United States District Court, S.D. New York
April 1, 2004.
In re Bristol-Myers Squibb Securities Litigation, This Matter Pertains to All Cases
The opinion of the court was delivered by: LORETTA PRESKA, District Judge
MEMORANDUM OPINION AND ORDER
A. Procedural History
On April 11, 2003, plaintiffs Teachers' Retirement System of Louisiana
("Louisiana Teachers"), Louisiana State Employees' Retirement System
("LASERS"), General Retirement System of the City of Detroit ("Detroit
General") and Fresno County Employees Retirement Association ("FCERA")
(collectively, "Plaintiffs") filed a Consolidated Class Action Complaint
("Complaint" or "Compl.") alleging that defendants Bristol Myers Squibb
Company ("BMS" or the "Company") and several of its officers, Peter R.
Dolan ("Dolan"), Harrison M. Bains ("Bains"), Charles C. Heimbold, Jr.
("Heimbold"), Richard J. Lane ("Lane"), Frederick S. Schiff ("Schiff"),
Michael F. Mee ("Mee"), Peter S. Ringrose ("Ringrose") and Curtis L.
Tomlin ("Tomlin") (collectively with BMS, the "Defendants", and
collectively without BMS, the "Individual Defendants") violated Section
of the Securities Exchange Act of 1934 ("Exchange Act") and
Rule 10b-5 promulgated thereunder and that Messrs. Dolan, Heimbold, Lane, Mee
and Schiff violated § 20(a) of the Exchange Act by making false and
misleading statements regarding the Company's accounting practices, (the
"Accounting allegations") (see, e.g., Compl. ¶¶ 55, 58-145),
and the Company's investment in ImClone Systems ("ImClone") (the "ImClone
allegations"), (see, e.g., Compl. ¶¶ 57, 146-194),
between October 19, 1999 and March 10, 2003 (the "Class Period").
On May 30, 2003, Defendants BMS, Dolan, Ringrose and Bains provided
Plaintiffs with a description of purported legal deficiencies in the
Complaint. Plaintiffs were given the opportunity to amend a final time or
to stand on the Complaint as written, with the understanding that no
further amendments would be permitted. On June 19, 2003, Plaintiffs
informed the Court that they did not intend to amend the Complaint.
Thereafter, Defendants filed motions to dismiss the Complaint pursuant to
Fed.R.Civ.P. 12(b)(6) for failure to state a claim.
The following facts are taken from allegations in the Complaint and the
documents upon which it is based, which, except where noted, are accepted
as true for purposes of the motion to dismiss.
On September 19, 2001, BMS announced a $2 billion equity investment in
ImClone pursuant to which the Company agreed to co-market and develop
with ImClone the cancer treatment drug Erbitux. (Compl. ¶ 157.) At
the time the investment was announced, ImClone had received "fast-track"
approval of the Erbitux Biologics License Application ("BLA") by the
Federal Drug Administration ("FDA"). (Compl. f 150.) This fast track
approval meant that the FDA would facilitate the development and expedite
the review of the Erbitux BLA. (Compl. ¶ 150.) However, on December
28, 2001, the FDA informed ImClone, by way of a "refusal-to-file" ("RTF")
letter, that the FDA would not review the Erbitux BLA because the data
submitted by ImClone was insufficient to support fast track approval at
that time. (Compl. ¶¶ 181, 187-88.)
In April, 2002, BMS issued its Form 10-K for the year ending December
31, 2001, in which it disclosed that certain of its domestic wholesalers
had built up excess inventory of the Company's pharmaceutical products.
(Compl. ¶¶ 113, 123.) Later the same month, BMS also made an
adjustment to its Medicaid and Prime Vendor accrual accounts of $262
million. (Compl. f 123.) Also during April, the SEC began an informal
inquiry into the Company's wholesaler inventory buildup, which later
became a formal investigation. (Compl. ¶¶ 127, 130.) In October, 2002,
the United States Attorney for the District of New Jersey
announced an investigation into the same issues. (Compl. ¶¶
132.) The Company also initiated and publically disclosed a plan to
workdown excess inventories held by wholesalers. (Declaration of
Elizabeth Grayer, executed August 1, 2003 ("Grayer Decl.") Ex. A, at 2.)
Throughout the spring and summer, BMS stated that its accounting for
pharmaceutical sales to wholesalers during the inventory buildup was
appropriate. (Compl. ¶¶ 127, 130, 134.) In late October, 2002, the
Company announced that, based on the recent advice of its accountants,
PricewaterhouseCoopers ("PwC"), the Company expected to restate its
financial statements for certain prior periods, primarily to adjust the
timing of the Company's recognition of certain incentivized
pharmaceutical sales to wholesalers. (Compl. ¶ 134; Grayer Decl. Ex.
A, at 48.)
On December 12, 2002, the Wall Street Journal published an
article in which BMS' accounting practices were discussed. (Compl. ¶
135.) On March 10, 2003, BMS publicly announced the expected scope and
substance of its restatement, which was formally contained in three
amended public filings submitted to the SEC on March 19, 2003: a
Form 10-K/A for the year ended December 31, 2001 and Forms 10-Q/A for the
three-month periods ended March 31, 2002 and June 30, 2002 (collectively,
the "Restatement"). (Compl. 1 2.)
A. Legal Standards
1. Rule 12(b)(6)
For the purposes of a motion to dismiss under Rule 12(b)(6), all
well-pleaded factual allegations of the complaint are accepted as true,
and all inferences are drawn in favor of the pleader. See City of
Los Angeles v. Preferred Communications, Inc., 476 U.S. 488, 493
(1986); Miree v. Dekalb County, 433 U.S. 25, 27 n.2 (1977)
(referring to "well-pleaded allegations"); Mills v. Polar Molecular
Corp., 12 F.3d 1170, 1174 (2d Cir. 1993). "`The complaint is deemed
to include any written instrument attached to it as an exhibit or any
statements or documents incorporated in it by reference.'"
International Audiotext Network, Inc. v. American Tel. & Tel.
Co., 62 F.3d 69, 72 (2d Cir. 1995) (quoting Cortec Indus., Inc.
v. Sum Holding, L.P., 949 F.2d 42, 47 (2d Cir. 1991)). The court
need not accept as true an allegation that is contradicted by documents
on which the complaint relies. see, e.g., In re Livent, Inc.
Noteholders Sec. Litig., 151 F. Supp.2d 371, 405-06 (S.D.N.Y. 2001).
