In the

    United States Court of Appeals
                 For the Seventh Circuit

No. 13-3532

GLICKENHAUS & COMPANY, et al.,
on behalf of themselves and all
others similarly situated,
                                                   Plaintiffs-Appellees,

                                   v.

HOUSEHOLD INTERNATIONAL, INC., et al.,
                                      Defendants-Appellants.


            Appeal from the United States District Court
        for the Northern District of Illinois, Eastern Division.
             No. 02 C 5893 — Ronald A. Guzmán, Judge.



       ARGUED MAY 29, 2014 — DECIDED MAY 21, 2015



   Before BAUER, KANNE, and SYKES, Circuit Judges.
    SYKES, Circuit Judge. This securities-fraud class action was
tried to a jury and produced an enormous judgment for the
2                                                              No. 13-3532

plaintiffs—$2.46 billion, apparently one of the largest to date.1
The defendants are Household International, Inc., and three of
its top executives.2 They challenge the judgment on many
grounds, but their primary contention is that the plaintiffs
failed to prove loss causation. Proving this element takes
sophisticated expert testimony, and the plaintiffs hired one of
the best in the field.
   The defendants broadly attack the expert’s loss-causation
model. They also make the more modest claim that his testi-
mony did not adequately address whether firm-specific,
nonfraud factors contributed to the collapse in Household’s
stock price during the relevant time period. This latter argu-
ment has merit, as we explain below.
    The defendants also raise a claim of instructional error
under Janus Capital Group, Inc. v. First Derivative Traders,

(2011), which clarified what it means to “make”
a false statement in connection with the purchase or sale of a
security. This claim too has merit, but only for the three
executives and only for some of the false statements found by
the jury. Household itself “made” all the false statements, as
Janus defined that term.




1
 See Reuters, HSBC Faces $2.46 Billion Judgment in Securities Fraud Case, N.Y.
TIMES, Oct. 17, 2013, http://www.nytimes. com/2013/10/18/business/hsbc-is-
fined-2-46-billion-in-securities-fraud-case.html.

2
  Household International, Inc., is now known as HSBC Finance Corp. and
is owned indirectly by HSBC Holdings plc.
No. 13-3532                                                   3

   The remaining challenges fail. A new trial is warranted on
these two issues only. We remand for further proceedings
consistent with this opinion.


                        I. Background
    This case is complex and has a lengthy procedural history
dating to 2002; retracing it would require a tome. To simplify,
we’ll start with the view from 10,000 feet and add details
relevant to particular issues as needed.
   Household’s business centered on consumer lending—
mortgages, home-equity loans, auto financing, and credit-card
loans. In 1999 company executives implemented an aggressive
growth strategy in pursuit of a higher stock price. Over the
next two years, the stock price rose dramatically, but the
company’s growth was driven by predatory lending practices.
This in turn increased the delinquency rate of Household’s
loans, which the executives then tried to mask with creative
accounting. Their technique was to “re-age” delinquent loans
to distort a popular metric that investors use to gauge the
quality of loan portfolios: the percentage of loans that are two
or more months delinquent. Household also improperly
recorded the revenue from four credit-card agreements,
though it ultimately issued corrections in August 2002.
    Between the summers of 1999 and 2001, Household’s stock
rose from around $40 per share to the mid $60s, and by July of
2001 was trading as high as $69. But the reality of Household’s
situation eventually caught up with its stock price. The truth
came to light over a period of about a year through a series of
4                                                     No. 13-3532

disclosures that began when California sued Household over
its predatory lending. Other states also launched investigations
and eventually collaborated in multi-state litigation. The
so-called “disclosure period” culminated when Household
settled the multi-state litigation for $484 million. Between the
filing of California’s suit on November 15, 2001, and the multi-
state settlement on October 11, 2002, Household’s stock
dropped 54%, from $60.90 to $28.20. Comparatively, declines
in the S&P 500 and S&P Financials indexes during this period
were 25% and 21%, respectively.
    In 2002 the plaintiffs filed this securities-fraud class action
under § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C.
§ 78j(b), and the Securities and Exchange Commission’s
Rule 10b-5, 17 C.F.R. § 240.10b-5, alleging that on numerous
occasions Household and its executives misrepresented its
lending practices, delinquency rates, and earnings from credit-
card agreements. The parties stipulated to class certification,
and most issues were tried to a jury over a period of more than
three weeks. Jurors were given 40 separate statements that the
plaintiffs claimed were actionable misrepresentations. For each
statement they were asked to determine: (1) whether the
statement was actionable (that is, was it false or misleading,
material, and caused loss); (2) who among the four defendants
was liable for it; (3) which of the three bad practices the
statement related to; and (4) whether the particular statement
was made knowingly or recklessly by each defendant. Of the
40 possibilities, the jury found 17 actionable misrepresentations
and answered the remaining questions.
No. 13-3532                                                     5

    The jury was also asked to determine how much
Household’s stock was overpriced due to the misrepresenta-
tions. The plaintiffs’ expert presented two models for measur-
ing stock-price inflation. Each model generated a table that
estimated inflation on any given day during the class period.
The jury adopted one of the two models and used the figures
from the corresponding table to complete the special verdict.
(We will have more to say about the loss-causation models
later.)
    This concluded Phase I of the proceedings. In Phase II the
parties addressed reliance issues and calculated damages for
individual class members. In the meantime, the defendants
challenged the jury’s verdict in a motion for judgment as a
matter of law, or alternatively, for a new trial. See FED. R. CIV.
P. 50(b). The district court denied the motions.
    Some individual claims have yet to be resolved, but the
district court entered final judgment on claims totaling
$2.46 billion, finding no just reason for delay. See FED. R. CIV.
P. 54(b). This appeal followed.


                         II. Discussion
    The basic elements of a Rule 10b-5 claim are familiar. The
plaintiffs had to prove “(1) a material misrepresentation or
omission by the defendant[s]; (2) scienter; (3) a connection
between the misrepresentation or omission and the purchase
or sale of a security; (4) reliance upon the misrepresentation or
omission; (5) economic loss; and (6) loss causation.” Halliburton
6                                                    No. 13-3532

Co. v. Erica P. John Fund, Inc., 

, 2407 (2014)
(internal quotation marks omitted).
    The issues on appeal cluster around three elements. First,
and most prominently, the defendants attack the evidence of
loss causation. This argument has several layers, but in general
the defendants claim that the plaintiffs’ evidence of loss
causation was legally insufficient, entitling them to judgment
as a matter of law, or at the very least a new trial. Second, they
argue that the district court incorrectly instructed the jury on
what it means to “make” a false statement in violation of
Rule 10b-5, also warranting a new trial. Finally, they contend
that discovery rulings during the Phase II proceedings de-
prived them of a meaningful opportunity to prove that class
members did not rely on the misrepresentations.
    Different standards of review apply. We review de novo
the denial of a motion for judgment as a matter of law; we will
reverse only if the evidence was legally insufficient for the jury
to have found as it did. Venson v. Altamirano, 

, 646
(7th Cir. 2014); FED. R. CIV. P. 50(a)(1). We review the denial of
a motion for a new trial for abuse of discretion. 

. “A new trial is appropriate if the jury’s verdict
is against the manifest weight of the evidence or if the trial was
in some way unfair to the moving party.” 

are reviewed de novo to test whether they fairly and accurately
stated the law; a new trial is warranted only if an instructional
error caused prejudice. Burzlaff v. Thoroughbred Motorsports,
Inc., 

, 846–47 (7th Cir. 2014). We review discovery
rulings for abuse of discretion. Thermal Design, Inc. v. Am. Soc’y
No. 13-3532                                                      7

of Heating, Refrigerating & Air-Conditioning Eng’rs, Inc., 

, 837 (7th Cir. 2012).


