(The following post originally appeared on ONSecurities, a top Minnesota legal blog founded by Martin Rosenbaum to address securities, governance and compensation issues facing public companies.)
The SEC’s Division of Corporation Finance issued 15 new Compliance and Disclosure Interpretations (C&DIs) last week. Two of the C&DIs I found noteworthy relate to the inapplicability of Rule 144 holding periods when a non-affiliate of the issuer acquires shares from an affiliate by gift or through foreclosure of a pledge, and the shares were control securities (not restricted securities) in the affiliate's hands. These new interpretations represent a welcome change.
It is well established that Rule 144 holding periods only apply to the sale of restricted securities and do not apply to an affiliate's sale of non-restricted control securities. However, prior to last week’s guidance, the SEC staff took the long-standing position that the Rule144 holding period did apply to a donee or pledgee that acquired control securities from an affiliate, even though the holding period didn't apply to the affiliate. This staff position was based on a technical reading of Rule 144, but it never struck us as being very logical. By putting donees and pledgees on even footing with the affiliates from whom they acquire control shares, the new C&DIs represent a well-reasoned change to the prior result in these situations.
Well done, SEC!