MEMORANDUM AND ORDER REGARDING DEFENDANTS’ MOTION TO DISMISS
(Docket No. 58)
I. INTRODUCTION
This is a class action brought by Plaintiffs on behalf of all persons who acquired the common stock of Wave Systems Corporation (“Wave” or “the Company”) between July 31, 2003 and December 18, 2003, allegedly misled by nine misrepresentations that violated Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934 and Rule lOb-5. 1 Defendants are Wave, its President and Chief Executive Officer, Steven K. Sprague, and its Senior Vice President, Chief Financial Officer and Secretary, Gerard K. Feeney; 2 they have moved to dismiss the consolidated amended complaint on numerous grounds. In particular, Defendants maintain that: (1) the allegedly misleading statements are not actionable as a matter of law; (2) the facts pled do not give rise to a strong inference that Defendants acted with the requisite scienter; and (3) the complaint fails to allege a causal connection between the alleged misrepresentations and the stock’s subsequent depreciation. For the reasons set forth below, the court will allow Defendants’ Motion to Dismiss as to two of the statements challenged and deny the motion as to the other seven.
“Where the dismissal is grounded in Rule 12(b)(6), the facts pled in the complaint are taken in the light most favorable to the plaintiff.”
In re Cabletron Sys., Inc.,
Since its inception in 1988, Wave, a self-described “development stage company,” had never managed to market any of its digital security services or technologies successfully. (Dkt. No. 55, Consolidated Am. Compl. ¶ 2.) By December 31, 2002, the Company found itself over $230 million in debt and in need of $11 million in cash to continue operations in 2003.
With no major revenue source in sight, the Company was forced to close a private placement of Series H Stock on April 30, 2003. (Id. at ¶ 4.) Although this private investment in the publicly held Company resulted in net proceeds of $4,465,571, the placement terms, from Wave’s perspective, were quite onerous. (Id.) Not only did they restrict the Company’s capacity to generate additional funds through future equity offerings by giving the Series H shareholders a right of first refusal, they also required Wave to pay significant dividends to these preferred shareholders. (Id.) Because the Company lacked the resources to redeem the preferred stock or pay the dividends, Wave’s status as a going concern seemed to rest on the automatic conversion of these preferred shares to Class A Common Stock. Under the terms of the placement, such a conversion could only occur if the closing bid on Wave’s stock exceeded $1.90 for fifteen of twenty consecutive trading days. (Id. at ¶ 5.) With the stock consistently trading at under $1.00 per share in the Spring of 2003, it appeared unlikely this condition would be met.
On May 15, 2003, the Company issued a press release in which Sprague stated that “key industry participants are finally beginning to recognize the value Wave can add and are evaluating ways that they can work with us to benefit from our position.” (Id. at ¶ 26); see also id. (“This is an exciting time for us, as we begin to see our long-held vision of revenue-producing trusted computing services become an expected reality.”)
In its Form 10-K/A filed with the Securities and Exchange Commission (“SEC”) on June 30, 2003, Wave expanded on Sprague’s optimistic assessment by forecasting $5 million in sales based upon “the anticipation that various deals we are working on will close.” (Id. at ¶ 34 (noting the Company’s continuing efforts to “solidify [] strategic alliances with the major personal computer manufacturers to force collaborative efforts to distribute its products to consumers”).)
On July 31, 2003, with the market primed to expect a substantial revenue stream, the Company issued a press release, announcing an agreement with Intel Corporation that would “enable Intel to bundle Wave’s software and services with a future Intel desktop motherboard.” (Id. at ¶ 36.) Although the terms of the deal were not disclosed (id. at ¶ 38 (citation omitted)), Wave’s stock soared and closed that day at $2.25 per share, a gain of 168% from the day before (id. at ¶ 37).
