Full opinion text
JERRY E. SMITH, Circuit Judge: This is a civil case involving securities fraud, racketeering, and pendent state law claims. The plaintiffs, a class of investors who own bonds issued by the Westside Rehabilitation Center (“Westside”), allege that Joe Fryar, Westside’s developer, and Wright, Lindsey & Jennings (“WLJ”), a Little Rock, Arkansas, law firm representing the bond issue’s underwriters, fraudulently caused Westside to default on its bond interest payments, ultimately causing the bondholders to lose millions of dollars. After a two-month trial, the jury returned a multi-million-dollar verdict in favor of the plaintiffs and against Fryar, WU, and their two co-defendants, All American Services, Inc. (“All American”), and Valley Forge Insurance Company (“Valley Forge”). The district court, which rejected all of the defendants’ motions for judgment notwithstanding the verdict, entered judgment upon this verdict and awarded plaintiffs damages totaling approximately $15 million. All of the defendants appealed from this judgment, but we dismissed All American’s appeal for failure to prosecute. We now reverse and render the judgment against WLJ and Valley Forge, and affirm in part the judgment of liability against Fryar, and remand for redetermination of damages, interest, and attorneys’ fees. I. Facts as to the Merits. Westside, a non-profit corporation based in Cheneyville, Louisiana, was masterminded by its developer, Joe Fryar. Fryar originally conceived of Westside as a home for the mentally retarded, but he eventually changed Westside’s targeted clientele to severely mentally and emotionally-disturbed patients. Fryar then prepared to translate his ideas into reality. First, Fryar purchased 6.47 acres of land and a thirty-year-old vacant school building in Cheneyville (the “Cheneyville property”) from the Rapides Parish School Board on January 3,1978, for the sum of $100,000, its appraised value. Fryar then incorporated Westside in 1979. At its inception, West-side had no capital assets; rather, its sole source of revenue and assets initially was to be the sale of bonds. Thereafter, Westside would rely on revenues paid by the State of Louisiana Medicaid program, which revenues would be used to retire the bonds. Fryar hired his attorney, William Skye, to prepare the incorporation papers. Although a five-member board of directors was appointed, the board never collectively made any decisions on behalf of Westside. Rather, Fryar continued to control West-side and make all its decisions, including the purchase price for the Cheneyville property and the fees to be paid Fryar. Throughout the period relevant to this appeal, Fryar continued to run Westside. Fryar’s initial problems involved obtaining a certificate of need for Westside and the capital funds necessary to launch the project. Ultimately, Westside succeeded in obtaining its certificate of need, despite some opposition from officials in the Louisiana Department of Health and Human Resources. Fryar, however, found it considerably more difficult to procure capital funding for Westside. Fryar knew that building the Westside facility and starting up its operations would cost millions of dollars. To raise the needed capital, he decided to market bonds. Initially, Fryar hired the nationally-known financial feasibility firm of Booz, Allen & Hamilton, Inc. (“Booz, Allen”), to evaluate the Westside project. Booz, Allen dealt the Westside project its first blow. In a report dated July 23, 1979, the firm concluded that Westside was not financially feasible. Booz, Allen found several areas of concern, including (1) the possibility that the state medicaid program would impose ceilings on medicaid reimbursements; (2) the difficulties Westside would encounter in retiring its debt, since it depended entirely upon medicaid reimbursements and lacked adequate sources of working capital; and (3) the inherent faults of the Westside concept in a state whose prevailing policies required placing West-side’s potential patients in group homes. The study caused Fryar to change his targeted clientele to emotionally-disturbed and mentally-retarded patients, but even this change did not alter Booz, Allen’s decision. After Fryar threatened Booz, Allen with suit because of its adverse conclusions, Booz, Allen agreed to sign a letter drafted by WLJ’s predecessor as bond counsel, the Boston law firm of Mintz, Lev-in, Cohn, Ferris, Glovsky & Popeo (“Mintz, Levin”). That epistle noted only the change in clientele and stated that Booz, Allen’s conclusions may not necessarily still be applicable. The letter from Booz, Allen did not solve Fryar’s problems, because he still did not have a favorable feasibility study. Undeterred, Fryar retained Real Estate Research Corporation (“RERC”), experienced primarily in appraising real estate, to conduct a feasibility study. RERC ultimately delivered a favorable report. Meanwhile, Fryar encountered other difficulties in effecting a bond issue to fund Westside. He initially asked the Louisiana State Bond Commission for permission to finance the project through the Louisiana Public Facilities Authority; citing a variety of concerns, the Commission declined to approve financing for Westside bonds. Shortly thereafter, Westside’s bond counsel, the New York law firm of Mudge, Rose, Guthrie & Alexander, resigned. Some time later, Westside retained John W. Peck of Peck, Shaffer & Williams as the new bond counsel. Ultimately, Fryar convinced the Town of Cheneyville to back a $12,850,000 municipal bond issue. Later, and somewhat mysteriously, the bond authorization was increased to $13,550,000. Having described Fryar’s long and successful struggle to obtain backing for the bond issue, we turn to how Fryar arranged Westside’s finances. Fryar had determined that he needed to receive over $5,000,000 to renovate, construct, and operate the Westside facility for an estimated seven months until it became self-sufficient. Westside’s final offering statement for the bonds indicates that Westside also planned to expend over $3,200,000 in interest payments on the bonds, over $2,100,000 for debt service, more than $1,000,000 as an underwriter’s discount, and $2,459,700 for “acquisition of center.” The offering statement does not reveal in explicit detail how Westside actually acquired its facilities, and the failure of the offering statement to explain that transaction more thoroughly is at the heart of this multi-million-dollar litigation. Fryar planned to issue the revenue bonds in the following denominations and maturities: No. of Bonds Face Total Amount Amount Due Date Interest Rate $5,000 8,950,000 Oct. 1, 2013 16.50% o 5,000 400,000 Oct. 1, 2002 16.25% o 5,000 200,000 Oct. 1, 1998 16.00% o 5,000 4,000,000 Oct. 1, 2013 14.00% QO o 2,710 $13,550,000 Until late 1981, Fryar owned the property eventually used to establish Westside. In 1981, he either contacted or helped create All American, a Bermuda corporation. Frequently using the mails and the wires to communicate messages and transmit documents, Fryar and All American eventually devised a complicated transaction to dispose of Fryar’s interest in the land. Fryar, who had bought the land in 1978 for $100,000, agreed to sell this land to All American for $150,000. All American then sold the land to Westside for $2,479,000— $2,000,000 in Westside bonds and the remainder in cash. All American, retaining its ownership