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May 5, 2004.


The opinion of the court was delivered by: SHIRLEY KRAM, Senior District Judge



On July 18 and 19, 2002, The Washington Post published a two-part article, "Unconventional Transactions Boosted Sales, Amid Big Merger, Company Resisted Dot-Corn Collapse," reporting allegations that AOL Time Warner Inc. had substantially overstated publicly reported advertising revenue.*fn1 Within hours of the article's publication, Defendant Robert Pittman, AOLTW's Chief Operating Officer, Board member, and Head of Operations for the AOL division of the Company, resigned. On July 24, 2002, AOLTW acknowledged that the Securities and Exchange Commission ("SEC") was investigating AOLTW's accounting practices. Amended Complaint ("AC") ¶ 5. On July 31, 2002, the Company confirmed that the Department of Justice ("DOJ") had commenced a criminal investigation of AOLTW's accounting practices. Id.*fn2 On August 14, 2002, AOLTW issued a press release, along with its SEC Form 10-Q filing, in which it publicly acknowledged that advertising revenue "may have been overstated" in the amount of $49 million with respect to three transactions over a period of six quarters from 4Q 2000 to 1Q 2002. Id. ¶¶ 5-6.

  On October 23, 2002, the Company restated the financial statements of AOL and AOLTW for eight consecutive quarters (July 1, 2000 through June 30, 2002) by reducing its advertising revenue in the amount of $190 million. Along with its financial restatement, the Company's Form 8-K filing with the SEC stated:
As a result of the restatement announced on October 23, 2002 by AOL and AOL Time Warner Inc. (the "Company"), the Company's financial statements for the affected periods should no longer be relied upon, including the audited financial statements for 2000 and 2001 contained in the Company's annual report on Form 10-K for the year ended December 31, 2001.
Id. ¶ 6.

  On March 28, 2003, in its SEC Form 10-K filing, AOLTW reported that it may restate AOL advertising revenue by an additional $400 million for the years 2001 and 2002. Id. The Company also stated that, "it is possible that further restatement of the Company's financial statements may be necessary," with respect to "the range of other transactions" being investigated by the SEC and DOJ. AC ¶ 6. To date, the Company has either restated, or acknowledged the possibility of restating advertising revenue in the amount of $477 million. Id. ¶ 7.


  On July 18, 2002, the day that the first Washington Post article was published, two shareholder class action complaints were filed in this Court alleging violations of § 10(b) of the Exchange Act. See Butler Decl. Ex. 29 & 30. Those two initial class action complaints were followed by 27 similar class action complaints, including one filed by the Minnesota State Board of Investment ("MSBI") on September 16, 2002. Butler Decl. Ex. 31.

  All of these putative class actions have been consolidated before this Court and the Court has appointed MSBI as the sole lead plaintiff. On April 15, 2003, MSBI filed the Amended Complaint. In addition to claims under § 10(b) of the Exchange Act asserted in prior complaints, the Amended Complaint added new claims under § 11 and § 12(a)(2) of the Securities Act, as well as § 14(a) of the Exchange Act, relating to the Merger Registration Statement and Merger Proxy. AC Counts 1-4, 14-17. The Amended Complaint also added new claims under § 11 and § 12(a)(2) relating to the Shelf Registration Statement and the Supplemental Prospectuses issued in connection with bond offerings in April 2001 and April 2002. Id. Counts 5-11. Finally, the Amended Complaint contains claims, some of which were present in prior complaints, for control person liability under § 15 of the Securities Act and § 20 of the Exchange Act. Id. Counts 12-13, 20.


  The Lead Plaintiff is the Minnesota State Board of Investment. MSBI is an agency established by Article XI of the Minnesota Constitution and laws of the State of Minnesota for the purpose of administering and directing investment of all state funds and pension funds. AC ¶ 31. During the Class Period, MSBI acquired approximately 3,073,050 shares of AOL stock, exchanged approximately 2,610,780 shares of Time Warner stock for AOLTW stock pursuant to the Merger, and purchased approximately 5,769,839 shares of AOLTW stock. MSBI also purchased approximately $44,679,246 worth of AOLTW debt securities. Id.

