In re Genworth Financial, Inc. Securities Litigation, No. 3:2014cv00682 - Document 70 (E.D. Va. 2015)

Court Description: MEMORANDUM OPINION. Signed by District Judge James R. Spencer on 05/01/2015. (walk, )

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In re Genworth Financial, Inc. Securities Litigation Doc. 70 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF VIRGINIA RICHMOND DIVISION Civil Action No. 3:14-CV-682 IN RE GENWORTH FINANCIAL INC. SECURITIES LITIGATION MEMORAN D U M OPIN ION THIS MATTER is before the Court on Defendants’ Motion to Dism iss the Consolidated Class Action Com plaint (“Motion to Dism iss”) (ECF No. 53), filed on February 5, 20 15. For the reasons set forth below, the Motion is GRANTED in part and DENIED in part. I. BACKGROU N D This securities class action is brought by, and on behalf of, investors in securities of Genworth Financial, Inc. (“Genworth”) between October 30 , 20 13 and Novem ber 5, 20 14 (the “Class Period”) 1, asserting claim s against Defendant Genworth (“Genworth” or the “Com pany”), and Defendants Tom McInerney (“McInerney”), Genworth’s Chief Executive Officer (“CEO”), and Marty Klein (“Klein”), Genworth’s Chief Financial Officer (“CFO”), (collectively “the Individual Defendants” and, along with Genworth, the “Defendants”) under Sections 10 (b) and 20 (a) of the Securities Exchange Act of 1934 (the “Exchange Act”), as am ended by the Private Securities Litigation Reform Act of 1995 (“PSLRA”), and under Rule 10 b– 5 prom ulgated thereunder. 15 U.S.C. §§ 78j(b), 78t(a); 17 C.F.R. § 240 .10 b– 5. Plaintiffs allege that Defendants com m itted securities fraud by m isleading investors throughout the Class Period about the profitability of the Com pany’s core business, long-term care (“LTC”) insurance, and reported false financial results by understating necessary reserves. 1 Co-lead plaintiffs were appointed by this Court on Novem ber 6, 20 14. (See ECF No. 25.) Lead Plaintiff Her Majesty the Queen in Right of Alberta (“Alberta”) purchased 1,224,0 70 shares of com m on stock of Genworth during the Class Period. Lead Plaintiff the Fresno County Em ployees’ Retirement Association (“Fresno”) purchased 198,0 0 0 shares of com m on stock of Genworth during the Class Period. 1 Dockets.Justia.com The Individual Defendants assured investors that they had closely studied “all aspects” of Genworth’s LTC business, and that Genworth was am ply reserved. However, on Novem ber 5, 20 14, Defendants revealed that the Com pany was m aterially under-reserved and that the Com pany needed to increase claim reserves by $ 531 m illion. This news severely im pacted the health of the entire Com pany, driving the Com pany from an overall net profit of $ 28 m illion for the quarter to a loss of $ 317 m illion, and further im pacting the value of the Com pany’s stock, which decreased over 55%. The allegations in the Consolidated Class Action Com plaint (“Am ended Com plaint”) and public docum ents relied on by, and integral to, the Am ended Com plaint further disclose the following about Genworth, the Individual Defendants, and the circum stances leading to the instant suit. Genworth is an insurance com pany that specializes in life, long-term care, and m ortgage insurance. It becam e a public com pany in May 20 0 4, prior to which it was a fully-owned subsidiary of General Electric Com pany. Genworth m aintains its principal executive offices in Richm ond, Virginia. Genworth is divided into two business divisions: Global Mortgage and U.S. Life Insurance, with the latter encom passing Genworth’s LTC insurance business unit. As Defendant McInerney acknowledged during a Septem ber 25, 20 13 investor conference, “our core business is long-term care.” Genworth’s LTC business generated approxim ately $ 3.3 billion in revenue in 20 13. The Individuals Defendants are, and during the Class Period were, senior executives of Genworth: Defendant McInerney has been Genworth’s CEO and President since J anuary 20 13. In J uly 20 14, McInerney replaced J am es Boyle as the CEO of Genworth’s U.S. Life Insurance Division and head of its long-term care insurance business, with McInerney also m aintaining his title and responsibilities as CEO of the entire Com pany. Defendant McInerney was also a m em ber of Genworth’s Board of Directors and its Long-Term Care Steering Com m ittee.2 2 Genworth’s LTC Steering Com m ittee is “internally known as the ‘war room team,’ that meets weekly and ‘go[es] through everything’ related to the Com pany’s long-term care business.” (Am . Com pl. ¶ 47.) 2 Defendant Klein has been Genworth’s CFO since May 20 11, and served as its Acting President and Acting CEO from May 20 12 to Decem ber 20 12. Defendant Klein was also a m em ber of Genworth’s LTC Steering Com m ittee at all relevant tim es. These Defendants allegedly participated in interviews, presentations and investor conferences during the Class Period, and also allegedly reviewed, approved and signed Genworth’s quarterly and annual filings with the Securities and Exchange Com m ission (“SEC”). The LTC insurance business requires policyholders to pay periodic prem ium s over the course of a num ber of years in exchange for future coverage in the event the policyholder needs long-term care. LTC generally provides coverage for individuals’ basic long-term care needs, including in-hom e care and stays at nursing hom e and assisted living facilities. Prior to 20 0 3, the LTC insurance business expanded rapidly, as baby boom ers began to age and consider their LTC needs. By the late 1990 s, over 10 0 carriers were selling LTC insurance, including Prudential, J ohn Hancock, and MetLife. But in 20 0 3 the LTC business began to falter, and between 20 0 3 and 20 10 sales of LTC policies decreased by over 66%. Insurance com panies expressed concerns over industry data that reflected policyholders were increasingly staying “on claim ”3 for longer and thus the average claim becam e m ore expensive than in the past. Industry experts concluded that LTC insurance was “one of the m ost risky products sold by U.S. life insurers.” Between 20 10 and 20 13, a num ber of m ajor LTC insurance com panies announced that they were exiting the m arket based on their review of their claim s experience data. Genworth did not exit the LTC insurance business like its com petitors, and today Genworth is one of the few insurers that continue to sell LTC insurance. The Court m ust next explain the structure of Genworth’s LTC business, so that the issues presented can be fully com prehended. Genworth holds m oney in two types of reserves to cover LTC policies it has issued: (1) for active claim s, the “disabled life reserve” (the “DLR” or “claim reserve”); and (2) for issued policies where the policyholder is not on claim , the “active life 3 The phrase “on claim ” refers to policyholders who have submitted a valid claim for LTC services. 3 reserve” (the “ALR”). For the DLR, when a policyholder subm its a valid claim , Genworth establishes a DLR representing Genworth’s best estim ate of the present value of what Genworth expects to pay out on that claim over tim e, accounting for the policy’s daily benefit am ount, the benefit period, and diagnosis of the claim . For the ALR, when Genworth issues new LTC policies, it establishes an ALR, which represents the liability for future claim s from the active lives, that is the policyholders who are paying prem ium s and not currently on claim . When a policyholder goes on claim , a DLR is set up at that tim e and the corresponding ALR for that policyholder is released. As Plaintiffs allege, the financial health of LTC insurance com panies depends on the adequacy of their reserves– “[i]f a com pany’s reserves are inadequate, funds that were accounted for elsewhere in its finances m ust be re-allocated to its reserves, thus negatively im pacting the com pany’s profit and liquidity and potentially requiring the com pany to raise capital.” (Am . Com pl. ¶ 37.) If an LTC com pany uses inaccurate or outdated data regarding the average duration of claim s, the com pany m ay avoid increasing reserves and thus overstate incom e and understate liabilities. Generally Accepted Accounting Principles (“GAAP”) and SEC rules governing corporate disclosures require insurance com panies to collect and review claim s experience data to set appropriate reserves. GAAP specifically requires LTC insurance com panies to review their experience data often, and obligates them to use current data and account for known trends in updating their reserves. Plaintiffs allege that in contravention to these established GAAP principles, “Defendants m isled investors into believing that they regularly m onitored Genworth’s reserves and adjusted them to account for their current experience data.” (Am . Com pl. ¶ 42.) Further, Plaintiffs allege that Defendants “m isrepresented to investors that they conducted an extensive study culm inating in the Decem ber 20 13 Presentation that reviewed all aspects of Genworth’s long-term care insurance business, including its reserves and the inputs underlying its reserve calculations.” (Id.) The specific relevant facts of the alleged fraud as detailed in the Com plaint are as follows: 4 J uly 30 , 20 13: Genworth issued a press release announcing its results for the second quarter of 20 13. For the quarter, Genworth reported a net operating incom e profit of $ 26 m illion for its LTC business. Defendant McInerney, in response to investors’ concerns, announced that “[w]e are conducting an intense, very broad and deep review of all aspects of our long-term care insurance business.” He further stated that “[w]e’re particularly looking at long-term care” and “we are looking at all aspects of that.” October 30 , 20 13: The first day of the Class Period. Genworth announced its financial results for the third quarter of 20 13, reporting a net operating incom e of $ 41 m illion for the LTC business. During an investor conference, Defendant McInerney told investors that Genworth’s LTC insurance review was “largely com pleted” and again stated that Defendants had “beg[u]n an intensive, very broad and deep review of all aspects of [our] long-term care business about 4 m onths ago,” and specifically told investors that “[t]he first area of focus for us was our reserving.” Defendant McInerney em phasized his and Defendant Klein’s personal involvem ent in the review. He stated that “we’re m ore confident than we’ve ever been that the reserves are adequate, with a com fortable m argin.” Decem ber 4, 20 13: The “Decem ber 20 13 Presentation.” Defendant McInerney explained that Genworth had com pleted the “very intensive, broad and deep review of [its] longterm -care insurance business.” The presentation explained that “we have adequate longterm care reserves, with a m argin for future deterioration, and our presentation today provides support for these conclusions.” Specifically, McInerney and Klein referred investors to a series of PowerPoint slides entitled “Long-Term Care Insurance Review.” The slides represented that the data underlying the Com pany’s reserve review was based on a review of current claim s experience data “as of Septem ber 30 , 20 13 unless otherwise noted.” On this day, the Com pany’s stock price closed at $ 15.25 per share, nearly its highest price in over 40 m onths. Decem ber 5, 20 13: Public debt offering. Through its debt offering, the Com pany sought to raise $ 40 0 m illion. February 5, 20 14: Press release for the Com pan y’s financial results for the fourth quarter of 20 13, which reported $ 42 m illion of net operating incom e from Genworth’s LTC insurance business. February 6, 20 14: During an investor conference, Defendants again em phasized the strength of the review leading up to the Decem ber 20 13 Presentation. March 3, 20 14: Genworth filed its 20 13 annual report on Form 10 -K, which was signed by the Individual Defendants. Defendants represented that they had reviewed Genworth’s m ost current claim s experience data and adjusted reserves accordingly. J uly 29, 20 14: Press release stating that J am es Boyle, the recently-appointed CEO of the Com pany’s U.S. Life Insurance Division and head of its long-term care business, was leaving the Com pany effective im m ediately. McInerney assum ed Boyle’s position. In a second press release issued that sam e day, the Com pany announced results for the second quarter of 20 14– only $ 6 m illion net operating incom e for its LTC business, which was 85% less than each of the prior three quarters. 