dissenting.
The Court today has reached a result allowing a plaintiff to take refuge in the protections provided by federal and state securities law even when the plaintiff participates in those violations to an equal or greater extent than the defendant. Because I find this result contrary to settled law and unsound as a matter of securities policy, I must respectfully dissent from the Court’s opinion.
It is settled law that a securities case plaintiff may be denied recovery on the basis of the in pari delicto defense. B. Eichler, H. Richards, Inc. v. Berner, 472 U.S. -, 105 S.Ct. 2622, 86 L.Ed.2d 215 (1985); Kuehnert v. Texstar Corp., 412 F.2d 700 (5th Cir.1969). In Eichler the Supreme Court ruled that a private action for damages under the federal securities laws may be barred on the grounds of the plaintiff’s own culpability where (1) as a direct result of his own actions, the plaintiff bears at least substantially equal responsibility for the violations he seeks to redress, and (2) preclusion of suit would not significantly interfere with the effective enforcement of the securities laws and protection of the investing public. Eichler, 472 U.S. at -, 105 S.Ct. at 2629, 86 L.Ed.2d at 224.
Dahl’s conduct in this case gives rise to two theories under which the in pari delicto defense operates to bar his recovery under either Texas law or the 1933 Act. First, Dahl’s conduct in exhorting the other plaintiffs to invest transformed him into a “seller” of unregistered securities. In other words, his conduct put him in the same boat as Pinter, from whom Dahl is attempting to recover in this case. Second, in addition to “selling” unregistered securities, Dahl knowingly purchased unregistered securities from Pinter. In fact, Dahl was the primary mover — the “catalyst”— even with respect to his own purchases.1
*992The Fifth Circuit test for determining whether Dahl is a “seller” under § 12(1) or § 12(2) of the 1933 Act is whether the injury to the plaintiff flows directly and proximately from the actions of Dahl. See Hill York Corp. v. American International Franchises, Inc., 448 F.2d 680, 692-93 (5th Cir.1971). In applying this test, the Court in Hill York ruled that certain persons fell within the letter and spirit of the test because they were the “motivating force” behind the promotion and “did everything but effectuate the actual sale.” Id. at 693. In Lewis v. Walston & Co., Inc., 487 F.2d 617 (5th Cir.1973), we again discussed how parties who participate in the negotiations of or arrangements for the sale of unregistered securities “sell” those securities within the meaning of § 12(1) of the 1933 Act. The Lewis court ruled that the “proximate cause” aspect of the Hill York test is satisfied if the alleged seller’s actions are a “substantial factor” in bringing about the plaintiff’s purchases.
The findings in the present case clearly indicate that Dahl was a “substantial factor” in bringing about the other plaintiff’s purchases and is therefore a seller. As the majority opinion correctly recognizes, no plaintiff had any familiarity with the Pinter oil and gas interests until contacted by Dahl, and all but one relied exclusively upon communications with Dahl in deciding to purchase the securities. The District Court even found that it was Dahl and not Pinter who caused the other plaintiffs to purchase. Notwithstanding all these findings as well as the majority’s conclusion that Dahl meets the substantial factor test, this Court declines to hold that Dahl is a “seller.”
