In this sixth and final installment of my series on Rule 144, I will continue discussing the various conditions for the use of the Rule covering manner of sale requirements and the filing of a Form 144 for affiliates. In the first installment, I provided a high-level review of Rule 144 – see HERE ; in the second, I discussed definitions including the impactful “affiliate” definition – see HERE; in the third I reviewed the current public information requirements – see HERE; in the fourth I covered holding periods – see HERE; and in the fifth I covered limitations on the amount of securities that can be sold – see HERE.
Conditions for Use of Rule 144
General
Rule 144 provides certain conditions that must be met by selling affiliates and selling non-affiliates which conditions vary depending on whether the Issuer of the securities is a reporting or non-reporting company and whether the Issuer is or ever has been a shell company. The high-level Rule 144 requirements for non-affiliates include: (i) holding period; (ii) availability of current public information; and (iii) no shell status ineligibility. The high-level Rule 144 requirements for affiliates (i.e. holders of control securities) include: (i) holding period; (ii) availability of current public information; (iii) manner of sale restrictions; (iv) sale volume limitations; (v) requirement to file a Form 144; and (vi) no shell status ineligibility.
A person who is a non-affiliate and has been a non-affiliate for three months, may begin to sell restricted securities in reliance of Rule 144 after six months as long as (i) the issuer is subject to the SEC reporting requirements and has been so subject for the prior 90 days; (ii) the issuer has current public information; and (iii) there is no shell status ineligibility. If the issuer is subject to the SEC reporting requirements and has been so subject for the prior 90 days, the rule does not require current public information after a one year hold for a non-affiliate (that has been a non-affiliate for three months), however, in practice, no brokerage firms will allow sales if the issuer does not have current public information, and most attorneys will not write an opinion letter.
A person who is a non-affiliate and has been a non-affiliate for three months, may begin to sell restricted securities in reliance of Rule 144 after a one year holding period if the issuer is not subject to the SEC reporting requirements as long as there is no shell status ineligibility. Although the rule does not require current public information in this case, in reality, no brokerage firms will allow sales without current public information, and most attorneys will not write an opinion letter.
A person who is an affiliate, has been an affiliate during the preceding 90 days, or a person selling on behalf of an affiliate, may begin to sell restricted securities in reliance of Rule 144 after a six month hold period as long as: (i) the issuer is subject to the SEC reporting requirements and has been so subject for the prior 90 days; (ii) the issuer has current public information; (iii) the number of shares sold is in accordance with the volume limitations set forth in the Rule; (iv) the sales are conducted on the open market through a brokerage account; (iv) the person files a Form 144 with the SEC and (v) there is no shell status ineligibility.
A person who is an affiliate, has been an affiliate during the preceding 90 days, or a person selling on behalf of an affiliate, may begin to sell restricted securities in reliance of Rule 144 after a one year hold period if: (i) the issuer is not subject to the SEC reporting requirements; (ii) the issuer has current public information; (iii) the number of shares sold is in accordance with the volume limitations set forth in the Rule; (iv) the sales are conducted on the open market through a brokerage account; (iv) the person files a Form 144 with the SEC and (v) there is no shell status ineligibility.
All Rule 144 eligibility requirements are assessed immediately prior to the intended sale of securities and must be satisfied at the time of each and every sale. Accordingly, if securities are purchased from a non-reporting issuer that subsequently becomes subject to the Exchange Act reporting requirements, the holding period would likewise be shortened from one year to six months.
Manner of Sale
As outlined above, a person who is an affiliate, has been an affiliate during the preceding 90 days, or a person selling on behalf of an affiliate, is subject to limitations on the manner of sale of securities that may be sold in reliance on Rule 144. Provided however, that securities sold for the account of a deceased person or beneficiary of a deceased person where neither the estate or beneficiary are affiliates, are exempted from the manner of sale requirements of Rule 144. Further, debt securities are exempted from this requirement.
An affiliate or person selling on behalf of an affiliate may only sell securities in the following manners when relying on Rule 144:
- Brokers transactions as defined in Securities Act Section 4(a)(4) – see more detail below;
- Transactions directly with a market maker – i.e. where the buyer is a market maker
- Riskless principal transactions where: (a) the offsetting trades are executed at the same price; (b) the transaction is permitted to be reported as riskless under the rules of an SRO; and (c) in brokerage transactions further discussed below.
The person selling the securities may not solicit or arrange the solicitation of orders in anticipation or connection with a transaction (they must be truly open market) or make any payment in connection with the sale of securities to any person other than the broker/dealer who executes the orders.
Brokers transactions include transactions by a broker in which the broker:
- Does no more than execute the order as an agent;
- Receives no more than the usual and customary commission;
- Does not solicit or arrange the solicitation of orders in anticipation or connection with a transaction other than (a)inquiries to other broker dealers that have indicated an interest in that particular security within the preceding 60 days; (b) inquiries by the broker of his customers who had indicated an unsolicited interest in the security within the preceding 10 business days; (c) the publication of quotes on an inter-dealer quotation system; or (d) the publication of quotes on an alternative trading system;
- After reasonable inquiry is not aware of circumstances indicating that the person for whose account the securities are sold is an underwriter with respect to the securities or that the transaction is a part of a distribution of securities of the issuer. The Broker shall be deemed to be aware of any facts or statements filed in a Form 144.
Notice of Proposed Sale
A Form 144 notice must be filed in connection with sales by affiliates or for the account of an affiliate in certain circumstances. In particular, if the sales exceed either 5,000 shares or $50,000 during any three month period, a Form 144 must be filed. The Form 144 must be signed by the person for whose account the securities are being sold and must be filed through the EDGAR system. The person filing the notice required by this paragraph shall have a bona fide intention to sell the securities referred to in the notice within a reasonable time after the filing of such notice.
The Author
Laura Anthony, Esq.
Founding Partner
Anthony, Linder & Cacomanolis
A Corporate and Securities Law Firm
Securities attorney Laura Anthony and her experienced legal team provide ongoing corporate counsel to small and mid-size private companies, 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, Linder & Cacomanolis, 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 an 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 ALC 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 the American Red Cross for Palm Beach and Martin Counties, 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.
Ms. Anthony is an honors graduate from Florida State University College of Law and has been practicing law since 1993.
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