For many insiders at a newly formed public company, a large portion of their net worth is potentially tied up in holdings of their company’s publicly-traded shares. These insiders often face challenges obtaining liquidity through these holdings as they want to avoid, or may be contractually and statutorily prohibited from, selling their shares. This situation may be particularly acute for insiders of companies that recently completed a de-SPAC transaction, as these insiders may face difficulty finding a broker to administer a Rule 10b5-1 trading plan for a year following the de-SPAC transaction while Rule 144 is unavailable for former shell companies. Share pledging may offer an alternative to selling shares for these insiders, but careful consideration should be given to the risks associated with such an undertaking. We have prepared the below Q&A to help company insiders gain a better understanding of the share pledging process and the associated risks, with an emphasis on insiders of companies that have recently completed a de-SPAC transaction.
Source: Considerations for Company Insiders When Contemplating Pledging Shares