Full opinion text
MEMORANDUM AND ORDER REGARDING ENRON OUTSIDE DIRECTOR DEFENDANTS’ MOTIONS HARMON, District Judge. Lead Plaintiff the Regents of the University of California’s consolidated complaint in the above referenced putative class action, brought on behalf of purchasers of Enron Corporation’s publicly traded equity and debt securities during a proposed federal Class Period from October 19,1998 through November 27, 2001, alleges violations of (1) Sections 11 and 15 of the Securities Act of 1933 (“1933 Act”), 15 U.S.C. §§ 77k and 77o; (2) Sections 10(b), 20(a), and 20A of the Securities Exchange Act of 1934 (“Exchange Act” or “the 1934 Act”), 15 U.S.C. §§ 788(b), 78t(a), and 78W 1, and Rule 10b-5 promulgated thereunder by the Securities and Exchange Commission (“SEC”), 17 C.F.R. § 240.10b-5; and (3) the Texas Securities Act, Texas Rev. Civ. Stat. Ann. art. 581-33 (Vernon’s 1964 & 2002 Supp.). Pending before the Court inter alia are motions to dismiss pursuant to Rules 8, 9(b), and 12(b)(6) of the Federal Rules of Civil Procedure, section 21D(b)(3) of the Exchange Act, as amended, the Private Securities Litigation Reform Act of 1995 (the “PSLRA”), codified at 15 U.S.C. § 78u-4(b)(3)(A), and Central Bank of Denver v. First Interstate Bank of Denver, 511 U.S. 164, 114 S.Ct. 1439, 128 L.Ed.2d 119 (1994), filed by the following Enron Outside Director Defendants: (1)Certain Current and Former Directors (Robert A. Belfer, Norman P. Blake, Jr., Ronnie C. Chan, John H. Duncan, Joe H. Foy, Wendy L. Gramm, Ken L. Harrison, Robert K. Jaedicke, Charles A. LeMaistre, Rebecca Mark-Jusbasche, John Men-delsohn, Jerome J. Meyer, Paulo V. Ferraz Pereira, Frank Savage, John A. Urquhart, John Wakeham, Charles Walker, and Herbert S. Wi-nokur, Jr.)(# 661); (2) [Present and Former Outside Directors] Robert A. Belfer, Norman P. Blake, Jr., Ronnie C. Chan, John H. Duncan, Joe H. Foy, Wendy L. Gramm, Robert K. Jaedicke, Charles A. LeMaistre, John Mendelsohn, Jerome J. Meyer, Paulo V. Ferraz Per-eira, Frank Savage, John Wakeham, Charles E. Walker, and Herbert S. Winokur (# 662); (3) John A. Urquhart (# 647); and (4) Alliance Capital Management L.P. (“Alliance”), for failure to state a § 15 claim for which relief can be granted (# 618). Also pending are a Joint Motion of Certain Defendants (Belfer, Blake, Chan, Duncan, Foy, Gramm, Jaedicke, LeMaistre, Men-delsohn, Meyer, Ferraz Pereira, Savage, Wakeham, Walker, Winokur, Urquhart, and Mark-Jusbasche) to Strike the Pulsi-fer Class Action Complaint (# 1042), joined by Enron executives Kenneth L. Lay (# 1047), Richard A. Causey (# 1052), and Ken L. Harrison (# 1053), and Lead Plaintiffs request for leave to amend (#839) should the Court determine that any part of the complaint should be dismissed. The Court hereby incorporates its summaries of the alleged facts and applicable law in its memorandum and order of December 20, 2002 (# 1194), regarding the secondary actors’ motions to dismiss, and its memorandum and order of January 28, 2003 (# 1241), addressing the Individual Andersen Defendants’ motions to dismiss, in particular its conclusions about the group pleading doctrine and controlling person liability. SUPPLEMENTAL APPLICABLE LAW A. Section 10(b) and Rule 10b-5 Violations 1. Signing false or misleading documents to be filed with the SEC A corporate official, acting with scienter, who on behalf of the corporation signs a document that is filed with the SEC that contains material misrepresentations, such as a fraudulent Form 10-K, regardless of whether he participated in the drafting of the document, “makes” a statement and may be liable as a primary violator under § 10(b) for making a false statement. Howard v. Everex Systems, Inc., 228 F.3d 1057, 1061 (9th Cir.2000), citing AUSA Life Ins. Co. v. Dwyer (In re JWP Inc., Sec. Litig.), 928 F.Supp. 1239, 1255-56 (S.D.N.Y.1996)(holding that a director who signs a fraudulent Form 10-K with scienter can be liable as a primary violator for making a false statement under § 10(b)), and F.N. Wolf & Co., Inc. v. Estate of Neal, No. 89 Civ. 1223(CSH), 1991 WL 34186, at *8 (S.D.N.Y. Feb.25, 1991)(holding that a “director signing a document filed with the SEC ... ‘makes or causes to be made’ the statements contained therein” under § 18(a) of the 1934 Act). See also In re Cabletron Systems, Inc., 311 F.3d 11, 40 (1st Cir.2002); In re Reliance Sec. Litig., 135 F.Supp.2d 480, 503 (D.Del.2001); In re Indep. Energy Holdings PLC Sec. Litig., 154 F.Supp.2d 741, 767 (S.D.N.Y.2001), abrogated on other grounds, In re Initial Public Offering Sec. Litig., 241 F.Supp.2d 281 (S.D.N.Y.2003); In re Lernout & Hauspie Sec. Litig., 286 B.R. 33, 37 (D.Mass.2002)(signatures of three members of the Audit Committee on statements filed with the SEC “satisfy the requirement that defendants make a fraudulent statement” for liability under § 10(b)); In re Lernout & Hauspie Sec. Litig., 230 F.Supp.2d 152, 163 (D.Mass.2002)(“It is well established in this Circuit that each defendant may be held responsible for the false and misleading statements contained in the financial statements he signed [under § 10(b) ],” citing Serabian v. Amoskeag Bank Shares, Inc., 24 F.3d 357, 367-68 (1st Cir.1994)). The Ninth Circuit explained that “by placing responsibility on corporate officers to ensure the validity of corporate filings, investors are further protected from misleading information.” Howard, 228 F.3d at 1061. Furthermore, “[k]ey corporate officers should not be allowed to make important false financial statements knowingly or recklessly, yet still shield themselves from liability to investors simply by failing to be involved in the preparation of those statements. Otherwise the securities laws would be significantly weakened ...” Id. at 1062. The SEC has attempted to make signatures on corporate documents that are filed with the SEC carry significant weight. Noting that the signature requirements for Form 10-K [in General Instruction D of Form 10-K and General Instruction C of Form 10-KSB] were amended in 1980 to ‘“enhance director awareness of and participation in the preparation of the Form 10-K information,’ ” the SEC has explained that “by signing documents filed with the Commission, board members implicitly indicate that they believe that the filing is accurate and complete.” “Audit Committee Disclosure” (S.E.C. Release No. 41987), 1999 WL 955908 at *29 n. 57, *9 (Oct. 7, 1999). Similarly, in a brief submitted to the Ninth Circuit during the litigation of Howard, the SEC stated, “ ‘When the public sees a corporate official’s signature on a document, it understands that the official is thereby stating- that he believes that the statements in the document are true.’ ” Id. at *9, citing Brief for SEC, Amicus Curiae, at 7, Howard v. Everex Systems, Inc., 228 F.3d 1057 (9th Cir.1999). 