Sandip Shah, lead plaintiff for a putative class of holders of publicly traded Morgan Stanley common stock, appeals from the dismissal by the United States District Court for the Southern District of New York, Holwell, /., of his securities-fraud action against Morgan Stanley, its subsidiary Morgan Stanley & Co., Inc. (collectively, “Morgan Stanley” or “the firm”), its chairman and Chief Executive Officer, Philip J. Purcell, and senior analyst and managing director of Morgan Stanley & Co., Inc., Max-y Meeker. The crux of Shah’s complaint is that defendants’ conflicts of interest arising from their issuing analyst reports rating and evaluating actual or potential investment banking clients of the firm — together with the firm’s failure to disclose these improper business practices to its own shareholders — artificially inflated the price of Morgan Stanley stock purchased between July 1, 1999 and April 10, 2002 (the class period).
Defendants moved to dismiss the complaint pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b), as well as the Private Securities Litigation Reform Act of 1995 (PSLRA), 15 U.S.C. § 78u-4(b), and to strike certain allegations pursuant to Federal Rule of Civil Procedure 12(f).
Finding that plaintiff was on inquiry notice more than two years before filing suit, the district court concluded that the claims were time-barred and granted defendants’ motion to dismiss the complaint. For the reasons set forth below, we affirm.
BACKGROUND
This lawsuit follows on the heels of a year-long investigation by the Attorney General of the State of New York (Attorney General) and the Securities and Exchange Commission (SEC) into the practices of Morgan Stanley’s secxxrities analysts. In April 2003 the Attorney General issued his findings and conclusion that Morgan Stanley used its stock analysts’ research as a tool to win investment banking business. Morgan Stanley’s analysts performed investment banking functions and were compensated based on their effectiveness in securing investment banking business for the firm; as a result, it is alleged, they faced a major conflict of interest and failed to produce the objective research reports that Morgan Stanley claimed to give its customers. Based on these findings, the Attorney General, SEC, National Association of Securities Dealers (NASD), New York Stock Exchange (NYSE) and state *246 regulators filed claims against Morgan Stanley for violations of- NASD and NYSE rules. The firm settled, these claims on April 28, 2003 for $125'million in penalties and restitution.
Classes of investors have filed numerous lawsuits against Morgan Stanley and other-financial institutions alleging securities fraud based on the conflicts uncovered by the agency investigations.
See, e.g., Fogarazzo v. Lehman Bros.
,
In the other lawsuits, the plaintiffs invested in the securities of a publicly traded corporation — not a party to- the suit — in reliance on overly sanguine re&ommenda-tions of the defendant securities broker and suffered a loss when the value of the non-party corporation’s stock decreased. Here, by contrast, the plaintiff owned stock in the defendant securities broker, Morgan Stanley, itself and allegedly suffered a loss when Morgan Stanley’s improper business practices came to light and the value of its own stock decreased. The nature of the fraud alleged is thus different: whereas the usual claim is that defendants made false and misleading statements in overrating particular securities, Shah contends that Morgan Stanley’s fraud lay in its statements showcasing its analysts and their reports as unbiased and objective.
I.
We set forth the facts asserted in the complaint and assume their truth for purposes of evaluating a motion to dismiss.
See
Fed.R.Civ.P. 12(b)(6);
Conley v. Gibson,
A.
In the equity research business, Morgan Stanley’s stock analysts provide individual and corporate clients with ratings and recommendations regarding the securities of publicly traded companies. Throughout the class period, the firm’s analysts rated publicly traded stocks according to an ostensibly objective four-level ratings system. 2
Like other prominent financial institutions, Morgan Stanley also provides investment banking services.- In its capacity as an investment bank, the firm helps its corporate clients to acquire financing, primarily through the issuance of securities, and during the class period often served as the lead underwriter in its clients’ securities offerings. Morgan Stanley was particularly active as a lead underwriter during *247 the “dot-com” boom of the late 1990s, when Wall Street securities firms were presented with myriad opportunities for lucrative investment banking business. During this period Morgan Stanley and other firms competed to underwrite and issue the initial public offerings (IPOs) of stock in the new technology companies because the IPOs themselves generated banking fees for Morgan Stanley and promised future investment banking business through secondary stock offerings, loans and other corporate financing transactions, as well as mergers and acquisitions.
