Janbay et al v. Canadian Solar Inc. et al, No. 1:2010cv04430 - Document 76 (S.D.N.Y. 2012)
Court Description: OPINION: Based on conclusions set forth above, Defendants' motion is granted, and the Complaint is dismissed with leave granted to replead within 20 days. (Signed by Judge Robert W. Sweet on 3/30/2012) (cd)
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UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK - - - - - - - -x LABIB JANBAY, Individually and on Behalf of All Others Similarly Situated, 10 Civ. 4430 (RWS) Plaintiff, OPINION againstCANADIAN SOLAR, INC., SHAWN QU and ARTHUR CHIEN, Defendants. - -- -- - ---- -- -- - -- -- ---- - A P PEA RAN C E S: At for Plaintiffs HAGENS BERMAN SOBOL SHAPIRO LLP 1918 Eighth Avenue, Suite 3300 Seattle, WA 98101 By: Steve W. Berman, Esq. Erin K. ory, Esq. Karl P. Barth, Esq. One Penn Plaza, 36th Floor New York, NY 01119 By: Jason A. Zweig, Esq. 715 Hearst Avenue, Suite 202 Berkeley, CA 94710 By: Reed Kathrein, Esq. At for Defendant LATHAM & WATKINS LLP 885 Third Avenue New York, NY 10022 X 355 South Grand Ave. Los Angeles, CA 90071 By: Timothy P. Crudo, Esq. David J. Schindler, Esq. Terri L. Lilley, Esq. Matthew L. Kutcher, Esq. Sweet, D.J. "Company") , Shawn Defendants" and, solar Canadian Defendants and Qu Arthur (the Chien collectively with CSI, moved pursuant to Rules 9 (b) ("CSI" Inc. the and 12 (b) (6) or the "Individual "Defendants") have of the Federal Rules of Civil Procedure and the Private Securities Litigation Reform Act of 1995 ("PSLRA"), Consolidated Complaint Laws (the 15 U.S.C. § 78u-4 (b) for Violation of "Complaint ") of Labib to dismiss the Federal Janbay, the Securities individually and on behalf of all others similarly situated (the "Plaintiffs"). Based on the conclusions set forth below the motion is granted. Prior Proceedings On June 3, 2010, a putative class action complaint was filed by Labib Janbay. financial results for This followed an announcement that CSI's 1Q 2010 would be delayed; revise its 4Q 2009 financial statement; subpoena States from the Uni ted 1 that it might that it had received a Securities and Exchange Commission ("SEC") seeking information regarding certain sales transactions in 2009i and that its Audit Committee had begun an investigation into the transactions described in the SEC subpoena. Opinion By of December 18, 2010, motions to consolidate various actions were filed and the motion to appoint lead plaintiff was granted (the "December 18 Opinionfl) . On filed March alleging the Consolidated under remedies (the "1934 Act"). 1934 2011, II, the Securities (Compl. ~ listed on the NASDAQ Exchange in 2006, three continents, modules countries. Complaint, CSI producers, a ingots, is solar ~ (Compl . one of the wafers, cells, As 2 .) world's vertically-integrated solar modules ~ Suzhou, Republic of China i defendant Shawn (Xiaohua) all Chief Officer relevant times Executive 2 customers described (panels) principal in to manufacturer (Compl. offices and operates on largest designed solar power applications. executive of Canada in October 2001, twenty-four Exchange Act was The Complaint alleges that 1.) CSI was founded in the Province of Ontario, delivering Complaint 3.) solar of the module silicon, and custom- CSI has its Jiangsu, Qu in in People's ("Quit) ("CEO"), was at President and Chairman of the board of directors of the company i and I relevant times Chief defendant Arthur Chien ("Chien") was at Officer ("CFO") and a member of the board of directors Financi (Compl. of the Company. As unaudited financial a ~~ publicly quarterly 19-21). traded financial company, CSI and results reported audited its annual statements on a regular basis throughout the alleged Class Period. (Compl. ~~ 29,33,38,46,49.) The Complaint further alleges that CSI reported from May 26, 2009 to March 3, 2010 favorable financial reports (Compl. Then approximately it 4:00 is leged p.m., CSI that ~~ on 4 8). April announced that 20, Q1 2010, 2010 at margins would be lower than previously forecast and its shares declined $3.07 (14.4%) for the day. (Compl. ~ 9.) On June I, 2010 CSI reported that it would not be able to file on a timely basis its financi results for the first quarter of 2010; that the Audit Committee of its Board of Directors had opened an investigation; and that the relating to, 2009. (Compl. results Company had received among other things, ~ 10.) a subpoena from the SEC certain sales transactions in According to CSI, it revised its financial for the fourth fiscal quarter 3 2009 ending December 31, CSI's Id. ) 2009. shares dropped in $1.69 per share to close on June 2, 2010. The Defendants to made disclose business, Complaint false adverse to certain customers, failed not to overstated during financial that certain goods were the quarter, (4) sale, Class failed that results public that results were false that resulting CSI' s were internal and statements and and misleading. wrongful conduct decline dramatic caused significant subsequently certain goods financial and allege sales and therefore were (5) the value standards and Plaintiffs market that Period, ~ Company's (3) inadequate were and and (1) (Compl. omissions statements, Period, to: related to financial and Class Company's filings 11.) the the (2) the controls or about end of for during information satisfy quality control certified 14.25% and prospects with respect operations, the that by (Id.) and/or misleading material returned after alleges value in losses to the Plaintiffs and the other class members who were all damaged thereby. The CSI issued results Complaint false (Compl. regarding its ~~ and contains misleading 29 32), systems of substantive Ql 2009 allegations reported that financial false and misleading representations internal 4 controls (Compl. ~~ 33-36) t filed 37), a a false false and misleading registration and misleading Q2 statement (Compl. 2009 reported financial results (Compl. ~~ 44 45), a false and misleading Q3 2009 financial results ~~ 38-43), 46 48), and a a false and misleading prospectus ~ (Compl. ~~ (Compl. false and misleading Q4 2009 financial results (Compl. ~~ 49 52) The sales Complaint revenues and further that August of 2010 that the alleges scheme to overstate was Company a forced to admit in it had improperly recognized $32.8 million in revenues and had improperly failed to recognize another $16.1 million in expenses, wi th a including the $5,764,430 sales relationship distributor of solar modules that carried solar system integration projects throughout out various the United States. (Compl. ~~ 53-67.) The Complaint then alleges that on June announced over the its financial period ending launched an the SEC PR Newswire results March for 31, investigation "requesting among other things, that the first 2010 and it documents from that to the the a of 2010 CSI for the Audit Committee subpoena issued by Company relating certain sales transactions in 2009. 