United States District Court, D. New Jersey
June 7, 2005.
ROCKER MANAGEMENT, L.L.C. ET AL., Plaintiffs,
LERNOUT & HAUSPIE SPEECH PRODUCTS N.V. ET AL., Defendants.
The opinion of the court was delivered by: JOHN LIFLAND, Senior District Judge
MEMORANDUM AND ORDER (S.G. Cowen Securities Corporation)
Plaintiffs Rocker Management, LLC, Rocker Partners, LP, Rocker
Offshore Management Company, Inc., and Compass Holdings Ltd.
(collectively, "Rocker") have asserted claims under Sections
10(b) and 20(a) of the Securities Exchange Act of 1934 (the
"Exchange Act"), 15 U.S.C. §§ 78j(b), 78t(a), and Rule 10b-5,
17 C.F.R. § 240.10b-5, promulgated thereunder by the United States
Securities and Exchange Commission ("SEC"), against Defendants
Jozef Lernout, Pol Hauspie, Gaston Bastiaens, Carl Dammekens,
Allan Forsey, Ellen Spooren, Erwin Vandendriessche, Gerald
Calabrese,*fn1 Klynveld Peat Marwick Goerdeler
Bedrijfsrevisoren (a/k/a KPMG Bedrijfsrevisoren or KPMG Belgium),
KPMG International ("KPMG"), KPMG UK, KPMG LLP, Paul Behets, and
SG Cowen Securities Corporation ("Cowen") (collectively,
"Defendants").*fn2 Plaintiffs also bring state law claims
for tortious interference with prospective economic advantage,
conspiracy to tortiously interfere, and aiding and abetting
Before the Court is the Motion of Cowen to dismiss the Amended
Complaint for failure to state a claim under Federal Rules of
Civil Procedure 12(b)(6) and 9(b). For the reasons set forth
below, Cowen's Motion will be denied.
The facts of this case are described at length in the Court's
June 7, 2005 Memorandum and Order denying the motions to dismiss
on behalf of individual defendants Jozef Lernout, Pol Hauspie,
and Gaston Bastiaens. Allegations relevant to resolving the
present motion are discussed herein, and, as noted, are taken
from the Amended Complaint.
Lernout & Hauspie Speech Products N.V. ("L&H" or "the
Company"), formed in 1987 by Jo Lernout and Pol Hauspie, was a
Belgian-American company that specialized in speech recognition, text-to-speech
conversion, and digital speech compressions. (Am. Compl. ¶¶ 1,
12). L&H's stock was traded on American and European exchanges.
Since its initial public offering in 1995, L&H reported rapid
growth in its revenues due to its domination of its software
market, its acquisition of other companies, and its development
of revolutionary and "industry first" products. (Am. Compl. ¶
Following public announcements in late 1999 and the first
quarter of 2000 concerning both its reported revenues and its
products, in addition to "strong buy" recommendations from L&H's
investment banker, Cowen, and revenue compilations by KPMG, L&H's
stock price rose from less than $19 in late November 1999 to a
high of $72 in 2000 upwards of a 300% increase. (Am. Compl. ¶¶
2, 63). The increase in stock price is alleged to be the result
of a scheme of fraud and deception on the part of L&H together
with its related capital funds, officers and directors,
accountants, and investment bankers. The unveiling of that scheme
in the latter half of 2000, due to investigative reporting by the
Wall Street Journal, sent the stock price into a tailspin. The
exchanges then halted trading in the stock, and L&H sought refuge
in bankruptcy proceedings.
Plaintiffs began to short sell L&H stock in June 1998 (Am.
Compl. ¶¶ 6, 100). Short selling involves identifying and
purchasing stock expected to decline in price (Am. Compl. ¶¶ 5, 11). Profits result from borrowing
stock from various sources, selling that stock at current market
prices, purchasing shares of the stock at a lower price to
"cover" the original position, and then returning the stock to
the original source. (Id.). The rapid increase of L&H stock
forced Plaintiffs between December 1999 and March 2000 to
purchase stock at a loss to cover their own short positions. (Am.
