CCH Federal Securities Law Reporter

SEC Cross-Border Swaps Proposal Employs Substituted Compliance. The SEC has voted unanimously to propose rules dealing with cross-border securities-based swaps. The over-1,000 page proposal employs substituted compliance as the framework for harmonizing the Commission’s proposed rules with global swaps regulations. The SEC also proposed interpretive guidance and re-opened the comment period for all non-final securities-based swaps proposals.

The proposed cross-border rules incorporate a “territorial approach” to Dodd-Frank Act Title VII. Under this approach, “U.S. person” means a natural person who resides in the U.S., a business entity organized, incorporated, or having its principal place of business in the U.S., or any account of a U.S. person. The definition, however, would assign the same U.S. person status to U.S. banks’ foreign branches and foreign banks’ U.S. branches. Transactions by U.S. banks via foreign branches would have non-U.S. person status.

Substituted compliance would apply to the extent a foreign regulator’s securities-based swaps regime was comparable to SEC rules. Significantly, the SEC opted not to propose an “all-or-nothing” regime. As a result, the SEC would make comparability determinations based on four separate categories: (1) requirements for registered non-U.S. security-based swap dealers; (2) requirements for reporting and public disclosure of security-based swaps data; (3) requirements for mandatory clearing of security-based swaps; and (4) requirements for mandatory trade execution of security-based swaps.

Thus, the proposal would permit market participants to request substituted compliance for any one or more of the four categories. The SEC’s determination would then apply to all market participants in that foreign jurisdiction. The SEC emphasized that determinations would be rooted in “regulatory outcomes” instead of by comparing rules.

The cross-border proposal also contains interpretive guidance for market participants. For example, the proposal directs foreign dealers to count only dealing activities with U.S. persons or dealing that is conducted in the U.S. in calculating whether they have exceeded the de minimis threshold stated in prior joint SEC-CFTC rules. The SEC, however, said non-U.S. persons need not include these calculations for their swap dealing transactions with U.S. banks’ foreign branches. U.S. persons must count all security-based swap transactions against the de minimis threshold. Release No. 34-69490 is reported at ¶80,266, and Release No. 34-69491 is reported at ¶80,267.

SEC Extends Comment Date of Proposed Regulation SCI. The SEC has extended the deadline for the submission of comments on proposed Regulation Systems Compliance and Integrity from the original date of May 24 to July 8. The extension will allow for 105 days of comment, which the SEC said was sufficient time to consider the proposed regulation and submit comprehensive responses. Release 34-69606 is reported at ¶80,275.

First Municipality Charged for Statements Outside Securities Filings. The SEC has, for the first time, charged a municipality for making allegedly misleading statements outside of its securities disclosure documents. The SEC charged the City of Harrisburg, Pennsylvania (Harrisburg) with violating the Exchange Act’s antifraud provisions for making incomplete disclosures about guaranteed bond deals and for misstating the city’s credit rating. Harrisburg settled these charges without admitting or denying the SEC’s findings.

Said George S. Canellos, Co-Director of the SEC’s Division of Enforcement, "[i]n an information vacuum caused by Harrisburg’s failure to provide accurate information about its deteriorating financial condition, municipal investors had to rely on other public statements misrepresenting city finances."
According to Elaine C. Greenberg, Chief of the Municipal Securities and Public Pensions Unit in the Enforcement Division, "[b]ecause of Harrisburg’s misrepresentations, secondary market investors made trading decisions based on inaccurate and stale information."

Harrisburg has been financially troubled for years. According to the SEC’s order, the city did not comply with requirements for continuing disclosure certificates related to municipal securities offerings under Exchange Act Rule 15c2-12. The city had planned to guarantee its debt in order to fund upgrades to its municipal resource recovery facility (RRF).

The SEC alleged that between 2009 and 2011, Harrisburg failed to submit audited annual financial statements or to provide notices of material events. Harrisburg also allegedly misstated or failed to disclose information in statements the city posted on its website.

