What are the Trading Volume Restrictions for Affiliates Under Rule 144?

Affiliate Trading Volume Formula According to the SEC

If now, or within the past ninety days, you have been an Officer, Director, Control Person, or if you beneficially own more than Ten Percent of an Issuer, you are an Affiliate according to the SEC.  

Affiliates of OTC Bulletin Board and Pink Sheet Issuers

If you are an Affiliate of an Issuer trading on the OTCMarkets, OTC Bulletin Board or Pink Sheets, the number of equity securities you are allowed to sell during any three-month period cannot exceed the greater of 1% of the outstanding shares of the same class being sold. You must file a Notice of Sale on Form 144 with the SEC for each sale.  An experienced securities attorney can quickly walk you through this process.

Affiliates of Issuers Listed on a Stock Exchange Have Another Option

If you happen to be an Affiliate of an Issuer listed on a stock exchange, such as NYSE or NASDAQ you could sell up to the greater of 1% or the average reported weekly trading volume during the four weeks prior to the filing of Form 144. 

However, Over-the-counter stocks, including those quoted on the OTC Bulletin Board and the Pink Sheets, can only be sold using the 1% measurement. 

How Do I Remove the Restricted Legend on Rule 144 Stocks?

The first step in removing the restricted legend from a stock certificate under Rule 144 is to contact a qualified securities attorney who has expertise in drafting 144 legal opinions.

Only the Issuer’s Transfer Agent can remove a restrictive legend from the cert, and usually cannot happen unless the Shareholder’s request is accompanied by a Rule 144 opinion letter from securities counsel.  Although the consent of the Issuer is helpful, it is not necessary, especially if the Issuer is uncooperative.

If the securities lawyer drafting the opinion is well known by the Transfer Agent due to having drafted 144 legal opinions many times in the past, and the requirements under SEC Rule 144 have clearly been met, the restricted legend can be removed even over the Issuer’s objection.

According to the SEC, removing the restricted legend can be “a complicated process requiring you to work with an attorney who specializes in securities law” and that is true.  However, for securities attorneys who frequently draft 144 legal opinions, like the Law Office of Matheau J. W. Stout, Esq., the turn around time for such a letter can be as little as one day if all of the shareholder’s documentation is presented at the outset.

Securities Lawyers Opinion Letters

Rule 144 Letters Written By Securities Counsel

Perhaps the most common type of securities attorney opinion letter for the sale of restricted stock is the Rule 144 opinion letter.  A 144 opinion is written by a securities attorney after careful research of not only the issuing company, but also the current Shareholder and all predecessor holders of the stock.

Rule 144 Exceptions to SEC Registration of Restricted Stock

Rule 144 deals with exceptions to registered securities and it is basically a safe harbor, or series of opportunities for Shareholders to sell restricted stock without SEC registration of the securities.  Several different rules exist for how long an investor must own or hold the stock, and a lot depends on whether or not the Shareholder is or was an Affiliate of the issuing company.

What is an Affiliate According to Rule 144?

An Affiliate is basically an “insider” and Rule 144 has many different criteria for deciding if one is an Affiliate.  However, in a broad sense Affiliates include officers, directors, founders and their immediate family members living in the same household because they are all presumed to have control over the company and thus the stock.  Another name for an Affiliate is a “control person.”

Rule 144 Exemptions for Non Affiliates Selling Restricted Stock

Rule 144 Opinions Discuss Safe Harbor Requirements

Shareholders of restricted stock who are not Affiliates now, or for the past ninety (90) days can sell their restricted stock under Rule 144 if the stock has been held by the Shareholder for a minimum of one (1) year.

Rule 144 Is More Lenient on OTC Bulletin Board Companies That Provide Current Public Information

If the Issuing Company of the stock is subject to the Exchange Act reporting requirements (typically reporting by posting regular filings, and listed on the OTC Bulletin Board, NASDAQ, etc) and the Shareholder has owned the stock  for at least six (6) months but less than one (1)  year, the SEC allows the Shareholder to sell the restricted stock, provided that the Company has satisfied the requirement to provide current public information to investors.

This requirement is researched by a securities attorney when drafting a 144 opinion letter and companies that file the typical 10-Q, 10-K and 8 reports with regularity and on time for the year prior to the Shareholder’s proposed sale of under 144 generally meet that requirement