2. Insider Trading as a Primary Violation Allegations of insider trading may serve different purposes under the federal securities laws, including the following: as a primary violation of § 10(b) of the 1934 Act and Rule 10b-5; as a means to raise a strong inference of scienter for a § 10(b) violation; and as the basis for an independent, but derivative, claim under § 20A of the Exchange Act. To plead a violation of § 10(b), a plaintiff must allege both (1) a breach of a fiduciary duty, such as the duty to disclose, and “manipulation or- deception,” Santa Fe Industries v. Green, 430 U.S. 462, 472, 97 S.Ct. 1292, 51 L.Ed.2d 480 (1977); and (2) scienter, or “intent to deceive, manipulate, or defraud,” Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976). Duty to Disclose Rule 10b-5 does not impose on a corporation an affirmative duty to disclose all nonpublic material information that it has about the corporation, and where a material omission is alleged, there is no liability under the federal securities laws unless that corporation has a duty to disclose such information. Chiarella v. United States, 445 U.S. 222, 235, 100 S.Ct. 1108, 63 L.Ed.2d 348 (1980)(“a duty to disclose under § 10(b) does not arise from the mere possession of nonpublic market information”); Dirks v. SEC, 463 U.S. 646, 654, 103 S.Ct. 3255, 77 L.Ed.2d 911 (1983); Basic Inc. v. Levinson, 485 U.S. 224, 239 n. 17, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988)(“Silence, absent a duty to disclose, is not misleading under Rule 10b — 5.”); Gross v. Summa Four, Inc., 93 F.3d 987, 992 (1st Cir.1996); Starkman v. Marathon Oil Co., 772 F.2d 231, 238 (6th Cir.1985)(“[T]he established view is that a ‘duty to speak’ must exist before the disclosure of material facts is required under Rule 10b-5.”), cert. denied, 475 U.S. 1015, 106 S.Ct. 1195, 89 L.Ed.2d 310 (1986); Glazer v. Formica Corp., 964 F.2d 149, 156-57 (2d Cir.1992). Courts have imposed a duty to disclose on corporations and/or its officers in certain circumstances. “The duty to disclose only arises if the person is in a position of trust.” SEC v. Fox, 855 F.2d 247, 252 (5th Cir.1988), citing Chiarella, 445 U.S. at 235, 100 S.Ct. 1108; see also United States v. Ruggiero, 56 F.3d 647, 654-55 (5th Cir.1995), cert. denied, 516 U.S. 979, 116 S.Ct. 486, 133 L.Ed.2d 413 (1995). One such situation is when a corporate insider trades on confidential information (“intended to be available only for a corporate purpose and not for the personal benefit of anyone”) and makes “secret profits.” Chiarella, 445 U.S. at 228-29, 100 S.Ct. 1108; Dirks, 463 U.S. at 654, 103 S.Ct. 3255; United States v. O’Hagan, 521 U.S. 642, 652, 117 S.Ct. 2199, 138 L.Ed.2d 724 (1997); United States v. Ruggiero, 56 F.3d at 654-55. Thus Section 10(b) may be violated where the trading in the corporation’s securities arises “in connection with” a breach of a fiduciary duty and where there is also manipulation or deception. Dirks, 463 U.S. at 654, 103 S.Ct. 3255; Chiarella, 445 U.S. at 232-36, 100 S.Ct. 1108. The fiduciary duty is not imposed because of the nonpublie nature of the information; rather “liability under § [sic] 10b-5 attaches by virtue of the relationship between the shareholders and the individual trading on the inside information” in whom those shareholders “ ‘had placed their trust and confidence.’ ” Ruggiero, 56 F.3d at 654-55. The SEC long ago concluded that an “affirmative duty to disclose ... material facts which are known to [the insider] by virtue of [his] position but which are not known to persons with whom [the insider] deal[s] and which, if known, would affect their investment judgment,” arises “from (i) the existence of a relationship affording access to inside information intended to be available only for a corporate purpose, and (ii) the unfairness of allowing a corporate insider to take advantage of that information by trading without disclosure.” Chiarella, 445 U.S. at 227, 100 S.Ct. 1108, 63 L.Ed.2d 348 (1980), citing In re Cady, Roberts & Co., 40 S.E.C. 907, 911, 912, 1961 WL 60638 (1961)(holding that a corporate insider must either disclose all material inside information known to him because of his corporate position or abstain from trading the securities of his corporation). See also SEC v. Texas Gulf Sulphur Co., 401 F.2d 833, 848 (2d Cir.1968)(ew banc), cert. denied, 394 U.S. 976, 89 S.Ct. 1454, 22 L.Ed.2d 756 (1969); SEC v. MacDonald, 699 F.2d 47, 50 (1st Cir.1983)(ew banc); Shaw v. Digital Equipment, 82 F.3d 1194, 1203 (1st Cir.1996)(ew banc). As another instance where a duty to disclose is imposed by law on corporations, when a corporation makes a disclosure of material fact, voluntarily or involuntarily, the courts have recognized that “there is a duty to make it complete and accurate.” Roeder v. Alpha Industries, Inc., 814 F.2d 22, 26 (1st Cir.1987), citing Texas Gulf Sulphur, 401 F.2d at 860-61; Gross v. Summa Four, Inc., 93 F.3d at 992; Glazer v. Formica Corp., 964 F.2d 149, 156-57 (2d Cir.1992); Sailors v. Northern States Power Co., 4 F.3d 610, 611 (8th Cir.1993). The Fifth Circuit has held that “under Rule 10b-5, ‘a duty to speak the full truth arises when a defendant undertakes a duty to say anything.’ ” Rubinstein v. Collins, 20 F.3d 160, 170 (5th Cir.1994), citing First Virginia Bankshares v. Benson, 559 F.2d 1307, 1317 (5th Cir.1977), cert. denied, 435 U.S. 952, 98 S.Ct. 1580, 55 L.Ed.2d 802 (1978). It furthermore noted that defendants “have a duty under Rule 10b-5 to correct statements if those statements become materially misleading in light of subsequent events.” Id. at 170 n. 41, citing Backman v. Polaroid Corp., 910 F.2d 10, 17 (1st Cir.1990); In re Phillips Petroleum Sec. Litig., 881 F.2d 1236, 1245 (3d Cir.1989); Hanon v. Dataproducts Corp., 976 F.2d 497, 503-04 (9th Cir.1992); Rudolph v. Arthur Andersen & Co., 800 F.2d 1040, 1043 (11th Cir.1986), cert. denied, 480 U.S. 946, 107 S.Ct. 1604, 94 L.Ed.2d 790 (1987). Manipulation or Deception Section 10(b) does not use the term, “insider trading,” but because of the special relationship of trust and confidence between shareholders and corporate insiders, courts have concluded that “insider trading by a corporate insider based on material, nonpublic information, qualifies as a ‘deceptive device’ under § 10(b) and violates the insiders’s duty to disclose or abstain from trading and therefore constitutes a manipulative act.” In re Sec. Litig. BMC Software, Inc., 183 F.Supp.2d 860, 869 n. 18 (S.D.Tex.2001), citing O'Hagan, 521 U.S. at 652, 117 S.Ct. 2199; Dirks, 463 U.S. at 654, 103 S.Ct. 3255; Shaw, 82 F.3d at 1203. Moreover in a new rule, 17 C.F.R. § 240.10b5-l(a), effective August 24, 2000, the SEC made explicit, The “manipulative and deceptive devices” prohibited by Section 10(b) of the Act (15 U.S.C. § 78j) and § 240.20b-5 thereunder include, among other things, the purchase or sale of a security of any issuer, on the basis of material nonpublic information about that security, in breach of a duty of trust or confidence that is owed directly, indirectly, or derivatively, to the issuer of that security or the shareholders of that issuer, or to any other person who is the source of the material nonpublic information. Under the traditional or “classical” theory of insider trading, insider trading may constitute a violation of § 10(b) and Rule 10b-5 “when a corporate insider trades in the securities of his corporation on the basis of material nonpublic information.” United States v. O’Hagan, 521 U.S. at 651-52, 117 S.Ct. 2199, citing Chiarella, 445 U.S. at 228-29, 100 S.Ct. 1108. As noted, such trading constitutes a “deceptive device” under § 10(b) because of “a relationship of trust and confidence between the shareholders of a corporation and those insiders who have obtained confidential information by reason of their position in the corporation” that “gives rise to a duty to disclose [or to abstain from trading] because of the necessity of preventing a corporate insider from ... taking unfair advantage of ... uninformed