Full opinion text
OPINION LECHNER, District Judge. This is an action for securities fraud brought on behalf of purchasers of Party City Corporation (“Party City”) common stock (“Party City Stock”), seeking damages for violations of Sections 10(b) (“Section 10(b)”) and 20(a) (“Section 20(a)”) of the Securities Exchange Act of 1934 (the “Exchange Act”), as amended, 15 U.S.C. §§ 78j(b) and 78t(a), and Rule 10b-5 (“Rule 10b — 5”) promulgated thereunder, 17 C.F.R. § 240.10b-5, from Party City, Steven Mandell (“Mandell”) and David Lauber (“Lauber”) (collectively, the “Defendants”). The asserted class period is from 26 February 1998 through 18 March 1999 (the “Class Period”). Jurisdiction is alleged pursuant to 28 U.S.C. § 1331. Currently pending is a motion to dismiss (the “Motion to Dismiss”) the second amended complaint (the “Second Amended Complaint”) pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure (“Rule 12(b)(6)”). For the reasons set forth below, the Motion to Dismiss is granted. Facts A. The Parties Party City is a Delaware Corporation with its principal place of business in Rockaway, New Jersey. Second Amended Complaint at ¶ 10. Party City is a retailer of party supplies which it markets through a nationwide network of discount stores. Id. Mandell was the founder and former President, Chief Executive Officer and Director of Party City. Id. at ¶ 11. Mandell signed quarterly reports on Form 10-Q filed with the Securities and Exchange Commission (the “SEC”). Id. Mandell also issued statements on behalf of Party City. Id. Lauber is the former Chief Financial Officer and Principal Accounting Officer and Director of Party City. Id. at ¶ 12. Lauber signed quarterly reports on Form 10-Q filed with the SEC. Id. Lauber also issued statements on behalf of Party City. Id. B. Procedural History This action is a consolidation of several cases filed against Party City, Mandell and Lauber seeking to recover for alleged violations of the Exchange Act. By order, dated 13 September 1999, (the “13 September 1999 Order”) plaintiffs (the “Plaintiffs”) were directed to file a consolidated amended complaint (the “Consolidated Amended Complaint”). 13 September 1999 Order at 4. The 13 September 1999 Order further provided that within seven business days of service of the Consolidated Amended Complaint, the Defendants were to notify the Plaintiffs if they intended to move against the complaint and, if so, the basis for such a motion. Id. Within five business days of such notification, the Plaintiffs were required to advise the Defendants of their intention to either stand on the Consolidated Amended Complaint or to amend. Id. On 18 October 1999, the Plaintiffs filed the Consolidated Amended Complaint. By letter, dated 27 October 1999, (the “27 October 1999 Letter”) the Defendants notified the Plaintiffs of their intent to move to dismiss the Consolidated Amended Complaint, as well as the basis of such a motion. 27 October 1999 Letter, attached as Ex. B to the Greiner Aff. By letter, dated 3 November 1999, (the “3 November 1999 Letter”) counsel for the Plaintiffs responded that they would “stand firm” on the Consolidated Amended Complaint. 3 November 1999 Letter, attached as Ex. E to the Greiner Aff. On 3 December 1999, the Defendants served their motion to dismiss. Notwithstanding their previously stated decision to “stand firm” on the Consolidated Amended Complaint, the Plaintiffs included a footnote in their opposition to the motion asking for leave to again amend their complaint in the event the motion to dismiss was granted. Plaintiffs’ Memorandum of Law in Opposition to Defendants’ Motion to Dismiss at 38 n. 12, attached as Ex. W to the Greiner Aff. On 22 February 2000, a status conference was held (the “22 February 2000 Status Conference”). When questioned about their request to amend the Consolidated Amended Complaint, the Plaintiffs responded that they had developed information they believed warranted further amendment. The Plaintiffs were subsequently permitted to file the Second Amended Complaint. The Second Amended Complaint was filed on 28 February 2000. Thereafter, the Defendants filed the instant Motion to Dismiss. C. Background, As stated, Party City is a retailer of party supplies. Party City operates a network of company owned retail outlets in the United States and its franchisees operated outlets in the United States, Puerto Rico, Canada, Spain and Portugal. The allegations in the Second Amended Complaint are based upon an “investigation made by and through [counsel].” Second Amended Complaint at Preamble. The Second Amended Complaint alleges Defendants disseminated materially false and misleading information concerning the financial condition of Party City in order to artificially inflate the price of Party City Stock. Id. at ¶ 1. The Second Amended Complaint further alleges the financial and accounting systems employed by Party City were in disarray, causing the financial results reported by Party City during the Class Period to be materially inaccurate and overstated. Id. at ¶ 30. The Second Amended Complaint asserts that as a result of the alleged misrepresentations and omissions of the Defendants, the true operating status and financial condition of Party City was not known. Id. It is alleged this misinformation caused Party City Stock to trade at artificially high prices during the Class Period. Id. 1. Alleged Materially False and Misleading Statements The following press releases, reports and statements are alleged to have been materially false and misleading. a. The 26 February 1998 Press Release On 26 February 1998, Party City issued a press release (the “26 February Press Release”) announcing its 1997 fourth quarter and year-end results. Id. at ¶ 26. The 26 February 1998 Press Release stated net income for the fourth quarter of 1997 increased 137% to $7,305,000, or $.57 per “diluted share,” compared with net income of $3,077,000, or $.29 per diluted share, for 1996. Id. The 26 February 1998 Press Release further stated net income for fiscal year 1997 increased 104% to $7,670,000, or $.64 per diluted share, compared to net income of $3,756,000, or $.38 per diluted share, for fiscal year 1996. Id. Commenting on the 1997 fiscal year results, Mandell stated: We are delighted with the strong sales and earnings results Party City achieved in 1997. Despite our aggressive store opening schedule, we were able to manage our growth effectively, as evidenced by our improved operating margin. We are also very pleased with the 16% comparable store sales growth in 1997, compared with the 18% comparable store sales growth achieved in 1996. These solid results are testimony to the management team and the support systems we have put into place to manage our expansion. As we head into 1998, we have already made significant head way in our aggressive store opening schedule. We have opened six company-owned stores this year, as compared to two store openings at this point last year. We have signed 38 leases for additional company-owned store locations to open in 1998. With such a healthy head start this early in the year, we are confident in our ability to accomplish our 1998 expansion plans. Id. (quoting the 26 February 1998 Press Release) (emphasis in the Second Amended Complaint). b. The 1997 Form 10-K On 