  Numerous additional plaintiffs are included in the consolidated action. See AC at Exhibit C. During the Class Period, it is alleged that each additional plaintiff purchased or otherwise acquired securities of AOL or AOLTW, and suffered damages.

  The Amended Complaint names AOL Time Warner Inc., America Online, Inc., and Time Warner Inc. as corporate defendants. AC ¶¶ 33-35. The Amended Complaint names the following officers and directors of AOL prior to the Merger as individual defendants: Stephen M. Case, former Chairman of the Board of AOLTW; Robert W. Pittman, former Chief Operating Officer of AOLTW; J. Michael Kelly, former Chief Operating Officer of the AOL subsidiary of AOLTW and current Chairman and Chief Executive of AOL International and Web Services; David M. Colburn, former Executive Vice-President and President of Business Affairs and Development for AOLTW; Eric Keller, former Senior Executive Vice President of Business Affairs and Development; Joseph A. Ripp, Vice Chairman of AOL; Myer Berlow, Senior Advisor to AOLTW, Barry Schuler, Chairman and Chief Executive Officer of AOL; Steven Rindner, former Senior Vice President of Business Affairs and Development for AOLTW; and Kenneth J. Novack, member of the Board of Representatives of Time Warner Entertainment. AC ¶ 36.*fn3

  The Amended Complaint names the following officers and directors of Time Warner prior to the Merger as individual defendants: Gerald M. Levin, former Chief Executive Officer of AOLTW; Richard D. Parsons, Chief Executive Officer of AOLTW and Chairman-Elect of the AOLTW Board of Directors; and Wayne H. Pace, Chief Financial Officer of AOLTW. The Amended Complaint names the following additional individual defendants: Paul T. Cappucio, Executive Vice President, General Counsel and Secretary of AOLTW; Miles R. Gilburne, Director of AOLTW; James W. Barge, Senior Vice President and Controller for AOLTW; Daniel F. Akerson, Director of AOTLW and member of the Company's Audit and Finance Committee; Stephen F. Bollenbach, Director of AOLTW and Chair of the Audit and Finance Committee; Frank J. Caulfield, Director of AOLTW; and Franklin D. Raines, Director of AOLTW and member of the Audit and Finance Committee. AC ¶ 46.

  The Amended Complaint names Ernst & Young LLP as a defendant.*fn4 Ernst & Young is a certified public accounting firm that provided auditing and accounting services to AOL and AOLTW. Id. ¶ 47.

  The Amended Complaint also names underwriter defendants Morgan Stanley & Co. ("Morgan Stanley"), Salomon Smith Barney Inc. ("Salomon"), Citigroup, Inc. ("Citigroup"), Bane of America Securities LLC ("Bane of America"), and J.P. Morgan Chase & Co. ("J.P. Morgan"). Id. ¶¶ 48-62.*fn5 IV. THE COMPLAINT

  The Amended Complaint alleges that AOL and AOLTW improperly accounted for at least 19 separate advertising transactions that impacted Advertising and Commerce ("A&C") revenue and advertising backlog in each of 14 calendar quarters from 4Q 1998 to 2Q 2002. AC ¶¶ 140-251. The Amended Complaint alleges that, as a result of fraudulent accounting, revenue and backlog were overstated in various SEC filings, press releases and other public statements made from January 27, 1999 to July 24, 2002 (the "Class Period"). The Amended Complaint alleges that, because advertising revenue was overstated at the time of the Merger, goodwill from the AOL/Time Warner Merger was also overstated during part of the Class Period. AC ¶ 424. The Amended Complaint also alleges that certain individual defendants made misleading oral statements between October 2000 and April 2001. These statements are alleged to have been misleading because the speakers knew or were reckless in not knowing about overstated A&C revenue and b acklog at the time the statements were made. Id. ¶ 330. In sum, the Amended Complaint alleges that AOLTW has overstated advertising revenue by at least $1.7 billion, causing billions of dollars in damage to investors, and amounting to "one of the largest frauds ever committed in the United States securities markets." See Memorandum of Lead Plaintiff MSBI in Opposition to Motion to Dismiss of the AOLTW Defendants, and Separate Motions to Dismiss of Defendants Ernst & Young LLP, Stephen Case, Myer Berlow, David Colburn, Eric Keller and Steven Rindner, dated September 29, 2003, at 1 ("MSBI Opp.").