stockholders.” Id. at 652, 117 S.Ct. 2199. The classical theory of insider trading applies not only to officers, directors, and other permanent insiders of a corporation, but also to attorneys, accountants, lawyers, and other consultants who become only temporary fiduciaries of a corporation by entering into a confidential relationship in the conducting of the corporation’s business and are given access to nonpublic corporate information solely for corporate purposes. Id. at 652, 117 S.Ct. 2199, citing Dirks v. SEC, 463 U.S. 646, 655 n. 14, 103 S.Ct. 3255, 77 L.Ed.2d 911 (1983). “Directors, officers and principal shareholders all qualify as corporate insiders under section 10(b), as long as they have ‘obtained confidential information by reason of their position with that corporation.’” In re Compaq Sec. Litig., 848 F.Supp. 1307, 1310 n. 7 (S.D.Tex.1993), citing In re Cady Roberts & Co., 40 S.E.C. 907, 1961 WL 60638 (1961). There has been a division among the Circuit Courts of Appeals regarding whether the language, “on the basis of material nonpublic information,” employed in O’Hagan, Chiarella, and Dirks, in insider trading cases brought under § 10(b) and Rule 10b-5, requires a plaintiff to demonstrate that the insider defendant actually used the nonpublic information that he obtained through his position in the corporation in deciding whether to trade the securities, or whether the plaintiff need only show that the insider defendant merely possessed the nonpublic information at the time he traded the securities. The Ninth Circuit in a classic-theory, insider-trading criminal action held that the government had to show that the defendant not only had “knowing possession” of material inside information, but also that the defendant used that information in deciding to buy or sell securities, i.e., a causal connection. United States v. Smith, 155 F.3d 1051, 1066-69 (9th Cir.1998), cert. denied, 525 U.S. 1071, 119 S.Ct. 804, 142 L.Ed.2d 664 (1999). Nevertheless the appellate court expressly did not decide whether that “use” standard would apply in a civil case. Id. at 1069 n. 27. The Eleventh Circuit, in a civil enforcement action, held that while “use” of material, nonpublic information was the ultimate issue, evidence of “knowing possession” of such information raises a “strong inference” that the defendant did use it in trading, sufficient to make a prima facie case of liability, which the defendant would then have to rebut. SEC v. Adler, 137 F.3d 1325, 1337-39 (11th Cir.1998). The Second Circuit had previously suggested that a plaintiff need only show that the insider defendant traded the securities while in “knowing possession” of material nonpublic information. United States v. Teicher 987 F.2d 112, 120-21 (2d Cir.1993), cert. denied, 510 U.S. 976, 114 S.Ct. 467, 126 L.Ed.2d 419 (1993). To resolve this conflict, the SEC recently adopted a new rule, Rule 10b5-l under the Exchange Act, effective October 23, 2000, 17 C.F.R. § 240.10b5-l(b), to address the question “what, if any, causal connection must be shown between the trader’s possession of inside information and his or her trading.” S.E.C. Release Nos. 7881, 43154, 33-7881, 34-43154, and IC-24599, 2000 WL 1201556, *21 (August 15, 2000). The rule largely adopts the Second Circuit’s “knowing possession” test in Teicher but, as in Adler, employs it to create a rebuttable presumption: a plaintiff makes a prima facie case that the defendant is liable for insider trading merely by showing that the defendant was “aware of the material nonpublic information” when he made the purchase or sale of the securities. 17 C.F.R. § 240.10b5-l(b)(emphasis added). The rule estáb-lishes several affirmative defenses available to a defendant to rebut the presumption by showing that, in good faith and not as a part of a scheme to evade liability, he did not use material nonpublic information in entering into his trading decision. Specifically, the defendant may provide evidence that before he became aware of the material nonpublic information, he had structured his securities trading plans and strategies in one of the following ways: (1) that the defendant had entered into a binding contract for the trade before he obtained the inside information; (2) that the defendant had instructed another person to execute the trade for him before the defendant obtained the inside information; or (3) the defendant had established a written plan for specific purchases or sales of the securities before he obtained the insider information. 17 C.F.R. § 240.10b5—1 (c)(1)(i)(A)(1 —3) and (ii); Release, 2000 WL 1201556, at *22-23. Moreover the contract, instruction or plan had to meet specific requirements that did not allow the defendant to exercise any subsequent control over or alteration of that contract, instruction or plan with respect to the purchases or sales of the securities: it (1) must have expressly specified the amount, price and date; (2) must have provided a written formula or algorithm or computer program for determining amounts, prices, and dates; or (3) did not permit the defendant to exercise any subsequent influence over how, when or whether to execute the purchases or sales, and that any other person who did exercise such influence was not aware of the material nonpublic information when he did so. 17 C.F.R. § 240.10b5-1(c)(1)(i)(B) & (C); SEC Release, 2000 WL 1201556, at *23. Accordingly, this Court defers to the SEC and adopts Rule 10b5-l’s “awareness” standard. Insider Trading as Source of Scienter under § 10(b) Alternatively, instead of constituting a primary violation of § 10(b) and Rule 10b-5, under different pleading requirements allegations of insider trading may assert circumstantial evidence of, and thus give rise to a strong inference of, bad faith and scienter for § 10(b) and Rule 10b-5 purposes. Specifically a complaint may allege facts demonstrating a corporate-insider defendant’s normal trading history before, and then dramatic change during, the class period, with trades at times calculated to provide the defendant with the maximum personal benefit, to show that the class period sales are “unusual” or “suspicious.” See, e.g., Rothman v. Gregor, 220 F.3d 81, 94-95 (2d Cir.2000); Florida State Bd. of Admin. v. Green Tree Financial Corp., 270 F.3d 645, 656 (9th Cir.2001)(“[I]n the insider trading case, trading at a particular time is circumstantial evidence that the insider knew the best time to trade because he or she had inside information not shared by the public. This in turn is circumstantial evidence that he or she kept information from the public in order to trade on the unfair advantage.”) See also Ronconi v. Larkin, 253 F.3d 423, 434-35 (9th Cir.2001)(“If insiders owning much of a company’s stock make rosy characterizations of company performance to the market while simultaneously selling off all their stock for no apparent reason, their sales may support inferences both that their rosy characterizations are false and that they knew it. We have considered insider trading as circumstantial evidence that a statement was false when made.”). Insider stock sales are suspicious “when they are ‘dramatically out of line with prior trading practices at times calculated to maximize the personal benefit from undisclosed inside information.’ ” No. 84 Employer-Teamster Joint Council Pension Trust Fund v. America West Holding Corp., No. 01-16725, 320 F.3d 920, 937 (9th Cir.2003), citing In re Apple Computer Sec. Litig., 886 F.2d 1109, 1117 (9th Cir.1989), cert. denied, 496 U.S. 943, 110 S.Ct. 3229, 110 L.Ed.2d 676 (1990). Whether there is an unusual or suspicious pattern of insider trading may be gauged by such factors as timing of the sales (how close to the class period’s high price), the amount and percentage of the seller’s holdings sold, the amount of profit the insider received, the number of other insiders selling, or a substantial change in the volume of insider sales. Rothman, 220 F.3d at 94; Nathenson v. Zonagen, Inc., 267 F.3d 400, 420-21 (5th Cir.2001); Florida State, 270 F.3d at 659; In re Advanta Sec. Litig., 180 F.3d 525, 540-41 (3d Cir.1999); Greebel v. FTP Software, Inc., 194 F.3d 185, 197-98 (1st Cir.1999); Helwig v. Vencor, Inc., 251 F.3d 540, 551-52 (6th Cir.2001)(en banc), cert. dismissed, 536 U.S. 935, 122 S.Ct. 2616, 153 L.Ed.2d 800 (2002). There is no per se rule for what constitutes illicit insider trading, and each case must be decided on its own facts. In re Scholastic Corp. Sec. Litig., 252 F.3d 63, 74 (2d Cir.2001), cert. denied, 534 U.S. 1071, 122 S.Ct. 678, 151 L.Ed.2d 590 (2001). See also Greebel, 194 F.3d at 198 (Cautioning that “mere pleading of insider trading, without regard to either context or the strength of the inferences to be drawn, is not enough”). Context is critical to the analysis. For example, sudden and substantial trading may not be suspicious where the seller was legally prohibited from trading during the period before the alleged insider trading. See, e.g., No. 84, 320 F.3d 920, 940, Ronconi, 253 F.3d at 436. Readily available, plausible explanations for a sale, such as that the insider is leaving the company or retiring in a few months might make a sale nonsuspicious. Greebel, 194 F.3d at 206 (“It is not unusual for individuals leaving a company ... to sell shares. Indeed they often have a limited period of time to exercise their company stock options.”). If an insider sells when the stock price is not at a high point or after, rather than before, he has delivered negative news about the corporation that causes the stock price to decline, the sale may not be suspicious. Id. at 206-07; see also Ronconi, 253 F.3d at 435 (when an insider dramatically “misses the boat,” e.g., sells the majority of his stock in October at prices between $52 7/8 and $56 1/4 per share and the share price rises to $73 the next March, the sale does not support an inference of scienter); In re The Vantive Corp. Sec. Litig., 283 F.3d 1079, 1093-94 (9th Cir.2002)(doubtful that defendant “was operating on ‘inside knowledge’ ” because “he sold the overwhelming majority of shares for between $20 and $24 per share, when the price of the stock continued to increase in the several months following these sales, and ultimately peaked at $39”). Similarly, an insider’s “sales do not support the ‘strong inference’ required by the statute where the rest of the equally knowledgeable insiders act in a way inconsistent with the inference that the favorable characterizations of the company’s affairs were known to be false when made.” Ronconi, 253 F.3d at 436. Moreover, a long class period may inflate the number of sales if the number of its months are not carefully considered. Vantive, 283 F.3d at 1094-95. If an insider is in a significant position “to know the ‘true’ facts” and sells only 13% of his shares over a fifteen-month period, “his trading percentage belies any intent to rid himself of a substantial portion of his holdings.” Id. at 1094. A newcomer to a corporation may have no relevant trading history. Id. at 1095. The Ninth Circuit has proclaimed, “When a complaint fails to provide us with a meaningful trading history for purposes of comparison, we have been reluctant to attribute significance to the defendant’s stock sales, even when the percentages of stock sold by an insider were far more suspicious” than a sale of 48% of holdings. Id.,citing Ronconi, 253 F.3d at 435-36 (refusing to conclude that an insider that sold 98% of her shares over the class period had engaged in suspicious trading because plaintiff provided no trading history). B. Section 11 Under the 1933 Act A plaintiff states a claim under Section 11 if he alleges that he purchased a security and that the registration statement contained a false or misleading statement regarding a material fact. Herman & MacLean v. Huddleston, 459 U.S. 375, 381-82, 103 S.Ct. 683, 74 L.Ed.2d 548 (1983)(“Section 11 of the 1933 Act allows purchasers of a registered security to sue certain enumerated parties [the issuer, its directors or partners, underwriters and accountants who are named as having prepared or certified the registration statement] in a registered offering when false or misleading information is included in a registration statement.”). Unlike under § 10(b), under § 11 the plaintiff generally does not have to establish scienter, causation (materiality) or reliance. Id. at 382, 103 S.Ct. 683; Shaw v. Digital Equipment Corp., 82 F.3d 1194, 1222 (1st Cir.1996); Alpern v. UtiliCorp United, Inc., 84 F.3d 1525, 1541 (8th Cir.1996). A statutory exception to the no-reliance-requirement rule is found in the last paragraph of § 11, 15 U.S.C. § 77k(a), which reads, If such person acquired the security after the issuer has made generally available to its security holders an earning statement covering a period of at least twelve months beginning after the effective date of the registration statement, then the right of recovery under this subsection shall be conditioned on proof that such person acquired the security relying upon such untrue statement in the registration statement or relying upon the registration statement and not knowing of such omission, but such reb-anee may be established without proof of the reading of the registration statement by such person. Under 17 C.F.R. § 230.158, the term “effective date” in this final paragraph is defined as follows: For purposes of the last paragraph of section 11(a) only, the “effective date of the last registration statement” is deemed to be the date of the latest to occur of (1) the effective date of the registration statement: (2) the effective date of the last post-effective amendment to the registration statement, next preceding a particular sale by the registrant of registered securities to the public filed for purposes of (i) including any prospectus required by section 10(a)(3) of the. Act, (ii) reflecting in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement, or (in) including any material information with respect to the plan or distribution not previously disclosed in this registration statement or any material change to such information in the registration statement, or (3) the date of filing of the last report of the registrant incorporated by reference into the prospectus, and relied upon in lieu of filing a post-effective amendment for purposes of paragraphs (c)(2)(i) and (ii) of this rule, next preceding a particular sale by the registrant of registered securities to the public. Among the statutory defenses available under Section 11 of the 1933 Act to any defendant, except an issuer, that signs a registration statement containing an allegedly materially false or misleading statement, are that (1) the person conducted a “reasonable investigation” under § ll(b)(3)(A)(the “due diligence” defense); and (2) the person “had no reasonable ground to believe and did not believe ... that the statements [made or certified by an expert] were untrue” and thus relied on the opinion of the expert under § 11(b)(3)(C). The defendant bears the burden of proof for his affirmative defense according to the express language of § ll(b)(“[N]o person, other than the issuer, shall be hable ... who shah sustain the burden of proof ....”). 