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No. 93-404. Argued November 2, 1994-Decided February 28,1995

Petitioners (collectively Gustafson), the sole shareholders of Alloyd, Inc., sold substantially all of its stock to respondents and other buyers in a private sale agreement. The purchase price included a payment reflecting an estimated increase in the company's net worth from the end of the previous year through the closing, since hard financial data were unavailable. The contract provided that if a year-end audit and financial statements revealed variances between estimated and actual increased value, the disappointed party would receive an adjustment. As a result of the audit, respondents were entitled to recover an adjustment, but instead sought relief under § 12(2) of the Securities Act of 1933 (1933 Act or Act), which gives buyers an express right of rescission against sellers who make material misstatements or omissions "by means of a prospectus." In granting Gustafson's motion for summary judgment, the District Court held that § 12(2) claims can only arise out of initial stock offerings and not a private sale agreement. The Court of Appeals vacated the judgment and remanded the case in light of its intervening decision that the inclusion of the term "communication" in the Act's definition of prospectus meant that the latter term includes all written communications offering a security for sale, and, thus, a § 12(2) right of action applies to private sale agreements.

Held: Section 12(2) does not extend to a private sale contract, since a contract, and its recitations, that are not held out to the public are not a "prospectus" as the term is used in the 1933 Act. Pp. 567-584.

(a) On the assumptions that must be made as the case reaches this Court, respondents would have a right to obtain rescission if Gustafson's misstatements were made "by means of a prospectus or oral communication" related to a prospectus. Three sections of the 1933 Act are critical in resolving the issue whether the contract is a "prospectus": § 2(10), which defines a prospectus as "any prospectus, notice, circular, advertisement, letter, or communication, written or by radio or television" that offers any security for sale or confirms its sale; § 10, which specifies what information must be contained in a prospectus; and § 12, which imposes liability based on misstatements in a prospectus. The term



"prospectus" should be construed, if at all possible, to give it a consistent meaning throughout the Act. Pp. 567-568.

(b) The contract in this case is not a "prospectus" as that term is defined in § 10. Whatever else "prospectus" may mean, § 10 confines it to a document that, absent an overriding exemption, must include "information contained in the registration statement." By and large, only public offerings by an issuer or its controlling shareholders require the preparation and filing of such a statement. Thus, it follows that a prospectus is confined to such offerings. Since there is no dispute that the contract in question was not required to carry information contained in a registration statement, it also follows that the contract is not a prospectus under § 10. Pp. 568-570.

(c) The term "prospectus" has the same meaning and refers to the same types of communications in both §§ 10 and 12. The normal rule of statutory construction that identical words used in different parts of the same Act are intended to have the same meaning applies here. The Act's structure and § 12's language reinforce this view. In addition, since the primary innovation of the Act was the creation of federal duties-for the most part registration and disclosure obligations-in connection with public offerings, it is reasonable to conclude that the liability provisions were designed primarily to provide remedies for violations of these obligations rather than to conclude that § 12(2) creates vast additional liabilities that are quite independent of them. Congress would have been specific had it intended "prospectus" to have a different meaning in § 12. Pp. 570-573.

(d) The term "communication" in § 2(1O)'s definition of "prospectus" does not mean that any written communication offering a security for sale is a "prospectus" for purposes of § 12. "Communication" is but one word in a list, which read in its entirety yields the interpretation that "prospectus" refers to a document soliciting the public to acquire securities. Respondents' argument to the contrary is inconsistent with two rules of statutory construction. First, this Court will avoid a reading which renders some words altogether redundant. However, reading "communication" to include every written communication would render "notice, circular, advertisement, [and] letter" redundant, since each is a form of written communication. A word is also known by the company it keeps. From the terms used in the list, it is apparent that "communication" refers to documents of wide dissemination. Similarly, the list includes radio and television communications but not face-to-face or telephonic conversations. Moreover, at the time the 1933 Act was passed, "prospectus" was a term of art understood to refer to a document soliciting the public to acquire securities. Pp. 573-576.

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