Holden

I. FACTUAL AND PROCEDURAL BACKGROUND

On December 27, 1988 plaintiffs/appellants filed a complaint against defendants/appellees alleging violations of sections 12(1) and 12(2) of the Securities Act of 1933 (“the 1933 Act”), 15 U.S.C. section 77Z(1),(2), and section 10(b) of the Securities Exchange Act of 1934 (“the 1934 Act”), 15 U.S.C. § 78j(b), as well as various violations of California state law. 1 On May 8, 1989 the district court dismissed the complaint with leave to amend and, in particular, dismissed the causes of action alleging federal securities law violations for failure to state a claim upon which relief could be granted. It based its ruling on Matek v. Murat, 862 F.2d 720 (9th Cir.1988), in which we adopted only the first part of the three-part test set out by the Fifth Circuit in Williamson v. Tucker, 645 F.2d 404 (5th Cir.), cert. denied, 454 U.S. 897 , 102 S.Ct. 396 , 70 L.Ed.2d 212 (1981).

Plaintiffs’ first amended complaint, filed on April 28, 1989, with a few exceptions, contained the same allegations as the original complaint. On October 13, 1989, again basing its decision on Matek , the district court entered an order pursuant to Federal Rule of Civil…