Compl. ¶¶ 6, 104).
Cowen, a securities and investment banking firm, had a
long-standing business relationship with L&H. (Am. Compl. ¶¶ 28,
275). Cowen advised L&H on acquisitions of companies,
participated with L&H in the drafting of L&H press releases, and
"hyped" L&H's stock through certain analyst recommendations. (Am.
Compl. ¶ 275).
On September 15, 1998, Cowen issued an analyst report
recommending L&H stock as a "strong buy." The report touted L&H's
acquisition strategy as being "highly successful, measured in
both financial and strategic gains," and stated that L&H's
"acquisitions yield competitive advantage and yes, more profits."
The report also categorized L&H's purchase accounting methods as
conservative. (Am. Compl. ¶ 47).
Plaintiffs allege that Cowen advised L&H on its acquisitions of
companies, including Bumil, Dragon Systems, Inc., and Dictaphone.
(Id.). Cowen is alleged to have had access to information regarding L&H's revenues and
financial performance and thus knew, or recklessly disregarded,
that L&H's announced revenues were fraudulently overstated.
(Id.). That notwithstanding, Cowen echoed and disseminated
L&H's fraudulent claims of revenue growth and success in Asian
markets in the January 5, 2000 and February 10, 2000
On January 5, 2000, Cowen disseminated a report on L&H authored
by Robert Stone, recommending the stock as a "Strong Buy," and
raising its price target, despite commenting that earnings
estimates would be trimmed. The Report stated, in relevant part:
Technology and Solutions Unit Doing Well With
Telephony Deals in Asia In late December, LHSP
announced a number of deals to develop on-line
trading and automated dialogue systems for customers
including: Hyundai Securities, Samsung Securities, LG
Securities, Daishin Securities and Daewoo Securities.
It also announced a number of other Asian contracts
for speech technologies and TTS for applications such
as unified messaging.
After Endless Short Yammering In 1999, Shares
Testing New Highs On Strong 2000 Prospects In late
1998 and early 1999 a policy change at the SEC
prompted LHSP to restate results related to
write-downs of acquired R&D in process. The SEC
apparently raised no other issue with LHSP's
accounting practices, and many other companies that
had made acquisitions and followed then-common
accounting treatment were in the same situation.
However, some short sellers took advantage of the
resulting period of uncertainty, and the shares were
mostly range-bound throughout 1999 (although those
with the conviction to buy on dips did quite well).
Against the tide of a very weak market yesterday,
LHSP reached a new 52-week high. We believe that sufficient time has passed for
investors to begin regaining confidence and
recognizing that the stock is significantly
undervalued compared to its leadership position and
huge market potential.
More Disclosure Should Boost Confidence in
Estimates; Higher R&D May Trim EPS 10-12 Cents
LHSP is a complex company, with many products,
business units and end markets, and it has augmented
its growth and consolidated its market position via
numerous acquisitions. The results have been
impressive, with revenues growing by five fold, from
about $100MM in 1997 to our 2000 estimate of slightly
over $500MM. However, it has not been easy for
investors to understand all the moving parts.
(Am. Compl. ¶ 69). According to Plaintiffs, that analysis report
repeated false information regarding L&H's financial performance,
including alleged customer contracts with the named Korean
companies. That is so despite Cowen's supposed knowledge that L&H
revenues attributable to Asian markets were fraudulent.