In order to avoid dismissal, plaintiffs must do more than plead mere
"conclusory allegations or legal conclusions masquerading as factual
conclusions." Gebhardt v. Allspect, Inc., 96 F. Supp.2d 331,
333 (S.D.N.Y. 2000) (quoting 2 James Wm. Moore, Moore's Federal Practice
¶ 12.34 [a] [b] (3d ed. 1997)).
Dismissal is proper only when "it appears beyond doubt that
plaintiff can prove no set of facts in support of his claim which would
entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46
(1967); accord Cohen v. Koenig, 25 F.3d 1168, 1172 (2d Cir.
2. Section 10(b) and Rule 10b-5 Section 10(b) of the Exchange Act
It shall be unlawful for any person, directly or
indirectly, by the use of any means or
instrumentality of interstate commerce or the
mails, or of any facility of any national
securities exchange (b) To use or employ,
in connection with the purchase or sale of any
security registered on a national securities
exchange or any security not so registered, any
manipulative or deceptive device or contrivance in
contravention of such rules and regulations as the
Commission may prescribe as necessary or
appropriate in the public interest or for the
protection of investors.
15 U.S.C. § 78j(b).
In order to state a misrepresentation claim under Section 10(b) and
Rule 10b-5 promulgated thereunder, a plaintiff must plead that
defendants, "`in connection with the purchase or sale of securities, made
a materially false statement or omitted a material fact, with scienter,
and that the plaintiff's reliance on the defendant [s'] action caused
injury to the plaintiff.'" Lawrence v. Cohn, 325 F.3d 141, 147
(2d Cir. 2003) (quoting Ganino v. Citizens Utils. Co.,
228 F.3d 154, 161 (2d Cir. 2000)); see also Grandon v. Merrill Lynch &
Co., 147 F.3d 184, 189 (2d
3. Rule 9(b)
Rule 9(b) requires that "in all averments of fraud or mistake, the
circumstances constituting fraud or mistake shall be stated with
particularity." Fed.R.Civ.P. 9(b). A complaint alleging violations of
Section 10(b) and Rule 10b-5 must satisfy the particularity requirement
set forth in Rule 9(b). See Stevelman v. Alias Research, Inc.,
174 F.3d 79, 84 (2d Cir. 1999) (citing Decker v. Massey-Ferguson,
Ltd., 681 F.2d 111, 114 (2d Cir. 1982). The complaint must "(1)
specify the statements that plaintiff contends were fraudulent, (2)
identify the speaker, (3) state where and when the statements were made,
and (4) explain why the statements were fraudulent.'" Novak v.
Kasaks, 216 F.3d 300, 306 (quoting Shields v. Citytrust
Bancorp, Inc., 25 F.3d 1124, 1128 (2d Cir. 1994) (quoting Mills
v. Polar Molecular Corp., 12 F.3d 1170, 1175 (2d Cir. 1993))).
Rule 9(b) also provides that "malice, intent, knowledge, and other
condition of mind may be averred generally." Fed.R.Civ.P. 9(b). The
Court of Appeals in Shields noted that :
Since Rule 9(b) is intended "to provide a
defendant with fair notice of a plaintiff's claim,
to safeguard a defendant's reputation from
improvident charges of wrongdoing, and to protect
a defendant against the institution of a strike
suit . . ., the relaxation of Rule 9(b)'s
specificity requirement for scienter "must not be
mistaken for license to base claims of fraud
on speculation and conclusory allegations.'"
Shields, 25 F.3d at 1128 (internal citations omitted).
Therefore, to give meaning to the overall purpose of Rule 9(b), a fraud
plaintiff must "allege facts that give rise to a strong inference of
fraudulent intent." The Private Securities Litigation Reform Act of 1995
("PSLRA") also adopts this heightened pleading standard for scienter in
securities fraud actions. See 15 U.S.C. § 78u-4(b)(1)
(setting out the requirements for pleading securities fraud actions,
including the requirement that a complaint "state with particularity
facts giving rise to a strong inference that the defendant acted with the
required state of mind"). Chill v. Gen. Elec. Co.,
101 F.3d 263, 267 (2d Cir. 1966) (quoting Acito v. IMCERA Group, Inc.,
47 F.3d 47, 52 (2d Cir. 1995)).
Read together, Rule 9(b) and the PSLRA mandate that "plaintiffs must
allege the first two elements of a securities fraud claim
fraudulent acts and scienter with particularity". Elliott
Assocs. L.P. v. Haves, 141 F. Supp.2d 344, 353 (S.D.N.Y. 2000)
(citation omitted). Plaintiffs can establish the requisite "strong
inference of fraudulent intent" either (a) by demonstrating "that
defendants had both motive and opportunity to commit fraud, or (b) by
alleging facts that constitute strong circumstantial evidence of
conscious misbehavior or
recklessness." Kalnit v. Eichler, 264 F.3d 131, 138-39
(2d Cir. 2001).
B. The ImClone Allegations
1. Statements Regarding the ImClone Investment
Plaintiffs have compiled a laundry list of statements made by the
Defendants between September 19, 2001 and December 28, 2001, which
Plaintiffs contend are false or misleading. These statements were made in
conference calls, meetings, interviews, press releases, the Company's
Annual Reports to Shareholders and the Company's financial statements and
pertained to, not surprisingly, matters such as management's
expectations, the Company's financial outlook, management's business
projections, and the Company's investment in ImClone. Plaintiffs have
identified the speaker of the statements, as well as the time frames and
venues in which they were made. Accordingly, Plaintiffs have satisfied
the "time, place, speaker, and . . . content of the alleged
misrepresentation" requirements. Shields, 25 F.3d at 1129
(quoting Ouaknine v. MacFarlane, 897 F.2d 75, 79 (2d Cir.
However, these allegedly fraudulent statements are in all relevant
respects identical to those that the Court of Appeals has repeatedly held
to be nonactionable expressions of corporate optimism. It is well settled
that a complaint alleging violations of the securities laws may not rely
that are true, or constitute puffery or ordinary expressions of
corporate optimism. See In re Int'l Bus. Machs. Corp. Sec.
Litig., 163 F.3d 102, 108 (2d Cir. 1998) (opinions regarding future
dividends); Lasker v. N.Y. State Elec. & Gas Corp., 85 F.3d 55,
58-59 (2d Cir. 1996) (predictions about earnings and diversification
plans); San Leandro Emergency Med. Group Profit Sharing Plan v.
