Rule 144 – A Deep Dive – Part 3 – Current Public Information
In this third installment of my series on Rule 144, I will begin discussing the various conditions for the use of the Rule, including the current public information requirement. In the first installment, I provided a high-level review of Rule 144 – see HERE and in the second, discussed definitions including the impactful “affiliate” definition – see HERE.
Conditions for Use of Rule 144
General
As set out in the first blog in this series, 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 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
Rule 144 – A Deep Dive – Part 2 – Definitions
Last week I published a high-level review of Rule 144 – see HERE. This week, I will begin the deep dive discussion of the numerous intricacies of this very important rule, starting with definitions.
Rule 144 Definitions
Rule 144 only has four definitions, but there is a lot to discuss on each of these definitions.
Affiliate
Rule 144 sets forth different conditions for sellers that are “affiliates” or a person that has been an affiliate in the past 90 days then for those that are non-affiliates. Sales by affiliates always require that a company have current public information, are subject to volume limitations (the drip rules), are subject to manner of sale requirements (sales must be made through a broker-dealer) and require the filing of a Form 144. Sales by non-affiliates only require current public information when effectuated after six months but prior to a one year holding period and are never subject to the volume limitations,
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
A Basic Overview of Rule 144
The Securities Act of 1933 (“Securities Act”) Rule 144 sets forth certain requirements for the use of Section 4(1) for the resale of securities. Section 4(1) of the Securities Act provides an exemption for a transaction “by a person other than an issuer, underwriter, or dealer.” The terms “Issuer” and “dealer” have pretty straightforward meanings under the Securities Act, but the term “underwriter” does not. Rule 144 provides a safe harbor from the definition of “underwriter.” If all the requirements for Rule 144 are met, the seller will not be deemed an underwriter and the purchaser will receive unrestricted securities.
Although not set out in the statute, all transfer agents and Issuers, along with most clearing and brokerage firms, require an opinion of
SEC Rule 144: Current Public Information and Reporting Requirements
The current public information requirement is measured at the time of each sale of securities. That is, the Issuer, whether reporting or non-reporting, must satisfy the current public information requirements as set forth in Rule 144(c) at the time that each resale of securities is made in reliance on Rule 144. Most attorney opinion letters and Forms 144 cover a three month period and many Sellers sell securities over that three month period. However, the Seller (or person selling on behalf of Seller such as the broker dealer) is required to make a determination that current public information is available at the time of each sale.
Accordingly, if a reporting issuer does not file a required Q or K during this period, or 15c2-11 information lapses for a non-reporting issuer, sales must cease until the current public information requirement is again satisfied. Moreover, Sellers are taking a risk by selling during the 5-day or 15-day period following the filing of