31 March 1998, Party City filed its 1997 Form 10-K (the “1997 Form 10-K”) with the SEC. Second Amended Complaint at ¶ 28. In addressing its internal inventory controls, Party City stated: The Company’s management continuously reviews new and existing product selections to provide the widest and most current assortment of party supplies. In pursuit of this goal, management attends various industry trade shows including the National Annual Halloween Trade Show in Rosemont, Illinois and the Toy Fair in New York. In an effort to keep abreast of new and popular merchandise, management views presentations given specifically for the Company by its major vendors. The Company utilizes its inventory tracking system to give the purchasing staff constant feedback on customers’ preferences. All of the merchandise purchased by the Super Stores is shipped directly from suppliers to the stores. The purchasing decisions and inventoi*y control are facilitated by the use of sophisticated point-of-sale inventory control technology. Almost all merchandise is bar coded either by the supplier prior to delivery or at the time of receipt at the store. Consistent with the Party City Super Store concept, almost all inventory is displayed on the shelves with little or no space used for stocking. The MIS system is a vital tool for increasing the efficiency of store operations. The Company believes that its management information system is an important factor in allowing the Company to support its rapid growth and enhance its competitive position in the industry. Through the MIS system, store managers are able to quickly evaluate the sales performance of their stores and of individual items in their stores, while also replenishing stock shelves in a timely fashion. Typically, merchandise is received already bar coded, enabling managers to control inventory and pricing by SKU, to manage assortment within a category, and to analyze gross margins and inventory turnover. Id. at ¶¶ 28-29 (quoting the 1997 Form 10-k) (emphasis in the Second Amended Complaint). c. The 9 April 1998 Press Release On 9 April 1998, Party City announced its sales results for the first quarter of 1998 (the “9 April 1998 Press Release”). Second Amended Complaint at ¶ 31. The 9 April 1998 Press Release reported revenues for the first quarter of 1998 increased 179% to $40.7 million, up from $14.6 million for the same period in 1997. The 9 April 1998 Press Release further reported sales from company-owned stores for the quarter ended 31 March 1998 increased 206% to $38.7 million, up from $12.6 million in the first quarter of 1997. Id. Party City also announced: Party City opened a total of 14 new stores during the first quarter, 12 of which are company-owned and two of which are franchised. In addition, one franchise store was acquired during the quarter, located in the Miami, Florida market. As of March 31, 1998, a total of 288 Party City stores were in operation, compared to 209 stores last year, an increase of 38%. As of April 1, 1998, additional leases for 38 company-owned stores and four franchise stores have been signed for openings this year. Id. (quoting the 9 April 1998 Press Release). The 9 April 1998 Press Release quoted Mandell as stating: We are pleased with our continued strong sales results in the first quarter. We expect the calendar shift of Easter into the month of April to help fuel continued sales growth in the second quarter, as initial sales results look solid. Second Amended Complaint at ¶ 31 (quoting the 9 April 1998 Press Release). d. The 23 April 1998 Press Release On 23 April 1998, Party City announced its financial results for the first quarter of 1998 (the “23 April 1998 Press Release”). Second Amended Complaint at ¶ 32. The 23 April 1998 Press Release noted that while Party City had experienced a net loss of $.10 per share for the period, total revenues for the period increased 179% to $40.7 million, up from $14.6 million for the same period in 1997. Id. Addressing the results for the first quarter of 1998, Man-dell stated: We are pleased with the results we achieved in the first quarter. Due to the calendar shift of Easter this year, we expanded our promotional program during the month of March and were successful in generating store traffic and sales. We were able to do this and still improve margins for the quarter versus a year ago. Early sales indications in the month of April thus far are solid, which positions us well for the remainder of the quarter. During the first quarter we exceeded our internal store opening plan by opening 12 company-owned stores. The store we opened in Toledo, Ohio is in a new market for Party City, and stores opened in San Antonio, California, Florida and the New York metropolitan area help to further penetrate these existing markets. We are benefitting from our expanded infrastructure that has been put in place to support our growth. For example, our broadened real estate team enables us to better canvas the country as we continue to look for home run store locations. To date, we have an additional 37 leases signed for 1998 openings, including new markets such as Seattle, Boston, Kansas City and Columbus, Ohio. Id. (quoting the 23 April 1998 Press Release) (emphasis in the Second Amended Complaint). e. The 9 July 1998 Press Release On 9 July 1998, Party City announced its sales results for the second quarter and first six months of 1998 (the “9 July 1998 Press Release”). Second Amended Complaint at ¶ 35. The 9 July 1998 Press Release stated the total revenues for the second quarter of 1998 increased 151.9% to $56.6 million. Id. The 9 July 1998 Press Release further stated revenues in the first six months of 1998 increased 162.4% to $97.3 million. Id. The 9 July 1998 Press Release accentuated the rapid growth Party City was experiencing: Party City opened a total of 20 new stores during the second quarter, 15 of which are company-owned and five of which are franchised. As of the end of the second quarter a total of 308 Party City stores were in operation, compared to 224 stores last year, an increase of 37.5%. Additionally, two new company-owned- stores opened in early July, with the associated pre-opening costs booked as incurred in the second quarter. As of July 8, 1998, additional leases for 33 company-owned stores and six franchise stores have been signed for openings this year. Id. (quoting the 9 July 1998 Press Release). Mandell commented: The solid sales results we achieved in the second quarter are on target with our internal plan. Our 1998 store opening schedule is also tracking to our expectations. With 29 new company-owned stores already opened and another 33 signed leases, we are well positioned to reach our store opening goal for the year. Second Amended Complaint at ¶ 36 (quoting the 9 July 1998 Press Release). f.The 28 July 1998 Press Release On 23 July 1998, Party City issued a press release over the Business Wire announcing financial results for the second quarter and six months ended 30 June 1998 (the “23 July 1998 Press Release”). Second Amended Complaint at ¶ 39. The 23 July 1998 Press Release reported net income for the second quarter increased 16.1% to $1,042,000, or $.08 per share on both a basic and diluted basis, compared to net income of $897,000 or $.07 per share for the same