QUESTION: Are some 144 filers not insiders?
ANSWER: Form 144s are often viewed as documents detailing sales of stock by company "insiders." However, Form 144 filers are often not company "insiders" within the widely held meaning of Section 16 of the Securities Exchange Act of 1934. Therefore, they do not have to file SEC Form 4. But that's not the whole story.
"Under SEC Rule 144, a person who purchased shares in a private offering is allowed to sell those shares publicly, provided they held those shares for at least 12 months," says Joseph G. Martinez, of San Diego-based JMAR Technologies, Inc. During the next 12 month period, non-insiders must comply with volume limitations and must file a Form 144 to reflect any intentions they may have to sell." After two years, such shareholders may sell completely free of all Form 144 filing requirements.
"A large number of private stock issuances are done by small companies," says Martinez. In some of these cases, there could be small investors, with no connection to the company, who elect to sell in the 12-24 months following the initial purchase.
"Many times these Form 144 filings can be misinterpreted as 'insider' sales," adds Martinez, "in the sense that the outside investment community believes these filers know something about key events at the company. This generally is not the case, even with a larger participant in a private financing."
"Form 144 filers are not necessarily 'insiders' in the SEC's eyes because Form 144s result from rules promulgated from the Securities Act of 1933, while Forms 3, 4, and 5 result from rules promulgated from the Securities Exchange Act of 1934," adds Jonathan Moreland, Director of Research for EDGAR Online's InsiderTrader.com, "The 1933 Act addresses the registration of securities before they're sold by anyone in the public markets, while Section 16 of the 1934 Act specifically addresses the transactions of shares by company insiders." |
