SEC v. National Biotech Corporation

 

In May 2013, National Biotech Corporation (National) advertised to the general public that it would make a $4 million offering of stock in June. National made the offering as advertised and, ten days after the first sale, notified the Securities and Exchange Commission (SEC) of the offering. National provided all buyers of the stock material information about the company, its business, and the stock that was being offered for sale. The stock proved to be popular among investors, and before the end of the year, the National stock offering was completely sold out. The buyers of the National stock include forty unaccredited investors and fifty accredited investors. Although all of the stock was sold, National never registered this stock offering with any government agency. The SEC filed a lawsuit against National, and sought civil sanctions against the corporation on the grounds that this stock offering was not exempt from registration. National disagreed, and argued that it was not required to register this stock offering because it fell under the Rule 505 of Regulation D of the Securities Act of 1933 exemption.  National furthered argued that because of this exemption, any resale of this stock would also be exempt from registration requirements. Which side of this lawsuit is correct, and why?  Under what circumstances is a company required to register a stock offering with the SEC?  When (if ever) would the company be exempt from the registration requirement?  Why?  Explain your answer in detail.