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December 17, 2004.


The opinion of the court was delivered by: JOHN SPRIZZO, Senior District Judge


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 ...

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