Peek v Gurney

• Peek purchased shares in the secondary market (from an existing shareholder, not through the prospectus)
• The prospectus contained misstatements
• Peek suffered loss when the truth emerged and share prices fell
• He sued the directors for misstatement in the prospectus

1. Whether a person who purchased shares in the secondary market (not through the prospectus directly) can sue directors for misstatement in the prospectus.

• Peek had no cause of action
• Prospectus liability extends ONLY to persons who subscribed directly on the faith of the prospectus; original allottees who applied in response to the prospectus
• Subsequent purchasers in the secondary market did not rely on the prospectus (they bought from another shareholder) and cannot claim under prospectus liability

Prospectus liability is limited to original subscribers who applied for and were allotted shares on the faith of the prospectus. Secondary market purchasers have no direct reliance on the prospectus and cannot sue under prospectus liability provisions (may have remedies under general fraud/negligence law or securities regulations).