Q1: Prior to December 20, 1998, Basett Inc. was a publicly traded company engaged in the business of manufacturing chemical refractories for the steel industry. Beginning in September 1996, Combination Engineering, Inc., and Basett began discussions concerning the possibility of a merger of the two companies. Nevertheless, during 1997 and 1998, Basett made three public statements denying that it was engaged in merger negotiations. On December 18, 1998, Basett asked the New York Stock Exchange to suspend trading in its shares and issued a statement saying that it had been “approached” by another company concerning a merger. On December 20, Basett publicly announced its approval of Combination’s offer for all its outstanding shares. Plaintiffs were former owners of Basett stock who sold their shares after Basett publicly denied that it was engaged in merger negotiations. Plaintiffs brought a class action suit against Basett and its directors, alleging that they had released false or misleading information in violation of Section 10(b) of the 1934 Act and in violation of Rule 10b-5. Plaintiffs claimed that they were injured by selling their shares at prices which were artificially depressed as a consequence of Basett’s misleading public statements. The Court of Appeals held that the plaintiffs had carried their burden of proof. Defendants appealed, claiming that the plaintiffs had not proven that they had, in fact, relied upon the misleading statements in selling their stock. Decision?