OPINION AND ORDER
This сase arises out of alleged violations of the Securities Exchange Act of 1934 (the “Exchange Act”), by Net 1, UEPS Technologies (“Net.l” or “the Company”); Serge P. Christian Belamant, Net l’s co-founder, Chairman of the Board, and Chief Executive Officer; and Herman Gideon Kotze, Net l’s Chief Financial Officer, Treasurer, and Secretary (collectively, the “Individual Defendants”). The Amended Complaint alleges that Net 1, Belamant and Kotze (collectively, the “Defendants”) made material misstatements and/or omissions relating to Net l’s attempts to secure contracts in South Africa, causing certain of Net l’s financial statements and announcements to be materially false and misleading, in violation of Sections 10(b) and 20(a) of the Exchange Act and Securities -and Exchange ■ Commission (“SEC”) Rule 10b-5.. Lead Plaintiff, Ruhama Li-pow, brings suit on behalf: of a class of all those who purchased or, otherwise acquired Net 1 securities between .January 18, 2012 through December 4, 2012 (the “Class Period”), and sustained losses upon the revelation of alleged corrective disclosures (the “Class”). Pending before this Court is Net l’s Motion to Dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure.
I. Background
A. Factual Background
i The Defendants
Net 1- is a Florida corporation, with its principal executive offices in Johannesburg, South Africa that provides financial transaction processing services in emerging economies. Am. Compl. ¶¶ 17,21. Net l’s common stock trades on the NASDAQ Global Stock Market under ticker symbol “UEPS.” Id.
Net 1 holds a non-exclusive license to the Universal Electronic Payment System (“UEPS”), a social grant distribution technology. Id. ¶2,21. Net 1 also devеlops and markets a transaction processing solution using Net l’s smart card-based alternative payment- system for the “unbanked and under-banked populations” of develop
ii The SASSA 2011 Tender Process
On April 15, 2011, SASSA initiated a tender process for a 10 billion ZAR
The request for proposals (“RFP”) used in the 2011= tender process provided that “all payments of social grants ‘must be secured, preferably, Biometric based[,]’ ” meaning, in the instant case, primarily on the basis of the grant recipient’s fingerprints. Id. ¶ 29 (emphasis original). 'SAS-SA allegedly clarified that “while biometric authentication is preferred, any other methods maybe acceptable if they meet the requirements of para 3.3.” Id. ¶ 30 (emphasis original). Plaintiff alleges that Paragraph 3.3 required oñly that the bidders explain how it would ensure that the right beneficiary received the right payment but did not require biometric verification. Id.-.. . ... ■ -
Twenty one bidders, including CPS and AllPay, participated in the 2011 tender process. Id. ¶ 32. CPS allegedly offered biometric verification for all beneficiaries. Id. Allpay’s bid provided fingerprint biometric verification for some, but not all, beneficiaries. Id. AllPay allegedly provided an alternative non-biometrie verification solution for these beneficiaries. Id. Plaintiff alleges, on information and belief, that CPS and AllPay either submitted their bids in advance of the bid deadline or, alternatively, that SASSA was aware of Allpay’s and CPS’s proposed bids. Id. ¶ 33. On June 10, 2011, five days prior , to the bid deadline, SASSA issued Bidders Notice.2. Id. Plaintiff contends that Bidders Notice 2 improperly amended the RFP by changing the “preference” for biometric verification to a “requirement.” Id. ¶¶ 4, 31, 33. Allegedly, CPS was the only bidder that could satisfy the new re
A member of the BEC raised the alleged unfairness of Bidders Notice 2 in a BEC meeting on August 31, 2011. Id. at ¶35, According to the meeting'minutes, the BEC member allegedly stated that Bidders Notice 2 should never have been issued because it favored one Bidder— presumably CPS — and excluded the other twenty bidders. Id. As a result, the BEC allegedly reviewed the submitted bids based on the original RFP’s “preference” for biometric verification. Id. ¶ 36. All-Pay and CPS received scores above 70% and were invited to--give oral’ presentations. Id. During or’ after the oral presentations, the BEC allegedly reversed course again and applied the standard in Bidders Notice 2’s requiring biometric verification. Id. ¶38. Accordingly, AllPay’s score decreased to 58.68% while CPS’s score increased to 82.44%. Id. All bidders but CPS were disqualified. Id. The BEC recommended that CPS be awarded the contract and the BAC accepted the recommendation. Id. ¶ 40. The tender was granted to CPS on January 17, 2012 and the contract between CPS and SASSA was executed on February 3, 2012. Id.
Hi Net 1 ’s Allegedly Improper Efforts to Secure the SASSA Contract
Plaintiff alleges that Net 1 engaged in activities that “unfairly influenced the outcome of the SASSA tender process, thus creating a substantial threat of regulatory scrutiny and/or invalidation of the contract.” Id. ¶42. Plaintiff points to four professional and/or personal relationships involving parties related to CPS and SAS-SA that allegedly created conflicts of interest in the tender process and “contributed to SASSA’s decision to skew the RFP process” in favor of CPS. Id. ¶ 43.