5 J uly 30 , 20 14: Investor conference. Defendant Klein “adm itted” that “[w]e last perform ed an in-depth [DLR] review in the third quarter of 20 12,” which was over one year before the Decem ber 20 13 Presentation. Defendant Klein further “adm itted” that Genworth’s last review in 20 12 had been “really based on experience that we had up through about 20 10 .” Defendant McInerney noted that the Decem ber 20 13 Presentation had been lim ited to “overall m argins” and had not included a review of the Com pany’s DLR. Defendant McInerney noted that “m aybe it’s our fault” that “there [wa]s confusion” on the part of investors “between what we did in Decem ber [20 13] and what we are seeing now.” The Individual Defendants then stated that they would begin a “detailed review of the associated claim reserve assum ptions, m ethodology and process.” The Com pany’s stock price fell by 19.4%, from $ 16.26 per share to $ 13.10 . On that sam e day, McInerney appeared on Wall Street com m entator J im Cram er’s CNBC television program Mad Money to discuss the stock drop over the course of the day. McInerney stated that the upcom ing reserve review was lim ited to just 50 ,0 0 0 policies that were part of the DLR, and the review would not im pact the Com pany’s assessm ent of its ALR. Septem ber 4, 20 14: Investor conference. The Individual Defendants “adm itted” that the Com pany had not conducted a com plete review of its reserves in 20 13, and in fact had not conducted such a review since 20 12. Klein inform ed investors that the deficiencies in Genworth’s outdated reserve calculations could im pact both Genworth’s disabled and active life reserves. Klein further revealed that the reserve calculations could be so incorrect that the Com pany’s U.S. Life Insurance Division m ight not pay any dividend to the Genworth holding com pany in 20 14.4 The Com pany’s stock price dropped 4% that day. Septem ber 11, 20 14: Investor conference. Defendant McInerney “adm itted” that “[t]he last tim e we did a m ajor reserve review including the disabled life reserve was in 20 12.” Klein said that the Com pany needed to incorporate the post-May 20 10 data into its reserve review. Novem ber 5, 20 14: Press release announcing results of “com prehensive review of [Genworth’s] long term insurance claim reserves.” Defendants revealed that Genworth’s post-May 20 10 data showed that the Com pan y was m aterially under-reserved and that the Com pany needed to increase reserves by $ 531 m illion and take an after-tax charge of $ 345 m illion in the quarter. This resulted in a loss of over $ 360 m illion in net operating incom e for the third quarter of 20 14. Genworth disclosed that its loss ratio 5 for its policies was 173%. Novem ber 6, 20 14: The “Novem ber 20 14 Presentation.” The Com pany hosted a 90 m inute investor conference to discuss the third quarter results. Klein again “adm itted” that the Com pany’s last review “took place in 20 12” and “was based on data through 20 10 .” Defendants noted during this presentation that the Novem ber 20 14 review incorporated all of the “approxim ately 3 years (J une 20 10 -Decem ber 20 13) of claim data.” When calculated with this data, the average length of Genworth’s claim s increased by approxim ately 32%– from 2.2 years to 2.9 years. Plaintiffs allege that Defendants had known for years, however, that the Com pany’s LTC insurance claim s lasted an average of approxim ately three years. (See Am . Com pl. ¶¶ 92– 97.) On Novem ber 6, 20 14, 4 In both 20 12 and 20 13, the U.S. Life Insurance Division had paid at least $ 20 0 m illion in dividends. “Loss ratio” is a financial m etric calculated by dividing the “cost of providing benefits” by the “earned prem ium s” on its policies.” 5 6 Genworth’s stock price dropped and closed down 38.4%– a total loss of $ 5.41 per share, resulting in a m arket capitalization loss of $ 2.68 billion. Novem ber 7, 20 14: The Com pany’s stock price declined nearly 3%. In total, the Com pany’s stock price dropped 54% during the Class Period from a high of $ 18.74 to a low of $ 8.66 on Novem ber 6, 20 14. The Am ended Com plaint alleges “Defendants falsely and m isleadingly represented to investors that they: (i) had conducted a com plete and thorough review of Genworth’s long-term care reserves and reserve processes in advance of the Decem ber 20 13 Presentation; (ii) used current claim data for their periodic financial statem ents and for their review in advance of the Decem ber 20 13 Presentation; (iii) im plem ented the necessary internal controls to ensure that the Com pany’s reserves were based on a thorough review of current claim data; (iv) concluded based on their review and internal controls that the Com pany’s long-term care reserves were adequate; and (v) issued financial statem ents that were accurate and in accordance with GAAP.” (Am . Com pl. ¶ 114.) On February 5, 20 15, Defendants filed the present Motion to Dism iss pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6) and the PSLRA. Defendants specifically allege: (1) Plaintiffs fail to plead that Defendants m ade any false or m isleading statem ents; (2) Defendants’ statem ents about Genworth’s DLR are forward-looking statem ents protected by the PSLRA’s safe harbor; (3) Plaintiffs fail to plead scienter; and (4) Plaintiffs fail to plead a Section 20 (A) claim . Plaintiffs filed a response in opposition (“Opp’n Mem .”) (ECF No. 58) on March 9, 20 15, and Defendants subsequently filed a reply on March 24, 20 15 (“Reply Mem .”) (ECF No. 63). Once the issues were ripe for review, a hearing was held on April 28, 20 15. II. LEGAL STAN D ARD a. Fe d . R . Civ . P. 12 ( b ) ( 6 ) – Fa ilu r e t o St a t e a Cla im U p o n W h ich R e lie f M a y b e Gr a n t e d Rule 12 of the Federal Rules of Civil Procedure allows a defendant to raise a num ber of defenses to a com plaint at the pleading stage, including failure to state a claim . A m otion to dism iss for failure to state a claim upon which relief can be granted challenges the legal 7 sufficiency of a claim , rather than the facts supporting it. Fed. R. Civ. P. 12(b)(6); Goodm an v. Praxair, Inc., 494 F.3d 458, 464 (4th Cir. 20 0 7); Republican Party of N.C. v. Martin, 980 F.2d 943, 952 (4th Cir. 1992). A court ruling on a Rule 12(b)(6) m otion m ust accept all of the factual allegations in the com plaint as true, see Edw ards v. City of Goldsboro, 178 F.3d 231, 244 (4th Cir. 1999); W arner v. Buck Creek N ursery , Inc., 149 F. Supp. 2d 246, 254– 55 (W.D. Va. 20 0 1), in addition to any provable facts consistent with those allegations, Hishon v. King & Spalding, 467 U.S. 69, 73 (1984), and m ust view these facts in the light m ost favorable to the plaintiff, Christopher v. Harbury , 536 U.S. 40 3, 40 6 (20 0 2). To survive a m otion to dism iss, a com plaint m ust contain factual allegations sufficient to provide the defendant with “notice of what the . . . claim is and the grounds upon which it rests.” Bell Atl. Corp. v. Tw om bly , 550 U.S. 544, 555 (20 0 7) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)). Rule 8(a)(2) requires the com plaint to allege facts showing that the plaintiff’s claim is plausible, and these “[f]actual allegations m ust be enough to raise a right to relief above the speculative level.” Tw om bly , 550 U.S. at 555 & n.3. In other words, the plaintiff’s com plaint m ust consist of m ore than “a form ulaic recitation of the elem ents of a cause of action” or “naked assertion[s] devoid of further factual enhancem ent.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (20 0 9) (citations om itted). The Court need not accept legal conclusions that are presented as factual allegations, Tw om bly , 550 U.S. at 555, or “unwarranted inferences, unreasonable conclusions, or argum ents,” E. Shore Mkts., Inc. v. J.D. Assocs. Ltd. P’ship, 213 F.3d 175, 180 (4th Cir. 20 0 0 ). Further, in ruling on a m otion to dism iss, “a court m ay consider official public records, docum ents central to plaintiff’s claim , and docum ents sufficiently referred to in the com plaint so long as the authenticity of these docum ents is not disputed.” W itthohn v. Federal Ins. Co., 164 F. App’x 395, 396 (4th Cir. 20 0 6) (citations om itted); see also Sec’y of State for Defence v. Trim ble N avigation Ltd., 484 F.3d 70 0 , 70 5 (4th Cir. 20 0 7) (internal citations om itted) (“We m ay consider docum ents attached to the com plaint, as well as those attached to the m otion to dism iss, so long as they are integral to the com plaint and authentic.”). 8 b . Se ct io n 10 ( b ) o f t h e Exch a n g e Act & Fe d . R . Civ . P. 9 ( b ) To establish liability under Section 10 (b) of the Exchange Act and under Rule 10 b-5, a plaintiff m ust allege that “‘(1) the defendant m ade a false statem ent or om ission of m aterial fact (2) with scienter (3) upon which the plaintiff justifiably relied (4) that proxim ately caused the plaintiff’s dam ages.’” In re Pec Solutions, Inc. Sec. Litig., 418 F.3d 379, 387 (4th Cir. 20 0 5) (quoting Hillson Partners Ltd. P’ship v. Adage, Inc., 42 F.3d 20 4, 20 8 (4th Cir. 1994)). Because these claim s necessarily involve allegations of fraud, a plaintiff m ust also m eet the requirem ents of Rule 9(b) of the Federal Rules of Civil Procedure, which requires “a party [to] state with particularly the circum stances constituting fraud.” Fed. R. Civ. P. 9(b). c. PSLR A R e q u ir e m e n t s Moreover, in enacting the PSLRA “Congress has codified the pleading standard that a plaintiff m ust m eet in a securities fraud action in order to survive a 12(b)(6) m otion to dism iss.” Iron W orkers Local 16 Pension Fund v. HILB Rogal & Hobbs Co., 432 F. Supp. 2d 571, 578 (E.D. Va. 20 0 6). The PLSRA codifies Rule 9(b) an d further requires that “[t]he com plaint m ust ‘specify each statem ent alleged to have been m isleading, the reason or reasons why the statem ent is m isleading, and if an allegation regarding the statem ent or om ission is m ade on inform ation and belief, the com plaint shall state with particularity all facts on which that belief is form ed.’” Pec Solutions, Inc., 418 F.3d at 387 (quoting 15 U.S.C. § 78u-4(b)(1)). “In order to m eet this requirem ent, the com plaint m ust contain the tim e, place, speaker, and contents of the allegedly false statem ent.” Iron W orkers Local 16 Pension Fund, 432 F. Supp. 2d at 578 (citations om itted). Further, the PSLRA requires the com plaint to “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of m ind.” 15 U.S.C. § 78u-4(b)(2). A com plaint that fails to m eet these requirem ents m ust be dism issed. 15 U.S.C. § 78u-4(b)(3). // // 9 III. D ISCU SSION The Court GRANTS in part and DENIES in part Defendants’ Motion to Dism iss and holds that Plaintiffs’ securities fraud and control person liability are sufficient to survive the present Motion to Dism iss because: (1) Plaintiffs plead that Defendants m ade m aterial m isstatem ents or om issions; (2) the Am ended Com plaint raises a strong inference that Defendants acted intentionally, consciously, or recklessly; (3) the PSLRA’s safe-harbor provision is inapplicable at this stage of litigation; and (4) with facts to support Plaintiffs’ claim s of securities fraud, Defendants can be held liable based upon control person liability. See Iron W orkers Loc. 16 Pension Fund, 432 F. Supp. 2d at 579 (citing Longm an v. Food Lion, Inc., 197 F.3d 675, 686 (4th Cir. 1999)). ( 1) Fa ls e o r M is le a d in g St a t e m e n t s Section 10 (b) and SEC Rule 10 b– 5 m ake it unlawful for any person to com m it fraud in connection with the purchase or sale of securities. 15 U.S.C. § 78j(b); 17 C.F.R. § 240 .10 b– 5. To state a claim under section 10 (b) and Rule 10 b-5, a plaintiff m ust allege that “(1) the defendant m ade a false statem ent or om ission of m aterial6 fact (2) with scienter (3) upon which the plaintiff justifiably relied (4) that proxim ately caused the plaintiff’s dam ages.” Phillips v. LCI Int’l, Inc., 190 F.3d 60 9, 613 (4th Cir. 1999) (citation om itted). To fulfill the first elem ent, a plaintiff “m ust point to a factual statem ent or om ission– that is, one that is dem onstrable as being true or false.” Food Lion, Inc., 197 F.3d at 68 2 (citing Virginia Bankshares, Inc. v. Sandberg, 50 1 U.S. 10 83, 10 91– 96 (1991)). “Additionally, the plaintiff m ust allege that the statem ent is false or that the om itted fact renders a public statem ent m isleading.” Ottm ann v. Hanger Orthopedic Group, Inc., 353 F.3d 338, 343 (4th Cir. 20 0 3); see also 17 C.F.R. § 240 .10 b-5. However, this Court has previously held that “it is not necessary for Plaintiff to prove absolute, incontrovertible falsity at the m otion to dism iss stage . . . . The construction of § 78u6 A fact will be deemed “m aterial” “if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote.” TSC Indus., Inc. v. Northw ay , Inc., 426 U.S. 438, 449 (1976). 