A. Loss Causation
    We begin, as the defendants do, with loss causation. To
prove this element of the claim, the plaintiffs had the burden
to establish that the price of the securities they purchased was
“inflated”—that is, it was higher than it would have been
without the false statements—and that it declined once the
truth was revealed. See Dura Pharm., Inc. v. Broudo, 

, 342–44 (2005); Ray v. Citigroup Global Mkts., Inc., 

, 995 (7th Cir. 2007) (“[P]laintiffs must show both that the
defendants’ alleged misrepresentations artificially inflated the
price of the stock and that the value of the stock declined once
the market learned of the deception.”). A plaintiff’s causal
losses are measured by the amount the share price was inflated
when he bought the stock minus the amount it was inflated
when he sold it. See Dura 

–44.
    It’s very difficult to know exactly how much stock-price
inflation a false statement causes because it requires knowing
a counterfactual: what the price would have been without the
false statement. It’s tempting to think that inflation can be
measured by observing what happens to the stock immediately
after a false statement is made. But that assumption is often
wrong. For example, say the president of a company lies to the
public about earnings (“We made $200 million more than we
predicted this year!”) and immediately afterward the com-
pany’s stock price rises by $10. The new price could be inflated
by exactly $10 if in reality the company had merely met
8                                                     No. 13-3532

expectations and its stock price would have remained the same
had the president told the truth. Or the inflation could be less
than $10 if, say, the company really only made $100 million
more than predicted and the stock price would have risen by
only $5 had the president told the truth. And the inflation
might be significantly more than $10 if the company had
actually made less than predicted and the stock price would
have fallen had the truth been known.
    Note too that a stock can be inflated even if the price
remains the same or declines after a false statement because the
price might have fallen even more (e.g., “We only lost
$100 million this year,” when actually losses were
$200 million). So the movement of a stock price immediately
after a false statement often tells us very little about how much
inflation the false statement caused.
    The best way to determine the impact of a false statement
is to observe what happens when the truth is finally disclosed
and use that to work backward, on the assumption that the
lie’s positive effect on the share price is equal to the additive
inverse of the truth’s negative effect. (Put more simply: what
goes up, must come down.) The plaintiffs hired an expert to do
exactly that kind of financial analysis: Daniel R. Fischel,
founder and president of Lexecon, an economics consulting
firm, who at the time also was Professor of Law and Business
at Northwestern University and Professor Emeritus at the
University of Chicago Law School.3


3
    The defendants acknowledge Fischel’s prominence in the field.
                                                     (continued...)
No. 13-3532                                                                 9

    Fischel prepared two economic models to quantify the
impact of the truth on Household’s stock price. The parties call
the simpler of the two the “specific disclosure” model. Fischel
identified each major disclosure event and then measured the
disclosure’s effect on the stock price on that specific day. This
process is more difficult than simply observing how much the
price declined; part of the decline may have been caused by
market or industry trends. To compensate for this, Fischel used
regression analysis to generate a model that predicted the
movement of Household’s stock based on the movements in
the S&P 500 and the S&P Financials Index, an index of S&P 500
companies in the same industry category as Household. The
effect of a disclosure event was calculated as the actual return
on the day of the disclosure minus the predicted return (using
the regression model and the broader market returns that day).
The amount of inflation in the stock price on any given day is
then just the sum of the effects of all subsequent disclosures of
prior false statements.
    To illustrate how the specific-disclosure model works,
assume that on the day the world discovers that a company
misrepresented its earnings, its stock drops 5%. That same day,
however, the market dropped 2% (assume further that the
model predicts the company will follow the market generally).
The effect of the disclosure is then 3%. If the stock was trading
at around $100, then for every day prior to the disclosure, the


3
  (...continued)
Apparently he’s the expert for this kind of financial analysis; the defendants
tried to hire him as well, but they were too late. His consulting firm is now
known as Compass Lexecon.
10                                                    No. 13-3532

stock was overpriced by $3. If there was a second disclosure
that also caused a $3 drop in price, then for every day prior to
both disclosures, the stock was overpriced by $6.
    In this case there were a total of 14 separate disclosure
events, and the net effect of these (some actually caused the
stock price to rise) was a decline of $7.97 in the stock price. The
final result of the expert’s analysis was a large table listing the
amount Household’s stock was overpriced on any given day
during the class period, the maximum being $7.97.
    One problem with the specific-disclosure model is that the
information contained in a major disclosure event often leaks
out to some market participants before its release. If this
happens, the model will understate the truth’s effect on the
price and thus the amount that the stock was overpriced before
the truth became known. This is so because the specific-
disclosure model only measures price changes on the identified
disclosure days and not the effect of more gradual exposure of
the fraud. For this reason Fischel provided a second model that
the parties refer to as the “leakage” model. This model calcu-
lates every difference, both positive and negative, between the
stock’s predicted returns (using the same regression analysis
described above) and the stock’s actual returns during the
disclosure period. The total sum of these residual returns is
assumed to be the effect of the disclosures. The amount the
stock is overpriced on any given day is the sum of all subse-
quent residual returns.
   As with the specific-disclosure model, the expert’s final
product using the leakage model was a table listing these
amounts. The total sum of the residual returns during the class
No. 13-3532                                                              11

period was $23.94, so that figure was treated as a ceiling. In
other words, if on any given day the sum of subsequent
residual returns exceeded this amount (due to the ups and
downs of the market), the number was replaced with $23.94.
Although this model accounts for the movement of the market
generally, it does not account for company-specific information
unrelated to fraud-corrective disclosures (more on this point in
a moment).
    The most important thing to understand about both models
is that they don’t directly measure inflation caused by false
statements; instead they measure the value of the truth. The
models tell us that value even if no false statement is ever made
because investors might not know the truth for reasons other
than false statements (say, for example, if earnings deteriorate
before the company needs to report them). As soon as a lie is
told, however, the inflation caused by the false statement
becomes equal to the value of the truth (as measured by the
model) because had the statement been truthful, the stock price
would have done what it did do once the truth was revealed.4
  The jurors were given the tables from each model listing the
amount the stock was overpriced on each day during the class


4
  This assumes, however, that the only alternative to a false statement is a
true statement. If no statement was an alternative, then the model is much
less accurate because it measures the effect of the truth, not the effect of
silence. We don’t need to worry about this problem here because most of
the misrepresentations were made in legally required corporate filings. A
few were made to the press or at conferences, but even these were in
response to reports that Household’s true situation might not be as it
appeared. Thus, “no statement” wasn’t really an option.
12                                                    No. 13-3532

period (June 30, 1999 to October 11, 2002). They were also
given a second table that covered the same period but had
blank spaces for each day. Their task was to fill in the amount
the stock was overpriced due to misrepresentations. To do so,
they had to decide two things: (1) when the first actionable
misrepresentation occurred (the plaintiffs claimed there were
40); and (2) which model more accurately measured the effect
of disclosures (i.e., the value of the truth). On any date prior to
the first actionable misrepresentation, the jurors were told to
write a zero. On any date subsequent, they were told to copy
the number from the model they chose.
    The jury followed these instructions perfectly. Of the
40 possibilities, the jury found 17 actionable misrepresenta-
tions, the first of which occurred on March 23, 2001. As
instructed, the jurors found zero stock-price inflation prior to
that date. But starting on that date they adopted and applied
the leakage model. That model estimated that the stock was
overpriced by $23.94 on March 23, 2001, so the jury’s table does
too. The jury’s table thus goes from zero inflation on March 22
to $23.94 worth of inflation on March 23.
    The defendants argue that this is absurd. After all, there
were 40 possible misrepresentations, 17 of which were found
actionable, so how could a single false statement have caused
the entire $23.94 of inflation? They also note that Household’s
stock only went up $3.40 between March 22 and March 23, and
the leakage model’s inflation number only changed by $0.67
(remember, the model only adds on the residual return, which
is actual return minus predicted return). The defendants
intimate that the March 23 statement couldn’t possibly have
No. 13-3532                                                  13

