ORDER
I. Introduction
On November 23, 2009, Sarit Tamar (“Plaintiff”) filed a First Amended Class Action Complaint (“Amended Complaint”) against Mind C.T.I., Ltd. (“Mind”), Mind’s President and Chief Executive Officer Monica Eisinger (“Eisinger”), Mind’s Chief Financial Officer Oren Bryan (“Bryan”), *550 and Zamir Bar-Zion (“Bar-Zion”), a Mind director and member of Mind’s audit committee (collectively, “Defendants”). (See Am. Compl. ¶¶ 1, 12-16.) Plaintiff asserted claims against Defendants pursuant to Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”), as amended, 15 U.S.C. § 78j(b) (“Section 10(b)”), Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5 (“Rule 10b-5”), and as to Eisinger, Bryan, and Bar-Zion (“Individual Defendants”), Plaintiff asserted claims pursuant to Section 20(a) of the Exchange Act, 15 U.S.C. § 78t(a) (“Section 20(a)”). (See Am. Compl. ¶¶ 215-23.) Plaintiff alleges, among other things, that from June 8, 2006 to February 27, 2008 (“Class Period”), “Defendants knowingly or recklessly concealed ... [that] most of Mind’s reported cash position was comprised of illiquid Auction Rate Securities (‘ARSs’)” and that “internal controls over the monitoring, accounting and reporting of the Company’s investments in cash equivalents and/or short-term investments were materially deficient.” (Am. Compl. ¶ 3.)
On January 21, 2010, Defendants moved to dismiss the Amended Complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure (“Fed. R. Civ.P.”) arguing, among other things, that: (1) Plaintiff “fails to allege particularized facts giving rise to a ‘strong inference’ of scienter” because “the [Amended] Complaint does not supply even a scintilla of actual evidence to support the assertion that Defendants made false statements knowingly or recklessly”; and (2) Plaintiffs Section 20(a) claim fails because “Plaintiff has failed to allege an underlying violation of the federal securities laws by Defendants.” (Defs.’ Mem. of Law in Supp. of Mot. to Dismiss the Am. Compl., dated Jan. 21, 2010 (“Mot.”), at 12-24.) 1
On March 1, 2010, Plaintiff submitted an opposition arguing, among other things, that: (1) “Defendants clearly had reasonable access to information that would have alerted them to the identity and nature of Mind’s investment” in the ARSs that comprised most of Mind’s reported cash position, i.e., the Mantoloking CDO, Class A-2 ARSs (“Mantoloking ARSs”); and (2) Plaintiff has alleged primary violations of Section 10(b) and Rule 10b-5 against each of the Individual Defendants. (Pl.’s Mem. of Law in Opp’n to Defs.’ Mot. to Dismiss, dated Mar. 1, 2010 (“Opp’n”), at 14-25.) In addition, Plaintiff argues that “[s]hould the Court grant Defendants’ Motion, Plaintiff should be given leave to amend.” (Opp’n at 25.)
On March 26, 2010, Defendants submitted a reply. (Reply, dated Mai-. 26, 2010 (“Reply”).) Oral argument was held on June 28, 2010. (See Tr. of Proceedings, dated June 28, 2010(“Hr’g Tr.”).)
For the reasons set forth below, Defendants’ motion to dismiss is granted.
II. Background
For the purposes of this motion, the allegations of the Amended Complaint are taken as true.
See Almonte v. City of Long Beach,
Defendant “Mind is an Israeli Corporation [that] purports to develop, and [to] manufacture and market real-time and offline and customer care software for vari *551 ous types of communication providers.” (Am. Compl. ¶ 2.) Plaintiff Sarit Tamar “purchased Mind common stock through the NASDAQ stock exchange” in transactions between June 9, 2006 and January 23, 2008. (Am. Compl. ¶ 12; see Deck of William B. Federman [# 9], dated Oct. 13, 2009 (“Federman Deck”), Ex. 1 (Plaintiffs Certification of Investment in Mind).) Plaintiff held 22,000 shares as of June 12, 2006; she sold 18,100 before November 6, 2007 and she purchased 19,900 shares after November 6, 2007. 2 (See Federman Deck Ex. 1); see p. 552, infra. Plaintiff purports to bring a putative class action on behalf of persons who purchased or otherwise acquired Mind common stock through the NASDAQ stock exchange during the Class Period (June 8, 2006 to February 27, 2008). (See Am. Compl. ¶ 1.)