Harrisburg continues to edge closer to bankruptcy while under state receivership. The SEC’s order said that Harrisburg owed up to $260 million in guaranteed debt related to the RRF and recently held back $13.9 million in general obligation debt service payments in order to pay for key public services.

The SEC charged Harrisburg with fraud under Exchange Act Section 10(b) and Rule 10b-5. The SEC’s order characterized the city’s conduct as "reckless." The SEC and Harrisburg agreed that the city will cease and desist from engaging in the charged conduct.

The SEC said it accepted this agreement because of Harrisburg’s cooperation and due to the city’s remedial acts. Specifically, Harrisburg adopted written policies and procedures for public statements and designated its business administrator as the person to file the city’s disclosures on EMMA. The city also will require its employees who handle disclosure matters to certify in writing that they have completed annual compliance training led by the business administrator.

Moreover, Harrisburg has told the SEC that it is committed to posting its disclosure policy on EMMA and the city’s website. The city must further post the SEC’s order on EMMA and disclose the order’s terms in its future securities offerings for 5 years. The business administrator also must certify in the related offering documents that they do not contain any untrue statement of material fact or omit to state any material fact necessary to make the information not misleading.

The SEC also published an Exchange Act Section 21(a) report of investigation on Harrisburg. As with the recent Nexflix report, the Harrisburg report contains general guidance for municipalities, in addition to a recitation of the Harrisburg facts.

Specifically, the report emphasized that municipal officials’ public statements can be material and thus alter the total mix of information upon which investors rely to make investment decisions. The report also noted that public statements that mislead or omit material information can result in federal securities fraud liability.

The report emphasized that public officials who speak for municipal issuers should think proactively about taking steps to reduce securities fraud liability by: (1) adopting formal policies and procedures; (2) identifying disclosure personnel; (3) evaluating the issuer’s other public disclosures before making new ones; and (4) providing assurance that key persons are trained regarding their federal securities duties. In the Matter of the City of Harrisburg, Pennsylvania, Release No. 34-69515, is reported at ¶80,271.

Evidence of Price Impact Not Permitted at Class Certification Stage. In an appeal of a class action under Section 10(b) of the Exchange Act, the Fifth Circuit affirmed the ruling of the district court that defendant-appellant Halliburton Company and its CEO David Lesar were not entitled to use evidence of lack of market price impact to rebut the fraud-on-the-market presumption of reliance at the class certification stage.

Plaintiff investors alleged that they suffered material losses as a result of fraudulent misrepresentations by Halliburton between June 3, 1999 and December 7, 2001. The investors contended that Halliburton made misrepresentations concerning three primary aspects of its operations: (1) it understated its projected liability for asbestos claims, (2) it overstated its revenues by including billings whose collections were unlikely, and (3) it exaggerated the cost savings and efficiencies Halliburton would derive from its 1998 merger with Dresser Industries. The investors argued that these misrepresentations temporarily and artificially inflated the price of Halliburton stock. When the truth was subsequently revealed, the stock price fell, causing damages to those who purchased the stock during the relevant period.

In 2008, the district court declined to certify the class, finding that plaintiffs had not established loss causation as required by Fifth Circuit precedent. The district court noted that "the Fifth Circuit has placed an extremely high burden on plaintiffs seeking class certification in a securities fraud case." The Fifth Circuit affirmed the denial of class certification, but a unanimous Supreme Court reversed the judgment, finding that it "erred by requiring proof of loss causation for class certification." The Supreme Court then remanded the case back to the Fifth Circuit, which remanded it back to the district court.

On remand, Halliburton argued that the class should still not be certified because Halliburton's class certification evidence revealed that its alleged fraud did not affect the market price of the stock. That is, its alleged misrepresentation did not cause "price impact" or "price distortion." The district court declined to consider Halliburton's evidence on the issue, finding that price impact evidence did not bear on the critical inquiry of whether common issues predominated under Rule 23(b)(3). The district court certified the class.