caused inflation to increase by any more than these amounts.
They make similar observations about the 16 other misrepre-
sentations found by the jury, noting that inflation changes only
slightly and sometimes even goes down after each one.
    These objections rest on a fundamental misconception
about the leakage model. Recall that the amount of inflation
caused by a false statement is the difference between the stock
price after the false statement and what it would have been had
the statement reflected the truth. What the model measures is
the effect the truth would have had on the price. Since the net
sum of price declines due to corrective disclosures under this
model was $23.94, the stock was overpriced by that amount
prior to those disclosures. As soon as the first false statement
was made, that overpricing became fully attributable to the
false statement, even if the stock price didn’t change at all,
because had the statement been truthful, the price would have
gone down by $23.94—after all, that’s what it did once the
truth was fully revealed. Similarly, every subsequent false
statement caused the full amount of inflation to remain in the
stock price, even if the price didn’t change at all, because had
the truth become known, the price would have fallen then.
    Another way to think about it is to see that there are two
senses of “inflation.” One is “actual inflation”—just the
difference between the stock price and what the price would
have been if the truth had been known; this is what the expert’s
model measures. The other is “fraud-induced inflation”—the
difference between the stock price and what the price would
have been if the defendants had spoken truthfully; this is what
the jury determined using the model plus its findings regarding
14                                                   No. 13-3532

false statements. Before the first false statement is made, there
is “actual inflation” in the stock price but no “fraud-induced
inflation” because although the stock is overpriced, misrepre-
sentations are not the cause. But as soon as the first false
statement is made, fraud-induced inflation becomes equal to
actual inflation. Thus, fraud-induced inflation can go from zero
to a very large number, even if the stock price doesn’t change
at all. In fact, the defendants’ own expert acknowledged that
inflation—of the fraud-induced type—can increase even if the
stock price doesn’t change and that it must be zero before the
first false statement.
    The defendants argue that the leakage model of loss
causation was legally insufficient because the plaintiffs “made
no attempt to prove how Household’s stock price became
inflated in the first instance,” but, rather, just “assumed that
Household’s stock price was artificially inflated on the first day
of the Class Period due to unspecified pre-Class Period
misrepresentations and omissions.” They note that Fischel’s
tables—under both the specific-disclosure model and the
leakage model—show the stock as inflated on the very first day
of the class period. True, but neither model assumed that
Household’s share price was inflated due to misrepresentations.
Instead, the models measure what we have called “actual
inflation”—inflation due to investors not knowing the truth.
Actual inflation could have resulted from prior misrepresenta-
tions or just from the company’s fundamentals having deterio-
rated without investors knowing about it. How the stock
became inflated in the first place is irrelevant because each
subsequent false statement prevented the price from falling to
No. 13-3532                                                     15

its true value and therefore caused the price to remain ele-
vated.
    The plaintiffs point all this out in their brief. In reply the
defendants object that the plaintiffs are vacillating between two
separate and legally distinct theories of loss causation. A false
statement that prevents a stock price from falling is an
“inflation-maintenance theory,” which (they say) requires the
plaintiffs to prove how the inflation was introduced into the
stock price in the first place. (There is no law to support this
proposition.) If, on the other hand, the plaintiffs are using an
“inflation-introduction theory,” then the jury couldn’t possibly
have attributed the full $23.94 of inflation to the March 23
statement because the model assumed there was inflation
before that date. (This argument conflates actual inflation with
fraud-induced inflation, as we’ve just explained.)
     More fundamentally, theories of “inflation maintenance”
and “inflation introduction” are not separate legal categories.
Our decision in Schleicher v. Wendt, 

(7th Cir. 2010),
is instructive on this point. There the parties argued about the
distinction between misrepresentations that cause a stock price
to rise and those that prevent it from falling, as if that distinc-
tion had some legal significance in the loss-causation analysis.
We explained why it does not:
       When an unduly optimistic false statement
       causes a stock’s price to rise, the price will fall
       again when the truth comes to light. Likewise
       when an unduly optimistic statement stops a
       price from declining (by adding some good news
       to the mix): once the truth comes out, the price
16                                                    No. 13-3532

        drops to where it would have been had the
        statement not been made. … But it should be
        clear that this is just a mirror image of the situa-
        tion for the same figures in black ink, rather than
        red. … Whether the numbers are black or red,
        the fraud lies in an intentionally false or mislead-
        ing statement, and the loss is realized when the
        truth turns out to be worse than the statement
        implied.

     The Eleventh Circuit agrees:
            The district court erroneously assumed that
        simply because confirmatory false statements
        have no immediate effect on an already inflated
        stock price in an efficient market, these state-
        ments cannot cause harm. But the inflation level
        need not change for new investors to be injured
        by a false statement. Fraudulent statements that
        prevent a stock price from falling can cause harm
        by prolonging the period during which the stock
        is traded at inflated prices. We therefore hold
        that confirmatory information that wrongfully
        prolongs a period of inflation—even without
        increasing the level of inflation—may be action-
        able under the securities laws.
FindWhat Investor Grp. v. FindWhat.com, 

, 1314
(11th Cir. 2011).
No. 13-3532                                                     17

    In short, what the plaintiffs had to prove is that the
defendants’ false statements caused the stock price to remain
higher than it would have been had the statements been
truthful. Fischel’s models calculated the effect of the truth, once
it was fully revealed, and the jury found that the defendants
concealed the truth through false statements. That is enough.
    The defendants have two additional arguments that stand
on stronger ground, however. First, they argue that the leakage
model, which the jury adopted, did not account for firm-
specific, nonfraud factors that may have affected the decline in
Household’s stock price. That is true; Fischel acknowledged
this in his testimony. The model assumes that any changes in
Household’s stock price—other than those that can be ex-
plained by general market and industry trends—are attribut-
able to the fraud-related disclosures. If during the relevant
period there was significant negative information about
Household unrelated to these corrective disclosures (and not
attributable to market or industry trends), then the model
would overstate the effect of the disclosures and in turn of the
false statements. Of course, this can cut both ways. If during
the relevant period there was significant positive information
about Household, then the model would understate the effect
of the disclosures.
    Firm-specific, nonfraud factors were not entirely ignored,
however. Although the leakage model doesn’t account for their
effect, Fischel testified that he looked for company-specific
factors during the relevant period and did not find any
significant trend of positive or negative information apart from
the fraud-related disclosures:
18                                                  No. 13-3532

       Q. And did you also analyze whether company-
       specific factors unrelated to the alleged fraud can
       explain Household’s stock price decline during
       [the disclosure period]?
       A. Yes, I did. I looked at that carefully.
          I noticed that there were a lot of disclosures
       that had some fraud-related information in it and
       some other … part … [that] dealt with something
       other [than that which] was fraud related.
           There were some … of those disclosures that
       had a positive effect, some had a negative effect;
       but overall it was impossible to conclude that the
       difference between the true value line and the
       actual price would have been any different had
       there been no disclosures about non-fraud-
       related information during this particular period.
       Some positive, some negative. They cancel each
       other out.
   The plaintiffs also introduced e-mails and reports from
Household executives attributing the entirety of the stock’s
decline to the fraud-related disclosures, and the record
contains various reports from market analysts primarily
focused on this information. In addition, other evidence loosely
corroborates the inflation figure produced by the leakage
model ($23.94). For example, when Household embarked on its
aggressive growth strategy, one executive (Gary Gilmer, a
defendant here) suggested that the stock price could increase
by “over 22 dollars a share.”
No. 13-3532                                                    19

    The defendants contend that this was not enough. Because
it was the plaintiffs’ burden to prove loss causation, they argue
that the leakage model needed to eliminate any firm-specific,
nonfraud related factors that might have contributed to the
stock’s decline. This argument relies on the Supreme Court’s
opinion in Dura Pharmaceuticals.
    The precise issue in Dura is unimportant here, so we’ll
describe the case only briefly. The Ninth Circuit had held that
in order to plead loss causation in a securities-fraud case,
plaintiffs need only allege that the share price was inflated
when they purchased their stock. The Supreme Court dis-
agreed, holding that plaintiffs must also allege that the stock
price declined once the truth was revealed, because if they also
sold their stock while it was still inflated, there would be no