First, Plaintiff points to the involvement of Michael Hulley (“Hulley”), who for an unidentified period of time had served as South African President Jacob Zuma’s legal advisor and personal lawyer. Id. 1142(a). Plaintiff and Defendants contentiously dispute whether, before the 2011 tender, Hulley was retained by CPS or SASSA to advise them on settling the lawsuits between the two parties. According to Plaintiff, before the 2011 tender process, CPS allegedly retained Hulley in an effort to settle litigation initiated by CPS against SASSA relating to an earlier SAS-SA tender process' canceled in 2008. Id. Once the 2011 tender process began, CPS’s lawsuits against SASSA werе allegedly withdrawn and SASSA allegedly hired Hulley as an advisor for the tender. Id. Plaintiff also contends “upon information and belief’ that CPS made payments to Hulley but does not specify who at CPS paid Hulley or why these payments were made. Id. ¶ 5.
Conversely, Net 1 contends that Hulley advised SASSA, not CPS, on settling CPS’s lawsuits. See Def.’s Mem. at 8. A Mail & Guardian article attached by Net 1 to its Motion to Dismiss the Amended Complaint, states that “Hulley played a complex dual role in the [2011 tender] process, which apparently had him first advising SASSA on how to settle a rash of law suits with [CPS] and then switching to a new role in which he ... provided] ‘commercial, financial, and legal advice’ to the agency.” Declaration in Support of Def.’s Motion to Dismiss (“Hillebrecht Decl.”) Ex. B. Belamant told Mail & Guardian that Hulley was brought in before the tender “in an attempt by SASSA” to settle lawsuits against it brought by CPS. Id. Belamant further described Hulley’s role on behalf of SASSA in the tender process as “managing] the existing law suits” between CPS and SASSA with a view to settling them. Id.
Second, Plaintiff alleges that CPS made a conditional offer of 20% of its SASSA
Third, as reported in Mail & Guardian, Norman Arendse, the chair of the BAC for the previous tender process canceled in 2008, allegedly was offered an “open chequebook bribe” by someone — again not identified by Plaintiff — claiming to represent CPS. Id. ¶ 42(c). The Amended Complaint does not allege when that offer was made or that Mr. Arendse played any role in the 2011 tender process.
Fourth, an individual identified as “Ms. Nhlapo,” who was alleged to have been a member of the BEC for the 2011 tender process, purportedly failed to disclose that she previously sat on the board of an entity called Reflective Learning Resources, with an individual identified as “Mr. Yako,” who was alleged to have been the director of “one of CPS’s business partners.” Id. ¶ 42(d). The CPS business partner for- which Mr. Yako purportedly served as director is not identified in the Amended Complaint.
iv. Net 1’s Allegedly False and Misleading Statements
Plaintiff asserts that Net 1’s alleged misrepresentations began when Net 1 announced SASSA’s tender was awarded to CPS but failed to disclose that Net 1 “faced a material risk of regulatory scrutiny and invalidation of the contract,” on which Net 1 depended for a “substantial portion” of its revenue, because Defendants failed to disclose in its announcements that (l)'the criteria for the RFP was changed days before the bidding deadline to ensure CPS was the only qualified bidder, and (2) CPS engaged in conduct intended to improperly influence SASSA and the bidding process. Id. ¶¶ 4, 45. According to Plaintiff, Defendants’ statements, discussed in detail below, were materially misleading as a result of their failure to disclоse the above' information. Id.
On January 18, 2012, Net 1 issued a press release announcing CPS “received a Letter of Award from [SASSA] for the provision of payment services for social grants in all oí South Africa’s nine provinces for a period of five years” and quoted Belamant as saying “[o]ur biometric UEPS/EMV technology has enabled us to provide SASSA with a comprehensive, cost effective solution for the payment of approximately fifteen million monthly grants
On February 6, 2012, in another press release, Net 1 announced that CPS “has signed a contract and service level agreement with [SASSA] in terms of the award of the national payment tender as announced' on January 17, 2012.” Id. ¶ 47; Hillebrecht Decl. Ex. J.
On February 8, 2012, AllPay filed süit in the High Court (trial level court) of South Africa against multiple parties including SASSA and CPS, seeking to set aside the contract awarded to CPS. Am. Compl. ¶ 48; Hillebrecht Decl. Ex. C. One day later, on February 9, 2012, Net 1 filed its quarterly Form 10-Q with the SEC for the period ending December 31, 2011, signed by Belamant and Kotze. Am. Compl. ¶ 48; Hillebrecht Decl. Ex. F. -In the 10-Q, Net 1 disclosed that on the previous day, February 8, 2012, AllPay “filed an application” in the “High Court of South Africa seeking to set aside the award of the SASSA tender to [CPS]” and that CPS was named as a respondent. Id. Net 1 asserted that “[a]s a respondent, we are entitled to -oppose the application, and we intend to do so” but disclosed that “[i]f AllPay’s challenge is successful the cоntract could be set aside.” Hillebrecht Decl. Ex. F. Net 1 also disclosed that “[w]hen SASSA publicly announced the award of the tender to us in January 2012, it stated that it had conducted the tender in accordance with all relevant legislation. While we also believe this to be the case, we cannot predict when the proceeding will be resolved or its ultimate outcome.” Id. In the same 10-Q, Net 1 noted that the contract with SASSA increased Net’s 1 “dependence on our pension and welfare business while also reducing [its] operating margins, at least in the near term” and identified- SASSA as its largest customer. Id.
