The opinion of the court was delivered by: John G. Koeltl, District Judge
AMENDED OPINION AND ORDER
This is a securities action brought on behalf of a proposed class of investors in Arbitron, Inc. ("Arbitron") pursuant to section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78j(b), and Securities and Exchange Commission ("SEC") Rule 10b-5, 17 C.F.R. § 240.10b-5, promulgated thereunder. The lead plaintiff, Plumbers and Pipefitters Local Union No. 630 Pension-Annuity Trust Fund ("Plumbers"), sues on behalf of a putative class of purchasers of Arbitron's common stock between July 19, 2007 and November 26, 2007 (the "plaintiffs"). The plaintiffs' second amended complaint alleges that the defendants, Arbitron and two of its senior officers, Stephen B. Morris and Sean R. Creamer (the "individual defendants"), violated section 10(b) and Rule 10b-5 by making false or materially misleading statements or omissions about Arbitron's planned rollout of a technology known as the Portable People Meter ("PPM"). The plaintiffs also allege control-person liability against the individual defendants pursuant to section 20(a) of the Exchange Act, 15 U.S.C. § 78t(a). The defendants each move to dismiss the second amended complaint pursuant to Rules 12(b)(6) and 9(b) of the Federal Rules of Civil Procedure and pursuant to the Private Securities Litigation Reform Act of 1995, Pub.L. No. 104-67, 109 Stat. 737. The plaintiffs cross-move to strike certain documents relied upon by the defendants.
In deciding a motion to dismiss pursuant to Rule 12(b)(6), the allegations in the complaint are accepted as true, and all reasonable inferences must be drawn in the plaintiff's favor. McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir. 2007); Arista Records LLC v. Lime Group LLC, 532 F. Supp. 2d 556, 566 (S.D.N.Y. 2007). The Court's function on a motion to dismiss is "not to weigh the evidence that might be presented at trial but merely to determine whether the complaint itself is legally sufficient." Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985). The Court should not dismiss the complaint if the plaintiff has stated "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009). While the Court should construe the factual allegations in the light most favorable to the plaintiff, "the tenet that a court must accept as true all of the allegations contained in the complaint is inapplicable to legal conclusions." Id.; see also SEC v. Rorech, 673 F. Supp. 2d 217, 221 (S.D.N.Y. 2009).
A claim under Section 10(b) sounds in fraud and must meet the pleading requirements of Rule 9(b) of the Federal Rules of Civil Procedure and the Private Securities Litigation Reform Act of 1995 ("PSLRA"), 15 U.S.C. § 78u-4(b). Rule 9(b) requires that the Complaint "(1) specify the statements that the 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." ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 99 (2d Cir. 2007). The PSLRA similarly requires that the Complaint "specify each statement alleged to have been misleading[ and] the reason or reasons why the statement is misleading," and it adds the requirement that "if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed." 15 U.S.C. § 78u-4(b)(1); see also ATSI Commc'ns, 493 F.3d at 99.
When presented with a motion to dismiss pursuant to Rule 12(b)(6), the Court may consider documents that are referenced in the complaint, documents that the plaintiff relied on in bringing suit and that are either in the plaintiff's possession or that the plaintiff knew of when bringing suit, or matters of which judicial notice may be taken. See Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002); see also Rorech, 673 F. Supp. 2d at 221.
The following facts are undisputed, unless otherwise indicated.*fn1
Arbitron is an international media and marketing information firm whose primary business activity, accounting for 88% of Arbitron's revenues, is the provision of audience measurement and related services to radio stations, advertising agencies, and advertisers in the United States. (Second Am. Compl. ¶¶ 2, 45.) Defendant Morris was at all relevant times Arbitron's chairman, chief executive officer (CEO), and president. (Id. ¶ 22.) Defendant Creamer was at all relevant times (and still is) Arbitron's chief financial officer (CFO). (Id.) Plumbers purchased shares of Arbitron's common stock on November 13 and 14, 2007. (Mario Alba Jr. Decl. Ex. C (dkt. 8).)
Arbitron collects the data that is at the heart of its business by recruiting and surveying random samples of individuals in various media markets. (Second Am. Compl. ¶ 3.) Until recently, Arbitron collected audience data exclusively by requiring participants in a survey panel to carry a diary in which they recorded manually the radio stations they listened to over the course of a week (the "Diary"). (Id. ¶ 47.)
