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May 19, 1989


The opinion of the court was delivered by: HANNUM


 Plaintiffs Gilda Stinson and Robert Stinson ("Stinsons") allege that they and the class they seek to represent were defrauded in their purchase of Copper Lake Manor revenue bonds. The Stinsons seek application of the fraud-on-the-undeveloped-market theory to show reliance under section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), *fn1" and Securities and Exchange Commission Rule 10b-5, 17 C.F.R. § 240.10b-5. *fn2" Before the Court are Rule 12 motions to dismiss *fn3" and the Stinsons' motion for class certification under Fed.R.Civ.P. 23(b) (3).


 Between May 1, 1985 and December 19, 1986, the Edmund Home Finance Authority sold approximately $ 8,435,000 of Series 1985 Retirement Center Revenue Bonds ("bonds"), to finance Copper Lake Manor, Inc.'s ("CLM") construction of a 110-unit retirement center ("project") in Edmond, Oklahoma. The project was to generate revenue to retire the bonds through unit rentals. Apparently, the bonds were sold in increments of $ 5,000 to both institutional and private investors. Gilda Stinson purchased $ 5,000 on behalf of her son Robert Stinson -- before either one had read the disclosure statements made in connection with the offering.

 Defendant Richard Liddell was the president of CLM and the president of Van Valley Development Corp., project developer and co-defendant. The Stinsons have alleged that defendant James L. Hutson was Vice-President of CLM, but Mr. Hutson disputes the specifics of these allegations. Defendant Laventhol & Horwath, a certified public accounting firm, prepared the project's May 7, 1985 financial feasibility study, part of the offering prospectus's official statement. Finally, defendant Miller & Schroeder Municipals, Inc., a Minneapolis, Minnesota broker and dealer, served as the underwriter of the bonds.

 This action was precipitated by the failure of the retirement center and the resultant default on the bonds. The alleged misstatements and omissions in the preliminary and official offering statements include: (1) failure to disclose the projects inadequate working capital, (2) false pledges by CLM to insure and market the project, (3) inaccurate forecasts of occupancy rates, (4) failure to properly disclose and analyze depressed economic conditions in Oklahoma, and (5) failure to properly analyze the impact of the 20% moderate income tenants requirement. Complaint at 9-11.

 Dismissal under Rule 12(b) (6)

 The motions for dismissal must be denied unless it appears beyond doubt that the Stinsons can prove no set of facts in support of their claims which would entitle them to relief. Scheuer v. Rhodes, 416 U.S. 232, 236, 40 L. Ed. 2d 90, 94 S. Ct. 1683 (1974) (quoting Conley v. Gibson, 355 U.S. 41, 45-46, 2 L. Ed. 2d 80, 78 S. Ct. 99 (1957)). The Court accepts the Stinsons' factual allegations as true and reasonable inferences will be drawn in support of their claims. See D.P. Enterprises v. Bucks County Community College, 725 F.2d 943, 944 (3d Cir. 1984).

 The defendants have challenged the sufficiency of the allegations of reliance, the link between the alleged fraud and the Stinsons' purchase of Copper Lake Manor Revenue Bonds. In Sharp v. Coopers & Lybrand, 649 F.2d 175 (3d Cir. 1981), cert. denied, 455 U.S. 938, 71 L. Ed. 2d 648, 102 S. Ct. 1427 (1982), the Third Circuit explained that reliance "is therefore one aspect of the ubiquitous requirement that losses be causally related to the defendant's wrongful acts." Id. at 186. The Sharp court noted the Second Circuit's use of the term "transaction causation" to distinguish reliance from the "loss causation" elements in rule 10b-5 actions. Id. at 186-87 n.16 (quoting Schlick v. Penn-Dixie Cement Corp., 507 F.2d 374, 380-81 (2d Cir. 1974), cert. denied, 421 U.S. 976, 44 L. Ed. 2d 467, 95 S. Ct. 1976 (1975)). The Court concludes that the Stinsons' claims will be dismissed pursuant to Rule 12 (b) (6) because they cannot show transaction causation - that their decision to purchase the bonds either was or could have been altered by the alleged misstatements and omissions of the defendants. *fn4"

 In their complaint, the Stinsons claim alternative theories of reliance:

"Plaintiffs and members of the class reasonably relied upon defendants' false and misleading statements and/or the integrity of the market for the Bonds, reasonably believed that the market price of the Bonds was validly set, and that no unsuspecting fraud affected the price."

 Complaint at para. 30. Because they did not read the offering statements before purchase and cannot show direct reliance, the Stinsons seek a rebuttable presumption under the fraud-on-the-market theory of "indirect actual reliance". See Zlotnick v. Tie Communications, 836 F.2d 818, 820 (3d Cir. 1988) ("An investor relying on the integrity of a market price in fact relies on other investors to interpret the relevant ...

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