On Máy 10, 2012, Net 1 filed its quarterly Form 10-Q with the SEC for the period ending March 31, 2012, signed by Belamant and Kotze. Am. Compl. ¶ 49; Hillebrecht Decl. Ex. K. The May 10 Form 10-Q provided more details on how the SAS-SA contract would be implemented. Id. The 10-Q also reported that the High Court was scheduled to hear AllPay’s challenge to the SASSA contract on May 29, 2012 with a decision expected a few weeks later. Hillebrecht Decl. "Ex. K. Net 1 explained in the 10-Q that any party may seek leave to appeal the High Court’s decision but, if leave is granted, the appeals process could take several months. Id. In the same 10-Q, Net 1 disclosed that it “paid certain of our executives and key employees special bonuses of $5.4 million [USD] (ZAR $41.8 million) in recognition of their contributions, to .the compilation of the successful SASSA tender, the development of the new technologies and the support provided for the implementation of the tender award.” Am. Compl. ¶ 49; Hillebrecht Decl. Ex. K. On May 18, 2012, Janney Montgomery Scott LLC reiterated its buy rating for Net 1 stoсk. Am. Compl. ¶ 51.
On August 23, 2012, Net 1 filed its quarterly Form 10-Q with- the- SEC for the period ending June 30, 2012, signed by Belamant and Kotze. ' Id. ¶ 52; Hillebrecht Debí. Ex. L. The August 23 Form 10-Q reported that the High Court heard AllPay’s challenge at a hearing that took place from on May 29 through 31, 2012, and that Net 1 expected a decision to be reached “during the first quarter of fiscal 2013.” Hillebrecht Decl. Ex. L. Net 1
v. Disclosure of the High Court’s Decision
On September .12, 2012, Net 1 issued a press release entitled “Net 1: Couit Grants Leave to Appeal.” Hillebrecht Decl. Ex. H. In the Press Release, Net 1 disclosed that the High Court issued a decision on August 28, 2012, holding “that the tender process followed by SASSA was illegal and invalid, but that the award of the tender to CPS would not be set aside and therefore remains valid.” Id. The press release also disclosed that the High Court granted CPS and SASSA leave to appeal the ruling that the tender process was illegal and invalid and also granted AllPay leave to appeal the ruling that the contract between SASSA and CPS should not be set aside.
Plaintiff contends that Net l’s September 12, 2012 press relеase was distributed only in South Africa. See Ph.’s Opp’n Mem. at 7. Therefore, Plaintiff alleges that the first time Net 1 investors learned of the High Court’s decision that the .SASSA tender process was “illegal, and invalid” was on November 8, 2012, two months after the August 28, 2012 decision was issued, in Net l’s Form 10-Q for the period ending September 30, 2012. Am. Compl. ¶ 54; Hillebrecht Decl. Ex. R. The November 8 10-Q stated that “on August 28, 2012, the High Court ruled that our contract with SASSA remains valid and will not be set aside [but that]: (1) the tender process conducted by SASSA was illegal and invalid; (2) the award of the tender to us is not set aside; and (3) the CEO of SASSA and SASSA, together with us, were. ordered to pay costs.” Hillebrecht Decl. Ex. R. Net 1 also disclosed that. SASSA and CPS were granted leave to appeal “the ruling that the tender process was illegal and invalid as well as the cost order” and that AllPay was also granted “leave to appeal the ruling that tifie award of the tender by SASSA to CPS should not be set aside.”. Id. The November 8 10-Q reiterated that Net 1 could not predict when the appellate proceeding would be resolved or its ultimate outcome. Id. .
Plaintiff alleges that “Net 1 shares fell from $8.87 to $8.39, a decline of over 5%” and on the following trading day “declined to $8.25 ... and continued its descent thereafter, hitting $7.77 by the end of the month.” Am. Compl. ¶ 55. The Amended Complaint does not allege the exact date the decline occurred. Id. In Plaintiffs Opposition to Net 1’s Motion to Dismiss, Plaintiff states that Net l’s stock price declined upon the November 8, 2012 disclosure and elaborated that “[b]y the end of November, Net’s [sic] stock price-had fallen to $7.77.” PL’s Opp’n Mem. at 7 (citing Am. Compl. ¶ 55).
vi Disclosure of the Regulatory • Investigations
. On December 4, 2012, Net 1 filed a Form 8-K with the-SEC announcing that
On November 30, 2012, we received a letter from the U.S. Department of Justice, Criminal Division (the “DOJ”) informing us that the DOJ and the Federal Bureau of Investigation have begun an investigation into whether Net 1 UEPS Technologies, Inc. and its subsidiaries, including their officers, directors, employees, and agents (collectively, “Net 1”) and other persons and entities possibly affiliated with Net 1 violated provisions of 'the Foreign Corrupt Practices Act and other U.S. federal criminal laws by engaging in a scheme to make corrupt payments to officials of the Government of South Africa in connection with securing a contract with the South African Social Security Agency to provide social welfare and benefits payments and also engaged in violations of the federal securities laws in connection with statements made by Net 1 in its SEC filings regarding this contract. On the same date, we received a letter from the Division of Enforcement of the Securities and Exchange Commission (the “SEC”) advising us that it is also conducting an investigation concerning our company. The SEC letter states that the investigation is a non-public, fact-finding inquiry.
Id.; Hillebrecht Deck Ex. A. Plaintiff alleges that Net 1 has spent $10 million defending the investigations. Am. Compl, ¶ 56.