Philip Morris Cos., 75 F.3d 801, 811 (2d Cir. 1996) (holding
nonactionable statements about earnings and expected product
performance); Faulkner v. Verizon Communications, Inc., (Faulkner
I), 156 F. Supp.2d 384, 388-89, 397-99 (S.D.N.Y. 2001) (holding
nonactionable defendant's statements about merger prospects). Likewise,
statements of opinion are insufficient to form the basis of a
misrepresentation or omission complaint under § 10(b). See San
Leandro. 75 F.3d at 811. Further, statements regarding future
performance are actionable only if "they are worded as guarantees or are
supported by specific statements of fact, or if the speaker does not
genuinely or reasonably believe them." IBM Corp. Sec. Litig.,
163 F.3d at 107 (citation omitted); Faulkner v. Verizon
Communications. Inc., ("Faulkner II"). 189 F. Supp.2d 161, 172-73
Typical of the statements challenged by Plaintiffs is Lane's statement
on a conference call with Wall Street analysts following the announcement
of the Company's investment in ImClone
Systems that "we think that this is a tremendous
strategic opportunity. We think [Erbitux] is real blockbuster
potential. has the potential to be one of the most
exciting, if not the most exciting, oncology compound introduced
over the next several years . . . .[a]nd it's a compound with
an 18-year patent life, ready to go to market hopefully next
year," (Compl. ¶ 160) (emphasis added), or Schiff's statement on the
same call that "as to the highlights [Erbitux] is a late-stage
product with potential to drive the growth of our oncology
franchise in the near and medium term and extending into 2018. It is a
first-in-class novel blockbuster drug for treating cancer," (Compl. ¶
161) (emphasis added).
With respect to the FDA approval of Erbitux, Plaintiffs assert the
conclusion that defendant Lane "all but guaranteed" FDA approval but
attempt to support that conclusion with the factual allegation that Lane
said that he was "very positive about the approval prospects for this
drug" and that he did not "think [FDA rejection of the Erbitux BLA is]
very probable. The fact is, I don't think it's
likely at all that this drug won't
get approved.'*fn1 (Compl. ¶ 163 (emphasis added).)
Plaintiffs' selective quotations from the referenced conference call
distort Lane's statement no such "guarantee" was made, and thus I
reject the allegation that Lane "all but guaranteed" FDA approval.
See Livent, 151 F. Supp.2d at 405-06. On that call, Richard
Bellson, an analyst with Capital Research Company, asked what
consequences would follow from a request by the FDA for Phase III study
data prior to approving the Erbitux BLA. (See Grayer Decl. Ex. F, at 8.)
Well, first off, we don't think it's
very probably [sic], fact is I don't
think it's likely at all, that this drug
won't get approved. We have the milestone payments
as Fred cited, and if additional studies were
required we would work with ImClone to do those
studies. It will remain to see [sic] what the
FDA asks but I've [sic] very positive about
the approval prospects for this drug.
(Id. (emphasis added).)
Taken in context, Lane's statement regarding FDA approval cannot be
considered a guarantee of FDA approval or
otherwise false or misleading. It predicts the action the Company
would take in the event the Erbitux BLA was not approved and it expresses
personal optimism about regulatory events not under the Company's
control. Any reasonable investor reading these statements, or any of the
other statements regarding Erbitux complained of by Plaintiffs (Compl.
¶¶ 158-166), would recognize that the Defendants could not and did not
guarantee that Erbitux would be approved by the FDA, either in the near
term or at all.*fn2 See Faulkner I. 156 F. Supp.2d at 398.
Statements such as these are plainly opinions, not guarantees, and are
not actionable. see, e.g., IBM Corp. Sec. Litig., 163
F.3d at 108.*fn3
Also typical of the statements which Plaintiffs
complain of are the statements allegedly made by defendants Dolan,
Lane, Schiff and Ringrose on the day BMS' investment in Erbitux was
announced. For example, in a press release, Dolan is alleged to have
. . . ImClone Systems' [Erbitux] represents one
of the most important advances in cancer medicine
since the introduction of Taxol . . . The
partnership with ImClone Systems demonstrates our
continued commitment to achieve our strategies for
growth; focuses our efforts on medicines with
blockbuster potential; broadens our growth
opportunities through aggressive external
development; and is a significant step toward
becoming a leader in biologics.
(Compl. ¶ 158.)
On the same day, defendant Schiff is alleged to have given his opinion
regarding the ImClone investment and Erbitux in a conference call: "lt is
a first-in-class novel blockbuster drug for treating cancer." (Compl. f
Defendant Ringrose, also on the conference call, is alleged to have
said: "It potentially represents one of the most important
advances in cancer medicine," (Compl. ¶ 162 (emphasis added)), and
"[n]eedless to say, the discussions between ImClone and the FDA have been
ongoing for some months now. So we would be surprised, based on
those ongoing discussions, if the FDA took a different position on [the
trial]," (Compl. ¶ 164 (emphasis added)).
Based on the cases cited above, I find that the
statements regarding ImClone and Erbitux that Plaintiffs complain
of constitute non-actionable opinion, personal or corporate optimism and
2. Statements By ImClone
To state a claim under § 10(b) and Rule lOb-5, Plaintiffs must
allege that Defendants made a material false or misleading statement or
omission. Wright v. Ernst & Young LLP, 152 F.3d 169, 174-75
(2d Cir. 1998). In Central Bank, the Supreme Court established
unequivocally that a § 10(b) claim is not actionable unless the
defendant is accused of making the false or misleading
statements at issue. Central Bank of Denver. N.A. v. First
Interstate Bank of Denver, N.A., 511 U.S. 164, 177-78, 180 (1994)
(emphasis added).*fn4 Following the Court's decision in Central
Bank, the Court of Appeals held that " [a] negations of `assisting,'
`participating in,' `complicity in,' and similar synonyms . . . all
fall within the prohibitive bar of Central Bank. A claim under
§ 10(b) must allege a defendant has made a material misstatement or
omission. . . ." Shapiro v. Cantor, 123 F.3d 717, 720-21 (2d
Cir. 1997); Wright, 152 F.3d at 175 ("[A] secondary actor
cannot incur primary liability under the
Act for a statement not attributed to that actor at the time of its
dissemination."). Therefore, to the extent Plaintiffs complain about
allegedly false statements made by ImClone (Compl. ¶¶ 183, 192), that
complaint is addressed to the wrong defendant.
