Chapter 7.2 Flashcards
Rule 144
Covers the resale of restricted and control securities
Restricted Securities
Securities originally sold to a person in a private transaction that have never been registered with the SEC or legally resold in a public market
Control Securities
Owned by a control person or affiliated person of a company. Control shares can be registered or unregistered.
Any person who owns control or restricted securities is subject to what?
SEC Rule 144. The term “person” also includes a relative who shares the same home with the person selling the shares or a trust, corporation or estate in which the person selling the shares owns 10% or more of the equity interest.
SEC Rule 144 covers what?
Covers the sale of restricted securities and control stock by individuals and members of their immediate families. Issuers cannot sell shares under SEC RUle 144.
Provisions that must be met in order to sell control or restricted shares pursuant to Rule 144 are:
-Restricted shares owned by anyone must have been owned for at least 6 months from date of acquisition prior to sale and must be fully paid for 6 months prior to sale. This provision does not apply to registered control stock. In computing the 6-month holding period, you must exclude any period while the person was short the stock or owned a put on the security.
Securities acquired by a gift are deemed to have been acquired when?
When they were acquired by the donor
When must Form 144 Notice of Sale must be filed with the SEC?
Concurrent with the sale and is effective for 90 calendar days
When does no notice have to be filed with the SEC?
If the amount of stock to be sold by an affiliated person does not exceed 5000 shares or the dollar amount does not exceed $50,000 in any 90-day period. If the sale exceeds these limitations, FORM 144 must be filed with the SEC concurrently with the sale.
The amount of stock that can be sold by affiliates of the issuer under this Rule is limited to the greater of:
- 1% of outstanding shares, or
- The average weekly trading volume for the previous 4 weeks immediately prior to the sale in any 90 calendar day period.
**Non-affiliates may sell after 6 months without meeting a volume limitation.
Adequate public information concerning the issuer must be available, meaning what?
Periodic filings with the SEC have been made. Such filings include annual reports, and quarterly earnings reports. Forecasts are not required to be filed.
Statutory underwriter
When an individual or organization purchases unregistered shares and subsequently re-offers the shares for sale without getting the shares registered or complying with SEC Rule 144.
Solicitation of 144 orders by a B/D
- There is no solicitation of buy orders allowed. If a customer indicated an unsolicited bona fide interest in the security within the preceding 10 business days, or a broker indicated an interest in the security in the preceding 60 days, then either may be contacted in an attempt to sell the shares. The broker must keep written evidence of the unsolicited request.
- The B/D may act in an agency capacity or the securities may be sold directly to a market maker.
Purchasers of unregistered securities have available what recourses with regard to the security?
- The purchaser has the right to rescind the transaction
- Action can be taken against the person who sold the securities
- There is NO time limitation on recourses
SEC Rule 144-A
Allows the sale of restricted securities to qualified institutional buyers during the 6 month restricted period. These would include insurance companies, banks, and trust funds with assets under management of at least $100 million. Individual investors are NOT qualified institutional buyers.