10 4(b)(1) requires a plaintiff to allege sufficient facts to support a reasonable belief in the allegation that a defendant’s statem ent was m isleading.” Carlucci v. Han, 90 7 F. Supp. 2d 70 9, 727 (E.D. Va. 20 12). “Courts have em ployed a statem ent-by-statem ent analysis in evaluating whether the com plaint ‘specif[ies] each statem ent alleged to have been m isleading, the reason or reasons why the statem ent is m isleading, and, if an allegation regarding the statem ent or om issions is m ade on inform ation and belief, . . . state with particularity all the facts on which that belief is form ed.” Iron W orkers Loc. 16 Pension Fund, 432 F. Supp. 2d at 579 (quoting 15 U.S.C. § 78u4(b)). The Court m ust also analyze whether “plaintiffs plead specific facts concerning, for exam ple, when each defendant or other corporate officer learned that a statem ent was false, how that defendant learned that the statem ent was false, and the particular docum ent or other source of inform ation from which the defendant cam e to know that the statem ent was false.” Id. (citing In re First Union Corp. Sec. Litig., 128 F. Supp. 2d 871, 886 (W.D. N.C. 20 0 1)). Thus, “[a]s a general m atter, determ ining whether the Am ended Com plaint satisfies this standard necessarily entails a case-by-case assessm ent of the Am ended Com plaint as a whole.” Carlucci, 90 7 F. Supp. 2d at 727. Plaintiffs allege five prim ary groups of false and m isleading statem ents and m aterial om issions, including that Defendants: (a) had conducted a com plete and thorough review of Genworth’s LTC reserves and reserve processes in advance of the Decem ber 20 13 Presentation; (b) used current claim data for their periodic financial statem ents and for their review in advance of the Decem ber 20 13 Presentation; (c) concluded based on their review and internal controls that the Com pany’s long-term care reserves were adequate; (d) issued financial statem ents that were accurate and in accordance with GAAP; and (e) im plem ented the necessary internal controls to ensure that the Com pany’s reserves were based on a thorough review of 11 current claim data. (Am . Com pl. ¶ 114.) 7 Each of the alleged m isrepresentations is discussed in detail below. See Iron W orkers Loc. 16 Pension Fund, 432 F. Supp. 2d at 579 (quoting 15 U.S.C. § 78u-4(b)). a. Com plete and Thorough Review of LTC Reserves On October 30 , 20 13, the first day of the Class Period, Defendant McInerney allegedly told investors that Genworth’s LTC insurance review had been underway for four m onths, and was “largely com pleted.” (Am . Com pl. ¶ 49.) He specifically stated that Defendants had “beg[u]n an intensive, very broad and deep review of all aspects of [our] long-term care business about 4 m onths ago,” and specifically told investors that “[t]he first area of focus for us was our reserving.” (Id.) (em phasis added). At the conclusion of the October 30 , 20 13 investor conference, in response to a question from a UBS analyst who asked why Defendant McInerney had such a high “level of confidence” in the adequacy of Genworth’s reserves, Defendant McInerney stated in part, “[W]e did, over the last four m onths a very thorough, deep, broad review of the long term care business, looking at every thing . . . . [E]very aspect, both new business reserves, the old book, and looking at the old book by policy year. So we’ve done an extensive review.” (Id. at ¶ 50 ) (em phasis added). During the Decem ber 4, 20 13 investor conference, Defendant McInerney again announced that Genworth had “com pleted the very intensive, broad and deep review of [its] long-term -care business.” (Id. at ¶ 52.) He further stated that “[o]ur long-term care review considered all im portant aspects of the business” and that “[a] key focus has been on assessing our reserving process, and the assum ptions used to establish both the active and disabled life reserves.” (Id.) (em phasis added). Moreover, during the February 20 14 investor conference, Defendant McInerney stated that “one of the Com pany’s key achievem ents for 210 3” was that 7 In their opening brief, Defendants also addressed Plaintiffs’ contention that Defendant McInerney “m isrepresented that any im pact from the [planned 20 14 DLR] review would be lim ited” to the DLR, and would not affect the ALR. (Mem . in Supp. of Mot. at 22) (citing Am . Com pl. ¶ 140 ). Because Plaintiffs have “fail[ed] to address these counts in their opposition,” they “have effectively abandoned these claim s.” W illiam v. AES Corp., 28 F. Supp. 3d 553, 560 (E.D. Va. 20 14). Thus, this specific allegation regarding the im pact of the 20 14 review will not be addressed. 12 Genworth’s m anagem ent had “com pleted a very intensive, broad and deep review of the longterm care business and balance sheet.” (Id. at ¶ 63, 128.) However, during the investor conference held on J uly 30 , 20 14, where Defendants acknowledged that “long-term care operating perform ance of $ 6 m illion was well below expectations,” (id. at ¶ 68), Defendant Klein “adm itted” that “[w]e last perform ed an in-depth [DLR] review in the third quarter of 20 12,” (id. at ¶ 68; see also id. at ¶ 77). Defendant Klein further “adm itted” that Genworth’s last review in 20 12 had been “really based on experience that we had up through about 20 10 .” (Id.; see also id. at ¶ 78) (During the Septem ber 20 14 conferences, Defendant Klein stated, “[I]t has been a while since we have done a deep review.”). McInerney suggested that the 20 13 review had actually been lim ited to “overall m argins” and had not included a review of the Com pany’s DLR. (Id. at ¶ 72.) Because of the disappointing results for the second quarter of 20 14, the Individual Defendants stated that they would begin a “detailed review of the associated claim reserve assum ptions, m ethodology and process.” (Id. at ¶ 69.) Based on the discrepancy between Defendants’ statem ents regarding an intensive, broad review of all aspects of the LTC business versus their statem ents during the J uly and Septem ber 20 14 conferences, Plaintiffs allege that Defendants’ statem ents were false and m isleading and om itted m aterial facts. (Id. at ¶¶ 118, 120 , 124, 127, 129.) Viewing the facts in light m ost favorable to Plaintiffs, the Court finds that Plaintiffs have pleaded sufficient facts to perm it a reasonable belief that Defendants’ representation of the scope of its 20 13 review was false or m isleading. Accepting the allegations as true, see Edw ards, 178 F.3d at 244, Defendants repeatedly told investors, on various occasions, that they conducted a “very intensive, broad and deep review” of the LTC business. Defendant McInerney specifically claim ed during the Decem ber 20 13 Presentation that they had “considered all im portant aspects of the business.” (Id. at ¶ 52.) But Defendants later explicitly stated that such a “deep review” had not been conducted since 20 12. 13 Defendants’ post-hoc argum ent that the 20 13 LTC review centered only on ALR m argin testing– as opposed to the DLR (Mem . in Supp. of Mot. at 21) – is unavailing. The plain language of Defendants’ various statem ents listed above fail to suggest to investors that the 20 13 review was lim ited in any sense, and thus m ay be deem ed m isleading. In their Motion to Dism iss as well as at the hearing held on April 28, 20 15, Defendants attem pt to m inim ize the im pact of their statem ents by highlighting what are seem ingly irrelevant argum ents. (See id. at 20 – 21.) First, Defendants point out the seem ingly undisputed facts, that being Defendants conducted an in-depth review of the DLR in Q3 20 12, and this review showed that the “total claim s reserve was sufficient.” Additionally undisputed is the fact that Genworth conducted “quarterly hindsight testing of paid claim s against the associated reserves through 20 13.” And, finally, that “the last annual review [of the DLR] in the third quarter of 20 13 did not indicate a need for any strengthening [of the DLR] at that tim e.” Defendants assert that Plaintiffs’ argum ent boils down to a claim that Defendant McInerney lied because he “represent[ed] that the com pany had conducted a DLR review in 20 13 of the sam e depth as the 20 12 DLR review the com pany had just concluded a year earlier.” (Mem . in Supp. of Mot. at 21.) These undisputed assertions m iss what is the essence of Plaintiffs’ instant allegation. Plaintiffs do not expressly dispute that Defendants m ay have conducted a review in 20 13, but Defendants repeatedly told investors that the 20 13 review was a broad, intensive review looking at all aspects of the business, and subsequently, contrary to these representations, Defendants told investors that “it has been a while since we have done a deep review.” (Am . Com pl. ¶ 78.) Defendants obviously understood the difference between an “annual” versus “indepth” review as they differentiate between the two in their J uly 20 14 earnings call. (See Ex. 2 at 9) 8 (“We last perform ed an in-depth DLR review in the third quarter 20 12 . . . . Our last annual 8 All references to exhibits refer to the exhibits attached to Defendants’ Mem orandum in Support of Motion to Dism iss. 14 review in the third quarter of 20 13 did not indicate a need for any strengthening at that tim e.”). And they chose to use the term s “broad” and “intensive” rather than m erely “annual” to initially describe their 20 13 review to investors. Based on com m on sense and logic, Plaintiffs have adequately pled that Defendants’ statem ents regarding the scope of the review were intended to m islead investors and provide false assurances that based on all the inform ation available to Defendants, Defendants were still confident in the adequacy of their reserves. After all, the review was allegedly in response to investors’ concerns regarding other m ajor life insurance com petitors exiting the LTC business. (Id. at ¶¶ 45, 46.) Plaintiffs’ Com plaint is not sim ply “pleading craftsm anship” as Defendants assert– rather, Plaintiffs have pled sufficient facts for this Court to reasonably infer that Defendants’ statem ents were m isleading. b. Current Claim Data During the Decem ber 20 13 Presentation, Defendant McInerney stated that the Com pany had “processed over 190 ,0 0 0 claim s to date, which gives us our own credible data.” (Am . Com pl. ¶¶ 53, 123.) The slides that accom panied the PowerPoint presentation represented that the data underlying the Com pany’s reserve review was “as of Septem ber 30 , 20 13 unless otherwise noted.” (Id. at ¶¶ 54, 122.) Plaintiffs allege that these statem ents were m aterially false and m isleading because Defendants’ “reserves were set at the tim e based on data from 20 10 and earlier, which had not been m eaningfully reviewed since 20 12.” (Id. at ¶ 125.) Further, during the Novem ber 20 14 Presentation, “Defendants noted that ‘im portantly’ the Com pany’s Novem ber 20 14 review incorporated all of the ‘approxim ately 3 years (J une 20 10 -Decem ber 20 13) of claim data’ not incorporated in its last review in 20 12.” (Id. at ¶ 89.) Plaintiffs argue that “Defendants’ failure to tell investors during the Decem ber 20 13 presentation [sic] that the Com pany’s reserves had been set based on data from 20 10 – at a tim e when the average claim duration was 32% shorter– was highly m isleading, contrary to their representations during the Decem ber 20 13 Presentation, and a m aterial om ission.” (Opp’n Mem . at 16.) 