“Sometime in the fourth quarter of 2006, Mind purchased $22.8 million of the Mantoloking [ARSs],” (Am. Compl. ¶ 67), which have a maturity date of 2046. (See Am. Compl. ¶ 46.) It was possible for Mind to redeem its holdings in the Mantoloking ARSs before the date of maturity because, at the time of Mind’s purchase of these securities, the issuer, Merrill Lynch, held a bidding process every 28 days by which holders of the Mantoloking ARSs could attempt to sell their investment. (See Am. Compl. ¶¶ 3049,134.)
“Prior to 2005, some companies classified ARSs as ‘Cash and Cash Equivalents’ while others classified them as ‘Investments in Marketable Securities’ (either short term or long term).” (Am. Compl. ¶ 28.) Plaintiff alleges that, as the April 25, 2005 issue of “CFO.com” recognized, in 2005 there was a “change in accounting [of ARSs] from ‘Cash and Cash Equivalents’ to either short-term or long-term investments.” (Am. Compl. ¶ 35.) According to “CFO.com,” since December 2004 when Ernst & Young first began advising clients to make the change from classifying ARSs as cash or cash equivalents to classifying them as short or long term investments, “scores of CFOs have altered the[ir] accounting treatment for ARS[s].” (Am. Compl. ¶ 34.)
At the core of the Amended Complaint is Plaintiffs allegation that “Defendants failed to disclose that Mind’s accounting practices, which were in violation of [Generally Accepted Accounting Principles (‘GAAP’) ], resulted in classifying short-term investments in securities such as ARSs as ‘cash’ or ‘cash equivalents.’ ” (Am. Compl. ¶ 56.) In particular, Plaintiff alleges:
• In a press release issued on February 21, 2007, Mind stated that “Financial Highlights of Q4 2006 [include a] [s]trong cash position of approximately $38 million as of December 31, 2006.” (Am. Compl. ¶ 70.)
• Also on February 21, 2007, during an “earnings conference call with analysts, Bryan reported that Mind’s ‘cash position remains strong with approximately S37.6 million as of December 31, 2006.’ ” (Am. Compl. ¶ 72.)
• In a “press release filed on Form 6-K [on May 10, 2007] Eisinger reiterated: ‘Regarding our cash position ... it is strong with over $34 million.’ ” (Am. Compl. ¶ 79.)
• “On August 8, 2007, Defendants held a conference call with analysts” during which Bryan stated that “[Mind’s] cash position remains strong with approxi *552 mately $35.5 million as of June 30, 2007.” (Am. Compl. ¶¶ 104, 106); see pp. 557-59, infra.
It is Plaintiffs contention that these statements were false and misleading because Mind was invested “in highly illiquid ARSs” that “involve[d] a high degree of risk” and that the Mantoloking ARSs did not qualify as cash equivalents. (Am. Compl. ¶¶ 49, 52, 69.)
Plaintiff also alleges that Defendants knew or should have known of the high risk and illiquid nature of the Mantoloking ARSs based upon two documents that were publicly available, i.e., an “Offering Circular for the Mantoloking ARS[s]” that advised investors that these securities “involve a high degree of risk” and have “limited liquidity,” (Am. Compl. ¶ 49), and an advisory issued by PriceWaterhouseCoopers (“PwC”) entitled “Advisory 3005-04, Investors’ Classification of Auction Rate Securities” (“PwC Advisory”) that contained the “[observation” that “[t]he proper classification of auction rate securities should be based on the contractual maturity of the security, and not the next reset date.” (Am. Compl. ¶ 163); see pp. 556-59, infra.
Plaintiff further alleges that, on November 6, 2007, Defendants filed on Form 6-K its earnings release which “finally shed some light,” (Am. Compl. ¶ 124), on Mind’s investment in Mantoloking ARSs by making the following disclosure:
Accounting Treatment of Auction Rate Securities
On November 5, 2007, the Board of Directors, after discussion with the Company’s independent registered public accounting firm, concluded that the balance sheets and statements of cash flows included in the Company’s form 20-F for the fiscal year ended December 31, 2006 should be amended in order to correct the classification of auction rate securities on the balance sheet and in the statements of cash flows of the Company.... [G]iven that ... auction rate securities have long-term stated maturities and that the issuers of such auction rate securities are under no obligation to redeem them prior to their stated maturities, the Company has determined that its investments in such securities consisting of $22.8 million as of December 31, 2006, should have been classified as short-term investments, rather than as cash equivalents.