Similarly, to the extent Plaintiffs claim that
Defendants had a duty to correct, update, or speak about any of the
alleged misstatements by ImClone, (Compl. ¶ 183-192), they are also
directing that claim to the wrong defendants. A duty to correct arises
when a party makes a material statement it believes to be true but
subsequent events prove otherwise. See IBM Corp. Sec. Litig.,
163 F.3d at 109. A party has no duty to correct statements not
attributable to it. Elkind v. Liggett & Myers, Inc.,
635 F.2d 156, 162-63 (2d Cir. 1980); SEC v. Wellshire Sec., Inc.,
773 F. Supp. 569, 573 (S.D.N.Y. 1991).
As noted above, the PSLRA echoes this Circuit's pleading standard for
scienter, requiring that Plaintiffs "state with particularity facts
giving rise to a strong inference that Defendants acted with the required
state of mind." 15 U.S.C. § 78u-4(b)(1). Plaintiffs can establish the
requisite "strong inference of fraudulent intent" either (a) by
demonstrating "that defendants had both motive and opportunity to commit
fraud, or (b) by alleging facts that constitute strong circumstantial
evidence of conscious misbehavior or recklessness." Kalnit, 264
F.3d at 138-39.
In attempting to fulfill the scienter requirement, Plaintiffs recite a
number of statements relating to Erbitux made by the Defendants (all of
which I have already determined are opinion, personal or corporate
optimism or corporate puffery), point to the RFT letter from the FDA and
then announce the conclusion that the Defendants knew all along that the
FDA was not going to approve the Erbitux BLA in the near term or at
all.*fn5 Even if the statements Plaintiffs complain of were actionable
under § 10(b) and Rule lOb-5, Plaintiffs have failed adequately to
allege that Defendants acted with fraudulent intent.
a. Motive and Opportunity
In an attempt to create the appearance of motive, Plaintiffs rely on
allegations of ordinary corporate desire and on a mischaracterization of
the Individual Defendants' stock sales during the alleged Class Period,
when in fact the sales reveal a total absence of inappropriate trading by
the Individual Defendants. (see, e.g., Compl. ¶¶ 238-48.) To
imply opportunity, Plaintiffs rely (as a matter of law, inadequately) on
the Individual Defendants' positions of control and authority. (Compl. f
364.) However, such conclusory allegations of opportunity do not suffice.
See Chill. 101 F.3d at 267-68.
The Court of Appeals has held that although
maintaining the appearance of corporate profitability, or of the
success of an investment, will involve benefit to a corporation,
allegations that defendants were motivated by those desires in connection
with making allegedly false statements are not sufficient to support an
inference of scienter. see, e.g., Chill, 101 F.3d at
267-68. In so holding, the Court ruled that every publicly-held
corporation desires its stock to be priced highly by the market and to
hold that allegations to that effect were sufficient motive would be to
render the motive requirement meaningless. Id. at 268 n.5.
Plaintiffs' motive allegations here amount to nothing more than a
pejorative characterization of these ordinary corporate desires.
Plaintiffs claim that Defendants made a deal with ImClone to "make it
appear that the future of the Company was more promising," (Compl. ¶
8), or to "maintain a facade of future potential" for the Company's drug
pipeline, (Compl. ¶ 146). In the same vein, Plaintiffs allege that
Defendants were interested in Erbitux to address potential concerns about
patent expirations the Company faced on certain of its products. (Compl.
¶¶ 52-55.) These "motives" are nothing more than ordinary and prudent
corporate desires. See Chill. 101 F.2d at 268 n.5.
Plaintiffs allege no "concrete benefits" that would accrue to the
Defendants as a result of the misstatements alleged, beyond those enjoyed
by any corporate executive. Such general allegations are
insufficient to establish motive under § 10(b). See
id.; Shields, 25 F.3d at 1130.
Plaintiffs also point to Defendants' transactions in the Company's
stock during the Class Period as evidence of motive. While "unusual"
executive stock trading under some circumstances may give rise to an
inference of fraudulent intent, see In re Northern Telecom Ltd. Sec.
Litig., 116 F. Supp.2d 446, 462-63 (S.D.N.Y. 2000) (citing
Acito, 47 F.3d at 54), executive stock sales, standing alone,
are insufficient to support a strong inference of fraudulent intent.
In re Northern Telecom, 116 F. Supp.2d at 462-63; In re
Hudson Techs. Inc. Sec. Litig., No. 98 Civ. 1616, 1999 WL 767418, at
*9 (S.D.N.Y. Sept. 28, 1999).
Here, Plaintiffs' conclusory allegations that "Defendants' Insider
Trading Supports a Strong Inference of Scienter," (Compl. p. 87, ¶ G;
¶¶ 238-247), are insufficient to carry their burden of pleading that
the Individual Defendants' transactions were "unusual." Indeed, the
documents reflecting the Individual Defendants' trading in BMS stock
during the Class Period*fn6 show a consistent pattern of trading
undertaken primarily to make payments required for the exercise of stock
options or to pay taxes. See Ressler v. Liz Claiborne Inc.,
75 F. Supp.2d 43, 59-60 (S.D.N.Y. 1999) (sales to meet tax oblications not
indicative of fraud). In fact, the documents upon which the
Complaint is based suggest, and, at oral argument, Plaintiffs' counsel
acknowledged, (Tr. 103), that the Individual Defendants, in almost every
instance, increased their BMS holdings during the Class
Period-a fact wholly inconsistent with fraudulent intent.*fn7See
In re Keyspan Corp. Sec. Litig., No. 01 CV 5852, 2003 WL 1702279, at
*20 (E.D.N.Y. Mar. 21, 2003).
Plaintiffs also attempt to allege motive by alleging that the
Individual Defendants had compensation plans tied to the Company's
performance. (see, e.g., Compl. ¶¶ 228-37.) Such plans are
typical of nearly every corporation. Beginning in the 1990s, stock
options became a common feature in employees' compensation packages.
See National Commission on Entrepreneurship, Employee
Stock Options: Their Use and Policy Implications (June 2000),
available at http://www.ncoe.org/research/index.html. Thus, the
Court of Appeals rejected performance-based compensation as evidence of
motive sufficient to support a strong inference of scienter, noting that
if performance-based compensation were a sufficient predicate for fraud,
then "virtually every company in the United States that experiences a
downturn in stock price could be forced to defend securities fraud
actions". Acito, 47 F.3d at 54; see
also In re Keyspan Corp. Sec. Litig., 2003 WL 1702279 at
*20-21. Here, Plaintiffs have pleaded no facts that would remove the BMS
compensation plan from this general rule.
Similarly, Plaintiffs allege that the Individual Defendants had
"motive" because their salaries were "based on factors such as the impact
of the individual's performance on the business results of the Company."