15 However, Defendants argue that the Decem ber 20 13 Presentation “m akes no representations about DLR data and does not reference Genworth’s DLR assum ptions or the data analyzed to establish to those assum ption s.” (Reply Mem . at 11.) Defendants’ Motion to Dism iss distinguishes between Genworth’s DLR and ALR, nam ely that the DLR “by definition has zero m argin,” (Mem . in Supp. of Mot. at 5) (citing Ex. 3 at 8), while the “ALR adequacy is assessed through annual ‘m argin testing,’” (Mem . in Supp. of Mot. at 6) (citing Ex. 3 at 11). Based on this distinction, Defendants highlight that their Decem ber 20 13 slide presentation (Ex. 11), which represents that all data is current as of Septem ber 30 , 20 13, only references “m argins,” and thus “by definition, referencing [only] ALR m argin,” (Mem . in Supp. of Mot. at 10 ). Defendants argue that “the transcript of the hour-long investor call and the accom panying presentation m ake clear that, from a reserving perspective, the 20 13 review centered on ALR m argin testing, with slides covering m argins and m argin assum ptions . . . and efforts to obtain prem ium increases . . . as opposed to the DLR, for which these issues are not relevant.” (Id. at 21– 22.) As noted above, Defendants rely on their Novem ber 210 4 earnings call (Ex. 3) in distinguishing between ALR m argin testing and the DLR, which allegedly “by definition has zero m argin.” But this post-hoc explanation fails at this stage of litigation. After a thorough review of the Decem ber 210 3 transcript, the Court has not found any statem ents such as those cited in the Novem ber 20 14 earnings call. In other words, the Individual Defendants did not m ake clear during the Decem ber 20 13 presentation that “m argins” were specifically referring only to the ALR.9 If these slides could be interpreted as also referring to the DLR, then Defendants’ 9 The Court also cannot infer that a reasonable investor knew that m argins only referred to ALR, not DLR. See Om nicare, Inc. v. Laborers Dist. Council Constr. Indus. Pension Fund, No. 13-435, 20 15 WL 1291916, at *7 (“[W]hether a statement is ‘m isleading’ depends on the perspective of a reasonable investor.”). And after a review of the transcripts, it appears that the investors may have been unclear on the distinction. Com pare Ex. 6 at 3– 4 (during the Septem ber 20 14 investor conference, investor asking Defendant Klein to explain the differences between claim reserves and active life reserves, and Defendant Klein explaining m argins), with Ex. 6 at 6– 7 (investor asking Defendant Klein about the “active life m argin” described in the December 20 13 Presentation). Indeed, at the hearing Plaintiffs argued that Defendants reference m argins in different contexts. 16 representations m ay be m isleading, as Defendants later “adm itted” their reserves had been set based on data from May 20 10 . (Am . Com pl. ¶¶ 32, 61, 68, 76, 78, 8 8, 89.) Thus, Plaintiffs have pled sufficient facts to support a reasonable belief in the allegation that Defendants’ statem ent, that being all data is current as of Septem ber 30 , 20 13, was m isleading. See Carlucci, 90 7 F. Supp. 2d at 727. c. Adequacy of LTC Reserves 10 Next, Plaintiffs allege that Defendants m isled investors by “repeatedly” representing that Genworth’s LTC reserves were “adequate.” Before the Class Period, during a J uly 30 , 20 13 investor conference, Defendant Klein stressed that the Com pany’s LTC reserves were “adequate.” (Am . Com pl. ¶ 46.) Sim ilarly, Defendant McInerney echoed this belief during a Septem ber 25, 20 13 m id-quarter investor conference. (Id. at ¶ 47.) Additionally, on October 30 , 20 13, the first day of the Class Period, Defendant McInerney told investors that “after this four m onth extensive review, we’re m ore confident than we’ve ever been that the reserves are adequate, with a com fortable m argin.” (Id. at ¶¶ 50 , 117.) Further, the Com plaint alleges that the Decem ber 20 13 Presentation again assured investors that as of Septem ber 30 , 20 13, the Com pany still had adequate long-term care reserves and m argins still “rem ain[ed] solid.” (Id. at ¶ 55; see also ¶ 121.) Finally, during a February 6, 20 14 investor conference, Defendant Klein again noted that “Genworth holds m ore than adequate reserves to satisfy policyholder claim s.” (Id. at ¶ 63.) Plaintiffs allege that Defendants’ statem ents regarding the adequacy of reserves were false and m isleading and om itted m aterial facts as the Com pany was actually $ 531 m illion under-reserved. (Id. at ¶¶ 118, 119, 120 , 126, 127, 130 .) Plaintiffs contend that this “accounting charge of $ 531 m illion was belatedly taken in the third quarter of 20 14, as opposed to these prior 10 On March 24, 20 15, the Suprem e Court issued its opinion in Om nicare, Inc. v. Laborers District Council Construction Industry Pension Fund, No. 13-435, 20 15 WL 1291916. Subsequent to that decision, the Court granted the parties’ request to file supplemental briefs, which they filed on April 7, 20 15. (ECF Nos. 66, 67, 68.) Because the supplem ental briefs slightly altered the analyses presented in the parties’ original m oving paper, the Court will address all relevant argum ents. Regardless, under either the original argum ents or pursuant to the recent Om nicare decision, the Court finds that Plaintiffs have adequately stated their claim . 17 quarters in the Class Period.” (Id. at ¶ 147.) Specifically, in their original opposition brief Plaintiffs argue that “Defendants had no reasonable basis for believing that the Com pany had adequate reserves because . . . reserves had been set based on stale data from 20 10 showing an average claim duration of 2.2 years, despite their knowledge and disclosure that the true average was ‘approxim ately three years,’ and not 2.2 years.” (Opp’n Mem . at 20 ) (em phasis added). But Defendants counter, arguing (1) Genworth did not use “average claim duration,” and (2) Defendants’ statem ents were not objectively false. As to Defendants’ first point of contention, Defendants argue that Plaintiffs “spin[] a single disclosure in Genworth’s Novem ber 6, 20 14 investor presentation into a sim plistic and erroneous theory about how Genworth should have calculated reserves.” (Mem . in Supp. of Mot. at 15.) They argue that “Plaintiffs identify no statem ents by Defendants suggesting that Genworth, in fact, calculated its DLR using an ‘average claim duration’ (whether 3 years or 2.2 years).” (Id.) Rather, Defendants suggest that their reserves are calculated on a “claim -by-claim basis” and incorporate m any “term ination rates.” Specifically, Defendants assert that “term ination rates” “are the inputs used to ‘calculate reserves,’ and claim duration is an output that can be derived from applying those term ination rates to the current claim s.” (Id.) However, Plaintiffs’ Com plaint disputes Defendants’ contention. Plaintiffs contend that Defendants used an average claim duration figure to set or calculate its reserves. (Am . Com pl. ¶ 98, 119, 126, 127, 130 .) In ruling on a m otion to dism iss, this Court m ust accept all of the factual allegations in the com plaint as true. See Edw ards, 178 F.3d at 244. As such, the Court cannot engage in a factual dispute at this stage of litigation regarding how Genworth calculated its reserves. Rather, accepting Plaintiffs’ allegation that Defendants used an “average claim duration” to calculate claim reserves, the Court m ust next analyze whether Defendants’ statem ents were false or m isleading. In their original briefs, both parties appeared to agree that Defendants’ statem ents 18 regarding the adequacy of reserves were statem ents of opinion. “In Virginia Bankshares, 50 1 U.S. 10 83, 10 93, the Suprem e Court held that in a securities fraud case, a statem ent of opinion m ay be a false factual statem ent if the statem ent is false, disbelieved by its m aker, and related to m atters of fact which can be verified by objective evidence.” N olte v. Capital One Fin. Corp., 390 F.3d 311, 315 (4th Cir. 20 0 4). In other words, “[i]n order to plead that an opinion is a false factual statem ent under Virginia Bankshares, the com plaint m ust allege that the opinion expressed was different from the opinion actually held by the speaker.” Id. (citing Virginia Bankshares, 50 1 U.S. at 10 93). Other cases have expounded upon this definition, explaining that if defendants lacked any reasonable basis for believing their statem ents when m ade, then those statem ents are actionable false factual statem ents. In re Pozen Sec. Litig., 386 F. Supp. 2d 641, 646 (M.D. N.C. 20 0 5); see also Borow v. nVIEW Corp., 829 F. Supp. 828, 833 (E.D. Va. 1993) (“[T]he plaintiff m ust plead facts that tend to show that, at the tim e they were m ade, the statem ents either weren’t genuinely believed or that there were no reasonable grounds for the belief, or that the proponent knew facts that seriously underm ined the grounds for the belief.”). Plaintiffs’ Com plaint is sufficient to m eet these standards. Plaintiffs allege that “Defendants knew that the 2.2-year average claim duration figure used internally by the Com pany to set its reserves was wrong and based on old data.” (Am . Com pl. ¶ 98.) They support this contention by citing various SEC filings for 20 10 , 20 11, 20 12, and 20 13, in which Defendants state that LTC claim s typically have a duration of approxim ately three years. (Id. at ¶ 92.) Additionally, Plaintiffs note a 20 13 study published by Genworth, an April 14, 20 14 press release, as well as a Septem ber 9, 20 14 Gannett News Service article, all of which recognize an average claim duration of 3 years. (Id. at ¶ 95, 96; see also id. at ¶ 97.) These public statem ents provide sufficient evidence dem onstrating that Defendants knew the actual duration of Genworth’s claim s, and thus as Plaintiffs allege, Defendants “knew, or were reckless in not knowing, that the Com pany, by using this incorrect statistic to calculate reserves, was understating its reserves by m aterial am ounts and inflating Genworth’s earnings.” (Id. at ¶ 98.) 19 Plaintiffs have provided “adequate corroborating details” that provides this Court with a “basis for the allegations that the officers had actual or constructive knowledge of [Genworth’s] problem s that would suggest their optim istic representations about [Genworth’s] health were consciously m isleading.” Sm ith v. Circuit City Stores, Inc., 286 F. Supp. 2d 70 7, 717 (E.D. Va. 20 0 3). Secondly, Defendants argue that their statem ents regarding Genworth’s DLR were not objectively false– “i.e., that Genworth’s DLR was, in fact, inadequate in October or Decem ber 210 3 or February 20 14.” (Mem . in Supp. of Mot. at 18.) While Plaintiffs do not necessarily dispute this specific argum ent in their opposition brief, Plaintiffs’ Com plaint alleges that “[t]he accounting charge of $ 531 m illion was belatedly taken in the third quarter of 20 14, as opposed to these prior quarters in the Class Period.” (Am . Com pl. ¶ 147.) Plaintiffs further argue that “[t]he num ber and type of policies Genworth had ‘on claim ’ during the third quarter of 20 14– i.e., when the $ 531 m illion charge was taken– were virtually identical to those policies on claim during earlier quarters of the Class Period.” (Id.) Plaintiffs identify how this $ 531 m illion charge would have m aterially im pacted Genworth’s financial statem ents if it had been taken in any prior quarter during the Class Period. (See id. at ¶ 147 (tables).) Thus, Plaintiffs pled that Genworth’s reserves were inadequate throughout the Class Period. Finally, Defendants allege that “[w]ithout specifying how and when the DLR was inadequate, Plaintiffs’ claim that Genworth’s Q3 20 14 reserve increase (reported in Novem ber) was ‘belatedly taken’ (Am . Com pl. ¶ 147) is im perm issible ‘fraud by hindsight’ pleading.” (Mot. at 19.) This Court has stated, “[T]o survive a Rule 9(b) m otion, plaintiffs m ust point in the com plaint to som e reason that the difference between the rosy projections and later results is attributable to fraud.” Borow , 829 F. Supp. at 833. In other words, “[P]laintiffs m ust allege facts indicating that the change in circum stances resulted from defendants’ fraudulent schem e.” Id. Here, Plaintiffs have done just that– alleged that the change in circum stances was due to Defendants fraudulently using a 2.2 average claim duration to calculate reserves when they 20 knew that such duration was actually 3 years. “These allegations set forth in very clear and specific term s the inform ation available to [Defendant] and why, given its possession of this inform ation, [Defendant’s] statem ents about the adequacy of its reserves were m isleading. In short, [P]laintiff[s] ha[ve] not asserted ‘fraud by hindsight.’” Jones v. Corus Bankshares, Inc., 70 1 F. Supp. 2d 10 14, 10 20 – 21 (N.D. Ill. 20 10 ). Next, under the alternative Om nicare