Plaintiffs claim that Cowen had inside knowledge where, in
September 1999, it rendered a "fairness opinion" on the
consideration to be paid by L&H to purchase Bumil Information &
Communication Co. (later known as L&H Korea). Cowen
reviewed and considered such financial and other
matters . . . including, among other things: (1) a
draft of the Transaction Agreement, dated as of
August 31, 1999, as amended as of September 3, 1999
. . .; (ii) the Transaction Partner's [Bumil's]
audited financial statements for the fiscal years
ended December 31, 1996, 1997, and 1998, unaudited
financial statements for the first two fiscal
quarters ended June 30, 1999 and certain other
relevant financial and operating data prepared by
Transaction Partner [Bumil]; (iii) certain publicly
available information for the Company [L&H],
including each of the annual reports of the Company filed on
Form 20-F for each of the fiscal years ended December
31, 1996, 1997, and 1998, unaudited financial
statements for the first two fiscal quarters ended
June 30, 1999 filed on Form 6-K and certain other
relevant financial and operating data furnished to SG
Cowen by Company management; (iv) Wall Street
analysts reports, including projections contained
therein, for the Company (the "Company's Forecasts");
(v) certain internal financial analyses, financial
forecasts, reports and other information concerning
Transaction Partner prepared by the management of
Transaction Partner as revised and adjusted by the
management of the Company (the "Transaction Partner's
Forecasts"); (vi) discussions we have had with
certain members of the managements of each of the
Company and Transaction Partner concerning the
historical and current business operations, financial
conditions and prospects of the Company and
Transaction Partner and such other matters we deemed
relevant; . . . and (xi) such other information,
financial studies, analyses and investigations and
such other factors that we deemed relevant for the
purposes of this opinion.
(Am. Compl. ¶ 70).
On February 10, 2000, Cowen released another analyst report
making a "Strong Buy" recommendation. The recommendation stated,
in relevant part:
B4:99 Surge In Technology And Solutions, Asia
Strong Buy For New Target Of $95-100 In 12 Months
Revenue $110MM (% QQ) $8MM Above Our Estimate On
Surge in Asia Business Total revenues grew 44%
Y/Y, lead by 111% growth in Technology and Solutions,
to $56.4 MM (51% of total). The division signed a
record of 80 contracts for the quarter, including
numerous licenses for the new RealSpeak TTS engine
and telephony applications in the Asia Pacific
(Am. Compl. ¶ 95). That recommendation was premised on the
reported 1999 L&H revenue, the "surge in Asian business," and the execution of
"a record 80 contracts," especially in Asia. (Am. Compl. ¶ 96).
Plaintiffs allege that the reported revenues were fraudulently
overstated; there was no surge in L&H's Asian business; and many,
if not most, of the supposed contracts either did not exist at
all or were signed by dummy companies created by Defendants for
the purpose of becoming L&H customers. (Id.).
In addition, Rob Stone of Cowen publicly defended L&H's
customer list once the media began to question the validity of
L&H's Asian revenues:
I was in Korea in the middle of July and visited with
a couple of the customers two of the securities
companies that are that are mentioned in the list
of names provided by the company. I not only talked
to the customers, but I physically saw the
installations, saw the computers, saw the inbound
phone lines lighting up in the call center, so I can
say they're real. Now I didn't go and visit every
customer site that they have in Korea, of course not,
but based on what I was able to see, I believe that
it's a real operation.
(Am. Compl. ¶ 97 (quoting Transcript, CNBC Business Center
interview, August 8, 2000)).
I. Motion to Dismiss
A motion to dismiss pursuant to Federal Rule of Civil Procedure
12(b)(6) should be granted only if it "appears beyond doubt that
the plaintiff can prove no set of facts in support of his claim that would entitle him to
relief." In re Cybershop.com Sec. Litig., 189 F. Supp.2d 214,
223 (D.N.J. 2002) (quoting Conley v. Gibson, 355 U.S. 41, 45-46
(1957)). When resolving a motion to dismiss, a district court
must accept all well-pleaded allegations in the complaint as
true, and view them in the light most favorable to the plaintiff.
