United States District Court, Southern District of New York
June 14, 2001
RONALD HART, ON BEHALF OF HIMSELF AND ALL OTHERS SIMILARLY SITUATED, PLAINTIFF,
INTERNET WIRE, INC. AND BLOOMBERG, L.P., DEFENDANTS.
The opinion of the court was delivered by: Milton Pollack, Senior U.S. District Judge
OPINION AND ORDER
Each defendant herein has moved this Court for a dismissal of the
amended complaint, pursuant to Rule 12(b)(6) of the Federal Rules of
Civil Procedure. This is a class action on behalf of the holders of stock
and options of Emulex, a manufacturer of computer communications
devices, and is asserted in connection with transactions which occurred
on August 25, 2000 on the NASDAQ.
The defendant, Internet Wire, is a news wire service which distributes
corporate news, including press releases, to the public. The defendant,
Bloomberg, is a world wide news organization and publisher by a variety
of media of financial and business news, from such services as the
co-defendant, Internet Wire.
The suit is based on a mistakenly reported news release issued by
Internet Wire and picked up and re-issued by Bloomberg, which turned out
to have been false, the work of a fraudster, one Mark Simeon Jakob, a
former employee of Internet Wire, who was indicted criminally and
convicted on a guilty plea.
Jakob was a short seller of Emulex stock in which he had a substantial
paper loss, and utilizing knowledge of the internal mechanics of how press
releases are submitted by Internet Wire, concocted a false release that
was distributed by Internet Wire reporting serious problems at Emulex:
that its earnings were being restated; that the company's Chief Executive
Officer was resigning; that the Securities Exchange Commission ("SEC")
had launched an investigation. The release was automatically re-broadcast
by members of the general press, including by the defendant, Bloomberg.
The fraudulent release caused the company s stock to plummet on the
NASDAQ by $60 a share in just 16 minutes, (enabling Jakob to cover his
short position at a profit) resulting in an estimated $2.2 billion lost
market capitalization and $1.10 million in loss to investors in Emulex
securities in the interim before trading was stopped.
Mark Jakob's Hoax *fn1
Emulex Corp. ("Emulex") is a manufacturer of computer communications
devices, and is based in California. Securities issued by Emulex are
publically traded on the NASDAQ. On or about August 17 and 18, 2000, Mark
Simeon Jakob, a former Internet Wire employee, bought "short" positions
on 3,000 shares of Emulex stock, anticipating a drop in the shares'
price. When the price rose instead, Jakob, faced with losses of as much as
$97,000, hatched a scheme to drive the price of Emulex stock down and
recover his losses by disseminating a false report about supposed
problems at the company.
As a former employee of Internet Wire, Jakob knew the internal
mechanics of how press releases are submitted to, and published by,
On August 24, 2000, armed with this knowledge, Jakob initiated his plot
to drive down the price of Emulex stock. Posing as a public relations
executive named "Ross Porter" acting on behalf of Emulex, Jakob sent an
e-mail to Internet Wire's Content Production Department, requesting that
an attached press release be distributed by Internet Wire the next
morning at 9:30 a.m. Eastern Time. Internet Wire's Content Production
staff treated both the e-mail and attached Press Release as genuine.
The Press Release reported serious problems at Emulex: earnings were
being restated, the company's Chief Executive Officer was resigning, and
the SEC had launched an investigation. At approximately 9:30 a.m. Eastern
Time, it was automatically re-broadcast by members of the general press,
including Bloomberg. As republished by Bloomberg, the Press Release
contained certain typographical errors. At approximately 10:13 a.m.
Eastern Time, Bloomberg published a headline repeating the Press
Release's statement that Emulex's CEO was resigning and that the SEC was
investigating the company. One minute later, Bloomberg issued a second
headline based on the press release, this one repeating the Press
Release's statement that Emulex was restating its fourth quarter
results. In publishing the Press Release, Bloomberg performed
no independent investigation of its authenticity.