The Court’s determination that a “seller” should include only those whose efforts were intended to benefit themselves in some manner is wholly without support in law and flies in the face of the policy underlying the securities registration laws. Securities law is concerned with the protection of the public. The public may be injured (as happened here) by a careless “seller” of unregistered securities whether there is something in it for the seller or not. In other words, it is Dahl’s conduct that endangered the public regardless of his state of mind. Thus, the majority’s weak attempt to distinguish the “substantial factor” cases by pointing out that the “sellers” in those cases had some expectation of financial benefit has no more foundation in securities law and policy than a distinction based on the color of the seller’s hair or the size of his tennis shoes.2 The opinions which the. majority distinguishes do not in any way indicate that financial benefit was a factor in the decision of those cases. The Court in this case is inventing new law that threatens to undermine the protections provided to the public by the securities laws.3
*993The Court’s concern with imposing liability on friends and family members who give one another gratuitous advice is a herring, red or otherwise. Merely offering advice or informal investment suggestions will rarely meet the “motivating force” or “substantial factor” test thereby transforming an optimistic investor into a “seller.” In the situation at hand, Dahl’s conduct went far beyond giving gratuitous advice. For all practical purposes he was the seller in the literal sense of the word — moreso even than Pinter. Furthermore, if a friend or relative’s conduct converts him into a “seller” under established law, why shouldn’t the purchasers be able to invoke the protection of the securities laws and sue him? They may choose not to, even when the friend’s conduct is as aggressive as Dahl’s was here. This is their prerogative, but purchasers should at least have the ability to invoke the securities laws, if they so choose, to sue a friend whose conduct was a substantial factor in causing their injury. In most cases, disgruntled friends and relatives of someone like Dahl will probably do exactly what the plaintiffs did here — go after the “issuer” (Pinter). In any event, the issue on this appeal is not whether we should allow a friend or relative to sue Dahl, but whether we should let Dahl recover from Pinter even though Dahl was equally if not more at fault for the securities violations. In my view, we should not.
In addition to being a seller of unregistered securities and therefore in the same boat as Pinter, Dahl’s status as a knowing purchaser — in fact, his status as a catalyst for the entire transaction — is another basis on which the in pari delicto defense operates to bar his recovery. See Ladd v. Knowles, 505 S.W.2d 662 (Tex.Civ.App. 1974); see also Kuehnert v. Texstar Corp., 412 F.2d 700, 703 (5th Cir.1969) (“This is not a case of mere knowledge of another party’s wrongdoing, without active participation.”); Godfrey, Plaintiffs Conduct as a Bar to Recovery Under the Securities Acts: In Pari Delicto, 48 Tex.L.Rev. 181, 192-94 (1969) (recognizing that more than mere knowledge may be required under the federal securities law for the in pari delicto defense to bar a purchaser’s recovery, but concluding that acting as a catalyst for the violation clearly goes beyond mere knowledge). In Ladd the Court expressly held that if transactions are illegal solely because the stock is unregistered, a plaintiff’s knowing participation in the sale — for example, by purchasing the stock — makes the plaintiff equally culpable with the seller and, therefore, in pari delicto. 505 S.W.2d at 668 (emphasis added).
My brethren cite a Fifth Circuit case, Henderson v. Hayden, 461 F.2d 1069 (5th Cir.1972), for the proposition that knowledge that securities are unregistered does not estop a plaintiff from prevailing under § 12(1). This is no longer a persuasive case as it does not reflect the current state of in pari delicto law. See B. Eichler, H. Richard, Inc. v. Berner, 472 U.S.-, 105 S.Ct. 2622, 86 L.Ed.2d 215 (1985). Technically, it is not even an in pari delicto case — it just looks like one. The Court in Henderson did not even discuss the issue of “equal culpability,” the cornerstone of an in pari delicto defense. Rather, the decision in Henderson was based on a very general policy-oriented principle which stated that a plaintiff should not be allowed rescission under § 12(1) if that rescission would frustrate the Act’s purpose. 461 F.2d at 1072. Subsequent case law in the Fifth Circuit and the Supreme Court which specifically discusses the in pari delicto defense declares that the crucial question is not whether rescission will frustrate the Act’s purposes but whether denying rescission will. B. Eichler, H. Richard, Inc. v. Berner, 472 U.S. -, 105 S.Ct. 2622, 2629, 86 L.Ed.2d. 215, 224 (1985); Woolf v. S.D. Cohn & Co., 515 F.2d 591, 602-05 (5th Cir.1975), vacated and remanded on other grounds, 426 U.S. 944, 96 S.Ct. 3161, 49 L.Ed.2d 1181 (1976). In other words, given that the plaintiff and defendant are equally culpable for the violation, the proper inquiry is whether the Act’s purposes will be frustrated by allowing in pari delicto to be used as a defense to rescission in a particular case.
*994The correct formulation of the rule, according to the Supreme Court, is that a private securities action may be barred on the ground of a plaintiff’s own culpability where:
(1) as a direct result of his own actions, the plaintiff bears at least substantially equal responsibility for the violations he seeks to redress, and
(2) preclusion of suit would not significantly interfere with the efféctive enforcement of the securities laws and protection of the investment public.
