did not actually hold the views they expressed.
Defendants have submitted both excerpts from the transcript
of Jones' full remarks to analysts and a full copy of the
Goldman Sachs report of Reed's remarks to that firm's banking
conference. Only portions of these documents were reported in
the October 22 and December 7, 1990 editions of The Wall
Street Journal, respectively, and only those newspaper
reports were included in the complaint. Were this a motion for
summary judgment, I might well hold, as a matter of law, that
defendants are not responsible for a newspaper's misleading
editing of their statements. Milberg, 51 F.R.D. at
282. However, because I may not go outside the pleadings
without formally converting defendants' motion to dismiss into
one for summary judgment and allowing plaintiff an opportunity
to submit additional evidence in opposition and possibly to
conduct discovery, I have disregarded these submissions.
Fed.R.Civ.P. 12(b); Kopec v. Coughlin, 922 F.2d 152,
155-56 (2d Cir. 1991). Nonetheless, the defendants' statements,
even as selectively excerpted by newspapers and, in turn, even
more selectively excerpted in the complaint, are not actionable
under the securities laws. The quoted remarks of Callen and
Jones are their individual predictions, specified as such,
which, in 20-20 hindsight, turned out wrong. With respect to
Reed's remark that cutting dividends was a "highly inefficient"
means of raising capital, no reasonable person could treat that
debatable proposition as any sort of guarantee that the
Citicorp Board of Directors would not later decide to cut the
Based on later events — specifically, what plaintiff
characterizes as Citicorp's "stunning about-face" announcement,
two days before he filed his complaint, of a dividend cut,
layoffs, and an increase in loan loss-reserves —
plaintiff asserts that it may be inferred defendants actually
did not hold their expressed opinions or that they failed to
convey caution where they "knew caution was warranted."
Goldman v. Belden, 754 F.2d 1059, 1068-69 (2d Cir.
1985); see also Elkind v. Liggett & Myers, Inc.,
635 F.2d 156, 164 (2d Cir. 1980) ("Liability may follow where
management intentionally fosters a mistaken belief concerning
a material fact such as its evaluation of the company's
progress and earnings prospects in the current year.").
Plaintiff fails, however, to allege any facts that lead to
this inference. In Goldman, "detailed in the
Complaint" were allegations that defendants' optimistic
sales predictions were belied by their actual knowledge of
contradictory facts. 754 F.2d at 1068-69 (emphasis added).
Here, plaintiff has failed to "'allege particular facts
demonstrating the knowledge of defendants at the time that such
statements were false,'" DiVittorio, 822 F.2d at 1248
(quoting Luce, 802 F.2d at 57), nor has he set forth
any facts, as opposed to conclusory allegations, to show that
defendants' opinions and projections were issued "without
reasonable genuine belief." Herskowitz v. Nutri/System,
Inc., 857 F.2d 179, 184 (3d Cir. 1988).
The complaint as a whole alleges simply that defendants'
optimism about Citicorp's prospects turned out wrong. Missing
are any facts or identified circumstances that would generate
an inference of guilty knowledge. Although "'great specificity
[is] not required with respect to . . . allegations of . . .
scienter,'" Connecticut Nat'l Bank v. Fluor Corp.,
808 F.2d 957, 962 (2d Cir. 1987) (quoting Goldman, 754
F.2d at 1070) (brackets in original) (ellipses in original),
"[t]his does not mean . . . that plaintiffs are relieved of
their burden of pleading circumstances that provide at least a
minimal basis for their conclusory allegations of scienter."
Fluor, 808 F.2d at 962.
In order adequately to plead scienter, plaintiff must either
demonstrate the existence of "facts showing a motive
for committing fraud and a clear opportunity for doing so," or,
where a motive is not apparent, identify "circumstances
indicating conscious behavior by the defendant . . .,
though the strength of the circumstantial allegations must be
correspondingly greater." Beck v. Manufacturers Hanover
Trust Co., 820 F.2d 46, 50 (2d Cir. 1987) (emphasis
added), cert. denied,
484 U.S. 1005, 108 S.Ct. 698, 98 L.Ed.2d 650 (1988). In this case,
plaintiff alleges simply that defendants' motive was to
"inflate the market price of Citicorp common stock." Complaint
¶ 38. However, the complaint provides no facts to support
that allegation. For example, there is no claim that individual
defendants maintained the stock price at inflated levels in
order to sell a substantial block of their own stock. E.g.