period in 1997. Id. Party City reported a net loss for the first six months of 1998 of $229,000 or $.02 per share on both a basic and diluted basis, as compared to net income of $609,000 or $.05 per share for the same period in 1997. Id. Party City attributed the net loss for the first six months to a higher interest expense, resulting from the efforts of Party City to fund its aggressive growth, and to higher pre-opening expenses due to the greater number of stores opened in 1998 versus 1997. Id. Mandell commented: We are pleased to report our strong sales and earnings results for the second quarter. Earnings in the period were driven by our ability to improve store contribution margins while leveraging our G & A expenses over a wider sales base. We were able to achieve these improved results despite the significant pre-opening expenses incurred in the quarter due to our aggressive store expansion plans. We are confident that we will continue to efficiently execute our operating strategy and expect to meet our stated goals for the year. Id. (quoting the July 1998 Press Release). g. The II August 1998 Form 10-Q On 14 August 1998, Party City filed its Form 10-Q, for the quarter ended 30 June 1998 with the SEC (the “14 August 1998 Form 10-Q”). Second Amended Complaint at ¶ 42. The 14 August 1998 Form 10-Q was signed by Mandell and by Lau-ber. Id. The 14 August 1998 Form 10-Q repeated the financial results set forth in the 23 July 1998 Press Release. Id. h. The 2 September 1998 Press Release On 2 September 1998, Party City issued a press release (the “2 September 1998 Press Release”) announcing it expected to report a net loss of between $.15 to $.18 per fully diluted share for the third quarter ending 30 September 1998. Id. at ¶ 46. Party City stated this expectation was based upon lower than anticipated sales results for the months of July and August. Id. Party City asserted the lower sales were due to less aggressive promotional pricing than in the comparable period the prior year, a more aggressive new store expansion effort, and delays in the acquisitions of five franchise stores. Id. Party City stated it believed its new store openings and franchise acquisitions had positioned Party City well for the important Halloween selling season. Id. Party City further stated “management expects a portion of the revenues and income shortfall in the third quarter will be recouped in the fourth quarter of 1998 and remains comfortable that full year results will be in line with expectations.” Id. (quoting the 2 September 1998 Press Release). i. The 3 September 1998 Star-Ledger Intervieio On 3 September 1998, Lauber gave an interview to the Newark Star Ledger (the “3 September 1998 Star-Ledger Interview”). Second Amended Complaint at ¶ 50. Lauber addressed the 34% drop in the price of Party City Stock that had resulted from the release of expected third quarter numbers in the 2 September 1998 Press Release. Id. Lauber stated the expected third quarter loss was tied to the costs of opening 52 new stores, compared with 34 new stores the prior year. Lauber stated “it was imperative to get these' stores open in time for Halloween” so Party City could capture more business during its busiest season. Id. (quoting the 3 September 1998 Star-Ledger Interview). Addressing the quarterly shortfall, Lauber said Party City made the mistake of offering shoppers fewer store-circular bargains that year. Id. Lauber explained: “We thought there was an opportunity to pick up some dollars in our margins, so we did not promote on price as strongly in July and August.... It was an error on our part. But we’re back on track.” Id. j. The 3 September 1998 Doio Jones Intervieio On 3 September 1998, Lauber gave an interview to the Doio Jones News Service (the “3 September 1998 Dow Jones Interview”). Second Amended Complaint at ¶ 52. Lauber told Dow Jones he did not understand why investors had “been so skittish” about the stock: “The real issue is that the fundamentals of this business remain intact.” Id. (quoting the 3 September 1998 Doio Jones Interview). Lauber asserted Party City would recover some of the third quarter losses in the fourth quarter. Second Amended Complaint at ¶ 52. Lauber stated he was comfortable with the estimates of several analysts that earnings would be $.93 per share for 1998. Id. Lauber noted that, given recent activity in the stock market, some investors may have been looking for reasons to sell Party City Stock. Id. Lauber, however, maintained Party City was different from its competitors in that Party City offered a deeper selection, had a better inventory system, and received better prices because of its purchasing power. Id. Lauber also said that concerns about inventory levels were overblown: “We’re very comfortable with our inventory levels.” Id. (quoting the 3 September 1998 Doio Jones Interview). k.The 8 October 1998 Press Release On 8 October 1998, Party City issued a press release (the “8 October 1998 Press Release”) announcing its sales results for the third quarter and nine months ended 30 September 1998. Second Amended Complaint at ¶ 58. The 8 October 1998 Press Release reported revenues for the third quarter of 1998 increased 108.6% to $58.4 million, and sales from company-owned stores were reported to have increased 117.9% to $56.0 million. Id. Total revenues for the nine months ended 30 September 1998 were reported to have increased 139.2% to $155.7 million, up from $65.1 million for the same period in 1997. Id. Mandell commented that during the third quarter, we opened 52 stores and entered a number of new, key markets including Boston, Kansas City and Salt Lake City. Our aggressive push during the quarter to open more stores, combined with the strong rebound in our September sales, places us in an excellent position to capitalize on the important Halloween season. Id. (quoting the 8 October 1998 Press Release). l. The 22 October 1998 Press Release On 22 October 1998, Party City issued a press release (the “22 October 1998 Press Release”) announcing its financial results for the third quarter of 1998. Second Amended Complaint at ¶ 60. The 22 October 1998 Press Release reported a net loss of $0.17 per share for the third quarter compared with a net loss of $0.02 per share for the same period in the prior year. Id. Mandell commented: Now that the third quarter is behind we are in a stronger position than ever to capitalize on the Halloween selling season. ... [Our new store opening] schedule is an aggressive yet prudent level of new store activity for the company. We believe that 50 to 60 new company-owned stores will enhance our leading competitive position within the party goods industry. Id. at ¶ 60 (quoting the 22 October 1998 Press Release). m. The 16 November 1998 Form 10-Q On 16 November 1998, Party City filed its Form 10-Q for the quarter ended 30 September 1998 with the SEC (the “16 November 1998 Form 10-Q”). Second Amended Complaint at ¶ 65. The 16 November 1998 Form 10-Q was signed by Mandell and Lauber. Id. The 16 November 1998 Form 10-Q repeated the financial results for the third quarter of 1998 and nine months ended 30 September 1998 set forth in the 8 October 1998 Press Release. Id. n. The 19 November 1998 Press Release On 19 November 1998, Party City issued a press release (the “19 