As the contents of the Press Release circulated around the financial
community, Emulex stock was the subject of intense selling, and the price
dropped by up to $60 per share. At 10:29 a.m. Eastern Time — less
than an hour after the Press Release was published, and 15 minutes after
the Bloomberg headlines ran, NASDAQ suspended trading in Emulex stock.
Within a few minutes, Emulex exposed the Press Release as bogus, and
issued genuine press releases dispelling the allegations made in the
false report. Upon becoming aware of the hoax, at 10:57 a.m. Eastern
Time, Bloomberg reported on it. After trading resumed, the stock's price
rebounded to close at $105.75 per share.
Within days after the hoax was exposed, Matthew Winkler, the editor in
chief of Bloomberg News, was quoted in The Wall Street Journal expressing
regret that the news was carried over the Bloomberg system, stating that
"Bloomberg had been right to report on the news release, especially since
Emulex stock was already dropping" but that he was "disappointed in his
organization's handling of the episode."
In late August 2000, FBI agents arrested Jakob and charged him with
securities fraud and wire fraud. On December 28, 2000, Jakob pleaded
guilty before Judge Tevrizian of the United States District Court for the
Central District of California. Sentencing has been deferred to June 18,
Stripped of the interesting questions that do not reach the jugular is
the decisive one to which the answer blocks maintenance of this suit.
All of defendants' other arguments attacked by the plaintiffs herein
are set up to create seeming factual disputes to avoid dismissal based on
the face of the amended complaint. However the bête noir is that
fraud is not sufficiently asserted here - because there is no suggestion
of claim herein that defendants were aware of the fraudulent nature of
the release and issued their releases with intent to defraud.
In the search for a false representation by the defendants to sustain a
claim of federal fraud, plaintiffs point to paragraphs 34 and 35 of their
amended complaint which read:
34. The issuance of the Bloomberg Headlines constituted false
representations that Bloomberg had independently verified
that Emulex had reported that (i) Emulex's CEO had
resigned, (ii) Emulex's accounting was being investigated
by the SEC, and (iii) Emulex would be revising prior
financial results to a loss instead of a net gain. (Bold
Those conclusions - ("Headlines constituted") - were followed by
further conclusory assertions in paragraph 34 of:
a. What investors believed, b. What investors were reasonable in
concluding, c. What later led investors to conclude.
The amended complaint in paragraph 35 then refers to the foregoing
conclusions of what the headlines "constituted" and tags them as
"Bloomberg's representations set forth in Paragraph 34 above" and charges
the plaintiffs' conclusions "to be false and misleading," since
"Bloomberg did not perform any investigation whatsoever . . . but,
instead, Bloomberg relied solely on the Fake Press Release."
It is thus apparent from the pleading (confirmed on argument in Court)
that there is nothing in the complaint which charges Bloomberg with any
more than a construction that Bloomberg did not verify the fact that the
Release was false, investigated only by an unanswered telephone call to
Emulex and mistakenly proceeded on by Bloomberg and Internet Wire on the
appearance of the Release itself.
The complaint is devoid of any suggestion that defendants were aware of
the fraudulent nature of the release and there is no allegation in the
complaint that defendants "issued their releases with intent to defraud."
Instead the complaint is mounted only on the pleaders' constructions of
the presumed negligent actions of the defendants. The transcript of the
argument on the motions confirms that.
A 10b-5*fn2 case requires intentional misconduct and this is not a
10b-5 case. Neither defendant herein is charged with intent to defraud
Emulex investors when each mistakenly reported on the fake press
release. No charge is made that the defendants had a reason to defraud
The plaintiffs seek support for their complaint in suggestions of
recklessness on the part of defendants. They apparently concede, as they
must, that the notion of "recklessness" under 10b-5 requires intentional
misconduct. No allegation in the amended complaint even remotely suggests
- let alone gives rise to a strong inference - that either defendant
intended to defraud Emulex investors when they mistakenly reported on the
fake press release. Plaintiffs fail to plead any facts suggesting that
defendants acted with actual malice.
