SEC Law: Rule 144

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How Executives And Directors Can Avoid SEC Troubles Before Trading Their Company Stock (Part 2)

Merrill Freed and Steven Schraibman
Your advisors say now is the time to buy or sell your company stock or to exercise options. But before you proceed, you'd better understand the securities laws that apply. Part 1 focused on insider trading and Rule 10b5-1 plans. This article looks at other pitfalls of securities law, including short-swing-profits violations under Section 16(b), and required SEC filings, such as Form 4 and Form 144.

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What are the requirements that affiliates (i.e., executives or directors) must follow to sell their stock to the public under Rule 144?

This is the most common way senior managers and directors sell their stock. There are five basic requirements of a Rule 144 sale. These apply to the resale of stock not registered with the SEC (i.e., restricted securities) and even to...

For Rule 144 resale requirements, what is the difference between (1) restricted securities I own as a company officer or director that are not registered with the SEC and (2) company shares I bought on the open market?

Rule 144 requires directors, officers, and large-block shareholders to follow certain...

Do the holding-period requirements under Rule 144 always apply to sales of company stock by affiliates and regular employees?

For resales of restricted securities, the holding period depends on whether the stock is of a reporting or nonreporting company. Restricted securities must be held six months for...

If I am no longer an officer or director of a public company, do I still need to meet the requirements of Rule 144 to sell my company stock?

To satisfy Rule 144, you must follow the resale rules for...

What are the company-information requirements of Rule 144 that affect my stock sales?

The SEC Rule 144 requirement that current public information about the company be available is met if the company has filed all the required reports under the Securities Exchange Act of 1934...

How soon after an IPO can I sell my stock under Rule 144?

This can depend on whether you are still affiliated with the company. For options and stock issued under Rule 701, Rule 144 requires you to wait at least...

Does the period I held unexercised options count towards the holding period for resales of unregistered securities under Rule 144?

Under Rule 144, you must hold these restricted securities...

What are the volume limitations imposed on an affiliate under Rule 144?

The amount of stock sold by an affiliate, together with all other sales by the affiliate within the preceding three months, cannot exceed the greater of...

How and when is Form 144 filed?

Once your total sales during any three-month period exceed 5,000 shares or $50,000, you must make this filing even if the sale that puts you over the threshold is much smaller. Three copies...

Do I still file Form 144 even though I have held the restricted securities long enough?

You make the filing if you are an affiliate (e.g., a senior executive or a director) or a control person (e.g., you own a big block of stock) or have been one within...

What regulations govern the sales activities of brokers under Rule 144?

Rule 144 requires that in most instances affiliates sell their securities in a "broker's transaction." The stockbroker must do no more than...

How does an affiliate sell shares in a private resale?

These privately negotiated sales may use what is informally referred to as the "Section 4(1-1/2)" exemption, which is a hybrid provision based on...

After the acquisition is completed, can I immediately sell the shares I receive in the buyer?

The legality of exercising stock options, swapping the stock for the buyer's shares, and then immediately...

Do Rule 144 and Section 16 apply to gifts and donations of company stock by senior executives or directors?

Yes, though the gift itself is not subject to Rule 144. However, recipients of shares from "affiliates" stand in the shoes of their donors...

How do I have the legend removed from my restricted securities?

You need to show that resale does not require you or your company to...

Do securities laws and regulations place restrictions on stock options or shares granted to consultants and on their freedom to sell the stock?

Yes. A consultant to a private company needs to find out whether the options or shares...

Are there any special securities law issues and filing requirements with stock appreciation rights (SARs) for senior executives and directors?

For senior executives, stock-settled SARs avoid the concerns about cashless exercises by officers and directors raised by...

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