513 U.S. 561 (1995)
- Petitioners, 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, 15 U.S.C.S. § 77l(2), even though petitioners agreed to pay an adjustment.
- The court below reversed a grant of summary judgment in favor of petitioners after finding § 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.
- On appeal, the Court found that the word "prospectus," as used in the Securities Act of 1933 (Act), was a term of art referring to a document that described a public offering of securities by an issuer or controlling shareholder.
- Therefore, the judgment of the court below was reversed because the contract of sale, and its recitations, were not held out to the public and were not a prospectus as the term was used in the Act.
The judgment was reversed after the 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.
Suggested Study Aids For Securities Regulation Law
Securities Regulation in a Nutshell, 10th (Nutshell Series)
Securities Regulation: Examples & Explanations, 5th Edition
Securities Regulations: The Essentials