Halliburton appealed, arguing that the district court erred by not permitting Halliburton to challenge class certification with evidence that the alleged misrepresentations did not impact the price of the stock (i.e., there was no price impact). The Fifth Circuit identified the pivotal question as whether a defendant should be permitted to show the absence of price impact at the class certification stage of the proceedings to establish that common issues among class members do not predominate and that class certification is inappropriate.

Establishing common question predominance as a prerequisite to class certification is different from the burden of proving fraud on the merits, said the court, although the inquiries may overlap. Whether common questions of law or fact predominate in a securities fraud action often turns on the element of reliance.

In Basic Inc. v. Levinson (1987-88 Dec. ¶93,645), the Supreme Court adopted the "fraud-on-the-market presumption" of reliance. Because the market price of a security in an efficient market will immediately incorporate any material, public representation, a purchaser who buys a security at the market price will be presumed to have relied upon the representation.

To invoke the fraud-on-the-market presumption, a plaintiff must establish the prerequisites necessary for market price incorporation of information: (1) misrepresentation publicity, (2) misrepresentation materiality, (3) market efficiency, and (4) that the plaintiff traded the shares between the time the misrepresentations were made and the time the truth was revealed.

Basic also established that the defendant is entitled to rebut the fraud-on-the-market presumption by demonstrating certain facts that undermine its basic assumptions. For example, there would be no reliance if a misrepresentation was ignored because the truth was well-known to the market, or there would be no reliance by those who purchased the security after the truth had already entered the market and dissipated the effects of the fraud.

Basic did not decide the extent to which the presumption could be rebutted at class certification.

The Supreme Court corrected the Fifth Circuit's finding in AMS Fund that in order for plaintiffs to invoke the fraud-on-the-market presumption of reliance and obtain class certification, they must establish proof of loss causation, and that this required proof that the stock price declined after the false statement is corrected and the truth is revealed. The Supreme Court held that proof of loss causation, or a decline in stock value after revelation of the truth, is a conceptually distinct inquiry and is not necessary to establish reliance. However, the Supreme Court declined to rule on how and when the fraud-on-the-market presumption may be rebutted.

The Supreme Court intervened again in Amgen Inc., holding that while a putative class must prove materiality to prevail on the merits, proof was not a prerequisite to class certification. Thus, said the court, Amgen made clear that what is required for a plaintiff to "invoke" the fraud-on-the-market presumption on the merits is not necessarily what is required for the plaintiff to benefit from the presumption at class certification. Considering all precedent together, the court said that for a 10b-5 plaintiff to invoke the fraud-on-the-market presumption of reliance on the merits, a plaintiff must establish (1) trade timing, (2) market efficiency, (3) publicity, and (4) materiality. However, the fraud-on-the-market elements that should be addressed at class certification are limited to those matters which bear on common question predominance and the propriety of class resolution: trade timing, market efficiency, and publicity (but not materiality).

Halliburton contended that its price impact evidence was not intended to rebut materiality, market efficiency, or statement publicity. Rather, Halliburton argued that its price impact evidence was intended only to generally rebut the fraud-on-the-market presumption of reliance, without necessarily attacking one of the presumption's individual elements. Halliburton argued that despite the proof offered in support of invoking the fraud-on-the-market presumption of reliance, its evidence showed that the price did not actually transfer the effects of the alleged fraud to a stock purchaser.

The court first asked whether price impact evidence was common to the class. The court determined that because price impact is ordinarily established by expert evaluation of a stock's market price following a specific event and inherently applies to everyone in the class, price impact fraud-on-the-market rebuttal evidence should not be addressed at class certification.

The court next asked whether the failure to prove price impact would necessarily cause all plaintiffs' claims to fall together. In other words, asked the court, if Halliburton successfully rebutted the fraud-on-the-market presumption with evidence of no price impact, could individual plaintiffs still proceed with their fraud claims?