(Am. Compl. ¶ 124.) “On December 6, 2007, Defendants filed a 2006 20-F*A, A, which restated Mind’s financial statements for the year ending December 31, 2006 by classifying ‘$22.8 million of previously reported cash and cash equivalents’ as ‘short-term investments.’ ” (Am. Compl. ¶ 129.) In this disclosure, “Defendants also admitted that ‘[i]n connection with [the] restatement, management determined that a material weakness in internal control over financial reporting existed as of December 31, 2006 because at that time we did not have effective controls designed and in place to ensure that our investments were classified in accordance with ... GAAP.’ ” (Am. Compl. ¶ 4.)
On February 20, 2008, Mind filed a Statement of Claim with the Financial Industry Regulatory Authority against Credit Suisse, its investment bank, and certain Credit Suisse employees (“FINRA Arbitration”) alleging, among other things, “that the bank was supposed to invest [Mind’s] funds in highly liquid, highly safe, 28-day auction rate securities, but-without [Mind’s] authorization invested the funds ... in a security called ‘Mantoloking [ARSs].’ ” (Am. Compl. ¶ 134 (quoting Press Release, Mind, Mind CTI Announces Q4 2007 Preliminary Unaudited Operating Results (Feb. 27, 2008)).) Mind sought recovery in the FINRA Arbitration of $22.8 million, i.e., presumably the *553 amount it had invested in the Mantoloking ARSs. (See Am. Compl. ¶¶ 67,124.) In the third quarter of 2009, Mind obtained S18.5 million cash from Credit Suisse in settlement of its Statement of Claim. (See Form 6-K, dated Sept. 9, 2009; see also Opp’n at 5.) Based upon this settlement, Mind’s Board of Directors “authorized ... the distribution of a cash dividend in the amount of $0.80 per share, or approximately $15 million in the aggregate.” (Form 6-K, dated Sept. 9, 2009.)
Mind was also identified as “a victim of two Credit Suisse bankers who purported to manage [Mind’s] cash holdings.” (Opp’n at 6 (citing United States v. Butler, No. 08 Cr. 370 (E.D.N.Y. filed June 3, 2008) (“U.S. v. Butler”))) The two bankers, Julian Tzolov (“Tzolov”) and Eric Butler (“Butler”), were indicted for, among other things, securities and wire fraud under 15 U.S.C. §§ 78j(b) & 78ff and 18 U.S.C §§ 2, 371, 1343, 1349 & 3551 et seq. It was alleged that:
Julian Tzolov and Eric Butler explained to [certain] [Companies that [student-loan-ARSs] [(“SL-ARSs”)] were low risk products, guaranteed by the United States government [and that] the market for SL-ARSs was very liquid because of the federal government guarantee .... [Without the knowledge of or consent of the [c]ompanies, instead of using the proceeds of auction from the sale of ... SL-ARSs to purchase new SL-ARSs, the defendants Julian Tzolov and Eric Butler used the proceeds of auctions from the sale of ... SL-ARSs to purchase other types of ARSs, including higher-yield, mortgage backed CDO-ARSs. As part of their fraudulent scheme, and to conceal the true nature of their conduct, the defendants Julian Tzolov and Eric Butler sent to the [c]ompanies electronic mail communications in which Tzolov and Butler, or others working at their direction, falsified the names of the products held by the [c]ompanies to make it appear that those products were the ... SL-ARSs when they were, in fact, other types of ARSs, including the ... CDO-ARSs. Tzolov and Butler did so either by removing the term “CDO” from the name of the product, by adding the term “student loan” or “SL,” or by doing both.
U.S. v. Butler Superseding Indictment [# 1], dated Aug 26, 2008, ¶¶ 11, 14, 15. On July 21, 2009, Tzolov pleaded guilty to conspiracy, wire fraud, and securities fraud in violation of 18 U.S.C. §§ 2 & 1343 and is awaiting sentencing. See U.S. v. Butler Affidavit/Affirmation by United States as to Tzolov [# 197], dated July 21, 2009. On August' 17, 2009, Butler was convicted of conspiracy to commit securities fraud, securities fraud, and conspiracy to commit wire fraud in violation of 18 U.S.C. §§ 371 & 1349 and 15 U.S.C. §§ 78j(b) & 78ff and was sentenced to five years in prison. See U.S. v. Butler Jury Verdict [# 248], dated Aug. 17, 2009, at 2; see also U.S. v. Butler Judgment [# 363], dated Feb. 9, 2010.