analysis, the Court reaches the sam e result. In Om nicare, the Suprem e Court focused on Section 11 of the Exchange Act, which gives a right of action against a com pany issuing securities (known as “issuers”) for m aterial m isstatem ents or om issions in registration statem en ts filed with the SEC. 20 15 WL 1291916 at *3. Specifically, if the registration statem ent “contain[ed] an untrue statem ent of m aterial fact” or “om it[tted] to state a m aterial fact . . . necessary to m ake the statem ents therein not m isleading,” then a purchaser of the stock m ay sue for dam ages. Id. In other words, “Section 11 . . . creates two ways to hold issuers liable for the contents of a registration statem ent– one focusing on what the statem ent says and the other on what it leaves out.” Id. at *4. The Suprem e Court focused on the particular issue of how each of these phrases applies to statem ents of opinion. Id. at *3. Citing sim ple dictionary definitions, the Court first explained that “[a] fact is ‘a thing done or existing’ or ‘[a]n actual happening.’” Id. at *5. On the other hand, “[a]n opinion is a ‘belief[,] a view,’ or a ‘sentim ent which the m ind form s of persons or things.’” Id. “[A] statem ent of fact (‘the coffee is hot’) expresses certainty about a thing, whereas a statem ent of opinion (‘I think the coffee is hot’) does not.” Id. To “transform ” a statem ent of fact into opinion, the Court suggested using the term s “I believe” or “I think.” Id. at *6. Next, with regards to the latter portion of Section 11, that is liability for m aterial om issions, Om nicare focused on “when, if ever, the om ission of a fact can m ake a statem ent of opinion, even if literally accurate, m isleading to an ordinary investor.” Id. at *7.11 The Court 11 Om nicare highlighted that “whether a statem ent is ‘m isleading’ depends on the perspective of a reasonable investor: The inquiry . . . is objective.” Id. at *7 (citation om itted). 21 stated, “A reasonable investor m ay, depending on the circum stances, understand an opinion statem ent to convey facts about how the speaker has form ed the opinion– or, otherwise put, about the speaker’s basis for holding that view. And if the real facts are otherwise, but not provided, the opinion statem ent will m islead its audience.” Id. at *8. A reasonable investor, the Court noted, “expects not just that the issuer believes the opinion (however irrationally), but that it fairly aligns with the inform ation in the issuer’s possession at the tim e.” Id. Thus, in sum “if a registration statem ent om its m aterial facts about the issuer’s inquiry into or knowledge concerning a statem ent of opinion, and if those facts conflict with what a reasonable investor would take from the statem ent itself, then § 11’s om ission clause creates liability.” Id. Moreover, “whether an om ission m akes an expression of opinion m isleading always depends on context.” Id. at *9. A reasonable investor considers each statem ent in light of the full context. Id. Finally, the Court detailed the burden on investor plaintiffs who seek to hold issuers liable. The Court noted, “[A]n investor cannot state a claim by alleging only that an opinion was wrong; the com plaint m ust as well call into question the issuer’s basis for offering the opinion.” Id. at *10 . Thus, “[t]o be specific: The investor m ust identify particular (and m aterial) facts going to the basis for the issuer’s opinion– facts about the inquiry the issuer did or did not conduct or the knowledge it did or did not have– whose om ission m akes the opinion statem ent at issue m isleading to a reasonable person reading the statem ent fairly and in context.” Id. In conclusion, the Court adm onished the lower court to consider three questions on rem and: (1) whether the Com plaint adequately alleged that Defendan ts om itted a fact; (2) if so, whether the om itted fact would have been m aterial to a reasonable investor; and (3) whether the alleged om ission rendered the statem ents m isleading– “i.e., because the excluded fact shows that [Defendant] lacked the basis for m aking those statem ents that a reasonable investor would expect.” Id. at *12. As an initial m atter, Defendants’ statem ents regarding the adequacy of reserves in the 22 instant case are not necessarily statem ents of opinion. Defendants’ statem ents do not contain the words “believe” or “think,” but instead suggest a greater sense of certainty. See Om nicare, 20 15 WL 1291916, at *5.12 Nevertheless, Om nicare’s holding is applicable and relevant to the instant case as the standard defined in Section 11 of the Exchange Act is nearly identical to the standard at issue here. See id. at *3. For purposes of the instant case, Om nicare’s discussion of actionable om issions is m ost im portant. As the Suprem e Court suggested, we m ust determ ine whether a statem ent is “m isleading” from the standpoint of a “reasonable investor.” Id. at *7. A reasonable investor, the Court notes, “understand[s] an opinion statem ent to convey facts about how the speaker has form ed the opinion . . . . And if the real facts are otherwise, but not provided, the opinion statem ent will m islead its audience.” Id. at *8. Moreover, a reasonable investor expects that the issuer’s statem ent “fairly aligns with the inform ation in the issuer’s possession at the tim e” Id. Here, Plaintiffs’ Com plaint adequately alleges that Defendants om itted facts from their public representations, id. at *12– specifically, Defendants did not conduct the broad, intensive review as they alleged and Defendants relied on outdated data in calculating reserves. Second, these om itted facts would certainly be m aterial to a reasonable investor. In other words, “‘there is a substantial likelihood that a reasonable [investor] would consider it im portant.’” Id. (quoting TSC Industries, 426 U.S. at 449). Finally, these m aterial om issions rendered Defendants’ statem ents m isleading “because the excluded fact[s] show[] that [Defendants] lacked the basis for m aking those statem ents that a reasonable investor would expect.” Id. Moreover, as Plaintiffs argue, these om issions were “particularly significant given the context in which Defendants m ade their assertions about Genworth’s ‘adequate’ reserves.” (Pls.’ Supp. Br. at 3.) Specifically, the statem ents regarding the adequacy of reserves were m ade at a tim e when “the long-term care insurance industry began to falter,” (Am . Com pl. ¶ 28), and “num erous 12 Plaintiffs argue in their supplem ental brief that Defendants’ statem ents are statements of fact, not opinion. However, after noting this argum ent, Plaintiffs’ analysis continues by applying Om nicare as if Defendants’ statem ents in the instant case are statem ents of opinion. 23 industry experts and insurance com panies publicly expressed concerns that long-term care insurance providers had incorrectly priced and set reserves on their policies,” (id.). Additionally, Defendants m ade these specific m isrepresentations after assuring investors that they conducted a broad, intensive review of “all aspects” of the business. (See id. at ¶¶ 46, 47, 49, 50 , 52.). But in reality the Com pany had not perform ed an in-depth DLR review since 20 12, with that review based on data from 20 10 , (id. at ¶¶ 68, 77, 78, 8 9, 119, 127). Plaintiffs have adequately pled that these excluded facts illustrate that Defendants lacked the basis for m aking their alleged m isrepresentations. (Id. at ¶ 119.) d. Financial Statem ents and GAAP Reporting 13 In their Com plaint, Plaintiffs additionally allege that Defendants violated GAAP. Genworth allegedly asserted during the Class Period that its “financial statem ents . . . have been prepared in accordance with . . . U.S. GAAP.” (Am . Com pl. ¶ 145.) Genworth’s Form 20 13 10 -K also stated that it was prepared “in accordan ce with U.S. GAAP” and asserted that “[w]e calculate and m aintain reserves for estim ated future paym ents of claim s to our policyholders and contractholders in accordance with U.S. GAAP and industry accounting practices.” (Id.) Plaintiffs allege that Defendants’ financial statem ents were “m aterially m isstated and not presented in accordance with GAAP and concealed that Genworth’s financial controls were not effective.” (Id. at ¶ 144.) According to Plaintiffs, “GAAP required Genworth to review its longterm care experience data often and to account for current data and known trends when updating reserves . . . . In setting and updating reserve levels, GAAP prohibited Genworth from relying on old data not reflective of current reality and precluded Genworth from doing occasional or cursory reserve reviews.” (Id. at ¶ 145; see also ¶¶ 39– 40 .) Plaintiffs conclude that 13 In their opposition mem orandum , Plaintiffs argue that “[a]t most, Defendants’ Motion raises factspecific issues concerning a specialized area of financial accounting that will be the subject of expert testim ony and is inappropriate for resolution at this early stage of the litigation.” (Opp’n Mem . at 17) (citing Schuh v. HCA Holdings, Inc., 947 F. Supp. 2d 882, 894 (M.D. Tenn. 20 13); In re SLM Corp. Sec. Litig., 740 F. Supp. 2d 542, 555– 56 (S.D.N.Y. 20 10 )). However, in Circuit City the plaintiff sim ilarly alleged violations of GAAP and two SEC Regulations, and this Court addressed the issue at the m otion to dism iss stage of litigation. See 286 F. Supp. 2d at 717– 19. Therefore, the Court will follow suit and address the instant allegations. 24 Defendants had “no reasonable basis to believe or state that the Com pany’s financial statem ents were accurate and in accordance with GAAP, and they therefore knew the financial statem ents were false and m isleading when issued.” (Id. at ¶ 146.) But, Defendants challenge Plaintiffs, arguing that the actual text of GAAP does not support Plaintiffs’ argum ent. Plaintiffs cite two provisions of GAAP: (1) Accounting Standards Codification (“ASC”) 944-40 -35-9 (id. at ¶¶ 40 , 145) and (2) ASC 944-40 -30 -1 (id. at ¶ 41).14 The form er provision states, “An insurance entity shall regularly evaluate estim ates used and adjust the additional liability balance, with a related charge or credit to benefit expense, if actual experience or other evidence suggests that earlier assum ptions should be revised.” (Am . Com pl. ¶ 40 ). The latter provision states, “The liability for unpaid claim s shall be based on the estim ated ultim ate cost of settling the claim s (including the effects of inflation and other societal and econom ic factors), using past experience adjusted for current trends, and any other factors that would m odify past experience.” (Ex. 4.) Plaintiffs further cite SEC Regulation S-X, which provides that “[t]he inform ation required with respect to any statem ent shall be furnished as a m inim um requirem ent to which shall be added such further m aterial inform ation as is necessary to m ake the required statem ents, in the light of the circum stances under which they are m ade, not m isleading.” (Am . Com pl. ¶ 144) (citing 17 C.F.R. § 210 .4-0 1(a)). This Court has previously stated that “the Reform Act’s pleading standards are heightened for allegations of GAAP violations. Heightened standards apply because GAAP is a term of art encom passing a wide range of acceptable procedures.” Circuit City , 286 F. Supp. 2d at 719 (citations and internal quotation m arks om itted). Accordingly, “Plaintiffs alleging GAAP violations m ust plead pertinent facts, . . . dem onstrating that the specific accounting principle applies.” Id. (citation and internal quotation m arks om itted). With regards to the first alleged violation of ASC 944-40 -35-9, Plaintiffs’ allegation lacks 14 Plaintiffs’ Com plaint also cites: (1) Audit and Accounting Guide for Life and Health Insurance Entities (“AAG”), Section 7.44 to 7.57; (2) AAG Section 7.43; (3) ASC 944-40 -35-10 ; and (4) ASC 944-40 -35-11. (See Am . Com pl. ¶ 41.) However, because these provisions were not addressed by either party in their pleading papers, the Court will not address them here. 25 the requisite particularity. Relying on this GAAP provision, Plaintiffs assert that Genworth was required to review its LTC experience data “often,” (Am . Com pl. ¶ 145), or on a “frequent basis” (Opp’n Mem . at 17). However, Plaintiffs provide no citation that equates “regular” evaluations as required by GAAP with “often” or “frequent” evaluations. In other words, Plaintiffs’ conclusory