The court disagreed with Halliburton's assertion that the claims would not fail. To successfully prove a lack of price impact, Halliburton would have to demonstrate both that the stock price did not increase when the misrepresentation was announced, and that the price did not decrease when the truth was revealed. If Halliburton were to successfully show that the price did not drop when the truth was revealed, then no plaintiff could establish loss causation. Thus, the second Amgen consideration also led to the conclusion that price impact fraud-on-the-market rebuttal evidence should not be addressed at class certification.

The court concluded that price impact fraud-on-the-market rebuttal evidence should not be considered at class certification, because price impact evidence does not bear on the question of common question predominance and so should be considered only on the merits after the class has been certified. Accordingly, the court affirmed the decision of the district court to certify the class. Erica P. John Fund, Incorporated v. Halliburton Company (5thCir) is reported at ¶97,409.

Jurisdiction Lacking Due to TIA Charitable Organization Exemption. In a matter of first impression, a First Circuit panel found that it lacked subject matter jurisdiction to address a claim under the Trust Indenture Act (TIA). The appellants sought to recoup their losses from an investment through what Circuit Judge Bruce Selya, writing for the court, described as "a novel interpretation of an exemption in the Trust Indenture Act." The court disagreed with the appellants interpretation of the Act and accordingly affirmed the district court’s judgment that federal subject matter jurisdiction did not apply to this case.

The appellants purchased nonrecourse notes worth approximately $2 million issued by a Puerto Rican nonprofit organization. After the notes went into default, the appellants sued the trustee and indenture trustee, both state-chartered banks, alleging that they were misled into believing that the notes were backed by the Puerto Rican government. The suit was brought in the United States District Court for the District of Puerto Rico on the basis of federal question jurisdiction. The district court dismissed the complaint for lack of subject matter jurisdiction.

The court noted that district courts have jurisdiction over all suits brought to enforce any duty or liability arising under the TIA, but "the TIA does not have a limitless scope." Specifically, Section 304(a)(4) provides that the TIA does not apply to securities exempted from the Securities Act. Charitable organizations, the court continued, are exempt from the reach of the Securities Act and thus from the reach of the TIA.

In this case, the notes were issued by a Section 501(c)(3) charitable organization. The charitable organization exemption to the Securities Act has two parts, however, and the appellants argued that the notes had an "individual profit-generating effect" that put them outside the exemption. In other words, the appellants argued that, because they had a noncharitable purpose in buying the notes, the exemption did not apply. The court found this interpretation to be "antithetic to the plain meaning of the unambiguous statutory language."

Securities Act Section 3(a)(4) exempts securities issued by organizations formed for, among other purposes, charity, provided that no part of the net earnings of the organization "inures to the benefit of any person, private stockholder, or individual." It is obvious, Judge Selya wrote, that the first part of the exemption addresses the purposes of the issuing organization and not the motivations of the note holders and that the organization in this case satisfied this requirement.
It was equally obvious to the court that the "net earnings … inures to the benefit" language does not refer to interest payments made by a charitable organization on funds borrowed in the ordinary course of business from outside investors and intended to allow the organization to fulfill its mission." The appellant's reading would turn the exemption "inside out, " the court remarked, observing further that "basing the legal status of a nonprofit organization upon the motives of those who purchase its securities defies common sense." Calderon-Sierra v. Wilmington Trust Co. (1stCir) is reported at ¶97,394.

CCH Blue Sky Law Reporter  

Texas Amends IA Disclosure Requirement, Contents of notice of hearing…Amendments were made to the investment adviser disclosure requirements (brochure rule) and to the contents of a hearing notice, by the Texas Securities Board. NOTE: A proposed private fund adviser exemption, as well as proposed amendments to an exemption for investment advisers providing advice to financial institutions and institutional investors, were withdrawn from consideration. ¶55,525 and ¶55,595J.

…And Proposes S&P Name And Dealer/Agent Exam Changes. The name Standard and Poor’s Corporation Records would be changed to S&P Capital IQ Standard Corporation Descriptions, and the dealer/agent written exam rule would be amended to indicate the Psychological Corporation is no longer a state securities exam administrator, as proposed by the Texas Securities Board. ¶55,557 and ¶55,591B.