III. Legal Standard
“[T]o survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ”
S. Cherry Street, LLC v. Hennessee Group LLC,
“A complaint asserting securities fraud must also satisfy the heightened pleading requirement of Federal Rule of Civil Procedure 9(b), which requires fraud to be alleged with particularity.”
Kalnit v. Eichler,
*554
“To state a claim under § 10(b) and the corresponding Rule 10b-5, a plaintiff must plead that the defendant, in connection with the purchase or sale of securities, made a materially false statement or omitted a material fact, with scienter, and that the plaintiffs reliance on the defendant’s action caused injury to the plaintiff.”
Canino v. Citizens Util. Co.,
Leave to amend is appropriately denied where the plaintiff has already had an opportunity to replead after specific warnings as to a complaint’s deficiencies.
See Kelter v. Apex Equity Options Fund, LP,
No. 08 Civ. 2911,
When a district court decides a motion to dismiss a complaint alleging securities fraud, it may review and consider public disclosure documents required by law to be and which actually have been filed with the SEC.
See Cortec Indus., Inc. v. Sum Holding, L.P.,
IV. Analysis
(1) Scienter
A plaintiff may establish a strong inference of scienter “by alleging facts (1) showing that the defendants had both motive and opportunity to commit the fraud or (2) constituting strong circumstantial evidence of conscious misbehavior or recklessness.”
ATSI Commc’ns v. Shaar Fund, Ltd.,
Motive and Opportunity
Defendants argue, among other things, that “[t]he sole motive ascribed for the alleged fraud is the universal corporate desire to ‘attract customers, finance current operations, and [to] pursue strategic acquisitions,’ a patently inadequate allegation.” (Mot. at 1 (quoting Am. Compl. ¶ 5).) Plaintiff does not appear to respond to this argument in its Opposition but did state at oral argument that “the CEO tie., Eisinger] owned 19 percent of the stock. Without the dividend she would not get 19 percent of the dividend payment. It was a huge payment to her.” (Hr’g Tr, at 5:14-17; see also Ltr. from William B. Federman to Hon. Richard M. Berman, dated *555 June 30, 2010.) Presumably, according to Plaintiff, that was her motive.
“Motives that are generally possessed by most corporate directors and officers do not suffice; instead, plaintiffs must assert a concrete and personal benefit to the individual defendants resulting from the fraud.”
Kalnit,
The motives ascribed by Plaintiff to Defendants to “attract customers, finance current operations, and [to] pursue strategic acquisitions,” (Am. Compl. ¶ 5), have been routinely rejected by courts within the Second Circuit as insufficient to establish scienter.
See Nairobi Holdings Ltd. v. Brown Bros. Harriman & Co.,
No. 02 Civ. 1230,
And, Plaintiffs contention at oral argument that scienter can be inferred because “19 percent of the dividend payment ... was a huge payment to [Eisinger],” (Hr’g Tr. at 5:14-17), is rejected because this argument is not made in any of Plaintiffs papers.
3
See Faber v. Metro. Life Ins. Co.,
No. 08 Civ. 10588,
Even assuming,
arguendo,
that Plaintiff had raised this argument in its Amended Complaint or its Opposition (which it did not do), “the bare allegation of a shareholder’s incentive to maximize the corporation’s stock price is insufficient to satisfy the scienter element of a securities fraud claim.”
In re Yukos Oil Co. Sec. Litig.,
No. 04 Civ. 5243,
Plaintiff fails to “show an individualized desire to benefit from the fraudulently elevated stock price, above and beyond the passive accretion of one’s equity holdings.”
In re Yukos Oil Co. Sec. Litig.,
No Conscious Misbehavior or Recklessness
Defendants argue, among other things, that “Plaintiff does not sufficiently allege that Defendants made the relevant statements with ‘contemporaneous knowledge’ that its investment bank had misled it as to the nature of its investments or that it could anticipate the meltdown of the ARS market; nor does Plaintiff plead specific facts demonstrating that Defendants were acting in a way that ‘easily can be foreseen to result in harm.’ ” (Mot. at 17 (citation omitted).) Plaintiff counters, among other things, that it “belies belief that no one in senior management ... ever looked at the [Offering [C]ircular” for the Mantoloking ARSs and Defendants “[o]bviously ... knew at least by November 5, 2007 after the auctions failed” that Mind’s financial disclosures should be amended. (Opp’n at 19-20.)