The Company’s stock was still on the rise when, on August 4, 2003, Wave announced a partnership with IBM destined to “significantly help us in our objective to
On August 11, 2003, Wave filed the first of four filings with the SEC in which the Company characterized its recent deals with Intel and IBM as “Material Changes.” (Id. at ¶¶ 55, 61-63.) Three days later, during a conference call with analysts, Sprague finally revealed that the Intel deal was a non-exclusive licensing agreement with no minimum licensing requirements. (Id. at ¶ 58.) Sprague also admitted that although the Company’s products were compatible with IBM’s, Wave did not have a licensing agreement with the computer giant. (Id.)
Despite these revelations, Wave’s CEO stood by the Company’s earlier predictions of significant revenue growth. (Id.) Pressed to indicate the source of his san-guinity, Sprague conveyed his belief that the “relationship ... with Intel and the business model that was articulated in the press release” would be the primary basis for revenue Wave would see by the end of the fourth quarter. (Id.) When asked whether Wave could “keep the lights on until this unfolds,” Sprague stated that “we’ve been much more comfortable than perhaps our shareholders can be because it’s hard to see the data that we have. But we’re very comfortable.” (Id. at ¶ 59.)
In the meantime, on August 5, 2003, Feeney sold 100,000 shares of the Company’s stock for $500,000, reducing his overall share ownership by 50%. (Id. at ¶ 49.) The next day, Sprague himself sold 150,-000 Wave shares for $533,841, cutting his overall share ownership by 20%. (Id. at ¶ 50.) These sales caught the spike in Wave’s stock value at $3.14-$5.00 per share. (Id. at ¶ 75.)
On August 20, 2003, in a Form S-3 Registration Statement, Wave characterized its “partnership” with IBM as a “licensing agreement.” (Id. at ¶ 62.) Two days later, on August 22, 2003, the Company again described its relationship with IBM as a “licensing agreement” in a prospectus filed with the SEC. (Id. at ¶ 63.)
On September 16, 2003, Wave disclosed that it had successfully modified the conditions of the April Series H Placement. (Id. at ¶ 65.) Among other concessions, the Series H holders agreed to curtail significantly their right of first refusal, increasing the Company’s capacity to generate additional funds through future equity offerings. (Id.)
In a press release dated November 13, 2003, Sprague stated: ‘We can now clearly see the growing momentum for trusted computing in the marketplace, and we expect substantial growth in volumes over the course of the next four quarters.” (Id. at ¶ 68.) Six days later, Wave announced that it had secured $7.1 million from a private placement financing. (Id. at ¶ 69.)
In December 2003, the SEC commenced an investigation relating to “certain public statements made by Wave during and around August 2003, as well as certain trading in Wave’s securities during such time.”
(Id.
at ¶ 70.) After Defendants disclosed this news in a press release dated December 18, 2003,
5
the Company’s
In February 2004, eight individual Plaintiffs filed putative class actions. 6 Based on counsel’s representations, this court ordered the eight cases consolidated on September 3, 2004. 7 Plaintiffs subsequently filed their two-count amended complaint, alleging violations of: “Section 10(b) of the Exchange Act and Rule 10b-5 Promulgated Thereunder” by “All Defendants” (Count I); and “Section 20(a) of the Exchange Act” by “the Individual Defendants” (Count II).
The crux of Plaintiffs’ compláint is that Defendants’ efforts to inflate the Company’s stock artificially caused them harm. They allege that as Wave stood on the brink of extinction, Defendants made a series of misrepresentations that led reasonable investors to believe the Company was poised to fulfill its recent predictions of unprecedented revenue growth. In short, Plaintiffs submit that by concealing the true nature of the purported Intel and IBM deals, Defendants perpetrated a fraud on the market.
III. DISCUSSION
Section 10(b) of the Securities Exchange Act of 1934 prohibits the use of “any manipulative or deceptive device or contrivance” in connection with the purchase or sale of securities. 15 U.S.C. § 78j(b) (2005). Rule 10b-5, promulgated by the SEC pursuant to Section 10(b), “forbids, among other things, the making of any ‘untrue statement of material fact’ or the omission of any material fact ‘necessary in order to make the statements made ... not misleading.’ ”
Dura Pharm., Inc. v. Broudo,
In order to state a 10b-5 claim, a plaintiff must allege a(l) false statement or omission of material fact, (2) with scienter, (3) upon which plaintiff relied, and (4) which caused plaintiffs injury.