  Corporate defendants AOL Time Warner, American Online, Inc. and Time Warner Inc., and individual defendants Daniel F. Ackerson, James W. Barge, Stephen F. Bollenbach, Paul T. Cappuccio, Frank J. Caufield, Miles R. Gilburne, J. Michael Kelly, Gerald M. Levin, Kenneth J. Novack, Wayne H. Pace, Richard D. Parsons, Robert W. Pittman, Franklin D. Raines, Joseph A. Ripp, and Barry Schuler move to dismiss the Consolidated Amended Class Action complaint filed by MSBI on April 15, 2003. Defendants Stephen Case, Myer Berlow, David Colburn, Eric Keller and Steven Rindner each move, individually, to dismiss the Amended Complaint. In addition, Defendants Ernst & Young LLP, Morgan Stanley & Company and the Bond Underwriters move to dismiss.


  MSBI alleges violations of numerous securities laws, some of which stem from the Securities Act of 1933 ("Securities Act") and some of which stem from the Securities Exchange Act of 1934 ("Exchange Act"). In total, MSBI alleges violations of §§ 11, 12 (a) and 15 of the Securities Act of 1933 and §§ 10(b), 14(a) and 20 (a) of the Securities Exchange Act of 1934. A brief description of the statutory provisions that form the bases of MSBI's claims follows.

  A. Section 11

  Section 11 of the Securities Act provides that any signer, director of the issuer, preparing or certifying accountant, or underwriter may be liable if "any part of the registration statement, when such part became effective, contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading. . . ." 15 U.S.C. § 77k(a).

  B. Section 12(a)(2)

  Section 12(a)(2) of the Securities Act, previously known as Section 12(2), allows a purchaser of a security to bring a private action against a seller that "offers or sells a security . . . by means of a prospectus or oral communication, which contains an untrue statement of material fact or omits to state a material fact necessary in order to make the statements . . . not misleading." 15 U.S.C. § 771(a)(2).

  C. Section 15

  Section 15 of the Securities Act provides that "Every person who . . . controls any person liable under section 11 or 12 [15 USCS § 77k or 771] shall also be liable jointly and severally with and to the same extent as the controlled person . . . unless the controlling person had no knowledge of . . . the existence of the facts by reason of which the liability of the controlled person is alleged to exist." 15 U.S.C. § 77o.

  D. Section 13

  Section 13 of the Securities Act sets forth the statute of limitations for Securities Act claims:
No action shall be maintained to enforce any liability created under section 77k [Section 11] or 771(a)(2) [Section 12(a)(2)] of this title unless brought within one year after the discovery of the untrue statement or the omission, or after such discovery should have been made by the exercise of reasonable diligence . . . In no event shall any action be brought to enforce a liability created under section 77k or 771(a)(2) of this title more than three years after the security was bona fide offered to the public, or under section 771(a)(2) of this title more than three years after the sale.
15 U.S.C. § 77m (emphasis added).

  E. Section 10(b)

  Section 10(b) of the Exchange Act provides that "It shall be unlawful . . . (a) To effect a short sale . . . of any security, in contravention of such rules and regulations as the Commission may prescribe . . . (b) To use or employ, in connection with the purchase or sale of any security . . . any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe." 15 U.S.C. § 78j.

  F. Section 14

  Section 14(a) of the Exchange Act provides that "It shall be unlawful for any person, by use of the mails . . . or otherwise . . . to solicit or permit the use of his name to solicit any proxy or consent or authorization in respect of any security (other than an exempted security) registered pursuant to section 12 of this title." 15 U.S.C. § 78n(a).

  G. Section 20

  Section 20 of the Exchange Act provides that "Every person who, directly or indirectly, controls any person liable under any provision of this title . . . shall also be liable jointly and severally with and to the same extent as such controlled person to any person to whom such controlled person is liable, unless the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action. 15 U.S.C. § 78t (a).