Rule 10b-5 scienter means intent to defraud and even when plaintiffs
rely on the "recklessness" prong of scienter, they still must show that
the defendants acted with fraudulent intent. Recklessness would
constitute 10b-5 scienter only where the accusations give rise to the
statutory requirement of a strong inference of fraudulent intent.
Pleading a failure to heed "storm warnings" does not suffice and absence
of any plausible fraudulent motive negates any suggestion thereof. Nor is
there any pleading of a motive for deliberately remaining ignorant of the
facts in question to render any plausible suggestion of a
characterization of willful blindness. Neither defendant is charged with
any motive for deliberately shutting its eyes to the facts or had any
interest in remaining ignorant that they were in the process of
concealing the fraud. Neither defendant is charged with deliberate intent
not to expose the fraud.
The plaintiffs' suggestion that defendants should have detected signs
of Mark Jakob's fraud, without more, is palpably insufficient to plead
recklessness sufficient to establish Section 10 liability as long as
defendants did not deliberately shut their eyes to the facts | intent to
defraud is the underlying criterion of asserted liability. Recognizing
that a 10b-5 claim against Bloomberg requires a knowing misstatement,
plaintiffs claim in their brief that, by merely reporting on the substance
of the Release, Bloomberg represented that it had confirmed with Emulex.
Plaintiffs do not allege in their amended complaint that Bloomberg ever
actually said that it had verified the Release. The totality of the
Bloomberg statements about Emulex was simply "Emulex CEO Steps Down; SEC
to Investigate Accounting" and "Emulex to Revise 4th Qtr Results to Loss
From Net." Plaintiffs claim that it does not matter that Bloomberg never
actually said that it verified the Release with Emulex, because a
hypothetical investor might have "inferred" that Bloomberg had done so.
Mere "repetition of the material submitted by summarizing its content or
effect and ascribing it to sources deemed reliable without vouching for
it as their own or adding any factual matter of their own cannot be
deemed a basis on which to assert a claim of federal securities fraud
against the publications." See In re Republic Nat'1. Life Ins. Co.,
387 F. Supp. 902 (S.D.N.Y. 1975) (Pollack, J.).
Plaintiffs Fail Adequately To Plead Scienter.
The Second Circuit has held that the Private Securities Litigation
Reform Act of 1995 ("PSLRA") codified the Second Circuit's pre-PSLRA
pleading standard for scienter. Rothman v. Gregor, 220 F.3d 81, 90(2d
Cir. 2000)(Newman, J.)("By enacting this pleading requirement, Congress
'did not change the basic pleading standard for scienter in this circuit
(except by the addition of the words 'with particularity')'"(citations
omitted)). Therefore, we may apply the standards for scienter that have
been developed in this Circuit.
While "Section 10(b) is aptly described as a catchall provision, ...
what it catches must be fraud." Central Bank of Denver. N.A. v. First
Interstate Bank of Denver. N.A., 511 U.S. 164, 174(1994)(citation
omitted). Thus, to satisfy the scienter element of Section 10(b), a
complaint must allege facts giving rise to a strong inference that the
defendant acted with "intent to deceive, manipulate, or defraud." Ernst &
Ernst v. Hochfelder, 425 U.S. 85, 193(1976); see also Shapiro v. Cantor,
123 F.3d 717, 720-21 (2d Cir. 1997)("[a] claim under [Section] 10(b) must
allege a defendant has made a material misstatement or omission
indicating an intent to deceive or defraud in connection with the
purchase or sale of a security"). Failure to plead this basic element is
grounds for dismissal of a Section 10(b) claim. See. e.g., Acito v.
IMCERA Group. Inc., 47 F.3d 47, 54 (2d Cir. 1995)(affirming dismissal of
Section 10(b) claims where allegations regarding scienter were
The Force of Alleged Reckless Behavior
A 10(b) plaintiff who relies on a recklessness theory is not relieved
of the burden to plead and prove fraudulent intent; "recklessness" for
10b-5 purposes is conduct that is "equivalent to willful fraud." Rolf v.