.
    In our case the plaintiffs proved that Household’s share
price declined after the truth came out, so the problem identi-
fied in Dura is not present here. But the Court’s opinion also
contains this very important passage:
       If the purchaser sells later after the truth makes
       its way into the marketplace, an initially inflated
       purchase price might mean a later loss. But that
       is far from inevitably so. When the purchaser
       subsequently resells such shares, even at a lower
       price, that lower price may reflect, not the earlier
       misrepresentation, but changed economic cir-
       cumstances, changed investor expectations, new
       industry-specific or firm-specific facts, conditions,
       or other events, which taken separately or together
20                                                   No. 13-3532

       account for some or all of that lower price. (The
       same is true in respect to a claim that a share’s
       higher price is lower than it would otherwise
       have been—a claim we do not consider here.)
       Other things being equal, the longer the time
       between purchase and sale, the more likely that
       this is so, i.e., the more likely that other factors
       caused the loss.
           Given the tangle of factors affecting price, the
       most logic alone permits us to say is that the
       higher purchase price will sometimes play a role
       in bringing about a future loss.

(second emphasis added).
   So in order to prove loss causation, plaintiffs in securities-
fraud cases need to isolate the extent to which a decline in
stock price is due to fraud-related corrective disclosures and
not other factors. See Hubbard v. BankAtl. Bancorp, Inc., 

, 725–26 (11th Cir. 2012); Miller v. Asensio & Co., Inc.,

, 232 (4th Cir. 2004).
    Fischel’s models controlled for market and industry factors
and general trends in the economy—the regression analysis
took care of that. But the leakage model, which the jury
adopted, didn’t account for the extent to which firm-specific,
nonfraud related information may have contributed to the
decline in Household’s share price. Fischel testified—albeit in
very general terms—that he considered this possibility and
ruled it out. The question is whether that’s enough or whether
the model itself must fully account for the possibility that firm-
specific, nonfraud factors affected the stock price.
No. 13-3532                                                                21

    On this point the defendants refer us to several cases
rejecting leakage models similar or identical to the one used
here. Each of these cases, however, is different in an important
respect. For example, one case rejected a leakage model where
the plaintiff hadn’t identified any mechanism of corrective
disclosure. In re Williams Sec. Litig.–WCG Subclass, 

, 1137–38 (10th Cir. 2009) (“To satisfy the requirements of
Dura, … any theory—even a leakage theory that posits a
gradual exposure of the fraud rather than a full and immediate
disclosure—will have to show some mechanism for how the
truth was revealed. … The inability to point to a single correc-
tive disclosure does not relieve the plaintiff of showing how
the truth was revealed; he cannot say, ‘Well, the market must
have known.’”). Here, however, the plaintiffs identified
14 separate disclosure events, and they also presented evidence
that the content of the disclosures was leaking out to the
market gradually prior to their release.
    The other cases cited by the defendants rejected the leakage
model for failing to account for firm-specific, nonfraud-related
information that was both clearly identified and significant in
proportion to the disclosures.5 Here, in contrast, Fischel


5
 In Fener v. Operating Engineers Construction Industry & Miscellaneous Pension
Fund (Local 66), 

(5th Cir. 2009), the loss-causation model was
used to determine the effect of a single press release that contained three
parts, two of which were unrelated to disclosures of fraud, but the model
failed to account for those parts. The Fifth Circuit “reject[ed] any event
study that shows only how a stock reacted to the entire bundle of negative
information, rather than examining the evidence linking the culpable
disclosure to the stock-price movement.” 

(internal quotation
                                                                (continued...)
22                                                             No. 13-3532

testified that although there were mixed disclosures during the
relevant time period—disclosures that contained both fraud-
related and nonfraud information—the nonfraud related
information wasn’t significantly positive or negative. Unfortu-
nately, his testimony was very general on this point; neither
side bothered to develop it. And the defendants haven’t
identified any firm-specific, nonfraud related information that
could have significantly distorted the model.
    To our knowledge, no court has either upheld or rejected
the use of a leakage model in circumstances similar to this
case—probably because these cases rarely make it to trial. That
said, the Supreme Court has generally recognized that the
truth can leak out over time. See 

(“But if,
say, the purchaser sells the shares quickly before the relevant
truth begins to leak out, the misrepresentation will not have led
to any loss.”) (emphasis added). So have we. See 

(“[T]ruth can come out, and affect the market



5
 (...continued)
marks omitted). In In re REMEC Inc. Securities Litigation, 

, 1274 (S.D. Cal. 2010), the court rejected the expert’s model because
“each of the five identified disclosures, including the three corrective
disclosures, contained multiple pieces of company specific information,
some negative, some positive, some allegedly fraud related, and some not.”
The other cases cited by the defendants are to the same effect. See United
States v. Ferguson, 

, 453 n.7 (D. Conn. 2008) (“The
defendants cited several confounding factors during the 30-day event
window [that the model did not account for].”); In re Omnicrom Grp., Inc.
Sec. Litig., 

(S.D.N.Y. 2008) (explaining that a Wall Street
Journal article that caused a drop in stock price was either unrelated to
disclosures of fraud or was already known to market participants).
No. 13-3532                                                            23

price, in advance of a formal announcement.”). And other
circuits have acknowledged the viability of the leakage theory,
at least in principle. See, e.g., In re Flag Telecom Holdings, Ltd.
Sec. Litig., 

, 40–41, 40 n.5 (2d Cir. 2009) (noting the
“plausibility” of a “leakage” theory but rejecting it in that
particular case because the plaintiffs “failed to demonstrate
that any of the information [had] ‘leaked’ into the market”).
    The defendants argue that to be legally sufficient, any loss-
causation model must itself account for, and perfectly exclude,
any firm-specific, nonfraud related factors that may have
contributed to the decline in a stock price.6 It may be very
difficult, if not impossible, for any statistical model to do this.
See Janet Cooper Alexander, The Value of Bad News in Securities
Class Actions, 41 UCLA L. REV. 1421, 1452, 1469 (1994); Esther
Bruegger & Frederick C. Dunbar, Estimating Financial Fraud
Damages with Response Coefficients, 35 J. CORP. L. 11, 25 (2009);
Frederick C. Dunbar & Arun Sen, Counterfactual Keys to
Causation and Damages in Shareholder Class-Action Lawsuits,
2009 WIS. L. REV. 199, 242 (2009). Accepting the defendants’
position likely would doom the leakage theory as a method of
quantifying loss causation. On the other hand, if it’s enough for
a loss-causation expert to offer a conclusory opinion that no
firm-specific, nonfraud related information affected the stock
price during the relevant time period, then it may be far too
easy for plaintiffs to evade the loss-causation principles
explained in Dura.

6
 The defendants are joined in this argument by the Securities Industry and
Finance Markets Association—an advocacy group representing banks,
securities firms, and asset managers—as amicus curiae.
24                                                            No. 13-3532

    There is a middle ground. If the plaintiffs’ expert testifies
that no firm-specific, nonfraud related information contributed
to the decline in stock price during the relevant time period
and explains in nonconclusory terms the basis for this opinion,
then it’s reasonable to expect the defendants to shoulder the
burden of identifying some significant, firm-specific, nonfraud
related information that could have affected the stock price. If
they can’t, then the leakage model can go to the jury; if they
can, then the burden shifts back to the plaintiffs to account for
that specific information or provide a loss-causation model that
doesn’t suffer from the same problem, like the specific-
disclosure model.7 One possible way to address the issue is to
simply exclude from the model’s calculation any days identi-
fied by the defendants on which significant, firm-specific,
nonfraud related information was released. See Allen Ferrell &
Atanu Saha, The Loss Causation Requirement for Rule 10B-5
Causes of Action: The Implications of Dura Pharmaceuticals,
Inc. v. Broudo, 63 BUS. LAW. 163, 169 (2007).
    Because this case is one of the few to make it to trial on a
leakage theory, the process of submitting the loss-causation
issue to the jury was understandably ad hoc.8 In light of Dura,
however, we conclude that the evidence at trial did not

7
 Here, of course, the plaintiffs submitted Fischel’s specific-disclosure model
to the jury as an alternative method for quantifying loss causation. But this
method might encounter the same problem, if indeed there was some
additional negative firm-specific, nonfraud related information on the same
day as a specific disclosure.