  H. 28 U.S.C. § 1658 ("Sarbanes-Oxley")

  On July 30, 2002, in response to a wave of corporate accounting scandals that undermined the integrity of the financial markets, Congress enacted Sarbanes-Oxley. Section 804 of Sarbanes-Oxley lengthened the statute of limitations for private causes of action alleging securities fraud. Section 804 is entitled "Statute of Limitations for Securities Fraud," and provides, in pertinent part:
a private right of action that involves a claim of fraud, deceit, manipulation, or contrivance in contravention of a regulatory requirement concerning the securities laws, as defined in section 3(a) (47) of the Securities Exchange Act of 1934 (15 U.S.C. § 78c(a)(47)), may be brought not later than the earlier of —
(1) 2 years after the discovery of the facts constituting the violation; or
(2) 5 years after such violation
28 U.S.C. § 1658 (emphasis added).


  When deciding a motion to dismiss, "a court must accept as true the factual allegations of a complaint." In re IPO Sec. Litig., 241 F. Supp.2d 281, 295 (S.D.N.Y. 2003). In addition, such factual allegations must be construed in the light most favorable to plaintiffs. Easton v. Sundram, 947 F.2d 1011, 1014-15 (2d Cir. 1992). This is because, at the motion to dismiss stage, "the issue is not whether a plaintiff will ultimately prevail, but whether the claimant is entitled to offer evidence to support the claims." Wright v. Ernst & Young LLP, 152 F.3d 169, 173 (2d Cir. 1998) (quoting Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)). Further, courts are required to read complaints generously, drawing all reasonable inferences from the complaint's allegations in favor of the plaintiff. Mills v. Polar Molecular Corp., 12 F.3d 1170, 1174 (2d Cir. 1993). Accordingly, a court must deny a defendant's motion to dismiss "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim that would entitle him to relief." In re Emex Corp. Sec. Litig., No. 01 Civ. 4886 (SWK), 2002 WL 31093612, at *4 (S.D.N.Y. Sept. 18, 2002) (quoting Conley v. Gibson, 355 U.S. 41, 45-46 (1957)).


  The Court must determine what statute of limitations governs each of MSBI's securities claims. To satisfactorily resolve the statute of limitations issues, the Court must (potentially) make two determinations: 1) The date on which this consolidated class action was filed for purposes of Sarbanes-Oxley; and if that date is post-July 30, 2002, 2) The scope of Sarbanes-Oxley's application.

  A. This Action Was Filed on September 16, 2002

  By its terms, Section 804 applies to "all proceedings addressed by this section that are commenced on or after the date of enactment of this Act [July 30, 2002]." 28 U.S.C. § 1658 (b). Thus, if this consolidated class action was commenced prior to July 30, 2002, Section 804's expanded limitations period is inapplicable.

  AOLTW contends that, for purposes of determining the applicability of Section 804, this consolidated class action was commenced on July 18, 2002, the date the first of several now-consolidated class actions were filed. See Reply Memorandum of Law in Support of the AOL Time Warner Defendants' Motion to Dismiss the Amended Consolidated Class Action Complaint, dated November 14, 2003, at 4 ("AOLTW Reply"). In response, MSBI argues that since its complaint as lead plaintiff was filed on September 16, 2002, seven weeks after the passage of Sarbanes-Oxley, that Section 804's expanded limitations period applies.*fn6

  The issue of when this consolidated class action was commenced is surprisingly complex. It creates the potentially anomalous outcome of punishing plaintiffs who filed too early, a proposition counter to the basic understanding of a statute of limitations. In addition, it is highly unlikely, if not a virtual certainty, that this issue will not present itself again; in other words, there are no plaintiffs at this point who will file cases prior to July 30, 2002, and thus be outside the scope of Section 804. While it is true that in most cases, class actions or otherwise, the date of the first filing is the operative one for statute of limitations purposes, such a result in this case is both inequitable and impractical. First, from a constitutional perspective, it is hard to imagine that an overzealous and careless plaintiff, could, by filing 12 days prior to the effective date of Sarbanes-Oxley's expanded protections for securities plaintiffs, bind an entire nation of purchasers of AOL securities to a statute of limitations that was against the interests of the entire class. Second, even if there were no potential due process problems, practically speaking, if the Court were to determine that July 18, 2002 was the operative date for statute of limitations purposes (and thus the § 10(b) claims based on oral statements made over 3 years ago were barred), no rational plaintiff would choose to remain in that class.*fn7 Because the Court will not bind an entire class to a statute of limitations that is flatly contrary to its interests, and because, as a practical matter, a commencement date of July 18, 2002 would create all of the procedural headaches that the JPML was trying to avoid when it consolidated these cases, the