Doug Grant, Inc. v. Greate Bay Casino Corp., 232 F.3d 173, 183
(3d Cir. 2000). However, the court need not credit "bald
assertions" or "legal conclusions." Morse v. Lower Merion School
Dist., 132 F.3d 902, 906 (3d Cir. 1997).
II. Section 10(b) and Rule 10b-5 Claims
A. Relevant Law
To state a claim pursuant to Rule 10b-5, Plaintiff must allege
that (1) the defendant made a misrepresentation or omission of a
material fact; (2) scienter motivated the defendant's
misrepresentation or omission; (3) the defendant made the
misrepresentation or omission in the context of a securities
purchase or sale; (4) the plaintiff relied upon defendant's
misrepresentation or omission; and (5) the plaintiff's reliance
proximately caused damages. In re Cybershop.com Sec. Litig.,
189 F. Supp. 2d at 224. Scienter may be pled by alleging facts
(1) that demonstrate "`a motive and opportunity to commit
fraud,'" or (2) that "constitute circumstantial evidence of
either reckless or conscious behavior." In re Advanta Corp. Sec. Litig., 180 F.3d 525, 534-35 (3d Cir. 1999) (quoting
Weiner v. Quaker Oats Co., 129 F.3d 310, 318 n. 8 (3d Cir.
A plaintiff alleging false or misleading statements or
omissions of material fact must meet the heightened pleading
requirements of both Rule 9(b) and the PSLRA. In re
Cybershop.com, 189 F. Supp. 2d at 225. Rule 9(b) requires that
allegations of fraud, and the circumstances constituting the
fraud, be pled with particularity. Id. While the particularity
requirement may be relaxed where factual information is within
defendant's knowledge or control, "boilerplate and conclusory
allegations will not suffice." In re Burlington Coat Factory
Sec. Litig., 114 F.3d 1410, 1418 (3d Cir. 1997).
Federal Rule of Civil Procedure 9(b) demands that a plaintiff
plead (1) a specific false representation [or omission] of
material fact; (2) knowledge by the person who made it of its
falsity; (3) ignorance of its falsity by the person to whom it
was made; (4) the intention that it should be acted upon; and (5)
that the plaintiff acted upon it to his damage. In re
Rockefeller Center Properties, Inc. Sec. Litig., 311 F.3d 198,
216 (3d Cir. 2002) (citing Shapiro v. UJB Fin. Corp.,
964 F.2d 272, 284 (3d Cir. 1992)). Rule 9(b) requires plaintiffs to
identify the source of the allegedly fraudulent misrepresentation
or omission. Id. (citing Klein v. General Nutrition Cos.,
Inc., 186 F.3d 338, 345 (3d Cir. 1999)). In short, "Rule 9(b) requires, at a minimum, that plaintiffs support their allegations
of securities fraud with all of the essential factual background
that would accompany `the first paragraph of any newspaper story'
that is, the `who, what, when, where and how' of the events at
issue." Id. at 217 (quoting In re Burlington,
114 F.3d at 1422).
The PSLRA imposes another "layer of factual particularity" on
allegations of securities fraud. In re Rockefeller Center
Properties, Inc. Secs. Litig., 311 F.3d at 217-18. Under the
PSLRA, a complaint alleging a 10(b) violation is insufficient
unless it "specifies each statement alleged to have been
misleading, the reason or reasons why the statement is
misleading, and, if an allegation regarding the statement or
omission is made on information and belief[,] . . . state[s] with
particularity all facts on which that belief is formed." In re
Cybershop.com, 189 F. Supp.2d at 226 (citing
15 U.S.C. § 78u-4(b)(3)(A)). All allegations of scienter must be supported by
facts stated "with particularity" and must give rise to a "strong
inference" of scienter. In re Advanta Corp. Sec. Litig.,
180 F.3d at 535 (quoting 15 U.S.C. 78u-(b)(2)).*fn3
Courts have permitted securities fraud plaintiffs to rely on
the so-called "fraud on the market" theory, which allows for a rebuttable
presumption of reliance by the plaintiffs on an efficient market
that reflects material information in the stock price. In re
Westinghouse Sec. Litig., 90 F.3d 696, 710 (3d Cir. 1996). Short
sellers, by definition, do not believe that the price of the
stock accurately reflects such relevant information and,
therefore, cannot benefit from the presumption of reliance.