Bernstein v. Crazy Eddie, Inc., 702 F. Supp. 962, 977
Similarly, the complaint fails to identify any circumstances
which "give rise to a strong inference that defendants
had an intent to defraud, knowledge of the falsity, or a
reckless disregard for the truth." Fluor, 808 F.2d at
962 (emphasis added). Plaintiff alleges that defendants "knew
or were reckless in not knowing, based on facts available to
them, that their statements made and disseminated during the
Class Period were false and misleading in that there was no
reasonable basis for their statements concerning the financial
condition of Citicorp, its future prospects, and its dividend."
Complaint ¶ 36. However, plaintiff fails to allege which
specific "facts" were "available to them," whoever "them" may
have been, and why those unstated facts lead to the strong
inference that "there was no reasonable basis for the
Plaintiff makes much of a report in the December 20, 1990
issue of the Financial Times quoting Reed as saying,
in an interview published a month earlier in another
publication: "We were warned about real estate two years ago,
we were warned again a year ago, and we pooh-poohed it . . .
Now I'm damn embarrassed because the critics were right and we
were wrong." Complaint ¶ 35. That statement refers only to
the bank's real estate loan portfolio and says nothing about
purported warnings regarding Citicorp's dividend policy —
the main issue here — nor does it indicate who made the
warnings or the contents of the warnings. Plaintiff provides no
specifics with respect to even one of what his memorandum of
law describes as "all the warnings and danger signals."
Plaintiff's Memorandum of Law at 13. Without these bare facts,
there can be no inference of intentional or reckless misconduct
by any of the defendants. In a fiercely competitive industry
covered by hundreds of financial analysts and regulated by
various national and state agencies, the unsurprising
allegation that there existed "critics" of Citicorp's policies
fails to meet the standards of Fed.R.Civ.P. 9(b). To the extent
Reed admits that, as Chairman of the largest bank in the United
States (Complaint ¶ 7), he himself had numerous critics,
that is insufficient to support the inference that he did not
honestly believe his expressed opinion that dividend cuts were
highly inefficient, or that his raising of dividends was part
of a scheme to inflate the price of Citicorp stock. For the
foregoing reasons, plaintiff's complaint fails to set forth
Finally, plaintiff's suggestion that Reed had "admitted
defendants' recklessness," Plaintiff's Memorandum of Law at 23,
is sheer buncombe. Section 10(b) of the Securities Exchange Act
is not a strict liability statute. Reed's so-called "mae culpa"
[sic] (in the words of the Financial Times,
as misquoted in the complaint) that he was "embarrassed because
the critics were right and we were wrong" yields only the
inference that he and other employees of Citicorp admitted to
being human. It would not lead a reasonable person to conclude
that defendants committed securities fraud. The securities laws
do not put executives of public corporations to the choice of
either hiding their mistakes or facing a class-action
shareholder suit. In fact, the "fundamental purpose" of the
securities laws is just the opposite — "to substitute a
philosophy of full disclosure for the policy of caveat
emptor and thus to achieve a high standard of business
ethics in the securities industry." SEC v. Capital Gains
Research Bureau, Inc., 375 U.S. 180, 186, 84 S.Ct. 275,
280, 11 L.Ed.2d 237 (1963). See also Basic, Inc. v.
Levinson, 485 U.S. 224, 108 S.Ct. 978, 982-83, 99 L.Ed.2d
194 (1988). Reed's admission that he erred is irrelevant to
whether defendants previously had committed securities fraud
and adds nothing to plaintiff's other non-specific allegations
clipped from the newspaper.
Judge Friendly described a strikingly similar claim —
against a different major New York bank, during an earlier
banking crisis, for failing to show "greater clairvoyance"
— as nothing more than "an example of alleging fraud by
hindsight." Denny v. Barber, 576 F.2d 465, 470 (2d
Cir. 1978). A complaint must contain "more than vague
allegations that, as shown by subsequent developments, the
corporation's true financial picture was not so bright in some
respects as . . . painted and that the defendants knew, or were
reckless in failing to know, this." Id.
Plaintiffs have stitched together a patchwork of newspaper
clippings and proclaimed the result a tale of securities fraud.
But by even the modest standards of Rules 9(b) and 12(b)(6), it
isn't. Read as a whole, the complaint creates the strong
impression that when Citicorp announced a cut in dividends,
plaintiff's counsel simply stepped to the nearest computer
console, conducted a global Nexis search, pressed the "Print"
button, and filed the product as their complaint. Accordingly,
defendants' motion to dismiss for failure to plead fraud with
particularity and for failure to state a claim is granted.
Plaintiff will have one opportunity to amend the complaint.
However, if an amended complaint simply adds additional
clippings or edits existing scraps, I will invite a motion for
Rule 11 sanctions.