interest in the bonds, allowed Fryar to pledge those bonds to secure Fryar’s performance of his duties as the developer of the project. This transaction accomplished several things for Fryar and All American. First, it allowed Fryar to make a 50-percent upfront profit from owning the land for only three years. Second, it produced a profit for All American of over $2,300,000 — a profit which by itself was over 15 times what All American had originally paid. Third, it allowed All American to enjoy the benefits of owning $2,000,000 worth of tax-exempt municipal bonds, including the interest payments periodically due on those bonds. Finally, it allowed Fryar to claim that he had pledged over $2,000,000 of bonds to the completion of the Westside project and thus to imply that he had over $2,000,000 of his own money at risk in the project. At this point, Fryar began to rely upon the professionals preparing the Westside bonds for market. Those professionals included Joseph Hancock and his underwriting firm, Hancock, Joseph & Daniels; Skye, Westside’s attorney; Peck, whose firm of Peck, Shaffer & Williams continued to serve as bond counsel; Robert Sheddy of Swink & Co., the other underwriter for the bond issue; and Mintz, Levin, then counsel for the two underwriters. Just before Westside’s scheduled closing and issuance of the bonds, Mintz, Levin resigned as underwriter’s counsel, purportedly because the associate working on the Westside bond offering left Mintz, Levin to join another law firm. When that associate departed in February 1982, there were only a few weeks left until Westside was scheduled to close its bond deal with the underwriters. Under these circumstances, the underwriters immediately hired WLJ as their counsel. WU at once launched into preparing the bond offering to satisfy the securities laws of two dozen or more states. At the same time, WU assumed strict “due diligence” duties. WU was responsible (to its clients, at least) for carefully reviewing the final offering statement and for interviewing all the key participants to the bond transaction and those people necessary to the success of the Westside project. According to the expert testimony of James Perkins, an experienced securities lawyer from Boston, WU failed seriously in its due diligence duties to investigate the bond transaction, and thus failed to uncover the details of the Cheneyville land transaction and some of the details of Westside’s history. The offering statement, which the underwriters (WU’s new clients) prepared, contained many of the relevant facts bearing on the Westside project. However, the offering statement did not reveal everything we now know. For instance, the final offering statement did not contain any information about the Booz, Allen report. Moreover, the final offering statement reported that All American had sold the Che-neyville land to Westside for $2,479,000, but it did not add that Fryar had once owned the land, nor did it report any of the details of the transaction between Fryar and All American. Finally, the offering statement reported flatly that Fryar had pledged $2,000,000 of Westside bonds to the success of the project, leaving the distinct impression, even in Menz’s mind, that Fryar had purchased the bonds himself and with his own money. On April 20, 1982, the underwriters and Westside closed the bond deal. The underwriters subscribed to the entire issue of bonds and undertook the task of selling it. The underwriters sold the bonds at approximately par value (except for the 14% bonds, which were sold at a discount). The underwriters found no difficulty in selling West-side bonds, and the entire issue was marketed quickly. Two of the new investors in Westside bonds were plaintiffs Carey Walton and Edward Abell, both of whom testified that they bought their bonds from Dick Hard-wick, a broker for Swink. Walton said he relied upon the integrity and competence of the broker, with whom he had dealt before, and upon a flyer Swink had circulated without WU’s advice, knowledge, or control. Abell testified that he relied upon Walton’s glowing reports and Walton’s confidence in Swink and its broker. Both Abell and Walton testified that they would have evaluated Westside bonds differently had they known about the Booz, Allen study, the details of the Cheneyville land transaction, and the fact that Fryar had not pledged any of his own bonds or his own money to complete the project. Both witnesses stressed heavily that the developer’s apparent willingness to put $2,000,000 of his own money into the project impressed them greatly and influenced their decisions implicitly. Over the next year and a half, the West-side story began to unravel. A bank failure and several delays cost Westside a substantial sum, though no more than $300,000. A local newspaper began to uncover the details of the Cheneyville land transaction. Litigation arising from the bank failure forced Swink to send a reassuring letter to all bondholders. In that letter, dated January 20, 1983, however, Swink revealed all the information that had been withheld from the offering statements. In early July 1984, Abell and Walton initiated this lawsuit on behalf of themselves and a class of 500 of Westside’s bondholders. At that time, and for the next three months, Westside bonds continued to sell at or near their par value. In October of 1984, Westside’s financial structure finally collapsed. Westside defaulted on an interest payment on its bonds and ultimately was forced to file for Chapter XI bankruptcy in March 1985. The bondholders did not fare well in bankruptcy and, under Westside’s reorganization plan, are now entitled to considerably lower interest payments than originally promised. As a result of its bankruptcy, Westside missed four bond interest payments from October 1984 through April 1986, resulting in a loss to the bondholders (as of the time of trial) of $3,402,146. Moreover, the reduced interest rates for the bonds caused an additional loss of $8,616,972 after the future income was discounted to present value as of the date of the trial. Consequently, the bondholders’ total losses as of trial were $12,019,118. To add salt to these wounds, All American made $2,950,000 from the land transaction and the interest payments it received on its Westside bonds. On the basis of these facts, the bondholders claim that WU, Fryar, and All American violated a cornucopia of federal and state securities laws, civil racketeering laws, and a variety of state laws. They argue that WU and Fryar violated section 12 of the Securities Act of 1933 (“Securities Act”) and the Louisiana Blue Sky Law (“LBSL"), and owe the plaintiffs rescission-ary damages; that WU, Fryar, and All American violated the securities fraud provisions of section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and rule 10b-5 (derived from section 10(b)), and owe the bondholders actual damages; that Fryar and All American operated Westside for the purpose of committing securities fraud, mail fraud, and wire fraud, and owe the bondholders treble damages for the injury Fryar and All American did to the bondholders’ property; and that all three defendants committed a variety of state-law torts for which they owe the bondholders actual damages. The bondholders also sued Valley Forge, WU’s insurer, to hold it derivatively responsible for all of WU’s liability. The jury returned a verdict in favor of