Washington Proposes Investment Adviser Rule Changes. The Washington Securities Division proposed for public comment new investment adviser rules, along with amendments to existing investment adviser, investment adviser representative and federal covered adviser rules. The proposals would affect application requirements, books and records provisions, brochure disclosures, compliance procedures, contracts, custody, financial reporting, private fund advisers, performance-based compensation, proxy voting, venture capital fund advisers, and unethical practices. ¶61,620 through ¶61,633.

 Public hearing and comments. The Division announced that a public hearing on the proposals, many of which are intended to make Washington rules consistent with current federal law and NASAA model rules, was held on May 21, 2013, at 1:00 p.m. at the Department of Financial Institutions Office, 150 Israel Road SW, Tumwater, Washington. Interested persons were able to submit questions or comments about the proposals to Jill Vallely at (360) 902-8801 or at jill.vallely@dfi.wa.gov.

Jury Instructions Not Prejudicial for Failing to Account for Victims’ Status as Accredited Investors. The Utah Court of Appeals has held that a trial court did not err in employing jury instructions that failed to take into account the victims’ status as accredited investors. In State v. Williams, the defendant, who had been convicted of three counts of securities fraud under the Utah Securities Act, contended that the instructions should have defined a material fact as something that a sophisticated person with business and investment acumen would find important in making an investment decision. The defendant failed to explain, however, what facts material to an investor of ordinary intelligence and prudence would not be material to a more sophisticated investor, nor did he provide any authority as to why the definition of material fact should differ for these two types of investors. Further, the defendant failed to identify any misrepresentations on which the prosecution relied that would not have been considered material to an accredited investor. Accordingly, the defendant failed to establish how he was prejudiced by the jury instructions. even assuming that they were erroneous. The decision will be reported at ¶75,032.

Aspen Federal Securities Publications  

Regulation of Securities: SEC Answer Book, Third Edition, by Steven Mark Levy. The 2013-2 Supplement is now available online. This practical guide aids the reader in understanding and complying with the day-to-day requirements of the federal securities laws that affect all public companies. Using a question-and-answer format similar to that which the SEC has embraced, this guide provides clear, concise, and understandable answers to the most frequently asked securities compliance questions. The 2013-2 Supplement features new sections on the Foreign Corrupt Practices Act accounting provisions; Rule 144A and initial public offerings; and municipal advisors. The 2013-2 Supplement also includes a variety of other timely topics, including: Do insurance policies and annuities constitute securities (Q 1:11.5)? How does the JOBS Act undo the SEC’s longstanding ban on general solicitation and advertising in connection with private offerings under Rule 506 (Q 1:17)? What are the procedures for obtaining a listing on a stock exchange for private companies going public (Q 1:36)? What are dark pools and are they as sinister as they sound (Q 1:77.5)? To what extent are NRSROs subject to SEC registration and oversight (Q 1:78.5)? What constitutes protected activity sufficient to constitute a Sarbanes-Oxley Section 806 cause of action for retaliatory discrimination (Q 8:72)? What new SEC rule implements Exchange Act Section 10C’s compensation committee and compensation adviser requirements (Q 9:6)? How has the securities plaintiff bar used say-on-pay as a basis to attack executive compensation (Q 9:20.5)? What are the elements of aiding and abetting liability when the SEC is the plaintiff (Q 17:32)? Can a tipper be held liable for negligently tipping information (Q 18:18.5)? What are the potential ethics risks for a lawyer who discloses confidential information to the SEC pursuant to whistleblower Rule 205 in the hopes of receiving a generous monetary award (Q 20:26.5)? What rights do witnesses have in formal SEC investigations (Q 21:15.5)? How effective are officer and director bars as an SEC enforcement remedy (Q 21:44.5)? Must investment advisers have compliance policies regarding the use of social media (Q 23:44.5)?