Under NASD and NYSE regulations, a “Chinese Wall” was required to prevent the conflicts of interest that could obviously result when a firm analyzes and recommends the very securities, it has itself issued or underwritten. Indeed, Morgan Stanley continuously published statements regarding its stock rating system, the quality of its research, its high ethical standards and compliance with the industry’s rules and regulations, the awards that the firm and its analysts had received, and standard disclaimers regarding the firm’s dual roles.
See Shah v. Stanley,
No. 03 Civ. 8761,
B.
Years before the beginning of the class period, the financial press were reporting that “[t]he recommendations by underwriter analysts show significant evidence of bias and possible conflict of interest,” Roger Lowenstein, Today’s Analyst Often Wears Two Hats, Wall St. J., May 2, 1996, at Cl, and that “[t]he pressure on analysts is growing [because t]he Chinese wall that existed at most brokerage houses between analysts and investment bankers has broken down,” John Hechinger, Analysts May Hate to Say “Sell, ” But a Feiu Companies Do Hear It, Wall St. J., Apr. 8, 1998, at NE2, available at http://onli ne.wsj.com/arti-cle/SB89197475215861500.html (internal quotation marks omitted).
Such reports were not confined to generalities. Mary Meeker was specifically named, and her ethically questionable practices described, in articles featured in The New Yorker as well as in financial publications like Fortune. See, e.g., John Cassidy, The Woman in the Bubble, The New Yorker, April 26 & May 3,1999, at 48; Erick Schonfeld, The High Price of Research; Caveat Investor: Stock and Research Analysts Covering Dot-Coms Aren’t As Independent As You Think, Fortune, March 20, 2000, at 118; Peter Elkind, Where Mary Meeker Went Wrong, Fortune, May 14, 2001, at 68 (Elkind). For example, Fortune named Meeker as one of a group of Wall Street analysts who were “increasingly deriving] a portion of their compensation, directly or indirectly, from the companies they cover.” Schon-feld, at 118. “That,” Fortune reported, “helps put pressure on the quality of their work and encourages them to become more like cheerleaders than independent observers.” Id. at 118-20.
C.
After years of such reporting from the financial press, the Attorney General announced his investigation of Morgan Stanley in April 2002.
See Shah,
*248 Shah filed suit on July 18, '2003 on behalf of a putative class of those who purchased Morgan Stanley common stock between July 1, 1999 and April 10, 2002. Shah brought claims under sections 10(b) and 20(a) of the Securities and .Exchange Act of 1934, 15 U.S.C. § 78j(b) and 78t(a), and SEC Rule 10b-5, 17 C.F.R. § 240.10b-5, as modified by the PSLRA, 15 U.S.C. § 78u-4(a), et seq. . .
II.
Under Rule 10b-5, it is unlawful “[t]o make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances in which they were made, not misleading.” 17 C.F.R. § 240.10b-5(b).
Shah does not allege that any analyst report regarding any specific company was false or misleading because it was tainted by the above-described conflicts of interest. Rather, he alleges that the statements regarding the objectivity of these ratings, as well as those regarding the high quality and independence of Morgan Stanley’s stock analysts, were materially false and misleading.
The statements regarding the accuracy and objectivity of Morgan Stanley’s research were false and misleading, Shah alleges, because they failed to disclose a number of improper business practices, specifically: (1) tying research analysts’ compensation to Morgan Stanley’s investment banking business, (2) offering companies favorable research coverage in order to gain their investment banking business, (3) initiating or terminating research coverage and rating stocks based on prospects of attracting investment banking business, and (4) a general failure to establish adequate procedures to protect research analysts from conflicts of interest. “Accordingly,” the complaint alleges, “Morgan Stanley was in fact using investment banking-influenced criteria for assigning rankings to particular stocks, and not the objective criteria that Morgan Stanley claimed it was using.” The statements regarding Morgan Stanley’s compliance with NYSE and NASD regulations were likewise misleading, in Shah’s view, because Morgan Stanley analysts violated these regulations by issuing ratings that were not objective.
