Ross v. Bank South, N.A.

885 F.2d 723

• Court: Court of Appeals for the Eleventh Circuit
• Decided: September 18, 1989
• Docket: Nos. 86-7350, 86-7790
• Status: Published

Opinions

ANDERSON, Circuit Judge,

with whom RONEY, Chief Judge, and HILL, FAY and COX, Circuit Judges, concur:

Ernest Ross and George Miller (referred to in this opinion as appellants) sued various parties connected with the issuance of the First Mortgage Residential Facilities Revenue Bond (Mount Royal Towers, Inc. Project) Series 1981 bonds. In an action based primarily on Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, Ross and Miller claimed the defendants had engaged in a fraudulent scheme to issue the tax-exempt bonds, which would be unmarketable absent the fraud. After certification of a class and substantial discovery, the district court granted summary judgment for the defendants and against the appellants on the securities claims. The appellants appeal from that judgment, and also from the dismissal of their claim based on RICO, see 18 U.S.C. § 1961 et seq., and their various pendent state law claims based on the Alabama Blue Sky Act, Ala.Code §§ 8-6-18, 8-6-19 (1977), Alabama statutory fraud provisions, Ala.Code §§ 6-5-100 to 6-5-104 (1977), negligence and breach of contract.¹ We affirm.

I. BACKGROUND

This case concerns the issuance on September 30, 1981, of bonds with a face value of $29,950,000. The bonds were issued by the defendant Special Care Facilities Financing Authority of the City of Vestavia Hills (“the Authority”) to pay for the construction of a residential and medical facility for the elderly. The facility, known as Mount Royal Towers, was to be located in Vestavia Hills, a suburb of Birmingham, Alabama.

The bond issue came at the end of a long series of attempts to finance the project. Originally, the project was to be conventionally financed, but in 1978, Arthur Rice, the developer and a defendant in this action, decided to finance the project through tax-exempt bonds. To this end, Mount Royal Towers, Inc. was incorporated as an Alabama nonprofit corporation. After Rice first contacted another Alabama city about sponsoring the bonds, he approached the defendant City of Vestavia Hills. Vestavia Hills agreed to sponsor the project by forming the Authority and issuing the bonds on behalf of the facility.²

Rice then went about setting up the deal. In 1979, he negotiated with the firm of Underwood, Neuhaus to underwrite the bond issue, but in the beginning of 1980 Underwood declined on account of poor conditions in the bond market which hindered marketing even “safe” bonds. After exploring the financing market, Rice then turned to another firm, Henderson, Few & Company, which had been associated with the earlier effort, for a revised bond issue of approximately $19,000,000.

In December of 1980, Henderson, Few & Company decided against underwriting the issue, again due to poor conditions in the market. The plan had contemplated using the bond revenues to construct the project, and then using the occupancy fees (i.e., the price of an apartment unit) to repay the bonds. When Rice was advised of Henderson, Few & Company’s decision to abandon the underwriting at least temporarily, Rice was also cautioned that the proposed occupancy fees were already as high as the Birmingham market would bear, and that the projected revenue from the fees was insufficient to service bonds with interest rates high enough to be attractive to the bond market. Thus the feasibility of the issue as then structured was called into question. At the end of December, 1980, the defendant Board of Trustees of Mount Royal Towers passed a resolution abandoning the project.

Immediately following the abandonment of the project by Henderson, Few & Company, Rice determined to restructure the deal. At the beginning of 1981, he formed a joint venture, defendant Total Concept Retirement Communities, to act as the developer of the new version of the project. The joint venture was composed of a company owned by Rice (the Wellington Corporation), a subsidiary of the new underwriter for the deal, Hereth, Orr & Jones (the Finerock Corporation), and an Atlanta brokerage firm (Robinson-Hall, Inc.). In addition to Hereth, Orr & Jones, a new bond counsel, Jones, Bird & Howell,³ and a new feasibility consultant, Laventhol & Hor-wath, were added. Peter Wright, a Jones, Bird attorney, drafted the joint venture agreement. Bank South, N.A., was the indenture trustee. All of these parties were defendants in the action.