B. Eichler, H. Richard, Inc. v. Berner, 472 U.S.-, 105 S.Ct. 2622, 2629, 86 L.Ed.2d 215, 224, (1985) (emphasis added). Accord Woolf v. S.D. Cohn & Co., 515 F.2d 591, 602-03 (5th Cir.1975), vacated and remanded on other grounds, 426 U.S. 944, 96 S.Ct. 3161, 49 L.Ed.2d 1181 (1976).4
Dahl’s conduct in this case fits the test under either the “seller” theory or the “knowing purchaser” theory. Dahl is as responsible as Pinter (probably moreso) with respect to the sales to the other plaintiffs as well as with respect to his own purchase. Dahl was the prime mover in the sales to the other plaintiffs. The District Court even found that he, and not Pinter, caused all the other plaintiffs to invest. The record also shows that Dahl was the “catalyst” even for his own investment in unregistered securities. He approached Pinter, carefully studied the drilling logs, and wanted in. And, of course, Dahl knew that the securities were'unregistered.
Not only was Dahl equally culpable, but the purpose of the sécurities laws will not be disserved by barring his recovery. In fact, the enforcement of the securities laws and the protection of the public will be promoted. We do not want sophisticated oil and gas investors such as Dahl going around “selling” unregistered securities to less knowledgeable investors. The “public” which we should be concerned about protecting in this case is not Dahl but the less informed people that he pulled into the venture. They should be able to recover *995from either Dahl or Pinter, but Dahl should be barred from recovering from Pinter.5
Fifth Circuit case law also indicates that the securities laws may be flustered if plaintiffs such as Dahl are allowed to put themselves in no-lose situations by virtue of their knowledgeable participation in securities violations. See Kuehnert v. Texstar Corp., 412 F.2d 700 (5th Cir.1969). This is exactly what Dahl did when he knowingly purchased unregistered securities — he put himself in a no-lose situation by acquiescing in, and being the catalyst for, a securities law violation. If the investment had paid off, Dahl would be at home counting his money instead of in court suing Pinter. Instead, the investment was a flop and Dahl sought to invoke the protections of the very laws which were violated primarily because of his own conduct. The securities laws were not meant to serve as a safety valve so sophisticated investors such as Dahl can, in the war weary but still vivid phrase, “have their cake and eat it too.” Allowing this fence-sitting to occur will encourage securities law violations. Thus, it cannot be said that precluding Dahl’s recovery would interfere with the effective enforcement of the securities laws. Quite the contrary, it would promote effective enforcement because it would discourage those who act as a “catalyst” for securities violations in the hope of placing themselves in a no-lose situation.
In a nutshell, I believe that a fair application of the Supreme Court rule in Eichler yields a result at odds with the decision handed down today. Dahl bears at least substantially equal responsibility for the violations he seeks to redress, and barring his recovery works no interference with the effective enforcement of the securities laws and the protection of the public. In fact, as ,1 have attempted to show, public protection and effective enforcement would be promoted by finding Dahl’s recovery blocked by the in pari delicto defense. Therefore, I must respectfully dissent.
. With respect to either of these two theories, whether or not Dahl also knew of the illegality of selling unregistered securities — which the majority apparently considers to be of some importance — is irrelevant. Knowledge óf illegality plays no part in § 12(1) liability for "selling” unregistered securities. Knowledge that they are not registered is enough. See Swenson v. Engelstad, 626 F.2d 421 (5th Cir. 1980).
With respect to the theory that Dahl’s knowing purchase raises the in pari delicto bar, Texas law provides that a plaintiff’s knowing participation in the sale of unregistered securities by purchasing makes the plaintiff equally culpable and, therefore, in pari delicto. Ladd v. Knowles, 505 S.W.2d 662, 668 (Tex.Civ.App.1974). The *992Court in Ladd makes no mention of an additional requirement that the plaintiff must know of the illegality of the transaction. Moreover, the Court has cited no case law which indicates that knowledge of illegality (as opposed to mere knowledge that the securities are unregistered) is necessary. In any event, it is hard for me to believe — on this record — that a sophisticated investor such as Dahl did not know of the illegality of selling unregistered securities. In fact, each investment letter-contract, which Dahl helped the other purchasers complete, contained language expressly indicating that the securities were not registered because of the expected availability of a limited offering exemption from registration. Knowledge of the potential availability of an exemption certainly indicates awareness of the requirements of the securities laws.