5 2010, would delay release of quarter in response I, II to, (Compl. ~ Plaintiffs alleges that on August 19, 69.) its restated financial the results I announced 2010 fourth quarter of 2009, which included material restatements from the healthy profit of share) more than $15 million ($0.36 reported to an admitted loss that had been previously $15.4 million ($0.38 per share), thus confirming the market's reaction to the bad news disclosed (Compl. ~ 72.) on June 1, 2010. Complaint then alleges misleading financial statements system internal control recognizing revenue from and that issued ~ and its as 73) contingent false concerning statements (Compl. sham, CSI and a result uncertain sales (Compl. ~~ 73-86). The scienter Complaint (Compl. ~~ so 87 92) contains and loss all ions causation relating (Compl. ~~ to 93 100) . It asserted ly f is establish violations of Section 10 (b) lOb 5 thereunder Section 20 of (Compl. the 1934 that 101-06) as Act against the 6 legations of the 1934 Act and Rule ~~ (Compl. ~~ 107-14) . these well as violations Individual of Defendants The instant mot submitted on July was marked 25, 2011. The 9(b) and 12(b) Standard On a motion to dismiss pursuant to Rule 12(b) (6), all legations and factual all inferences in are drawn _P_o_l_a_r __~__~______~, not issue whether the the claimant , F.3d 375, 378 U.S. 232, 236 To 12 (b) (6), (2d its 1937 I 1949 plaintiff is entitled the 1174 will to ViII Cir. survive (2d Cir. Mills 1993). ultimately offer (quot true, pleader. evidence Inc. v. 1995) a "a complaint face.' favor a ff are accepted as '" The prevail to but support Town of Darien, Scheuer v. v. Rhodes, 56 416 (1974)). accepted as true, on in 12 F.3d 1170, whether aims complaint ff (2009) to motion must to conta dismiss pursuant sufficient to Rule matter, 'state a claim to relief that is plausible Ashcroft (quoting v. 556 1 Atl. 7 Corp. u. s . v. 662, 129 Twombly, S. Ct. 550 U.S. 544, 570 aintiffs must allege sufficient facts (2007)). their "nudge [ claims plausible." Twombly, accept factual the across 550 U.S. the at line 570. allegations of a from conceivable to to Though the Court must complaint as true, it is ,,\ not bound to accept as true a legal conclusion couched as a factual allegation. '" 129 Iqbal, S. Ct. at (quoting 1950 Twombly, 550 U.S. at 555) . To state a claim under Section 10(b), pI plead that defendants material fact i purchase or sale relied; and (2) "\ (1) made misstatements or omissions of with scienter i of securities; that (5) plaintiffs' cause of their inj , 396 F.3d 161, 172 (2d Cir. 2005) 163 F.3d 102, the 106 (3) (4) connection with the upon reliance (2d Cir. 1998)). Procedure 9(b) and the PSLRA. 447 F. App'x 229, that Fed.R. Ltd., averments .P. 493 requirement, 9(b) F.3d of i 230 fraud 99 the (2d Cir. be (2d proximate & Co. Inc. , Federal 2011) "state[d] Commc'ns, Cir. a plaintiff must: "( 1) 8 ., Such claims are subject to Rule of Civil See GE Investors v. General see so -=-=-=---"-"=-=--= ATSI 87, was plaintiffs (quoting In re IBM Sec. Lit heightened pleading requirements of Co., which Lentell v. Merrill II ntiffs must 2007). speci Rule 9 (b) with ec. requires particularity." Inc. To v. Shaar Fund, satisfy this the statements that the speaker, (4) iff pI (3) explain Chang, 3 55 marks and speculative contends were the F . 3d 164 , statements citation 17 0 (2d Hochfelder, In re Carter-Wal Cir. 2000). In by II Rombach rnal General, unsupported and v. quotation conclusory, specif the facts, or are Id. at 176. manipulate, 425 U.S. fraudulent. 2004) r. In Rule 10b-5 actions, to dece were omitted) . allegations, legally insufficient. \\ intent statements were made, state where and when why identify (2 ) fraudulent, 185, scienter requires a or defraud, 194 n.12 Inc. Sec. Lit (1976), ., fI Ernst showing of & Ernst or reckless conduct, 220 F.3d 36, 39 40 s regard, private securities fraud actions must so meet the PSLRA's pleading requirements or dismissal. See 15 U.S.C. § 78u-4 (b) (3) (A). In pleading scienter in an action for money damages requiring proof of a particular state of mind, "the compla shall t with respect to each act or omission alleged to vi ate this chapter, state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind. Id. § 78u-4(b) (2). The plaintiff may satis this requirement by alleging facts (1) showing that the defendants had both motive and opportunity to commit the fraud or (2) constituting strong circumstanti evidence of conscious misbehavior or recklessness. Ganino v. Citizens Utilities Co., 228 F.3d 154, 168-69 (2d Cir. 2000) . 1I 9 v. (2d ATSI Commc'ns, Inc., 493 F.3d at 99. The Consolidated Complaint Fails To Plead A Material False Statement The regarding fails Complaint -September CSI's 30, that statements financial performance lege to 2009 The Complaint alleges that a number of Defendants' were false. statements regarding CSI's financial performance were false and misleading because improperly CSI recognized revenue from sham sales transactions. identifies only a single sales The Complaint, transaction, purportedly take place until September 30, 2009. The Complaint's failure to lege transactions prior to September 30, to statements regarding CSI's and any which reported however, did not ~ 60.) about any (Compl. facts 2009 renders its claims as financials prior to that date legally insufficient. Under Rule 9 (b), Plaintiffs must plead specific facts explaining why each alleged misstatement was false at the time it was made. F.3d 801, Rombach, 812-13 355 F. 3d at 170; (2d Cir. 1996) 10 San Leandro (finding no inference of fraud where plaintiff failed to articulate contemporaneous facts that were inconsistent with defendants' sham transactions are alleged, public Where statements). specific facts about each one of these transactions are required. See Decker v. Massey Ferguson, Ltd" 1982) 681 F.2d 111, 116 (2d Cir. (rejecting fraud theory based on inadequate write downs of obsolete facilities where the iled aintiff to identify the facilities, their value, or the values that should have been recorded) Sea Containers Ltd., 2007) 525 F. Supp. amounts 411 & i Caiafa v. n.10 (S.D.N.Y. legations inadequate for failing to (finding plaintiffs' identify 2d 398, challenged that financ reports overvalued, basis for valuation, and in what periods) Revlon Inc., No. (S.D.N.Y. Sept. 00 30, ----'--- recorded Civ. 2004) 7291, 2004 WL i were Gavish v. 2210269, at *13 ("plaintiffs must provide at the very least some level of detail about the improper accounting alleged to underlie misleading issue, statements" of the . and a basis for believing the accounting may have Complaint is a Sunvalley on the date