Under the previous version of the deal, the occupancy fees ranged from $17,000 to $87,000, depending on the type of apartment. The amount of the bond issue was raised under the new version of the deal from $19,000,000 at 11V2% to $29,950,000 at 15V2 to 17%, reflecting increased interest rates and other costs. To provide repayment of this increased amount, the occupancy fees for the apartments were increased. Thus, under the new plan, the units ranged from $54,000 to $172,000, not including monthly fees for services.

Under the earlier plans the occupancy fee (the major cost of becoming a resident) was only partially refundable if the resident moved within four years and was not refundable at all after four years or if the resident died after one year. Under the new price structure, the entire occupancy fee was to be refundable upon terminating the residency contract or the death of the resident, although the refund was conditioned upon resale of the unit and was subordinated to the bonds.

Marketing efforts for the previous version had begun in January, 1978. From the beginning the project was structured to require “pre-sales” of 50% of the units.⁴ By late 1979, there were applications and initial deposits for 135 of the units, but this number began to decline during 1980, reaching approximately half that number at the time the previous version of the deal was abandoned in December 1980. With the restructuring of the project, marketing began anew. Initially, a deposit of $1,000 was required; however, fifteen applicants who had previously applied and had forfeited $100 were not required to make any additional deposit. After falling initially with the increase in prices, the number of units reserved rose from 17% in April, 1981, to 24% in June, to 32% in July. Beginning around this time, no deposit was required to reserve a unit; of the 103 units (50% of the total) which were “pre-sold” at the time of the closing of the bond issue, 15 had applications secured with only the aforesaid $100 and an additional 33 had applications without any deposit at all.

The bonds, in the amount of $29,950,000, were issued on September 30, 1981. The tax-exempt bonds bore interest rates from 15/2% to 17%. The official statement for the issue disclosed, inter alia the price structure of the units, the status of the marketing program of the facility, and the project’s complete reliance for repayment of the bonds on the sales of the apartments. Using the proceeds from the bond issue, Mount Royal Towers was constructed.

However, sales of the apartment units ultimately proved insufficient to sustain the project. On April 15, 1984, Mount Royal filed a petition for reorganization under Chapter 11 and the bonds went into default in September, 1984. Under the reorganization, the facility has continued to operate, and the proceeds of a bankruptcy approved sale have been distributed to the bondholders to partially satisfy the outstanding indebtedness.⁵

Ernest Ross and George Miller each had bought the bonds without seeing the disclosure materials. They brought suit in district court. The cases were consolidated, and a class was certified by order of the district court dated April 8, 1986. The class was composed of bondholders who asserted a “fraud on the market” reliance theory and who purchased Mount Royal bonds prior to their default in 1984. After full discovery, the district court on September 18, 1985, granted motions to dismiss in favor of Yestavia Hills and the Authority. The district court converted Bank South’s motion to dismiss to a motion for summary judgment, which it granted on December 12, 1985. The district court granted summary judgment in favor of one set of defendants on August 18, 1986, and then entered final judgment against the appellants on October 16,1986, granting summary judgment in favor of the remaining defendants.

Initially three appeals were consolidated. In No. 86-7350, defendants appealed the April 8, 1986 order certifying the class. In No. 86-7352, Ross and Miller appealed the district court’s September 18 and December 12, 1985 orders in favor of Vestavia Hills, the Authority, and Bank South. In No. 86-7790, Ross and Miller appealed the district court order dated October 16, 1986, granting summary judgment in favor of the remaining defendants.

On appeal, a panel of the Eleventh Circuit affirmed the district court’s order certifying the class and affirmed the summary judgment in favor of Bank South and the Mount Royal Trustees and the dismissal in favor of Vestavia Hills and the Special Care Facilities Authority. The panel reversed and remanded with regard to the remaining defendants. Ross v. Bank South, N.A., 837 F.2d 980 (11th Cir.1988). On March 24, 1988, the panel’s decision was vacated and rehearing en banc ordered.

Sitting in banc, we now conclude that Ross and Miller have failed to establish their securities law claims against any defendant. We also conclude that the district court did not err in dismissing the RICO claim and did not abuse its discretion in dismissing the pendent state law claims. Thus, the judgment in No. 86-7790 is affirmed. Because we affirm the district court’s grant of summary judgment in favor of all defendants on the securities law claim, we need not address the question in No. 86-7350, the appeal of the district court’s certification of a class. After the panel opinion, appellants settled their claims against the Authority (and related parties), Vestavia Hills and Bank South, and appeal No. 86-7352 was dismissed by order of this court on September 19, 1988.⁶

We first address the federal securities law issue, i.e., the fraud on the market theory. We then address the other issues, involving the RICO and state law causes of action.