Plaintiff short sellers are therefore required to allege actual
reliance in that (1) the misrepresentation or fraudulent act
raised the price of stock; (2) at the time of cover, plaintiff
relied on the integrity of the market price of the stock; and (3)
reliance on the stock's price at the time of cover was
reasonable. Zlotnick v. Tie Communications, 836 F.2d 818,
821-22 (3d Cir. 1988). Reliance is adequately pled only where
short sellers were unaware of any fraudulent activity by
defendants at the time of cover. See Jones v. Intelli-Check,
Inc., 274 F. Supp.2d 615, 633 (D.N.J. 2003). Phrased
differently, reliance on the market price cannot be reasonable if
plaintiffs had knowledge of fraud or misrepresentations at the
time of cover.
Cowen contends that the Amended Complaint is insufficient for
failing to identify specific misstatements made by Cowen that
were false when made, that Plaintiffs relied on those statements,
and that Cowen acted with the requisite scienter.
Cowen also argues that the Amended Complaint is fundamentally
flawed for failing to allege in sufficient detail Rocker's
short-selling activity, i.e., when and how many shares were
sold at what price, and when and how many shares were purchased
to cover short sales. See Barr v. McCraw Hill, Inc.,
710 F. Supp. 95, 97 (S.D.N.Y. 1989) (noting deficiencies in securities
fraud complaint for failure to plead "the amount and price of the
securities purchases by each plaintiff, the date and place of
each purchase, and the losses suffered"); Morin v. Trupin,
747 F. Supp. 1051, 1062-63 (S.D.N.Y. 1990) (same).
The non-binding authority on which Cowen relies involves
multipleplaintiff scenarios that, absent more detailed
allegations, hindered defendants from adequately defending
themselves against the claims asserted by each plaintiff. For
example, there were over thirty-five plaintiffs in Morin and,
among other deficiencies, the complaint was largely devoid of any
details as to the individual circumstances of plaintiffs'
investments and attendant losses. 747 F. Supp. at 1062 ("Mere
participation in an unsuccessful investment program, in the
absence of any alleged loss, is insufficient to state a claim.").
In Barr, the court expressly noted that more details of
plaintiffs' purchases were required to enable defendants to
prepare a defense against claims of the individual plaintiffs
whose circumstances may differ, in addition to supporting the amount of
damages claimed. 710 F. Supp. at 97. This case does not present
the same difficulties and, of course, damages must ultimately be
proven and quantified if there is to be any recovery by
Plaintiffs. The Amended Complaint sufficiently details the time
period in which Plaintiffs built up short positions and
ultimately made cover purchases, and alleges that substantial
losses in the range of tens of millions of dollars resulted. (Am.
Compl. ¶ 6).
As to the misstatements, Cowen urges a disconnect in that
Plaintiffs began to sell L&H stock short in June 1998 and yet
Cowen is not alleged to have issued any public statements
concerning L&H until September 1998. The argument continues that
Plaintiffs could not have relied on any Cowen statements in
making their investment decision. That argument is correct as far
as it goes. However, Plaintiffs allege that Cowen's issuance of
buy recommendations helped drive up the L&H stock price such that
they were forced to cover; Plaintiffs do not allege that Cowen's
buy recommendations influenced them to sell short in the first
place. While the Court agrees that Plaintiffs cannot have relied
on Cowen's statements to initiate short sales, that is not what
the Court understands Plaintiffs to be alleging in this case.