the bondholders on all counts, and the court entered judgment upon that verdict. All of the defendants appealed, but All American failed to post court costs and a bond in a timely fashion, and we have already dismissed its appeal for lack of prosecution. We now turn to the issues concerning each of the other three defendants, and to the question of whether they deserve a new trial because of jury tampering. II. Section 12 of the Securities Act. First, the bondholders assert that Fryar and WU owe them rescissionary damages under section 12 of the Securities Act, 15 U.S.C. § 771. WU and Fryar interpose a variety of defenses, among which is the claim that neither qualifies as a “seller” under either section 12(1) or section 12(2). Since only a statutory “seller” can be held liable under section 12, this defense, if correct, would completely absolve WU and Fryar. We begin our analysis, as always, with the language of the statute itself. Under section 12, “[a]ny person who ... offers or sells a security” in violation of the section’s provisions “shall be liable to the person purchasing such security from him.” 15 U.S.C. § 77i. We do not begin with a blank slate, however, since the Supreme Court has recently interpreted this language authoritatively. In Pinter v. Dahl, — U.S. -, 108 S.Ct. 2063, 100 L.Ed.2d 658 (1988), the Supreme Court decided whom courts may treat as “sellers” under section 12. Pinter, an oil and gas producer who sold securities, sought contribution from Dahl to satisfy a judgment in favor of investors who had purchased unregistered securities from Pinter. Pinter argued that Dahl should share in Pinter’s section 12(1) liability, since Dahl had actively promoted the securities among his friends and relatives, the disgruntled investors in the original suit. Dahl replied that he had merely recommended the Pinter securities because he had thought that they would benefit their owners. Dahl argued that he could not be a “seller” under section 12(1) because he had not acted from a motivation of personal gain. The Court first analyzed the language of the statute which we have set out above. The Court noted that the term “seller,” which includes anyone who “offers ... a security,” is not restricted to those who pass title in securities to investors: Section 2(3) defines ‘sale’ or ‘sell’ to include ‘every contract of sale or disposition of a security or interest in a security, for value,’ and the terms ‘offer to sell,’ ‘offer for sale,’ or ‘offer’ to include ‘every attempt or offer to dispose of, or solicitation of an offer to buy, a security or interest in a security, for value.’ 15 U.S.C. § 77b(3)_The inclusion of the phrase ‘solicitation of an offer to buy’ within the definition of ‘offer’ brings an individual who engages in solicitation, an activity not inherently confined to the actual owner, within the scope of § 12.... ‘The statutory terms [“offer” and “sell”], which Congress expressly intended to define broadly, ... are expansive enough to encompass the entire selling process, including the seller/agent transaction.’ Pinter, 108 S.Ct. at 2076-77 (quoting United States v. Naftalin, 441 U.S. 768, 773, 99 S.Ct. 2077, 2082, 60 L.Ed.2d 624 (1979)). Although the Court held that the “offers or sells” phrase in section 12 does not limit greatly the scope of section 12(1), it reasoned that the “purchase from” language of section 12 further restricts the range of potential sellers. The Court held that a defendant is not a “seller” unless the defendant “would commonly be said, and would be thought by the buyer, to be among those ‘from’ whom the buyer ‘purchased’ _"Id. at 2077. Siding with Dahl, the Court added: When a person who urges another to make a securities purchase acts merely to assist the buyer, not only is it uncommon to say that the buyer ‘purchased’ from him, but it is also strained to describe the giving of gratuitous advice, even strongly or enthusiastically, as ‘soliciting.’ ... 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 by a desire to serve his own financial interests or those of the securities owner. Id. at 2078-79. The definition of “seller,” as the Pinter court has articulated it, requires us to make two inquiries: (1) Who passed title to the plaintiff or solicited the transaction in which title passed; and (2) from whom did the plaintiff buy the security? We may answer the first question according to the standards of legal parsing and linguistic analysis, but to answer the second question, we must refer to common usage. Here, all of the plaintiffs bought Westside bonds from brokers or previous owners. Some of the plaintiffs, like Abell and Walton, bought their bonds from employees (who were brokers) of Swink & Co., one of the underwriters. It might be said that everyone who invested in the initial offering bought from the underwriters and Westside, the issuer. None of the investors, however, can say that he or she bought bonds from the developer of the project which the bond issue supports, or from one of the law firms that helped to prepare the offering statement. If we apply the principles of Pinter to this case, we must hold that neither Fryar nor WU is a “seller” under section 12(2). The bondholders suggest that Pinter is inapposite here. They do not deny that the “sell or offer” and “purchase from” language of section 12(2) is identical to the language the Court interpreted in Pinter. They note, however, that the Court explicitly reserved the right to interpret the section 12(2) language differently. See 108 S.Ct. at 2076 n. 20. The plaintiffs contend that policy reasons favor divergent interpretations of the identical words of sections 12(1) and 12(2). They argue that the Court singled out section 12(1) because it imposes strict liability upon anyone who sells unregistered securities. Rather than import fault-based concepts, including proximate cause, to interpret section 12(1), the Court stuck closely to the language of section 12(1). Thus, the Court (so sayeth the bondholders) rejected the substantial-factor test previously applied in this circuit because that test defines as a “seller” anyone who proximately caused a securities transaction. The bondholders argue that the Court would accept the substantial-factor analysis to determine who is a section 12(2) seller because Congress incorporated traditional fault concepts into the elements of that subsection. The Court, however, explicitly based its interpretation upon the plain language of section 12(1), not upon other factors, and presumably would do the same with section 12(2). Pinter teaches that [t]he deficiency of the substantial-factor test is that it divorces the analysis of seller status from any reference to the applicable statutory language and from any examination of § 12 in the context of the total statutory scheme_Thus, although the substantial-factor test undoubtedly embraces persons who pass title and who solicit the purchase of unregistered securities as statutory sellers, the test also would extend § 12(1) liability to participants only remotely related to the relevant aspects of the sales transaction. Indeed, it might expose securities professionals, such as accountants and lawyers, whose involvement is only the performance of their professional services, to § 12(1) strict liability for rescission. The buyer does not, in any meaningful sense, ‘purchas[e] the security from’ such a person. 