See Gross v. Summa Four Inc.,
In addition to pleading these basic elements, a plaintiff must also comply with the standards of the Private Securities Litigation Reform Act of 1995 (“PSLRA”), 15 U.S.C. § 78u-4 (2005). Among other things, the PSLRA requires a plaintiff to
“This last requirement alters the usual contours of a Rule 12(b)(6) ruling because, while a court continues to give all reasonable inferences to plaintiffs,- those inferences supporting scienter must be strong ones.”
Cabletron,
A. Specific Misrepresentations and/or Omissions.
Cognizant of the strictures of the PSLRA and Fed.R.Civ.P. 9(b), Plaintiffs allege that Defendants made nine specific misrepresentations in press releases, a conference call, an interview, and filings with the SEC.
1. Press Release of July 31, 2003.
The complaint avers that a Wave press release dated July 31, 2003, announced an agreement between the Company and Intel that would “enable Intel to bundle Wave’s software and services with a future Intel desktop motherboard.” (Am. Compl. ¶ 36.) Obviously, this allegation satisfies the “who, what, and where” mandates of the PSLRA and Rule 9(b).
See Fitzer v. Sec. Dynamics Tech., Inc.,
a. Omission of a Material Fact.
Plaintiffs contend that this press release was “materially false and misleading” in light of information it failed to disclose. (Am. Compl. ¶ 41.)
10
To fulfill the materiality requirement there must be “a reasonable likelihood that a reasonable investor would consider [the information
If, as Plaintiffs allege, the press release came on the heels of previous dissemina-tions by Defendants forecasting unprecedented sales—in “anticipation that various deals that we are currently pursuing will close”—the terms of the Intel agreement “would have assumed actual significance in the deliberations of a reasonable shareholder,”
TSC Indus., Inc. v. Northway, Inc.,
The argument that Defendants had no affirmative duty to disclose the terms of the Intel agreement lacks merit. By volunteering “relevant, material information” regarding the lucrative nature of impending agreements, Defendants assumed an obligation, in announcing Wave’s new relationship with Intel, to convey “the whole truth.”
Roeder v. Alpha Indus., Inc.,
Equally unpersuasive is Defendants’ contention that they cannot be held liable for statements merely of corporate optimism. “The corporate puffery rule applies to loose optimism about both a company’s current state of affairs and its future prospects.”
Fitzer,
In re No. Nine Visual Tech. Corp. Sec. Litig.,
considers] whether the statement is so vague, so general, or so loosely optimistic that a reasonable investor would find it unimportant to the total mix of information; second, the court ... ask[s] whether the statement was also considered unimportant to the total mix of information by the market as a whole.
Id. at 20 (citations omitted).
Applying
No. Nine’s
test, this court finds that: (1) a reasonable investor, cognizant of Defendants’ recent prophecy of “strategic [and profitable] alliances with the major personal computer manufacturers,” would not have considered the announcement of one such alliance to be so
Defendants next argue that the Intel press release was “forward-looking” and therefore subject to the “Safe Harbor” clause of the PSLRA. Under that provision, a “forward-looking” statement is not actionable if: (1) the statement is “identified as ... forward-looking ... and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially ...; or” (2) it is “immaterial; or” (3) “the plaintiff fails to [plead] that the forward-looking statement ... was made with actual knowledge ... that the statement was false or misleading.” 15 U.S.C. § 78u-5(c)(l)(A)-(B);
see also Greebel,
There are several problems with this contention. First, “the subject matter of the alleged misrepresentation ]”•—'the terms of the Intel agreement—“was a matter of fact rather than conjecture by the time the statement!] w[as] made. Thus, the statement! ] cannot be characterized as forward-looking, and the safe harbor provision of the PSLRA does not apply.”