November 1998 Press Release”) announcing its sales results for the month of October 1998. Id. at ¶68. Party City reported total revenues for October increased 82.5% to $85.4 million, up from $46.8 million for the same period in 1997. Id. Mandell commented: We are very excited to have exceeded our same store sales goal for the month of October. We attribute the 11.4% increase to a well executed direct mail advertising campaign, strong in-store marketing and merchandising and to the depth and breadth of our Halloween product offering.... Sales were strong across all regions, with particularly strong results in Chicago, Detroit and Minneapolis. Our Class of 1998 new stores performed above plan and experienced a stronger first Halloween than any other class year in the Company’s history.... We are pleased with our strong results in October, which is [sic] as important to our business as December is for most retailers. The combination of our solid comp store gain, the performance of our new stores and the excellent execution of our business during this important time of year gives Party City a solid platform from which to further grow the business. Id. (quoting the 19 November 1998 Press Release). o.The 4 January 1999 Press Release On 4 January 1999, Party City issued a press release (the “4 January 1999 Press Release”) announcing its sales results for the fourth quarter and year ended 31 December 1998. Second Amended Complaint at ¶ 71. The 4 January 1999 Press Release reported total revenues for the 1998 fourth quarter increased 81.5% to $138.7 million and total revenues for 1998 fiscal year increased 108.0% to $294.3 million. Id. Mandell commented: Our comparable store performance reflects a strong start to the quarter due to our healthy Halloween season sales results. We were able to build on that momentum with an effective promotional program that helped to drive traffic throughout the November and December holiday selling season. These results underscore the excitement generated by our super store concept and our leading position in the party supply industry. Id. (quoting the 4 January 1999 Press Release). p. The 1 March 1999 Press Release On 1 March 1999, Party City issued a press release (the “1 March 1999 Press Release”) stating that in response to shareholder inquiries, Party City was offering its comments on the then current status of its year-end audit process. Second Amended Complaint at ¶ 74. Party City reported: The Company is currently in the process of completing its year-end audit. The audit has taken longer than anticipated due to growth of the business; having 85% more company-owned stores as compared to year-end 1997. Part of this process is the taking and reconciling of physical inventories in stores. Party City expects to report its year-end financial results the week of March 28, 1999. The Company is approximately halfway through the inventory process, and, based on currently available information, has determined that inventory shrinkage levels and gross profit margins in company-owned stores are within the Company’s historical range as well as its year-end budget. Also, based on preliminary results, total pre-tax operating expenses in the fourth quarter of 1998 were approximately $1 million higher than planned and, therefore, will have a corresponding effect on net income and earnings per share results. Id. (quoting the 1 March 1999 Press Release). q. The 19 March 1999 Press Release On 19 March 1999, prior to the opening of trading, Party City issued a press release (the “19 March 1999 Press Release”) which stated: Party City Corporation (Nasdaq: PCTY) announced today that its year-end audit is continuing, but it is taking longer than expected due to various difficulties associated with implementing new and upgrading existing financial reporting and accounting systems that were required, in part, to accommodate the substantial growth of its business, as well as the time and difficulties associated with taking a physical inventory of the increased number of stores and recent turnover in its Finance Department. The Company is working diligently with its independent auditors to complete the audit as soon as possible. While the Company believed earlier this month that the audit would be completed by month end, at this time the Company does not expect that the audit will be completed by that date and is unable to indicate when the audit will be completed. The Company will be in default of certain reporting covenants under its existing $60 million secured credit facility as a result of the delay in completing the audit, and will be in default of certain financial covenants as of December 31, 1998. The Company is engaged in discussions with its lenders. In the event the Company is unable to resolve these issues with its lenders, the lenders may be able to exercise certain remedies, including acceleration of repayment. Steven Mandell Chairman and Chief Executive Officer of Party City, stated, “We are extremely disappointed with the difficulties we have encountered in completing this year’s audit and we have begun to take corrective action to avoid these issues in the future. Regarding communications with our investors, we intend to hold a conference call shortly after our annual results are released. We do not expect to make further announcements concerning the year-end results until the audit is completed.” Second Amended Complaint at ¶ 76 (quoting the 19 March 1999 Press Release). The Second Amended Complaint alleges investors were surprised by the announcement the year-end audit of Party City had been delayed indefinitely, and that Party City was in default of certain reporting covenants under its then existing $60 million secured credit facility. Second Amended Complaint at ¶ 77. The Second Amended Complaint further alleges investors were not aware Party City was in default of certain financial agreements as of 31 December 1998, and that the financial reporting and accounting systems of Party City were in disarray. Id. During the first day of trading following the 19 March 1999 Press Release, the price of Party City Stock fell $3/Í6 per share to $4 per share, representing a loss of more than forty-five percent. Id. As mentioned, the Second Amended Complaint alleges Defendants disseminated materially false and misleading information concerning the financial condition and business prospects of Party City. Id. at ¶ 84. According to the Second Amended Complaint, because the financial and accounting systems of Party City were in disarray, the financial results reported by Party City during the Class Period were materially inaccurate and overstated and failed to conform to Generally Accepted Accounting Principals (“GAAP”). Id . The Second Amended Complaint asserts that the material misrepresentations and omissions of the Defendants regarding the operating results and financial condition of Party City caused Party City Stock to trade at artificially inflated prices during the Class Period. Id. 2. Scienter Allegations The Second Amended Complaint alleges Defendants acted with scienter in that they (1) knew or recklessly disregarded that the public documents and statements issued or disseminated in the name of Party City were materially false and misleading, (2) knew or recklessly disregarded that