108 S.Ct. at 2080-81 (footnote omitted, emphasis added). Finally, the Court issued this warning: ‘The ultimate question is one of congressional intent, not one of whether this Court thinks it can improve upon the statutory scheme that Congress enacted in to law.' Touche Ross & Co. v. Redington, 442 U.S. [560] at 578, [99 S.Ct., 2479, at 2490, 61 L.Ed.2d 82 (1979)].... The ascertainment of congressional intent with respect to the scope of liability created by a particular section of the Securities Act must rest primarily on the language of that section. See Santa Fe Industries, Inc. v. Green, 430 U.S. 462, 472 ... [97 S.Ct. 1292, 1300, 51 L.Ed.2d 480] (1977). Id. at 2082. We cannot ignore so plain a command. We hold that neither Fryar nor WU was a “seller” under section 12. III. Rule 10b-5 Claims. Plaintiffs claim further that the defendants committed securities fraud in violation of section 10(b) of the Exchange Act. "To make out a claim under Section 10(b), which is based on the common law action of deceit, the plaintiff must establish (1) a misstatement or an omission (2) of material fact (3) made with scienter (4) on which the plaintiff relied (5) that proximately caused his injury.” Huddleston v. Herman & MacLean, 640 F.2d 534, 543 (5th Cir. Unit A Mar. 1981), rev’d in part on other grounds, 459 U.S. 375, 103 S.Ct. 683, 74 L.Ed.2d 548 (1983). The plaintiffs claim that they introduced substantial evidence to prove each of these elements against each of the defendants. The defendants do not assert that they never said or wrote anything false or misleading. However, the defendants do challenge the legal sufficiency of the bondholders’ proof of materiality, reliance, and causation. WU also argues that it did not have the necessary scienter to violate rule 10b-5. We will consider materiality first, followed by causation and reliance. Later, we will discuss WU’s scienter arguments when we examine the potential for derivative rule 10b-5 liability under theories which the bondholders aim specifically at WU. A. Materiality. The defendants contend that the plaintiffs’ complaints were not material. The defendants (but especially Fryar) question whether Westside said (or failed to disclose) anything that would have affected any investor’s decision to buy Westside bonds. Defendants point out that none of the facts they distorted made any difference to investors when ultimately, in a January 1983 letter, Westside revealed all relevant facts. Despite these revelations, the price (and apparently, the trading volume) of Westside bonds remained stable. Neither did the commencement of this lawsuit have any appreciable affect upon the market value of Westside bonds. From these facts, defendants conclude, as a matter of law, that the information which plaintiffs allege Westside fraudulently withheld was not material. We begin by reviewing the standard for determining when a fact is material. For the purposes of the securities laws, “[a]n omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote.” TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449, 96 S.Ct. 2126, 2132, 48 L.Ed.2d 757 (1976). To be a material fact, “there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available.” Id. The court has recently adopted these tests to determine materiality in all rule 10b-5 cases. Basic Inc. v. Levinson, — U.S. -, 108 S.Ct. 978, 983, 99 L.Ed.2d 194 (1988). Given this standard, we believe that the record sufficiently supports plaintiffs’ position. The jury was entitled to believe that information that would have affected the market for Westside’s initial offering would not have had the same effect two or three years later. Indeed, the jury heard expert testimony that Westside could not have marketed its bonds at all had it revealed the details of the Fryar-All American-Westside land transaction or of the Booz, Allen study. Sheddy, who on behalf of underwriter Swink helped prepare the offering statement, admitted that the unreported facts were material. The brokers at Swink’s Atlanta office deemed the information so significant that they offered to buy back Westside bonds from their customers when they first learned the truth. According to one of these brokers, Fryar’s assurances that his own funds backed Westside significantly enhanced the project’s image as a secure investment. This evidence sufficiently supports the jury’s conclusion that Abell proved that a reasonable investor would have evaluated Westside’s initial offering differently had all the information been available originally. B. Causation. Fryar attacks the sufficiency of the evidence to prove that Westside misrepresented facts that caused its eventual bankruptcy and thus the reduction in the interest rates the bonds bore. To prove causation, the bondholders must prove that the untruth was in some reasonably direct, or proximate, way responsible for [their] loss. The causation requirement is satisfied in a Rule 10b-5 case only if the misrepresentation touches upon the reasons for the investment’s decline in value. If the investment decision is induced by misstatements or omissions that are material and that were relied on by the claimant[s], but are not the proximate reason for [their] pecuniary loss, recovery under the Rule is not permitted. Huddleston, 640 F.2d at 549 (footnote omitted). Fryar asserts that the facts Abell would like to have known when Westside first offered its bonds have nothing to do with the causes of Westside’s default on interest payments or its eventual bankruptcy. He blames the bankruptcy of Penn Square Bank, which he contends dramatically affected Westside’s cash position at a critical point in the project’s development. Fryar argues that a change in state health-care reimbursement policies destroyed whatever hope Westside had of weathering its cash flow crunch. According to Fryar, these two combined factors forced Westside into bankruptcy. The jury, however, found otherwise. The Cheneyville land transaction consumed a substantial portion of Westside’s working capital. Of a $13.5 million bond offering, nearly $2.5 million — most of which Fryar and All American secreted for their own undisclosed use — was dedicated to this single transaction. In comparison, the Penn Square Bank failure cost Westside only $300,000 at most. Indeed, Fryar’s own witness conceded that state health-care officials froze reimbursements to Westside when they first learned of the true details of the Cheneyville land transaction. The jury was entitled to believe that this real estate deal “touched upon” the reasons for Westside’s ultimate bankruptcy. Hence, causation was sufficiently established. C. Reliance. The defendants also argue that the plaintiffs failed to prove that any plaintiff relied upon any fraudulent representations or omissions. The element of reliance is the subjective counterpart to the objective element of materiality. Whereas materiality requires the plaintiff to demonstrate how a “reasonable” investor would have viewed the defendants’ statements and omissions, reliance requires a plaintiff to prove that it actually based its decisions upon the defendants’ misstatements or omissions. “Reliance is causa sine qua non, a type of ‘but for’ requirement: had the investor known the truth he would not have acted.” Huddleston, Id. at 549 (footnote omitted). Thus, [cjourts sometimes consider the reliance component of the Rule 10b-5 action to be a part of the causation element. In this context, the term ‘transaction causation’ is used to describe the requirement that the defendant’s fraud must precipitate the investment decision.... On the other hand, ‘loss causation’ refers to a direct causal link between the misstatement and the claimant’s economic loss. Id. at 549 n. 24 (citation omitted). 