15 U.S.C. § 77k(b)(l)(3). The standard for determining “reasonableness” in a “reasonable investigation” and “reasonable ground for belief’ in the two affirmative defenses is a negligence standard, i.e., “that required of a prudent man in the management of his own property.” 15 U.S.C. § 77k(c); In re Software Toolworks, Inc., 50 F.3d 615, 621 (9th Cir.1994)(citing Ernst & Ernst v. Hochfelder, 425 U.S. 185, 208, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976)), cert. denied sub nom. Montgomery Securities v. Dannenberg, 516 U.S. 907, 116 S.Ct. 274, 133 L.Ed.2d 195 (1995); In re Gap Stores Sec. Litig., 79 F.R.D. 283, 297-98 (N.D.Cal.1978). Adequate due diligence “is a question of degree, a matter of judgment in each case.” Escott v. BarChris Const. Corp., 283 F.Supp. 643, 697 (S.D.N.Y.1971); Feit v. Leasco Data Processing Equipment Corp., 332 F.Supp. 544, 577 (E.D.N.Y.1971)(defendants “must make an investigation reasonably calculated to reveal all of those facts which would be of interest to a reasonably prudent man.”). The SEC has identified the following as “[c]ireumstances affecting the determination of what constitutes reasonable investigation for the due diligence affirmative defense under section 11 of the Securities Act”: (a) The type of issuer; (b) The type of security; (c) The type of person; (d) The office held when the person is an officer; (e) The presence or absence of another relationship to the issuer when the person is a director or proposed director; (f) Reasonable reliance on officers, employees, and others whose duties should have given them knowledge of the particular facts (in light of the functions and responsibilities of the particular person with respect to the issuer and the filing); (g) When the person is an underwriter, the type of underwriting arrangement, the role of the particular person as an underwriter and the availability of information with respect to the registrant; and (h) Whether, with respect to a fact or document incorporated by reference, the particular person had any responsibility for the fact or document at the time of the filing from which it was incorporated. 17 C.F.R. § 230.176. Although the reasonableness of a defendant’s investigation or reasonable ground for his belief in and reliance on an expertised financial statement or expert report is usually a question for the jury, it may become a question of law on summary judgment where “only one conclusion about the conduct’s reasonableness is possible,” in other words, where “undisputed facts leave no room for a reasonable difference of opinion” and “no rational jury could conclude that the defendant had not acted reasonably.” In re Software, 50 F.3d at 621-22, citing TSC Indus. v. Northway, Inc., 426 U.S. 438, 450 & n. 12, 96 S.Ct. 2126, 48 L.Ed.2d 757 (1976). Nevertheless, reasonableness in this context is “not a question properly resolved on a motion to dismiss.” Griffin v. Paine-Webber Inc., 84 F.Supp.2d 508, 513 (S.D.N.Y.2000). See also Lone Star Ladies Inv. Club v. Schlotzsky’s Inc., 238 F.3d 363, 369 (5th Cir.2001)(Due diligence in response to a § 11 claim “is an affirmative defense that must be pleaded and proved.”); In re Cendant Litig., 60 F.Supp.2d 354, 365 (D.N.J.1999)(inappropriate to dismiss claims based on affirmative defense before summary judgment stage because contents of documentary evidence cannot be considered for truth of content beforehand); In re International Rectifier Sec. Litig., No. CV91-3357-RMT(BQRX), 1997 WL 529600, *7 (C.D.Cal. Mar.31, 1997)(“To the extent that the underlying facts are undisputed, the adequacy of the diligence may be appropriately decided on summary judgment.”). C. Controlling Person Liability Under the 1933 and 1934 Acts The language establishing the statutory defense to controlling person liability under § 15 of the 1933 Act, 15 U.S.C. § 77o (2002), differs from that describing the defense to controlling person liability under § 20(a) of the 1934 Act, 15 U.S.C. § 78t(a)(2002). Specifically § 15 provides that controlling persons are liable if they fail to prevent a violation of § 11 or § 12 of the 1933 Act unless “the controlling person had no knowledge of or reasonable ground to believe in the existence of the facts by reason of which the liability of the controlled person is alleged to exist,” while a defendant to a § 20(a) claim must show that he “acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action.” Because the Fifth Circuit views § 15 and § 20(a) as analogues, however, it gives them the same interpretation. Pharo v. Smith, 621 F.2d 656, 673 (5th Cir.1980); G.A. Thompson & Co. v. Partridge, 636 F.2d 945, 958 & n. 22 (1981). Furthermore, under Fifth Circuit precedent, while lack of participation and good faith constitute an affirmative defense to one charged with controlling person liability under either federal Act, the plaintiff has the burden of establishing control, while the defendant must prove good faith. Partridge, 636 F.2d at 958 & n. 23. Thus for a prima facie case of controlling person liability, a plaintiff is not required to plead facts showing that the defendant acted in bad faith. A number of courts have held that a corporation’s Audit Committee members, who are authorized to sign and do sign the corporation’s financial documents and registration statements, are controlling persons for liability under § 20(a) in the 1934 Act. In re Lernout, 286 B.R. at 39-40, citing and quoting In re Livent, Inc. Noteholders Sec. Litig., 151 F.Supp.2d 371, 437 (S.D.N.Y.2001)(“An outside director and audit committee member who is in a position to approve a corporation’s financial statements can be presumed to have ‘the power to direct or cause the direction of the management and policies of the corporation, at least insofar as the ‘management and policies’ referred to relate to ensuring a measure of accuracy in the contents of the company reports and SEC registrations that they actually sign.”); In re Reliance, 135 F.Supp.2d at 518 (finding a “genuine issue of material fact” when an outside director “served on subcommittees relating to the oversight of [the corporation’s] accounting and reporting practices”); Jacobs v. Coopers & Lybrand, LLP, 1999 WL 101772, *18 (S.D.N.Y. Mar.1, 1999)(“[T]hough his status as a director who allegedly served on the audit committee alone would not raise the inference that Hirsch was a § 20(a) controlling person, the allegations that he signed a fraudulent 10-K form does raise this inference .... ”). D. Section 20A of the 1934 Act As an alternative to constituting a primary violation of § 10(b) as a “deceptive device” in connection with the sale or purchase of securities or a basis for raising a strong inference of scienter for a § 10(b) claim, insider trading can also constitute a derivative violation under § 20A of the 1934 Act. The Insider Trading and Securities Fraud Enforcement Act of 1988, Pub.L. No. 100-704, 102 Stat. 4677 (1988), added § 20A to the Exchange Act, as amended, 15 U.S.C. § 78t-1. Section 78t-1(a) provides in relevant part: Any person who violates any provision of this chapter or the rules and regulations thereunder by purchasing or selling a security while in possession of material, nonpublic information shall be liable ... to any person who, contemporaneously with the purchase or sale of securities that is the subject of such violation, has purchased ... or sold ... securities of the same class. Section 20A, unlike § 10(b), targets only insider trading and provides an express private cause of action against “[a]ny person who violates any provision of this chapter or the rules or regulations thereunder by purchasing or selling a security while in possession of material nonpublic information .... ” To plead a § 20A cause of action, the plaintiff must (1) allege a requisite independent, predicate violation of the Exchange Act (or its rules and regulations), e.g., § 10(b), and (2) show that he has standing to sue under § 20A because he “contemporaneously with the purchase or sale of securities that is the subject of such violation has purchased ... or sold ... securities of the same class” as the insider defendant. 