On the same day, December 4,2012, Net 1 shares allegedly declined $4.62 per share, nearly 59%, and elosed at $3.22 per share. Id. ¶ 57.
mi The Constitutional Court’s Decision and Net 1’s Disclosure
On November 29, 2013, the Constitutional Court ruled that the tender process by which SASSA awarded the contract to CPS was “constitutionally invalid” but “suspended the declaration of invalidity pending a determination of a just and equitable remedy.” Id. ¶59. The Constitutional Court explained that the Bidders Notice 2 “reduced the number of viable bids to one, rendering the process entirely uncompetitive and obviating any true, comparative consideration of cost-effectiveness,” Id. ¶60; Hillebrecht Deck Ex. E. The Constitutional Court also explained that:
deviations from fair process may themselves all too often be symptoms of corruption or malfeasance in the process. In other words, an unfair process may betoken a deliberately skewed process. Hence insistence on compliance with process formalities has a three-fold purpose:, (a) it ensures fairness to participants in the bid process; (b) it enhances the likelihood of efficiency and optimality in the outcome; and (c) it serves as a guardian against a process skewed by corrupt influences
Am. Compl. ¶ 43. .
Plaintiff alleges that the Constitutional Court “issued a scathing opinion in which it acknowledged evidence of CPS’ improper conduct; and ruled that the SASSA tender process was constitutionally invalid due primarily to the last minute RFP changes which violated regulatory procedure.” Id. ¶10. Conversely, Net 1 contends that the Constitutional Court made no findings that CPS acted unethically or corruptly. See Def.’s Mem. at 9 n. 7 (citing Hillebrecht Deck Ex. S).
On April 17, 2014, the Constitutional Court invalidated the SASSA contract and ordered the South African government to
B. Procedural Background
On September 3, 2013, Daniel Elstein, individually and on behalf of purchasers and those that otherwise acquired Net 1 securities between August 27, 2009 and November 27, 2013, filed a Complaint against Net 1, Belamant and Kotze. Doc. 1. On July 23, 2014, this Court denied Daniel Elstein’s and Ruhama Lipow’s motion to be appointed joint lead plaintiffs. Doc. 20. The Court instead appointed Ruhama Lipow individually as the lead plaintiff. Id. On September 22, 2014, Plaintiff filed an Amended Complaint against Net I, Belamant, and Kotze. Doc. 21. At a conference held before this Court on November 25, 2014, Net 1 was granted leave to file a Motion to Dismiss the Amended Complaint. On January 16, 2015, Net 1 filed a Motion to Dismiss this action in its entirety. Doc. 28.
II. Legal Standard
A. Rule 12(b)(6) Motions to Dismiss: General Legal Standard
When ruling on a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), the court must accept all factual allegations in the complaint as true and draw all reasonable inferences in the plaintiffs favor. Nielsen v. Rabin,
The question in a Rule 12 motion to dismiss “‘is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims.’ ” Sikhs for Justice v. Nath,
Beyond the requirements of Rule 12(b)(6), á complaint' alleging securities fraud must satisfy the heightened pleading requirements of the Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform' Act of 199& (“PSLRA”) by stating the circumstances constituting fraud with particularity. See, e.g., ECA & Local 134 IBEW Joint Pension Trust of Chicago v. JP Morgan Chase Co.,
C. External Documents ■
“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 plaintiffs relied on in bringing suit and that are either in the plaintiffs’ possession or that the plaintiffs knew of when bringing suit, or matters of which judicial notice may be taken.” Silsby v. Icahn,
Net 1 attaches the South African High Court, Court of Appeal, and Constitutional Court decisions, two press releases from Net 1, and an article from the South African internet publication, Mails & Guardian, to its motion to dismiss. See Hillebretch Exs. B, C, D, E, I, J, S. The Amended Complaint cites and relies on the South African decisions, see Am. Compl. ¶¶ 54, 59, 62, and thereby incorporates them by reference. Judicial notice may also be taken of these decisions. See Global Network Comms., Inc. v. City of New
Plaintiff and Net 1 both attach Google finance historical data containing the daily closing share price for Net 1 during the class period to their respective motions. Hillebrecht Deck Ex. M; Declaration in Support of Pk’s Opposition to Def.’s Motion to Dismiss (“Gross Deck”) Exs. A, B. Since the Amended Complaint references the alleged decrease in stock price as a result of Net l’s alleged misrepresentations and omissions, see, e.g., Am. Compl. ¶ 16, these documents are also incorporated by reference.