  Court finds that this consolidated class action was filed on September 16, 2002.*fn8 Accordingly, Section 804 of Sarbanes-Oxley applies. B. Sarbanes-Oxley Applies to MSBI's § 10(b) Claims

  Having determined that the date this action was commenced for Section 804 purposes was September 16, 2002, the Court turns to the question of whether Section 804 applies to all, some, or none of the claims asserted by MSBI. Pursuant to Section 804, the threshold requirement for the application of Sarbanes-Oxley's expanded limitations period is that the right of action "involves a claims of fraud, deceit, manipulation, or contrivance." If the underlying securities claim does not involve a fraud-based claim, then Section 804's expanded limitations period is inapplicable.

  In its motion to dismiss the Amended Complaint, Defendant AOLTW contends that claims under §§ 11, 12(a)(2) and 15 of the Securities Act must be brought within one year of the discovery of the alleged misstatement or omission, and, in any event, within three years of the relevant public offering or sale. See 15 U.S.C. § 77m. The defendant also asserts that "a similar limitations period" applies to claims under §§ 10(b), 14(a), and 20 of the Exchange Act. AOLTW Memo at 11. Lead Plaintiff MSBI opposes AOLTWs interpretation of the effect of Sarbanes-Oxley on the statutes of limitations in this case. MSBI contends that Sarbanes-Oxley expanded the statute of limitations on all its claims.

  There is little doubt that Section 804's expanded statute of limitations applies to § 10(b) claims. See In re WorldCom, Inc. Sec. Litig., 02 Civ. 3288, No. 03 Civ. 6592, (S.D.N.Y. Nov. 21, 2003) at 25. See also Merrill Lynch & Co. Research Reports Sec. Litig., 272 F. Supp.2d 243, 265 (S.D.N.Y. 2003). Indeed, this is a rather non-controversial proposition; Section 804 expressly states that it applies to "claims sounding in fraud." The question of whether Section 804 applies to MSBI's other claims is less clear, but because MSBI concedes (See MSBI Opp. at 23, n 11) that as a practical matter, the expanded Sarbanes-Oxley statute of limitations only affects its Section 10(b) claims (and the related 20(a) control person claims), it is unnecessary to reach that question. In any event, Section 804 applies here, and MSBI's § 10(b) claims based on alleged misstatements prior to July 18, 1999 are timely.


  Post-Sarbanes-Oxley, claims based on "fraud, deceit, manipulation or contrivance" must be brought within "2 years after the discovery of the facts constituting the violation" or within "5 years after such violation." 28 U.S.C. § 1658. The two-year limitations period commences after the plaintiff "obtains actual knowledge of the facts giving rise to the action or notice of the facts, which in the exercise of reasonable diligence, would have led to actual knowledge." Kahn v. Kohlberg, Kravis, Roberts & Co., 970 F.2d 1030, 1042 (2d Cir. 1992). This type of notice is referred to as inquiry notice.

  A plaintiff is on inquiry notice when sufficient information is available to "suggest to an investor of ordinary intelligence the probability that she has been defrauded." Dodds v. Cigna Sec., Inc., 12 F.3d 346, 350 (2d Cir. 1993). See also Levitt v. Bear Stearns & Co., 340 F.3d 94, 101 (2d Cir. 2003). Under such circumstances a duty of inquiry arises, and if the plaintiff fails to make a diligent inquiry into the possibility of fraud, the limitations period runs from the date of inquiry notice. See id. The circumstances giving rise to the duty to inquire are referred to as "storm warnings." See Levitt, 340 F.3d at 101. The financial information that triggers the storm warnings "must be such that it relates directly to the misrepresentations and omissions the Plaintiffs later allege in their action against the defendants." Newman v. Warnaco Group, Inc., 335 F.3d 187, 193 (2d Cir. 2003). An investor does not, however, "have to have notice of the entire fra ud being perpetrated to be on inquiry notice." Dodds, 12 F.3d at 351-52. In order to trigger the duty to inquire, the wrongdoing suggested by the storm warnings "must be probable, not merely possible." Warnaco, 335 F.3d at 193. Further, even when "storm warnings" might indicate the probability of fraud, a plaintiff is not on inquiry notice if the company's management provides words of comfort to temper the "storm warnings." LC Capital Partners, LP v. Frontier Ins. Group, Inc., 318 F.3d 148, 155 (2d Cir. 2003). It should be noted, however, that words of comfort prevent the duty to inquire "only if an investor of ordinary intelligence would reasonably rely on the statements to allay the investor's concern." Id.