8
 We intend no criticism of the district judge. To the contrary, he handled
this complex and difficult case with thoroughness and care.
No. 13-3532                                                    25

adequately account for the possibility that firm-specific,
nonfraud related information may have affected the decline in
Household’s stock price during the relevant time period. As
things stand, the record reflects only the expert’s general
statement that any such information was insignificant. That’s
not enough. A new trial is warranted on the loss-causation
issue consistent with the approach we’ve sketched in this
opinion.
    The defendants have one final argument about loss causa-
tion, which they raise for the first time on appeal. We’ll address
it anyway since the problem is easily resolved on remand. The
plaintiffs’ leakage model calculates the effect of full disclosure
of all three of Household’s bad practices: predatory lending, re-
aging delinquent loans, and misrepresenting earnings. The first
actionable false statement found by the jury, however, only
addressed predatory lending. Based on the assumptions
underlying the leakage model, it can’t be the case that the stock
price would have fallen fully had this statement reflected the
truth; investors would not yet have learned of Household’s re-
aging practices or true earnings.
    The defendants correctly note this problem, but it happens
to only have a minor effect in this case. The second actionable
false statement came on March 28, 2001, only three trading
days later, and it covered all three bad practices. Had this
statement been true, the market would have been fully
informed and the stock would have dropped to its true value.
The defendants maintain that this problem undermines the
entire model: The effect may be modest here, but what if the
26                                                          No. 13-3532

jury had found a different first false statement and the gap was
much larger?
    As support for this position, the defendants rely on Comcast
Corp. v. Behrend, 

(2013), but that case doesn’t
require us to wholly reject the leakage model. Comcast was a
class action alleging that a cable-television provider’s pricing
violated the Sherman Act in four separate ways. 

The plaintiffs submitted a damages model that computed what
the cable services would have cost but for all four categories of
antitrust violations. The issue was whether class certification
was appropriate. The district court held that only one of the
four theories of antitrust impact was capable of class-wide
proof, but the court also held that damages could be proved on
a class-wide basis via the plaintiffs’ model. 

The
Supreme Court reversed because the model did not separate
damages by category. In other words, because the class could
only proceed on one theory of antitrust impact, the plaintiffs
were left with no correspondingly limited class-wide way to
prove damages. 

    Here, on the other hand, the jury found that Household and
its executives lied about all three categories of bad practices.
Accordingly, the Comcast principle applies, at most, to the
period between the first false statement and the date—just
three days later—on which the jury found actionable false
statements addressing all three bad practices.9


9
 So, for example, if the first false statement only addressed one of three
categories of fraud and the second statement addressed the other two
                                                             (continued...)
No. 13-3532                                                            27

    There is a simple solution to this problem: instruct the
jurors that if the first actionable misrepresentation relates only
to one or two of the three categories of fraud, they should find
zero inflation in the stock (or some fraction of the model
they’ve chosen) until there are actionable misrepresentations
addressing all three. This option wasn’t considered below
because the defendants never raised this specific objection
(they objected to the leakage model more generally), but the
point is that the problem doesn’t defeat the expert’s model.
     The defendants do not challenge the jury’s misrepresenta-
tion findings, so the 17 actionable false statements are fixed; we
need only worry about those three trading days. If the plain-
tiffs can supply evidence that some fraction of their model is a
reasonable estimate of the effect of predatory lending alone,
then the new jury may consider that number. Otherwise, the
jury should be instructed to enter zero inflation for those three
days.


B. Janus Error
    Next up is a claim of instructional error. The defendants
argue that the jury was incorrectly instructed on what it means
to “make” a false statement in violation of the securities laws.



9
 (...continued)
categories (but not all three), then the model would be accurate after the
second statement because at that point had both statements been truthful,
the truth would have been fully known and the price would have fallen to
the value it did fall to once the truth was disclosed.
28                                                  No. 13-3532

The relevant part of the instruction was as follows (with the
offending phrase italicized):
          To prevail on their 10b-5 claim against any
       defendant, plaintiffs must prove … :
           (1) the defendant made, approved, or furnished
       information to be included in a false statement of
       fact … during the relevant time period between
       July 30, 1999 and October 11, 2002 … .
    After the Phase I trial concluded, and while Phase II
proceedings were underway, the Supreme Court issued its
decision in Janus narrowly construing what it means to “make”
a false statement in violation of Rule 10b-5. The specific issue
in Janus was whether a mutual fund investment advisor could
be held liable for false statements contained in the prospectuses
of its client mutual 

. The investment
advisor in Janus was wholly owned by the company that
created its client mutual funds, and there also was some
management overlap. 

advisor had substan-
tially assisted in the preparation of the prospectuses, it argued
that it was not the “maker” of the false statements for purposes
of Rule 10b-5. The Supreme Court agreed:
           For purposes of Rule 10b-5, the maker of a
       statement is the person or entity with ultimate
       authority over the statement, including its con-
       tent and whether and how to communicate it.
       Without control, a person or entity can merely
       suggest what to say, not “make” a statement in
       its own right. One who prepares or publishes a
       statement on behalf of another is not its maker.
No. 13-3532                                                                29

        And in the ordinary case, attribution within a
        statement or implicit from surrounding circum-
        stances is strong evidence that a statement was
        made by—and only by—the party to whom it is
        attributed. This rule might best be exemplified
        by the relationship between a speechwriter and
        a speaker. Even when a speechwriter drafts a
        speech, the content is entirely within the control
        of the person who delivers it. And it is the speak-
        er who takes credit—or blame—for what is
        ultimately said.

    In light of Janus, the defendants moved for a new trial,
arguing that the “approved or furnished information” lan-
guage in the jury instruction misstated the law and had the
effect of holding some of them liable for false statements that
they did not “make,” as the Supreme Court construed that
term. The judge denied the motion, reasoning that the Court’s
holding applied only to legally independent third parties (like
the investment advisor in Janus itself), not corporate insiders
like the individual defendants here, all top executives at
Household.10


10
   As support for this ruling, the judge relied in part on In re Satyam
Computer Services Ltd. Securities Litigation, 

(S.D.N.Y.
2013), and In re Smith Barney Transfer Agent Litigation, 

(S.D.N.Y. 2012), but neither case held that Janus does not apply to corporate
insiders. Smith Barney held that corporate executives who sign documents
are the “makers” of the statements contained in the documents even though
                                                                (continued...)
30                                                             No. 13-3532

    That was error. Nothing in Janus limits its holding to legally
independent third parties. The Court interpreted the language
of Rule 10b-5, which makes it “unlawful for any person … [t]o
make any untrue statement of material fact” in connection with
the purchase or sale of securities. 17 C.F.R. § 240.10b-5(b). The
Court’s interpretation applies generally, not just to corporate
outsiders.11
    And there can be little doubt that the instruction used here
directly contradicts Janus. The judge instructed the jury that the
plaintiffs could prevail on their Rule 10b-5 claim if they proved
that the defendant “made, approved, or furnished information to
be included in a false statement.” (Emphasis added.) This goes

10
  (...continued)
the company has the ultimate authority over the documents. 

at 163–64. And Satyam held that Janus did not overturn the “group
pleading 

n.16, a pleading rule for alleging
scienter that we rejected long before Janus. See Pugh v. Tribune Co., 

, 693 (7th Cir. 2008).