Blyth. Eastman Dillon & Co., 570 F.2d 38, 46 (2d Cir. 1978); see also
Novak v. Kasaks 216 F.3d 300, 312 (2d Cir. 2000)(Recklessness is found in
information that contradicted their public statements in "a state of mind
approximating actual intent, and not merely a heightened form of
negligence"), cert. denied, 121 S.Ct. 567 (2000); Chill v. GE Co.,
101 F.3d 263, 269 (2d Cir. 1996)(where the plaintiff proceeds under a
recklessness theory, defendants' actions must approximate an actual
intent to aid in the fraud being perpetrated, and must be established to
such an extent that a "reasonable finder of fact could actually infer
fraudulent intent from it.").
Conclusory allegations of fraudulent intent will not save a complaint
from dismissal. Rule 9(b) of the Federal Rules of Civil Procedure
requires 10b-5 plaintiffs, like all plaintiffs alleging fraud, to state
scienter allegations "with particularity." Similarly, the PSLRA, which
was enacted in large part to deter frivolous securities lawsuits,
requires a securities fraud plaintiff to "state with particularity facts
giving rise to a strong inference that the defendant acted with the
required state of mind." 15 U.S.C. § 78u-4(b)(2). Thus, merely
conclusory allegations that a defendant "knew or [was] reckless in not
knowing" the true facts will not satisfy a plaintiffs pleading
requirements. Shields v. Citytrust Bancorp. Inc., 25 F.3d 1124, 1129 (2d
Plaintiffs do not allege that defendants intended to defraud anyone
when they reported on the purported Press Release. Rather, Plaintiffs
claim that defendants were reckless in not realizing that the Press
Release was the work of a fraudster. Plaintiffs' theory fails as a matter
Plaintiffs Fail To Plead Particularized Facts That Would Support A
Finding That Bloomberg Acted With Fraudulent Intent
Under Second Circuit jurisprudence, a plaintiff can establish the
requisite "strong inference of fraudulent intent" either by (1) factual
allegations that defendants had both motive and opportunity to commit
fraud, or (2) strong circumstantial evidence of conscious misbehavior or
recklessness. Chill, 101 F.3d at 267; Gabriel Capital. LP v. Natwest
Fin., Inc., No 99 Civ. 10488 (SAS), 2000 WL 1774607 at *5(S.D.N.Y. Dec.
4, 2000). Plaintiffs fail to satisfy either prong.
Plaintiffs do not claim that Bloomberg had a motive to defraud Emulex
investors, and they do not allege that defendants had an opportunity to
benefit from the brief misimpression created by the bogus Press Release.
"Motive would entail concrete benefits that could be realized by one or
more of the false statements and wrongful nondisclosures alleged.
Opportunity would entail the means and likely prospect of achieving
concrete benefits by the means alleged." Shields, 25 F.3d at 1130.
Plaintiffs make no allegation that defendants owned Emulex stock, that
defendants traded on the misinformation in the Press Release, or that
defendants stood to gain in any manner by misleading Emulex investors.
Instead, the Amended Complaint merely speculates (without support) that
Bloomberg published the information without further investigation because
they may have wanted to be the first news sources to break the story.
This, of course, presupposes that defendants thought the "news" was
Thus, plaintiffs' suggestion that in a race to be first, defendants
published a story they knew (or even suspected) to be false, simply does
not suffice. Indeed, defendants' lack of motive belies plaintiffs' theory
that they acted with fraudulent intent. See In re Burlington Coat Factory
Sec. Litig., 114 F.3d 1410, 1418 (3d Cir. 1997)("[p]laintiffs must
accompany their legal theory with factual allegations that make their
theoretically viable claim plausible."); Coates v. Heartland Wireless
Communications. Inc., 55 F. Supp.2d 628, 643 (N.D. Tex. 1999)(dismissing
10b-5 complaint where, among other things, the "alleged motive to commit
fraud is not plausible as pleaded"); SEC v. Shattuck Denn Mining Corp.,
297 F. Supp. 470, 476 (S.D.N.Y. 1968)(declining to award injunctive
relief against corporate defendant where there was "no showing that [it]
derived any benefit from such nondisclosure, or that its purpose was to
affect the market price of [its] stock to the advantage of [it] or any of
To be sure, motive is not a sine qua non of a securities fraud claim.