Net 1 attaches two documents to its motion to dismiss that Plaintiff contends are not part of the record: the August 28, 2012 Robert W. Baird & Co. Research Report and the September 2012 Net 1 Press Release. See Hillebrecht Deck Exs. G, H; Pk’s Opp’n Mem. at 3, 7. While a stock rating issued by Robert W. Baird & Co. in January 2012 is referenced in the- Amended Complaint, see Am. Compl. ¶ 46, the August 28, 2012 research report is not. See Hillebrecht Deck Ex. G. The September 2012 Press Release is also not referenced or relied on by the Amended Complaint. Id. ■ Ex. H. ■ However, “[mjatters of which judiciаl notice can be taken include press coverage establishing what information existed in the public domain during periods relevant to the plaintiffs’ claims.” Def.’s- Mem. at 3 n. 3; see also In re Bank of Am. AIG Disclosure Sec. Litig.,
III. Discussion
Section 10(b) of the Exchange Act prohibits using or employing, “in connection with the purchase or sale of any security ... any manipulative or deceptive device or contrivance,” 15 U.S.C. § 78j(b), while SEC Rule 10b-5, promulgated thereunder, creates liability for a person who makes “any untrue statement of a material fact or ,. omit[s] to state a material fact ... in connection with the purchase or sale of any security.” In re OSG Sec. Litig.,
A. Section 10(b): Scienter
“[W]hile § 10(b) has been described and may have been contemplated as a ‘catchall’ provision, ‘what it catches must be fraud.’ ” In re Livent, Inc. Noteholders Sec. Litig.,
A plaintiff may establish scienter by alleging facts that either (1) show that the defendant had both the “motive and opportunity” to commit the alleged fraud, or (2) “constitute strong circumstantial evidence of conscious misbehavior or recklessness.” ECA,
“When the defendant is a corporate entity ... the pleaded facts must create a strong inference that someone whose intent could be imputed to the corporation acted with the requisite scienter.” Teamsters Local 445 Freight Div. Pension Fund v. Dynex Capital Inc.,
i. Motive and Opportunity
“A complaint has sufficiently alleged ‘motive and opportunity to commit fraud’ if it pleads facts showing that the defendant ‘benefited in some concrete and personal way from the purported fraud.’ ” Van Dongen v. CNinsure Inc.,
Plaintiff alleges that the fact that Net 1 executives, including Belamant and Kotze, received “massive monetary awards for their roles in securing the SASSA contract,” establishes their motive to defraud investors regarding the SASSA contract. See PL’s Opp’n Mem. at 16-17; Am. Compl. ¶ 49; Hillebrecht Decl. Ex. K. However, “incentive compensation can hardly be the basis on which an allegation of fraud is predicated.” ECA,
To get around this well settled principle, Plaintiff attempts to characterize these bonuses as going beyond the “usual financial incentive arrangements of compensation based on the company’s earnings,” which courts outside of the Second Circuit have found “may be considered among other facts to show scienter.” PL’s Opp’n Mem. at 16 (citing Aldridge v. A.T. Cross Corp.,
Plaintiff .also contends that she sufficiently alleges Defendants’ motive to
Because Plaintiff alleges only generic motives possessed by most, if not all, corporations, the Court does not find that Defendants “benefited in some concrete and personal way from the purported fraud.” See Van Dongen, 951 F.Supp.2d at 468 (quoting Novak,
ii. Circumstantial Evidence
An inference of scienter also may arise where a complaint sufficiently alleges that the defendants “engaged in deliberately illegal behavior .,. knew facts or had access to information suggesting that their public statements were not accurate ... or ... failed to check information they had a duty to monitor.” Novak,
The circumstantial evidence relied on by Plaintiff to establish Defendants engaged in conscious misbehavior or acted with recklessness fall into four categories: (1) Defendants’ positions at Net 1, (2) that the allegedly false and misleading statements
Plaintiff claims that the Individual Defendants had knowledge of the alleged materially false and misleading statements because of their positions at Net 1, see Am. Compl. ¶75, and because the information at issue went to the core of Net l’s business. Pl.’s Opp’n Mem. at 18. However, to establish an inference of scienter, Plaintiff must do rhore than allege that the Individual Defendants had or should have had knowledge of certain facts contrary to their public statements simply by virtue of their high-level positions. See In re Nokia Oyj (Nokia Corp.) Sec. Litig.,
Similarly, the “core operations” theory at most constitutes “supplemental support” for alleging scienter but does not independently establish scienter. See New Orleans Employees Ret. Sys. v. Celestica, Inc.,
Accordingly, the only circumstantial evidence alleged by Plaintiff that can form an independent basis ,to establish scienter is “the information revealed through the AllPay Litigation.” However, Plaintiff in her papers does not elaborate on what information was revealed through the AllPay litigation. Plaintiff merely states that “[t]he complaint particularizes specific acts undertaken by Net 1 that cumulatively support an inference of highly questionable conduct on the Company's part in its zeal to secure the SASSA contract” and cites to the Amended Complaint paragraph. 43.
Plaintiff contends that Net l’s “key misrepresentation” across all of their statements “is the failure to disclose the last minute change -to the bid process [through Bidders Notice 2] which irrevocably altered the outcome” and allegedly resulted in the amplified risk of regulatory scrutiny and invalidation of. the SASSA contract. PL’s -Opp’n Mem. at:14. Plaintiff alleges that Defendants knew that CPS would be the only bidder able to comply with Bidders Notice 2’s-requirement for biometric verification, see Am. Compl. ¶ 34, for three reasons. First, Plaintiff alleges, and Defendants- do not dispute,- that Defendants were:aware of Bidders Notice 2 because any bidders notice was allegedly required to be “published.” See PL’s Opp’n Mem', at 10. Second, Plaintiff relies on the fact that CPS allegedly hired Hulley — although this fact is rigorously contested by Defendants — and therefore, w;as -aware of what Plaintiff characterizes as Hulley’s improper role in the tender process. Id. Third, Plaintiff contends that Defendants knew about each of the alleged relationships, characterized as conflicts of interest, involving the committees, the BAC and BEC, that awarded the SASSA contract. Id. at 10-11 (citing Am. Compl. ¶¶ 42-47).
Net 1 asserts that it only had an obligation to disclose Bidders Notice 2 if it knowingly attempted, or was aware of an attempt; to amend the RFP process- in order to improperly benefit CPS to the detriment of the other bidders. See Defi’s Mem. at 2. However, according to Net 1, Plaintiffs failure to sufficiently-plead that Defendants were engaged in or aware of any improper conduct is fatal to her claim that Defendants knew Bidders Notice 2 created a critical defect in the tender process and thus, obligated Net 1 to. disclose this information. See Def.’s R. Mem.. at 1,4. Net 1 is correct. Plaintiff fails to adequately allege that Defendants engaged in- misconduct, or that they knew or were reckless in not knowing.that Bidders Notice 2 created a critical defect in the 2011 tender process, and thus, Plaintiff fails to plead a strong inference of scienter.
