In a January 2000 prospectus for its initial public offering of shares, Apex Oil Discovery Co. (AODC) estimated a sizable volume of oil production based on the studies of two geologists and a test well at one of its Oklahoma properties. A cautionary statement advised that the projections were only estimates based on the opinion of the two experts and a test well, and that actual production could vary significantly. Lutz bought 10,000 shares of Apex in May 2000 for $20 per share. By October 2000, 12 of its 15 drilling operations under way that year turned out to be dry holes. On October 18, 2000, AODC stock fell to $6 per share. Lutz brought a private securities civil action under SEC Rule 10b-5 against AODC, alleging that the AODC oil production estimates that induced him to buy the stock were fraudulent as evidenced by the 80 percent failure rate of its drilling operations. What defense, if any, does AODC have in this case? Decide.
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