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SEC v. Ralston Purina Co.

Supreme Court of the United States · 1953 · Corporations
346 U.S. 119 (1953)
Updated
Corporationsprivate offering exemptionSecurities Act of 1933public vs. private offeringSection 4(1)Section 5private offeringpublic offering

Facts

Ralston Purina, a company with about 7,000 employees across the United States and Canada, sold nearly $2,000,000 of unregistered common stock to employees between 1947 and 1951 using the mails. Corporate resolutions made stock available to employees who, without company solicitation, inquired how to purchase it, and the company characterized all offerees as 'key employees.' Purchasers included workers in a wide range of positions such as clerical assistant, stock clerk, stenographer, electrician, and veterinarian, living in more than fifty widely separated communities. In 1951 the estimated number of offerees was 500, but the company kept no records of all persons to whom the offers were made.

Issue

Whether Ralston Purina's unregistered offerings of treasury stock to its so-called key employees were 'transactions by an issuer not involving any public offering' within the meaning of § 4(1) of the Securities Act of 1933. More specifically, the question was whether the employee status or the company's purpose in selecting the group brought the offerings within the private offering exemption.

Rule

The applicability of the § 4(1) private offering exemption turns on whether the particular class of offerees needs the protection of the Act. An offering is private when made to persons shown to be able to fend for themselves, such as persons who have access to the kind of information registration would disclose; the burden of proving the exemption rests on the issuer, and the issuer's motive in selecting offerees is not controlling.

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One of 10 multiple-choice questions for this case. Pick an answer to see why.
Lakeview Robotics, Inc., based in Cleveland, sold unregistered shares to 14 division vice presidents in Ohio and Michigan. Each offeree regularly attended board-level financial reviews and received internal reports detailing the company’s earnings, liabilities, major contracts, and litigation exposure.

If the company claims the offering was exempt as not involving any public offering, which fact most strongly supports the exemption?

Explanation. The controlling inquiry is whether the offerees need the protection of registration. An offering may be private when made to persons able to fend for themselves because they have access to the kind of information registration would disclose. Employee status, the issuer’s motive, and a small number of offerees are not by themselves determinative.