In re Sepracor, Inc. Sec. Litig.,
Assuming
arguendo
that the statement in question was “forward-looking,” Defendants “boilerplate” disclaimer at the close of the press release was “not sufficiently detailed to fall within the protections of the ‘bespeaks caution’ doctrine.”
In re Focus Enhancements, Inc. Sec. Litig.,
In their disclaimer, Defendants noted that the following factors could cause the Company’s performance “to be materially different” from that “implied” by the press release: (1) “general economic and business conditions,” (2) “the ability to fund operations,” (3) “the ability to forge partnerships required for deployment,” (4) “changes in consumer and corporate buying habits,” (5) “chip development and production,” (6) “the rapid pace of change in the technology industry,” and (7) “other factors over which Wave Systems Corp. has little or no control.” 12
Among these factors, only the second and third-—the ability to “fund operations” and “forge partnerships” required for deployment—relate even tangentially to the subject matter of the press release. While one could conclude that these factors put prospective investors on notice that the announced partnership with Intel might not lead to the deployment of Wave products, this court must draw its inferences in Plaintiffs’ favor.
In re Credit Suisse First Boston Corp.,
In drawing such inferences, the most the court can conclude is that the cautionary-language warned that Wave’s agreement with Intel was not exclusive. It did not counter sufficiently the strong implication that the Intel partnership would lead to substantial deployment and thus, a significant revenue stream.
See Shaw
Ultimately, because “reasonable minds could ... disagree as to whether the mix of information in the [allegedly actionable] document is misleading,” the first prong of the statutory safe harbor provision cannot “provide[ ] basis for dismissal as matter of law.” Id. at 1214 (citation omitted).
As for the third prong,
13
Defendants note that the “actual knowledge” required is a higher level of scienter than the “recklessness” required by the PSLRA,
see Greebel,
The problem with this argument is that it fails to account for the different procedural stages the respective provisions were designed to address. Whereas Section 78u-4(b)(2) specifies the requirements for a “complaint,” Section 78u-5(c)(l)(B) states what a plaintiff must “prove” in order for a defendant to be found “liable.”
Mindful of the First Circuit’s consistent position “that the rigorous standards for pleading securities fraud do not require a plaintiff to plead evidence,”
Cabletron,
b. Scienter.
Having established that the Intel press release omitted a material fact, the court must now consider the question of scienter. “In order to prevail in a 10b-5 action, a plaintiff must show that defendants had ... the ‘intent to deceive, manipulate, or defraud.’ ”
Geffon v. Micrion Corp.,
In making the scienter determination, a court must evaluate “the totality of the circumstances.”
Crowell v. Ionics,
Ultimately, “[i]nferences must be reasonable and strong—but not irrefutable.... Plaintiffs need not foreclose all other characterizations of fact, as the task of weighing contrary accounts is reserved for the fact finder.”
Aldridge,
In light of these standards, the facts pled clearly give rise to a strong inference that Defendants intended to perpetrate a fraud on the market when they issued the Intel press release. In support of this conclusion, two factors are particularly significant: (1) Defendants’ “motive and opportunity” to inflate Wave’s stock artificially; and (2) Sprague and Feeney’s insider sales.
Defendants assert that
Greebel
established a rule in this circuit “that an alleged motive and opportunity, without more, cannot establish a strong inference of scien-ter.”
14
In fact,
Greebel
explicitly rejected the argument that “facts showing motive and opportunity can never be enough to permit the drawing of a strong inference of scienter”-—-a determination recognized and reiterated by subsequent First Circuit opinions.
See, e.g., Cabletron,
While
Greebel
did make clear the insufficiency of “catch-all allegations that defendants stood to benefit from wrongdoing and had the opportunity to implement a fraudulent scheme,”
In short, Defendants had “more than the usual concern by executives” to increase the value of Wave’s stock; “the executives’ careers and the very survival of the company were on the line.”
Cabletron,
Even where dire circumstances alone might fall short of what the PSLRA and Rule 9(b) require, allegations of insider trading “provide additional ballast to [Plaintiffs’] argument for scienter.”