allegations do not explain why Genworth’s annual review and quarterly reserves testing were not “frequent” enough to satisfy GAAP. Thus, Plaintiffs have not dem onstrated that this specific accounting principle applies to Plaintiffs’ particular proposition. See Circuit City , 286 F. Supp. 2d at 719. With respect to ASC 944-40 -35-9 and ASC 944-40 -30 -1,15 Plaintiffs have stated a claim . Plaintiffs pled that Genworth relied on “old data not reflective of current reality.” (Am . Com pl. ¶ 145). Plaintiffs further argue that “Genworth was required to update its reserve calculations when new experience data showed that the factors underlying its reserves, such as claim duration, had changed.” (Id.). Moreover, Plaintiffs illustrate the approxim ate am ount by which Genworth allegedly m aterially m isstated key financial figures during the Class Period. (Id. at ¶ 147 (tables).) These facts state a claim for a violation of GAAP, as GAAP requires “liability for unpaid claim s” to be “adjusted for current trends,” ASC 944-40 -30 -1, and insurance entities m ust “adjust the additional liability balance” to account for “other evidence [which] suggests that earlier assum ptions should be revised,” ASC-944-40 -35-9. With respect to SEC Regulation S-X, Plaintiffs have not provided pertinent facts dem onstrating this principle applies. Circuit City , 286 F. Supp. 2d at 719 (citation and internal quotation m arks om itted). Rather, Plaintiffs solely cite the language of the allegedly applicable regulation and do not provide any facts regarding application. (See Am . Com pl. ¶ 144.) e. Internal Controls Plaintiffs further allege that Defendants “m isled investors throughout the Class Period by 15 In their pleading papers, the parties only address this first allegation regarding the “frequency” of testing required by GAAP. However, because the Complaint details additional alleged GAAP violations, the Court will also address these allegations. 26 representing that Genworth had effective internal controls, which purportedly included frequent reviews of current experience data to set reserves.” (Opp’n Mem . at 18.) Specifically, the Am ended Com plaint states that Defendants told investors, “[W]e have refined and im proved our reserving, underwriting, and risk-m anagem ent processes, based on analyzing and using our significant data on consum ers, underwriting an d claim s.” (Am . Com pl. ¶ 123.) The Defendants additionally assured investors in its 20 13 Form 10 -K that “[w]e regularly review our reserves and associated assum ptions as part of our ongoing assessm ent of our business perform ance and risks,” that “[w]e m onitor actual experience, and when circum stances warrant, revise our assum ptions,” and that “[t]he m ethods of determ ining such estim ates and establishing the reserves are reviewed continuously . . . .” (Id. at ¶¶ 64, 131.) Moreover, in connection with the Form 10 -K, the Com plaint asserts that Defendants McInerney and Klein each signed certifications pursuant to Section 30 2 of the Sarbanes-Oakley Act of 20 0 2 (“SOX Certifications”) and Internal Controls Certifications. (Id. at ¶¶ 65, 135.) Defendants allegedly certified that Genworth’s internal controls were effective and functioning properly. (Id.) Further, Defendants certified that “our m anagem ent has concluded that our internal control over financial reporting was effective as of Decem ber 31, 20 13.” (Id. at ¶ 133.) Plaintiffs allege that these statem ents were false and m isleading and om itted m aterial facts as Defendants did not conduct a reserve review since 20 12 and that review was based on data from 20 10 . (Id. at ¶¶ 132, 134, 136.) With regards to the first statem ent that “[w]e have refined and im proved our reserving, underwriting, and risk-m anagem ent processes,” (id. at ¶ 123), the Court agrees with Defendants that “[s]im ply stating that controls were ‘deficient’ does not establish that Defendants ‘failed to update’ those controls.” (Reply Mem . at 11.) Thus, Plaintiffs do not plead facts dem onstratin g that these processes were not “refined and im proved.” Sim ilarly, Plaintiffs have failed to plead sufficient facts as to why the following statem ents are m isleading: (1) “[w]e regularly review our reserves and associated assum ptions as part of our ongoing assessm ent of our business perform ance and risks;” and (2) “[t]he m ethods of determ ining such estim ates and establishing 27 the reserves are reviewed continuously.” (Am . Com pl. ¶ 64, 131.) It is apparently undisputed that Defendants did conduct annual and quarterly reviews of their reserves– no facts support Plaintiffs’ argum ent that these reviews were not “regular” or “continuous.” Moreover, even if as Plaintiffs argue Defendants were using outdated data in establishing reserves, Defendants were still reviewing reserves, and thus Plaintiffs have failed to prove sufficient facts to establish a reasonable belief in the falsity of these statem ents. But, the other alleged statem ent that Defendants “m onitor actual experience, and when circum stances warrant, revise our assum ptions,” (Am . Com pl. ¶ 131), m ay be considered m isleading. As Plaintiffs plead, “Genworth’s claim s experience consistently showed that its average claim duration was approxim ately 3 years, not the 2.2-year figure used by Genworth to calculate its reserves.” (Id. at ¶ 132.) Accepting Plaintiffs’ allegations as true, Defendants did not revise their assum ptions based on current claim data. Finally, with respect to Defendants’ certification that “our m anagem ent has concluded that our internal control over financial reporting was effective as of Decem ber 31, 20 13,” (id. at ¶ 133), this statem ent too is m isleading. Accepting Plaintiffs’ allegation that Defendants were using a 2.2-year claim duration when they knew they should have been using a 3-year average claim duration, then Defendants’ internal controls could not have been effective. ( 2 ) Scie n t e r The PSLRA requires a securities fraud com plaint to “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of m ind.” 15 U.S.C. § 78u-4(b)(2)(A). To prove this necessary m ental state known as “scienter,” a plaintiff m ust show that defendants possess the “intent to deceive, m anipulate, or defraud.” Ernst & Ernst v. Hochfelder, 425 U.S. 18 5, 194 & n.12 (1976). “[N]egligence is not enough. A plaintiff m ust show either ‘intentional m isconduct’ or such severe recklessness’ that the danger of m isleading investors was ‘either known to the defendant or so obvious that the defendant m ust have been aware of it.’” Cozzarelli v. Inspire Pharm . Inc., 549 F.3d 618, 623 (4th Cir. 20 0 8) (quoting 28 Ottm ann, 353 F.3d at 343– 44). Further, a “strong inference” of scienter requires a “persuasive and cogent” inference. In re M icrostrategy , Inc. Sec. Litig., 115 F. Supp. 2d 620 , 631 (E.D. Va. 20 0 0 ). In other words, to qualify as “strong,” an “inference of scienter m ust be m ore than m erely ‘reasonable’ or ‘perm issible’– it m ust be cogent . . . and at least as com pelling as any opposing inference of one could draw from the facts alleged.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 30 8 , 324 (20 0 7); see also Carlucci, 90 7 F. Supp. 2d at 729 (quoting Pub. Em ploy ees’ Ret. Ass’n of Colo. v. Deloitte & Touche LLP, 551 F.3d 30 5, 313 (4th Cir. 20 0 9)) (“If the inference that a defendant ‘acted innocently, or even negligently, [is] m ore com pelling than the inference that they acted with the requisite scienter,’ then the com plaint m ust be dism issed.”) “Adding the words ‘knowingly’ or ‘recklessly’ to a factual statem ent is insufficient pleading.” Circuit City , 286 F. Supp. 2d at 714 (citation om itted). Rather, “allegations of scienter m ust be based on a substantial factual basis” and cannot sim ply “couple a factual statem ent with a conclusory allegation of fraudulent intent.” Id. at 713, 715 (citations and internal quotation m arks om itted). “[I]f the defendant is a corporation, the plaintiff m ust allege facts that support a strong inference of scienter with respect to at least one authorized agent of the corporation, since corporate liability derives from the actions of its agents.” Teachers Ret. Sy s. of LA v. Hunter, 477 F.3d 162, 184 (4th Cir. 20 0 7). Finally, the Court m ust evaluate the totality of the circum stances alleged in the com plaint, and afford “the inferential weight warranted by context and com m on sense.” Carlucci, 90 7 F. Supp. 2d at 729 (citation and internal quotation m arks om itted); see also Arnlund v. Deloitte & Touche LLP, 199 F. Supp. 2d 461, 475 (E.D. Va. 20 0 2) (citing MicroStrategy , 115 F. Supp. 2d at 628– 30 , 633) (“[I]t is sufficient to plead scienter by setting forth facts that constitute circum stantial evidence of either reckless or conscious behavior, and the adequacy of the scienter allegations is to be m easured by the facts collectively alleged in the com plaint.”) 29 Here, paragraphs 149 through 165 of Plaintiffs’ Am ended Com plaint offer “additional facts [that Plaintiffs argue] raise a strong inference that Defendants knew or were reckless in disregarding the true facts when m aking the false and m isleading statem ents.” (Am . Com pl. ¶ 149.) Specifically, the Am ended Com plaint alleges the following: (1) ¶ 150 : The Individual Defendants have since adm itted that several of the statem ents identified in the Com plaint were m ade based on inform ation known to them at the tim e. (2) ¶ 151: The Individual Defendants were intim ately involved in Genworth’s im portant LTC business and the purported review leading up to the Decem ber 20 13 Presentation. (3) ¶ 154: The Individual Defendants were personally involved in the Com pany’s reserving process as evidenced by the Com pany’s Form 10 -K filed on March 3, 20 14 and the Novem ber 20 13 investor conference. (4) ¶ 155: The Individual Defendants spoke repeatedly about the purported breadth and depth of the Com pany’s review leading up to the Decem ber 20 13 Presentation. (5) ¶ 156: The Individual Defendants knew throughout the Class Period, and received reports showing, that the average length of Genworth claim s was 3 years, and not the 2.2-year figure internally used to calculate reserves. (6) ¶ 157: Genworth’s LTC business was a core business for the Com pany during the Class Period. (7) ¶ 158: The Individual Defendants knew that industry experts had identified adverse trends in claim data between 20 10 and 20 13 that were not accounted for in Genworth’s reserves. (8) ¶ 159: The Individual Defendants sought rate increases during the Class Period from state regulators based on known, adverse changes in Genworth’s claim s data. (9) ¶ 161: The Individual Defendants knew that investor and analyst attention was acutely focused on the Com pany’s LTC business during the Class Period. (10 ) ¶ 162: The Individual Defendants signed and filed with the SEC each quarter SOX and Internal Control Certifications. (11) ¶ 163: Genworth understated its reserves during the Class Period by over a half-billion dollars. (12) ¶ 164: The Individual Defendants’ statem ents allowed the Com pany to artificially preserve its investm ent grade credit and debt ratings in advance of its Decem ber 20 13 Offering. (13) ¶ 165: The Individual Defendants received substantial bonuses and com pensation as a result of their m isrepresentations. Defendants counter that Plaintiffs fail to allege any facts supporting an inference of scienter. Instead, Defendants argue that the “far m ore cogent and com pelling explanation of the facts alleged is that the underlying DLR assum ptions Genworth put in place in Q3 20 12 held up under quarterly hindsight and annual testing through 20 13, until Genworth observed adverse claim experience in Q2 20 14.” (Reply Mem . at 18.) While Plaintiffs’ allegations standing alone m ay not 30 be sufficient to support a strong inference of scienter, collectively the allegations paint a com pelling picture. MicroStrategy , 115 F. Supp. 2d at 649. First, the fact that the LTC business was part of Genworth’s core operations is fundam entally undisputed. Defendant McInerney has self-proclaim ed Genworth “[a]s the undisputed leader in the long-term care insurance industry,” (Ex. 9 at 4), and explicitly declared LTC as one of its two “core sets of businesses,” (Ex. 14 at 3; see also id. Ex. 17 at 2). While it cannot be concluded that Defendants acted intentionally or recklessly on this fact alone, this