such statements or documents would be issued or disseminated to the investing public, and (3) knowingly and substantially participated or acquiesced in the issuance or dissemination of such statements or documents. Id. at ¶ 87. The Second Amended Complaint further alleges that the Individual Defendants engaged in a scheme to inflate the price of Party City Stock in order to (1) protect and enhance their executive positions and the substantial compensation and prestige they obtained thereby, (2) allay concerns about Party City’s financial problems and (3) enhance the value of their personal Party City Stock and stock options, allowing for profitable insider sales and purchases. Id. at ¶ 89. Discussion A. Standard for Dismissal Under Rule 12(b)(6) A complaint may be dismissed pursuant to Rule 12(b)(6) for failure to state a claim where it appears beyond doubt no relief could be granted under any set of facts which could be proved consistent with the allegations. Hartford Fire Ins. Co. v. California, 509 U.S. 764, 811, 113 S.Ct. 2891, 125 L.Ed.2d 612 (1993); Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984); Semerenko v. Cendant Corp., 223 F.3d 165, 173 (3d Cir.2000) (citations omitted); In re Warfarin Sodium Antitrust Litig., 214 F.3d 395, 397-98 (3d Cir.2000). All allegations set forth by a plaintiff are taken as true and all reasonable factual inferences are drawn in his or her favor. Sutton v. United Airlines, Inc., 527 U.S. 471, 475, 119 S.Ct. 2139, 144 L.Ed.2d 450 (1999); Davis v. Monroe County Bd. of Educ., 526 U.S. 629, 633, 119 S.Ct. 1661, 143 L.Ed.2d 839 (1999); Semerenko, 223 F.3d at 173. A complaint may not be dismissed unless it appears beyond doubt “the facts alleged in the complaint, even if true, fail to support the claim.” In re Warfarin Sodium, 214 F.3d 395, 397 (3d Cir.2000); Trump Hotels and Casino Resorts, Inc. v. Mirage Resorts, Inc., 140 F.3d 478, 483 (3d Cir.1998). Legal conclusions made in the guise of factual allegations, however, are given no presumption of truthfulness. Papasan v. Allain, 478 U.S. 265, 286, 106 S.Ct. 2932, 92 L.Ed.2d 209 (1986); Morse v. Lower Merion School Dist., 132 F.3d 902, 906 (3d Cir.1997) (“[A] court need not credit a complaint’s ‘bald assertions’ or ‘legal conclusions’ when deciding a motion to dismiss”); Syncsort Inc. v. Sequential Software, Inc., 50 F.Supp.2d 318, 325 (D.N.J.1999); In re MobileMedia Sec. Litig., 28 F.Supp.2d 901, 922 (D.N.J.1998). A District Court reviewing the sufficiency of a complaint has a limited role. The issue is not “whether the plaintiffs will ultimately prevail” but “whether they are entitled to offer evidence to support then-claims.” Langford v. City of Atlantic City, 235 F.3d 845, 847 (3d Cir.2000); see also In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1420 (3d Cir.1997); Syncsort, 50 F.Supp.2d at 325; In re MobileMedia, 28 F.Supp.2d at 922. Generally, when conducting such an inquiry, material beyond the pleadings may not be considered. In re Burlington Coat Factory, 114 F.3d at 1426. A court may properly refer, however, to the factual allegations contained in other documents, such as documents referred to in the complaint and matters of public record, if the claims of the plaintiff are based upon those documents. In re Burlington Coat Factory, 114 F.3d at 1426; In re Westinghouse Sec. Litig., 90 F.3d 696, 707 (3d Cir.1996); Gannon v. Continental Ins. Co., 920 F.Supp. 566, 574 (D.N.J.1996). In other words, such documents must be “integral to or explicitly relied upon in the complaint.” In re Burlington Coat Factory, 114 F.3d at 1426 (citation and internal quotations omitted). The reason for this rule is to prevent [t]he situation in which a plaintiff is able to maintain a claim of fraud by extracting an isolated statement from a document and placing it in the complaint, even though if the statement were examined in the full context of the document, it would be clear that the statement was not fraudulent. Id. Under these circumstances, reference to documents outside of the complaint does not convert a motion to dismiss into a motion for summary judgment. B. The Exchange Act In general, the Exchange Act regulates post-distribution trading. Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N .A., 511 U.S. 164, 171, 114 S.Ct. 1439, 128 L.Ed.2d 119 (1994). The Exchange Act embraces a “fundamental purpose ... [of] substituting] a philosophy of full disclosure for the philosophy of caveat emptor.” Id. The Exchange Act is part of a detailed scheme of civil liability. 1. Section 10(b) and Rule 10b-5 Count One of the Second Amended Complaint alleges violations of Section 10(b) and Rule 10b-5. Second Amended Complaint at ¶¶ 93-101. Through Section 10(b), Congress prohibited manipulative or deceptive acts in connection with the purchase or s ale of securities. 15 U.S.C. § 78j; see also Rule 10b—5; 17 C.F.R. § 240.10b-5. To establish a claim under Section 10(b) and Rule 10b-5, a plaintiff must plead (1) that the defendant made a misrepresentation or omission of (2) a material (3) fact; (4) that the defendant acted with knowledge or recklessness and (5) that the plaintiff reasonably relied on the misrepresentation or omission and (6) consequently suffered damage. In re Advanta Corp. Sec. Litig., 180 F.3d 525, 537 (3d Cir.1999). 2. Rule 9(b) Because a Rule 10b-5 claim is a “fraud” claim, the Plaintiffs must satisfy the pleading requirements of Rule 9(b) of the Federal Rules of Civil Procedure (“Rule 9(b)”). In re Burlington Coat Factory, 114 F.3d at 1417; In re Westinghouse, 90 F.3d at 710. Rule 9(b) requires that “[i]n all' averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity.” Fed.R.Civ.P. 9(b). The purpose of the heightened pleading requirement is to give defendants “notice of the claims against them, [to] provide an increased measure of protection for their reputations, and [to] reduce the number of frivolous suits brought solely to extract settlements.” In re Burlington Coat Factory, 114 F.3d at 1418. In order to satisfy Rule 9(b) in connection with a Rule 10b-5 claim, a plaintiff must plead with particularity (1) a specific misrepresentation of material fact, (2) the knowledge by defendants of its falsity, (3) the ignorance by the plaintiff of its falsity, (4) the intention of defendants that it should be acted upon and (5) that plaintiff acted upon it to his or her detriment. In re Westinghouse, 90 F.3d at 710. Consequently, Rule 9(b) demands increased specificity in the pleadings to establish violations of Section 10(b) and Rule 10b-5. Pursuant to Rule 9(b), allegations concerning misrepresentations of material fact must be pleaded in greater detail. Stevelman v. Alias Research Inc., 174 F.3d 79, 84 (2d Cir.1999); see e.g. In re Burlington Coat Factory, 114 F.3d at 1417-18 (holding that pursuant to Rule 9(b), “where plaintiffs allege that defendants distorted certain data disclosed to the public by using unreasonable accounting practices, ... plaintiffs [must] state what the unreasonable practices were and how they distorted the disclosed data”); Shapiro v. UJB Financial Corp., 964 F.2d 272, 285 (3d Cir.1992) (citing In re Craftmatic Sec. Litig., 890 F.2d 628, 646 (3d Cir.1989)) (finding that Rule 9(b) requires plaintiffs to “accompany the allegations with a statement of fact upon which their allegation is based”). The particularity requirement of Rule 9(b) is “relaxed somewhat where the factual information is peculiarly within the defendant’s knowledge or control.” In re Burlington Coat Factory, 114 F.3d at 1418; Shapiro, 964 F.2d at 285; In re Craftmatic, 890 F.2d at 645. Even under a relaxed application of Rule 9(b), however, “boilerplate and eonelusory allegations will not suffice.” In re Burlington Coat Factory, 114 F.3d at 1418; Shapiro, 964 F.2d at 285. Instead, “[plaintiffs must accompany their legal theory with factual allegations that make their theoretically viable claim plausible.” In re Burlington Coat Factory, 114 F.3d at 1418; Stevelman, 174 F.3d at 84; Shapiro, 964 F.2d at 285; In re Craftmatic, 890 F.2d at 645. 