(Compl. ¶ 229(a).) However, to allege motive successfully, plaintiffs
must "do more than merely charge that executives aim to prolong the
benefits of the positions they hold." Shields, 25 F.3d at 1130.
Again, Plaintiffs have pleaded no facts that would remove the Individual
Defendants' compensation packages from this general rule. Accordingly,
Plaintiffs have failed adequately to allege motive and opportunity.
b. Conscious Misbehavior or Recklessness
When motive is not established, the "strength of the circumstantial
allegations must be correspondingly greater." Kalnit, 264 F.3d
at 142. To meet this strong circumstantial evidence standard, Plaintiffs
must "specifically alleg[e] defendants' knowledge of the facts or access
to information contradicting their public statements." Faulkner
II, 189 F. Supp.2d at 172. The allegations offered by Plaintiffs
fall short of this requirement.
First, Plaintiffs claim the Individual Defendants knew
their public statements regarding Erbitux were false and misleading
because of information in the Company's possession concerning "flaws"
(Compl. ¶ 157) in the Erbitux trial and an absence of data regarding
the treatment's effectiveness as a "single agent," (see Compl. ¶ 152,
155, 167). Plaintiffs point to a memorandum allegedly written by
unidentified "Company executives," (Compl. ¶ 151), and two emails,
(Compl. ¶¶ 152, 155), which state that ImClone had not, at the time
those communications were written, submitted "single agent" data on
Erbitux, (Compl. ¶ 151) and an email from an independent radiologist
regarding the response rates and the sample size of the Erbitux trial,
(Compl. ¶ 153). Even if the Individual Defendants had this
information to the effect that ImClone's data might not have met the
standards ImClone set, (see Tr. 27-29), such knowledge is insufficient to
lead to an inference that the speakers knew that the general and
optimistic statements about Erbitux's clinical and commercial
possibilities of which Plaintiffs complain were untrue. To the contrary,
and particularly with regard to the Wall Street analyst call cited by
Plaintiffs, Defendants openly discussed actions the Company would take in
the event the Erbitux BLA was not approved. (See Grayer Decl. Ex. F, at
6, 8-9.) Thus, Plaintiffs have failed to meet their burden. See
Faulkner II. 189 F. Supp.2d at 172; see also Robbins
v. Moore Med. Corp., 894 F. Supp. 661, 672 (S.D.N.Y.
1995) (rejecting similar evidence).
Second, Plaintiffs point to Brian Markison's testimony before Congress
that BMS had an "inkling" that the FDA might not approve Erbitux prior to
the Company's consummation of the ImClone partnership as evidence that
Defendants knew their public statements were false and misleading.
(Compl. ¶ 177.) Far from supporting Plaintiffs' allegation that
Defendants knowingly misrepresented the regulatory, medical and
commercial prospects of Erbitux, Markison's characterization suggests
just the opposite. Given the uncertainty inherent in any application for
FDA approval, Defendants' alleged "inkling," which is a "hint,"
"suggestion" or "slight indication,"*fn8 is reasonable and entirely
consistent with Defendants' public statements about Erbitux. It certainly
does not constitute strong circumstantial evidence of conscious
misbehavior or recklessness.
Third, Plaintiffs quote from newspaper and magazine articles which
state that Defendants were "on the [telephone] line" during a discussion
between ImClone and the FDA or "should have been aware of any problems"
with Erbitux. (Compl. ¶¶ 179, 189.) These conclusory allegations and
opinions "taken from a newspaper reporter's notebook" cannot satisfy the
strictures of Rule 9(b) or the PSLRA and cannot be a predicate for fraud
§ 10(b) and Rule 10b-5. Ferber, 785 F. Supp. at
1108; see Acito 47 F.3d at 51-52; Hershfang,
767 F. Supp. at 1255. Accordingly, Plaintiffs have failed adequately to plead
scienter as to the ImClone allegations.
C. The Accounting Allegations
1. Channel Stuffing
Although in classic fraud-by-hindsight pleading style, Plaintiffs slap
the title "claim" on virtually every item disclosed in the Restatement,
(see Compl. ¶ 56), their accounting claims relate primarily to what
has been characterized as "channel-stuffing."*fn9 As alleged in the
Complaint and disclosed in the documents on which the Complaint is based,
prior to the events at issue, BMS recognized revenue from product sales
upon shipment to customers. (see, e.g., Grayer Decl.
Ex. B(1) at 36, Ex. B(2) at 34, Ex. B(3) at 30 (BMS Forms 10-K).) During
the Class Period, "sales incentives were offered to wholesalers generally
towards the end of the quarter in order to incentivize [sic] wholesalers
to purchase products in an amount sufficient to meet [BMS'] quarterly
sales projections established by [BMS'] senior management." (Compl. f
45.) After certain statements, generally in the 2001-2002 time period, to
the effect that BMS "monitors [wholesalers' inventory levels] fairly
Compl. ¶ 207), and the Company's April 2002 disclosure in its
2001 Form 10-K that certain of its domestic wholesalers had built up
excess inventories of the Company's pharmaceuticals primarily due to the
incentives (Compl. ¶¶ 113, 123), BMS announced in or about October of
2002, that it would restate its financial statements for earlier periods
(Compl. ¶ 134.) On or about March 18, 2003, BMS restated its
financials for the Class Period. (Compl. ¶ 140; Grayer Decl. Ex. A.)
In so doing, it stated:
A significant portion of the Company's sales is
made to wholesalers. The Company experienced a
substantial buildup of wholesaler inventories in
its U.S. pharmaceuticals business over several
years, primarily in 2000 and 2001. This buildup
was primarily due to sales incentives offered by
the Company to its wholesalers, including
discounts, buy-ins in anticipation of price
increases, and extended payment terms to certain
U.S. pharmaceuticals wholesalers. These incentives
were generally offered towards the end of a
quarter in order to incentivize wholesalers to
purchase products in an amount sufficient to meet
the Company's quarterly sales projections
established by the Company's senior management.
The time of the Company's recognition of revenue
from its sales to wholesalers differs by
wholesaler and by period.
Historically, the Company recognized revenue for
sales upon shipment of product to its customers.