revenue . s of "the at The amount as transaction been fraudulent" the such allegedly overstated (quotation and citation omitted)). es transaction specifical shipment September of 30, solar modules 2009 11 and identified in the purportedly sold to recorded 3Q 2009. (Compl. " A September 30, 60-62.) recognized, cannot render financial performance Leandro, 75 F.3d prior made) . improper that Thus, sales Plaintiffs' to the regarding plaintiffs CSI' s ., San did not e. See date. however lsity of representation by relying on weeks after Complaint's transaction claims that statement (holding occurred given any 812-13 at sufficiently demonstrate disclosure false 2009 transaction, relating prior to representation was ilure to to identify September statements touching 30, on an 2009, CSI's financial condition prior to that date are dismissed. The Complaint Fails To Allege The Material Falsity Of CSI's 3Q 2009 Results Plaintiffs allege that statements discuss 2009 results were 2009 from the se because September 30, 2009 CS I recogni zed Sunval CSI's 3Q revenue transaction, aintiffs contend was not a sale but a consignment. 1 in 3Q which (Compl. " 60-61.) The Complaint also challenges (1) an October 13, 2009 press release (CampI. ~ 41); (2) an October 15, 2009 prospectus (CampI. ~l 44) i (3) a November 17, 2009 press release (CampI. '1 46); (4) a November 18, 2009 Form 6-K attaching CSI's November 17, 2009 press release (CampI. ~ 47) i and (5) a February 19, 2010 press release (CampI. ~ 48). Plaintiffs allege that Defendants' description of CSI's revenue recognition policy in an October 14, 2009 Form 6-K was false when made. (CampI. ~ 43.) 12 Complaint asserts that revenue from the September 30, 2009 Sunvalley transaction was incorrectly recognized in 3Q 2009 because "the sales specific and not s to support Speculat were Decker, final," but assertion. conclusory pleading is it supplies ~~ (Compl. I lly 60, no 62.) insufficient. 681 F.2d at 114; Rombach, 355 F.3d at 176. Allegat contained in the complaint of an unrelated matter, the Sunvall Complaint pointed establish the to by particularized securities fraud (dismissing Section 10 (b) about aintiffs [defendant] are Caiafa, claim. [] Compl 's assertion necess 525 F. in pleadings inadmissible") in which CSI 58-59), to 2d that from cannot support Supp. Additionally, at s 411 "allegat an unrelated the Sunvalley CSI began shipping unordered product to Sunvalley "in early 2009" does not e manner ~~ claim and holding contained lawsuit facts (Compl. recognized revenue ish the timing and for the September 30 t 2009 transaction and it is vague and unparticularized. 681 F.2d at 115-16; Gavish, 2004 WL 2210269, at *18 as "unspecific t unspecified time innocuous t or both" (but prior to allegation 'later in 1998 t ) (dismissing "at some shipped 'many shipments' to Safeway that Safeway had not ordered") . 13 The alleged sales meetings and emails from November and December 2009 do not render CSI's statements concerning the Company's (Compl. 3Q ~~ 2009 financial 63-65.) internal false or misleading. The Plaintiffs quote and characterize these discussions information results about without their alleging apparent any source, identifying rendering these allegations unreliable and do not allege any actual statements or specific facts consignment. to help demonstrating that the Sunvalley Sale was The actual quoted statements reflect CSI's efforts move product purchased subsequently in "serious default." by a distributor ~ (Compl. 57.) 116; Gavish, 2004 WL 2210269, at *13; who was The elements of fraud on the part of Defendants are not alleged. F.2d at a Decker, Caiafa, 525 681 F. Supp. 2d at 411 & n.10. No facts are alleged to place the purported value of the Sunvalley Sale within the context of CSI' s picture. 2009 The Complaint Sunvalley transaction required by Rule 9(b) at *2-*4, *16 fails where approximate the was material and the PSLRA. (dismissing recognition to plead that complaint plaintiff magnitude failed or 14 Gavish, the specificity 2004 WL 2210269, alleging degree financial the September 30, with "to total improper even of revenue attempt [the to alleged] misstatements in relation to Revlon's total financial picture") i In re Nokia OYJ 408 (S.D.N.Y. (Nokia Corp.) 2006) (finding that not even attempt, alleged picture, Litig., 423 F. the complaint Supp. "fails, 2d 364, and does to approximate the magnitude or degree of the misstatements a Sec. company in relation with net to Nokia's sales over total $37 financial billion. Such 'conclusory allegations of materiality cannot withstand a motion to dismiss.'" to no more 2.7% of total (citation omitted)). than CSI's 2009 $5,764,430 total revenue. 3Q 2009 (Compl. Ex . 5 at 6, Ex . 8 at 6.) in The Sunvalley Sale amounted revenue, revenue ~ 61 i which and 0.9% represented only of Kutcher Decl. the Company's (Dkt. No. 69) There is not a "substantial likelihood that the disclosure" of the transaction "could have been viewed by the reasonable mix' 'total investor as available. information of GlaxoSmithKline, having signi f icant ly altered 271 Fed. App'x 46, (citation and quotation marks ommitted) loss of 3% of immaterial) i of Chicago v. 2009) concealed see also ECA & by Local (2d Inc., concealment of 47 F.3d 47, 51-52 information that 15 2008) misstatements IBEW Joint 553 Cir. (holding that potential alleged 134 JP Morgan Chase Co., 50-51 F.3d 187, (2d Cir. affected was Pension Trust 204 (noting preliminary materiality threshold of 5%) IMCERA Group, that revenue v. Masters II the (2d Cir. i Acito v. 1995) (finding "less than 1% of IMCERA's total sales Duke Ene II was immaterial as a matter of law); In re Sec. (S.D.N.Y. ., Lit 2003) , 282 Supp. 2d App'x Fed. 113 F. 427 (2d 161-62 Cir. 2004) (concluding that tiny inflation of revenue relative to company's overall operations was immaterial as a matter of law even assuming that the accounting practices at issue were "arguably illegal") The based on aintiffs have asserted that the allegations are interviews knowledge of the with former Sunvalley CSI employees transaction. with However, facts that establish the basis of the witnesses' reliability are required. (2d Cir. named, 2000) must Novak v. (confidential be "described sources, in to support particulari The the particular knowledge and 216 F. 3 d 300, 314 though they need not complaint with sufficient probability that a person in the position occupied by the alleged") . Kasaks , personal source would possess legations suggest that the the information confidential witness ("CW") got the information "through intermediaries, thus undermining the likelihood that allegations." Glaser v. (S.D.N.Y. i Fed. 2011) App'x 212, The9, had personal knowledge of his Ltd., see also Campo v. 217 Cir. (2d 2010) 16 772 F. Supp. Sears Holdings (discounting 2d 573, 595 Corp., 371 allegations based on CW who lacked personal knowledge of defendants' to information about specifically alleged fraud). access Moreover, no one at the sales meetings is alleged to have been involved in or to have first hand knowledge of the Sunvalley Sale's negotiation or the original terms of the sale. The Sunvalley Complaint does not identify any specific transaction customer and knew l contains no when how or inference CSI Plaintiffs principally cite Johns v. 1935 1 2010 U.S. Dist. LEXIS 62804 the proposition that that Sunvalley, accounted for Bayer Corp. its No. 1 CSl/s sales. 