1. Proving Reliance for the Class as a Whole. Since rule 10b-5 plaintiffs must prove that each plaintiff subjectively relied upon the defendants’ misstatements and omissions, the jury may not infer the reliance of an entire class of plaintiffs from the testimony of a few. “Consequently, in a class action, while the materiality element can be established for the class as a whole, reliance, like damages, is a matter of individual proof.” Huddleston, Id. at 549 (citation omitted). Here, neither side introduced any evidence to demonstrate or refute whether most of the class members decided to buy Westside bonds in reliance upon what the defendants said or failed to say. Whether the jury was permitted to infer reliance from the evidence, therefore, depends entirely upon who bore the burden of persuasion. That burden ordinarily rests with plaintiffs, but it may shift in those rare cases in which plaintiffs can prove that they are entitled to one of two presumptions. The more venerable presumption, the so-called Ute presumption, is available to plaintiffs who can prove that the rule 10b-5 violations which they allege actually stem from defendants’ failure to disclose pertinent information rather than from defendants’ failure to tell the truth. The other presumption plaintiffs may invoke— the theory that defendants committed a fraud upon the marketplace — is of more recent vintage. We discuss each of these burden-shifting presumptions in turn. a. The Ute Presumption The Ute presumption was first announced by the Supreme Court in Affiliated Ute Citizens v. United States, 406 U.S. 128, 92 S.Ct. 1456, 31 L.Ed.2d 741 (1972). There, an organization of native Americans organized a corporation to distribute its assets to its members. Each member received title to ten shares of stock that were deposited with a local bank. The bank entered into a fiduciary relationship with the new stockholders and assumed primary responsibility for enforcing title restrictions and providing other services related to the stock. Ultimately, investors in surrounding communities developed an interest in the stock, and demand in these communities outstripped the Utes’ demand for the corporation’s stock. The bank seized this opportunity quietly to build a non-native American clientele eager to invest in Ute stock. The native Americans, however, never heard about this secondary market for their stock, and the bank chose to keep them ignorant to exploit its potential financial gains. When the Utes eventually did learn of the bank’s scheme, eighty-five of them sued. The plaintiffs were Utes who, trusting in the bank, had sold their stock to the bank for prices that sometimes were significantly lower than what the bank could command in the open market. The native Americans complained that the bank had breached a fiduciary duty to them to disclose information about the secondary market, and sued the bank for violating rule 10b-5. The bank responded in part by arguing that the plaintiffs had failed to prove reliance. The Supreme Court held that the burden of proving reliance fell on the bank, not on the plaintiffs. As our subsequent cases have taught, the Ute presumption attaches only to those rule 10b-5 actions based primarily upon omissions rather than misrepresentations. Misrepresentations include statements that are themselves false — outright lies— and true statements that are nonetheless so incomplete as to be misleading, i.e., distorted half-truths. To omit a fact, however, is to say absolutely nothing about matters whose very existence plaintiffs have no reason to consider. The bank in Ute omitted material facts: The Utes simply had no idea that the bank itself actively solicited non-native-American investors to buy Ute stock. These omissions were not distorted half-truths, since the bank never made any statements regarding its activity in the secondary market. Our cases indicate that the Ute presumption is limited to cases, like Ute itself, in which the plaintiffs have based their complaint primarily upon alleged omissions. Such non-disclosure suits are those in which the complaint is grounded primarily in allegations that the defendant has failed to disclose any information whatsoever relating to material facts about which the defendant has a duty to the plaintiff to disclose. Ute, however, does not require the burden of persuasion to shift in cases where the plaintiffs allege either that the defendant has made false statements or has distorted the truth by making true but misleading incomplete statements. Thus, we apply the Ute presumption in non-disclosure cases, but not in falsehood or distortion cases. See, e.g., Finkel, 817 F.2d 359. Here, the bondholders characterize this case as involving primarily omissions. Their claim is that the offering documents represented that Westside was feasible, when it was not; that Fryar was to have $2 million of his own money in the transaction, when he did not; and that the real estate had a value or cost basis to Westside of over $2.4 million, when it did not. Although we have held these statements to have been both false and material, they are distortions, not omissions. The bondholders have not argued that Fryar failed to disclose facts about which the investors had no inkling, but that Fryar purposely revealed only part of the truth in an effort to mislead potential purchasers. The plaintiffs attempted to portray the defendants as creating an impression of Westside that was entirely false, induced by a deceptively misleading impression about the offering; thus, the plaintiffs are not entitled to the Ute presumption. b. The Fraud-on-the-Market Presumption The bondholders argue that we should assume that they relied upon the market for Westside bonds to set a fair price unadulterated by fraud. Under this theory of their case, the bondholders essentially contend that investors uniformly assume that an active and open securities market efficiently assimilates information about securities. The market then calibrates the price of a security to reflect precisely the security’s value in light of all the information publicly available about that security. Provided that the publicly available information is both accurate and complete, the market price contains the most accurate and succinct estimation of the true value of any given security at any given time. Consequently, investors, who must assume the integrity of the market and of those who trade in it, ordinarily rely heavily upon the market price in determining the values of securities. This theory of the marketplace underlies a recent development in securities law — the “fraud-on-the-market” theory of reliance. A fraud on the market is any deceit that successfully disseminates false or misleading information into the securities market or withholds vital information from that market. Such a deceit defrauds investors even when they are unaware of the misrepresentations or omissions that skew the market price, because investors depend heavily upon the integrity of the market price. Thus, the argument goes, courts should presume reliance in a class action because most (if not all) of the investors have relied upon the accuracy of a fraudulently distorted market price. See, e.g., Basic Inc. v. Levinson, 108 S.Ct. at 988-92. In recent years, this theory of reliance rapidly has gained support. In Shores v. Sklar, 647 F.2d 462 (5th Cir. May 1981) (en banc), cert. denied, 459 U.S. 1102, 103 S.Ct. 722, 74 L.Ed.2d 949 (1983), we adopted a form of the fraud-on-the-market presumption of reliance. Since Shores, the Supreme Court in Basic Inc. v. Levinson has announced its support for a new, largely undefined version of this presumption of reliance. Basic states only three propositions of law that are of interest here. First, the Court ruled that a trial court may presume reliance on the ground that the defendant committed a fraud on the market. Second, Basic explicitly holds that the “fraud-on-the-market” presumption is rebuttable and serves only to shift the burden of persuasion, as to reliance, onto securities fraud defendants. Finally, the Court vitiated part of our fraud-on-the-market jurisprudence. Until Basic, we made the fraud-on-the-market presumption, like the Ute presumption, available only to plaintiffs who based their rule 10b-5 claims primarily upon nondisclosure. See, e.g., Finkel v. Docutel/Olivetti Corp., 817 F.2d at 359. Basic, however, held that a rule 10b-5 plaintiff alleging active misrepresentation (i.e., making false statements and failing to correct distorted statements) may also assert a fraud-on-the-market theory of reliance. Recent empirical studies have tended to confirm Congress’ premise that the market price of shares traded on well-developed markets reflects all publicly available information, and, hence, any material misrepresentations.... Indeed, nearly every court that has considered the proposition has concluded that where materially misleading statements have been disseminated into an impersonal, well-developed market for securities, the reliance of individual plaintiffs on the integrity of the market price may be presumed.... An investor who buys or sells stock at the price set by the market does so in reliance on the integrity of that price. Because most publicly available information is reflected in market price, an investor’s reliance on any public material misrepresentations, therefore, may be presumed for purposes of a Rule 10b-5 action. Basic, 108 S.Ct. at 991-92 (footnotes omitted). Nonetheless, Basic essentially allows each of the circuits room to develop its own fraud-on-the-market rules. Consequently, we return to our own cases. In Finkel, the most recent Fifth Circuit case to consider the fraud-on-the-market theory, we held that a rule 10b-5 plaintiff may establish fraud on the market in two different ways. First, the plaintiff can establish that the subject securities were traded on an active secondary market, such as a public exchange. In such a case, the plaintiff would prevail if he could prove that the defendant’s non-disclosures materially affected the market price of the security. 817 F.2d at 364. Where, however, no active, efficient secondary market existed in which to trade the subject securities (as in Shores), the plaintiff must prove that “the defendants conspired to bring to market securities that were not entitled to be marketed.” Id. at 362. Shores states this same concept in slightly different terms: If [the plaintiff] proves no more than that the bonds would have been offered at a lower price or a higher rate, rather than that they would never have been issued or marketed, he cannot recov-er_This theory is not that [the plaintiff] bought inferior bonds, but that the Bonds he bought were fraudulently marketed. The securities laws allow an investor to rely on the integrity of the market to the extent that the securities it offers to him for purchase are entitled to be in the market place. Shores, 647 F.2d at 470-71. The plaintiffs here argue first that the market price, set in active bond markets, was distorted by defendants’ fraud. The bondholders contend that Westside bonds were traded in an active secondary market through brokers. They add that West-side’s finances, of which the public originally had only a materially distorted view, eventually caused the value of the bonds to collapse. This argument, however, completely ignores Shores, which, in this respect, is factually indistinguishable from the present case. In Shores, as here, the defendants included private entrepreneurs who obtained a town’s authorization to issue municipal bonds underwriting a local, private project. Both here and in Shores, the entrepreneurs hired underwriters to sell the new issue to the public. In both cases, a small secondary market, exploited by brokers, developed for the bonds. However, the bonds in Shores, like the bonds here, were not actively traded on any exchange or in any large secondary market. As we observed later in Finkel, ... it is clear that the market for the bonds in Shores (industrial development bonds of the town of Frisco City, Alabama) does not represent the active, efficient market for which the fraud on the market theory was initially conceived. Finkel, 817 F.2d at 364. Next, the bondholders argue that they deserve the fraud-on-the-market presumption because the Westside offering was not entitled to be marketed. The bondholders point to several experts who testified that the Westside bonds were unmarketable. According to the plaintiffs’ experts, West-side could not have disclosed its true financial status and the negative conclusions of the Booz, Allen feasibility study without completely losing a market for their bonds. These experts also opined that no underwriter would have been willing to shoulder Westside’s offering if the weight of the task included trying to explain away Fryar’s suspicious land transactions and the Booz, Allen study. The bondholders claim that this testimony proves that, like the securities in Shores, the Westside bonds were brought to market only through fraud, and were not entitled to be marketed at all. The defendants respond that only worthless securities are not entitled to be marketed under Shores. They argue that if the bonds retained any value at all, the plaintiffs have shown “no more than that the bonds would have been offered at a lower price or a higher rate....” Shores, 647 F.2d at 470. According to the defendants, the plaintiffs’ theory is only that they bought inferior bonds, not, as Shores requires, that they bought bonds fraudulently brought to market. Id. at 471. The bondholders argue that worthlessness is not a prerequisite, under Shores, for establishing a fraud on the market. The bondholders correctly note that the Shores plaintiffs recouped about 37 percent of their investment when the municipal assets dedicated to the failed corporation were liquidated. They conclude that the Shores stocks were not worthless and that worthlessness, therefore, cannot be the touchstone of a fraud-on-the-market analysis. This argument misses the point, since saleable assets may bless even the most worthless enterprise. In Shores, the illegitimate securities represented an investment in a hoax made to seem real because valuable assets, including a factory, backed the promoters’ promises. Although the assets may have added value to the securities, the sham “business” did not because the promoters never intended to start a legitimate one. We hold, therefore, that securities meet the test of “not entitled to be marketed” only where the promoters knew the enterprise itself was patently worthless. We add that expert testimony, however well-founded in the experience of securities traders, is nothing more than the speculation of observers benefiting from hindsight. All of the careful analysis of securities pundits and expert calculations of experienced investors cannot replace the irrefutable knowledge gained from a single source: the actual track record of the security itself. Shores established a test more sensitive to the historic value of the subject securities than the bondholders acknowledge. As we said in Shores, a securities fraud plaintiff must argue not “that he bought bonds, but that the bonds he bought were fraudulently marketed.” Id. at 471. Finkel succinctly characterized this test: The majority in Shores simply recognized that a Rule 10b-5 action based on the fraud on the market theory could embrace a claim for a fraud that resulted in the issuance of worthless securities as well as a fraud that inflated the price of a security. 