Thane International, Inc. (Thane) (defendant) merged with Reliant Interactive Media Corporation (Reliant). The merger agreement included a share swap among the shareholders in each company, for which Thane shares were valued at $7.00 per share. Before the merger was finalized, Thane filed a prospectus with the Securities and Exchange Commission stating that its shares were approved for trading on the NASDAQ National Market System (NMS). The merger was finalized on May 24, 2002. Instead of trading on the NMS, Thane’s stock began trading on the NASDAQ Over-the-Counter Bulletin Board (OTCBB). In the 12 trading days after Thane stock began trading, the stock traded between $7.00 and $8.50 per share. Thereafter Thane stock dropped below $7.00 per share and continued to drop over a period of several months. These drops coincided with poor earnings reports. A class of Reliant shareholders (plaintiffs) brought suit against Thane pursuant to § 12 of the Securities Act of 1933. The plaintiffs claimed that Thane’s prospectus was materially misleading. The district court found a lack of loss causation and ruled in favor of Thane. The plaintiffs appealed, arguing that the stock price in the 12 trading days following entry onto the OTCBB did not impound Thane’s misrepresentation because of low trading volume and Thane’s relative anonymity in the market.