15 U.S.C. § 78t-1(a). Arising “from a recognition that ‘[s]ince identifying the party in actual privity with the insider is virtually impossible in trades occurring on an anonymous public market, the contemporaneous standard was developed as a more feasible avenue by which to sue insiders.’ ” In re MicroStrategy, Inc., 115 F.Supp.2d 620, 662 (E.D.Va.2000)(“Thus, by requiring a showing of contemporaneity in the trades by the insider and the suing investor, Section 20A seeks to ensure that, where contractual privity would otherwise be impractical if not impossible to show, there nonetheless was a sufficiently close temporal relationship between the trades that the investor’s interests were implicated by trades made by the insider while in possession of material, nonpublic information.”). Nevertheless, § 20A does not define the word, “contemporaneous,” and there is no clear agreement about how long a period between the trade by the defendant and the purchase by the plaintiff is permissible. Different courts have found that “contemporaneity” requires the insider and the investor/plaintiff to have traded anywhere from on the same day, to less than a week, to within a month, to “the entire period while relevant and nonpublic information remained undisclosed.” In re MicroStrategy, 115 F.Supp.2d at 662-63 & nn. 83-85, citing cases (1) requiring trading on the same day: Copland v. Grumet, 88 F.Supp.2d 326, 338 (D.N.J.1999); In re AST Research Sec. Litig., 887 F.Supp. 231, 234 (C.D.Cal.1995); In re Aldus, No, C92-885C, 1993 WL 121478, at *7 (W.D.Wash. Mar.1, 1993); and In re Stra tus Computer, Inc. Sec. Litig., No. Civ. A 89-2075-7, 1992 WL 73555, at *5 (D.Mass. Mar.27, 1992); (2) requiring trading within a few days of each other: In re Oxford Health Plans, Inc., Sec. Litig., 187 F.R.D. 133, 138 (S.D.N.Y.1999)(five-day gap); In re Cypress Semiconductor Litig., 836 F.Supp. 711 (N.D.Cal.1993)(same); and In re Engineering Animation Sec. Litig., 110 F.Supp.2d 1183 (S.D.Iowa 2000)(three-day gap); and (3) allowing trading during the entire period of nondisclosure of material nonpublic information: In re Am. Bus. Computers Corp. Sec. Litig., [1995 Transfer Binder] Fed. Sec. L. Rep. (CCH) ¶ 98,-839, at 93,055 (S.D.N.Y. Dec. 9, 1995). In In re Musicmaker.com Sec. Litig., No. CV00-2018 CAS (MANX), 2001 WL 34062431, at *27 (C.D.Cal. June 4, 2001), the district court pointed out that cases cited in the Report of the House of Representatives (H.R.Rep. No. 910, 100th Cong., 2d Sess. 27 (1988), reprinted in 1998 U.S.C.C.A.N. 6043, 6064) regarding § 20A suggest that an appropriate time period might be less than a week: Wilson v. Comtech Telecommunications Corp., 648 F.2d 88, 94-95 (2d Cir.1981)(trades one month apart were not contemporaneous); Shapiro v. Merrill Lynch, Pierce Fenner & Smith, Inc., 495 F.2d 228, 241 (2d Cir.1974)(trades less than a week apart were contemporaneous); and O’Connor & Associates v. Dean Witter Reynolds, Inc., 559 F.Supp. 800, 803 (S.D.N.Y.1983)(same). Furthermore, given the realities of modern securities markets, some courts have recognized a growing trend among federal district courts to read “contemporaneous” narrowly, at least regarding securities traded in large amounts on the biggest national exchanges. In re MicroStrategy, 115 F.Supp.2d at 662 & n. 87 (“as the securities markets become more effective at tracking insider sales and thereby assimilating and dissipating the unfair advantage possessed by insiders, the less likely it becomes that a temporally remote purchaser would have been harmed by the insider sales”)(and cases cited therein); In re AST Research Sec. Litig., 887 F.Supp. 231, 233 (C.D.Cal.1995). Moreover, a restrictive reading of the term serves the “privity-substitute function” of the provision while simultaneously “guard[ing] against ‘mak[ing] the insider liable to the world.’ ” In re MicroStrategy, 115 F.Supp.2d at 663. Persuaded by such reasoning, this Court finds that two or three days, certainly less than a week, constitute a reasonable period to measure the contemporaneity of a defendant's and a plaintiffs trades under § 20A. Moreover, the plaintiffs trades must have taken place after the challenged insider trading transaction. Alfus v. Pyramid Technology Corp., 745 F.Supp. 1511, 1522 (N.D.Cal.1990)(and cases cited therein). Section 20A does not bar a plaintiff from simultaneously suing under any pre-exist-ing implied cause of action under other provisions of the securities laws (such as § 10(b)). 15 U.S.C. § 78t-1(d)(“Nothing in this section shall be construed to limit or condition the right of any person to bring an action to enforce a requirement of this chapter or the availability of any cause of action implied from a provision of this chapter [the 1934 Act].”). Indeed, the remedies established by the federal securities laws are intended to be cumulative. Herman & MacLean v. Huddleston, 459 U.S. 375, 386-87, 103 S.Ct. 683, 74 L.Ed.2d 548 (1983). Nevertheless, in O’Hagan, where a party was liable for insider trading as a primary violation under § 10(b), the Supreme Court found there was no reason to address liability under § 20A. O’Hagan, 521 U.S. at 666 n. 11, 117 S.Ct. 2199. Aside from the requirements of a predicate violation of § 10(b) and of contemporaneity, up until recently statute-of-limitations differences between § 10(b) and § 20A may have affected a plaintiffs decision whether to assert a cause of action for insider trading under § 10(b) or under § 20A. Because the implied right of action under § 10(b) was judicially created and lacked a statute of limitations, the Supreme Court for purposes of uniformity applied the one-year-after-discovery /no-later-than-three-years-after-violation limitations and repose period derived from other, express causes of action under the 1934 Act. See Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 359-60, 111 S.Ct. 2773, 115 L.Ed.2d 321 (1991). In contrast, Congress, concerned with the obstacles to discovering evidence of insider trading, enacted § 20A as an express private right of action and as one of “a variety of measures designed to provide greater deterrence, detection and punishment of violations of insider trading,” and provided it with a longer, five-year statute of limitations. 