Cabletron,
If Plaintiffs, in seeking to establish scienter, relied solely upon the insider sales in question, their failure to illustrate how such sales were inconsistent with past trading practices might be fatal.
See Focus Enhancements,
In
Greebel,
the court began by examining the context of the alleged insider sales. Because none of the “key players” sold stock “at the high points of the stock price,” but instead “waited to sell until after ... an announcement which caused the price of the stock to fall,” the
Greebel
court determined that the timing of the sales in question was not suspicious.
In contrast, Sprague and Feeney’s sales occurred after an announcement that caused the price of the stock to rise and came at a time when they possessed material non-public information. Consequently, the timing of such sales might be viewed as quite suspicious.
Defendants maintain that the Wave stock Sprague and Feeney
did not sell
rebuts any inference that they were out to capitalize on an inflated price. They cite
In re Advanta Corp. Sec. Litig.,
Accordingly, this court concludes that Plaintiffs have satisfied the PSLRA’s scienter requirement.
c. Reliance.
As the First Circuit recently observed, “[requiring proof of individualized reliance ... would effectively preclude securities fraud class actions.”
In re Xcelera.com Sec. Litig.,
To avoid this result, the Supreme Court has recognized the fraud-on-the-market theory, which relieves the plaintiff of the burden of proving individualized reliance on a defendant’s misstatement, by permitting a rebuttable presumption that the plaintiff relied on the “integrity of the market price” which reflected that misstatement.
In re PolyMedica Corp. Sec. Litig.,
Defendants argue that the market price for Wave’s stock did not reflect any alleged misstatements. They point out that when Sprague told analysts that the Intel deal was a non-exclusive licensing agreement, “the market’s reaction, as reflected by Wave’s stock price, was virtually nonexistent.” (Dkt. No. 70, Defs.’ Reply Mem. Supp. Mot. Dismiss 1 (noting “a mere two cent (0.6%) difference from the day prior to the disclosure to the day after”).) Since “the concept of materiality
The flaw in this argument is that it focuses on Sprague’s “disclosure” in isolation. During the conference call with analysts, Sprague did acknowledge that neither of the Company’s new partners was obligated to purchase or use any Wave products or services. However, Sprague subsequently predicted that Wave’s relationship with Intel would soon be a significant revenue source and indicated that Wave insiders were “very comfortable” about the Wave’s capacity to continue operations until significant revenue arrived. 15
Drawing “all reasonable inferences from the particular allegations in [Plaintiffs’] favor,”
Aldridge,
d. Loss Causation.
Recently, the Supreme Court established that defrauded investors must do more than allege that “the price of the security on the date of purchase was inflated because of [a] misrepresentation.”
Dura,
Defendants contend that these plaintiffs, like those in Dura, have not done so. Once more, their argument is unavailing.
In Dura, the Court found that the complaint alleged
the following (and nothing significantly more than the following) about economic losses attributable to [Defendants’] misstatement: “In reliance on the integrity of the market, [Plaintiffs] ... paid artificially inflated prices for [Defendants’] securities” and ... suffered “damage[s]” thereby.
Id. at 1630.
Here, Plaintiffs claim that Defendants artificially inflated Wave’s stock during the class period by: (1) failing to disclose material information about the Company’s relationship with Intel;, and (2) making numerous misrepresentations regarding the
Next, Plaintiffs allege that news of an SEC investigation relating to Defendants’ misleading statements “shocked the market, with shares falling 17.13%, or $0.31 per share, to close at $1.50 per share ... on December 19, 2003.” (Id. at ¶ 13.)
The complaint thus “contains the very allegations regarding share price decrease and public exposure to the truth the Supreme Court found lacking in the
Dura
complaint.”
In re Immune Response Sec. Litig.,
Defendants contend that Wave’s disclosure of the SEC investigation was not an admission that earlier statements were materially misleading.