Under GAAP, revenue is recognized when
substantially all the risks and rewards of
ownership have transferred. In the case of sales
made to wholesalers, (1) as a result of
incentives, (2) in excess of the wholesaler's
ordinary course of business inventory level, (3)
at a time when there was an understanding,
agreement, course of dealing or consistent
business practice that the Company would extend
incentives based on levels of excess inventory in
connection with future purchases (4) at a time
when such incentives would cover substantially
all, and vary directly with, the wholesaler's cost
of carrying inventory in excess of the
wholesaler's ordinary course of business inventory
level, substantially all the risks and rewards
of ownership do not transfer upon shipment and,
accordingly, such sales should be accounted for
using the consignment model. The determination of
when, if at all, sales to a wholesaler meet the
foregoing criteria involves evaluation of a
variety of factors and a number of complex
Under the consignment model, the Company dos not
recognize revenue upon shipment of product.
Rather, upon shipment of product the Company
invoices the wholesaler, records deferred revenue
at gross invoice sales price and classifies the
inventory held by the wholesalers as consignment
inventory at the Company's cost of such inventory.
The Company recognizes revenue (net of discounts,
rebates, estimated sales allowances and accruals
for returns) when the consignment inventory is no
longer subject to incentive arrangements but not
later than when such inventory is sold through to
the wholesalers' customers, on a first-in
first-out (FIFO) basis. For additional discussion
of the Company's revenue recognition policy, see
Note 1, Accounting Policies, to the restated
consolidated financial statements.
The Company has restated its previously issued
financial statements to correct the time of
revenue recognition for certain previously
recognized U.S. pharmaceuticals sales to Cardinal
Health, Inc. (Cardinal) and McKesson Corporation
(McKesson), tow of the largest wholesalers for the
Company's U.S. pharmaceuticals business, that,
based on the application of the criteria described
above, were recorded in error at the time of
shipment and should have been accounted for using
the consignment model. The Company has determined
that shipments of product to Cardinal and
shipments of product to McKesson met the
consignment model criteria set forth above as of
July 1, 1999 and July 1, 2000, respectively, and,
in each case, continuing through the end of 2001
and for some period thereafter. Accordingly, the
consignment model as required to be applied to
such shipments. Prior to those respective periods,
the Company recognized revenue with respect to
sales to Cardinal and McKesson upon shipment of
product. Although the Company generally views
approximately one month of supply as a desirable
level of wholesaler inventory on a going-forward
basis and as a level of wholesaler inventory
representative of an industry average, in
applying the consignment model to sales to
Cardinal and McKesson, the Company defined
inventory in excess of the wholesaler's ordinary
course of business inventory level as inventory
above two weeks and three weeks supply,
respectively, based on the levels of inventory
that Cardinal and McKesson required to be used as
the basis for negotiation of incentives granted.
. . .
(Grayer Decl. Ex A at 20-21.)
The parties agree that the fact of the Restatement establishes that the
prior financials were incorrect at the time and that the error was
material. (Tr. at 50-51, 54, 59.) They disagree as to whether scienter
has been adequately pleaded. I find that it has not.
a. Motive and Opportunity
The discussion in B.3.a., supra, is, of course, applicable to the
Accounting Allegations as well. For the reasons stated there, Plaintiffs
have failed adequately to plead motive.
b. Conscious Misbehavior or Recklessness As noted above, when
motive is not established, the "strength of the circumstantial
allegations must be correspondingly greater." Kalnit, 264 F.3d
at 142. Plaintiffs must "specifically alleg[e] defendants' knowledge of
the facts or access to information contradicting their public
statements." Faulkner II, 189 F. Supp.2d at 172.
As is fairly apparent in the lengthy Complaint and in Plaintiffs'
brief, but was made crystal clear at oral argument, it is Plaintiffs'
view that because Defendants supposedly knew
the "facts" upon which the Restatement was based, (Tr. at 53,
68-69), that is, the four factors applied in the Restatement, they knew
or should have known that revenue should not have been recognized upon
shipment of the goods at issue and, thus, they consciously misbehaved or
were reckless in recognizing income on sales that were made to
wholesalers (1) as a result of incentives, (2) in excess of the
wholesaler's ordinary course of business inventory level, (3) at a time
when there was an understanding, agreement, course of dealing or
consistent business practice that the Company would extend incentives
based on levels of excess inventory in connection with future purchases,
(4) at a time when such incentives would cover substantially all, and
vary directly with, the wholesaler's cost of carrying inventory in excess
of the wholesaler's ordinary course of business inventory level. (See
Restatement, Grayer Decl. Ex. A, at 20-21.)
There are several things wrong with this picture. First, contrary to
Plaintiffs' counsel's statements at arguments,*fn10 a Restatement of
financial results or " [a] negations
of a violation of GAAP provisions or SEC regulations, without
corresponding fraudulent intent, are not sufficient to state a securities
fraud claim." Chill. 101 F.3d at 270-71; see also In
re Segue Software. Inc. Sec. Litig., 106 F. Supp.2d 161,
169-70 (D. Mass. 2000) (" [A] Restatement of earnings, without more, does
not support a strong inference of fraud, or for that matter, a weak
one."). Thus, the Restatement alone does not provide a basis for
Second, Plaintiffs muddy the waters significantly by asserting
throughout the Complaint that the sales at issue "were nothing more than
consignment sales." (See e.g., Compl. ¶ 1, 5, 6, 63, 64, 114, 195,
202, 210, 222). As Plaintiffs point out in their brief:
. . . a consignment is an arrangement whereby
products are `shipped to a dealer who pays only
for what he sells and who may return what is
unsold.' Webster's Ninth New Collegiate Dictionary
at 280; see also Malone v. Micodyne
Corp., 26 F.3d 471, 476 n.6 (4th Cir. 1994)
("a consignment is a transaction in which goods
are delivered by a consignor to a dealer or
distributor (the consignee) primarily for sale by
the consignee, and the consignee has the right to
return any unsold commercial units of the goods in
lieu of payment").
Opp. at 23.*fn11
The record discloses, and Plaintiffs' counsel
confirmed at oral argument, (Tr. at 38-39), however, that the
sales at issue were not within the traditional (and undisputed)
definition of consignment sales because there was no right of return.
(see, e.g., Grayer Reply Decl.*fn12
Exs. R and S,
and McKesson's SEC filings.)*fn14
legal characterization of the sales at issue as consignment sales is
rejected because it is inconsistent with the documents upon which the
Complaint is based. (See In re Livent, 151 F. Supp.2d at
405-06 ("a court need not feel constrained to accept as truth conflicting
pleadings . . . that are contradicted either by statements in the
Complaint itself or by documents upon which its pleadings rely, or by
facts of which the court may take judicial notice") (citations omitted).