“To prove intent based on a theory other than motive-and-opportunity, a securities fraud plaintiff must allege facts that constitute strong circumstantial
*557
evidence of conscious misbehavior or recklessness.”
Bay Harbour Mgmt. LLC v. Carothers,
“[Allegations of GAAP violations or accounting irregularities, standing alone, are insufficient to state a securities fraud claim.”
Novak,
As to Plaintiffs allegations that Defendants made statements inconsistent with the information contained in the Offering Circular for the Mantoloking ARSs, Plaintiff fails to allege facts that particularize how and why each defendant actually knew, or was reckless in not knowing, that the alleged statements and omissions were fraudulent at the time they were made.
(See, e.g.,
Am. Compl. ¶¶ 49 (“[t]he Offering Circular specifically contained risk warnings”); 69);
see also Defer LP,
Plaintiffs allegations that “obviously” Defendants knew at least by November 5, 2007 that Mind’s investment in the Mantoloking ARSs should have been classified as investments do not support a strong inference of scienter because Mind disclosed that fact in a press release issued the next day,
ie.,
November 6, 2007.
(See
Am. Compl. ¶ 124) (“On November 6, 2007, Defendants filed a Form 6-K” which stated that Mind’s “investments in [auction rate] securities consisting of $22.8 million as of December 31, 2006, should have been classified as short-term investments, rather than as cash equivalents.”);
see Acito,
The Court further finds that a reasonable person would not deem Plaintiffs purported inference of scienter under the “conscious misbehavior or recklessness” prong to be “at least as compelling as any opposing inference one could draw from the facts alleged.’ ”
In re PXRE Group, Ltd., Sec. Litig.,
(2) Section 20(a)
To establish a prima facie case of a violation 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 person was in some meaningful sense [a] culpable participant [] in the fraud perpetrated by [the] controlled person [].”
SEC v. First Jersey Sec., Inc.,
Defendants’ motion to dismiss Plaintiffs Section 20(a) claims is granted because Plaintiff has failed to plead facts showing a primary violation of the securities laws by the allegedly controlled persons.
See In re Alstom SA
Leave to Amend
Leave to amend is appropriately denied where, as here, the plaintiff has already had an opportunity to replead after specific warnings as to a complaint’s deficiencies.
See Odyssey Re (London) Ltd. v. Stirling Cooke Broum Holdings Ltd.,
Y. Conclusion
For the reasons set forth above, Defendants’ motion to dismiss [# 13] is granted. The Clerk of Court is respectfully requested to close this case.
Notes
. Defendants further argue that Plaintiff's claim under Section 10(b) and Rule 10b-5 does not sufficiently state a claim because Plaintiff "fails to properly plead the elements of loss causation.” (Mot. at 20;
see also
Opp’n at 21-24.) “As discussed in detail below, because the [C]ourt finds that [PJlaintiff[ ] ha[s] failed to plead scienter adequately, the [C]ourt need not consider the issues of loss causation
..Meridian Horizon Fund, LP v. Tremont Group Holdings, Inc.,
No. 09 Civ. 3708,
. (See Hr'g Tr. at 4:9-19) ("MS. CASSIRER: The [P]laintiff ... bought 22,000 shares and sold [18,100] before there was any corrective announcement made [on November 6, 2007]. Thus, she basically got her money’s worth. She bought her stock when the allegedly deceptive statements were made and she sold it during that same period. After there was a corrective filing ... she then went out and bought another 19, [9]00 shares....”)
. Plaintiff appears to recognize after the fact that its Amended Complaint does not allege that any Defendant received personal financial gain from the alleged fraud.
(See
Opp'n at 17 n. 8) (while "personal financial gain may weigh heavily in favor of a scienter inference ... the absence of a motive is not fatal.” (quoting
Tellabs,
. “Because it is unnecessary to do so, the Court does not reach [Defendants' arguments concerning ... loss causation.”
In re Australia & New Zealand Banking Group Ltd. Sec. Litig.,
No. 08 Civ. 11278,
. Plaintiff's contention at oral argument that this Court’s recent decision,
SRM Global Fund. L.P. v. Countrywide Fin. Corp.,
No. 09 Civ. 5064,