09 Civ. (S.D. Cal. June 24, 2010), for they may rely on t Sunvalley Complaint because they independently investigated the circumstances of the However, Sunvalley transaction. the court Johns allowed the plaintiff to draw on the allegations of another complaint only where the plaintiff Plaintiffs' "provide [d) information" citations to gathered as part the its sources investigation and contacted the attorneys who filed the other complaint. at *5-*6. consult contacted Plaintiffs here as part of neither identify the sources their investigation nor allege that attorneys who filed the Sunvalley Complaint. 17 of Id. they they The Sunvall ey Sa was statements. single Plaintiffs important, asserted qualitatively Plaintiffs' statement FY 2009 have that material principal CSI that to considered the revenue was generated by its from CSI's "qualitative" U.S. does not establish materiality. included Canada) . revenue the financial factor, market to a be Only 5.9% of CSI' s sales in America (which Thus, the $5.76 million Sunvalley Sale, which constituted only 0.9% of CSI's 2009 revenue and 2.7% of its 3Q09 sales, is immate al as relied on Litwin v. a matter law. ackstone Plaintiffs' L.P., 634 ------------------------------~~----- Cir. 2011) to argue that the Sunvalley Sale is materi In its size. Group's twin, "Corporate by the company, at 720. material at U. S. sales a Private Equity" "long term" Thus, a fund was [funds] despite its "flagship ever raised'" ated to that lower total-dollar threshold. Company's least fund Id. segment. Dismissal argument is could Here, significant aintiffs' productive geographic (2d leader in private equity funds. omissions involved 706 the Second Circuit found that Blackstone segment" and was "'among the largest Id. F.3d have thus be CSI' s and least appropriate even under Litwin. Finally, misconduct or an unlawful transaction" 18 that may "intentional transform an "otherwise immaterial transaction to be mat Plaintiffs' claim from dismissal. Second Circuit affirmed a rejected Litig., is that 282 also same true 2d 158, of was concealed was "illegal" were, In act must ty. impact. Otherwise, iled to di ose a 2004) recognition intent {"The same that the what because (as opposed, was say, to rape for disclosure purposes, every time petty theft Plaintif and But even assuming they a giant in its mailroom, liable under the securities laws."), (2d Cir. 2003) argument, material still be assessed, its economic the Sec. (S.D.N.Y. illegality of a financial nature or murder) case, Duke final qualitatively analogous directly addres re 161-62 plaintiffs' nondisclosure an decision that argument. Supp. F. In ala does not save aff'd, have not by corporation it would be 113 Fed. App'x 427 adequately pled that revenue from the Sunvalley Sale was the the t of misconduct or was otherwise unlawful. The Complaint Fails to Allege that Defendants' Statements Regarding Internal And Disclosure Controls Were False Plaintiffs report mat for FY 2008 respects, report ing as allege that sely stat effective December 31, CSI's that CSI internal 2008." 19 June 2009 annual "maintained, in all control (Compl. 8, over ~~ 35, financial 37, 44.) According to the Complaint, misleading because CSI's " was materially flawed, as this statement was em of accounting it would be false ernal controls forced to disclose August 19, 2010" when it revised its unaudited financials 2009. ~ (Compl. CSI's basis for or particular. on 4Q 36.) August each generally or 19, 2010 adjustment the and did September (Kutcher Decl. press not 30, Ex. release re 2009 r explained to sham Sunvalley 8 at 5 - 6. ) the sales Sale The disclosure also noted that CSI's Audit Committee conducted an investigation into 2009 and determined certain transactions entered into by CSI (Id. ) that CSI had accounted for those transactions properly. Thus, even though the the March 3, reported financial 2010 press release and March 5, later adjusted, z Claiborne, Fishbaum v. No. (2d Cir. 07 Civ. 2009) . 2010 01405, disclosures the Inc., in 2010 Form 6-K were any other statements. 189 F.3d 460, 1999); Coronel v. *15 CSI's the April 20 (S.D.N.Y. Ltd., Jan. 26, March 3 and March 5, the revisions to announcing falsity at See 1999 WL 568023, Quanta Capital Holdings, 2009 WL 174656, For example, establish contained their revision does not support the existence of a fraudulent scheme or the falsity at *3 resul ts 3Q 2009 20, results 2010 ss do not release announcing lower than expected 1Q 2010 margins. (Compl. ~ 52.) Plaintiffs allege that Defendants' explanation for the decreased margins was false because it failed to note that the "declining margins were attributable to improper revenue recognition in the fourth quarter of 2009, as the Company would be forced to admit at later date." financials, not did That CSI render the revised its 4Q 2009 April 20 statements Lacking from the Complaint are any specific facts about false. how (Id. ) however, a the revisions Plaintiffs' margins. plead actually conclusory Decker, falsity. affected 681 CSI's estimated statement F.2d at is 116; 1Q 2010 insufficient Gavish, 2004 to WL 2210269, at *13. That results the CSI Company's statement 2008, earlier on June 8, the statement v. 2473595, of does not of negative reported does not internal was made (S.D.N.Y. Corp., Jun. 21 No. 17, render false controls more finding 09 a that the Civ. 2010) as than a after or misleading when made); Fin. financial 75 F.3d at 812 information alone establish a false *10 its San Leandro, 2009. Countrywide at about its 2010, which statement disclosure statement was L.P. some for 4Q 2009 on August 19, December 31, that revised of year (holding positive earlier SRM Global 5064, (same) ; 2010 Fund WL Elliott Assocs. L.P. 1752848, at *7 v. Covance (S.D.N.Y. No. Nov. 28, 00 2000) contains no facts explaining how financials revealed that Civ. (same). CSI's internal alleges to facts WL The Complaint controls ier period of time, other 2000 revisions to the 4Q 2009 effective during any no 4115, support the were not and the Complaint assertion that CSI's specific facts internal controls were deficient. Plaintiffs concerning the have led purportedly to ficient luding how they were deficient, F.2d at 116 i Gavish, allege internal when and why. 2004 WL 2210269, at *13 i 617 Pension and Welfare Funds v. controls, Decker, 681 Teamsters Local Inc., No. CIV 06 --------------------------------------~~--------~~------ 02674, 2011 WL 1253250, at *27 (D. Ariz. Mar. 31, 2011) that falsity not pI (finding where restatement identified in complaint was not linked to alleged fraud) . The Complaint statements were alleges that certain interim quarterly se because CSI did not simultaneously reveal that its "internal and disclosure controls with respect to its revenue recognition policy were materially defic 38.) 