II. FRAUD ON THE MARKET

The law to be applied in this case is clear. Reliance is an essential element of a cause of action under Rule 10b-5. See Lipton v. Documation, 734 F.2d 740, 742 (11th Cir.1984), cert. denied, 469 U.S. 1132, 105 S.Ct. 814, 83 L.Ed.2d 807 (1985). The reliance requirement establishes the causal link between the defendant’s activities and the plaintiff’s injuries and prevents federal securities law from affording unlimited liability. Id. Normally, a Rule 10b-5 plaintiff must therefore show the following: (1) a misstatement or omission, (2) of a material fact, (3) made with scienter, (4) on which the plaintiff relied, (5) that proximately caused his injury. Huddleston v. Herman & MacLean, 640 F.2d 534, 543 (5th Cir. Unit A Mar.1981), rev’d on other grounds, 459 U.S. 375, 103 S.Ct. 683, 74 L.Ed.2d 548 (1983).⁷ Under certain circumstances, a presumption of reliance may be established where a requirement of actual reliance would make recovery a practical impossibility. Thus, in the case of an omission rather than a misstatement, reliance may be presumed when the plaintiffs could justifiably expect that the defendants would have disclosed the material information. Affiliated Ute Citizens v. United States, 406 U.S. 128, 92 S.Ct. 1456, 31 L.Ed.2d 741 (1972).

Here, the appellants concede that they did not read the offering documents and thus did not purchase the bonds in reliance on any material misrepresentation or omission in those documents. In a traditional Rule 10b-5 case, that concession would be sufficient to justify dismissal. However, Ross and Miller invoke the version of the “fraud on the market” theory established by the former Fifth Circuit in Shores v. Sklar, 647 F.2d 462 (5th Cir.1981) (en banc), cert. denied, 459 U.S. 1102, 103 S.Ct. 722, 74 L.Ed.2d 949 (1983). In Shores, the court delineated a cause of action based on Rule 10b-5 applicable where the plaintiff has not relied directly on misrepresentations or omissions in the relevant disclosure materials.⁸

In Shores, the plaintiff, Bishop, alleged a pervasive scheme by participants in the issuance of a series of industrial revenue bonds to fraudulently induce the public to buy the otherwise unmarketable bonds. The bonds went into default and Bishop brought a class action suit on behalf of the bondholders. Although Bishop, in making out a case under Rule 10b-5, alleged that the issue’s offering circular contained misrepresentations, he admitted that he had never read the circular and had bought the bonds on his broker’s general recommendation. Citing lack of reliance, the district court dismissed the claim.

The en banc court reversed. It held that, despite Bishop’s failure to read the offering circular, he did state a cause of action under Rule 10b-5, specifically 10b-5(a) and (c).⁹ While 10b-5(b) refers to misrepresentations and omissions, the language of sections (a) and (c) is broader. Because these sections are aimed at broader fraudulent schemes, the court reasoned, the lack of reliance on the offering circular, one specific part of the scheme, was not determinative. When the fraud alleged is so pervasive that absent the fraud the bonds could not have been marketed, the reliance element is established by the buyer’s reliance on the integrity of the market, i.e., the action of the market to furnish only securities that are entitled to be marketed.

Under Shores, a plaintiff must show that:

(1)the defendants knowingly conspired to bring securities onto the market which were not entitled to be marketed, intending to defraud purchasers,

(2) [plaintiff] reasonably relied on the Bonds’ availability on the market as an indication of their apparent genuineness, and

(3) as a result of the scheme to defraud, [plaintiff] suffered a loss.

Shores, 647 F.2d at 469-70 (footnote omitted).