  While the question of inquiry notice is typically inappropriate at the motion to dismiss stage, if the facts needed to make the determination "can be gleaned from the complaint and papers integral to the complaint, resolution of the issue on a motion to dismiss is appropriate." Id. at 156. However, "[d]efendants bear a heavy burden in establishing that the plaintiff was on inquiry notice as a matter of law. Inquiry notice exists only when uncontroverted evidence irrefutably demonstrates when plaintiff discovered or should have discovered the fraudulent conduct." Warnaco, 335 F.3d at 194 (quoting Nivram Corp. v. Harcourt Brace Jovanovich, Inc., 840 F. Supp. 243, 249 (S.D.N.Y. 1993)). See also In re Chaus Sec. Litig., No. 88 Civ. 8641 (SWK), 1990 WL 188921, at *5 (S.D.N.Y. 1990).*fn9

  Here, AOLTW contends that, through a series of news articles, press releases, and SEC filings of transactions with Sun Microsystems ("Sun"), Hughes Electronics ("Hughes"), and Gateway, as well as vendor advertising deals and advertising/equity deals generally, MSBI was on notice of the allegedly overstated A&C revenue on or before July 18, 2001. AOLTW Memo at 13.*fn10

  MSBI argues that its duty to inquire was triggered no earlier than July 18, 2002, when the first of two Washington Post articles was published and the SEC and DOJ began their investigations into AOLTW. MSBI Opp. at 26. Against the backdrop of this Circuit's jurisprudence on inquiry notice, and for the reasons set forth below, the Court agrees with the plaintiff. No duty to inquire was triggered prior to the publication of the July 18, 2002 Washington Post article.

  A. The Sun, Hughes and Gateway Transactions Are Insufficient to Trigger Plaintiff's Duty to Inquire In its motion to dismiss, AOLTW contends that a series of transactions between the Company and Sun, Hughes and Gateway (and the accompanying press releases) from November 1998 through October 1999 were sufficient to trigger the plaintiff's duty to inquire. AOLTW claims that these press releases "make clear that AOL was investing in Hughes [and Gateway] and Hughes [and Gateway] [were] agreeing to buy advertising from AOL." AOLTW Memo at 14-15. The Court agrees with AOLTW that the Sun, Hughes and Gateway transactions "make clear" that the companies were engaging in mutually beneficial contracts; however, the notion that 3 agreements to buy advertising (none of which so much as mention the Company's accounting for those transactions) "suggest to an investor of ordinary intelligence the probability that she has been defrauded" is seriously off the mark. In fact, it is hard to imagine that any reasonable investor would have read the 1998 and 1999 press releases regarding these deals as anything other than the Com pany doing exactly what it was supposed to be doing; i.e., engaging in legitimate transactions that would ultimately create value for shareholders.

  B. The Vendor Advertising and Equity Deals Are Also Insufficient to Trigger Plaintiff's Duty to Inquire

  The defendants argue that a series of articles from April 16, 2001 through July 12, 2001 "provided notice of all of the vendor deals alleged in the Amended Complaint to have been improper." AOLTW Memo at 15. More specifically, the defendants refer to an April 16, 2001 article in The Wall Street Journal titled "Amid Advertising Slowdown, AOL Parlays Partnerships Into Revenue," in which one of AOL's partners was quoted as saying, "They are getting increased revenue from us, and we're getting better rates from them . . . There is money going both ways, yes." Id. at 15. AOLTW claims that "this article put MSBI on notice no later than April 2001 of exactly the kind of advertising deals alleged in the Amended Complaint to have resulted in overstated revenue and backlog." Id.

