Source: http://www.law.cornell.edu/supremecourt/text/346/119/
Timestamp: 2014-04-21 16:54:30
Document Index: 113415695

Matched Legal Cases: ['§ 5', '§ 20', '§ 4', '§ 4', '§ 203', '§ 4', '§ 4', '§ 4', '§ 77', '§ 77']

SECURITIES AND EXCHANGE COMMISSION v. RALSTON PURINA CO. | LII / Legal Information Institute
Supreme Court aboutsearch liibulletin subscribe previews SECURITIES AND EXCHANGE COMMISSION v. RALSTON PURINA CO.
346 U.S. 119 (73 S.Ct. 981, 97 L.Ed. 1494)
Argued: April 28, 1953.
[HTML] Mr. Roger S. Foster, Washington, D.C., for petitioner.
Section 4(1) of the Securities Act of 1933 exempts 'transactions by an issuer not involving any public offering'
from the registration requirements of § 5.
We must decide whether Ralston Purina's offerings of treasury stock to its 'key employees' are within this exemption. On a complaint brought by the Commission under § 20(b) of the Act seeking to enjoin respondent's unregistered offerings, the District Court held the exemption applicable and dismissed the suit.
The question has arisen many times since the Act was passed; an apparent need to define the scope of the private offering exemption prompted certiorari. 345 U.S. 903, 73 S.Ct. 643.
The Securities Act nowhere defines the scope of § 4(1)'s private offering exemption. Nor is the legislative history of much help in staking out its boundaries. The problem was first dealt with in § 4(1) of the House Bill, H.R. 5480, 73d Cong., 1st Sess., which exempted 'transactions by an issuer not with or through an underwriter; * * *.' The bill, as reported by the House Committee, added 'and not involving any public offering.' H.R.Rep. No. 85, 73d Cong., 1st Sess. 1. This was thought to be one of those transactions 'where there is no practical need for * * * (the bill's) application or where the public benefits are too remote.' Id., at 5.
It assumed its present shape with the deletion of 'not with or through an underwriter' by § 203(a) of the Securities Exchange Act of 1934, 48 Stat. 906, a change regarded as the elimination of superfluous language. H.R.Rep. No. 1838, 73d Cong., 2d Sess. 41.
Decisions under comparable exemptions in the English Companies Acts and state 'blue sky' laws, the statutory antecedents of federal securities legislation have made one thing clearto be public, an offer need not be open to the whole world.
In Securities and Exchange Comm. v. Sunbeam Gold Mines Co., 9 Cir., 1938, 95 F.2d 699, 701, this point was made in dealing with an offering to the stockholders of two corporations about to be merged. Judge Denman observed that:
The courts below purported to apply this test. The District Court held, in the language of the Sunbeam decision, that 'The purpose of the selection bears a 'sensible relation' to the class chosen,' finding that 'The sole purpose of the 'selection' is to keep part stock ownership of the business within the operating personnel of the business and to spread ownership throughout all departments and activities of the business.'
The Court of Appeals treated the case as involving 'an offering, without solicitation, of common stock to a selected group of key employees of the issuer, most of whom are already stockholders when the offering is made, with the sole purpose of enabling them to secure a proprietary interest in the company or to increase the interest already held by them.'
The natural way to interpret the private offering exemption is in light of the statutory purpose. Since exempt transactions are those as to which 'there is no practical need for * * * (the bill's) application,' the applicability of § 4(1) should turn on whether the particular class of persons affected need the protection of the Act. An offering to those who are shown to be able to fend for themselves is a transaction 'not involving any public offering.'
The Commission would have us go one step further and hold that 'an offering to a substantial number of the public' is not exempt under § 4(1). We are advised that 'whatever the special circumstances, the Commission has consistently interpreted the exemption as being inapplicable when a large number of offerees is involved.' But the statute would seem to apply to a 'public offering' whether to few or many.
The exemption, as we construe it, does not deprive corporate employees, as a class, of the safeguards of the Act. We agree that some employee offerings may come within § 4(1), e.g., one made to executive personnel who because of their position have access to the same kind of information that the act would make available in the form of a registration statement.
Absent such a showing of special circumstances, employees are just as much members of the investing 'public' as any of their neighbors in the community. Although we do not rely on it, the rejection in 1934 of an amendment which would have specifically exempted employee stock offerings supports this conclusion. The House Managers, commenting on the Conference Report, said that 'the participants in employees' stock-investment plans may be in as great need of the protection afforded by availability of information concerning the issuer for which they work as are most other members of the public.' H.R.Rep. No. 1838, 73d Cong., 2d Sess. 41.
48 Stat. 77, as amended, 48 Stat. 906, 15 U.S.C. 77d, 15 U.S.C.A. § 77d.
'Sec. 5. (a) Unless a registration statement is in effect as to a security, it shall be unlawful for any person, directly or indirectly
'(2) to carry or cause to be carried through the mails or in interstate commerce, by any means or instruments of transportation, any such security for the purpose of sale or for delivery after sale. * * *' 48 Stat. 77, 15 U.S.C. 77e, 15 U.S.C.A. § 77e.