17
While this may be so,
Dura
does not require that a corrective disclosure precede a stock’s decline.
Ultimately, the duration of the class period may make it difficult for Plaintiffs to prove that Defendants’ misrepresentations caused their economic loss. See id. at 1632 (“[T]he longer the time between purchase and sale, the more likely ... [it is] that other factors caused the loss.”). However, in light of Dura’s acknowledgment that Fed.R.Civ.P. 8(a)(2) applies to the pleading of economic loss and proximate causation, this court must conclude that Plaintiffs have furnished Defendants “with some indication of [their] loss and the causal connection that [they have] in mind.” Id. at 1634.
2. August I, 2003, IBM Press Release.
In a press release issued on August 4, 2003, Wave stated that its “partnership with IBM will significantly help us in our objective to deliver open and interoperable solutions to business customers.” (Am. Compl. ¶ 42.) This statement is actionable for it has “an aspect that encompasses a representation of present fact.”
Shaw,
3.August 5, 2003, New York Times Article.
On August 5, 2003, Plaintiffs allege that “a Wave spokesperson confirmed and furthered the market’s perception of the Company’s materially misleading August 4th announcement” by informing the New York Times that “IBM computers with built-in Wave security would be available in the fourth quarter of [2003].” (Am. Compl. ¶ 45.)
Defendants maintain that they cannot be held liable for a statement made by a reporter in an independent newspaper. In Cabletron, however, the First Circuit determined that
[Liability may attach to an analyst’s statements where the defendants have expressly or impliedly adopted the statements, placed their imprimatur on the statements, or have otherwise entangled themselves with the analysts to a significant degree.
the complaint alleges that an analyst report ... stated, on the basis of information from [an individual defendant] and other [company] executives, that the [product] would “ship in volume in the second week of April.”
Id. at 38. Due to the high degree of similarity between this allegation and the one in question, the court concludes that statements made in the New York Times article are actionable.
4. August 11, 2003, Form S-3/A.
Plaintiffs allege that statements in the Company’s Form S-3/A dated August 11, 2003, describing Wave’s purported deals with Intel and IBM as “material changes” were materially false and misleading. (Am. Compl. ¶ 56.) In response, Defendants point to express disclaimers that accompanied these statements, entitling them to safe harbor protection.
(See
Dkt. No. 59, Defs.’ Mem. Supp. Mot. Dismiss 17; Dkt. No. 70, Defs.’ Reply Mem. 16.) The problem with this contention has already been noted: because the terms of the Intel and IBM deals were matters of historical fact by the time Form S-3/A was filed, the statements in question cannot be construed as forward-looking, and the PSLRA’s safe harbor provision does not apply.
See In re Stone & Webster, Inc., Sec. Litig.,
5. August II, 2003, Conference Call.
As previously discussed, the court deems actionable comments made by Sprague during the conference call with analysts concerning the likelihood that Wave’s relationship with Intel would soon be a significant revenue source and the comfort level of Wave insiders as to the Company’s capacity to continue operations until significant revenue arrived.
Cf. Sep-racor,
6. August 18, 2003, Prospectus.
On August 18, 2003, Defendants again characterized the Intel and IBM deals as “material changes” in a prospectus filed with the SEC. This characterization, Plaintiffs maintain, was materially false and misleading. (Am. Compl. ¶ 64.) The court disagrees and concludes the statements in question are not actionable. By August 18, 2003, the market was aware that Wave’s Intel agreement lacked a minimum licensing requirement, and its IBM deal was not fee producing. Consequently, a reasonable investor would not have placed any significance on the allegedly “withheld or misrepresented information.”
Basic,
7. August 20, 2003, Form S-3 Registration Statement.
Plaintiffs challenge a statement in the Form S-3 Registration Statement filed by the Company on August 20, 2003, characterizing the IBM “partnership” as a “licensing agreement.” (Am. Compl. ¶ 62.) This allegation stands in contrast to previous ones in that Plaintiffs claim the statement is not merely incomplete but false. (Id. at ¶ 64.)
