Securities and Exchange Commission v. Ralston Purina Co

Decision Date08 June 1953
Docket NumberNo. 512,512
Citation97 L.Ed. 1494,346 U.S. 119,73 S.Ct. 981
PartiesSECURITIES AND EXCHANGE COMMISSION v. RALSTON PURINA CO
CourtU.S. Supreme Court

Mr. Roger S. Foster, Washington, D.C., for petitioner.

Mr. Thomas S. McPheeters, St. Louis, Mo., for respondent.

Mr. Justice CLARK, delivered the opinion of the Court.

Section 4(1) of the Securities Act of 1933 exempts 'transactions by an issuer not involving any public offering'1 from the registration requirements of § 5.2 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.3 The Court of Appeals affirmed.4 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.

Ralston Purina manufactures and distributes various feed and cereal products. Its processing and distribution facilities are scattered throughout the United States and Canada, staffed by some 7,000 employees. At least since 1911 the company has had a policy of encouraging stock ownership among its employees; more particularly, since 1942 it has made authorized but unissued common shares available to some of them. Between 1947 and 1951, the period covered by the record in this case, Ralston Purina sold nearly $2,000,000 of stock to employees without registration and in so doing made use of the mails.

In each of these years, a corporate resolution authorized the sale of common stock 'to employees * * * who shall, without any solicitation by the Company or its officers or employees, inquire of any of them as to how to purchase common stock of Ralston Purina Company.' A memorandum sent to branch and store managers after the resolution was adopted, advised that 'The only employees to whom this stock will be available will be those who take the initiative and are interested in buying stock at present market prices.' Among those responding to these offers were employees with the duties of artist, bakeshop foreman, chow loading foreman, clerical assistant, copywriter, electrician, stock clerk, mill office clerk, order credit trainee, production trainee, stenographer, and veterinarian. The buyers lived in over fifty widely separated communities scattered from Garland, Texas, to Nashua, New Hampshire and Visalia, California. The lowest salary bracket of those purchasing was $2,700 in 1949, $2,435 in 1950 and $3,107 in 1951. The record shows that in 1947, 243 employees bought stock, 20 in 1948, 414 in 1949, 411 in 1950, and the 1951 offer, interrupted by this litigation, produced 165 applications to purchase. No records were kept of those to whom the offers were made; the estimated number in 1951 was 500.

The company bottoms its exemption claim on the classification of all offerees as 'key employees' in its organization. Its position on trial was that 'A key employee * * * is not confined to an organization chart. It would include an individual who is eligible for promotion, an individual who especially influences others or who advises others, a person whom the employees look to in some special way, an individual, of course, who carries some special responsibility, who is sympathetic to management and who is ambitious and who the management feels is likely to be promoted to a greater responsibility.' That an offering to all of its employees would be public is conceded.

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 5.5 The exemption as thus delimited became law.6 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.7 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:

'In its broadest meaning the term 'public' distinguishes the populace at large from groups of individual members of the public segregated because of some common interest or characteristic. Yet such a distinction is inadequate for practical purposes; manifestly, an offering of securities to all redheaded men, to all residents of Chicago or San Francisco, to all existing stockholders of the General Motors Corporation or the American Telephone & Telegraph Company, is no less 'public', in every realistic sense of the word, than an unrestricted offering to the world at large. Such an offering, though not open to everyone who may choose to apply, is none the less 'public' in character, for the means used to select the particular individuals to whom the offering is to be made bear no sensible relation to the purposes for which the selection is made. * * * To determine the distinction between 'public' and 'private' in any particular context, it is essential to examine the circumstances under which the distinction is sought to be established and to consider the purposes sought to be achieved by such distinction.'

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.'8 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.'9

Exemption from the registration requirements of the Securities Act is the question. The design of the statute is to protect investors by promoting full disclosure of information thought necessary to informed investment decisions. 10 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.11 It may well be that offerings to a substantial number of persons would rarely be exempt. Indeed nothing prevents the commission, in enforcing the statute, from using some kind of numerical test in deciding when to investigate particular exemption claims. But there is no warrant for superimposing a quantity limit on private offerings as a matter of statutory interpretation.

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 ...

