In its ongoing efforts to transition from a paper filing system to an electronic one, the SEC announced earlier this year that, effective April 13, 2023, all Form 144 filings must be made electronically.
Particularly when compared to some other SEC rule changes – for example, the recently adopted clawback rules – this change does not seem very dramatic, or even interesting. However, you may want to think twice about that.
First, while 144 filings are customarily made by brokers, there has been speculation that once the electronic filing requirement kicks in, brokers will find it easier to tell in-house counsel to handle the filings, so as to avoid having to deal with EDGAR filing codes and the like. As someone who spent the bulk of his career in-house, I can assure you that the in-house securities bar doesn’t need any more work.
However, even if brokers continue to make 144 filings, they’ll need information and cooperation from the company – for example, getting those pesky EDGAR filing codes. And the insiders who are required to sell company shares under SEC Rule 144 may need to understand what the rule is all about.
So here are some things you should consider doing to prepare:
- Make sure you know who your 144 filers are. This entails determining who is an “affiliate” of the company. Most companies treat their directors and at least some members of the C-suite as affiliates, but there may be circumstances that mandate different outcomes. Similarly, your Section 16 officers may or may not be affiliates subject to Rule 144.
- Make sure your affiliates know who they are – and, particularly, that if they sell shares in the open market, they will likely need to do so under Rule 144.
- It wouldn’t hurt to familiarize your affiliates with the general outlines of Rule 144, including to assure them that Rule 144 rarely has any significant impact on the timing or volume of sales.
- To the extent that any affiliates do not have EDGAR codes, get them – and the sooner the better. You don’t want to be faced with a late filing that could have been avoided.
- Think about reaching out to your affiliates’ brokers to make sure they are aware of the new electronic filing requirement and, possibly, to provide them with your affiliates’ EDGAR codes.
- Consider developing and circulating a cheat sheet for your affiliates and their brokers to make sure that all parties understand what is required and what their responsibilities are. This can help to “grease the skids” when a sale occurs and thus avoid late filings or other problems.
Please direct any questions or observations to Gunster securities law and corporate governance practice leader Bob Lamm.
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This publication is for general information only. It is not legal advice, and legal counsel should be contacted before any action is taken that might be influenced by this publication.
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