The opinion of the court was delivered by: STERLING JOHNSON, JR.
Plaintiffs Cyrus Bharucha and Charles Kesten, on behalf of themselves and the class of stockholders similarly situated, commenced this class action for lost stock value damages against Defendants Reuters Holdings, PLC; Reuters America, Inc.; Sir Christopher Hogg; Glen Renfrew; Michael Reilly; Nigel L. Judah; Andre F.H. Villeneuve; and John Hull. The Complaint alleges statutory securities law violations under Section 10(b) of the Securities and Exchanges Act of 1934, and Securities and Exchange Commission Rule 10b-5, and common law claims for negligent misrepresentation and fraud. In lieu of answering the Complaint, Defendants filed a motion to dismiss the Complaint pursuant to Fed. R. Civ. P. 12(b)(6) and 9(b). For the reasons stated below, Defendants' motion to dismiss is denied.
For the purposes of a motion to dismiss, the Court accepts the factual allegations contained in the Complaint as true. Conley v. Gibson, 355 U.S. 41, 78 S. Ct. 99, 2 L. Ed. 2d 80 (1957). Reuters Holdings, PLC ("Reuters"), is a British public limited company incorporated under the laws of England, with its principal offices in London. Reuters America, Inc. ("Reuters America") is a wholly owned subsidiary of Reuters and serves a public spokesman for Reuters in the United States. It was responsible for disseminating many of the allegedly misleading statements being sued upon.
During the 1980s, Reuters experienced significant growth with its core business in real time information services. In 1988, Reuters announced the development of a new foreign exchange transaction product called "Dealing 2000." Prior to the introduction of this product, Reuters used Reuters Monitor Dealing Service ("RMDS") which enabled dealers in various countries to contact one another directly in foreign exchange via a special video terminal. Dealing 2000 was intended to replace RMDS. Reuters promoted it as a significant advancement in its transaction products because it would provide automatic matching facilities for foreign exchange transactions. It is alleged that Dealing 2000 was particularly important to Reuters because its core information service products business and customer base began to shrink in the late 1980's.
Dealing 2000 was to be introduced in two phases. The first phase was called Dealing 2000-1. Reuters promoted "as increasing the number of dealing conversations that could be conducted simultaneously." (Complaint ("Compl.") P 25(a).) The second phase, Dealing 2000-2, was promoted by Reuters "as important to its growth in that it would create substantial profits through high-margin transaction fees (a new source of revenue for Reuters) and subscription service revenues." (Compl. P 25(b).)
Between December 1, 1988 and December 4, 1990 ("the class period"), the impending release of this second phase of Reuters foreign exchange product was widely publicized by Reuters. The first statement was made on December 1, 1988 by Glen Renfrew ("Renfrew"), Managing Director and Chief Executive of Reuters, before an audience of securities analysts:
We see substantial product growth potential in extending to the foreign exchange market what we're already doing in equities with Instinet. That is, earning money from each transaction put through a Reuters exchange system. We propose to do this with our major new foreign exchange transaction product: Dealing 2000. Letters of intent for this service, which we expect to start earning revenue in mid-1989, now total 400. And the first of the new terminals to be used for Dealing 2000 is already in live testing with subscribers in Europe, connected to our existing Dealing network. (Compl. P 27.)
Reuters issued a press release on April 26, 1989 stating:
Sir Christopher [Hogg] said that despite cost restraints, Reuters had several major new products under preparation for launch in 1989 with the potential to make a substantial contributions to the Company's growth beginning in 1990.
On July 25, 1989 at a securities analyst meeting in New York, Renfrew made the following statement:
We also expect that there will be a large improvement in the rate of growth in revenue. And provided the transaction products are successful, provided a lot of people trade in Dealing 2000, then the transaction rate -- the activity -- is high, then yes, a great deal of that would come through to the bottom ...