But where motive and opportunity do not exist, "the strength of the
circumstantial allegations [regarding fraudulent intent] must be
correspondingly greater," and the plaintiff must "allege facts
approaching a knowledgeable participation in the fraud or a deliberate and
conscious disregard of facts." In re WRT Energy Sec. Litig., No. 96 Div.
3610 (JFK), 1999 WL 178749, at *8-9 (S.D.N.Y. Mar. 31, 1999)(quoting Beck
v. Manufacturers Hanover Trust Co., 820 F.2d 46, 50 (2d Cir 1987),
484 U.S. 1005 (1988), overruled on other grounds, United States v.
Indelicato, 865 F.2d 1370 (2d Cir. 1989)(en banc); Decker v. Massey
Ferguson. Ltd., 681 F.2d 111, 121 (2d Cir. 1982). Plaintiffs' do not
plead with particularity that defendants either knew or suspected that the
Press Release was false.
Plaintiffs' Complaint reveals that defendants were used as unwitting
dupes by Jakob. This does not give rise to a securities fraud claim
against them. See Elliott Assocs., L.P. v. Convance. Inc. No.00 Civ. 4115
(SAS), 2000 WL 1752848, at *6 (S.D.N.Y. Nov. 28, 2000) ("a complaint
which fails to adduce any specific facts supporting an inference of
knowledgeable participation in the alleged fraud" will not survive a
motion to dismiss) (emphasis added).
The Supreme Court's decision in Central Bank of Denver v. First
Interstate Bank. 511 U.S. 164 (1994), forecloses plaintiffs' effort to
impose liability on Bloomberg for conduct that falls far short of direct
and knowing participation in Jakob's fraud. Central Bank held that
Section 10(b) "prohibits only the making of a material misstatement
...(or omission) or the commission of a manipulative act," Central Bank,
511 U.S. at 177. "The proscription does not include giving aid to a
person who commits a manipulative or deceptive act." Id. Thus, under
Central Bank, a party cannot be held liable under Section 10(b) even for
knowingly aiding and abetting securities fraud. A fortiori, one cannot be
held liable for unknowingly assisting a fraudster in furthering his
The Court of Appeals recognized as much in Wright v. Ernst & Young.
LLP, 152 F.3d 169 (2d Cir. 1998), cert. denied, 525 U.S. 1104 (1999), in
which plaintiffs sought to impose liability on Ernst & Young for "signing
off" on its client's misleading financial statements, even though those
statements as published made no mention of Ernst & Young. The Second
Circuit affirmed the dismissal of the complaint, holding that plaintiffs'
theory was foreclosed by Central Bank. In doing so, the Second Circuit
agreed with this Court that were it to find Ernst & Young liable under
Section 10(b) "in spite of its clearly tangential role in the alleged
fraud [that] would effectively revive aiding and abetting liability under
a different name, and would therefore run afoul of the Supreme Court's
holding in Central Bank." Wright, 152 F.3d at 175 (internal quotations
omitted). The unwitting role that Bloomberg played in Jakob's fraud falls
far short of the knowing participation required for Section 10(b)
Plaintiffs do not contend that defendants knew the Press Release was
false. Nor do plaintiffs contend that defendants actually entertained
doubts about the legitimacy of the Press Release at the time it was
disseminated and published. Rather, plaintiffs allege that certain errors
in the Press Release, as disseminated, constituted "red flags" that
should have prompted Bloomberg to make further investigation. Decisions
by the Second Circuit and by this Court unambiguously foreclose
plaintiffs' efforts to impose 10b-5 liability on defendants for failing to
recognize that plaintiffs, in hindsight, see as "red flags." Simply
stated, allegations that defendants "should have known" that the Press
Release was fraudulent are insufficient to plead recklessness under
10b-5. "[I]f recklessness means something more culpable than negligence,
as it must, then an allegation that a defendant merely "ought to have
known' is not sufficient to allege recklessness." Troyer v. Karcagi,
476 F. Supp. 1142, 1152 (S.D.N.Y. 1979). Rather, "to withstand a motion
to dismiss plaintiffs must detail specific contemporaneous data or
information known to the defendants that was inconsistent with the
representation in question." Elliott Assocs., L.P., 2000 WL 1752848, at
*7. Thus, even an "egregious" failure to gather information will not
establish 10b-5 liability as long as the defendants did not "deliberately
shut their eyes to the facts." In re Fischbach Corp. Sec. Litig., No. 89
Civ. 5826 (KMW), 1992 WL 8715, at *7 (S.D.N.Y. Jan. 15, 1992).