first allegation is certainly relevant to the Court’s holistic analysis. Yates v. Municipal Mortg. & Equity , LLC, 744 F.3d 874, 890 (4th Cir. 20 14); see also South Ferry LP, No. 2 v. Killinger, 542 F.3d 776, 784 (9th Cir. 20 0 8) (“Allegations that rely on the core-operations inference are am ong the allegations that m ay be considered in the com plete PSLRA analysis.”). Next– the Defendants’ executive positions and intim ate involvem ent in the reserving process and review. The Individuals Defendants are, and during the Class Period were, senior executives of Genworth: Defendant McInerney has been Genworth’s CEO and President since J anuary 20 13. (Am . Com pl. ¶ 19.) In J uly 20 14, McInerney replaced J am es Boyle as the CEO of Genworth’s U.S. Life Insurance Division and head of its long-term care insurance business, with McInerney also m aintaining his title and respon sibilities as CEO of the entire Com pany. (Id.) Defendant McInerney was also a m em ber of Genworth’s Board of Directors and its Long-Term Care Steering Com m ittee. (Id.) Defendant Klein has been Genworth’s CFO since May 20 11, and served as its Acting President and Acting CEO from May 20 12 to Decem ber 20 12. (Id. at ¶ 21.) Defendant Klein was also a m em ber of Genworth’s LTC Steering Com m ittee at all relevant tim es. (Id.) Although various courts before have rejected claim s that defendants m ust have known a statem ent was false or m isleading solely because of his or her position in the com pany, see Iron W orkers Local 16 Pension Fund, 432 F. Supp. 2d at 592 (citation om itted), Arnlund, 199 F. Supp. 2d at 477 (footnote and internal quotation m arks om itted), this claim m ay still be “posited as part of the context to support the particulars of scienter set forth in the other 31 allegations of the Am ended Com plaint.” Arnlund, 199 F. Supp. 2d at 477; see also MicroStrategy , 115 F. Supp. 2d at 640 . While the fact that the Individual Defendants held senior executive positions alone m ay not be com pelling, this fact augm ents the other allegations of intim ate involvem ent pleaded elsewhere in the Am ended Com plaint. Specifically, the Com plaint alleges that the Individual Defendants were m em bers of the Com pany’s Long-Term Care Steering Com m ittee. (Am . Com pl. ¶¶ 19, 21.) This Com m ittee, “internally known as the ‘war room team ,’ . . . m eets weekly and ‘go[es] through everything’ related to the Com pany’s long-term care business.” (Id. at ¶ 47.) Additionally, at the close of the Decem ber 20 13 Presentation, Defendant “McInerney reiterated that the presentation was based on his personal involvem ent in Genworth’s com plete review of all com ponents of the Com pany’s long-term care business.” (Id. ¶ 57) (em phasis added). Defendant McInerney represented that he and Defendant Klein “spent enorm ous am ounts of tim e, with weekly m eetings with the team ” in advance of the presentation. (Id.; see also id. at ¶ 151.) He further asserted that they had “really dug into all of this and all of these num bers,” and “underst[ood] how it all works all how all of the risks work.” (Id.) Because of the Individual Defendants’ self-proclaim ed “personal involvem ent in Genworth’s com plete review of all [LTC] com ponents,” the Court m ay reasonably infer that Defendants possessed knowledge of the true state of affairs of the LTC business, and thus had knowledge that their representations were m isleading. Apart from their personal involvem ent, Plaintiffs additionally plead that Defendants had knowledge “that the average length of Genworth claim s was 3 years, and not the 2.2 year figure internally used to calculate reserves,” (id. at ¶ 156), based on various SEC filings and public speeches and interviews, (id. at ¶¶ 92, 95, 96, 97, 98). Plaintiffs allege that these allegations support their theory that Defendants “knew, or were reckless in not knowing, that the Com pany’s long-term care reserves were inadequate and based on outdated data not reflective of the Com pany’s actual experience.” (Id. at ¶ 156.) 32 To further bolster their scienter argum ent, Plaintiffs highlight the fact that “Defendants spoke repeatedly about the purported breadth and depth of the Com pany’s review leading up to the Decem ber 20 13 Presentation.” (Am . Com pl. ¶ 155.) Accepting the Com plaint’s factual allegations as true, Defendants m ade repeated m isrepresentations regarding the “intensive, very broad and deep review of all aspects of [our] long-term care business.” (Id. at ¶ 49.) Specifically, these m isrepresentations were m ade during an October 30 , 20 13 investor conference, (id. at ¶ 49, 50 ), a Decem ber 4, 20 13 investor conference, (id. at ¶ 52), a February 20 14 investor conference, (id. at ¶ 128 ), an April 20 14 letter to shareholders, (id. at ¶ 138), and a May 20 14 annual shareholder m eeting, (id.). The fact that Defendants m ade repeated m isrepresentations over the course of a year “also suggests a substantial degree of scienter.” S.E.C. v. Resnick, 60 4 F. Supp. 2d 773, 782 (D. Md. 20 0 9). Next, while allegations of m otive and opportunity that are applicable to every corporate officer are not necessarily sufficient to establish a strong inference of scienter, these allegations are nonetheless relevant and m eaningful in considering the totality of the circum stances. See Microstrategy , 115 F. Supp. 2d at 642– 643. As the Com plaint alleges, Defendant McInerney “bet his job on long-term care insurance.” (Am . Com pl. ¶ 44). In April 20 14, Defendant McInerney received a bonus of $ 3 m illion for 20 13, “which exceeded his ‘target’ payout by 50 %.” (Id. at ¶ 165.) This “higher-than-expected incentive payout was largely based on [McInerney’s] ‘developing, im plem enting and com m unicating to investors a strategy to im prove perform ance of our long-term care insurance business.’” (Id.) Likewise, “Defendant Klein received a bonus of $ 1.15 m illion for 20 13, which exceeded his ‘target’ payout by 48% and sim ilarly was based on his ‘collaborating with our businesses and our investor relations function to im prove investor understanding of our long-term care insurance business.’” (Id.) Moreover, besides receiving personal m onetary benefits, the Individual Defendants’ statem ents also allegedly allowed the Com pany to artificially preserve its investm ent grade credit and debt ratings in advance of its Decem ber 20 13 Offering. (Id. at ¶ 164.) After “[t]he 33 m arket reacted favorably to the Com pany’s Decem ber 20 13 Presentation dedicated solely to its long-term care insurance business,” (id. at ¶ 58), the Defendants initiated a public debt offering the very next day, (id. at ¶ 60 ). “Through its debt offering, the Com pany sought to raise $ 40 0 m illion.” (Id.) An inference of scienter m ay be supported by the tem poral relationship am ong these two events. Arnlund, 199 F. Supp. 2d at 48 2. Finally, the Court considers the m agnitude of the discrepancy. On Novem ber 5, 20 14, Defendants “revealed that Genworth’s post-May 20 10 data showed that the Com pany was m aterially under-reserved and that the Com pany needed to increase reserves by $ 531 m illion.” (Am . Com pl. ¶ 82.) The Com plaint alleges that this charge reduced the Com pany’s quarterly net operating incom e for its LTC business by 2,156% and increased its quarterly expenses by 68%. (Id. at ¶ 83.) This was the Com pany’s first quarterly loss for its LTC business in over nine years. (Id.) During this third quarter of 20 14 alone, the Com pany lost over $ 360 m illion in net operating incom e. (Id. at ¶ 84.) As this Court previously stated, “[S]ignificant overstatem ents of revenue tend to support the conclusion that defendants acted with scienter.” Microstrategy , 115 F. Supp. 2d at 636 (citation and internal quotation m arks om itted). In an attem pt to m inim ize the m agnitude of the reserve discrepancy, Defendants highlight that “while $ 531 m illion . . . is a large num ber in the abstract, it increased Genworth’s overall LTC reserves [which total $ 19.2 billion] by only 2.8 4%.” (Reply Mem . at 17 n.15.) However, this statem ent is countered by Defendants’ own adm ission in their Septem ber 20 14 investor conference. (See Ex. 9 at 5.) There, Defendant Klein in discussing the “big negative change in the second quarter of [20 14], worth about $ 24 m illion,” noted that “the volatilities are not usually nearly as large as that $ 24 m illion loss [Genworth] saw.” (Id. at 4– 5.) Rather, “it’s usually a few m illion gain and loss.” (Id. at 5.) He stated, “The loss we saw this quarter was unusually large.” (Id.) Considering the totality of circum stances alleged and giving “the inferential weight warranted by context and com m on sense,” Carlucci, 90 7 F. Supp. 2d at 729, the Court finds that 34 Plaintiffs’ allegations are sufficiently probative of scienter. Plaintiffs’ assertion that Defendants acted with the intent to deceive investors is at least as com pelling as any com peting inference that Defendants acted innocently or negligently. ( 3 ) PSLR A’s Sa fe H a r b o r The PLSRA’s safe-harbor provision provides that [I]n any private action arising under this chapter that is based on an untrue statem ent of a m aterial fact or om ission of a m aterial fact necessary to m ake the statem ent not m isleading, a person referred to in subsection (a) of this section 16 shall not be liable with respect to any forward-looking statem ent . . . if and to the extent that . . . (A) the forward-looking statem ent is– (i) identified as a forward-looking statem ent, and is accom panied by m eaningful cautionary statem ents identifying im portant factors that could cause actual results to differ m aterially from those in the forward-looking statem ent; or (ii) im m aterial; or (B) the plaintiff fails to prove that the forward-looking statem ent– (i) if m ade by a natural person, was m ade with actual knowledge by that person that the statem ent was false or m isleading . . . . 15 U.S.C. § 78u-5(c). A “forward-looking statem ent” is defined in part under the Act as “a statem ent containing a projection of revenues, incom e (including incom e loss), earnings (including earnings loss) per share, capital expenditures, dividends, capital structure, or other financial item s.” 15 U.S.C. § 78u-5(i)(1)(A). In other words, “‘[a] statem ent . . . whose truth or falsity is discernible only after it is m ade’ is necessarily forward-looking.” Sm ith v. Circuit City Stores, Inc., 286 F. Supp. 2d 70 7, 722 (E.D. Va. 20 0 3) (quoting Harris v. Ivax Corp., 182 F.3d 799, 80 5 (11th Cir. 1999)). Further, to qualify as m eaningful cautionary statem ents, the statem ents m ust convey “substantive inform ation about factors that realistically could cause results to differ m aterially from those projected in the forward-looking statem ent.” In re Hum phrey Hospitality Trust, Inc. Sec. Litig., 219 F. Supp. 2d 675, 683– 84 (D. Md. 20 0 2) 16 Persons included under subsection (a) of 15 U.S.C. § 78u-5 include: (1) an issuer that, at the tim e that the statement is m ade, is subject to the reporting requirem ents of section 78m (a) of this title or section 78o (d) of this title; (2) a person acting on behalf of such issuer; (3) an outside reviewer retained by such issuer m aking a statement on behalf of such issuer; or (4) an underwriter, with respect to inform ation provided by such issuer or inform ation derived from inform ation provided by such issuer. 35 (quoting H.R. Conf. Rep. No. 10 4-369 (1995) at 43, reprinted in 1995 U.S.C.C.A.N. 730 )). Cautionary statem ents m ust further “be substantive and tailored to the specific future projections, estim ates, or opinions . . . which the plaintiffs challenge.” City of Ann Arbor Em ploy ees Ret. Sy s. v. Sonoco Prods. Co., 827 F. Supp. 2d 559, 575 (D.S.C. 20 11) (citations and internal quotation m arks om itted). Here, Defendants argue that Plaintiffs’ claim s specifically regarding m isrepresentations of the adequacy of reserves m ust be dism issed because the challenged statem ents are a “textbook exam ple of what Congress contem plated.” (Mem . in Supp. of Mot. at 27.) 