Financial Reporting Handbook, by Michael Young. The latest release, Release 37, is available online. This reference provides quick access to critical aspects of financial reporting. In addition to covering the Sarbanes-Oxley Act, SEC rules and regulations, standards of the Independence Standards Board and the AICPA and requirements of the New York Stock Exchange, NASDAQ, and the American Stock Exchange, the Financial Reporting Handbook tackles important underlying themes such as the centrality of the audit committee, the individual responsibility of executives, and the integrity of the outside auditor.

 

IPO Vital Signs

IPO Vital Signs, an advanced IPO research analysis tool, assists IPO professionals and pre-IPO companies satisfy their most challenging research needs and answers hundreds of mission critical questions for all the players in the IPO process. IPO Vital Signs’ tabular data analyses focus on issues surrounding client advisement, deal negotiation, and prospectus disclosure.

IPO Week in Review, a weekly e-newsletter to keep professionals up to date with recent filing and going public activity, is an important element of the IPO Vital Signs system or is available by separate subscription. Coverage includes a monthly feature article on recent trends in going public in the U.S.

To see how an IPO Vital Sign works click on the Vital Sign title below:

		#809 – Emerging Growth Company Status       Use IPO Vital Sign #809 to... Track Emerging Growth IPOs Identify which issuers have chosen to take advantage of an extended transition period to comply with new or revised accounting standards See who posted confidential draft registration statements Review Emerging Growth Company-related disclosures

Tip! Use the Ranked by function to sort the Vital Sign table by SIC Code.

Select a number of issuers’ final prospectus Emerging Growth disclosures by clicking in the boxes of those you wish to review in the seventh column (placing a check-mark in each box), and clicking the [COMPARE] button at the top of the eighth column.

RBsource

A new research tool powered by the Securities Redbook (Securities Act Handbook), RBsource offers you securities laws, rules, regulations and forms together with related SEC guidance and interpretations. With RBsource, you will have SEC guidance related to a specific law, regulation or rule at your fingertips without the need of further searching or browsing. RBsource uniquely associates related content, going beyond the limits of standard searching making research more streamlined and productive. This intuitive research tool will drastically reduce your research time and provide the unparalleled confidence expected from the trusted Securities Act Handbook.

SEC Rulemaking Activity

• 33-9403—Adoption of Updated EDGAR Filer Manual (May 14, 2013).

The SEC amended Regulation S-T Rule 301, effective May 21, 2013. These amendments implement Form 13F and update the U.S. GAAP taxonomy.

•  34-69490 —Cross-Border Security-Based Swap Activities; Re-Proposal of Regulation SBSR and Certain Rules and Forms Relating to the Registration of Security-Based Swap Dealers and Major Security-Based Swap Participants (May 1, 2013).

The Commission proposed cross-border security-based swap rules and related interpretive guidance. The SEC also provided an explanation of its new enforcement authority under Dodd-Frank Act Section 929P. Comments are due by August 21, 2013.

• 34-69491—Reopening of Comment Periods for Certain Rulemaking Releases and Policy Statement Applicable to Security-Based Swaps Proposed Pursuant to the Securities Exchange Act of 1934 and the Dodd-Frank Wall Street Reform and Consumer Protection Act (May 1, 2013).

The release reopens the comment period for all of the SEC’s outstanding proposals on security-based swaps. The SEC reopened comments on these proposals to allow for additional public input now that both the SEC and the CFTC have proposed most of the swaps and security-based swaps rules required by the Dodd-Frank Act. The reopened comment period ends July 22, 2013.

• 34-69606—Regulation Systems Compliance and Integrity (May 20, 2013).

The SEC has extended the comment period on proposed Regulation SCI from May 24, 2013 to July 8, 2013.

• SEC Guidance—CorpFin Issues New and Updated C&DIs.

On May 16 and 17, 2013, the SEC’s Division of Corporation Finance issued new Compliance and Disclosure Interpretations (C&DIs) covering a range of topics under the Securities Act, Regulation S-K, Form 8-K, and Regulation S-X. New topics include: Donative transfers; Exempt transactions; Automatic shelf registration; Non-automatic shelf registration; Information to non-accredited investors; Common stock and warrants; Risk factor incorporation; Target level discussion; Limits on disclosed price range; Interactive data exhibit; and Improved recovery technique without production response.