. The Court's suggested distinction is further undercut by its own general definition of “seller.” According to the Court (and an abundance of Fifth Circuit precedent), a "seller" is (1) one who parts with title to securities in exchange for consideration or (2) one whose participation in the buy-sell transaction is a substantial factor in causing the transaction to take place. How strange that one part of the definition expressly requires that a seller receive consideration while any mention of consideration is conspicuously absent form the "substantial factor” element of the definition.
. Moreover, the Court’s finding that Dahl expected no financial benefit from his efforts has no basis in the record or common sense. More investors means that the investment program receives the requisite amount of financing at a smaller risk to each investor. Therefore, I cannot believe that Dahl was completely free of self-interest when he exhorted the other purchasers to invest.
. There are many problems with the majority's reasoning in its effort to apply Henderson instead of Eichler. The source of the problems seems to be the majority's treatment of Pinter's affirmative defense as some generic form of "estoppel theory” rather that as an in pari delicto defense. The issue in this case — the issue which has been briefed and orally argued — is whether the in pari delicto defense bars Dahl’s recovery from Pinter. The Court’s confusion of the issue is apparent in its argument that Eichler is of limited applicability here because the second part of the Eichler rule substantially mirrors the classic formulation of the in pari delicto doctrine. How does that make Eichler inapplicable? The case presently on appeal is an in pari delicto case and Eichler is therefore directly applicable. Perhaps the majority has been forced to reformulate the issue because Henderson, on which the majority rests its decision, is not an in pari delicto case. As I have emphasized, Henderson does not even discuss “equal culpability," the cornerstone of an in pari delicto defense.
The majority recognizes that Eichler applies when "damages [are sought to] be barred on the grounds of the plaintiff’s own culpability,” but then erroneously concludes that this is not such a case. This is precisely such a case. Pinter expressly claims in his brief that Dahl’s recovery should be barred because of Dahl's own culpability. Elsewhere in the opinion, the Court admits that Dahl was as "culpable” as Pinter as a producing cause of the illegal transaction. This observation places Dahl squarely within the Eichler formulation of the in pari delicto doctrine. Under Eichler, the first element of the in pari delicto defense is that the plaintiff must bear "at least substantially equal responsibility for the violations he seeks to redress." 472 U.S. at-, 105 S.Ct. at 2629, 86 L.Ed.2d at 224. Dahl bears at least substantially equal responsibility for the securities violations in this case, as the majority recognizes in stating that Dahl was as “culpable" as Pinter as a producing cause of the illegality.
Finally, any application of in pari delicto principles in this appeal is incomplete without discussing Dahl’s conduct as a "seller” of unregistered securities in addition to his conduct as a knowing purchaser. The majority has discussed the "seller” issue only in the context of contribution, a discussion with which I also take issue elsewhere in my opinion.
In sum, the majority has declined to apply recent Supreme Court precedent which is directly on point — there is absolutely nothing in Eichler which indicates that the general in pari delicto rules espoused therein are limited to a § 10(b) action, as the majority of this panel apparently implies. Instead, this Court finds that the controlling precedent for this in pari delicto appeal is found in a 1972 Fifth Circuit case which is not even an in pari delicto case.
. Barring Dahl’s recovery will not let Pinter off the hook because of the presence of the other plaintiffs who have already successfully litigated their claims against Pinter. Thus, allowing the in pari delicto defense to be used in this case results in the best possible outcome — both Dahl and Pinter must "pay” — that is, bear the burden — for the violation for which they are both responsible. The best way to protect the public in this case is to discourage the actions of both Dahl and Pinter as well as future Dahls and Pinters.
Indeed, I would go further. I would hold that Pinter is entitled to contribution from Dahl since Dahl is at least'equally culpable for the sale to the other plaintiffs.