  Again, AOLTW is correct: the April 16, 2001 Wall Street Journal article definitively put investors, including MSBI, on notice that AOLTW was entering deals and "parlay[ing] partnerships into revenue." What befuddles the Court, however, is AOLTW's extrapolation that "parlay[ing] partnerships into revenue" suggests to an investor of ordinary intelligence the probability that she has been defrauded. Indeed, throughout its motion to dismiss, AOLTW conflates notice of the existence of a transaction now alleged to be fraudulent with notice that such transactions were, ex-ante, being fraudulently accounted for. In addition to the April 16, 2001 Wall Street Journal article, none of the other articles/reports cited by the defendants (including those in Advertising Age, Fortune, BusinessWeek Online, Thomas Weisel Partners*fn11 and the October 23, 2001 Wall Street Journal) come anywhere close to establishing the probability of fraud sufficient to trigger inquiry notice-in fact, the articles amount to little more than affirmations of AOLTW's "continued success at signing large advertising deals." Id. at 16. There is simply no plausible basis for holding that notice of large advertising deals, even if such deals were "unusual," constitutes "uncontroverted evidence that irrefutably demonstrates fraudulent conduct."*fn12

  MSBI's stance, that no duty to inquire was triggered prior to July 18, 2002, best comports both with this Circuit's precedent and common sense. On July 18, 2002, The Washington Post, a national publication with a weekly circulation of over five million,*fn13 ran the first of two articles based on statements of former Company employees and confidential documents, which reported that AOLTW and AOL artificially inflated AOL's advertising revenue.*fn14 Within two weeks of The Washington Post's article, the SEC and DOJ commenced civil and criminal investigations into AOLTW. MSBI Opp. at 26. Finally, on August 14, 2002, the Company, in an SEC filing, stated for the first time that it "may" have overstated A&C revenue by $49 million. Id.

  Because the duty to inquire is triggered only when the wrongdoing suggested by the storm warnings is "probable, not merely possible," the Court finds that an investor of ordinary intelligence would not have been, and should not have been, aware of the probability that she had been defrauded until July 18, 2002, the date of publication of the first article in The Washington Post. The fact that the SEC and Justice Department did not launch investigations until 1 week and 2 weeks, respectively, after publication of this article, only bolsters this contention.*fn15 Put simply, the press releases and financial articles offered by the defendants do not satisfy its "heavy burden" and hardly qualify as storm warnings; on the contrary, a reasonable investor likely would have viewed them as sunny forecasts of a bright and profitable future for AOLTW.*fn16


  Defendants contend that the claims against Time Warner, Akerson, Barge, Bollenbach, Cappucio, Caufield, Gilburne, Novack, Raines, Ripp and Schuler do not relate back to the first class action filed on July 18, 2002, and thus for statute of limitations purposes, claims against these defendants were commenced on April 15, 2003, when the Amended Complaint was filed. However, having found that no plaintiff was on notice of the probability of fraud at AOLTW until July 18, 2002, the claims against the newly-named defendants, filed on April 15, 2003, are timely.*fn17 As such, the Court need not reach the question of whether the claims relate back to any earlier complaint.


  Because MSBI's duty to inquire did not arise until July 18, 2002, and its complaint was filed on September 16, 2002, within the statute of limitations, MSBI was under no obligation to allege investigation that would toll the statute of limitations. As such, the argument that MSBI failed to allege any inquiry that might have tolled the statute of limitations is moot.


  Defendant AOLTW asserts that MSBI's Securities Act claims should be dismissed for failure to plead compliance with the statute of limitations. As support for this claim, the defendants rely on In re Chaus Sec. Litig., No. 88 Civ. 8641, 1990 WL 188921, at *5 (S.D.N.Y. Nov. 20, 1990), which states that a Securities Act complaint must set forth (1) "the time and circumstances of the discovery" of the misstatement, (2) the reasons why the misstatement was not discovered earlier if more than a year has lapsed and (3) "the diligent efforts which the plaintiff undertook in making or seeking such discovery."