Cowen further argues that Plaintiffs do not allege what portion
of the January and February 2000 statements were false when made. This
argument is unavailing. Plaintiffs allege, among other things,
that the January 2000 recommendation contained false claims about
supposed success in Asia, false estimates and reports of 1999
revenues, and false claims about Korean L&H customers that did
not exist. Similarly, the February 2000 statement claimed revenue
and a surge in Asian business that are also alleged to be false.
It is also alleged that Rob Stone of Cowen publicly and knowingly
vouched on television for the legitimacy of L&H's Korean
operation by stating that the L&H customers were real, when, in
fact, they were not legitimate.
Cowen also argues that its strong buy recommendations are
basically nothing more than statements or expressions of
optimism, which are not actionable. Strong buy recommendations
made by a sophisticated and well-known investment banker, backed
by research and hard numbers, are precisely the type of
information on which investors are expected to rely. The Court
will not simply write off these statements as mere puffery. Judge
Saris concluded as much when considering essentially the same
conduct of Cowen. See Bamberg v. SG Cowen,
236 F. Supp. 2d 79, 83-84 (D. Mass. 2002).
The Court concludes that the alleged misstatements attributable
to Cowen are sufficient to trigger primary liability under
Section 10(b). Scienter
Cowen's primary argument for dismissal of the Amended Complaint
is that the allegations are too sparse to support a strong
inference that it knew, or was reckless in not knowing, that the
alleged misstatements were false when made. The Court disagrees.
The allegations in the Amended Complaint against Cowen create a
strong inference of scienter sufficient to withstand a motion to
dismiss. Cowen is alleged to have had a close, long-standing, and
lucrative relationship with L&H. Cowen served as an investment
advisor for many L&H acquisitions, including Bumil, which later
became its Korean subsidiary (Am. Compl. ¶ 275). In that
capacity, Cowen reviewed
Bumil's audited financial statements for 1996,
1997, and 1998;
Bumil's unaudited financial statements for the
first two quarters of 1999;
"Relevant financial and operating data" prepared by
Internal financial analyses, financial forecasts,
reports and other information prepared by Bumil.
(Am. Compl. ¶ 70). Cowen also interviewed Korean management about
business operations. (Id.). Review of such information gave
Cowen intimate knowledge of L&H's Korean operations, including,
among other things, information that Bumil operated at a net loss
in the second quarter of 1999. (Am. Compl. ¶ 275). Nevertheless, Cowen's Rob Stone publicly came to the defense of
L&H in facing charges that Korean revenue was fabricated. A few
months later, $100 million dollars of revenue supposedly derived
from Korean operations disappeared and the L&H Audit Committee
recommended reversal of 1999 and 2000 Korean revenues due to the
"speculative or start-up nature of many Korean customers." (Am.
Compl. ¶ 94b-e).
The facts as alleged in the Amended Complaint with respect to
Cowen are sufficient to create a strong inference of scienter.
Cowen allegedly made active attempts at covering up the
fraudulent scheme after the scandal broke in the press. That a
sophisticated entity like Cowen accepted the idea of skyrocketing
Korean revenue to the incredible amount of $182 million, despite
having intimate familiarity with Bumil's historic condition, is
far-fetched. That is so even allowing for the anticipated synergy
between L&H and Bumil. Further, Cowen was in possession of
information regarding the geographic distribution of L&H's
reported revenues for fiscal year 1999 and the first quarter 2000
at or about the time of a February 9, 2000 press release
announcing record revenues. However, Cowen failed to disclose
that distribution in its February 10, 2000 "strong buy"
recommendations. That omission kept from investors the fact that
L&H's traditional European and American markets were declining
and highlighted the show-stopping 1900% revenue growth in Asia. (Am. Compl. ¶ 278).
That Cowen even issued a "strong buy" recommendation on those
facts suggests scienter or at least reckless disregard of the
truth. Cowen also had a motive to participate in a fraud due to
its long-standing, lucrative business relationship with L&H. Its
indepth knowledge of the details of L&H Korean operations and the
public attempts at fending off charges of fraud, coupled with its
lucrative business relationship with L&H, combine to support a
strong inference of scienter on Cowen's part. Cf. Bamberg v. SG
Cowen, 236 F. Supp. 2d at 82-84.
