Diskin v. Lomasney & Co.

Lomasney & Co. and its general partner (Lomasney) (defendants) sought to sell shares of Ski Park City West, S.I. (Ski Park) and Continental Travel, Ltd. (Continental). Ski Park’s shares were registered with the Securities and Exchange Commission (SEC). Continental filed a preliminary registration statement with the SEC in August 1968, but the registration statement did not become effective until February 11, 1969. On September 17, 1968, Lomasney sent a final prospectus for Ski Park to Diskin (plaintiff), with a note stating that if Diskin bought 1,000 Ski Park shares, Lomasney would sell him 5,000 shares of Continental at the offering price when Continental’s registration statement became effective. Lomasney did not provide Diskin with a Continental prospectus at that time. Diskin purchased the 1,000 Ski Park shares. Soon after the Continental registration statement became effective, Lomasney sent Diskin a confirmation for the sale of 5,000 Continental shares at the offering price. Lomasney sent Continental’s final prospectus and registration statement to Diskin at some point before February 28, the date on which Diskin paid for and received the Continental shares. In January 1970, Diskin brought suit pursuant to § 12(a)(1) of the Securities Act of 1933, seeking rescission of his Continental share purchase as having been made in violation of § 5(b)(1) of the act because Lomasney offered to sell the Continental shares before its registration became effective. Lomasney responded that Diskin received Continental’s final prospectus before paying for the shares, which cured any violation. The district court dismissed Diskin’s complaint. Diskin appealed.