In 1992, Arbitron began developing the PPM, which was intended to replace the Diary as the standard way of measuring radio audiences (Id. ¶ 49.) The PPM is an electronic device carried by panelists that can identify the radio broadcasts to which a participant is listening; panelists are supposed to carry the PPM with them and, at the end of each day, dock the PPM to its charging station to transmit the day's information to Arbitron. (Id. ¶ 53.)
On March 14, 2006, Arbiton announced that it intended to commercialize the PPM over the following five years, planning to introduce the PPM "into the top 10 radio markets by the fall of 2008, and into all of the top 50 radio markets two to three years thereafter." (Id. ¶ 57.) Prior to entering each market, Arbitron would test the PPM in that market in a "pre-currency" phase to establish that it could produce reliable ratings in that market; it would thereafter commercialize the PPM ratings for sale to broadcasters and advertisers, a process known as "going currency" or "commercialization" in industry parlance, and discontinue the Diary. (Id. ¶¶ 55-56.) The Diary would continue to be used in the pre-currency phase, but it would be discontinued in the currency phase. (Id.)
As part of its introduction of the PPM, Arbitron sought accreditation from the Media Ratings Council ("MRC"), the leading accrediting agency for audience measurement research. (Id. ¶¶ 8, 61.) The MRC maintains a voluntary code of conduct that asks, among other things, that participating measurement services "use best efforts to obtain accreditation of [a] new product prior to its commercialization," and to give "[s]trong consideration... to discontinuing [an] existing accredited currency product only when the replacement currency product has successfully achieved accreditation." (Novomisle Decl. Ex. A-2 at 7.) Before accrediting a measurement system for a particular market, the MRC requires that the system undergo an independent audit that an MRC committee must review and approve. (Second Am. Compl. ¶ 63.)
Arbitron began its rollout of the PPM in Houston, Texas, receiving accreditation from the MRC for Houston in January 2007 and commercializing in Houston in June 2007. (Id. ¶ 66.) Arbitron then entered a pre-currency phase in Philadelphia, Pennsylvania and New York City, with the intention of commercializing in New York in December 2007. (Id. ¶¶ 58, 67.) In all three markets, Arbitron had difficulties with recruitment and compliance, leading to small sample sizes and, in particular, under-representation of 18- to 34-year-olds*fn2 and minority demographic groups. (Id. ¶¶ 74-97.) In some cases, Arbitron's data was based on a single respondent. (Id. ¶ 89.) This led to significant declines in the reported ratings for stations serving African-American and Hispanic audiences. (Id. ¶ 97.)
On May 30, 2007, the MRC sent a confidential letter to Arbitron stating that its audit committee had voted not to accredit the PPM for Philadelphia at that time. (Rosenfeld Decl. Ex. A at 1.) The letter detailed a number of problems identified by the audit, including the under-representation of 18- to 34-year-olds and difficulties with "African-American measurement," leading to "much lower [in-tab] rates for Blacks... and 18- 24."*fn3 (Id. at 1-3, 5.) The MRC particularly identified the problems in the 18-to-24 demographic and certain nondisclosures as "clear Violation[s] of MRC Minimum Standards." (Id. at 2-3.) The measurement of African-American audiences was a matter of concern to the MRC, and it requested "a formal write-up of Arbitron's latest thinking and commitments on this subject as soon as possible." (Id. at 3.) The MRC noted that it had not yet decided to deny accreditation, and that though it was not at that time making a public announcement related to the Philadelphia PPM, it "expect[ed] that Arbitron [would] continue to report the accreditation status of their PPM services responsibly." (Id. at 5.)
By August, the National Association of Black Owned Broadcasters ("NABOB") had also raised concerns about the PPM's under-representation of minorities and 18- to 34-year-olds, publishing a critical press release on August 16. (Novomisle Decl. Ex. A-7 at 1.) In the fall of 2007, more groups began to criticize the PPM's representation of the 18-to-34 and minority demographics. By September 2007, the New York City Council had begun meeting with Arbitron, in response to "outrage in many communities because of possible inaccuracies in methodology that would have resulted in the closing of many minority-owned radio stations in New York City." (Second Am. Compl. ¶ 127.) Then, on November 14, 2007, four major broadcasters - Clear Channel Radio, Cumulus Media, Cox Radio, and Radio One Inc. (the "broadcasters") - issued a joint public letter stating that the PPM had not "provided accurate or reliable data for all demographic groups" to date, and that the "most immediate issue is sample size - especially with regard to 18-34 year olds and ethnic groups." (Novomisle Decl. Ex. A-19 at 1.) The letter particularly singled out the need for the PPM to deliver better data among "Hispanics and African Americans." (Id.) The letter closed by calling for "an action plan to correct these matters within 30 days." (Id.)
