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Law School Case Brief

Gustafson v. Alloyd Co. - 513 U.S. 561, 115 S. Ct. 1061 (1995)

Rule:

The word "prospectus," as used in the Securities Act of 1933, is a term of art referring to a document that describes a public offering of securities by an issuer or controlling shareholder. 

Facts:

The sole shareholders of a corporation, privately sold all of the issued and outstanding stock of the corporation to respondent, a corporation created to effect the sale of the stock. After the financial recitations provided for in the purchase agreement were discovered to have been inaccurate, respondent sought recission of the purchase under § 12(2) of the Securities Act of 1933 even though petitioners agreed to pay an adjustment. Initially, the court granted a summary judgment in favor of petitioners. But after finding that § 12(2)'s right of action for recission applied to any communication that offered any security for sale, including the stock purchase agreement at issue, the court reversed the grant for summary judgment.

Issue:

Was recission a right that extended to the respondents?

Answer:

No.

Conclusion:

The judgment was reversed after the U.S. Supreme Court concluded that the word "prospectus," as used in the Securities Act of 1933, was a term of art referring to a document that described a public offering of securities by an issuer or controlling shareholder. Since the contract of sale at issue was a private, secondary transaction, the right of recission did not extend to respondents.

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