11 (Compl. ~ The Complaint does not allege any facts explaining why or how CSI' s internal controls were 22 materially def ient at the time CSI made Plaintiffs any rely of the solely on challenged general existence of deficient controls far short of satisfying the Rule 9(b) and the PSLRA. 681 F.2d at 114. data in August statements. assertions ~~ (Compl. 38, Instead, regarding 46), the which fall exacting pleading requirements of Rombach, 355 F.3d at 170, 176i Decker, That CSI revised some of its 4Q 2009 financial 2010, does not establish that CSI's internal controls were materially deficient in prior quarters, especially when no adjustments were made to those quarters. San Leandro, 75 F.3d at 812i SRM Global Fund L.P., 2010 WL 2473595, at *10. Plaintiffs aiborne, Holdings, Inc., 189 Ltd., attempt to F.3d 460, 2009 WL involved a "restatement." distinguish and Coronel 174656, on the Fishbaum v. Liz Quanta Capital basis The presence or lack v. that neither a restatement is irrelevant to the rule supported by Fishbaum and Coronel that revisions to demonstrate See financi fraud or statements falsity of in one quarter do not statements in alone other periods. e . . , Teamsters Local 617 Pension & Welfare Funds { 2011 WL 1253250 { at *23, *27 (restatement insufficient to plead falsi where complaint lacked particularized facts drawing \\\a specific nexus'lf (c between the restatement ation omitted)). 23 and any alleged misstatements Plaintif that argue that Defendants do not openly dispute Plaintiffs plead that Company's public assurances of the adequacy of its internal controls were materially false, at least as to Q4. the However, Plaintiffs do not allege that CSI made any statement about the adequacy of its controls in 4Q09 nor is there an allegation concerning "why and how" CSI's internal and disclosure controls purportedly failed. See Rombach, 355 F. 3d at 174 ("plaintiffs must do more than say that the statements in the press releases were false and misleading; they must demonstrate with specificity why and how that is so. "); Gavish, 2 0 04 WL 22 1 02 6 9 , at * 13 . Plaintiffs' allegations concerning internal and disclosure controls are insufficient. The Complaint Fails To Plead Scienter AdequatelY The PSLRA requires the pleading of particularized facts that give rise to a strong inference that each defendant made each challenged statement with scienter. Makor Issues this context, Rights, & a Ltd., "strong 551 U.S. inference" 308, means Tellabs, 322-23 one so Inc. v. (2007). In "cogent" and "compelling" that "a reasonable person would deem the inference of scienter cogent and at least as compelling as any opposing 24 inference one could draw from the facts alleged." Ernst 24 i overcome Ernst & this v. hurdle Hochfelder, Plaintiffs 425 U. S. must at either at 323 rd. 193 "(1) n. 12. To demonstrate that defendants had both motive and opportunity to commit fraud, or (2) allege evidence of facts conscious Sears Holdings 2009) 212 Plaintiffs scienter to Supp. and citation omitted), see to 2d also 355 se 371 Fed. at 176. F.3d an inference nature" and of its 4Q 2009 unaudited financials. v. (S.D.N.Y. aff'd, Rombach, size Campo II 323,332-33 they may "the circumstantial recklessness. F. suggest pointing or strong 635 2010); incorrect by adjustment Corp., (2d Cir. constitute misbehavior (quotation marks App'x that (Compl. of CSI's ~ 91.) "[I]t is well established that the size of the fraud alone does not create an inference of 600 (quotations marks v. F. scienter. Supp. 2d 357 Fed. App'x 393 James Fin. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _- L _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 2009) ("alleging ~ Inc., _ _ _ __ The a large burden plaintiff's particularity") . 545 to magni tude indicative of scienter where, as 25 (S.D.N.Y. 2009 ) aff d 510, and citation omitted), PXRE Group Ltd., (S.D.N.Y. II sub nom. Condra I (2d Cir. 654 F. fraud the of , PI Supp. on allege 2009) i its see also 2d 204, own does scienter revision iffs have 219 not with is not led to show "that intent." the [revisions were] the product of fraudulent Caiafa, 525 F. Supp. 2d at 414. Plaintiffs do not plead motive, which requires them to allege "a concrete defendants personal resulting from F.3d 131,139 does and not Defendants, fraud." (2d Cir. 2001) lege benefit the Kalni t v . individual Eichler, (citation omitted) that anyone at any stock sales, made to CSI, Complaint including let 264 Individual any alone the suspicious sales, during the purported Class Period. The only suggestion of a motive to commit fraud in the Complaint is the assertion that Defendants wanted to complete a secondary public offering on October 22, 88.) to complete a and Company" and, secondary directors' public F. 3d at "are ~~ 44 part of the responsibilities to the leged here, absent factors not 177 offering financi concrete benef i ts suff icient 355 (Compl. The Second Circuit has specifically held that efforts 45, officers' 2009. "do [] to demonstrate mot i ve. " (quotation marks and citation not entail Rombach, omitted). "General allegations are insufficient to establish motive under § 10 (b) ." In re Bristol-Myers Squibb Sec. Litig., 2d 549, 561 (S.D.N.Y. 2004). 26 312 F. Supp. Where strength of a complaint the Is circumstantial misbehavior or recklessness to allege motive, allegations" "must be conscious correspondingly greater. 