What is the Securities Exchange Commission Rule 144?
Securities and Exchange Commission (“SEC”) Rule 144 is promulgated under the Securities Act of 1933 and deals with a commonly used exemption for security holders to sell restricted securities in public resales. Restricted securities are typically acquired in a private, unregistered sale from an issuing company or one of their affiliates.
What are Restricted Securities?
Restricted securities are those securities that are not the subject of an effective registration statement on file with the SEC and that have a “restrictive” transfer legend that clearly states you are not authorized to resell them in the public marketplace unless the sale would be exempt from the SEC’s registration requirements. Even if you meet all the conditions under SEC Rule 144, you are not authorized to sell these restricted securities to the public until after the legend is removed. Legend removal is a process that can only be accomplished by the issuing company’s stock transfer agent.
The stock transfer agent will require, among other things, an attorney legal opinion letter provided by either the issuer’s counsel or outside counsel.
Obtaining removal of the restrictive legend can be difficult, which is why it is important to obtain assistance. If you have a broker, you can ask him or her for assistance, and you’ll need to contact the company that issued the securities, or their transfer agent, to inquire about the proper procedures. An experienced securities attorney can provide assistance in complying with the various requirements of SEC Rule 144.
Resale of Rule 144 Securities Conditions
There are five main conditions, that have to be met before you can sell or resell unregistered, restricted, or controlled securities. The first condition is a prescribed holding period. For publicly traded companies, it is six months, and that date starts from when the holder bought and paid for the securities in full. For companies that do not or are not required to file with the SEC, the holding period is one year.
The next condition is the need to have enough public information that is made accessible to investors, including directors’ and officers’ information, a business description, and past financial statements. The third requirement involves affiliates. If the party selling the security is a company affiliate, he or she cannot resell more than one percent of the entire outstanding shares during a three-month period.
The fourth condition requires that all trading conditions that would normally apply in a standard trade must be met in these situations as well. Brokers cannot receive any commission that exceeds the normal rate, nor can they solicit buy orders. The last condition involves filing requirements. The SEC requires that any affiliated seller must file a proposed sale notice in the event the value of the sale exceeds $50,000 during a three-month time period, or in situations where there are more than 5,000 shares that will be included in the sale.
For sellers that have no association with the company that issued the shares and have been the owner for more than a year, the seller is off the hook and doesn’t need to meet the conditions prior to trying to sell the securities without any restrictions.
Contact a Florida SEC Rule 144 Lawyer
If you have questions about restricted securities, it’s important to speak with an experienced Florida SEC Rule 144 attorney to understand your options and how best to proceed. Contact the Law Office of Clifford J. Hunt, P.A., at 727-471-0444 to schedule an initial consultation.