The alleged conflicts of interest regarding Hulley, the BAC, and the BEC do not support an inference that Defendants were aware of Bidders Notice-2’s impact on the tender process. Plaintiff does not allege that Defendants had access to or- were aware of the substance of the other proposals or knew whether other bidders were able to provide the biometric verification allegedly required by Bidders Notice 2. Plaintiff only makes allegations regarding SASSA’s awareness, not Defendants’, of the bidders’ proposals. See Am. Compl. ¶ 3 (“Just five days before the June 15, 2011 bid deadline, but after bids had been submitted, SASSA ‘amended’ the RFP to now require ‘biometric verification’ of all social grant beneficiaries prior to each payment, a requirement it knew at the time that only CPS could satisfy.”); id. II33 (“SASSA issued Bidders Notice 2 on June 10, 2011. Though the deadline for bids was June 15, 2011,.on information and belief, CPS and' AllPay had submitted their bids in advance thereоf (or alternatively, SASSA had access to information regarding the different verification features offered in each'bidder’s proposal).”). Without this knowledge, Defendants could not have known that CPS was the only bidder able to meet the alleged hew re
First, according to Plaintiff, before the 2011 tender, CPS allegedly “brought in” Hulley to advise it on how to settle its lawsuits against SASSA related to the tender canceled in 2008.
Second, Net 1 announced a deal to transfer 20% of the SASSA contract to Mosomo. 'Id: ¶ 42(b). According to Plaintiff, the conflict of interest arose here because Mosomo is-run by an individual (not named by’Plaintiff)-, that was the former heаd of corporate finance at a company (also not named by Plaintiff)- established by Sexwale and because Sexwale’s Human Settlements director-general, Zulu, was allegedly a member of the 2011 tender BAC. Id. Net 1 is three steps remóved from Zulu: (1) Net 1 awarded 20% of the SAS-SA contract to a company, Mosomo, (2) Mosomo is run by the former head of corporate finance for a different company established by Sexwale, and (3) Zulu was a member of the BAC for the 2011 tender. Id. These allégations fail to establish that Defendants were aware of the alleged connection between Net 1 and Zulu or, if known, that this connection was improper. Moreover, these alleged conflicts of interest fail to satisfy Rule 9(b)’s pleading requirement that plaintiffs “set forth the who, what, when, where and how of the alleged fraud.” See U.S. ex rel. Kester v. Novartis Pharm. Corp.,
Third, the chair 'of the-BAC for the previous tender process- canceled in 2008, Norman Arendse, allegedly was offered an “open chequebook bribe” by someone claiming to represent CPS. Id. ¶ 42(c). While improper if true, Plaintiff does not specify whether the alleged bribe was offered in relation to the 2008 tender process, for whiсh Arendse was the BAC chair, or the 2011 tender process, which Arendse is not alleged to have any involve
Fourth,' Ms. Nhlapo, identified by Plaintiff as- a member of the EEC for the 2011 tender process, purportedly failed to disclose that she previously sat on the board of Reflective Learning Resources with Mr. Yako, the director of one of CPS’s business partners. Id. ¶ 42(d). This alleged conflict is even more tenuous than the others, as here, the alleged conflict of interest involves a “business partner” of CPS, not CPS or Net 1. Plaintiff also fails to allege that Defendants knew, about this alleged conflict or that it was improper.
These tenuous alleged conflicts fail to support an inference that Defendants were aware of the effect of Bidders Notice 2 on the 2011 tender process or caused Defendants to know or be reckless in not knowing that the overall tender process was improper. In fact, in three of the four alleged conflicts, Plaintiff fails to adequately allege that Defendants were aware of the conflicts or, even if Defendants were aware, that these alleged conflicts were improper. ■
Plaintiff’s citation to the Constitutional Court’s statement that “deviations from fair proсess may themselves all too often be symptoms of corruption or malfeasance in the process,” Pl.’s Opp’n Mem. at 19, does not change' the above analysis. Plaintiff fails to sufficiently plead a strong inference that Defendants were aware of the deviations, and thus, had the intent to defraud or mislead. Moreover, once Defendants became aware that the tender process and its role in the tender process was being, investigated, Defendant disclosed this information.' See Am. Compl. ¶¶ 48, 56; see also Section III.B.Ü.
Viewing the allegations holistically, the inference of scienter is not “as compelling as any opposing inference of nonfraudulent intent.” Tellabs,
Net l’s long term investment in implementing the SASSA contract also counsels against finding a strong inference of scienter. See Def.’s Mem. at 22; Hillebrecht Deck Ex. F (“Although we expect our revenues from our new SASSA contract to increase ... as we rol out our distribution
In sum, Plaintiffs allegations do not demonstrate that the Defendants knew of and either consciously or recklessly disregarded the alleged impropriety, the alleged amplified risk of investigation into the 2011 tender process, and the resulting possibility that the contract may be invalidаted. Because the Amended Complaint does not raise a strong inference of scienter, Plaintiffs § 10(b) claim fails.
B. Section 10(b): Material Misstatements and Omissions
In order to survive a motion to dismiss, Plaintiffs must establish that Defendants “made a statement that was Misleading as to a material'fact.’ ” Matrixx Initiatives, Inc. v. Siracusano,
Where the alleged violations of Section 10b and Rule 10b-5 are based on allegations that the defendant “omitted to state a material, fact necessary to' make the statement ... not misleading; the complaint shall specify each statement alleged to have béen misleading, the reason or reasons why the statement is misleading.” 15 U.S.C. § 78u~4(b)(l)(B). _ “[I]f an allegation regarding [a] statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed.” Id.
