “concurrently” or at least the same day (and again when the sale is completed to comply with Form 4 filings).
The Form 144 will remain a paper filing where the issuer is not subject to the reporting requirements of the Securities Exchange Act.
Compliance with the new rule will be required six months after the new EDFAR Filer Manual is updated and published in the Federal Register. Currently publication is expected in approximately September 2022.
Proposed Rule 144 Amendments
In December 2020, the SEC proposed dramatic changes to Rule 144 including eliminating tacking of a holding period upon the conversion or exchange of a market adjustable security that is not traded on a national securities exchange. The proposed Rule also included the electronic filing requirements for Form 144, separately adopted as described above, eliminating the Form 144 filing requirement with respect to sales of securities issued by companies that are not subject to Exchange Act reporting, and amend the Form 144 filing deadline to coincide with the Form 4 filing deadline.
The new rules only effect the electronic Form 144 filing requirement and specifically did not implement any other changes, including the timing of the filing of a Form 144 or the filing deadline.
The proposed Rule 144 changes, and in particular the elimination of a tacking period for market adjustable convertible securities, met with extreme industry pushback. My firm was one of many that submitted opposing comment letters to the SEC. Market adjustable securities usually take the form of convertible notes, which have become a very popular and common form of financing for micro- and small-cap public companies over the past decade or so but have been under attack in recent years. The reasoning for the attacks ranges from the dilutive effect of the financing (yes, it’s dilutive); to labeling all market adjustable security investors and lenders as predatory sharks swimming in a sea of innocent guppies; to the SEC’s claim that serial lenders are acting as unlicensed dealers; to no articulated reason at all.
At the time of the rule release, I wrote a summary blog – see HERE and in a follow up blog, my opposition was much stronger – see HERE.
Since the Rule 144 proposed rule release in December 2020, I’ve been asked many times about my opinion as to whether, or when, it may move forward. As of today, I believe that the changes to the tacking provisions are on indefinite hold. The Rule 144 changes went from the final rule stage in the Spring 2021 SEC Regulatory Agenda to the proposed rule stage in both the Fall 2021 and Spring 2022 agenda. That doesn’t mean it can’t jump back, but in the rule release adopting changes to the electronic filing of the Form 144, the SEC specifically acknowledged that the provisions had been proposed as part of the broader proposed rule changes in December 2020 but that they “are not taking any action concerning the remaining proposals in the Rule 144 Proposing Release at this time.”
The Author
Laura Anthony, Esq.
Founding Partner
Anthony L.G., PLLC
A Corporate Law Firm
LAnthony@AnthonyPLLC.com
Securities attorney Laura Anthony and her experienced legal team provide ongoing corporate counsel to small and mid-size private companies, OTC and exchange traded public companies as well as private companies going public on the Nasdaq, NYSE American or over-the-counter market, such as the OTCQB and OTCQX. For more than two decades Anthony L.G., PLLC has served clients providing fast, personalized, cutting-edge legal service. The firm’s reputation and relationships provide invaluable resources to clients including introductions to investment bankers, broker-dealers, institutional investors and other strategic alliances. The firm’s focus includes, but is not limited to, compliance with the Securities Act of 1933 offer sale and registration requirements, including private placement transactions under Regulation D and Regulation S and PIPE Transactions, securities token offerings and initial coin offerings, Regulation A/A+ offerings, as well as registration statements on Forms S-1, S-3, S-8 and merger registrations on Form S-4; compliance with the Securities Exchange Act of 1934, including registration on Form 10, reporting on Forms 10-Q, 10-K and 8-K, and 14C Information and 14A Proxy Statements; all forms of going public transactions; mergers and acquisitions including both reverse mergers and forward mergers; applications to and compliance with the corporate governance requirements of securities exchanges including Nasdaq and NYSE American; general corporate; and general contract and business transactions. Ms. Anthony and her firm represent both target and acquiring companies in merger and acquisition transactions, including the preparation of transaction documents such as merger agreements, share exchange agreements, stock purchase agreements, asset purchase agreements and reorganization agreements. The ALG legal team assists Pubcos in complying with the requirements of federal and state securities laws and SROs such as FINRA for 15c2-11 applications, corporate name changes, reverse and forward splits and changes of domicile. Ms. Anthony is also the author of SecuritiesLawBlog.com, the small-cap and middle market’s top source for industry news, and the producer and host of LawCast.com, Corporate Finance in Focus. In addition to many other major metropolitan areas, the firm currently represents clients in New York, Los Angeles, Miami, Boca Raton, West Palm Beach, Atlanta, Phoenix, Scottsdale, Charlotte, Cincinnati, Cleveland, Washington, D.C., Denver, Tampa, Detroit and Dallas.
Ms. Anthony is a member of various professional organizations including the Crowdfunding Professional Association (CfPA), Palm Beach County Bar Association, the Florida Bar Association, the American Bar Association and the ABA committees on Federal Securities Regulations and Private Equity and Venture Capital. She is a supporter of several community charities including siting on the board of directors of the American Red Cross for Palm Beach and Martin Counties, and providing financial support to the Susan Komen Foundation, Opportunity, Inc., New Hope Charities, the Society of the Four Arts, the Norton Museum of Art, Palm Beach County Zoo Society, the Kravis Center for the Performing Arts and several others. She is also a financial and hands-on supporter of Palm Beach Day Academy, one of Palm Beach’s oldest and most respected educational institutions. She currently resides in Palm Beach with her husband and daughter.
Ms. Anthony is an honors graduate from Florida State University College of Law and has been practicing law since 1993.
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