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Section 528. Rule 144 — Persons Deemed Not to be Engaged in a Distribution and therefore Not Underwriters — General Guidance
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528.01 Rule 144 is not available for sales of an issuer’s securities by its subsidiary, since a parent-issuer may not do indirectly through a subsidiary what it may not do directly under Rule 144. See Securities Act Release No. 5306 (Sept. 26, 1972). For example, a subsidiary, which is not a bank or trust company, that acts as trustee for its parent’s employee benefit plan would not be permitted to rely on Rule 144 for sales of its parent’s securities in connection therewith. [Jan. 26, 2009]
528.02 Unregistered resales of restricted securities may be made in markets outside the United States, including foreign exchanges, in reliance on Rule 144 or the safe harbor provisions of Regulation S. Any arrangement to return the restricted securities to U.S. markets may indicate, as suggested by Securities Act Release No. 7190 (June 27, 1995), an evasive scheme to avoid registration, which would invalidate any safe harbor claim. [Jan. 26, 2009]
528.03 A person holds only restricted securities and has held them for less than the requisite Rule 144(d) holding period. Such person cannot effect a short sale of securities of that class, and then cover with such person’s restricted securities (even though the restricted securities are now eligible for sale) since the initial short sale did not qualify under Rule 144. See Securities Act Release No. 6099, Question 82 (Aug. 2, 1979). [Jan. 26, 2009]
528.04 Rule 144 is not available for the sale of securities acquired by an underwriter or finder as compensation for services rendered in connection with a registered public offering. The securities held by the underwriter or finder are not considered restricted securities because they were not acquired in a transaction or chain of transactions not involving any public offering. As such, Rule 144 may not be relied upon for their sale. However, Rule 144 may be applied constructively for the resale of such shares in the following manner:
(1) provided that six months has elapsed since the last sale under the registration statement, an underwriter or finder may resell the shares in accordance with the provisions of Rule 144(c), (e), and (f), except for the notice requirement. See Securities Act Release No. 6099, Question 10 (Aug. 2, 1979);
(2) a purchaser of the shares from an underwriter or finder receives restricted securities unless the sale is made with an appropriate, current prospectus, or unless the sale is made pursuant to the conditions contained in (a) above;
(3) a purchaser of the shares from an underwriter or finder who receives restricted securities may include the underwriter’s or finder’s holding period, provided that the underwriter or finder is not an affiliate of the issuer; and
(4) if an underwriter or finder transfers the shares to its employees, the employees may tack the firm’s holding period for purposes of Rule 144(d), but they must aggregate sales of the distributed shares with those of other employees, as well as those of the underwriter or finder, for a six-month period from the date of the transfer to the employees. [Jan. 26, 2009]
528.05 A company in bankruptcy proposes to issue stock to an unrelated party for the acquisition of another business. Although the issuance will be part of the court-approved reorganization plan, it will not meet the requirements for the Securities Act exemption afforded by Section 1145(a) of the Bankruptcy Code because the issuance will not be in exchange for a bankruptcy claim or administrative expense. The company will rely on Securities Act Section 4(2) for its registration exemption. Because the offer and sale of the securities under the plan of reorganization are not exempt under Section 1145, the securities are restricted securities under Rule 144(a)(3) and may be publicly resold under Rule 144 or registered prior to resale. [Jan. 26, 2009]
528.06 The cessation of affiliate status is a facts-and-circumstances determination, and counsel should not assume that it ceases instantly when, for example, the former affiliate resigns from his or her position at the company. [Jan. 26, 2009]
528.07 A company issued securities under Securities Act Section 3(a)(6) but has lost its eligibility to use that exemption in the future. Shares held by affiliates of the company may be resold pursuant to the provisions of Rule 144 (except for the holding period provisions). [Jan. 26, 2009]
528.08 A private purchaser wishes to invest directly in an issuer but wants to acquire unrestricted securities. Through arrangements and understandings with the issuer, an existing shareholder with shares that are either restricted securities currently eligible for sale under Rule 144 or unrestricted securities sells the shares to the private purchaser. At about the same time, the issuer sells an equivalent number of shares to the existing shareholder. The Division’s view is that the shares taken by the private purchaser from the existing shareholder will be restricted securities within the meaning of Rule 144(a)(3). The holding period will date to the private acquisition. A public resale of the shares acquired from the existing shareholder without regard to the conditions of Rule 144 would raise serious issues under Securities Act Section 5 for all parties to the transactions. [Jan. 26, 2009]
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