The Road Ahead

Upcoming rulemaking activity will continue to reshape the securities regulation landscape. The items below are a selection of expected near-term regulatory actions. The SEC’s schedule is subject to change at any time. RBsource includes daily updates to securities regulations affected by final Commission action.

President Barack Obama on May 23, 2013 nominated Michael Sean Piwowar and Kara Marlene Stein to replace SEC Commissioners Elisse B. Walter, whose term has expired, and Troy A. Paredes, whose term will soon expire. Commissioner Paredes issued a statement congratulating both nominees and confirming that he will remain at the SEC until his replacement takes office.

The president nominated Mr. Piwowar to replace Commissioner Paredes. Mr. Piwowar is the Republican chief economist for the Senate banking committee. Ranking member Mike Crapo (R-Idaho) said via press release that “Mike’s in-depth expertise of capital markets and background as a chief economist make him exceptionally well-qualified for this position as the SEC moves forward on critical issues.”

President Obama nominated Kara Marlene Stein to succeed Commissioner Walter. Ms. Stein has been an aide to Sen. Jack Reed (D-RI). She was staff director of the Securities, Insurance, and Investment Subcommittee (then chaired by Sen. Reed) during the crafting of the Dodd-Frank Act.

The Senate has received both nominations and has referred them to the Senate banking committee.

 

Hot Topic of the Month
This month's hot topic is Securities Act Rule 144. Rule 144 pertains to the sale of restricted securities and to the sale of securities by affiliates of the issuer. A security ordinarily must be registered pursuant to Securities Act Section 5 before it can be offered or sold through the use of the mail or a means of interstate commerce. Certain statutory exemptions, however, permit the sale of unregistered securities, such as Securities Act Section 4(1), which exempts from the Section 5 registration requirement "transactions by any person other than an issuer, underwriter, or dealer."

Rule 144 elaborates on this exemption by identifying types of persons who do not constitute underwriters for purposes of Section 4(1). The rule sets out objective standards under which a Section 4(1) exemption is available and provides a safe harbor for claiming it. Rule 144 provides that any affiliate or other person who sells restricted securities of an issuer for his or her own account, or any person who sells restricted securities or any other securities for the account of an affiliate of the issuer, is not deemed to be engaged in a distribution of securities and therefore is not an underwriter, if the sale meets all of the rule's requirements.

In 2008, the SEC adopted amendments to Rule 144 that are intended to enable smaller companies to raise capital more easily and to improve reporting and disclosure requirements by making the rules easier to understand and apply. The revisions shortened the holding period for restricted securities from one year to six months if the issuer has been subject to the Exchange Act reporting requirements for at least 90 days before the sale of the securities. The revisions also simplified Rule 144 compliance for a shareholder who is not an affiliate of the issuer. The adopting release also codified several Rule 144 interpretive positions.

We publish related information in a wide range of resources (e.g., Federal Securities Law Reporter, SEC Today, Insights – Amy L. Goodman, Securities Regulation – Loss, Seligman & Paredes, etc.), and document types (laws, regulations, releases, newsletter articles, treatise discussion). For example:

• Federal Securities Law Reporter

• Securities Act Section 4(1) at ¶2705
• Securities Act Rule 144 at ¶2705A
• SEC Form 144 at ¶7411
• Release No. 33-8869, at ¶88,024
• CCH Explanations (e.g., ¶1551.050 and ¶2706)

• Corporate Finance and the Securities Laws – Johnson & McLaughlin (e.g. §1.05[E][4])
• Regulation of Securities: SEC Answer Book – Levy (e.g., Question 14:1, et seq.)
• Securities Regulation – Loss, Seligman & Paredes (e.g., Chapter 3.D.2)
• Jim Hamilton’s World of Securities Regulation
• SEC Topic Navigator