A defendant’s silence is not misleading where no duty to disclose exists. Basic,
■ Plaintiff alleges that Net l’s 'statements in its January 18 and February 6, 2012 press releases, its February 9 and May 10, 2012 Form 10-Qs, and its August 23, 2013 Form 10-K were “false and misleading” because they failed to disclose (1) the defective tender process resulting in CPS as the only viable bidder, and (2) that CPS engaged in conduct intended to influence SASSA in the bidding process.
i. Failure to Disclose Bidders Notice 2
As discussed supra at Section III. A.ii, Dеfendants fail to adequately allege a strong inference that Defendants knew or were reckless in not knowing that the bidding process improperly favored CPS. Accordingly, even if the statements touting the award of the SASSA contract and its implementation were misleading, Plaintiff
ii. Failure to Disclose the “Amplified Risk” of Regulatory Scrutiny and Potential Invalidation of the SASSA Contract
Plaintiffs contention that Net 1 was obligated, but failed, to disclose that Net 1 faced a material risk of regulatory scrutiny and invalidation of the contract fails for another reason, Am. Compl. ¶¶ 45, 47; see also PL’s Opp’n Mem. at 11, namely that “[d]efendants cannot be held liable for failing to disclose what would have been pure speculation.” In re Par Pharm., Inc. Secs. Litig.,
Additionally, once these risks materialized, Net 1 made the appropriate disclosures. On February 9, 2012, Net 1 filed a Form 10-Q with the SEC stating that on February 8, 2012, AllPay filed an application in the High Court of South Africa seeking to set aside the award of the SAS-SA tender and warning that “[i]f AllPay’s challenge is successful, the contract could be set aside. ” Id. Ex. F (emphasis added). In the same Form 10-Q, Net 1 disclosed information regarding the 2011 tender process: “[w]hen SASSA publicly announced the award of the tender to us in January 2012, it stated that it had conducted the tender in accordance with all relevant legislation. While we also believe this to be the case, we cannot predict when the proceeding will be resolved or. its ultimate outcome.” Id.
With regard to the disclosure that “the contract could be set aside,” Net 1 disclosed the exact risk at issue — that the SASSA contract maybe invalidated. Net 1 was not obligated to include additional details of AllPay’s publicly-filed court pleadings. See Ross v. Lloyds Banking Group, PLC, No. 11 Civ. 8530(PKC),
Regarding the disclosure that Net 1 believed- SASSA “conducted' the tender in accordance with all relevant legislation,” Net 1 contends, and Plaintiff does not dispute, that this statement is ah opinion. “Plaintiffs who charge that a statement of opinion ... is materially misleading, must allege with particularity provable facts to demonstrate that the statement of opinion is both objectively and subjectively false.” Podany v. Robertson Stephens, Inc.,
C. Section 10(b): Loss Causation
Plaintiffs failure to adequately plead either scienter or a misstatement or omission is dispositive. ' Thus, the Court need not reach the issue of loss causation. See In re UBS AG Sec. Litig.,
D. Section 10(b): The Individual Defendants
This Court has the power'to dismiss a complaint against the nоn-moving Individual Defendants, so long as it is exercised cautiously and’ on notice. See Wachtler v. Cnty. of Herkimer,
E. Section 20(a)
Plaintiff also brings claims against the Individual Defendants under § 20(a) of the Exchange Act, which imposes liability on individuals who control any person or entity that violates § 10. See Am. Compl. ¶¶ 82-87; see also 15 U.S.C. § 78t(a). “To assert a prima facie' case under Section 20(a), a plaintiff ‘must show a primary violation by the controlled person ,and control of the primary violator by the targeted defendant, and show that the controlling persоn was in some meaningful sense a culpable participant in the fraud perpetrated by the controlled person.’” Mechel,
F. Leave to Amend
. Net 1 requests that this Court dismiss Plaintiffs action with prejudice. Def.’s Mem, at 25; see also Def.’s R. Mem. at 1, 10. Plaintiff conversely requests that if the Court grants Net l’s .Motion to Dismiss, that the Court also grant Plaintiff leave to amend the Amended Complaint. Pl.’s Opp’n Mem. at 23. Plaintiff, however,provides no explanation of how the complaint may be amended in order to sufficiently state a claim under Section 10b and Rule 10b5. Id.
Rule 15 of the Federal Rules of Civil Procedure instructs courts to “freely give leave” to replead “when justice so requires.” Fed, R. Civ. P. 15(a)(2); see also Foman v. Davis,
IY. Conclusion
For the reasons set forth above, Net l’s motion to dismiss is GRANTED. Plaintiffs Second Amended Complaint shall be filed, if at all, on or before October 16, 2015. The Clerk of the Court is respectfully directed to terminate the motion, Doc. 28.
It is SO ORDERED.
Notes
. As of the date of this Order, the Individual Defendants have not been served.
. The following factual background is based on the allegations in the Amended Complaint, Doc. 21, which the Court accepts as true for purposes of the instant motion. See Koch v. Christie’s Int’l PLC,
.SASSA, established in 2004 by the South African Social Security Agency Act, is allegedly mandated to “ensure the provisions of comprehensive social security services against vulnerability and poverty within the constitutional and legislative framework.” Id. ¶ 23.
. ZAR is the abbreviation for the South African rand, the currency of South Africa.