15 U.S.C. § 78t—1(b)(4) (“No action may be brought under this section more than 5 years after the date of the last transaction that is the subject of the violation.”) than § 10(b); Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 361, 111 S.Ct. 2773, 115 L.Ed.2d 321 (1991)(“20A is ‘one of a variety of measures designed to provide greater deterrence, detection and punishment of violations of insider trading’ ”), citing H.R.Rep. No. 100-910 at p. 7 (1988); Ceres Partners v. GEL Assocs., 918 F.2d 349, 363 (2d Cir.1990). Other factors may also influence a plaintiff in deciding which of the two statutes to use. Under section 20A(a), damages are limited to “the profit gained or loss avoided in the transaction or transactions that are the subject of the violation.” Moreover, any recovery must be offset by any sum the violator is required to disgorge in a parallel action brought by the SEC. 15 U.S.C. § 78t-1(b)(2). E. The Texas Securities Act (“TSA”) Many Defendants in this litigation have objected to the fact that Plaintiff failed to specify under which provision(s) of the TSA its claims were brought. In this Court’s first memorandum and order (# 1194), the Court quoted what it determined were the potentially applicable sections of Article 581-33 of the Texas Securities Act, Tex.Rev.Civ. Stat. (Vernon’s Supp.2002), and discussed some of the legal requirements under them to determine whether Lead Plaintiff had stated a claim against some of the underwriters and Arthur Andersen or demonstrated that it potentially could state one, and should be permitted to amend to do so, under the TSA. The Court found that it had stated a claim for seller liability under article 581-33A(2), but deferred ruling on controlling person liability until it reviewed the individual defendants’ motions to dismiss. While reviewing the challenges raised by the Outside Directors, it has become apparent to this Court during its research into the legislative history and modifications to the statute and limited Texas and federal case law addressing the relationship among the various provisions, that this Comb must (1) refine its conclusions of law regarding the statute and (2) order Lead Plaintiff to clarify which section(s) of the statute it sues each defendant under and to amend/supplement its complaint to meet the pleading requirements for each section applicable to that defendant. A restricted version of what is now article 581-33, addressing only seller liability, was first added to the TSA in 1941; subsequently it was amended in 1955, 1963, and 1977. Hal M. Bateman, Securities Litigation: The 1977 Modernization of Section 33 of the Texas Securities Act, 15 Houston L.Rev. 839, 840-63 (1978). of special import are the 1977 amendments, which gave rise to the current law. The structure of the revised statute, while reaching more parties than merely sellers, simultaneously indicates that a more particularized analysis and pleading are required than the Court has previously discussed to state a claim under one or more of its provisions. The Court in its first memorandum and order (# 1194) discussed the broad definition of “seller” in the TSA established by the Texas Supreme Court in Brown v. Cole, 155 Tex. 624, 629, 291 S.W.2d 704, 708 (1956), i.e., “the seller may be any link in the chain of the selling process. He is the one who performs ‘any act by which a sale is made.’ ” That definition has been cited and applied in a number of cases since. See, e.g., Rio Grande Oil Co. v. State, 539 S.W.2d 917, 922 (Tex.Civ.App.—Houston [1st Dist.] 1976, writ ref d n.r.e.); Texas Capital Securities, Inc. v. Sandefer, 58 S.W.3d 760, 775-76 (Tex.App.—Houston [1st Dist.] 2001, pet. denied)(stock broker a link in the chain of the selling process under current version of art. 581-33A(2)). In Brown v. Cole, the high court affirming that the defendant in the underlying suit, Brown, who was not only not the primary wrongdoer, but was also unaware of the wrongdoing by the primary violators and had himself been scammed by those same individuals, to be liable as a seller under the TSA. It found “seller” liability because Brown had been “involved” (i.e., had discussed the proposal, written for information, called the sellers, suggested and paid for a trip to Mexico related to the sale of securities, and instructed on the manner of payment, and “but for Brown’s activities and repeated efforts the respondents would not have participated in the transaction”) in the negotiations leading up to the purchase by two others. Id., 291 S.W.2d at 709; Bateman, Securities Litigation: The 1977 Modernization of Section 33 of the Texas Securities Act, 15 Houston L.Rev. at 852. The 1956 decision in Brown v. Cole addresses the statutory language of the predecessor to article 581-33, before both the 1963 and, more importantly, the critical 1977 amendments. In response to the expansive potential for liability of defendants under the 1956 Brown v. Cole holding, “the 1977 Texas legislature substantially revised and modernized section 33 ...” (1) to limit plaintiffs under 33A(2) to those who bought securities from the defendant they are suing (a privity requirement); (2) to add affirmative defenses under subdivision 33A(2) for a defendant/buyer, who may show (a) that the plaintiff actually knew of the alleged untruth or misrepresentation made by the sellers or (b) that the buyer used reasonable care and due diligence and did not know of the untruth or omission; and (3) to add subdivision F(l) and (2), broadening the statute’s reach beyond sellers by imposing liability for control persons and aiders and abettors, balanced by limiting in part a defendant’s vulnerability through new proof requirements or affirmative defenses, discussed subsequently in this memorandum and order. Bateman, Securities Litigation: The 1977 Modernization of Section SS of the Texas Securities Act, 15 Houston L.Rev. at 847, 852. These subsequent revisions made Brown v. Cole’s broad definition of seller (“any link in the chain of the selling process”) no longer necessary or appropriate. Frank v. Bear, 11 S.W.3d 380, 383 (Tex. App.-Houston [14th Dist.] 2000, review denied). To impose seller liability under the article 581-33(A)(2), a plaintiff must be in privity with the defendant, i.e., the plaintiff must have bought his securities from the defendant whom the plaintiff is suing. Frank, 11 S.W.3d at 383. The court in Frank noted, “The comments to the 1977 revisions to the [TSA] contain the notation that the section in question ‘is a privity provision, allowing a buyer to recover from his offeror or seller ... ’ ” and that “ ‘some nonprivity defendants may be reached’ under other sections of the Act not applicable here.” Id.; see also Comment—1977 Amendment to Tex. Civ.Rev.Stat. Ann. art. 581-33 A(2) at 82 (Vernon’s Supp.2003)(applying to subdivision A(2) the comment regarding A(1), i.e., “... [S]ome nonprivity defendants may be reached under § .... 33F.”). Nevertheless, this Court notes that while the statute requires some kind of undefined privity relationship between the defendant and the purchaser in the process of offering to sell or in the sale of securities, the statutory definitions of “sale,” “sell,” and “offer for sale,” Tex. Rev.Civ. Stat. Ann. art 581-4(E), still remain broad. See, e.g., Lutheran Broth. v. Kidder Peabody & Co., Inc., 829 S.W.2d 300, 306-07 (Tex.App.