At first blush, this allegation appears “more quibble than material.”
In re PLC Systems, Inc. Sec. Litig.,
8. August 22, 2003, Prospectus.
Similarly actionable is Defendants’ alleged representation of the IBM compatibility as a “licensing agreement” in a prospectus filed by the Company on August 22, 2003.
9. November 13, 2003, Press Release.
Finally, Plaintiffs contend that statements made by the Company in a press release issued November 13, 2003, purporting to “clearly see the growing momentum for trusted computing in the marketplace” and conveying expectations of “substantial growth”
were materially false and misleading at the time they were made. Defendants knew that the Company’s prospects for growth were no more clear than they were at the onset of the Class Period.
(Am. Compl. ¶ 68.) The November press release is a clear case of puffery. The statements in question are “so vague [and] so lacking in specificity ... that no reasonable investor could find them important to the total mix of information available.”
Shaw,
B. Pleading of Individual Defendants’ Liability.
Since a majority of the actionable statements were issued by Wave, Plaintiffs have clearly set forth a claim against the
As for Sprague and Feeney, the complaint alleges that each “held positions that would have given them not only access to, but close familiarity with, the details of [Wave’s] affairs.”
PerkinElmer,
Plaintiffs also contend that Sprague himself made several statements deemed actionable, and that both individuals sold significant amounts of Wave stock while in possession of material non-public information. Finally, both Sprague and Feeney signed SEC filings containing statements deemed to be actionable.
See Cabletron,
C. Rule 20(a).
Section 20(a) of the Securities Exchange Act of 1934 provides:
Every person who, directly or indirectly, controls any person liable under any provision of this chapter or of any rule or regulation thereunder 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 corn-trolling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action.
In re Stone & Webster, Inc., Sec. Litig.,
Ordinarily, “[c]ontrol is a question of fact” not to be “resolved summarily at the pleading stage.”
Cabletron,
IV. CONCLUSION
For the reasons set forth above, Defendants’ Motion to Dismiss is hereby ALLOWED as to Statements 6 and 9 and DENIED as to Statements 1-5 and 7-8.
. Of course, finding allegations sufficient to withstand a-, motion to dismiss is far cry from finding Defendants liable.
See Sem-blan v. Amoskeag Bank Shares, Inc.,
24
The clerk will set the case for a Rule 16 conference to establish a schedule for completion of all pre-trial proceedings.
Notes
. No motion for class certification has yet been filed, and no class has yet been certified. When such a motion is filed, the parties will need to address the issues raised in two recent First Circuit decisions:
In re PolyMedica Corp. Sec. Litig.,
. Plaintiffs concede that John E. Bagalay, Jr. was not properly named as a defendant. To make sure the record is clear, the court hereby dismisses all claims against John E. Baga-lay, Jr.
. Many of the facts will be taken verbatim from
Sachs v. Sprague,
. On August 5, 2003, a Company spokesperson told the New York Times that "IBM computers with built-in Wave security would be available in the fourth quarter of this year.” (Id. at ¶ 45 (citation omitted).)
. This disclosure came after the close of the market.
. A ninth case, Trebitsch v. Wave Systems Corp., 04-266-JCL, was originally filed in the District of New Jersey before being transferred to this court.
. The seven other cases are: Streicher v. Wave Systems Corp., C.A. 04-30026-MAP; Dawod v. Wave Systems Corp., C.A. 04-30029-MAP; Chess v. Wave Systems Corp., C.A. 04-30037-MAP; Vicker v. Wave Systems Corp., C.A. 04-30040-MAP; Boham v. Wave Systems Corp., C.A. 04-30041-MAP; Suo v. Wave Systems Corp., C.A. 04-30042-MAP; and Schulman v. Wave Systems Corp., C.A. 04-30043-MAP.
. While the First Circuit’s application of Fed. R.Civ.P. 9(b) in pre-PSLRA securities actions was "congruent and consistent” with the standards set forth in § 78u-4(b)(l),
Greebel v. FTP Software, Inc.,
. Detailed discussion of the four elements as regards the July 26, 2003 press release will permit a shorter analysis of the other eight alleged misrepresentations.
