What is Form 144?

Patrick Roland
Patrick Roland
Man climbing a rope
Man climbing a rope

Form 144 is a financial form in the United States that must be filed with the Securities and Exchange Commission whenever an executive, affiliated person or company plans to sell restricted shares of stock. The form deals exclusively with restricted shares. In order to be completed, the form requires a variety of information about the proposed sale. The filing of the form does not always mean that the stock will be sold and actually can be interpreted to mean a variety of things.

The Securities and Exchange Commission originally created Form 144 under the Securities Act of 1933. The form was last updated in 2007 to reflect more modern changes in the sale and transfer of stocks. This change primarily helped to further define the difference between restricted securities and control securities.

Restricted shares are those bits of stock not available to the public at large. In general, these usually are given to individuals who invested in a company before it went public. Restricted stock also is acquired by company insiders, such as members of a board or directors, who exercise clauses in contracts to get the stock.

Form 144 must be filled out and sent to the Securities and Exchange Commission at least three months before the intended sale of the restricted stock. Every form has four main pieces of information that must be filled out, and savvy stock watchers use this information to make projections. The primary information is the number of stocks to be sold, the estimated value of the total sale and the class of stocks being sold. The date that the shares were acquired is a less important bit of information but is helpful in some situations. Also, the estimated date of sale is very important to speculators.

Many times, the filing of Form 144 acts as a signal that insiders might be losing faith in a company. This is useful because information about insiders buying and selling public stocks is not made available until after the sale. It is important to know that filing Form 144 does not mean the sale must happen, just that the owner is considering a sale. Many times, selling restricted stock is not a signal that a holder is losing faith but possibly that he or she is attempting to diversify holdings. Large dumps of restricted stocks could be a sign of decreased faith, but it is important to note that small sales of stocks by insiders also could mean absolutely nothing.

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