Recent changes to Rule 144, which allows public resale of restricted securities if a number of conditions are met, unfairly taints former shell companies and could impact some big name reverse merger companies, securities attorneys say.

The rule is applicable to unregistered shares in any company that has been a shell at any point in its past and limits the sale of those shares if it hasn’t been current in its filing with the Securities and Exchange Commission for the previous 12 months.

According to David Feldman, founding partner at the New York law firm of Feldman Weinstein & Smith, this is another case of the SEC singling out shells, and even former shells, automatically assigning them a higher risk for fraud.

If a fully operational company simply happened to have been a shell 10 years ago, there is no reason to associate it with its former shell status at this point, Feldman said.  He would like to see a compromise in which this new requirement would apply for two to three years and then drop off if there have not been any lapses.

Feldman cited Blockbuster, Occidental Petroleum Corp., RadioShack Corp., and Berkshire Hathaway as examples of companies “[painted] with a ‘scarlet letter,’ suggesting it is somehow tainted for life.”  All these companies began as shells and are subject to the reporting requirements.  None of the companies returned calls for comment.

For its part, the SEC included language in the rule change, which took effect in February, stating shell companies “historically have provided opportunity for abuse of federal securities laws, particularly by serving as vehicles to avoid the registration requirements of the securities laws.”

CKX Inc., which owns a majority interest in the image and likeness of both Elvis Presley and Muhammad Ali, as well as the proprietary rights to “American Idol,” went public in 2005 through a $46.5 million shell merger with Sports Entertainment Enterprises.  A CKX spokesperson said the company is, and has been current in all of its filings and is therefore unaffected by the change to Rule 144.

There is currently an ongoing discussion as to when, if ever, it will be possible to provide and opinion to allow restricted shareholders the ability to sell stock in a one-time shell company, even if that company’s filings are not current, according to Feldman.