The Second Circuit's decision in Chill is instructive on this point.
There, plaintiffs sought to impose 10b-5 liability on a parent
corporation for incorporating the misstatements of one of its
subsidiaries, arguing that the parent company "was reckless in its
failure to heed the [host of] 'red warning flags'" in the subsidiary's
financial statements. Chill, 101 F.3d at 268. The Second Circuit affirmed
Judge Keenan's dismissal of the complaint, finding that the failure to
heed such supposed warnings signs would not constitute "intentional,
knowing or reckless activity" for purposes of 10b-5 liability. Chill, 101
F.3d at 266. In doing so, the Court noted that fraud cannot be inferred
merely because the defendants "might have been more curious or concerned"
about the matters in question. Id at 270; see also Shields, 25 F.3d at
1129 (allegations "strongly suggest  that the defendants would have
been more alert and more skeptical, but nothing alleged indicates that
management was promoting a fraud"), Wright, 152 F.3d at 172 (allegation
that [defendants] failed to uncover "massive accounting and financial
reporting irregularities" was insufficient to impose 10(b) liability on
Decisions by this Court to the same effect are legion. In In re WRT,
for instance, Judge Keenan held that allegations of recklessness based on
the failure of underwriters to perform adequate investigation were
insufficient to state a claim under Rule 10b-5. Judge Keenan found that
allegations as to what defendant "should have turned up" constituted
"negligence at best," and are insufficient as a matter of law to plead
securities fraud. In re WRT, 1999 WL 178749, at *10. Similarly, in Feasby
v. Industri-Matematik Int'l Corp., No. 99 Civ. 8761 (HB), 2000 WL
977673, (S.D.N.Y. July 17, 2000), plaintiffs sued certain corporate
directors and officers, seeking to impose liability on them for a series
of allegedly false and misleading statements regarding the Company's
future profitability. There, Judge Baer held that plaintiffs assertion
that underlying adverse information "must have been obvious to the
defendants" was insufficient proof of fraudulent intent, stating that
"[s]uch 'intuition' on the part of plaintiffs — without
particularized facts — is insufficient under the pleading
requirements of Rule 9(b) and [the PSLRA]" Id. at *7 In Goldman v.
McMahan. Brafman. Morgan & Co., 706 F. Supp. 256 (S.D.N.Y. 1989), Judge
Leisure held there the allegation that an accounting firm "should have
... independently confirmed and verified" the information at issue was
insufficient to support an inference of recklessness. Id. at 259. And in
The Limited. Inc. v. McCrory Corp., 683 F. Supp. 387 (S.D.N.Y. 1988),
Judge Carter held that "[e]ven if[the defendant] should have done more to
attempt to uncover and disclose the alleged fraud, without factual
allegations tending to establish knowledge of those practices on [the
defendant's] part, its 'failure [to make further inquiries does] not rise
above the level of negligence, which is legally insufficient.'" Id. at
394 (citation omitted)(brackets in original).
