Nature of the Case
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Facts
D was in the business of making 'viatical settlements.' It purchased the rights to the proceeds of life insurance policies from individuals with terminal illnesses, and in exchange paid lump sums to the individuals and assumed responsibility for payment of premiums. The amounts paid by D were based on their estimated life expectancies, and the profits D received depended on the accuracy of those estimates. Nearly all of the individuals from whom D purchased its rights had AIDS. By 1995, new drugs and treatments for AIDS became available, and many of the individuals with whom D had contracted began to live longer than expected. On February 14, 1996, Dignity filed a registration statement for an initial public offering of approximately 2.7 million shares of common stock. Ps are investors who purchased D stock on the open market more than 25 days after the initial offering but before the news of the longer life expectancy or large losses became public knowledge. After the facts about longer life became known, D's stock fell from the initial offering price of $12 a share to about $6. In June of 1995, less than five months after the beginning of the initial public offering, D announced an anticipated quarterly loss of $10 million, and a month later announced that it would abandon the viatical settlement business. The stock fell to $1 a share before settling at about $2 at the time the action was filed. Ps brought a class action for several violations of the securities laws by D, including violation of Section 11 of the Securities Act of 1933 (Securities Act), 15 U.S.C. § 77k (Section 11). D moved to dismiss Ps' Section 11 claims because Ps had not purchased their shares 'in' the registered offering. The court held that because Ps purchased their stock more than 25 days after the registration statement was filed, they did not have standing to bring an action under Section 11. Ps appealed.
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