—Texarkana 1992)(placement agent who acted as seller’s agent in making misrepresentations in a private placement memorandum and in the placement and offering of bonds, and who dealt directly with plaintiffs in doing so, was a “seller” within the meaning of the TSA; “one who ‘offers or sells’ a security is not limited to those who pass title” and “sell” is defined by the statute “as any act by which a sale is made, including a solicitation to sell, an offer to sell, or an attempt to sell”), judgment set aside and case remanded for entry of judgment in accordance with settlement, 840 S.W.2d 384 (Tex.1992); Texas Capital Securities, Inc. v. Sandefer, 58 S.W.3d 760, 775 (Tex.App.—Houston [1st Dist.] 2001, review denied)(brokerage firm liable for stock broker’s untruth or omission to stock purchasers; TSA “applies to persons in corporations who offer or sell unregistered securities”). Furthermore, although the statute uses the language “attempt to sell” and “offer to sell” in its definition section, it is clear that article 581-33A(2) contemplates that the sale must have been effected because the buyer “may sue either at law or in equity for rescission, or for damages.” The Fifth Circuit, in Huddleston v. Herman & MacLean, 640 F.2d 534, 551 (5th Cir.1981), aff'd in part and reversed in part on other grounds, 459 U.S. 375, 103 S.Ct. 683, 74 L.Ed.2d 548 (1983), interpreted the statute and Texas case law regarding it as follows: The Texas courts have interpreted the term “seller” in the TSA to include those who are not direct vendors and thus not in strict privity with the claimant. See Bordwine, Civil Liability Under the Texas Securities Act § 33 (1977) and Related Claims, 32 Sw. L.J. 867, 881 (1978)(pre-1977 decisions gave “seller” an astoundingly broad meaning.). However, in Stone v. Enstam, 541 S.W.2d 473 (Tex.Civ.App.1976), the Texas Court distinguished Brown v. Cole as a case involving an active negotiator whose efforts resulted in the sale and limited the term “seller” to the actual seller and one who acts as an agent for either the buyer or seller in carrying out the sale itself. 541 S.W.2d at 480. This decision limits the TSA to those who are actively engaged in the sale process and prevents it from reaching those who merely participate in preparing an offering. See Bromberg . . . at 885-90 . . . . 640 F.2d at 551. The Fifth Circuit continued, We find further support for this construction of the Texas cases in the TSA’s legislative history and analogy to the federal provisions on which the Texas statute was based. The comments to both the 1963 and 1977 amended versions of Section 33 of the TSA refer to Section 12 of the 1933 Act, 15 U.S.C. § 77l, which served as the basis for the drafting of the Uniform Securities Act, the model used in the 1963 and 1967 Texas enactments.... We have held that under Section 12 of the 1933 Act the term “seller” is limited “(i) to those in privity with the purchaser and (ii) to those whose participation in the buy-sell transaction is a substantial factor in causing the transaction to take place. Mere participation in the events leading up to the transaction is not enough.” Pharo v. Smith, 621 F.2d 656, 667 (5th Cir.1980). See Lewis v. Walston & Co., 487 F.2d 617, 621 (5th Cir.1973). We have refused to extend Section 12 to include aiders, abettors and controlling persons as sellers. Croy v. Campbell, 624 F.2d 709, 713 n. 5 (5th Cir.1980). . . . [some citations omitted] Id. at 551 n. 27. In 1988 the Supreme Court issued a significant ruling about who could be sued as a statutory “seller” under § 12(l)(“[a]ny person who ... offers or sells a security” in violation of the 1933 Act’s registration requirement “shall be hable to the person purchasing such security from him”) and clearly rejected the Fifth Circuit’s overly broad “substantial-factor” test for “seller” liability. Pinter v. Dahl, 486 U.S. 622, 653-54, 648-54, 108 S.Ct. 2063, 100 L.Ed.2d 658 (1988). The First Circuit, in Shaw v. Digital Equip. Corp., 82 F.3d 1194, 1214 (1st Cir.1996), relying on cases from the Seventh, Third, Ninth and Second Circuits, applied the rule in Pinter to § 12(2) because the two provisions share nearly identical language. The Fifth Circuit in turn relied on the analysis in Pinter and Shaw in determining whether an issuer in a firm commitment offering can be a “seller” within the meaning of § 12(2). Lone Star Ladies Inv. Club, 238 F.3d at 369-70. In Pinter, the Supreme Court held that even though the statutory language of § 12(1) suggests a “buyer-seller relationship not unlike traditional contractual privity,” one need not have been the person who actually “transfers title to, or any other interest in, that property” to the purchaser to be liable as a “seller” under § 12. 486 U.S. at 642-43, 108 S.Ct. 2063. The high court examined the definition of “sale” and “sell”, which includes “ ‘every contract of sale or disposition of a security or interest in a security for value,’ ” and of the language “ ‘offer to sell,’ ” “ ‘offer for sale’ ” or “ ‘offer,’ ” which encompasses “every attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security, for value,’ ” in § 2(3), 15 U.S.C. § 77b(3). 486 U.S. at 643, 108 S.Ct. 2063. These words bring not only the person who passes title, but also the person who engages in solicitation within the “offer” or “sale” transactions that are covered by the statute, which is “ ‘expansive enough to encompass the entire selling process, including the seller/agent transaction.’ ” Id. With respect to the second clause of § 12(1), “purchasing such security from him,” the Supreme Court concluded that the purchase requirement limits liability to situations where a sale has taken place. Id. at 644, 108 S.Ct. 2063. The high court stated that § 12(1) “imposes liability on only the buyer’s immediate seller; remote purchasers are precluded from bringing actions against remote sellers. Thus a buyer cannot recover against his seller’s seller.” Id. at 644, 108 S.Ct. 2063 n. 21. As examples of persons other than securities’ owners who might be liable as sellers under § 12, Pinter pointed to brokers or agents of vendors that solicited the purchase. Id. The Supreme Court noted that “solicitation is the stage at which an investor is most likely to be injured, that is, by being persuaded to purchase securities without full and fair information” and therefore imposition of liability on successful solicitors that do not own the securities serves the policy of adequate disclosure underlying the statute. Id. at 647, 108 S.Ct. 2063. The Supreme Court did place a restriction on such solicitor liability: “The language and purpose of § 12(1) suggest that liability extends only to the person who successfully solicits the purchase, motivated at least in part to serve his own financial interests or those of the securities owner.” Id. Under such circumstances, “it is fair to say that the buyer ‘purchased’ the security from him and to align him with the owner in a rescission action.” Id. Applying the Pinter holding to § 12(2), the First Circuit held in Shaw that because “the issuer in a firm commitment underwriting does not pass title to the securities, [the issuer and its officers] cannot be held liable as ‘sellers’ under Section 12(2) unless they actively ‘solicited’ the plaintiffs’ purchase of securities to further their own financial motives.” Shaw, 82 F.3d at 1214-15, citing Ackerman v. Schwartz, 947 F.2d 841, 844-45 (7th Cir.1991); In re Craftmatic Sec. Litig., 890 F.2d 628, 635 (3d Cir.1989); Moore v. Kayport Package Express, Inc., 885 F.2d 531, 536 (9t