11
   We note that this issue has divided the district courts. Compare, e.g., City
of Pontiac Gen. Emps.’ Ret. Sys. v. Lockheed Martin Corp., 

,
374 (S.D.N.Y. 2012) (“Janus … addressed only whether third parties can be
held liable for statements made by their clients. … [It] has no bearing on
how corporate officers who work together in the same entity can be held
jointly responsible … .”), with Haw. Ironworkers Annuity Trust Fund v. Cole,
No. 3:10CV371, 

, at *4 (N.D. Ohio Sept. 1, 2011) (“[Janus’s]
interpretation of the verb ‘to make’ is an interpretation of the statutory
language … and therefore cannot be ignored simply because the defendants
are corporate insiders.”), and In re UBS AG Sec. Litig., No. 07 Civ.
11225(RJS), 

, at *10–11 (S.D.N.Y. Sept. 28, 2012), aff’d

(2d Cir. 2014) (rejecting an argument that Janus applies only to
third parties and not corporate insiders).
No. 13-3532                                                                    31

well beyond the narrow interpretation adopted in Janus. 

(“Adopting the Government’s definition of
‘make’ would … lead to results inconsistent with our
precedent … [because it] would permit private plaintiffs to sue
a person who ‘provides the false or misleading information
that another person then puts into the statement.’”). The
instruction plainly misstated the law.
    Still, we must decide whether this error caused the defen-
dants any prejudice.12 See Jimenez v. City of Chicago, 

, 717 (7th Cir. 2013). The four defendants in this case are
William Aldinger, Household’s CEO; David Schoenholz, the
CFO; Gilmer, Vice-Chairman and President of Consumer
Lending; and Household itself. Of the 17 actionable false
statements, 14 were contained in SEC filings or official
Household press releases. The remaining three were delivered
by the executives: one was a statement by Gilmer to the media;
another was a presentation by Aldinger to Goldman Sachs; and



12
  Citing Dawson v. New York Life Insurance Co., 

(7th Cir. 1998),
the defendants argue that this kind of error is always prejudicial and
automatically requires a new trial. Dawson held that when a jury is
instructed on multiple theories, one of which is incorrect, “its verdict must
be set aside even if the verdict may have been based on a theory on which
the jury was properly instructed.” 

Other cases suggest some-
thing similar. See, e.g., Byrd v. Ill. Dept. of Pub. Health, 

, 709 (7th
Cir. 2005); Saturday Evening Post Co. v. Rumbleseat Press, Inc., 

,
1197 (7th Cir. 1987); Simmons, Inc. v. Pinkerton’s, Inc., 

, 599 n.3
(7th Cir. 1985). This line of cases has been displaced by more recent
Supreme Court decisions holding that this kind of error is reviewed for
harmlessness, even in a criminal case. See Skilling v. United States, 

, 414 (2010); Hedgpeth v. Pulido, 

, 59 (2008) (per curiam).
32                                                     No. 13-3532

the third was a presentation by Schoenholz at Household’s
annual “Investor Relations Conference.”


     1. Household
    The prejudice analysis is easiest for Household, so we’ll
start there. The company stipulated that it “made” all state-
ments in its SEC filings and press releases. That leaves only the
three false statements delivered by the three executives.
Nothing in Janus undid the long-standing rule that “[a]
corporation is liable for statements by employees who have
apparent authority to make them.” Makor Issues & Rights, Ltd.
v. Tellabs, Inc., 

, 708 (7th Cir. 2008) (citing Am. Soc.
of Mech. Eng’rs, Inc. v. Hydrolevel Corp., 

, 568 (1982));
see also Fulton Cnty. Emps. Ret. Sys. v. MGIC Inv. Corp., 

, 1051 (7th Cir. 2012) (noting that executives speak for
themselves and for their organization). The instructional error
clearly did not prejudice Household.


     2. Aldinger
   Aldinger concedes that he “made” all the statements in
Household’s SEC filings and in his own presentation to
Goldman Sachs. The plaintiffs claim that Aldinger also agrees
that he “made” the statements in the press releases, but we
can’t find that concession anywhere in the record.
    We’re hesitant to hold as a matter of law that a CEO
“makes” all statements contained in a company press release,
as that term was narrowly defined in Janus. We haven’t been
No. 13-3532                                                   33

directed to evidence showing that Aldinger’s signature or
name appeared in the press releases in the sense of an attribu-
tion. See 

(“[I]n the ordinary case,
attribution within a statement … is strong evidence that a
statement was made by—and only by—the party to whom it
is attributed.”); cf. Peterson v. Winston & Strawn LLP, 

, 752 (7th Cir. 2013) (noting that the defendant law firm
would probably not be liable for the contents of a circular it
helped prepare because it “did not sign the document or
warrant the truth of its contents”). Nor does it appear that he
actually delivered the statements in the press releases
himself—say, for example, by reading them at a press confer-
ence. See 

(“One ‘makes’ a statement by
stating it.”). Absent either attribution or actual delivery, the
Janus inquiry turns on control. 

(“[T]he rule we adopt
today [is] that the maker of a statement is the entity with
authority over the content of the statement and whether and
how to communicate it.”).
    As CEO, Aldinger of course had authority over the press
releases in the sense that he could have exercised control over
their content. But if that were enough to satisfy Janus, then
CEOs would be liable for any statements made by their
employees acting within the scope of their employment. That
wouldn’t square with the Court’s reminder about “the narrow
scope that we must give the implied private right of action”
under Rule 10b-5. 

we understand Janus, Aldinger
must have actually exercised control over the content of the
press releases and whether and how they were communicated.
That’s an inherently fact-bound inquiry, and it can’t be
answered on this record. Accordingly, as to Aldinger’s liability
34                                                    No. 13-3532

for the press releases, the Janus error was prejudicial, and he is
entitled to a new trial.
    The error was not prejudicial as to Aldinger’s liability for
Gilmer’s false statement to the media, however. The evidence
at trial clearly established that Aldinger “made” this statement
in the sense meant by Janus. Aldinger drafted the statement in
response to growing protests about Household’s predatory
lending practices, and he sent it to various executives, includ-
ing Gilmer, in an e-mail that said, “Attached to this [e-mail] is
our media holding statement … .” Gilmer simply read the
statement verbatim to the media. As the CEO and the actual
author of the statement, Aldinger had the “ultimate authority”
over its content and whether and how to communicate it, the
touchstone of Janus. 

    The defendants contend that the question of prejudice must
be considered in light of the jury’s findings on scienter. They
note, for example, that the jury found Household and Aldinger
responsible for “making” the Gilmer statement knowingly,
while Gilmer, who actually delivered it, was found to have
made it recklessly. The defendants suggest that this kind of
combination is impossible after Janus. We do not see why.
Nothing in Janus precludes a single statement from having
multiple makers. See In re Pfizer Inc. Sec. Litig., 

, 268–69 (S.D.N.Y. 2013); City of 

; City of Roseville Emps.’ Ret. Sys. v. EnergySolutions, Inc.,

, 417 (S.D.N.Y. 2011). And it’s not illogical
to conclude that Aldinger, who wrote the statement and
instructed Gilmer to deliver it, acted knowingly, while Gilmer,
who simply parroted it, was merely reckless as to its falsity.
No. 13-3532                                                    35

    That leaves the presentation by Schoenholz at the Investor
Relations Conference. The plaintiffs argue that Aldinger’s
presence in the room, and his participation in a question-and-
answer session afterward, demonstrate that he controlled the
content of the presentation, and that’s enough to satisfy Janus.
We agree that post-Janus, liability for “making” a false state-
ment can be established by inferences drawn from surrounding
circumstances. But we can’t say with confidence that
Aldinger’s actions at the conference satisfy the Janus standard.
They may, but a properly instructed jury might conclude
otherwise.
    Finally, the plaintiffs argue that the Janus error cannot have
prejudiced Aldinger because he was found secondarily liable
under § 20(a) of the Securities Exchange Act, which provides
that “[e]very person who … controls any person liable under
any provision of this chapter … shall also be liable jointly and
severally with and to the same extent as such controlled
person.” 15 U.S.C. § 78t(a). The jury found, for purposes of
§ 20(a), that Aldinger and Schoenholz were controlling persons
with respect to each other and with respect to Household and
Gilmer. Because Household issued the press releases and
Schoenholz gave the presentation, this means that Aldinger is
secondarily liable for their statements.
    Even so, Aldinger may have been affected by the jury’s
allocation of responsibility for the plaintiffs’ losses. When
multiple defendants are found liable, the jury is required to
apportion fault between them. 