3. The Private Securities Litigation Reform Act Complaints alleging securities fraud must also comply with the Private Securities Litigation Reform Act of 1995 (the “PSLRA”). 15 U.S.C. ¶ 78u-4 et seq.; Oran v. Stafford, 226 F.3d 275, 288 (3d Cir.2000). Congress enacted the PSLRA in an effort to curb abuse in private securities litigation, especially the filing of so-called “strike” suits. S.Rep. No. 104-98, at 4 (1995), reprinted in 1995 U.S.C.C.A.N. 679, 683. The Committee on Banking, Housing and Urban Affairs reported that: The Committee heard substantial testimony that today certain lawyers file frivolous “strike” suits alleging violations of Federal securities laws in the hope that defendants will quickly settle to avoid the expense of litigation. These suits, which unnecessarily increase the cost of raising capital and chill corporate disclosure, are often based on nothing more than a company’s announcement of bad news, not evidence of fraud. Al too often, the same “professional” plaintiffs appear as name plaintiffs in suit after suit. S.Rep. No. 104-98, at 4 (1995), reprinted in 1995 U.S.C.C.A.N. 679, 683. The PSLRA seeks to “curtail the filing of abusive lawsuits” through the establishment of a “uniform and stringent pleading requirement.” Id. at 15, reprinted 1995 U.S.C.C.A.N. at 694. To that end, the PSLRA requires a complaint, which asserts a Section 10(b) claim, set forth “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, the complaint shall state with particularity all facts on which that belief is formed.” 15 U.S.C. § 78u-4(b)(1) (emphasis added). In addition, to allege scienter sufficiently, the complaint must “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.” ■ 15 U.S.C. § 78u-4(b)(2); Oran, 226 F.3d at 288. A complaint that fails to meet these stringent pleading requirements must be dismissed. 15 U.S .C. 78u-4(b)(3)(A). Defendants argue the Section 10(b) claim of the Plaintiffs fails to meet the pleading requirements of both the PSLRA and Rule 9(b). Moving Brief at 11-18. a. 15 U.S.C. § 78u-A(b)(l) i. Failure to Allege Fraud with Particularity As discussed above, plaintiffs asserting Section 10(b) claims must specifically identify the statements which they contend were false and misleading. Simply referring to a series of public statements and then alleging, in a general and conclusory manner, that those disclosures were false or misleading is insufficient. See In re Burlington Coat Factory, 114 F.3d at 1418. The Second Amended Complaint alleges that virtually every disclosure of Party City’s financial results during the Class Period was false and misleading. See Second Amended Complaint at ¶¶ 26, 28, 31, 32, 35, 39, 42, 46, 50, 52, 58, 60, 65, 68, 71, 74, 76. The Plaintiffs, nevertheless, do not specify which figures in Party City’s financial statements they claim are inaccurate, much more by how much. Indeed, the Second Amended Complaint does not identify a single number or a single line item in any financial disclosure which the Plaintiffs allege was wrong. The Plaintiffs, moreover, fail to specify whether they claim the earnings were wrong, the sales were wrong, or the expenses were wrong. At a minimum, such basic facts should be pleaded with specificity. See In re Burlington Coat Factor, 114 F.3d at 1417-18 (“[W]here plaintiffs allege that defendants distorted certain data disclosed to the public by using unreasonable accounting practices, ... plaintiffs [must] state what the unreasonable practices were and how they distorted the disclosed data.”); Gross v. Summa Four, Inc., 93 F.3d 987, 996 (1st Cir.1996) (plaintiffs failed to “allege[] the amount of the putative overstatement or the net effect it had on the company’s earnings”), superseded by statute as stated in Greebel v. FTP Software, Inc., 194 F.3d 185 (1st Cir.1999); Pell v. Weinstein, 759 F.Supp. 1107, 1119 (M.D.Pa.1991) (“plaintiffs do not even attempt to identify the errors in the financial statements or the amount of any inaccuracies”), aff'd, 961 F.2d 1568 (3d Cir.1992). The Plaintiffs, moreover, claim that Party City’s systems were not functioning in a manner so as to produce reliable financial results in accordance with GAAP. Second Amended Complaint at ¶¶ 30, 34, 38, 41, 43, 49, 51, 53, 57, 59, 63, 67, 70, 73, 75. The Plaintiffs, however, do not specify which generally accepted accounting principle or principles Party City allegedly failed to observe. Id. Unsubstantiated allegations that the Defendants failed to comply with GAAP lack the particularity required by Rule 9(b) and the PSLRA. See In re Burlington Coat Factory, 114 F.3d at 1417-18; In re Ikon Office Solutions, Inc., 66 F.Supp.2d 622, 633 (E.D.Pa.1999) (“Defendant is correct that plaintiffs may not merely allege violations of GAAP and GAAS” without identifying the unreasonable practices and stating how they distorted the financials). In addition to the unparticularized allegations that Party City’s financials were false and misleading, the Second Amended Complaint makes the following allegation with regard to virtually every Class Period disclosure: The foregoing statements and financial results ... were materially false and misleading and lacked any reasonable basis because, as defendants knew (or were reckless in not knowing) and failed to disclose to the investing public, the Company’s internal financial and accounting systems had failed to keep up with the Company’s rapid and aggressive expansion of stores and were not functioning in a manner so as to produce reliable financial results and in accordance with GAAP. Indeed, as a result of high turnover in the Finance Department ... and the failure of the Company’s internal financial and accounting systems to generate accurate financial information ... the Company’s financial results ... were materially inaccurate and should not have been released to the investing public. Second Amended Complaint at ¶¶ 27, 30, 34, 38, 41, 43, 47, 49, 51, 53, 57, 59, 63, 67, 70, 73, 75. The Plaintiffs, however, do not specify which “systems” were inadequate, how they were inadequate, which financial personnel left Party City or how these purported deficiencies affected the financial results. As discussed, such conclusory allegations are insufficient under Rule 9(b) and the PSLRA. See In re Burlington Coat Factory, 114 F.3d at 1418. The Plaintiffs, moreover, have included certain additional allegations regarding various inventory and operational problems at Party City. See e.g. Second Amended Complaint at ¶ 30. The Plaintiffs assert that such problems “ma[de] the Company’s financial statements