Rule 144

Commissioner Uyeda’s Statement On Dealer Litigation

On August 19, 2024, SEC Commissioner Mark T. Uyeda published a statement regarding one of the numerous defendants in SEC initiated enforcement proceedings claiming unlicensed dealer activity. The statement resonates with the sentiments of most of my colleagues, peers and clients.

Background

In November 2017 the SEC shocked the industry when it filed an action against Microcap Equity Group, LLC and its principal alleging that its investing activity required licensing as a dealer under Section 15(a) of the Exchange Act. Since that time, the SEC has filed numerous additional cases with the sole allegation being that the investor acted as an unregistered dealer. In each case, the investor entity purchased convertible promissory notes from micro-cap OTC Markets issuers (or other existing note holders), which, after the applicable Rule 144 holding period, were converted into shares of common stock and sold on the open market. As the securities were generally low priced, the conversions resulted in large quantities of additional

August 27, 2024

The SEC’S Spring 2024 Flex Regulatory Agenda

On July 9, 2024, the SEC published its semi-annual Spring 2024 regulatory agenda (“Agenda”) and plans for rulemaking. The Agenda is published twice a year, and for several years I have blogged about each publication. Although items on the Agenda can move from one category to the next, be dropped off altogether, or new items pop up in any of the categories (including the final rule stage), the Agenda provides valuable insight into the SEC’s plans and the influence that comments can make on the rulemaking process.

The Agenda is broken down by (i) Proposed Rule Stage; (ii) Final Rule Stage; and (iii) Long-term Actions. The Proposed and Final Rule Stages are intended to be completed within the next 12 months and Long-term Actions are anything beyond that. The number of items to be completed in a 12-month time frame is 34, down from 43 on the Fall 2023 Agenda and a whopping 55 on the Spring 2023 Agenda. Many

August 13, 2024

Who Is An “Affiliate” And Why Does It Matter – Exchange Act; Determining Filer Status

The concept of affiliation resonates throughout the federal securities laws, including pertaining to both the Securities Act and Exchange Act rules, regulations and forms and Nasdaq and NYSE compliance. In this multi-part series of blogs, I am unpacking what the term “affiliate” means and its implications. The first blog in the series began with an analysis of the Securities Act definition of “affiliate” and the implications under Rule 144, Section 4(a)(7) and Form S-3 eligibility (see HERE). The second delved into the topic of a primary vs. secondary offering, which itself hinges on whether the offeror is an affiliate (see HERE). In this third part of the series, I will discuss the meaning and implications of an “affiliate” under the Exchange Act.

Exchange Act Definition of Affiliate

Exchange Act Rule 12b-2 defines an affiliate the same as the Securities Act, to wit: ‘An affiliate’ of, or a person “affiliated” with, a specified person, is a person that

August 22, 2023

Who Is An Affiliate And Why Does It Matter – Primary VS Secondary Offering

The concept of affiliation resonates throughout the federal securities laws, including pertaining to both the Securities Act and Exchange Act rules, regulations and forms and Nasdaq and NYSE compliance. In this multipart series of blogs, I will unpack what the term “affiliate” means and its implications. This first blog in the series began with an analysis of the Securities Act definition of “affiliate” and the implications under Rule 144, Section 4(a)(7) and Form S-3 eligibility (see HERE). In this Part 2 of the series, I am delving into the meaty topic of a primary vs. secondary offering, which itself hinges on whether the offeror is an affiliate.

Secondary/Resale Offerings vs. Primary Offerings

A secondary offering is an offering made by or on behalf of bona fide selling shareholders and not by or on behalf of the registrant company. A secondary offering can only occur after a company is public. That is, even if a company goes public

August 15, 2023

Who Is An Affiliate And Why Does It Matter – Part 1

WHO IS AN “AFFILIATE” AND WHY DOES IT MATTER? PART 1

The concept of affiliation resonates throughout the federal securities laws, including pertaining to both the Securities Act and Exchange Act rules, regulations and forms and Nasdaq and NYSE compliance. In this multipart series of blogs, I will unpack what the term “affiliate” means and its implications. This first blog in the series begins with the Securities Act definition of an “affiliate” and the implications under Rule 144, Section 4(a)(7) and Form S-3 eligibility. In Part 2 of the series, I will delve into the meaty topic of a primary vs. secondary offering, which itself hinges on whether the offeror is an affiliate.

