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SEC Eases Restrictions on Rule 144 Resales of Restricted Securities.

U.S. Securities and Exchange Commission (“SEC”) recently amended Rules 144 under the Securities Act of 1933, to increase the liquidity of restricted securities sold by public companies in private placements and make it less expensive for those companies to raise money through private placements. Rule 144 permits investors to resell restricted securities without registration, after a specific holding period, which was one year prior to this amendment. The amendments decrease the holding period to six months for restricted securities of issuers subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934 (Exchange Act). The holding period for securities of issuers that are not subject to Exchange Act reporting requirements continues to be one year.

Consequently, the restricted securities of reporting issuers (public companies) may be resold after six-months, but the holding period for private companies is still one year.

The shorter holding period should allow public companies to negotiate smaller discounts to market price when selling unregistered securities in a private placement, and they may be able to avoid granting registration rights to the purchasers.

Prior to the amendments, both affiliates and non-affiliates of the issuer were subject to all of the conditions of Rule 144, including public availability of current information about the issuer, resale volume limitations, and a requirement to file Form 144 with the SEC when sales exceed a certain dollar or volume threshold. The amendments eliminate these conditions for non-affiliates except for the current information requirement, which now only applies when non-affiliates sell securities of Exchange Act reporting issuers prior to holding such securities for one year. After one year, the current information requirement lapses for non-affiliates.

Affiliates will continue to be required to file Form 144 if resales exceed 5,000 shares or $50,000 within a three-month period. The prior thresholds were 500 shares or $10,000.

This legal alert is for informational purposes only. It is not legal advice or legal opinion. You should speak with an attorney about its application to your business and your own unique circumstances.