. Defendants’ preliminary argument that the press release was literally accurate overlooks the fact that literal accuracy "does not preclude liability under federal securities laws.”
Lucia v. Prospect St. High Income Portfolio, Inc.,
Some statements, although literally accurate, can become, through their context and manner of presentation, devices which mislead investors. For that reason, the disclosure required by the securities laws is measured not by literal truth, but by the ability of the material to accurately inform rather than mislead prospective buyers.
Id.
(quoting
McMahan v. Wherehouse Entm't, Inc.,
. "[I]t has been said that the puffing’ concept in the securities context has all but gone the way of the dodo.” 69A Am.Jur.2d
Securities Regulation-Federal
§ 1118 (2005) (citation omitted). This observation may be somewhat hyperbolic.
See Orton v. Parametric Tech. Corp.,
. (Dkt. No. 72, App. Supp. Defs.’ Mot. Dismiss, Ex. 5.) Defendants have submitted copies of the relevant press releases, conference call transcript, and SEC filings in conjunction with their motion to dismiss. Because Plaintiffs have admitted the authenticity of these documents, this court may consider them in ruling' on Defendants' 12(b)(6) motion.
See Watterson v. Page,
. Defendants wisely concede the inapplicability of the second prong'—the materiality of the press release (see Dkt. No. 70, Defs.' Reply Mem. Supp. Mot. Dismiss 3)—for it would strain credulity to suggest that investors who flocked to Wave’s stock in the wake of the Intel press release did not consider the information it conveyed significant to the total mix.
.
(See
Dkt. No. 59, Defs.’ Mem. Supp. Mot. Dismiss 37 (citing
Greebel,
. Defendants stress that the comfort Sprague expressed did not concern "any forecast regarding revenue or Intel.... Rather, the quoted comments were simply about whether the Company would be able to stay in business to see any potential benefits from recent developments in the market.” (Dkt. No. 70, Defs.’ Reply Mem. Supp. Mot. Dismiss 7-8.) Defendants may ultimately persuade the factfinder that this interpretation is more compelling, but a finding could as easily be made that the comments regarding "recent developments” were themselves materially misleading.
Cf. Swack v. Credit Suisse First Boston,
. Defendants may seek to rebut this presumption at the class certification stage where the dictates of PolyMedica and Xcel-era.com will control.
. (Dkt. No. 79, Defs.' Mot. Supplemental Authority 4.) Defendants also submit that, during oral argument, "this court recognized the absence of any necessary casual link between any allegedly misleading statements and Wave's drop in stock price following the announcement of the SEC investigation in December, 2003.” (Id. at 3 n. 1 (citing Dkt. No. 75, Tr. Hr’g 24).)
It should come as no surprise that "[m]any judges use oral argument as an opportunity ... to focus the argument, or to test the extreme implications of a litigants position. A court speaks authoritatively, however, only in its opinions, orders, and judgments.”
Mgmt. Inv. Funding Ltd. v. Merrill Lynch, Pierce,
. See also Evan R. Chesler & J. Stephen Beke, Loss Causation Post-Dura, 1517 Practicing L. Inst. Corp. L. & Prac. Handbook Series 1277, 1282 (2005) ("Dura ... did not purport to address whether plaintiffs in misrepresentation and omission cases ... need explicitly allege that the subject matter of the alleged misrepresentations or omissions was revealed to the market by way of some 'corrective disclosure' .... ”).
. The complaint alleges that Sprague and Feeney signed Wave’s Form 10-K/A filed with the SEC on June 30, 2003, .but does not explicitly allege that the individual defendants signed any other SEC filings.
“A
court may, however, in evaluating ... allegations [in a complaint,] look to documents the authenticity of which are not disputed by the parties, to documents that are central to the plaintiffs -claim, and to documents that are referenced in the complaint.”
Garvey v. Arkoosh,