The opinion of the court was delivered by: JOHN SPRIZZO, Senior District Judge
MEMORANDUM OPINION AND ORDER
Plaintiffs, members of the class of individuals who purchased
CIT Group, Inc. ("CIT") common stock in or traceable to CIT's
July 1, 2002 initial public offering ("IPO"), bring this action
to recover for materially misleading statements made in CIT's
registration statement and prospectus. Plaintiffs seek recovery
pursuant to sections 11, 12(a)(2), and 15 of the Securities Act
of 1933, 15 U.S.C. §§ 77k, 77l, 77o. Defendants, CIT, Albert
Gamper, Jr., and Joseph Leone ("defendants"), bring this motion
to dismiss plaintiffs' complaint for failure to state a claim
upon which relief can be granted pursuant to Rule 12(b)(6) of the
Federal Rules of Civil Procedure.*fn1 For the reasons set
forth below, the Court grants defendants' motion.
On July 1, 2002, CIT, a global finance company, launched an IPO
that resulted in the issuance of 211.6 million shares and the
generation of over $4.8 billion. Consolidated and Amended Class
Action Complaint ("Compl.") ¶¶ 17, 20-21. In connection with that
IPO, CIT prepared, and filed with the SEC, a registration
statement and prospectus. Id. ¶ 18. Defendants Gamper, Jr., and
Leone, who were among other things CIT's Chief Executive Officer and Chief
Financial Officer, respectively, signed that registration
statement. Id. ¶¶ 8-9.
Along with other information, the registration statement and
incorporated prospectus identified risk factors that could
negatively impact CIT and the value of its stock. Id. ¶ 26. One
such factor was the risk of under-performance in the company's
telecommunications portfolio. Id. To guard against such risks,
CIT represented that, as of March 31, 2002, it maintained
consolidated reserves for credit losses in the amount of $554.9
million. Id. ¶ 31. CIT declared that this reserve level had
been "reviewed for adequacy." Id. With regard specifically to
the risk in the telecommunications portfolio, the registration
statement and prospectus stated, "We believe that our loan loss
reserves relating to the telecommunications portfolio are
adequate. However, continued deterioration in the sector could
result in losses beyond current reserve levels." Id. ¶ 26
(alteration in original).
On July 23, 2002, three weeks after the IPO, CIT issued a press
release that announced its results for the quarter ending June
30, 2002. Id. ¶ 22. In that release CIT indicated that it was
taking an additional $200 million loan loss charge in order to
strengthen its telecommunications loan loss reserves.*fn2
Id. Plaintiffs allege that, at the time of the IPO, defendants
were aware that this step would need to be taken. Id. ¶ 28. CIT
common stock closed at $17.53 per share on April 10, 2003, the
date that the initial complaint was filed in this action. Id. ¶
56. The IPO price was $23 per share. Id.
Six class action complaints were filed and, pursuant to a June 23, 2003 order, this Court consolidated these separate actions
into this action and appointed Glickenhaus & Co. as lead
plaintiff. Plaintiffs contend that the statements above regarding
the telecommunications loan loss reserves and the consolidated
loan loss reserves were untrue statements of material fact that
are actionable under sections 11, 12(a)(2), and 15 of the
Securities Act.*fn3 Id. ¶ 18.
In considering a motion to dismiss, a court must accept all of
the allegations set forth in the complaint as true, and must draw
all reasonable inferences in favor of the plaintiffs. Rombach v.
Chang, 355 F.3d 164, 169 (2d Cir. 2004); Halperin v. eBanker
USA.COM, Inc., 295 F.3d 352, 356 (2d Cir. 2002). Dismissal is
appropriate only when it is clear that the plaintiffs can prove
no set of facts "in support of their claims that would entitle
them to relief." Halperin, 295 F.3d at 356. In addition to the
complaint, the court may consider those documents that are
incorporated into the complaint by reference. Rombach,
355 F.3d at 169; Hinerfeld v. United Auto Group, No. 97 Civ. 3533, 1998
U.S. Dist. LEXIS 10601, at *11 (S.D.N.Y. July 15, 1998).
Here, plaintiffs allege that statements concerning CIT's loan
loss reserves made in the registration statement and prospectus
violate sections 11, 12(a)(2), and 15 of the Securities Act.
Section 11 creates a cause of action for purchasers of
securities against issuers, underwriters, signatories, and
directors for registration statements that "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). As to issuers the
provision "imposes a form of strict liability," such that
plaintiffs need only show that the misstatements or omissions
were material in order to state a claim. Greenapple v. Detroit
Edison Co., 618 F.2d 198, 203 & n. 9 (2d Cir. 1980); see
also Herman & MacLean v. Huddleston, 459 U.S. 375, 381-82
(1983). But see Rombach, 355 F.3d at 171 (stating that
plaintiffs "need allege no more than negligence to proceed" under
sections 11 and 12(a)(2)).
Section 12 creates liability as against those who "sell? a
security . . . by means of a prospectus or oral communication"
that contains material misstatements or omissions.
15 U.S.C. § 77l(a)(2). Section 15 simply imposes derivative liability
against those who control section 11 or 12 violators. Id. §
77o; Hinerfeld, 1998 U.S. Dist. LEXIS 10601, at *12 n. 4.
Statements will be deemed materially misleading when "`the
defendants' representations, taken together and in context, would
have misled a reasonable investor.'" Rombach, 355 F.3d at 172
n. 7 (quoting I. Meyer Pincus & Assocs. v. Oppenheimer & Co.,
936 F.2d 759, 761 (2d Cir. 1991)). Under this standard the
prospectus must be read as a whole to determine if any
misstatements "would have misled a reasonable investor about the
nature of the [securities]," Olkey v. Hyperion 1999 Term Trust,
Inc., 98 F.3d 2, 5 (2d Cir. 1996) (quoting McMahan & Co. v.
Wherehouse Entertainment, Inc., 900 F.2d 576, 579 (2d Cir.
1990)), and individual statements should not be parsed to
determine if each was "literally true," id.
Here, plaintiffs point to two statements in the registration
statement and prospectus that they claim are materially
misleading. Compl. ¶¶ 18, 32. Plaintiffs advance several ...