. The BEC and BAC consisted primarily of ' senior government employees that were employed in government departments unrelated to SASSA. Id.
. As explained by Net 1,- the South African government requires companies to meet diversity initiatives, including requiring that a certain percentage of a company's ownership be by Black South Africans. Def.'s Mem. at 8 n. 5. Mosomo presumably qualified as a company owned by Black South Africans,
. The Department of Human Settlements is a department within the government of South Africa dedicated to ensuring South Africans have access to housing., -See http://www.dhs. gov.za/contenVoverview (last visited September 16, 2015).
. The parties’ appeals of the High Court’s rulings were heard by the South African Supreme Court of Appeal, Hillebrecht Decl. Ex. D. On March 27, 2013, the Court of Appeal reversed the High Court's decision and found the tender process was proper. Id.
. Other courts in this district have found that reliance on Aldridge v. A.T. Cross Corp.,
. As discussed infra, the “core operations” theory allows courts to draw an inference of scienter where the misrepresentations and omissions allegedly made by defendants were about their "core operations.” See In re Wachovia Equity Sec. Litig.,
. Net 1 contends that the "core operations” doctrine has not survived the passage of the PSLRA. See D.ef.’s R. Mem, at 6; see also
. Paragraph 43 states that “[u]pon information and belief, the foregoing acts and relationships [the alleged conflicts of interest listed in paragraph 42 and discussed infra ] contributed to SASSA’s decision to skew the RFP process to insure that only Net 1 prevailed” and quotes the Constitutional Court’s statement that deviations from fair process may themselves all too often be symptoms of corruption or malfeasance in the process. In other words, an .unfair process may betoken a deliberately skewed process. Hence insistence on compliance with process formalities has a three-fold purpose; (a) it ensures fairness to participants in the bid process; (b) it enhances the likelihood of efficiency and optimality in the outcome; and (c) it serves as a guardian against a process skewed by corrupt influences.
Am. Compl. ¶ 43.
. Net 1 contends. that Hulley advised SAS-SA, not CPS, on the possibility of settling litigation brought by CPS against SASSA. See Def.’s Mem. at 8. However, even taldng Plaintiffs allegation as true — that Hulley was .brought in by CPS to advise it on settling its lawsuits against SA.SSA — Plaintiff fails to sufficiently allege that this relationship resulted in Defendants’ knowledge that the tender process was improper and thus, may result in investigation and invalidation of the awarded contract.
. Despite the statements in the Amended Complaint, Plaintiff explicitly states that she is not seeking to hold Net 1 liable for failing to disclose its alleged effort to improperly influence the 2011 tender process. See PL’s Opp’n Mem. at 12. In Plaintiff’s Opposition to Net l’s Motion to Dismiss, she states that she “is not asserting that the failure to disclose [Net l’s alleged effort to improperly influence the bidding process] or to otherwise impugn its own conduct in securing the SAS-SA contract, are actionable misstatements.” Id,; but see Am. Compl. ¶¶ 4, 45 (alleging that Net 1 “failed to disclose” and "hid from investors" that "CPS had engaged in conduct-it intended to improperly influence SASSA and the bidding process.”). Plaintiff instead contends that the allegations of Net l’s improper conduct establish a "pattern of misconduct which gives rise to a -strong-inference that .Defendants knew or recklessly ignored.that the 'award' of the contract was flawed, subject to reconsideration and ultimately rebidding.” Pl.’s'Opp'ri Mem. at 12. Plaintiff also claims that Net 1 “[b]y attributing the Company's success solely to legitimate practices, ... implicitly (and falsely) warranted that there were no illegal practices contributing to .that success.” Id. at 11 (citing In re Syncor Int’l Corp. Sec. Litig.,
. The Court of Appeal reversed the High Court’s finding that the tеnder process was invalid. See Hillebrecht Decl. Ex. D.
. On November 8, 2012, in a Form 10-Q filed with the SEC, Net 1 disclosed, allegedly for the first time, the High Court’s decision finding the 2011 tender process invalid and illegal. Am. Compl. ¶ 54. On December 4, 2012, Net 1 disclosed in a Form 8-K filed with the SEC, that various U.S. regulatory agencies, the SEC, DOJ, and FBI, were investigating whether Net 1 engaged in criminal misconduct in connection with the 2011 SAS-SA tender process,’ -'Id. 1(56. Plaintiff does not allege that these disclosures were materially false or misleading.
. Because the Court finds Plaintiff .does not sufficiently allege material misrepresentations or omissions,. the Court ■ does not decide whether Net l’s statements constitute forward-looking statements afforded safé harbor pursuant to the PSLRA. See In re Nokia Oyj (Nokia Corp.) Sec. Litig.,
. At the pre-motion conference the Court did not determine whether its dismissal, if granted, would be final. Cf. Sinay v. CNOOC Ltd., No. 12 Civ. 1513(KBF),
. The PSLRA requires the Court to “include in the record specific findings regarding compliance by each party and each attorney representing any party with each requirement of • Rule 11(b) of the Federal Rules of Civil Procedure as to any complaint, responsive pleading, or dispositive motion.” 15 U.S.C. § 78u-4(c)(1). Neither the claims nor defenses were harassing or frivolous. All factual conténtions had evidentiary support or were reasonably based on belief or a lack of information. Furthermore, Net 1 did not affirmatively allege any improper conduct or move for sanctions. In accordance with the PSLRA, the Court finds that the parties and counsel in this matter have complied with Rule 11(b).