                                 In the

       United States Court of Appeals
                   For the Seventh Circuit
                       ____________________

No. 16-2905
KETAN PATEL,
                                                     Plaintiff-Appellee,
                                   v.

MAHENDRA WAGHA and PORTFOLIO DIVERSIFICATION GROUP,
INC.,
                               Defendants-Appellants.
                       ____________________

           Appeal from the United States District Court for the
             Northern District of Illinois, Eastern Division.
                   No. 13 C 468 — Sara L. Ellis, Judge.
                       ____________________

      ARGUED FEBRUARY 23, 2017 — DECIDED AUGUST 9, 2017
                   ____________________

      Before POSNER, EASTERBROOK, and MANION, Circuit Judg-
es.
    EASTERBROOK, Circuit Judge. Ketan Patel saved about
$560,000, enough to purchase a 7-Eleven franchise. Until the
deal closed, he parked the money with Portfolio Diversifica-
tion Group. The contract gave Mahendra Wagha discretion
over the funds’ deployment. Wagha chose to invest much of
the money in options, speculating that the market would
2                                                   No. 16-2905

rise. By the time Patel needed the funds (four months after
investing them), the market was down and he had lost a
considerable sum. A jury concluded that Wagha and Portfo-
lio (collectively “the Dealers”) had broken their promise to
invest the money conservatively, and its verdict awarded
Patel $136,000 for breach of contract plus a further $64,000
for securities fraud, for a total of $200,000. The district court
remitted the $64,000 award, ruling that Patel has not shown
loss causation, but entered judgment on the $136,000 award.
2016 U.S. Dist. LEXIS 74983 (N.D. Ill. June 8, 2016). The Deal-
ers have appealed; Patel has not.
    The Dealers contend that, as soon as the district court re-
solved the only claim arising under federal law, it lost sub-
ject-matter jurisdiction and had to dismiss the state-law
claim too. (The litigants are not of diverse citizenship.) That’s
wrong. District judges can use the supplemental jurisdiction,
28 U.S.C. §1367, to resolve state-law claims even after all
federal claims have been dismissed. The state and federal
claims were tried together; it was entirely appropriate to en-
ter judgment on the state-law claim under §1367.
   What’s more, the federal-law claim should not have been
dismissed. The district judge observed that damages based
on the SEC’s Rule 10b–5, 17 C.F.R. §240.10b–5, depend on
proof of “loss causation,” Dura Pharmaceuticals, Inc. v.
Broudo, 544 U.S. 336 (2005), which the judge understood to
mean proof that the securities were not worth what the buy-
er paid for them. The record does not show that any of the
options the Dealers bought in Patel’s account was mispriced.
But the premise of the district court’s holding—that the se-
curities laws are concerned only with inaccurate pricing—is
incompatible with SEC v. Zandford, 535 U.S. 813 (2002), and
No. 16-2905                                                  3

United States v. Naftalin, 441 U.S. 768 (1979), which hold that
the securities laws forbid fraud in all aspects of securities
transactions, whether or not the fraud affects the instru-
ments’ prices. See also, e.g., Holtz v. JPMorgan Chase Bank,
N.A., 846 F.3d 928 (7th Cir. 2017).
    Liability under Rule 10b–5 depends on fraud, which can
take many forms. One kind of fraud is procuring securities
known to be unsuitable to a client’s investment goals, after
promising to further those goals. See, e.g., Brown v. E.F. Hut-
ton Group, Inc., 991 F.2d 1020 (2d Cir. 1993). This is the kind
of fraud that Patel showed to the jury’s satisfaction. Buying
options caused Patel loss in the sense that the options, as
highly leveraged instruments, fared materially worse than
safer investments such as a diversified portfolio of stocks or
bonds. The difference between how the options fared, and
how the instruments the Dealers should have bought fared,
is a loss caused by the securities fraud. Because Patel has not
appealed we cannot reinstate the full verdict, see Greenlaw v.
United States, 554 U.S. 237 (2008), but district judges should
avoid this kind of error in the future.
   On the merits of Patel’s contract claim, the Dealers’ prin-
cipal argument is that the evidence used to show Patel’s in-
vestment goals is incompatible with the contracts he signed
when opening his account. The Dealers identify two kinds of
incompatibility. First, they observe, the contracts allow them
to purchase many kinds of instruments, including options.
This necessarily establishes that Patel consented to high-risk
investments, the Dealers maintain. Second, the contracts
contain integration clauses—that is, they say that the written
language supersedes any prior oral exchanges. The Dealers
4                                                 No. 16-2905

insist that any reference to what Patel told Wagha must be
excluded under the integration clauses.
    The first branch of this argument reflects a common mis-
understanding about options and other leveraged derivative
instruments, such as futures contracts. Derivatives can be
used to speculate, which is how Wagha used them. An in-
vestor (or agent) hoping that the market will rise can use de-
rivatives to multiply the gain if prices go up, at the cost of
multiplying the loss if they go down. But derivatives also
can be used to hedge risk. Wagha could have used most of
Patel’s money to buy a diversified basket of stocks and then
bought options that would have made money if the market
fell; gains from those options would have offset any losses
from the securities and so made Patel’s investment safer. The
fact that options can mitigate risk by hedging, as well as
augment risk by speculation, means that a client’s assent to
options trading does not imply agreement to take extra risk.
It means agreement to the sort of options trading suitable to
the client’s investment goals. And if, as the jury found, Patel
told Wagha that his goal was to protect his principal, then
what Patel consented to was the use of options to hedge risk.
    As for the integration clauses: If Patel were trying to use
parol evidence to contradict any language in the contracts,
he would be out of luck. But that’s not the burden of his trial
testimony. The principal contract authorizes the dealers to
make investments “designed to seek investment return suit-
able to the Investment Objectives and goals of the Client.” It
does not, however, say what Patel’s goals are—nor does any
other writing signed by the parties. The contracts therefore
anticipate that some other means, such as oral exchanges or
emails, will be used to specify those goals. Testimony about
No. 16-2905                                                5

what Patel said or sent to Wagha therefore does not contra-
dict the contracts.
    That it should be necessary to hold a trial to find out
what Patel said to Wagha surprises us. Broker-dealers rou-
tinely record these conversations, not only to ensure that
they carry out clients’ wishes but also to protect themselves
in the event recollections diverge. Portfolio Diversification
Group did not record these exchanges, however, so the only
way to resolve the disagreement was to put the matter to a
jury, which found in Patel’s favor. The judgment is support-
ed by ample evidence and therefore is
                                                   AFFIRMED.
