Securities & Exchange Commission v. Ralston Purina Co.

Supreme Court of the United States
1953 U.S. LEXIS 2688, 346 U.S. 119, 97 L. Ed. 2d 1494 (1953)

ELI5:

Rule of Law:

An offering of securities qualifies for the private offering exemption under § 4(1) of the Securities Act of 1933 only if the offerees are able to "fend for themselves" and have access to the same kind of information that a registration statement would disclose.

Facts:

Ralston Purina Company, a manufacturer of feed and cereal products, had a long-standing policy of encouraging stock ownership among its employees.
Between 1947 and 1951, Ralston Purina sold nearly $2,000,000 of its unregistered treasury stock to its employees, making use of the mails.
The company's resolutions authorized sales to employees who took the initiative to inquire about purchasing stock.
The company considered the offerees to be "key employees," a term it defined broadly to include individuals eligible for promotion, those who influence others, or are ambitious and sympathetic to management.
Purchasers of the stock held a wide variety of non-executive job titles, such as bakeshop foreman, clerical assistant, stenographer, and production trainee.
In 1951 alone, the offering was made to an estimated 500 employees, and hundreds of employees purchased stock in the preceding years.

Procedural Posture:

The Securities and Exchange Commission (SEC) filed a complaint in the U.S. District Court for the Eastern District of Missouri, seeking to enjoin Ralston Purina's unregistered stock offerings.
The District Court, a court of first instance, found the exemption applicable and dismissed the SEC's suit.
The SEC appealed to the U.S. Court of Appeals for the Eighth Circuit.
The Court of Appeals affirmed the trial court's judgment in favor of Ralston Purina.
The SEC petitioned the U.S. Supreme Court for a writ of certiorari, which was granted.

Premium Content

Subscribe to Lexplug to view the complete brief

You're viewing a preview with Rule of Law, Facts, and Procedural Posture

Issue:

Does a corporation's offering of its stock to a broad range of its employees, whom it designates as "key employees," qualify as a "transaction by an issuer not involving any public offering" exempt from the registration requirements of the Securities Act of 1933?

Opinions:

Majority - Mr. Justice Clark

No. A corporation's offering of its stock to a broad range of employees does not qualify for the private offering exemption where the employees do not have access to the kind of information that a registration statement would provide. The applicability of the exemption turns on whether the class of persons affected needs the protection of the Act. The purpose of the Securities Act is to protect investors by promoting full disclosure; therefore, an offering to those who are shown to be able to fend for themselves because they possess or have access to information equivalent to a registration statement is a transaction 'not involving any public offering.' The number of offerees is not the determinative factor. The issuer's motivation for making the offering is irrelevant; the focus must be on the offerees' knowledge and their need for the protections of registration. Ralston Purina failed to meet its burden of showing that its employee offerees had access to the kind of information that registration would disclose.

Analysis:

This decision fundamentally defined the scope of the private offering exemption by shifting the analysis from the number of offerees to their qualitative characteristics. The court established the "access to information" test, which became the cornerstone for interpreting what is now § 4(a)(2) of the Securities Act. This ruling clarified that employees are not automatically considered insiders and are entitled to the same protections as the general public unless they have a special position that affords them access to information equivalent to a registration statement. The case has had a profound and lasting impact on corporate finance, shaping subsequent SEC regulations like Regulation D, which provides a safe harbor for private placements.

Gunnerbot

AI-powered case assistant

Loaded: Securities & Exchange Commission v. Ralston Purina Co. (1953)

Try: "What was the holding?" or "Explain the dissent"