issued throughout the Class Period misleading.” Id. at ¶ 30(g). The Plaintiffs, however, have provided no support for such allegations in the Second Amended Complaint. For example, the Second Amended Complaint does not set forth a single specific occasion where a store employee failed to enter merchandise into the inventory system. In addition, the Second Amended Complaint does not identify any staff member or store involved, the time period when such events allegedly took place or quantify the amount of inventory not entered into the system. Similarly, the Second Amended Complaint fails to identify which particular financial statements during the Class Period were impacted by these alleged occurrences or by how much. The Second Amended Complaint, moreover, lends no support to the allegation that turnover at Party City was “on the order of 30 percent.” Id. at 30(f). The Second Amended Complaint does not mention any name, or even provide the title or rank, of any person who left Party City during the Class Period. Moreover, the Second Amended Complaint does not explain how such departures would have rendered the financial results unreliable and inaccurate. Likewise, the Second Amended Complaint fails to allege any facts supporting the allegation that “garbage bags and boxes” full of “paperwork” sat in the mailroom at Party City’s corporate headquarters. Indeed, the Second Amended Complaint does not allege the kinds of “paperwork” involved or how such “paperwork” had any bearing on Party City’s financial statements. As mentioned, because a Rule 10b-5 claim is a “fraud” claim, the Plaintiffs must satisfy the pleading requirements of Rule 9(b). In re Burlington Coat Factory, 114 F.3d at 1417; In re Westinghouse, 90 F.3d at 710. Rule 9(b) requires that “[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity.” Fed. R.Civ.P. 9(b). The Second Anended Complaint fails to meet this stringent pleading requirement. ii. Failure to Allege Basis for Information and Belief Allegations Even if the Plaintiffs had adequately pleaded false and misleading statements with the required particularity, they are further required by the PSLRA to provide the basis for such allegations where, as here, those allegations are alleged on “information and belief.” See 15 U.S.C. § 78u-4(b)(l). As mentioned, the PSLRA mandates that “if an allegation regarding [a] statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed.” Id. (emphasis added). In so drafting the PSLRA, “Congress intended to assure that the requirements of Rule 9(b) were met in all securities fraud cases, including those pled on information and belief.” In re Silicon Graphics, Inc. Sec. Litig., 970 F.Supp. 746, 752 (N.D.Cal.1997) (citing H.R. Conf. Rep. No. 104-369, at 41, reprinted in 1995 U.S.C.C.A.N. 730, 740). The Plaintiffs contend that this heightened pleading standard is not applicable in the present matter. Opposition Brief at 20-23. According to the Plaintiffs, the allegations in the Second Amended Complaint are made “upon information and belief ..., based upon ... the investigation made by and through [counsel].” Id. (emphasis added). Allegations made on the basis of an investigation of counsel, nevertheless, are the functional equivalent of allegations made upon information and belief. In re Nice Systems, Ltd. Sec. Litig., 135 F.Supp.2d 551, 568-69 (D.N.J.2001); see also In re Silicon Graphics, 183 F.3d at 985; In re Theragenics Corp. Sec. Litig., 105 F.Supp.2d 1342, 1351 (N.D.Ga.2000); In re PETsMART, Inc. Sec. Litig., 61 F.Supp.2d 982, 989 (D.Ariz.1999); In re Green Tree Financial Corp. Stock Litig., 61 F.Supp.2d 860, 872 (D.Minn.1999); In re Aetna, 34 F.Supp.2d at 942. Therefore, because the Plaintiffs are pleading upon information and belief, the PSLRA requires that the Plaintiffs particularize all facts upon which their belief was formed, including the identities of unnamed “former employees.” 15 U.S.C. § 78u — 4(b)(1); see also In re Nice Systems, 135 F.Supp.2d at 570-72. This they have failed to do. The language of a statute is the starting point when considering its meaning. Williams v. Taylor, 529 U.S. 420, 431, 120 S.Ct. 1479, 146 L.Ed.2d 435 (2000); Richardson v. U.S., 526 U.S. 813, 818, 119 S.Ct. 1707, 143 L.Ed.2d 985 (1999); U.S. v. Gregg, 226 F.3d 253, 257 (3d Cir.2000). “Where the statutory language is plain and unambiguous, further inquiry is not required, except in the extraordinary case where a literal reading of the language produces an absurd result.” Idahoan Fresh v. Advantage Produce, Inc., 157 F.3d 197, 202 (3d Cir.1998); see also U.S. v. Ron Pair Enterprises, Inc., 489 U.S. 235, 241, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989) (Where “the statute’s language is plain, ‘the sole function of the courts is to enforce it according to its terms.’ ”) (quoting Caminetti v. U.S., 242 U.S. 470, 485, 37 S.Ct. 192, 61 L.Ed. 442 (1917)). “[I]f the statutory language is clear, a court must give [such language] effect unless this ‘will produce a result demonstrably at odds with the intention of [the] drafters.’ ” Government of the Virgin Islands v. Knight, 989 F.2d 619, 633 (3d Cir.1993) (quoting Griffin v. Oceanic Contractors, Inc., 458 U.S. 564, 570, 102 S.Ct. 3245, 73 L.Ed.2d 973 (1982)); see also Williams, 529 U.S. at 431, 120 S.Ct. 1479 (“We give the words of a statute their ordinary, contemporary, common meaning, absent an indication Congress intended them to bear some different import.”) (citation and internal quotations omitted); Gregg, 226 F.3d at 257 (“Once the plain meaning of the statute is determined, it is conclusive except in rare cases in which the literal application of a statute will produce a result demonstrably at odds with the intention of the drafters.”) (citation and internal quotations omitted). When construing the language of a statute, “significance and effect” must be accorded “to every word.” Rake v. Wade, 508 U.S. 464, 471, 113 S.Ct. 2187, 124 L.Ed.2d 424 (1993) (citations omitted); see also Public Lands Council v. Babbitt, 529 U.S. 728, 746, 120 S.Ct. 1815, 146 L.Ed.2d 753 (2000) (a statute must “be construed in such a fashion that every word has some operative effect.”) (quoting U.S. v. Nordic Village, Inc., 503 U.S. 30, 36, 112 S.Ct. 1011, 117 L.Ed.2d 181 (1992)); In re Top Grade Sausage, Inc., 227 F.3d 123, 129 (3d Cir.2000) (“[Cjourts are obliged to give effect, if possible, to every word Congress used.”) (quoting In re Cohn, 54 F.3d 1108, 1115 (3d Cir.1995)). Accordingly, when interpreting a statute, words may not simply be read out of the statute. See e.g. National Credit Union Admin. v. First National Bank & Trust Co., 522 U.S. 479, 502, 118 S.Ct. 927, 140 L.Ed.2d 1 (1998); Morales v. Trans World Airlines, 504 U.S. 374, 385, 112 S.Ct. 2031, 119 L.Ed.2d 157 (1992); see also In re Nice Systems, 135 F.Supp.2d at 570-72. The plain language of the PSLRA indicates that a plaintiff may not plead some facts and withhold others. As mentioned, a complaint on information and belief “shall state with particularity all facts on which that belief is formed.” 