The burden imposed by the first element is a substantial one. Shores is based on the understanding that although it is reasonable to rely on the market to screen out securities that are so tainted by fraud as to be totally unmarketable, investors cannot be presumed to rely on the primary market to set a price consistent with the appropriate risk. Thus, the Shores court defined fraudulently marketed bonds as those that could “not have been offered on the market at any price” absent the fraudulent scheme. Shores, 647 F.2d at 464 n. 2; see Lipton, 734 F.2d at 747 (reading Shores to apply only to situations where but for the fraud the securities would not have been marketable). In other words, the fraud must be so pervasive that it goes to the very existence of the bonds and the validity of their presence on the market. If the plaintiff “proves no more than that the bonds would have been offered at a lower price or a higher rate, rather than that they would never have been issued or marketed, he cannot recover.” Shores, 647 F.2d at 470. Furthermore, consistent with the principle that the fraud on the market theory does not convert securities law into a form of investor insurance, Shores imposes a scienter requirement: the defendant must have known the securities could not be marketed and must have brought the securities to market with the intent to defraud.¹⁰

The defendants urge this court to overrule Shores and the fraud on the market theory as applied to primary markets. We decline to do so; we need not address the merits of the defendants' argument on this point,¹¹ because assuming arguendo that Shores reliance is available to the appellants in this case, the district court correctly held that the prima facie case establishing Shores reliance was not established. Appellants allege that defendants marketed the bonds even though they knew or recklessly disregarded the fact that the project could not generate sufficient income to repay the debt. In other words, appellants allege that defendants marketed the bonds knowing that they were not marketable. However, we conclude that appellants have failed to establish the first element of the Shores presumption because we conclude that appellants have failed to generate a genuine issue of fact as to marketability.¹² Since appellants concede lack of traditional reliance, the summary judgment was appropriate.

Appellants point to two categories of evidence in an effort to satisfy their burden of adducing a reasonable inference that the bonds were not marketable. First, the appellants argue that Rice and the other defendants must have known that the apartments, and thus the bonds, would be unmarketable, because the underwriter in the previous version of the deal advised them that the unit prices were as high as the market would bear, and yet the price per unit eventually was substantially increased. For purposes of this opinion, we assume that Rice was cautioned, when the previous version was abandoned, that the occupancy fees were already as high as the Birmingham market would bear. However, this caution related only to the deal as then structured. As noted above, the price structures of the two versions of the deal differed substantially with regard to the refundability of the occupancy fees. In the earlier deal the occupancy fee was to be forfeited if the resident moved or died. In contrast, under the deal as finally structured, the occupancy fee was fully refundable with only two conditions: it was refundable only out of the resale proceeds of the unit, and the refund was subordinated to the bondholder’s mortgage. In other words, the occupancy fee in the original version was in the nature of a lump sum prepayment of rent for the right to live there until death. By contrast, the occupancy fee under the final version was more in the nature of a purchase price for a fee simple interest (subject to the conditions above mentioned). That difference would obviously warrant a substantial increase in the occupancy fees. Therefore, the caution against increasing the occupancy fee, which was in the context of the previous deal, could not logically apply to the feasibility of the deal under the new pricing structure. Because this evidence generates no reasonable inference regarding the marketability of the final deal, it does not create a genuine issue of material fact. The appellants offered no other evidence that the price of the apartment units under the final version was so high that they were inherently unmarketable.

The appellants’ second category of evidence relates to the pre-offering marketing program. They contend that Rice manipulated the pre-sales program to meet the 50% goal and to make it appear that the sale of the apartment units would be successful. Specifically, the appellants allege that Rice engaged in sham¹³ pre-sales to friends and relatives, and that other applications would not validly indicate interest in the units because the purchasers were not required to place a deposit.

This summary judgment record does contain reasonable inferences that the pre-offering marketing program was not successful in that 50% pre-sales with deposits were not obtained. However, we do not believe that this evidence carries appellants’ burden of proof. Appellants would have to prove that the pre-offering marketing program sufficiently predicted the failure of the project so as to render the bonds unmarketable at any price. We conclude that all reasonable inferences favorable to appellants fall considerably short of satisfying this burden. For example, most of the facts about which appellants now complain were actually disclosed in the offering documents without any adverse effect on marketability. The documents disclosed the fact that there were no binding presales, that a certain number of pre-sales had no deposit or a reduced deposit, and that the occupancy fee refund was subordinated to the repayment of the bonds. In other words, the bonds sold — i.e., were marketable — with these facts known.¹⁴ Appellants have adduced no other evidence that the bonds, or the underlying apartment units, were not marketable.¹⁵ We hold that the deficiencies in the pre-offer-ing marketing program which are reflected in this summary judgment record do not create a reasonable inference that the bonds or the apartment units were unmarketable.¹⁶