817 F.2d at 364 (footnote omitted). Here, the bondholders’ argument fails because the Westside bonds always had a legitimate value in the bond market. Indeed, these bonds remained near market value for several years after Westside disclosed the accurate version of its beginning and several months after this lawsuit commenced. Moreover, we perceive strong policy reasons to reject the bondholders’ contentions. The plaintiffs’ position would attenuate the fraud-on-the-market presumption of reliance far beyond its proper bounds and almost entirely extinguish reliance as a legitimate element of a rule 10b-5 claim. This presumption assumes that investors ordinarily and correctly rely upon the “market price” of a security as an accurate estimate of the future value of that security. Accordingly, if a defendant distorts the market price by lying or concealing the truth, the fraudulently-distorted price can deceive even prudent investors. This theory, however, implicitly assumes that there is an active, efficient secondary market capable of accurately measuring the present and future value of a security. Moreover, the theory supposes that most investors seek out securities whose prices the market accurately reflects. Where, as here, investors seek out un-derpriced securities that are traded outside efficient secondary markets, the fraud-on-the-market theory of reliance no longer makes sense. Investors can no longer be said to have relied upon an established market price, which, if it exists at all, reflects an inherently unstable and probably inaccurate estimate of the security’s actual value. Moreover, Abell has never argued —indeed, the evidence belies such an argument — that Westside bonds ever lacked any value. Given the inherently imprecise means available to measure the actual value of Westside bonds at any given point in time, Abell’s argument that the members of the plaintiff class presumably relied upon the market price for those bonds is unconvincing. Consequently, we reject bondholders’ arguments and hold that the fraud-on-the-market presumption of reliance is available only (1) where the subject securities were traded actively in large markets, or (2) where the promoters knew that the subject enterprise was worthless when the securities were issued, and successfully issued the securities only because of defendants’ fraudulent scheme. Since the Westside bonds fail to meet either test, and since the Ute presumption is here unavailable, plaintiffs have failed to establish reliance for the class, and the class’s rule 10b-5 claim must fail. 2. Reliance of Some Individual Members of the Class. Two of the individual plaintiffs, Abell and Walton, testified that they did in fact rely upon the defendants’ misrepresentations. Walton testified that he considered the attractive interest rate which the bonds bore, a Swink flyer that had not been authorized by WU, and the advice of Dick Hardwick, a Swink broker. Abell testified that he relied upon the attractive interest rate, Hardwick’s reputation as a broker, the fact that Westside bonds were Louisiana municipal bonds, and Fryar’s promise to invest $2,000,000 of his own cash in Westside. We conclude that this testimony, which was uncontradicted at trial, is enough to establish that Abell and Walton relied upon Fryar’s misrepresentations. We do not, however, think that it is sufficient to prove that Abell and Walton relied upon anything which WU said or did. WU never had any direct contract with Westside's bondholders. Consequently, the bondholders may not assert that WU misrepresented or failed to disclose any material facts directly to the bondholders. Instead, WU limited its role in the West-side bond-offering to the legal work it did for the bond underwriters. Consequently, WU never made any statements on its own behalf directly to the bondholders, but only checked and revised the statements made in the offering statement. Neither Abell nor Walton testified that he relied upon that statement. Instead, their own testimony indicates that they relied only upon the attractiveness of the offer, Fryar’s misrepresentation as to his own investment in Westside, and Swink’s misguided (or fraudulent) assessment of the bonds’ value. Neither Swink, which knew more about the bonds than it cared to reveal in the offering statement, nor Abell and Walton, who did not seem to care what the offering statement actually said, can be said to have relied upon the offering statement itself. Consequently, none of the plaintiffs has proved that he relied upon WU’s legal opinion, however good or bad that opinion may have been. From our foregoing analysis, we conclude that Abell and Walton have shown that Fryar and the underwriters, but not WU, have violated rule 10b-5 and are liable to Abell and Walton for damages. Thus, Abell and Walton (but not the class) have shown that Fryar misrepresented material facts, that they relied upon these misrepresentations in choosing to buy Westside bonds, and that Westside’s actual financial structure eventually caused Abell’s and Walton’s losses. Abell and Walton did not prove, however, that anyone ever relied upon anything WU did, said, or wrote. Thus, they have not proven that WU violated rule 10b-5 directly. Our analysis, however, does not suggest that WU is not vicariously liable for the role the underwriters played in executing Fryar’s fraud. We next analyze that theory. D. WLJ’s Potential Vicarious Liability. The bondholders suggest that, under two separate theories, WU is vicariously liable for Fryar’s and the underwriters' fraud. The plaintiffs assert first that WU had a special duty, as underwriters’ counsel, to the investing public to ferret out and disclose publicly any fraud. Second, according to the bondholders, WU rendered substantial assistance to the fraudulent scheme despite the unmistakable signs that fraud was afoot. By turning a blind eye to these signs, the bondholders argue, WU subjected itself to rule 10b-5 liability for aiding and abetting securities fraud. We examine each of these arguments in turn. 1. Duty To Disclose. The bondholders argue that WU implicitly guaranteed the accuracy of the offering statement to the investing public. According to the bondholders, WU impliedly assumed a duty to correct all material misrepresentations in the offering statement when it agreed to assume the responsibilities of