Rule 144 – a Deep Dive – Part 3 – Current Public Information
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 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.
CURRENT PUBLIC INFORMATION
Rule 144 requires that a company has adequate current public information prior to: (i) the sale of securities by an affiliate or on behalf of an affiliate; and (ii) the sale of securities by a non-affiliate after holding securities of an SEC reporting company for a minimum of six months but less than one year. Furthermore, beyond the Rule itself, all brokerage firms and most attorneys writing opinion letters, require that a company have adequate current public information prior to the sale of securities regardless of whether the seller is an affiliate, or the company is SEC or non-SEC reporting.
Companies Subject to the SEC Reporting Requirements
A company that is subject to the SEC reporting requirements (and has been so for a minimum of 90 days prior to the sale) will be deemed to have adequate current public information if: (i) it has filed all reports, as applicable, during the preceding 12 months other than Form 8-Ks; and (ii) has submitted all inline XBRL data during the same time period. A company that voluntarily files reports under the Exchange Act is not “subject to” the SEC reporting requirements for purposes of Rule 144. For more on determining voluntary reporting status see https://securities-law-blog.com/2020/01/21/terminating-section-15d-reporting-determining-voluntary-reporting-status/?hilite=voluntary.
A person can rely on a statement in a company’s most recent quarterly or annual report that it has: (i) filed all reports required to be filed by the Exchange Act during the preceding 12 months; and has (ii) submitted all XBRL data. In lieu of this a person can rely on a written statement from the company that it has complied with all Exchange Act reporting requirements. Provided however, a person may not rely on these statements if he/she has actual knowledge or reason to believe that the company has not met its reporting requirements.
Moreover, although the SEC will deem a report timely filed when a company files a 12b-25 to receive a quarterly 5 day or annual 15 day extension on a filing, and thereafter files within that extension period, there is a risk to selling securities during that period, as if the report is not filed, Rule 144 will not have been complied with.
Companies Not Subject to the SEC Reporting Requirements
A company that is not subject to the SEC reporting requirements will be deemed to have adequate current public information if such a company has current public information under SEC Rule 15c2-11. Rule 15c2-11 in turn separates out its current public information requirements based on the category of company, and in particular: (i) a company subject to the periodic reporting requirements of the Exchange Act, Regulation A or Regulation Crowdfunding; (i) a company with a registration statement that became effective less than 90 days prior to the date the broker-dealer publishes a quotation; (iii) a company with a Regulation A offering circular that goes effective less than 40 days prior to the date the broker-dealer publishes a quotation; (iv) an exempt foreign private issuer with information available under 12(g)3-2(b) and (v) all others (catch-all category) which information must be as of a date within 12 months prior to the publication or submission of a quotation. The catch-all category encompasses companies that alternatively report on OTC Markets, as well as companies that are delinquent in their SEC reporting obligations. For more on the 15c-211 Rules see https://securities-law-blog.com/2020/09/22/the-sec-has-adopted-final-amendments-to-rule-15c2-11-major-change-for-otc-markets-companies/ and https://securities-law-blog.com/2021/08/17/sec-denies-expert-market-for-now/.
As Rule 144 separately contains current public information requirements for companies that are subject to the SEC reporting obligations (including those that are delinquent) (see above), for purposes of Rule 144 we need only look at exempt foreign private issuers and catch-all companies.
For companies relying on the catch-all category, the information required to rely on Rule 15c2-11 includes generally the type of information that would be available for a reporting company, including financial information for the two preceding years that the company or its predecessor has been in existence. The information requirements also include (i) the address of the company’s principal place of business; (ii) state of incorporation of each of the company’s predecessors (if any); (iii) the ticker symbol (if assigned); (iv) the title of each “company insider” as defined in the rule; (v) a balance sheet as of a date less than 16 months before the publication or submission of a broker-dealers quotation; and (vi) a profit and loss and retained earnings statement for the 12 months preceding the date of the most recent balance sheet.
Information will be deemed publicly available if it is posted on: (i) the EDGAR database (such as for voluntary filers); (ii) the OTC Markets (or other qualified IDQS) website; (iii) a national securities association (i.e., FINRA) website; (iv) the company’s website; (v) a registered broker-dealer’s website; (vi) a state or federal agency’s website; or (vii) an electronic delivery system that is generally available to the public in the primary trading market of a foreign private issuer . The posted information must not be password-protected or otherwise user-restricted.
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