Third, Plaintiffs argue that conscious misbehavior or recklessness may
be inferred because, they say, there is no proper business reason for
offering incentives to wholesalers to buy more product than they
currently need in
order to meet earnings estimates. (see, e.g.,
Tr. at 46.) Indeed, at oral argument, Plaintiffs' counsel was quite
explicit that "these shipments did not qualify as sales under GAAP
because of the incentives." (Tr. at 67; see also Tr. at 68.) To
the contrary, offering incentives to meet goals, aggressive or not, is
not suspect when, as BMS' counsel notes, "real products [were] shipped to
real customers who then paid with real money." (BMS Br. at 24.)*fn15
Offering incentives to meet sales or earnings goals is a common practice,
and, without additional allegations not present here, the allegation that
the sales at issue were made pursuant to incentives to meet goals set by
management is an insufficient basis on which to infer conscious
misbehavior or recklessness.
The real question here is whether at the time of the sales at issue the
Defendants knew or should have known that the revenue from those sales
should have been treated differently and, thus, that the contemporaneous
financials were incorrect. See Faulkner II, 189 F. Supp.2d at
172. Plaintiffs argue that "[t]he fact that the fraud involved violations
of the most fundamental principles of GAAP
supports a strong inference of scienter," (Opp. at 21) and that
"the GAAP provisions at issue are simple[,] and their violation obvious"
(see, e.g., Opp. at 22). Again Plaintiffs' characterizations
are belied by the documents upon which the Complaint is based.
As noted above, Plaintiffs' counsel conceded the sales at issue were
not traditional consignment sales because there was no right of return.
(Tr. at 38-39.) Thus, cases cited by Plaintiffs based on violations of
"simple" or "fundamental" principals of GAAP like Malone v.
Microdyne Corp., 26 F.3d 471, 478 (4th Cir. 1994) ("We cannot find
a single precedent . . . . holding that a company may violate FAS 48 and
substantially overstate its revenues by reporting consignment
transactions as sales without running afoul of Rule 10b-5") are
inapposite. Also inapposite is, for example, In Re Scholastic Corp
Sec. Litig., 252 F.3d 63 (2d Cir. 2001), where the company
represented that return rates for its books remained at normal levels of
20% at the same time that it knew that the return rate for January of
1997 had increased 150% over the prior year.
While in this case the applicable accounting principle might be simple,
i.e., whether all the risks and rewards of ownership transferred upon
shipment of the goods, the application of that principle to the facts is
In contrast to the cases where known (or knowable) facts like return
rates were misrepresented or where true consignment sales were not
disclosed or accounted for as such pursuant to well-known, easily applied
accounting rules, there is no allegation here that the accounting
treatment adopted by BMS in the Restatement was the subject of prior
accounting rules or literature. Rather, the accounting treatment adopted
as proper in the Restatement required evaluation of four factors,
including as number four, whether at the time of the incentive sales
under consideration, "such incentives would cover substantially all, and
vary directly with, the wholesaler's cost of carrying inventory in excess
of the wholesaler's ordinary course of business inventory level." (Grayer
Decl. Ex. A, at 20).*fn16 As set out in the Restatement after recitation
of the four factors adopted as the proper treatment for the sales at
issue: "[t]he determination of when, if at all, sales to a wholesaler
meet the foregoing criteria involves evaluation of a variety of factors
and a number of complex judgments." (Restatement, Grayer Decl. Ex. A, at
Indeed, the complexity of the consignment model is demonstrated not
only on its face but by its application, as set out in the Restatement.
There, shipments of product to Cardinal and McKesson, BMS' two largest
distributors, were deemed to meet the criteria adopted in the consignment
model for differing periodsas of July 1, 1999 for Cardinal and as
of July 1, 2000 for McKesson and then only for some sales.
(Id.) Also as set out in the Restatement, although BMS viewed
one month supply as "a level of wholesales inventory representative of an
industry average," it used two and three weeks of supply for Cardinal and
McKesson, respectively, in applying the consignment model because those
wholesalers had used those periods as the basis for negotiation of
incentives. (Id. at 20-21.)
At oral argument, counsel went back and forth on violation of basic
accounting principles, (e.g., when the risks and rewards of ownership are
transferred (Tr. at 65)), and the complex four-part test devised by the
Company and PwC and applied in the Restatement to determine whether the
risks and rewards of ownership had been transferred in the sales in
question, (Tr. at 33-34). While there is no requirement that a defendant
must know the precise accounting treatment that would of have been
applied before he can have the requisite scienter, it is agreed, (see Tr.
at 47, 58), that the
complaint must "specifically alleg[e] defendants' knowledge of the
facts or access to information contradicting their public statements."
Faulkner II, 189 F. Supp.2d at 172. Here, that means
Plaintiffs must allege facts from which a strong inference can be drawn
that Defendants knew or were reckless in not knowing that the accounting
for the sales at issue was wrong and, therefore, that the financials
recognizing revenue on those sales were wrong.
On these facts, where it is alleged that (i) management set aggressive
targets, (ii) incentives were given to wholesalers to buy product before
they actually needed it, (iii) in order to meet earnings estimates, (iv)
it was known that wholesaler inventories were higher than usual, and (v)
real products were shipped to real customers who paid real money, there
is no strong inference that Defendants knew or should have known that the
sales should have been accounted for in some way other than the Company's
historical revenue recognition upon shipment model, and, therefore,
conscious misbehavior or recklessness cannot be inferred. See
Kalnit, 264 F.3d at 142-43 (discussing Novak, 216 F.3d
at 304, and Rothman, 22 F.3d at 90-91, each of which the Court
characterized as involving a corporation's "publicly known accounting
policies." The Court found "that the Novak or Rothman
defendants were reckless (or consciously misbehaving)
in not disclosing their inventory losses was more clear" than in
Kalnit where the obligation to disclose a potential superior
merger proposal was not so clear and thus held that the failure to
disclose in Kalnit did not give rise to a finding of scienter).
Accordingly, Plaintiffs have failed to plead conscious misbehavior or
recklessness as to the channel stuffing allegations.