The jury
allocated 55% responsibility to Household, 20% to Aldinger,
15% to Schoenholz, and 10% to Gilmer. With a proper
36                                                                  No. 13-3532

instruction on what it means to “make” a false statement, the
jury might allocate responsibility differently.13
   Accordingly, Aldinger is entitled to a new trial on whether
he “made” the false statements in Household’s press releases
and in Schoenholz’s presentation at the Investor Relations
Conference.


     3. Schoenholz
   Schoenholz’s situation is almost identical to Aldinger’s. He
concedes that he “made” the false statements in the SEC filing
and in his own presentation at the Investor Relations Confer-
ence. He was not found liable for Gilmer’s statement to the
media. That leaves only the press releases and Aldinger’s
presentation to Goldman Sachs. For the reasons already


13
  How exactly this would affect Aldinger legally is somewhat complicated.
Liability is generally assigned proportionately using the jury’s determina-
tion of responsibility, see 15 U.S.C. § 78u-4(f)(2)(B), but a defendant can be
jointly and severally liable if he knowingly violated the law, see 

The jury found him liable for one knowing violation (the
one we’ve just described), though it’s not clear whether that makes him
jointly and severally liable for all misstatements or only the one he
knowingly made. See Regents of Univ. of Cal. v. Credit Suisse First Bos. (USA),
Inc., 

, 404–07 (5th Cir. 2007). Nor is it clear how proportional
liability and § 20(a) interact. See Laperriere v. Vesta Ins. Grp., Inc., 

(11th Cir. 2008) (per curiam). We don’t need to resolve these issues because
even if Aldinger is jointly and severally liable for all 17 misstatements—
either through § 78u-4(f)(2)(A) or § 20(a) or some combination thereof—he
is still entitled to seek contribution from the other defendants. See Musick,
Peeler & Garrett v. Emp’rs Ins. of Wausau, 

(1993). So the size of
his share of responsibility matters.
No. 13-3532                                                    37

discussed, Schoenholz is entitled to a new trial on whether he
“made” those particular false statements, as that term was
defined in Janus.


   4. Gilmer
    As for Gilmer, he actually delivered only one of the
17 actionable false statements. The plaintiffs argue that he was
also a “maker” of the false statements in the SEC filings and
press releases because as a high-ranking officer, he reviewed
and approved them. But the same could have been said for the
investment advisor in Janus. And as we’ve already explained,
Janus can’t be ignored simply because Gilmer is a corporate
insider. So for all but the statement to the media that he himself
delivered, the Janus error prejudiced Gilmer.
                            *   *   *
    To summarize, Aldinger is entitled to a new trial to deter-
mine whether he was the “maker,” in the Janus sense, of the
false statements in Household’s press releases and
Schoenholz’s presentation. Schoenholz is entitled to a new trial
to determine whether he “made” the false statements in the
press releases and in Aldinger’s presentation to Goldman
Sachs. Gilmer is entitled to a new trial to determine whether he
“made” any of the actionable false statements beyond the one
he personally delivered to the media.
    For clarity’s sake, we add that the defendants may not
relitigate whether any of the 17 statements were false or
material. The jury’s secondary liability findings also remain
undisturbed. Those issues were not challenged on appeal and
38                                                    No. 13-3532

do not need to be retried. Of course, the plaintiffs likewise can’t
relitigate the other 23 statements. The new trial should focus on
whether the three executives “made” the particular statements
we’ve identified and whether they did so knowingly or
recklessly. The new jury will also have to reallocate responsi-
bility between the four defendants.


C. Reliance
    Finally, the defendants argue that the district court’s
Phase II rulings deprived them of a meaningful opportunity to
rebut the presumption of reliance. Reliance on a misrepresenta-
tion (sometimes called “transaction causation”) is an essential
element of a Rule 10b-5 action, but the Supreme Court has
recognized a rebuttable presumption of reliance for anyone
who purchased a security in an efficient market. See Basic Inc. v.
Levinson, 

(1988); see also Halliburton, 

(reaffirming Basic, but holding that defendants can rebut the
presumption at the class-certification stage). The presumption
recognized in Basic is premised on the “fraud on the market”
theory, which posits that “in an open and developed securities
market, the price of a company’s stock is determined by the
available material information regarding the company and its
business. … Misleading statements will therefore defraud
purchasers of stock even if the purchasers do not directly rely
on the misstatements.” 

–42 (internal
quotation marks omitted).
    To invoke the presumption, the plaintiffs must prove:
“(1) that the alleged misrepresentations were publicly known,
(2) that they were material, (3) that the stock traded in an
No. 13-3532                                                     39

efficient market, and (4) that the plaintiff traded the stock
between the time the misrepresentations were made and when
the truth was revealed.” 

. There’s
no dispute that these prerequisites were met here.
    The Basic presumption is a strong one. The Supreme Court
noted that it’s “hard to imagine that there ever is a buyer or
seller who does not rely on market integrity. Who would
knowingly roll the dice in a crooked crap game?” 

–47 (quoting Schlanger v. Four-Phase Sys. Inc.,

, 538 (S.D.N.Y. 1982)). Even so, the presump-
tion can be rebutted by “[a]ny showing that severs the link
between the alleged misrepresentation and either the price
received (or paid) by the plaintiff, or his decision to trade at a
fair market price.” 

(quoting 

).
    Basic identified three circumstances in which the presump-
tion might be rebutted. First, if “‘market makers’ were privy to
the truth,” then the price would not be affected by misrepre-
sentations. 

. Similarly, if news of the truth
had “entered the market and dissipated the effects of the
misstatements, those who traded … after the corrective
statements would have no direct or indirect connection with
the fraud.” 

(These two methods of rebutting the
presumption are sometimes called “truth on the market”
defenses.) Finally, defendants may rebut the Basic presumption
by showing that individual plaintiffs traded “without relying
on the integrity of the market.” 

“For example, a
plaintiff who believed … statements were false … and … that
[the securities were] artificially underpriced, but sold …
40                                                     No. 13-3532

[anyway] because of other unrelated concerns, … could not be
said to have relied on the integrity of a price he knew had been
manipulated.” 

the Supreme Court summarized these
examples as follows:
        [I]f a defendant could show that the alleged
        misrepresentation did not, for whatever reason,
        actually affect the market price, or that a plaintiff
        would have bought or sold the stock even had he
        been aware that the stock’s price was tainted by
        fraud, then the presumption of reliance would
        not 

.
   The defendants argue that the district court’s Phase II
procedures deprived them of a meaningful opportunity to
rebut the presumption for most class members. Resolving this
argument requires some additional procedural background.