The facts in this case stand in sharp contrast to the pervasive fraud allegedly present in Shores. There, to focus on the disclosure alone, the offering statement allegedly omitted a pending SEC action against the principals, mischaracterized one developer as having extensive land holdings, misportrayed another principal as an experienced developer, and incorporated a materially false and misleading financial statement. See Shores, 647 F.2d at 465-66. Whereas in Shores the misrepresentations went to the concealment of existing factors vital to the viability of the project, here the alleged fraud centers on projections of an uncertain future occurrence, i.e., the sales of the apartments. The fraud alleged here and the reasonable inferences in the summary judgment record do not reach the threshold level required in Shores. The appellants have not adduced evidence sufficient to create a genuine issue of fact with regard to the bonds’ lack of marketability.¹⁷

III. OTHER CLAIMS

The appellants also assert violations of RICO and various causes of action under state law. The gravamen of the appellants’ complaint with respect to the RICO claim is that the defendants fraudulently sold the bonds. The complaint avers that the required “predicate acts” consisted of each fraudulent sale of the bonds. However, given our dismissal of the appellants’ federal securities law claim, and because the only predicate acts alleged by appellants are in the nature of securities fraud claims that require the reliance/causation element which we have found to be lacking, appellants are bereft of any surviving predicate act. Therefore, the dismissal of the RICO claim was not error.

The district court dismissed the pendent state law claims without prejudice on the ground that the alleged misrepresentations would implicate the legal standards of various states and otherwise involved individualized claims and defenses. See Kirkpatrick v. J.C. Bradford, 827 F.2d 718, 725 (11th Cir.1987), cert. denied sub nom. Paine Webber Group, Inc. v. Parker, — U.S. -, 108 S.Ct. 1221, 99 L.Ed.2d 421 (1988); Simon v. Merrill, Lynch, 482 F.2d 880, 883 (5th Cir.1973). The district court also ruled that consideration of these claims in conjunction with the federal claims would result in confusion to the jury.

The appellants argue that the dismissal of the state law claims should be reversed because the district court did not discuss whether the state law claims would be time-barred. See Pharo v. Smith, 625 F.2d 1226, 1227 (5th Cir.1980) (remanding when dismissed pendent state law claim time-barred and record unclear as to whether trial court considered this factor). The district court, in deciding whether to dismiss pendent state law claims, should consider whether a plaintiff’s state law claims will be time-barred if dismissed, although this is not a determinative factor. Id. However, the appellants did not point out to the district court at the time of dismissal that the claims would be time-barred. In fact, appellants’ briefs on appeal do not represent that the claims were actually time-barred at the time of dismissal. Therefore, the district court did not abuse its discretion, and there is no need for remand on this issue.

IV. CONCLUSION

In order to invoke the Shores presumption of reliance, plaintiffs must overcome what the Shores court intended to be a high threshold. Because the evidence offered by the appellants does not create a genuine issue of material fact with regard to the marketability of the bonds, summary judgment was appropriate. Likewise, there was no error in the dismissal of the RICO and pendent state law claims. Therefore, we affirm the judgment in favor of all of the defendants.

AFFIRMED.

1 . The appellants have not asserted on appeal, and thus have abandoned, their claim based on § 17(a) of the Securities Act of 1933, 15 U.S.C. § 77q(a).

2 . Under Ala.Code § 11-62-1 et seq., public corporations may be organized to assist certain nonprofit organizations in financing the construction of health care facilities. Such a public corporation may make loans to the organization in order to construct the facility and issue revenue bonds payable from the revenue of the loans.

3 . Alston & Bird, a successor firm of Jones, Bird & Howell, was the defendant in this case.

4 . "Pre-sales” were not completed sales of the apartment units, but rather were indications of interest in the units in the form of applications. Under the previous version of the deal, a “pre-sale” application was accompanied by a $1,500 deposit, of which all but a $100 processing fee was refundable.

5 . The appellees emphasize that the bondholders have recouped an amount exceeding the face value of their bonds. In Banc Brief of Appel-lees Rice and Wellington at 7. The appellants dispute this; however, even were the recovery through bankruptcy proceedings to exceed the face amount, that would not automatically foreclose appellants' being able to demonstrate damages.

