Texas International Speedway, Inc. (TIS) filed a registration statement for $4,398,900 in securities with the proceeds to be used to construct an automobile racetrack called the Texas International Speedway. The entire issue was sold on the offering date, October 30, 1969. On November 30, 1970, TIS filed for bankruptcy.

The prospectus stated that the speedway was under construction. It also included a pro forma balance sheet showing that, upon completion of the public offering and application of the proceeds to the construction costs of the speedway, TIS would have $93,870 in cash on hand on the speedway’s opening date.

The TIS prospectus warned that “THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK” and that the construction costs might be underestimated. If the plaintiff investors present evidence from which a jury could infer that, on the effective date of the registration statement, the two officers and directors of TIS and its accountant knew that the cost of construction was understated and that consequently TIS’s working capital position would not be as favorable as the prospectus reflected, will the plaintiffs win a suit under Section 10(b) and Rule 10b–5? What would be the result if the Litigation Reform Act applied? [Huddleston v. Herman & MacLean, 640 F.2d 534 (5th Cir. 1981), rev’d in part and aff’d in part, 456 U.S. 914 (1982).]