Plaintiffs contend that "it was Bloomberg's standard practice" to
confirm press releases, and suggest that such a practice, combined with
Bloomberg's reputation as a reliable news source, should give rise to
10b-S liability on Bloomberg's part for failing to discover Jakob's
fraud. Courts have refused to assign 10b-5 liability merely for a
violation of a defendant's standard practices and procedures See. e.g.,
Stevelman v. Alias Research Inc., 174 F.3d 79 (2d Cir. 1999)(violations
of industry standards are not enough to show scienter); Chill, 101 F.3d
at 270 (finding that "[a]llegations of a violation of GAAP provisions or
SEC regulations, without corresponding fraudulent intent, are not
sufficient to state a securities fraud claim."); In re Livent. Inc. Sec.
Litig., 78 F. Supp.2d 194 (S.D.N Y 1999)(finding that violations of
Company's accounting policies and various professional standards, without
proof of intent to defraud, were not sufficient to allege fraud under
§ 10(b)). "It is also unfair to use professionals' self-imposed
standards, which may exceed industry standards, against them to try to
prove fraud. This violates public policy which encourages the highest
standards, in order to protect the public." In re Worlds of Wonder Sec.
Litig., 147 F.R.D. 214, 217 (N.D. Cal. 1992).
The Second Circuit has cautioned against "allow[ing] plaintiffs to
proceed with allegations of 'fraud by hindsight.'" Novak, 216 F.3d at
309; see also Shields, 25 F.3d at 1129 ("[w]e have rejected the
legitimacy of 'alleging fraud by hindsight.'"); Feasby, 2000 WL 977673,
at *4 ("Plaintiffs cannot prevail [on a 10b-5 claim] by using crystal
balls or 20/20 hindsight"). The critical issue is what defendants knew at
the time they carried the Press Release. Plaintiffs fail to allege that
defendants at that time knew the Press Release was false, or even that
defendants in fact entertained doubts about the Press Release's
validity. These failures are fatal to their claim.
Apparently recognizing that defendants cannot be held liable merely for
publishing the bogus Press Release, plaintiffs make the unsupported claim
that in reporting on that Release, defendants represented that it had
independently verified that it was genuine. This theory fails for the
simple reason that nothing in the complaint alleges that Bloomberg made
any such representation.
"[A] defendant must actually make a false or misleading statement in
order to be held liable under Section 10(b)." Shapiro, 123 F.3d 717, at
720 (internal quotations omitted). In light of this bedrock requirement,
courts will not impose Section 10(b) liability based merely on
"inferences" that a plaintiff claims to have drawn from an otherwise
unactionable statement. For instance, in Wright. supra, plaintiff sought
to impose liability on Ernst & Young for misrepresentations made in a
client's press release, on the theory that the public inferred that Ernst
& Young had approved the statement. In dismissing the complaint, the
District Court rejected the argument that the press release, which made
no mention of Ernst & Young, "constituted an implied statement to the
public that Ernst & Young had approved [the client's] financial
statements." Wright, 152 F.3d at 172. The Second Circuit agreed, making
clear that the Court's focus must be on the subject statement itself, and
not "what the market might have implicitly 'understood'" about what the
statement meant. Id. 152 F.3d at 176-77.
By alleging that Bloomberg implied that it had verified the Press
Release, plaintiffs simply impose a convenient but unsupportable
inference. Although plaintiffs allege that "Bloomberg caused investors to
believe that ... Bloomberg had independently verified the information it
reported," they fail to point to a single statement by Bloomberg to the
effect that it had verified the contents of the Press Release. This falls
far short of the PSLRA's requirement that a plaintiff state with
particularity the contents of the allegedly fraudulent statement. Feasby,
2000 WL 977673, at **4, 6. Nor is there any merit to plaintiffs' argument
that Bloomberg should be held to have made such a representation by the
mere fact of its reputation as a news organization. Bloomberg's general
reliability cannot substitute as an affirmative representation that it
verified any particular press release, nor does it relieve plaintiffs of
their burden of pleading the elements of a Section 10(b) claim.
Accordingly, the Amended Complaint is dismissed with leave to replead
in 20 days hereof should plaintiffs deem that they can consistently
herewith frame a sufficient complaint.