2. Other Accounting Allegations The remaining items disclosed in the
Restatement, and thus complained about by Plaintiffs, fare no better.
a. Oncology Therapeutics Network ("OTN")
Plaintiffs complain that BMS participated in certain aspects of
post-sale distribution of its OTN products pursuant to a contract with
McKesson but did not account for these sales as consignments even though
they were "entirely devoid of any indicia of a sale." (Compl. ¶¶
67-68, 202.) As part of the Restatement, BMS indeed determined that it
should recognize revenues from OTN sales on a consignment model
(Restatement at 20-21, Grayer Decl. Ex. A.) Nowhere, however, do
Plaintiffs allege any facts or access to facts by any Defendant to the
effect that at the time of the OTN sales to McKesson that those sales
should have been accounted for on a consignment basis. Accordingly, the
b. Acquisition, Divestiture and Restructuring Reserve
Plaintiffs complain of what they label as "Cookie Jar Reserves" and,
somewhat less colorfully, "Inappropriate Divestiture Reserves,
Inappropriate Restructuring Reserves" and "Inappropriate Acquisition
Reserves." (Compl. ¶¶ 73-96.) As part of its Restatement of certain
reserves, BMS disclosed that "based on its investigation of accounting
practices in certain areas that involve significant judgments," the
Company determined that portions of certain acquisition, divestiture and
restructuring reserves were established inappropriately and, with respect
to acquisitions and divestitures, reversed inappropriately. (See
Restatement at 53 (acquisitions), 54 (divestitures), 55-56
(restructuring), Grayer Decl. Ex. A.) Again, in textbook
pleading-by-hindsight style, Plaintiffs then assert the conclusion that
"the inappropriate reserves also demonstrates [sic] the defendants'
scienter." (Compl. ¶ 202; see also id. ¶ 200.) Such
conclusory allegations are insufficient. Plaintiffs must allege facts
demonstrating that Defendants knew or should have known that the reserves
were inappropriate at the time they were established (or reversed).
See Shields. 25 F.3d at 1128-29; Faulkner II.
189 F. Supp.2d at 172. Plaintiffs make no such allegations. Rather,
plaintiffs quote extensively from various accounting
literature (see, e.g., Compl. ¶¶ 79, 83-85, 93),
then allege, less than helpfully, that the reserves established by the
Company were "intentional" (Compl. ¶ 91), or a "slush fund" (Compl.
¶ 80). Plaintiffs make no specific factual allegations of Defendants'
actual knowledge or access to knowledge that the reserves in question
were inappropriate at the time they were established or reversed. As
previously noted, allegations of GAAP violations, standing alone, do not
establish scienter. Chill. 101 F.3d at 270-71. Nor do
conclusory allegations about cookie jars and slush funds. See
Acito. 47 F.3d at 53; Shields. 25 F.3d at 1128-29.
Accordingly, the claim based on BMS' accounting for its reserves fails.
c. Other Undisclosed Transactions
Plaintiffs allege various other material omissions from the Company's
SEC filings during the Class Period, (Compl. ¶¶ 104-109), including
items which BMS initially believed were immaterial (Compl. ¶ 104). As
noted above, the initial omission and subsequent Restatement of these
items, is insufficient standing alone to show that Defendants intended to
defraud. Rather, Plaintiffs must plead facts showing that the Defendants
knew or were reckless in not knowing that the omissions were material at
the time the filings were made but Plaintiffs have not done so. Instead,
they simply point, once again, to the Restatement, which indicates, at
most, that Defendants should have disclosed certain transactions.
Carter-Wallace Sec. Litig., 220 F.3d at 39-40; Chill,
101 F.3d at 269-70; Hudson Techs., Inc. Sec. Litig., 1999 WL
767418, at *5 (S.D.N.Y. 1999). A mistake, however, does not constitute
fraud. See id. Rather, the Complaint must specifically allege
reckless conduct which is, at least, "highly unreasonable and which
represents an extreme departure from the standards of ordinary care."
Id. Plaintiffs' references to SAB 99 and the Company's
Restatement (Compl. ¶¶ 105-07) fall far short of meeting this burden.
Plaintiffs' allegations therefore fail to meet the particularity
requirements of Rule 9(b) and the PSLRA.
For the same reason, Plaintiffs may not bootstrap the Company's
correction of "certain known errors made in the application of GAAP that
were previously not recorded because in each such case the Company
believed that the amount of any such error was not material to the
Company's consolidated financial statement," (Compl. ¶ 199), into
conscious misbehavior or recklessness. The conclusion pleaded that
"defendants knew or recklessly disregarded "the materiality of the errors
d. Undisclosed Gains
Plaintiffs also attempt to show conscious
misbehavior or recklessness by claiming that BMS "failed to
disclose" the existence of "unusual gains" in the case of six asset
sales. (Compl. ¶¶ 104, 111.) Based on the documents on which the
Complaint is based, however, the allegation is demonstrably false, and
thus I reject it. See Livent, 151 F. Supp.2d at 405-05.
Defendants disclosed the sales of each of these assets in the
"Divestitures" note to the Company's Forms 10-Q for the relevant periods.
(See Grayer Decl. Ex. C.) Plaintiffs further allege that the Company's
practice of including the gains on these asset sales in the "Marketing,
Selling, Administrative and Other" ("MSA&O") line of the Company's
quarterly SEC filings was deliberately deceptive. To the contrary, this
method of reporting asset sales was a common practice approved by the
Company's independent auditors and, more importantly, each sale was
explicitly and contemporaneously disclosed, making the Company's
reporting for these items transparent. Moreover, the gains on sales were
separately identified as part of reported Operating Results in the
relevant Forms 10-K. (Id.) In this context, Schiff's statement
that "there [were] no unusual items [in the First Quarter 2001 MSA&O
line]" (Compl. ¶ 112) is not evidence of fraud, as Plaintiffs allege,
but is entirely accurate. Accordingly, this claim must fail.
Finally, to the extent that Plaintiffs complain of
other supposed misrepresentations or omissions in BMS accounting
during the Class Period, (see, e.g., Compl. ¶ 56), the
allegations follow the pattern set out above: Plaintiffs identify an item
included in the Restatement assert, that its contemporaneous accounting
violated the most basic accounting rules and then conclude from the
Restatement that there is strong circumstantial evidence that Defendants
knew or "recklessly disregarded the overwhelming prevalence of improper
accounting practices and falsification of the Company's financial results
throughout the Class Period." (see, e.g. Compl. ¶
201.) Such ipse dixits are insufficient to meet the
requirements of Rule 9(b) and the PSLRA. Accordingly, all of the
accounting claims are dismissed.
Because the Complaint is dismissed in its entirety, I need not address
§ 20(a) liability or the Individual Defendants' separate motions.
For the reasons set out above, Defendants' motions (Docket Nos. 56, 58,
61, 63, 65, 67) to dismiss are granted, and the Complaint is dismissed
The Clerk of the Court shall mark this action closed and all pending
motions denied as moot.