Next, Cowen argues that Plaintiffs have not sufficiently
alleged the element of reliance for a Section 10(b) and Rule
10b-5 claim because Plaintiffs, as short sellers, acknowledged
believing very early on that L&H was overvalued and that its
technology was over-hyped. The fact that Plaintiffs did not rely
on any alleged misstatements in their decision to sell short,
Cowen contends, is fatal to their Section 10(b) claims.
Plaintiffs counter that reliance is just one of many ways to
establish the element of causation common to any tort claim.
Plaintiffs urge that a short seller's loss can just as readily be
caused by a fraudulent scheme as a traditional investor's loss,
provided the fraud caused the short seller to engage in the cover
transaction. Specifically, Plaintiffs argue that the fraudulent scheme's
artificial inflation of the stock price after they had taken a
substantial short position was the direct and proximate cause of
Plaintiffs' decision to cover, thus satisfying the element of
transaction causation. Plaintiffs rely on Zlotnick v. Tie
Communications, 836 F.2d at 824, where the Third Circuit held
that a short seller can recover by showing that his decision to
cover was connected with the fraud inasmuch as "[t]he rise may . . .
have increased [the short seller's] risk of loss beyond
acceptable levels, causing him to purchase. It may have led him
to conclude that the stock would take so long to decline in value
that the cost of maintaining his short position would exceed his
potential gain." According to Plaintiffs, that is exactly what
happened in this case. Further, Plaintiffs maintain that while
they had misgivings about certain publicly disclosed accounting
practices at L&H, they had no knowledge about the fraudulent
scheme of 1999 and 2000 sufficient to deprive their right to
bring a fraud claim.
The Court concludes that Plaintiffs have sufficiently pled
reliance under Zlotnick and should be permitted the opportunity
to demonstrate that the fraudulently inflated price of L&H stock
was a material factor in their decision to cover, insofar as the
rise in stock price increased their risk of loss beyond
acceptable levels, causing them to cover and incur substantial
losses, or that the fraudulently-induced price led them to conclude that the stock
would take so long to decline in value that the cost of
maintaining their short position would exceed their potential
gain. See Zlotnick, 836 F.2d at 824. Plaintiffs have
adequately alleged that, while they believed L&H stock to be
overvalued, they had no knowledge of the ultimate fraudulent
scheme that caused their losses at the time they made covering
purchases. (Am. Compl. ¶ 295). Compare Jones,
274 F. Supp. 2d at 633 (dismissing securities fraud claims where plaintiffs had
brought a fraud claim based on accounting methods of which they
were plainly aware at all relevant times).
III. State Law Claims
In the final footnote of its opening brief, Cowen argues that
Plaintiffs' state law claims should be dismissed for lack of
subject-matter jurisdiction or, alternatively, for failure to
allege any wrongdoing on the part of Cowen. Having declined to
dismiss the Section 10(b) claim against Cowen, the Court will not
dismiss the state law claims asserted against it for lack of
subject-matter jurisdiction. Nor will the Court dismiss those
claims for failure to allege wrongdoing on the part of Cowen.
Cowen concedes that the state law claims turn on the same
wrongdoing as the Section 10(b) claims and, as already noted, the
Court finds the allegations of wrongdoing on the part of Cowen
sufficient to withstand a motion to dismiss.
For the foregoing reasons, Cowen's Motion to dismiss the
Amended Complaint will be denied.
Accordingly, IT IS on this 7th day of June 2005,
ORDERED that the Motion of Defendant SG Cowen Securities
Corporation to dismiss the Amended Complaint pursuant to Federal
Rules of Civil Procedure 12(b)(6) and 9(b) is denied.