In the 1994 case of Arthur L. Gustafson, et al. v. Alloyd Company, Incorporated, FKA Alloyd Holdings, Incorporated, et al., the U.S Supreme Court ruled that Section 12(2) of the Securities Act of 1933 applies not only to initial public offerings (IPOs), but also to secondary transactions in securities such as private sales and resales on stock exchanges. The plaintiffs were shareholders who had purchased shares from a company director after an IPO and alleged they were misled by false statements made during their purchase negotiations with him. They sought rescission under Section 12(2). The defendants argued that this section should be interpreted narrowly to cover only IPOs based on its legislative history and policy considerations; however, the court disagreed stating that statutory language was clear enough to include both primary public offerings and secondary markets.

In the dissenting opinion for Gustafson v. Alloyd Co., Justice Scalia, joined by Justices Kennedy and Thomas, disagreed with the majority's interpretation of Section 12(2) of the Securities Act of 1933. They argued that this section should apply to all misrepresentations or omissions made in connection with a security sale, not just those found within a prospectus as determined by the majority. The dissenters believed that limiting liability only to statements made in formal documents would allow fraudulent practices to go unpunished if they were conducted orally or through informal writings. Furthermore, they contended that such an interpretation was inconsistent with other sections of securities law which broadly defined "prospectus" and did not limit it solely to written communications.