371 Fed. App'x 212,216 2010 ) (quotation marks and citation ~~~~~~~~__~~~~~~~~~~, 26 (S.D.N.Y. 2009). "the omitted)i If (2d Cir. Fort Worth 615 F. Supp. 2d 218, 225 Because the Complaint does not adequately plead motive, it must allege a degree of scienter "approaching a knowledgeable participation disregard conscious in the facts" fraud and or a "must deliberate detail and specific contemporaneous data or information known to the defendants that was inconsistent with the representation in question." Internet 2001), Wire, aff'd, Inc., 50 145 F. Supp. App'x 464, 2d 360, 466 367, (2d Cir. Hart v. 368 (S.D.N.Y. 2002) (citation omitted) . The Complaint relies on two sources of information in t effort to raise statements made at 23, 2009i an inference two U. S. of scienter: purported sales meetings on November 11 and and a series of e-mails purportedly exchanged between November 12, 2009 and March 11, 2010. (Compl. These alleged communications do not identi 27 ~~ 6365 / 67.) any act done by, or fact known to, anyone Consequently, re at CSI Complaint earlier fails than to November al II, 2009. scienter with t to all statements prior to November II, 2009. The Complaint ties none any Individual Defendant. Shaw Group Inc., inference of individual mentions See The Individual v. (S.D.N.Y. 2008) (no iffs were only Ret. Brockton 472-74 where defendants an of 540 F. Supp. 2d 464, scienter information) . the scienter allegations to provided allegation Defendant Beverly Zhou at a November 11, in is a led with this contradic regard purported 2009 U.S. allege to that even statement by sales meeting that Qu "regretted parking inventory with Sunvalley and would not do so again in the future. ~ (Compl . II 89.) leged concerning "what kind of access what form and context (Qu] made his (Zhou] was privy to that statement. 595. Without support those details, an inference of 543 F. Supp. scienter. 2d 187, her statement is "particul purport [s] 595. to read Accordingly, [Qu' s] the 207, (Zhou] are had to Glaser, 772 F. Supp. alleged Id. i 220 statement In re II Complaint 28 Glaser, fails 772 for lack 2d at does not Sec. 2008). F. in or how Elan (S.D.N.Y. facts [Qu] , statement, y uninformative because mind. no alleged u Zhou' s There Indeed, [it] Supp. 2d at pleading information known or available to the Individual Defendants that Kalnit, could raise a strong inference of scienter. 264 F.3d at 142. meetings, are of sources The emails neither and the September transparent information in a regarding allegations nor complaint 30, 2009 is not sale When disclosed. transparent, sales the to the the Sunvalley source of information provided may be relied upon only if there are sufficient facts to "support the occupied by the Novak, Lit probability 308 F. Supp. scienter allegations any information about is in the position information alleged. In re FI 262 on this to determine whether a that person Ltd. ff Sec. -----------~~-----------------=~~------------ 2d 249, requirement" scienter a source would possess the 216 F.3d at 314; ., that the (S.D.N.Y. basis). source "that a The not and failure only (discounting to identify "frustrates the court weigh competing inferences complaint gives "cogent 2004) at se to an inference of least as compelling as any opposing inference of nonfraudulent intent" such that it renders an inference discussions of scienter insufficient. (quotation marks based Campo, on the 371 Fed. and citations omitted) 29 i alleged App' x at internal 216 n.4 see also Tellabs, 551 U.S. at 326 ("We agree that omissions and count ambiguit against inferring scienter[.]ff) The allegations not establish personal and there product is from based knowledge of an admission that CSI it on was at unaware the Sunvalley Complaint do improper accounting by CSI the time it was purchasing of any fraudulent allegations, the scheme. (Kutcher Decl. Ex. 2 at ~~ 23, 26.) When weigh the by allegations reference, must evaluating weigh and any scienter in the matters culpable Complaint, subject inference to documents judicial against Court must incorporated notice, and non-culpable it ones. labs, 551 U.S. at 323 24. While Plaintiffs try to generate a culpable inference by the used sources and the third-party complaint, itself provides for product to Sunvalley, a non culpable inference: the Complaint that but when Sunvalley defaulted, team worked to move the product to another customer. CSI CSI's sales That non- fraudulent inference is supported by the following: ¢ In November 2009, several months after the product was shipped to Sunvalley, CSI learned 30 sold that Sinosure (a Chinese export credit insurer) had cancelled Sunvalley's policy due to its "serious default" (Compl. ~ 57). In response, CSI made efforts both to collect from Sunvalley and to divert product in Sunvalley's custody to other customers who could pay. (See e. ., Compl. ~~ 63-65, 67.) ¢ During CSI's effort to move the product in Sunvalley's inventory, members of CSI's accounting department in China made inquiries concerning the details of these transactions in order to account for them properly. (Compl. ~ 65. ) ¢ Having entered "serious default," Sunvalley eventually filed a breach of contract lawsuit against CSI, in which Sunvalley asserted it had been given a right to return unsold inventory. (Compl. ~~ 54-55, 58-59.) ¢ CSI sold product to Sunvalley during 2009, and those sales were properly accounted for as demonstrated by Deloitte's unqualified audit opinion and the Audit Committee's determination that the transactions described in the SEC subpoena had been accounted for properly. (Kutcher Decl. Ex. 4 at 92i Ex. 8 at 6.) The Sunvalley Transaction Does Not Support An Inference of Scienter Plaintiffs have contended that the Sunvalley Sale was intended to increase reported price of the October 22, alleged in the 2009 offering. Complaint, amend the Complaint. earnings and to inflate the share That contention is not Plaintiffs' Opposition cannot Wright v. Ernst & Young LLP, 152 F.3d 169, 31 178 (2d Cir. establish motive because until November 17, completed. Thus, offering price. does not Even 1998). the 2009, the alleged, 3Q09 this earnings 3Q09 were ~~ any earnings cannot 45-46.) In addition, concrete benefit not Bank Note Holographics, Inc. have to affected from the the Complaint the Sec. Li tig., case the motive allegations were inadequate because, case, released Individual Plaintiffs rely on In Defendants from the secondary offering. re Am. theory would not nearly a month after the offering was (Compl. identify if but in that as in this the complaint had not pled how the individuals benefited a higher offering price. 