Arbiton responded by postponing commercialization in New York City and eight other markets after the close of trading on November 26, 2007, citing the feedback it had received "over the past three weeks." (Second Am. Compl. ¶ 122.) Arbitron revised its financial guidance downward; the following day, Arbitron common stock declined nearly 15% in value, accompanied by statements of surprise at the postponement by industry analysts. (Id. ¶¶ 122-24.)
The plaintiffs allege that Arbitron made a number of misleading statements and material omissions during the class period in relation to the launch of the PPM. The parties proffer seven sets of statements made during the class period: a July 19 quarterly earnings call (Novomisle Decl. Ex. A-6); an August 17 press release (Id. Ex. A-8); an August 31 letter (Second Am. Compl. ¶ 112); a September 24 press release (Novomisle Decl. Ex. A-11); an October 18 quarterly earnings call (Id. Ex. A-14); a November 9 press release (Id. Ex. A-17); and a November 26 press release (Id. Ex. A-20).
In the July 19 quarterly earnings call, defendant Creamer noted that the New York panel was "scheduled to commercialize in December," but that recruitment "remain[ed] challenging." (Id. Ex. A-6 at 3.) Morris specified that the PPM was having particular difficulties recruiting and obtaining compliance in the 18-to-34 demographic, but stated that Arbitron "continue[d] to feel comfortable with the levels of compliance and proof and et cetera," so that it was "not concerned about the... fundamental validity of the numbers." (Id. at 15-16.) He also stated that Arbitron was making "ongoing efforts to achieve MRC accreditation." (Id. at 2.)
The August 17 press release was a direct response to NABOB's critical public letter of the previous day. (Id. Ex. A-8 at 1.) In the press release, Arbitron stated that it "appreciate[d] the active participation by NABOB," and that Arbitron and NABOB had "[t]ogether... made great strides in identifying the advantages that electronic measurement brings to radio and to the urban format." (Id.) It demurred to NABOB's criticisms, however, stating that Arbitron "remain[ed] confident in the validity of the PPM service in Houston and Philadelphia" and that "[t]he PPM ratings are not flawed." (Id.) The press release also stated that Arbitron had studied the relationship of sample size to ratings results, and "concluded that there is no directional relationship between sample size and ratings." (Id. at 2.)
The August 31 letter acknowledged that Arbitron was "not hitting [its] sample targets" in Philadelphia or Houston. (Second Am. Compl. ¶ 112.) Nevertheless, it stated, "the audience data are statistically reliable." (Id.) Specifically, the letter said that Arbitron was "doing well with ethnic groups but poorly with young persons of all races." (Id.) Arbitron sent this letter to PPM customers and filed it with the SEC. (Id.)
The September 24 press release highlighted "urban radio in the PPM world," presenting "key findings" from the data gathered by the PPM in Philadelphia. (Novomisle Decl. Ex. A-11 at 1.) The press release stated "that the PPM methodology gives us compelling insight into how to target and reach the essential African-American consumer segment." (Id. at 2.)
In the October 18 quarterly earnings call, both Morris and Creamer stated that the PPM was scheduled to be commercialized in New York City on December 31. (Id. Ex. A-14 at 2, 17.) Morris again acknowledged recruitment difficulties in the 18-to-34 demographic, but noted that Arbitron was "confident that [it was] at adequate levels of quality" although it was "committed to continuous improvement." (Id. at 3, 16.) He later repeated that "there's not an issue... of fundamental data validity in Houston or Philadelphia," arguing that statistical weighting could make up for any sample size problems. (Id. at 6.) As to MRC accreditation, Morris stated that Arbitron was "committed to the process of MRC audit and accreditation. The Houston Radio Service, as you know, is accredited, but Philadelphia is not. New York is scheduled to complete its audit later this month, and the process continues." (Id. at ...