Finally, the alleged improper practices “if discovered, threatened to erode public, client and investor confidence in Morgan Stanley and to expose Morgan Stanley to substantial liability from government and regulatory authorities and private litigants.”
DISCUSSION
Reviewing a motion to dismiss, we accept as true all factual allegations in the complaint and construe all reasonable inferences in the non-movant’s favor.
See Lee v. Bankers Trust Co.,
Under Section 10(b) of the Securities and Exchange Act of 1934, claims of securities fraud must be “brought within one year after the discovery of the facts constituting the violation.” 15 U.S.C. § 78i(e). The Sarbanes-Oxley Act of 2002, Pub.L. No. 107-204, § 804(a), 116 Stat.
*249
745, 801 (2002) (codified at 28 U.S.C. § 1658), extended the limitations period to two years, but applies only to fraud claims arising on or after the effective date of the Act—July 30, 2002—and does not revive claims that were already time-barred under the prior one-year limitations period.
See In re Enterprise Mortgage Acceptance Co.,
The limitations period begins, to run when the plaintiff “obtains actual knowledge of the facts giving rise to the action or notice of the facts, which in the exercise of reasonable diligence, would have led to actual knowledge.”
Kahn v. Kohlberg, Kravis, Roberts & Co.,
Information contained in articles in the financial press may trigger the duty to investigate.
See, e.g., LC Capital Partners v. Frontier Ins. Group,
“If the investor makes no inquiry once the duty arises, knowledge will be imputed as of the date the duty arose.”
LC Capital Partners,
In concluding that Shah’s claims were time-barred, the district court found that “plaintiff was on inquiry notice of the alleged fraud no later than May 14, 2001, the date of
Fortune
magazine’s feature article about Morgan Stanley and Meeker. Since plaintiff does not allege that he undertook any inquiry after that date, knowledge of the alleged fraud is imputed to plaintiff as of May 14, 2001, and accordingly his complaint is untimely.”
Shah,
Whether previous warnings may have been sufficient to trigger inquiry notice is
*250
a question we need not decide. The May 14, 2001
Fortune
magazine article certainly “would suggest to an investor of ordinary intelligence the probability that she has been defrauded.”
Dodds,
Meeker ... has become ... the single most powerful symbol of how Wall Street can lead investors astray. For the past year, as Internet stocks have crumbled and entire companies have vaporized, Meeker has maintained the same upbeat ratings on her companies that characterized her research reports in the glory days. For instance, of the 15 stocks Meeker currently covers, she has a strong buy or an outperform rating on all but two. Among the stocks she has never downgraded are Priceline, Amazon, Yahoo, and FreeMarkets — all of which have declined between 85% and 97% from their peak. For this she has been duly pummeled in the press, accused of cheerleading for Morgan Stanley’s investment banking clients.
Id. at 70.
The four improper business practices Shah identified in his complaint 4 were all discussed in the Fortune article:
The modern analyst helps the banking team smoke out promising companies, sits in on strategy sessions, and promises — implicitly at least — to “support” the company once it has gone public with favorable research. That this makes tough-minded, independent stock research difficult, if not impossible, is no longer even an issue at most firms; investment banking brings in far more money than, say, brokerage commissions from grateful investors, thankful for unbiased research. Indeed, these days most analysts’ pay is directly linked to the number of banking deals they’re involved in.
Id. at 76.
The article did not report the mere existence of a conflict of interest.
Cf. Fogar-azzo,
The essential charge that has been hurled at [Meeker] this past year centers on her refusal to downgrade her stocks, even as they dropped 70%, 80%, more than 90% in some cases. In effect she’s being accused of selling out investors to keep Morgan Stanley’s banking clients happy. In the New York Times last December, Gretchen Morgenson noted that Meeker had an outperform rating on all of her Internet stocks— *251 down an average of 83% — and pointedly asked a Morgan Stanley PR official whether “her nonstop optimism had anything to do with the fact that most of the companies had engaged Morgan Stanley as an investment bank.”
Elkind, swpra, at 82.