93 F. Supp. 2d 424, 445 46 (S.D.N.Y. 2000). The Complaint's other allegations regarding the Sunvalley Sale fail to establish a strong inference of scienter. Effectively admitting failure that "absence scienter." apparent, of (PIs. motive Mem. to plead motive, allegations at 12 n.S). is not "Where Plaintiffs note dispositive motive is of not it is still possible to plead scienter by identifying circumstances indicating conscious behavior, though the strength of be the greater." circumstantial Kalnit, Complaint does not 264 allegations F.3d allege at that 142 the 32 must correspondingly (citation omitted). Individual The Defendants knew information statements scienter about the See here. that confidential Sale that would render Such allegations are essential false. allegations Sunvalley Campo, 371 Fed. "relied heavily" witnesses was App'x to establish at 216 on the personal inefficient where the their (finding knowledge of complaint d not specify contrary data individual defendants had access to) Teamsters Inc., Local Fre F.3d 531 445 190, Div. 196 (2d Pension Cir. 2008) Fund i v. (finding no scienter where plaintiffs did not identify specific reports or statements with contrary facts); Supp. 2d 266, 292 contrary In re eSpeed, (S.D.N.Y. 2006) information "fatal to Inc. Sec. Litig., 457 F. (failure to identify access to a plaintiff's effort to plead scienter based on conscious misbehavior or recklessness") . The Plaintiffs have contended that Qu was aware the Sunvalley Sale was an improper "parking" arrangement. admit, however, They that this allegation, which does not explain how or when Qu learned of the information, allegedly heard yet another person Qu's mind. that s. Mem. at 9; is based upon a (Beverly Zhou) CompI. ~ 63.) CW who claim to read Plaintiffs assert that the involvement of CSI's Vice President of Global Sales in the alleged (PIs. Mem. impropriety at 16.) "implies the This proposition, 33 CEO and CFO's scienter. 11 for which Plaintiffs cite re PXRE Group, Ltd., Sec. Litig., 600 F. defendants that allegations (rejecting See is contrary to Second Circuit law. no authority, Supp. 2d at In 538 known" have "must ., e. information known to another executive due to their positions). The Complaint fails to describe the CW in any way, Circuit law upon such F.3d at the Court to discount aser, 314; based because 772 on a there F. Supp. 2d confidential was no allegations See, inadequately described CWs. allegations credited requires e.g., at 595 to the individual defendant); Fea 2003) what sources because 216 that not be aspect of s, and what access he had v. Industri-Matematik Int'l (discounting scienter allegations of and consultant Novak, could ---=-., No. 99 Civ. 8761, 2003 WL 22976327, at *4 19, based (finding witness indication management the CW was in, his job dut and Second "nowhere [] (S.D.N.Y. Dec. former employee does the Complaint describe the position held by or work assignments of the former employee[s] inference . or any other information that would support an that the sources at tributed to them"). would Moreover, possess the information the Complaint fails to allege any facts from which the Court may infer that either the CW or Zhou had any basis to know Qu's theory of corporate scienter, state of mind. Plaintiffs' which hinges upon allegations of Yan Zhuang's misconduct, is likewise based on an unidentified CW 34 and on the unconfirmed claims explained above, scienter, of Sunvalley Complaint. As these allegations are insufficient to establish See In re PXRE, even for an entity. at 529 n.22 the 600 F. Supp. 2d (refusing to find scienter against the company where plaintiff did not adequately allege a non-defendant executive's motive to defraud or conscious misbehavior or recklessness) . Plaintiffs violation" such indicative of as also the scienter. have contended premature that a recognition "simple of GAAP revenue is Setting aside that no well-pled fact demonstrates premature revenue recognition, GAAP errors alone do not establish scienter. Trust of Chicago v. Cir. 2009) omitted) i of GAAP alone, claim.") are 553 F.3d 187, violations or insufficient (citation and 200 (2d accounting to state quotation a marks City of Brockton, 540 F. Supp. 2d at 473 (same). The revised standing fraud Local 134 IBEW Joint Pension JP Morgan Chase Co., ("[A]llegations irregularities, securities See ECA, its aintiffs 4Q09 income have relied and profits, on the but fact a that correction CSI of financial statements standing alone does not raise an inference of scienter. City of Brockton, 540 F. settled that mere fact of a restatement 35 Supp. 2d at 472 ("well . does not support a strong, even or Plaintiffs' omitted) ) . scienter on a daily, made knowledge. 252 pled Sec. because, the court Litig., in addition to the the complaint detailed "what defendants knew weekly defendants (citation II authorities do not dictate a different adequately revised financials, scienter. of In In re Scholastic Corp. conclusion. found inference weak and monthly statements public F.3d basis" 63, 76-77 and alleged inconsistent (2d with the that Plaintiffs' 2001). r. that Complaint contains no such details. aintiffs have not pointed to a single improper 4Q09 transaction, and they do not contend that the 3Q09 Sunvalley Sale, the only transaction the Complaint identifies as improper, had any connection to CSI's 4Q09 revision. They do not dispute CSI's stated (and ostensibly benign) reasons for that revision. The (the Sunvall financials Sale was allegedly recognized in 3Q09 revised), and the for which period were not Plaintiffs offer no facts to scienter revision. Unlike in Plaintiffs' between the 4QO 9 revision and the Sunvalley transaction) . Cf. establish cases, there (the only allegedly f Sale (the In re Scholastic 36 only for the is no nexus se statement) allegedly Sec. Lit 4Q09 ., wrongful 252 F.3d at 77; 220 Rothman v. F.3d 81, 90 91 (2d Cir. 2000) (finding write-off was related to alleged impropriety) . The Complaint Fails To Adequately Plead Loss Causation The Complaint fails to plead loss causation, "the causal link between the alleged misconduct and the economic harm ultimately suffered by the plaintiff." (citation and quotation marks Lentell, 396 F.3d at 172 omitted). The Plaintiffs required to allege facts sufficient to show that the truth" that had been concealed by Defendants' statements was disclosed to the CSI's stock price to decline. U.S. that 336, 342-43, does public ilure not 347 statements that "is An the turn leged corrective disclosure of Defendants' loss causation, under Second Circuit fat caused Inc. v. Broudo, 544 establish cannot "relevant purportedly false which Dura Pharms., (2005) reveal market, are sity challenged a pleading precedent." Lentell, 396 F.3d at 175. The Plaintiffs have alleged that the truth about CSI's supposed sham sales transactions results "was disclosures" revealed beginning to on the and resulting false market February 37 through 19, 2010 financial several and partial continuing However, the partial disclosures identified by Plaintiffs do not reveal the through June 1, 2010. (Compl. " 95, 97-99.) sham sales upon which Plaintiffs base their fraud claim. aintiffs allege that on February 19, 20, 2010, CSI issued press releases announcing that its margins would be lower than previously projected, CSI's stock price. are about future results. As announcement projected (Compl. , (Compl. revised financial equipment clearly margins II " Plaintiffs that the II revenue to rather concede, the result led declines in These two disclosures 98.) projections noted was 97, than the announced of about past February 19 reduction in "defective production and "the 'clearing' of certain aged solar inventory." 