## Facts

- Ratner’s Group PLC (Ratner’s) advertised a private offering of its stock.
- Ratner’s furnished prospective investors with an extensive (approximately 275-page) offering document describing Ratner’s financial condition, operations, and management.
- Glamorgan Coal Corporation (Glamorgan) purchased more than $6 million of Ratner’s shares in the private offering.
- About two months later, a major investment rating service downgraded Ratner’s, and Glamorgan alleged its investment rapidly became essentially worthless.
- Glamorgan sued Ratner’s in federal court seeking rescission and damages, alleging the offering document omitted material information that would have deterred its purchase.
- Glamorgan pleaded a claim under Securities Act § 12(a)(2), contending the offering document qualified as a “prospectus” (as that term is used in the Securities Act) and that the alleged omissions triggered § 12(a)(2) liability.
- Ratner’s moved to dismiss, arguing that § 12(a)(2), as construed by *Gustafson v. Alloyd Co.*, does not apply to private offerings and therefore does not reach alleged misstatements or omissions in private offering materials.

## Issues

1. Whether materials used to solicit a private offering (including a private placement-style offering document) qualify as a “prospectus” or covered “oral communication” for purposes of Securities Act § 12(a)(2).
2. Whether, after *Gustafson v. Alloyd Co.*, § 12(a)(2) is limited to public offerings, so that purchasers in a private offering cannot sue under § 12(a)(2) based on statements in private offering materials.

## Decision

- The court granted Ratner’s motion to dismiss Glamorgan’s Securities Act § 12(a)(2) claim.
- Applying *Gustafson*, the court concluded that § 12(a)(2) is confined to public-offering communications; the private offering document at issue was not a statutory “prospectus” for § 12(a)(2) purposes.

## Legal Principles

- After *Gustafson v. Alloyd Co.*, the term “prospectus” in Securities Act § 12(a)(2) is read in line with the Securities Act’s public-offering and registration scheme.
- Section 12(a)(2) generally provides a remedy for materially false or misleading statements made by means of a public-offering prospectus (and related selling communications), not for statements made solely in connection with a private offering.
- A private placement memorandum or similar private offering document is not treated as a “prospectus” for § 12(a)(2), so purchasers in a private offering cannot base § 12(a)(2) liability on alleged misstatements or omissions in those materials.

## Conclusion

In *Glamorgan Coal Corp. v. Ratner’s Group*, the Southern District of New York dismissed Glamorgan’s § 12(a)(2) claim because the purchase occurred in a private offering, and—under *Gustafson*—the private offering document Glamorgan relied on did not qualify as a § 12(a)(2) “prospectus,” leaving § 12(a)(2) unavailable for the alleged omissions.


Glamorgan Coal Corp. v. Ratner's Group, 1995 WL 406167 (1995)