Federal Securities Law: Exemptions: Section 4(a)(2) (formerly 4(2))

In SEC v. Ralston Purina Co., 346 U.S. 119 (1953), the United States Supreme Court confirmed the SEC's position that offers and sales to a large number of employees by Ralston Purina under its stock plan were not exempt under Section 4(a)(2), and provided the following “guidance:”

• §4(a)(2) exemption focuses on “offerees” and not actual purchasers of the securities.
• § 4(a)(2) exemption does not depend upon a numerical test; Court rejected SEC argument that extensive number of offerees was sufficient by itself to establish loss of exemption.
• Availability of §4(a)(2) exemption “should turn on whether the particular class of persons…need the protection of the ['33] Act” and whether the offerees “are shown to be able to fend for themselves.”
• The Court stated that where offerees do not have “access to the kind of information” that a registration statement would disclose, an issuer is required to provide the same kind of information that otherwise generally would be available in a registration statement.