     1. Phase II Procedures
    In Phase I the jury addressed all issues that were appropri-
ate for class-wide resolution—e.g., whether any of the
40 possible false statements were actionable misrepresenta-
tions, whether they were material, who was liable for which
misrepresentations, and how much inflation the actionable
misrepresentations caused in the stock price. Phase II ad-
dressed the remaining issues—e.g., reliance questions and the
calculation of individual class members’ damages.
No. 13-3532                                                41

    The defendants wanted to conduct substantial discovery
during Phase II in an attempt to rebut the presumption of
reliance for each class member. Initially, however, the judge
significantly limited the scope of this discovery. He reasoned
that the first two methods of rebutting the Basic presump-
tion—either showing that the market was privy to the truth all
along or that the truth had entered the market and dissipated
the effects of the misstatements—had already been rejected by
the jury in Phase I. The only remaining way to rebut the
presumption was for the defendants to show that individual
plaintiffs bought or sold Household stock without relying on
the integrity of the market.
   To streamline discovery on that question, the judge
required all class members to answer a preliminary interroga-
tory:
      If you had known at the time of your purchase of
      Household stock that defendants’ false and
      misleading statements had the effect of inflating
      the price of Household[’s] stock and thereby
      caused you to pay more for Household stock
      than you should have paid, would you have still
      purchased the stock at the inflated price you
      paid? YES__ NO__.
If class members answered this question “no,” then it did not
matter how or why they purchased Household’s stock (e.g., via
a trading algorithm or as part of a hedging strategy) because
they bought at the market price on the assumption that there
was no fraud cooked into the price. Only if a class member
answered “yes” would the defendants be permitted additional
42                                                  No. 13-3532

discovery. The court thought this protocol would “sensibly
resolve the tension between the rebuttable presumption of
reliance and the practicalities and purposes behind [class
actions].”
    The defendants objected and asked the judge to reconsider,
arguing that this procedure unreasonably limited their ability
to rebut the presumption of reliance. The judge reversed
course and allowed Phase II discovery to proceed while the
class members returned their answers to the preliminary
question. The defendants asked for a period of 120 days to
conduct this discovery. The judge granted the request. The
defendants then served 98 class members with document
requests, interrogatories, and deposition notices. Among other
things, these discovery requests sought “all documents that
you reviewed or relied upon in making any decision to engage
in any transaction with respect to Household securities.”
    The plaintiffs objected that the requests were harassing and
far too broad, and that much of the information sought was
irrelevant. The court agreed that the requests were overly
broad and unnecessary, noting that class members “would
have to list every issue of the Wall Street Journal that every
employee of that particular institution that dealt in trades read
on the subway on the way in to work and back.” So the judge
limited the defendants to asking class members about any
nonpublic information they relied on in deciding whether to
buy or sell Household stock. The judge also permitted the
defendants to ask about trading strategies and similar matters,
provided the questions were specific and not overly burden-
some.
No. 13-3532                                                 43

    As for depositions, the defendants had earlier advised the
court that they would need Phase II depositions from only 10
to 15 large institutional investors. They could not explain why
they now sought to depose 98 class members, so the judge
imposed a limit of 15 depositions.
    Following the court’s limiting order, the defendants served
revised written discovery on about 100 class members asking
about trading strategies, communications with Household, and
any nonpublic information they relied on. They also deposed
12 large institutional investors. At the end of the 120-day
discovery period, they asked for more time, even though the
judge had indicated at the beginning that he was not inclined
to grant any extension. The judge denied the request.
    When the time period for answering the court’s preliminary
question expired, a large number of class members still had not
yet responded. The plaintiffs argued they should not be
required to answer the question, or alternatively, should be
given more time. The judge allowed the plaintiffs to send the
question a second time and divided the class members into two
groups: class members with claims larger than $250,000 and
class members with claims below that amount. Class members
with claims larger than $250,000 would be required to answer
the court’s question.
    For these larger claims, the case would proceed as follows.
If a class member answered “no”—that he wouldn’t have
bought the stock had he known it was inflated—and discovery
had not produced any evidence indicating otherwise, then the
class member was entitled to judgment because there was no
triable issue as to reliance. If a class member answered “yes,”
44                                                        No. 13-3532

then reliance would be resolved in a Phase II trial. And if a
class member failed to answer the question, then the defen-
dants were entitled to judgment as to that claim.
    The second response period yielded the following results:
10,902 claimants answered “no” to the court’s question (these
are the claims at issue on this appeal);14 133 claimants answered
“yes”; and 2,476 claimants failed to answer the question.
Approximately 30,000 claims remain unresolved. Most of these
are claims of class members who failed to answer the court’s
question or claims valued at less than $250,000.


     2. The Defendants’ Arguments
    The defendants lodge a general objection that the process
we’ve just described unreasonably interfered with their ability
to rebut the presumption of reliance. For the most part,
however, they don’t specify what the court should have done
differently.
    The defendants’ primary challenge relates to the phrasing
of the preliminary question sent to class members. Instead of
asking class members whether they would have purchased
Household’s stock if they had known that the price was inflated,
the defendants say that class members should have been asked
whether they would have transacted if they had known that the
statements were false. They argue that the court’s choice of



14
  The $2.46 billion judgment—entered pursuant to Rule 54(b)—reflects
claims totaling $1.48 billion plus $986 million of prejudgment interest.
No. 13-3532                                                     45

phrasing “impermissibly baked the Basic presumption into
[the] question.”
    We disagree. The court’s question accurately reflects the
Supreme Court’s description of how the Basic presumption can
be rebutted. As the Court noted in Halliburton, “if a defendant
could show that … a plaintiff would have bought or sold the
stock even had he been aware that the stock’s price was tainted by
fraud, then the presumption of reliance would not 

(emphasis added). Moreover, the defendants’
preferred phrasing would have swept in too many class
members. Some investors may have purchased Household’s
stock even if they had known the truth behind the defendants’
misrepresentations, but they would not have paid the price they
did. These investors would have to answer “yes” to the
defendants’ version of the question. But Basic was very clear
that the way to rebut the presumption is to show that the
investor would have paid the same price:
           Any showing that severs the link between the
       alleged misrepresentation and either the price
       received (or paid) by the plaintiff, or his decision
       to trade at a fair market price, will be sufficient to
       rebut the presumption of reliance. … For exam-
       ple, a plaintiff who believed that Basic’s state-
       ments were false … , and who consequently
       believed that Basic stock was artificially under-
       priced, but sold his shares nevertheless … , could
       not be said to have relied on the integrity of a
       price he knew had been manipulated.

–49.
46                                                  No. 13-3532

    The defendants also generally object to the limitations
placed on Phase II discovery. This is a nonstarter. The defen-
dants were allowed to serve written discovery on as many
class members as they wanted. And in light of the focus of the
rebuttal inquiry, it was reasonable to limit the scope of discov-
ery to class members’ trading strategies and any nonpublic
information they relied on in deciding to purchase Household
stock. As for depositions, the defendants had earlier advised
the judge that 10 to 15 would be enough; they were allowed 15.
    Finally, the defendants argue that for most class members,
a “no” answer to the preliminary question was “dispositive as
to whether the presumption could be rebutted.” This is
problematic, they say, because the court’s question was
essentially meaningless—all class members could see how they
needed to respond in order to recover. The question is imper-
fect, to be sure, but not quite so meaningless as the defendants
suggest. Class members were required to answer under
penalty of perjury, and a number of them answered “yes.” An
even greater number failed to respond; some may have done
so knowing they would have to answer “yes.” True, the vast
majority answered “no,” but that’s not unexpected given the
strength of the Basic presumption. See 

–47;

.
    In any event, the preliminary question was not necessarily
the end of the inquiry. Class members were entitled to judg-
ment only if they answered “no” and discovery hadn’t turned
anything up. The preliminary question was a useful tool for
efficiently resolving most claims. As for the rest, discovery
No. 13-3532                                                   47

allowed the defendants to “attempt to pick off the occasional
class member.” 

.
   Because the proceedings below were neatly divided into
two phases, there’s no need to redo anything in Phase II, even
though we are remanding for a new trial on certain issues from
Phase I. Assuming the plaintiffs can adequately prove loss
causation, the district court may rely on the results from
Phase II.


                          III. Conclusion
    In sum, the defendants are entitled to a new trial limited to
the two issues we’ve identified here: loss causation and
whether the three executives “made” certain of the false
statements under Janus’s narrow definition of that term. We
reject all other claims of error.
                                    REVERSED AND REMANDED.