Securities Act Definition of Affiliate

The Securities Act provides a statutory definition of an “affiliate” to begin what is a facts and circumstances analysis (as is common in the federal securities laws). Rule 405 of the Securities Act defines an “affiliate” as “[A]n affiliate of, or

August 8, 2023

Form 144 Must Now Be Filed Electronically

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

August 2, 2022

OTC Markets; Rule 144; The SPCC

Small public companies are in trouble and they need help now! Once in a while there is a perfect storm forming that can only result in widespread damage and that time is now for small public companies, especially those that trade on the OTC Markets. The trains on track to collide include a combination of (i) the impending amended Rule 15c2-11 compliance deadline (which alone would be and is a clear positive); (ii) the proposed Rule 144 rule changes to eliminate tacking upon the conversion of market adjustable securities; (iii) the SEC onslaught of litigation against micro-cap convertible note investors claiming unlicensed dealer activity; (iv) the OTC Markets new across the board unwillingness to allow companies to move from the Pink to the QB if they have outstanding convertible debt; and (v) the SEC’s unwillingness to recognize the OTC Pink as a trading market and its implications on re-sale registration statements.

Any one of these factors alone would not

June 8, 2021

SEC Fall 2020 Regulatory Agenda

The SEC’s latest version of its semiannual regulatory agenda and plans for rulemaking has been published in the federal register. The Fall 2020 Agenda (“Agenda”) is current through October 2020. The Unified Agenda of Regulatory and Deregulatory Actions contains the Regulatory Plans of 28 federal agencies and 68 federal agency regulatory agendas. The Agenda is published twice a year, and for several years I have blogged about each publication.

Like the prior Agendas, the Fall 2020 Agenda is broken down by (i) “Pre-rule Stage”; (ii) Proposed Rule Stage; (iii) Final Rule Stage; and (iv) Long-term Actions. The Proposed and Final Rule Stages are intended to be completed within the next 12 months and Long-term Actions are anything beyond that. The number of items to be completed in a 12-month time frame is down to 32 items. The Spring Agenda had 42 and the Fall 2019 had 47 on the list.

Items on the Agenda can move from one category to

May 18, 2021

Section 12(g) Registration

Unlike a Securities Act of 1933 (“Securities Act”) registration statement, a Securities Exchange Act of 1934 (“Exchange Act”) Section 12(g) registration statement does not register securities for sale or result in any particular securities becoming freely tradeable. Rather, an Exchange Act registration has the general effect of making a company subject to the Exchange Act reporting requirements under Section 13 of that Act. Registration also subjects the company to the tender offer and proxy rules under Section 14 of the Act, its officers, directors and 10%-or-greater shareholders to the reporting requirements and short-term profit prohibitions under Section 16 of the Act and its 5%-or-greater shareholders to the reporting requirements under Sections 13(d) and 13(g) of the Act.

A company may voluntarily register under Section 12(g) at any time and, under certain circumstances, may also terminate such registration (see HERE).

In addition, unless an exemption is otherwise available, a company must register under Section 12(g), if as of the

April 20, 2021

SEC Proposes Amendments To Rule 144

I’ve been at this for a long time and although some things do not change, the securities industry has been a roller coaster of change from rule amendments to guidance, to interpretation, and nuances big and small that can have tidal wave effects for market participants. On December 22, 2020, the SEC proposed amendments to Rule 144 which would eliminate 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 updates the Form 144 filing requirements to mandate electronic filings, eliminate the requirement to file a Form 144 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 last amendments to Rule 144 were in 2008 reducing the holding periods to six months for reporting issuers and one year

December 29, 2020

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Rule 144

Commissioner Uyeda’s Statement On Dealer Litigation

Who Is An “Affiliate” And Why Does It Matter – Exchange Act; Determining Filer Status

Who Is An Affiliate And Why Does It Matter – Primary VS Secondary Offering

Who Is An Affiliate And Why Does It Matter – Part 1

Form 144 Must Now Be Filed Electronically

OTC Markets; Rule 144; The SPCC

SEC Fall 2020 Regulatory Agenda

Section 12(g) Registration

SEC Proposes Amendments To Rule 144

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