48.) The declining margins discussed in the April 20 press release were attributed to rates. 2010 and April (Compl. , 52.) recognition, "shifting [currency] exchange Neither announcement concerned improper sham transactions or deficient controls, and thus did not reveal any "relevant truth" about the purported fraud. Accordingly, these disclosures do not "corrective" and cannot establish loss causation. Inc., 544 U.S. at 342-43, 347i Lentell, Ini tial Public Of (S .D.N. Y. 2005) Supp. (where "an event-in this case, a as Dura Pharms. , 396 F.3d at 175i 399 F. 38 quali In re 2d 261, 266 ilure to meet earnings forecasts or a statement foreshadowing such a failure sabused the market of that bel leged scheme to the market. disclosed the failure to meet earnings forecasts has a In other words, negative effect a on Such a failure does stock prices, but not a corrective ef not imply that event f does not mean that fendants concealed a scheme to depress earnings estimates and drive up prices. (emphasis in original}). II CSI's stock price declined after the Company issued a press release on June I, 2010 announcing a delay in the release of its lQ 2010 financials, SEC, the the receipt of a initiation of an internal Committee, and the poss net revenue. (Compl. ~~ lity that subpoena from the investigation by its Audit it may revise its 4Q 2009 69, 99.) The announcement of a delay in the reporting of CSI's lQ 2010 financials does not establish loss causation because it fails to reveal the truth that CSI had engaged in sham sales, secret consignments, Complaint. Supp. or wrongdoing any asserted See 2d 1142, in the 527 F. 1162 (C.D. "would not be able to file Cal. 2007) (disclosure that company its 10-Q for the third quarter of 39 2006 on time due to the Special Committee's investigation" not correct i ve) . The announcement of an investigation is itself insuffi disclosure subpoena must or 510 SOl, more to the actual subpoena (2d Cir. 2010) between , suffered . It just must fraudulent the link [the reveal could not conduct (" [P] laintiffs must fraudulent conduct] the revealed) 191 alleged to market activity the i a or the 597 F. 3d 'a sufficient and the losses such 2010 losses. press had See release did occurred, In re it Omnicom, (noting that loss causation is only established underlying Joffee v. (S.D.N.Y. that caused Plaintiffs' fraud in A (citation omitted)) /I I, 597 F. 3d at 511 of subpoena show because the June have internal stence the kewise, where an See --------------------~~------------------~ In re Omnicom Inc. Sec. Lit ., connection not or ent to plead loss causation. than investigation. investigation complaint. reveal SEC 2006) the Lehman Bros., leged Inc., se 410 F. statements Supp. 2d is 187, (dismissing complaint where "Plaintiffs have not alleged any disclosure of the leged scheme of which they complain") . that The Complaint alleges 40 the Sunvalley revenue was recognized improperly in 3Q 2009, not the 4Q 2009 period covered by this press release. The admittedly Complaint alleges "speculating" that about why a June some 2, CSI returning goods contributed to a decline in CSI (Compl. ~~ 70-71.) speculation by However, analysts and the raising commentators of does 2010 article customers I were stock price. S questions not and reveal any "truth" about an alleged fraud as required by Dura Pharms., Inc. See In re Omnicom, of questions or concerns, of characterization constitute a Inc. / is 637 not as well previously correct --~~--- simply 597 F. 3d at 512 13 as "negative disclosed disclosure") ; F.3d enough (holding that the raising 462/ to 477 (4th sufficiently journalistic facts e Cir. v. 2011) plead loss does Penn a fact.lI), Indeed, the analyst Nat'l ( "Sentiment causation. Speculation and conj ecture / even a well-educated guess / context of market prognostication does not not in the fice to establish speculation identified by Plaintiffs was unrelated to the purported recording of revenue from sham sales ("speculating quality ll alleged that control in the Complaint. (Compl. ~ return of CSI goods could be linked to problem, II "double ordering "certain customers going out of business").J 41 by customers/II Further, 70 "a or the June 2 TheStreet.com article did not correspond with a drop in CSll s stock price. (Kutcher corresponding stock Decl. price establish loss causation. Ex. decline l at 9 an Without 1. ) announcement a cannot Amorosa v. AOL Time Warner Inc' 409 l F. App1x 412, 416 17 (2d Cir. 2011); Lentell l 396 F.3d at 173. The Complaint April 20 and about the 1 June does 2010 1, not disclosures Sunvalley Sale allege that or any other the February 19 revealed any transact ion. "truthtf None CSI's partial disclosures discussed CSI' s 3Q09 financials. Complaint has revealed the also "truthlf led to regarding allege CSI' s any disclosures purported Inc' l accordingly not 544 U.S. at 342-43 adequately plead. of The that recognition of revenue from any fake sales l including the Sunvalley Sale. causation is 1 Loss Dura Pharms. 347; In re Omnicom, 541 F. Supp. 2d at 1 55l. aintiffs causation arguments. theory of also 1 loss e. g., have not Defendants' loss An unalleged "materialization of the sk" causation is CompI. ~, 95, Solar's financial results market through several responded advanced. 97 - 99 and (Pls. ("the prospects partial 42 to truth was Mem. 21 22; about revealed disclosures'l) . ) see Canadian to the The materialization plead that caused by fraudulent The of the sk Plaintiffs' the purported materializat statement." Complaint theory does of requires "loss the the was risk all that to foreseeable concealed ATSI Commc'ns Inc., --------------~~----- not compla 493 by F.3d at Plaintiffs' market and the 107. losses were caused by a materialization of the "risk" that CSI in a "sham" transaction. The Complaint Fails To Allege Control Person Liability Adequately To plead a c Act, a complaint must the of participation. '" of the "(1) a primary violation 1 by a controlled person, defendant im under Section 20 (a) (2) Act direct or indirect cont by the violator, primary and (3 ) Coronel v. WL 174656, at *24 'culpable ¢ t (citations omitted) i 15 U. S. C. § 78t (a). 2009 As concluded above, a primary violation under Section 10(b) has not For the reasons described been establ i to scienter, "culpable" none ic of s the purported "control in any alleged fraud. 729 (S.D.N.Y. 2010). Accordingly, dismissed. 43 the wi th respect F. Section It were See In re Sec. Supp. 20(a) 2d 569, 602 claims are Conclusions Based on motion is granted, conclusions set forth above, and the Complaint is Defendants' dismissed with granted to replead within 20 days. It is so ordered. New York, NY March 3~ , 2012 ROBERT W. SWEET U.S.D.J. 44 leave
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