an underwriter’s counsel. Thus, the bondholders conclude, WU issued deficient legal opinions, subjecting it to liability, because it failed to discover and disclose Fryar’s fraud. The bondholders derived this proposition of law from four well-established practices of the securities bar. First, underwriter’s counsel, acting on behalf of the underwriter, traditionally prepares the offering statement. Second, underwriter’s counsel assumes a due-diligence duty to ensure that the offering statement is correct in all material respects. Third, this due-diligence duty derives from the fraud provisions of the securities laws, which themselves exist primarily to protect innocent investors. Fourth, Westside’s offering statement listed WU as underwriter’s counsel — a fact that suggests to the plaintiffs that WU implicitly took public responsibility for the legal sufficiency of the offering statement itself. We cannot agree with the bondholders’ argument. Traditionally, lawyers are accountable only to their clients for the sufficiency of their legal opinions. It is well understood in the legal community that any significant increase in attorney liability to third parties could have a dramatic effect upon our entire system of legal ethics. An attorney required by law to disclose “material facts” to third parties might thus breach his or her duty, required by good ethical standards, to keep attorney-client confidences. Similarly, an attorney required to declare publicly his or her legal opinion of a client’s actions and statements may find it impossible to remain as loyal to the client as legal ethics properly require. Cognizant of these risks, the law, as a general rule, only rarely allows third parties to maintain a cause of action against lawyers for the insufficiency of their legal opinions. In general, the law recognizes such suits only if the non-client plaintiff can prove that the attorney prepared specific legal documents that represent explicitly the legal opinion of the attorney preparing them, for the benefit of the plaintiff. Goodman, 556 P.2d at 743; Bush, 619 F.Supp. at 596. In practice, this rule has meant that an attorney is rarely liable to any third party for his or her lfegal work unless the attorney has prepared a signed “opinion” letter designed for the use of a third party. Compare S.E.C. v. Spectrum, Ltd., 489 F.2d 535 (2d Cir.1973) (plaintiff may state rule 10b-5 action against attorney who signed an opinion letter another had declined to sign) with Keene Corp. v. Weber, 394 F.Supp. 787 (S.D.N.Y.1975) (attorney not liable under rule 10b-5 because no misleading opinion letter at issue). The bondholder plaintiffs argue that other courts have established less restrictive tests to determine whether securities lawyers are liable to those who invest in securities the lawyers’ clients have issued or underwritten. The three most relevant are Spectrum, Cronin v. Midwestern Dev. Auth., 619 F.2d 856, 862 (10th Cir.1980), and In re Flight Transp. Corp. Sec. Litig., 593 F.Supp. 612, 617-18 (D.Minn.1984). In Spectrum, however, the Second Circuit held a lawyer liable under rule 10b-5 because he signed a critical opinion letter which another lawyer, who escaped liability, had refused to sign. Accord, Keene Corp. (describing the holding of Spectrum ). In Cronin, the Tenth Circuit suggested that courts could impose rule 10b-5 liability upon bond counsel, who ordinarily does issue an opinion letter that comes attached to the offering statement or prospectus. Of the three cases, only Flight Transp. Corp. squarely departs from the traditional rule to impose rule 10b-5 liability upon all underwriter’s counsel. Flight Transp. Corp., however, has no precedential value here, and we find its reasoning unconvincing. Since we can find no binding authority creating a special rule in the field of securities law, we decline to depart from either rule or practice here. Plaintiffs presented almost no evidence that WLJ’s due diligence duties existed to benefit or protect the investing public at large. Rather, bondholders proved only that WU had a duty to its clients to ensure that they complied with securities laws. The mere fact that these laws were designed to protect the investing public does not convince us that WU assumed more than the duty to protect its own clients from legal liability. “The securities laws do not impose liability for ordinary malpractice, even though that malpractice may diminish the value of the issuer and thus of the issuer’s securities.” Barker, 797 F.2d at 496. Nor do we believe that WU assumed any duties to these bondholders merely by allowing its name to be included in the final offering statement. We think it more significant that WU never signed the offering statement itself or any of the documents included in that statement. Moreover, the offering statement says only that WU passed on legal issues for the underwriters, its clients. By contrast, the offering statement does not limit for whom the bond counsel had prepared his opinion. If any of the attorneys or law firms assumed legal responsibility for the sufficiency of the offering statement, it was bond counsel William Skye, who actually did sign a letter disclosing his own legal opinion regarding several aspects of the bond offering. We join the Seventh Circuit, which, in Barker, id. at 497, commented: We express no opinion on whether the [attorneys] did what they should [or] whether there was malpractice under state law.... We are satisfied, however, that an award of damages under the securities laws is not the way to blaze the trail toward improved ethical standards in the legal and accounting professions. Liability depends on an existing duty to disclose.... The plaintiffs have not pointed to any rule imposing on [attorneys] a duty to blow the whistle. [Emphasis in original.] Accordingly, WU owed no duty of disclosure to the bondholders. 2. Aiding and Abetting. Finally, the bondholders argue that even if WU did not itself commit securities fraud, it nonetheless aided and abetted Fryar and Swink in their scheme to commit securities fraud. As the plaintiffs correctly note, our cases impose section 10b-5 liability upon those who abet securities fraud. Woodward v. Metro Bank, 522 F.2d 84 (5th Cir.1975). We have recently restated the Woodward test to determine who is subject to section 10b-5 aiding-and-abetting liability: (1) There must have been a securities violation by the primary party; (2) the aider and abettor must have had a “general awareness” of its role in a rule 10b-5 violation; and (3) the aider and abettor must have knowingly rendered “substantial assistance” in the rule 10b-5 violation. Bane v. Sigmundr Exploration Corp., 848 F.2d 579, 581 (5th Cir.1988). We have already held that substantial evidence supports the jury verdict that Fryar and the underwriters committed securities fraud. Moreover, WU does not challenge the bondholders’ implicit assertion that it substantially assisted the underwriters in effecting their scheme. Thus, it remains only to determine whether WU was “generally aware” of its role in furthering the fraudulent scheme, and whether its assistance was “knowing.” In Woodward, we explained what these scienter requirements mean. “General awareness,” we said, means knowledge which, though it may be adduced from reckless conduct, means actual awareness. 522 F.2d at 96. We also held that how “knowing” an abettor must be depends upon