17 Specifically, those m isrepresentations include the following: During the October 20 13 investor conference, Defendant McInerney stated, “[A]fter this four m onth extensive review, we’re m ore confident than we’ve ever been that the reserves are adequate, with a com fortable m argin.” (Am . Com pl. ¶ 117.) During the Decem ber 20 13 Presentation, Defendant McInerney represented that “we have long-term -care adequate reserves, with a m argin for future deterioration, and our presentation today provides support for these conclusions.” (Am . Com pl. ¶ 121.) During the February 20 14 investor conference, Defendant Klein stated, “I want to note that Genworth holds m ore than adequate reserves to satisfy policyholder claim s.” (Am . Com pl. ¶ 128.) Unlike the other alleged m isrepresentations in Plaintiff’s Com plaint, these specified statem ents m ay be construed as containing predictions of future events. See In re Kindred Healthcare, Inc. Sec. Litig., 299 F. Supp. 2d 724, 738 (W.D. Ky. 20 0 4). As the district court noted in Kindred Healthcare, The am ount [Defendant] keeps in reserves to cover liability claim s is necessarily a prediction about its future claim s experien ce based on past claim s history as well as current filings. Assertions about the adequacy of [Defendant’s] reserves could only be verified when liability claim s were actually filed, litigated to conclusion, or settled. It would seem rather beyond argum ent that such projections about the com pany’s future econom ic health are forward-looking within the m eaning of the PSLRA. 17 Defendants do not challenge the rem aining categories of alleged m isrepresentations, (see Mem . in Supp. of Mot. at 24– 27), and the Court agrees that the rem aining statements would not qualify as “forward-looking.” 36 299 F. Supp. 2d at 738.18 However, these statem ents also appear to contain assertions about present facts, nam ely that Defendants believed at the tim e the statem ents were m ade that Genworth’s current reserves were adequate.19 This conclusion is logically drawn from the plain language of Defendants’ statem ents: “reserves are adequate;” “we have long-term -care adequate reserves;” and “Genworth holds m ore than adequate reserves to satisfy policyholder claim s.” Each of these statem ents im plicitly refers to the present state of the Com pany’s affairs. 20 Thus, the natural question to follow: whether a m ixed present/ future statem ent is entitled to protection under the safe-harbor provision. Based on the plain m eaning of the statute, specifically that a “forward-looking statem ent” is a statem ent containing a projection of revenues, 15 U.S.C. § 78u-5(i)(1)(A), the answer appears to be yes. However, other courts have been m ore hesitant, finding that statem ents regarding the adequacy of reserves are not “per se forward-looking.” In re PMA Capital Corp. Sec. Litig., No. 0 3-6121, 20 0 5 WL 18 0 650 3, at *6 (E.D. Pa. J uly 27, 20 0 5). While recognizing that these types of statem ents “necessarily include forward-looking projections about future defaults, [courts have held that] ‘statem ents regarding loss reserves are not projections [if] they are directed to the then-present state of the Com pany’s financial condition.’” W inslow v. BancorpSouth, Inc., No. 3:10 -0 0 463, 20 11 WL 70 90 820 , at *18 (M.D. Tenn. Apr. 26, 20 11) (quoting In re SLM Corp. Sec. Litig., 740 F. Supp. 2d 542, 556 (S.D.N.Y. 20 10 )); see also PMA Capital Corp., 20 0 5 WL 180 650 3, at *15 (“[S]tatem ents of loss 18 The relevant alleged m isrepresentations the Kindred Health court considered were: (1) “[T]he expectation of [Defendant’s] m anagem ent is that current reserves are adequate and there is som e potential for upside from reduced liability accruals now that tort reform in Florida has been enacted;” (2) “We m aintain general liability insurance and professional malpractice liability insurance in amounts and with deductibles that m anagem ent believes are sufficient for our operations;” (3) “Managem ent believed that [Defendant] adequately recorded reserves for professional liability;” and (4) “[B]ased on its actuaries’ m ost recent quarterly review, [Defendant] believes that it is appropriately reserved for professional liability.” 299 F. Supp. at 735– 37. 19 In their reply, Defendants state, “Plaintiffs never identify what aspect of Genworth’s statem ents ‘refers to the present.’” (Reply Mem . at 13.) 20 Unlike the statements at issue in the present case, the statem ents in Kindred Health discussed m anagem ent’s “expectations” and “beliefs.” See supra n.18. Thus, the forward-looking aspect of those statem ents was m ore clearly defined. 37 reserves and their adequacy are not per se forward-looking . . . . A com pany cannot characterize loss reserves as adequate or solid when it knows that the reserves are inadequate or unstable because a reasonable investor could be influenced by a com pany hiding its financial status by failing to provide adequate loss reserves.”). This Court has followed these latter holdin gs, finding that a “m ixed present/ future statem ent is not entitled to the safe harbor with respect to the part of the statem ent that refers to the present.” In re Com p. Scis. Corp. Sec. Litig., 890 F. Supp. 2d 650 , 668 n.21 (E.D. Va. 20 12) (quoting Makor Issues & Rights, Ltd. v. Tellabs Inc., 513 F.3d 70 2, 70 5 (7th Cir. 20 0 8)). Thus, to the extent “that plaintiffs allege that the reserve ‘adequacy’ statem ent encom passes . . . [a] representation of present fact, and that such a representation was false or m isleading when m ade,” Shaw v. Digital Equip. Corp., 82 F.3d 1194, 1213 (1st Cir. 1996), the PSLRA’s safe harbor provision is inapplicable. However, to the extent Plaintiffs allege that the reserve “adequacy” statem ent encom passes a representation of future events, those statem ents m ay be deem ed forwardlooking. The Court m ust then determ ine whether these forward-looking statem ents were accom panied by “m eaningful cautionary language.” 15 U.S.C. § 78u-5(c)(1)(A)(i). In its 20 13 Form 10 -K, Genworth noted, The reserves we establish reflect estim ates and actuarial assum ptions with regard to our future experience. These estim ates and actuarial assum ptions involve the exercise of significant judgm ent. Our future financial results depend significantly upon the extent to which our actual future experience is consistent with the assum ptions we have used in pricing our products and determ ining our reserves. Many factors, and changes in the factors, can affect future experience, including, but not lim ited to: interest rates, m arket returns and volatility ; econom ic and social conditions . . . policy holder persistency ; insured life expectancy or longevity ; [and] insured m orbidity . . . . Therefore, w e cannot determ ine w ith precision the ultim ate am ounts we will pay for actual claim s or the tim ing of those paym ents . . . . If we conclude that our reserves are insufficient to cover actual or expected policy and contract benefits and claim paym ents (as we have on various occasions in the past) as a result of changes in experience, assum ptions or otherwise, we would be required to increase our reserves and incur charges . . . . The am ounts of such increases m ay be sign ificant (as they have been on occasions in the past) and this would adversely affect our results of operations and financial 38 condition and m ay put additional strain on our available liquidity. (Ex. 5 at 61) (em phasis added). Sim ilarly, at the beginning of its Decem ber 20 13 Presentation, the Com pany noted the various factors that could affect reserves and warned that “the reserves we establish are necessarily based on estim ates, assum ptions and our analysis of historical experience . . . . Our reserve assum ptions and estim ates require significant judgm ent and, therefore, are inherently uncertain.” (Ex. 11 at 1.) In light of the foregoing statem ents, it would appear that Defendants identified “substantive inform ation about factors that realistically could cause results to differ m aterially from those projected in the forward-looking statem ent.” Hum phrey Hospitality Trust, Inc., 219 F. Supp. 2d at 683– 84 (citation om itted). However, citing Ann Arbor, 827 F. Supp. 2d 559, Plaintiffs argue that “cautionary language cannot be ‘m eaningful’ when defendants know that the potential risks they have identified have in fact already occurred and that the positive statem ents they are m aking are false.” (Opp’n Mem . at 24.) Specifically, Plaintiffs argue that Genworth’s risk disclosures failed to “warn investors that in calculating reserves, the Com pany used stale data from 20 10 ” and the Com pany “did not conduct the 20 13 reserve review that they touted.” (Id.) “Moreover, Defendants knew that the ‘risks’ identified in their ‘cautionary language’ had already m aterialized, but were not accounted for by the Com pany in calculating its reserves. In particular, Defendants knew that their post-20 10 claim s experience data showed that the average duration of claim had increased from 2.2 years to 3 years– a fact that had not yet been incorporated into Genworth’s claim reserve analysis.” (Id. at 25.) In Ann Arbor, the court noted, “‘[I]f Defendants knew that the specific risks and uncertainties stated to be ‘potential’ in their cautionary language had already been realized, and that their forward-looking statem ents were false or m isleading, then their forward-looking statem ents are not protected by the safe harbor.’” 8 27 F. Supp. 2d at 576 (quoting In re Nash Finch Co. Sec. Litig., 50 2 F. Supp. 2d 861, 873 (D. Minn. 20 0 7)); see also Slay ton v. Am . Express Co., 60 4 F.3d 758, 770 (2d Cir. 20 10 ) (“[C]autionary language that is m isleading in light 39 of historical fact cannot be m eaningful”); In re SeeBey ond Techs. Corp. Sec. Litig., 266 F. Supp. 2d 1150 , 1165 (C.D. Cal. 20 0 3) (“If the forward-looking statem ent is m ade with actual knowledge that it is false or m isleading, the accom panying cautionary language can only be m eaningful if it either states the belief of the speaker that it is false or m isleading or, at the very least, clearly articulates the reasons why it is false or m isleading.”). Following Ann Arbor’s holding, the Court finds that Plaintiffs have presented adequate evidence to allege that Defendants knew the Com pany used “stale” data from 20 10 in calculating its reserves. (See Am . Com pl. ¶¶ 92– 97.) Thus, “there is a question of fact concerning whether Defendants knew the ‘potential’ risks identified had already occurred.” Ann Arbor, 8 27 F. Supp. 2d at 576. Consequently, the Court cannot determ ine at this stage of the litigation whether the cautionary language accom panying the Defendants’ forward-looking statem ents was m eaningful. Id. ( 4 ) Co n t r o l Pe r s o n a l Lia b ilit y Pu r s u a n t t o Se ct io n 2 0 ( a ) Section 20 (a) of the Exchange Act, see 15 U.S.C. § 78t(a),21 establishes liability against “control persons.” “To establish a claim under § 20 (a) the plaintiffs m ust allege (1) control by the defendant (2) over a prim ary violator of § 10 (b).” In re Roy al Ahold N .V. Sec. & ERISA Litig., 351 F.Supp.2d 334, 40 7 (D. Md. 20 0 4) (citing MicroStrategy , 115 F. Supp. 2d at 661)). On a m otion to dism iss, a Section 20 (a) claim will thus stand or fall based on the court's decision regarding the Section 10 (b) claim . See Matrix Capital Mgm t. Fund, LP v. BearingPoint, Inc., 576 F.3d 172, 192 (4th Cir. 20 0 9). Here, because the Court has found that Plaintiffs have adequately pled a prim ary violation under § 10 (b) the Exchange Act, then Plaintiffs’ secondary claim that the Individual Defendants violated Section 20 (a) of the Exchange Act, (Am . Com pl. ¶¶ 196– 20 1), will also 21 15 U.S.C. § 78t(a) states, Every person who, directly or indirectly, controls any person liable under any provision of this chapter . . . shall also be liable jointly and severally with and to the sam e extent as such controlled person to any person to whom such controlled person is liable . . . , unless the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action. 40 stand. BearingPoint, Inc., 576 F.3d at 192. IV. CON CLU SION For the foregoing reasons, the Court GRANTS in part and DENIES in part Defendants’ Motion to Dism iss. Specifically, the Court GRANTS the Motion as to certain GAAP and SEC Regulation statem ents as well as statem ents regarding Defendants’ internal controls, as defined above. (See Sections III(1)(d), (e)) Let the Clerk send a copy of this Mem orandum Opinion to all counsel of record. An appropriate Order will issue. ______________________/s/_________________ James R. Spencer Senior U. S. District Judge ENTERED this _ 1st _ _ day of May 20 15. 41

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