To continue reading

Request your trial
406 cases
  • TMJ Grp. LLC v. IMCMV Holdings Inc.
    • United States
    • U.S. District Court — Eastern District of Louisiana
    • April 18, 2018
    ...eligibility of the purchasers, information, and resale restrictions; and therefore, pursuant to the Supreme Court's holding in SEC v. Ralston Purina Corp. , the investments are exempt from registration.43 Accordingly, even assuming that the LLC membership interests were a "security," IMC De......
  • Koehler v. Pulvers
    • United States
    • U.S. District Court — Southern District of California
    • July 9, 1985
    ...a significant showing that the investors did not need the protection of the Act" (Id. at 646-47, citing S.E.C. v. Ralston Purina Co., 346 U.S. 119, 73 S.Ct. 981, 97 L.Ed. 1494 (1953)), this court is not inclined to consider the offering private or The 1933 Act protects investors primarily b......
  • U.S. S.E.C. v. Sierra Brokerage Services Inc.
    • United States
    • U.S. District Court — Southern District of Ohio
    • March 31, 2009
    ...the challenged securities transactions fall within one of the enumerated exemptions from registration. SEC v. Ralston Purina Co., 346 U.S. 119, 126, 73 S.Ct. 981, 97 L.Ed. 1494 (1953); SEC v. Cavanagh, 155 F.3d 129, 133 (2d Cir.1998) (hereinafter Cavanagh The SEC claims that Tsai, the Promo......
  • Riedel v. Acutote of Colorado, No. C2-88-1194.
    • United States
    • U.S. District Court — Southern District of Ohio
    • September 5, 1991
    ...decisions." Pinter v. Dahl, 486 U.S. 622, 638, 108 S.Ct. 2063, 2074, 100 L.Ed.2d 658 (1988) (citing SEC v. Ralston Purina Co., 346 U.S. 119, 124, 73 S.Ct. 981, 984, 97 L.Ed. 1494 (1953); A.C. Frost & Co. v. Coeur D'Alene Mines Corp., 312 U.S. 38, 43 & n. 2, 61 S.Ct. 414, 417 & n. 2, 85 L.Ed......
  • Request a trial to view additional results
9 firm's commentaries
  • SEC Proposes New Rules Under The JOBS Act
    • United States
    • Mondaq United States
    • October 9, 2012
    ...17 15 U.S.C. § 45, et seq. 18 15 U.S.C. § 7701, et seq. 19 Citing SEC v. Ralston Purina, 346 U.S. 119, 126 (1953) ("Keeping in mind the broadly remedial purposes of federal securities legislation, imposition of the burden of proof on an issuer who would plead the exemption seems to us fair ......
  • SEC Commissioner Urges Reform of Regulation D and Private Markets
    • United States
    • LexBlog United States
    • February 2, 2023
    ...35 non-accredited, but sophisticated, investors. 17 C.F.R. § 230.506(b); see also 17 C.F.R. § 230.502. [8] See S.E.C. v. Ralston Purina, 346 U.S. 119 (1953) (holding that “the focus of the inquiry should be on the need of the offerees for the protections afforded by registration. The [inves......
  • SEC Commissioner Speaks on Offerings Exempted from Registration
    • United States
    • LexBlog United States
    • January 23, 2024
    ...No. 33–6389 (Mar. 8, 1982) [47 FR 11251 (Mar. 16, 1982)] (“Rule 506 Adopting Release”). [3] Since re-codified as Section 4(a)(2). [4] 346 U.S. 119 (1953). [5] Interview with Alan B. Levenson (Jan. 14, 2003) at p.15-16, available at https://www.sechistorical.org/collection/oral-histories/lev......
  • New Paradigms In Investor Liquidity: Private And 'Off-Market' Resales Of Securities Under Rule 144 And Beyond
    • United States
    • Mondaq United States
    • July 26, 2013
    ...to those who are shown to be able to fend for themselves is a transaction 'not involving any public offering.'" SEC v. Ralston Purina Co., 346 U.S. 119, 125 92 See, e.g., SEC No-Action Letter, Bank of New Hampshire Corp., Mar. 4, 1981. 93 The presence of the "indicia of private placements" ......
  • Request a trial to view additional results
36 books & journal articles
  • The Ralston-Landreth-Gustafson Harmony: A Security!
    • United States
    • Capital University Law Review No. 41-2, March 2013
    • March 1, 2013
    ...Private sale participants must be “accredited investors,” defined as sophisticated and wealthy institutions or individuals. 225 The 222 346 U.S. 119, 125 (1953). 223 17 C.F.R. §§ 230.501–230.508 (2011). 224 Ralston , 346 U.S. at 125 (“An offering to those who are shown to be able to fend fo......
  • The Ralston-Landreth-Gustafson Harmony: A Security!
    • United States
    • Capital University Law Review No. 41-3, June 2013
    • June 1, 2013
    ...Private sale participants must be “accredited investors,” defined as sophisticated and wealthy institutions or individuals. 225 The 222 346 U.S. 119, 125 (1953). 223 17 C.F.R. §§ 230.501–230.508 (2011). 224 Ralston , 346 U.S. at 125 (“An offering to those who are shown to be able to fend fo......
  • CHAPTER 7 STRUCTURING OIL AND GAS PROPERTY ACQUISITIONS: STOCK TRANSACTIONS VERSUS ASSET SALES
    • United States
    • FNREL - Special Institute Oil and Gas Agreements - The Exploration Phase (FNREL) (2010 Ed.)
    • Invalid date
    ...Dec. 2, 1985). See also, Charles J. Johnson, Corporate Finance and the Securities Laws at 383 (1990). [218] SEC v. Ralston Purina Co., 346 U.S. 119 (1953). [219] 15 U.S.C. § 77d(2). [220] See note 218 supra. [221] See Rule 501(a) or Regulation D, 17 C.F.R. § 230.501(a). [222] See Rule 506 o......
  • White collar crime's gray area: the anomaly of criminalizing conduct not civilly actionable.
    • United States
    • Albany Law Review Vol. 72 No. 1, January 2009
    • January 1, 2009
    ...a "fair fund[] for investors"). (209) 15 U.S.C. [section] 78b (2006). (210) 15 U.S.C. [section] 77b(b) (2006); SEC v. Ralston Purina Co., 346 U.S. 119, 124 (211) Ralston Purina Co., 346 U.S. at 124; see also Cent. Bank of Denver v. First Interstate Bank of Denver, 511 U.S. 164, 171 (1994) (......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT