Pezzani

In this appeal, we consider the saga of Worlds of Wonder, Inc. (‘WOW”), a toy company that sold $80 million of “junk bonds” to the investing public in June 1987. When WOW defaulted on its very first interest payment and filed for bankruptcy just six months later, rendering the securities worthless, a class of disappointed investors filed this securities-fraud action, naming as defendants WOW’s officers, directors, auditors, underwriters, and major shareholders. The district court granted summary judgment in favor of all defendants and the investors appealed. After considering a myriad of issues, we affirm in part and reverse in part.

I.

In 1985, Donald Kingsborough formed WOW to manufacture and distribute “The World of Teddy Ruxpin,” a product line featuring animated toy bears and accessories. Teddy Ruxpin was an immediate success, becoming a top seller for the 1985 Christmas season and generating net sales of $93 million in WOW’s first fiscal year, which ended March 31, 1986. Shortly thereafter, WOW launched “Lazer Tag,” a product line featuring infrared toy weapons. Lazer Tag became another instantaneous hit and, as Teddy Ruxpin continued to move briskly off the shelves, WOW…