6 . Because the appellants voluntarily dismissed the appeal in No. 86-7352 and their appeal in No. 86-7790 as to the defendants Bank South, N.A., Vestavia Hills, and the Authority (and related parties), these defendants were not parties to the rehearing en banc.

7 . This case was decided prior to the close of business on September 30, 1981, and is binding precedent under Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir.1981).

8 .Shores established the fraud on the market theory with respect to the issuance of securities in an undeveloped or primary market. Preceding Shores, the fraud on the market theory had been established with respect to the trading of previously issued securities, i.e., the secondary market. See, e.g., Blackie v. Barrack, 524 F.2d (9th Cir.1975), cert. denied, 429 U.S. 816, 97 S.Ct. 57, 50 L.Ed.2d 75 (1976); see also Lipton v. Documation, Inc., 734 F.2d 740 (11th Cir.1984), cert. denied, 469 U.S. 1132, 105 S.Ct. 814, 83 L.Ed.2d 807 (1985) (adopting Blackie fraud on the secondary market theory). The fraud on the market theory with respect to secondary markets was recently reviewed and upheld by the Supreme Court. See Basic, Inc. v. Levinson, 485 U.S. 224, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988).

9 . Rule 10b-5 provides:

Employment of manipulative and deceptive devices.

It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange,

(a) To employ any device, scheme, or artifice to defraud, ....

(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.

17 C.F.R. § 240.10b-5.

10 . While the standard for scienter in Shores was expressed in terms of "knowing" and "intending to defraud," the scienter requirement in this circuit for an action under Rule 10b-5 "is satisfied by proof that the defendants acted with severe recklessness." Broad v. Rockwell International Corp., 642 F.2d 929, 961-62 (5th Cir.1981) (en banc).

11 . Thus, the holding of Shores v. Sklar remains the law of this circuit.

12 . Substantial discovery has been afforded appellants, and they have failed "to make a showing sufficient to establish the existence of an element essential to [their] case.” Celotex Corp. v. Catrett, 477 U.S. 317, 324-25, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986).

13 . See note 14, infra.

14 .Appellants argue that there is a reasonable inference that 50% pre-sales was essential to marketability, that there is a reasonable inference that this was not reached, and therefore that there is a reasonable inference that the bonds were not marketable. The principal flaw in appellants’ argument is the premise that there is a reasonable inference that 50% pre-sales was essential to marketability. The only reasonable inference in this record is the repeated deposition testimony to the effect that 50% pre-sales was satisfactory evidence of the feasibility of the project. However, that evidence does not reasonably support the inference of the converse, i.e., that anything short of 50% pre-sales would establish that the project was not feasible. Rather, the evidence is that the feasibility consultant, considering the pre-sale marketing program (with its 33 to 48 applications with reduced or no deposit) and considering the other evidence of feasibility concluded that the project was feasible. There is no evidence that the pre-sale program was so disastrous that it predicted the failure of the project with sufficient clarity to render the bonds unmarketable. The only evidence to support appellants’ claim that the pre-sale program was a "sham,” other than facts actually disclosed in the offering documents, was the fact that all of the pre-sales with no deposit failed to materialize into actual sales, and the fact that three of the pre-sales were made to employees (and a daughter of an employee) in the developer’s office, and that eight more pre-sales were made by the principal saleswoman to persons she referred to in her deposition as dear friends or about whom she otherwise indicated some degree of friendship.

15 . In fact, the feasibility study contained substantial evidence that sale of the apartment units was feasible, and that the bonds were marketable.

16 . Thus, appellants have failed to establish that the bonds as they were priced were unmarketable. A fortiori, appellants have failed to establish that the bonds were unmarketable at any price.

17 . Appellants also allege that the bonds were unmarketable because their tax-exempt status was fraudulently obtained. We decline to engage in an analysis of appellants’ assertions because the possible deficiencies with respect to tax-exempt status about which appellants now speculate clearly had no causal connection at all with the marketability of the bonds or apartments or any loss to appellants. The tax-exempt status was evidenced by an Internal Revenue Service determination letter, which has not been rescinded or amended. There is no evidence that any bondholder has been taxed on the interest. There is no evidence anyone questioned the tax-exempt status during the relevant time period.