  While the Court is unsure of the value of Chaus when a plaintiff has satisfied the statute of limitations, in the interests of thoroughness, it will apply its analysis. With respect to prong one, the Court is satisfied that MSBI has adequately plead "the time and circumstances of its discovery" of the alleged misstatements. See generally MSBI Opp. at 34-35. Because the Court has ruled that MSBI's complaint was filed within a year of inquiry notice, prongs two and three of Chaus are inapposite. Accordingly, to the extent that Chaus applies here, MSBI has satisfied its requirements and has properly pled compliance with the statute of limitations.


  AOLTW claims that because the Amended Complaint does not plead alleged misstatements with sufficient particularity, those claims should be dismissed.*fn18 Rule 9(b) of the Federal Rules of Civil Procedure states that "[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity." Under Rule 9(b), "[t]he complaint must identify the statements plaintiff asserts were fraudulent and why, in plaintiff's view, they were fraudulent, specifying who made them, and where and when they were made." Hollin v. Scholastic Corp., (In re Scholastic Corp. Sec. Litig.), 252 F.3d 63, 69-70 (2d Cir. 2001). Similarly, the PSLRA requires a complaint alleging violations of § 10(b) or § 14(a) of the Exchange Act to "specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading" and, if an allegation is made upon information and belief, "to state with particularity all facts on which that belief is formed." 15 U.S.C. § 78u-4(b)(1); see also Bond Opportunity Fund v. Unilab Corp., No. 99 Civ. 11074, 2003 WL 21058251, at *3 (S.D.N.Y. May 9, 2003). Exchange Act claims that fail to satisfy these PSLRA pleading requirements must be dismissed. See 15 U.S.C. § 78u-4(b)(3)(a).

  Recently, the Second Circuit held that the heightened pleading standard of Rule 9(b) applies to Section 11 and Section 12(a)(2) claims insofar as the claims are premised on allegations of fraud. Rombach v. Chang, Nos. 02-7907(1), 02-7933 (XAP), 2004 WL 77928 (2d Cir. Jan. 20, 2004). In clarifying, the court stated:
Fraud is not an element or a requisite to a claim under Section 11 or Section 12(a)(2); at the same time, claims under those sections may be-and often are-predicated on fraud. The same course of conduct that would support a Rule 10b-5 claim may as well support a Section 11 claim or a claim under Section 12(a)(2). So while a plaintiff need allege no more than negligence to proceed under Section 11 and Section 12(a)(2), claims that do rely upon averments of fraud are subject to the test of Rule 9(b).
Rombach, 2004 WL 77928 at *4.

  As a threshold matter, and pursuant to Rombach, the Court must determine whether the Section 11 and Section 12(a)(2) claims asserted by MSBI are predicated on fraud; if they are, then the plaintiff is obligated to satisfy the heightened pleading standard. Rombach provides some guidance on this issue. In Rombach, the plaintiff asserted that its Section 11 claims did not "sound in fraud." Id. at *5. The Second Circuit nonetheless found that the claims were fraud-based because "the wording and imputations of the complaint are classically associated with fraud: that the Registration statement was `inaccurate and misleading;' that it contained `untrue statements of material facts:' and that `materially false and misleading statements' were issued." Id. (emphasis in original). Rombach also quoted approvingly from In re Ultrafem Sees. Litig, 91 F. Supp.2d 678 (S.D.N.Y. 2000), which applied Rule 9(b) where "plaintiffs [made] little, if any, effort to differentiate their asserted negligence claims from the fraud claims which permea te the Complaint . . .[and] merely disavow[ed] any allegations that would make Rule 9(b) applicable . . . without specifying the allegations that would support a negligence cause of action." In re Ultrafem, 91 F. Supp.2d at 690-91.

  Here, MSBI asserts, first in the Amended Complaint, again in its Opposition Memorandum, and finally in a letter to the Court dated January 28, 2004 ("MSBI Letter"), that its Section 11 and Section 12(a)(2) claims are not based in fraud. MSBI argues that these claims are set forth in a separate "non-fraud based section of the Complaint and in separate non-fraud based counts." MSBI Letter at 1. MSBI also states that those sections of the Complaint Mo not even mention the word ...

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