In addition, the article included a specific example of how Meeker used her research coverage as a “carrot” to gain investment banking business. Id. at 76. After Meeker’s poor performance in a presentation led eBay to select Goldman Sachs, rather than Morgan Stanley, to handle its IPO, Meeker — in her own words — “flipped into overdrive.” Id. After the rejection but before the eBáy IPO, Meeker personally courted eBay’s CEO and “held out a carrot no other firm could proffer: a Mary Meeker research report.” Id. Meeker handed the CEO “a draft of a glowing report on the company,” which Meeker published — along with an “outperform” rating — on the first day of trading. Id. “Seven months later, when the compa ny did a $1.1 billion secondary stock offering, eBay forced Goldman to split the business with Morgan Stanley.” Id.
Because of the degree of specificity with which it described the alleged conflicts of interest at the heart of Shah’s complaint, the
Fortune
article stands in stark contrast to the “generic articles on the subject of structural conflicts” that we previously have held to be insufficient to trigger inquiry notice.
Lentell,
The distinguishing characteristic of Shah’s suit — that it is brought against Morgan Stanley by its own stockholders, not holders of the stocks Morgan Stanley rated — must be considered in reviewing the articles cited. Where the nature of a plaintiffs complaint is that the defendant’s false and misleading statements inflated the prices of securities other than the defendant’s own stock, the plaintiff must “allege facts specific, to the security in question, including who said what to whom concerning that particular security.” Id. at 169 (internal quotation marks and emphasis omitted). Thus, in Lentell, a suit against Merrill Lynch by holders of stock in two companies, “articles cited by the district court [that] strongly suggest grounds to believe that certain investment recommendations were less than candid,” but in which “neither company is mentioned,” cannot put the holders of unmentioned companies on inquiry notice that those companies were the subject of unob-jective ratings. Id. at 171. In the instant suit, by contrast, the reports triggering a duty to investigate are not limited to those mentioning specific corporations whose stocks were overrated. An article specifically describing the business practices at Morgan Stanley that serve as the basis of Shah’s complaint as a holder of stock in Morgan Stanley must be regarded as a “storm warning” of the fraud alleged. Id. at 169. , -
Because Shah was on inquiry notice of Morgan Stanley’s alleged-fraud by at least May 14, 2001 and made no investigation once his duty to do so arose, the district court properly imputed knowledge of the alleged fraud to Shah as of that date.
See Shah,
Shah contends that even if his claims arising from purchases of Morgan Stanley stock before July 30, 2001 are time-barred, his claims arising out of stock purchases made on or after that date cannot be. These claims, he argues, were not time-barred by the effective date of the *252 Sarbanes-Oxley Act, July 30, 2002, because they were then no more than one year old. Thus, the argument continues, such claims are subject to Sarbanes-Ox-ley’s two-year statute of limitations, and therefore were timely filed on July 18, 2003. We disagree.
Because Shah was on inquiry notice of Morgan Stanley’s allegedly fraudulent practices as of May 14, 2001, he cannot succeed with a separate fraud claim for stock purchases made after that date; it was unreasonable after May 2001 to rely on the market price of Morgan Stanley stock.
See Frigitemp Corp. v. Financial Dynamics Fund,
In light of our holding, we need - not consider appellees’ argument that the district court’s judgment may be affirmed on the alternative ground that Shah failed to state a claim for securities fraud under the requirements of the PSLRA, 15 U.S.C. § 78u-4(b), and Federal Rule of Civil Procedure 9(b).
CONCLUSION
For the reasons just stated, we affirm.
Notes
. At the outset of the class period, the firm designated stocks as "strong buy,” "outperform,” "neutral,” or "underperform.” In or around February 2002, Morgan Stanley replaced the previous system with another, whereby stocks were rated as "overweight,” "equal-weight,” "underweight,” or "more volatile.”
. The district court issued its opinion before we decided
In re Enterprise Mortgage Acceptance Co.,
. These were: (1) tying research analysts' compensation to Morgan Stanley's investment banking business, (2) offering companies favorable research coverage in order to gain their investment banking business, (3) initiating or terminating research coverage and rating stocks based on prospects of attracting investment banking business, and (4) a general failure to establish adequate procedures to protect research analysts from conflicts of interest.