An offering to those who are shown to be able to fend for themselves is a transaction not involving any public offering.
The Commission sought to enjoin the corporation from offering its unregistered shares of stock to certain employees. Section 5 of the Securities Act of 1933 requires the filing of a registration certificate as a prerequisite to the use of the mails or other instruments of interstate commerce in connection with sales of securities. While Section 4(1) of the act exempts from the requirements of Section 5 "transactions by an issuer not involving any public offering" of the securities. The corporation made authorized, but unissued, common shares available to some of its employees, claiming that they fall within the exemption from the registration requirement.
Are the sales of securities by a corporation to its personnel exempt from the registration requirement?
The Court held that whether the § 4 exemption applied turned on the particular class of persons affected so that persons who were able to fend for themselves did not need the protection of § 4. Absent a showing of special circumstances, employees were members of the investing public. The Court held that the corporation's employees did not have access to the information that would have been found in a registrations statement. Thus, they needed the protection offered by the registrations statements.