15 U.S.C. § 78u-4(b)(l) (emphasis added). Although the words “all” and “facts” are not defined in the PSLRA, the meaning of each is plain. “All” means “every member or individual component of.” Black’s Law Dictionary 74 (6th ed.1990). “Fact” is defined as “an event or circumstance.” Id. at 591. “Facts” also include the names of confidential informants, employees, competitors and others who provide information which leads to the filing of a complaint under the Exchange Act. 141 Cong. Rec. H2849 (8 March 1995). The plain language of the PSLRA dictates that plaintiffs pleading on information and belief set forth each and every event, circumstance, confidential informant, employee or others who supply data which leads to the drafting of the complaint. See Immigration and Naturalization Service v. Elias-Zacarias, 502 U.S. 478, 482, 112 S.Ct. 812, 117 L.Ed.2d 38 (1992) (“In construing statutes, we must, of course, start with the assumption that the legislative purpose is expressed by the ordinary meaning of the words used.”) (citation and internal quotations omitted); see also In re Nice Systems, 135 F.Supp.2d at 570-72. As discussed, moreover, “only the most extraordinary showing of contrary intentions from [legislative history] would justify a limitation on the ‘plain meaning’ of the statutory language.” Ries v. National Railroad Passenger Corp., 960 F.2d 1156, 1161 (3d Cir.1992) (quoting Garcia v. US., 469 U.S. 70, 75, 105 S.Ct. 479, 83 L.Ed.2d 472 (1984)). While neither necessary nor appropriate for consideration in the present matter, the plain language and understanding of the PSLRA are reinforced by its legislative history. In H.R. Conf. Rep. No. 104-369, Congress stated that its intent in promulgating the information and belief provision was to require that a “plaintiff ... state with particularity all facts in the plaintiffs possession on which the belief is formed.” H.R. Conf. Rep. No. 104-369, at 41, reprinted in 1995 U.S.C.C.A.N. at 740 (emphasis added). As the Supreme Court has commented, a conference report such as the one issued in connection with the passage of the PSLRA is “traditionally [an] authoritative indicator[] of legislative intent.” Northeast Bancorp, Inc. v. Board of Governors of Federal Reserve System, 472 U.S. 159, 170, 105 S.Ct. 2545, 86 L.Ed.2d 112 (1985); see also Garcia, 469 U.S. at 76, 105 S.Ct. 479 (“[T]he authoritative source for finding the Legislature’s intent lies in the Committee Reports on the bill, which ‘represenft] the considered and collective understanding of those Congressmen involved in drafting and studying proposed legislation.’ ”) (quoting Zuber v. Allen, 396 U.S. 168, 186, 90 S.Ct. 314, 24 L.Ed.2d 345 (1969)). Additional legislative history regarding information and belief allegations comes from consideration of an amendment to H.R. 1058 (the version of the PSLRA from the House of Representatives), proposed by Congressman John Bryant, D-TX (the “Bryant Amendment”). Arguing against the requirement that plaintiffs state with particularity all facts on which their beliefs are formed, Representative Bryant expressed concern that at the beginning of the case plaintiff would have to set forth “with specificity all information,” they have to give all the information in advance that forms the basis for the allegations of the plaintiff, meaning any whistle-blower within a securities firm involved would have to be uncovered in the pleadings in the very, very beginning. 141 Cong. Rec. H2848 (8 March 1995). Congressman John Dingell, D-MI, agreed and stated that H.R. 1058, if passed without the Bryant Amendment, would require plaintiffs “literally, in [their] pleadings, [to] include the names of confidential informants, employees, competitors, and others who have provided information leading to the filing of the case.” 141 Cong. Rec. H2849 (8 March 1995). Despite such concerns, Congress rejected the Bryant Amendment. 141 Cong. Rec. H2848 (8 March 1995). In In re Silicon Graphics, the District Court concluded that “because ‘Congress does not intend sub silentio to enact statutory language that it has earlier discarded in favor of other language,’ ... plaintiffs must plead the sort of information described by Reps. Bryant and Dingell to meet the requirements of the [PSLRA] as enacted.” 970 F.Supp. at 764 (quoting Immigration & Naturalization Service v. Cardoza-Fonseca, 480 U.S. 421, 442-43, 107 S.Ct. 1207, 94 L.Ed.2d 434 (1987)). Moreover, in affirming the District Court in In re Silicon Graphics, the Ninth Circuit held that the “all facts” requirement for complaints pled on information and belief cannot be satisfied if plaintiffs fail to identify the sources upon which their belief is based. 183 F.3d at 984. According to the Ninth Circuit, “[i]t is not sufficient for a plaintiffs pleadings to set forth a belief that certain unspecified sources will reveal, after appropriate discovery, facts that will validate [the plaintiffs] claim.” Id. at 985; see also In re Aetna, 34 F.Supp.2d at 942-43 (adopting the District Court’s analysis in In re Silicon Graphics and holding that “plaintiffs must state with particularity the sources of the facts that they allege on information and belief’); In re Aetna, Inc. Sec. Litig., 1999 WL 354527, at *4 (E.D.Pa.26 May 1999) (“[T]he disclosure of the names and addresses of persons interviewed by Plaintiffs’ counsel is consistent with the policy considerations underlying the [PSLRA].”). The Second Circuit, nevertheless, recently held that “plaintiffs who rely on confidential sources are not always required to name those sources, even when they make allegations on information and belief.” Novak v. Kasaks, 216 F.3d 300, 313 (2d Cir.2000). In arriving at such a conclusion, the Second Circuit attempted to explain away the requirement that allegations on information and belief must be accompanied by a statement of “all facts on which that belief is formed.” Id. First, that Circuit stated that the identity of a confidential source is not a “fact.” Id. According to the Second Circuit, “the applicable provision of the law as ultimately enacted requires plaintiffs to plead only facts and makes no mention of the sources of these facts.” Id. The Second Circuit, nevertheless, failed to set forth any reasoning to support its conclusion that a source, including confidential informants, employees, competitors and others who provide information, is not a “fact.” See id. Absent any support for such a proposition, it is difficult to perceive how a source does not constitute a “fact,” especially in light of the rejection of the Bryant Amendment and the comments of Congressmen Bryant and Dingell. See pp. 305-06 supra; see also Williams, 529 U.S. at 431, 120 S.Ct. 1479. (the words of a statute are given their “ordinary, contemporary, [and] common meaning.”). Second, that Circuit inexplicably read the word “all” out of the statute. Id. at 314 n. 1. According to the Second Circuit, “[rjeading ‘all’ literally would produce illogical results that Congress cannot have intended.” Id. Such a finding, however, appears to violate a basic tenant of statutory construction. As discussed, a statute must “be construed in such a fashion that every word has some operative effect.” Public Lands Council, 529 U.S. at 746, 120 S.Ct. 1815 (quoting Nordic Village, 503 U.S. at 36, 112 S.Ct. 1011) (emphasis added). The holding of the Second Circuit in Novak, therefore, appears to contradict the plain language of the PSLRA. In the Opposition Brief, the Plaintiffs for the first time allege that their allegations are based, in part, upon interviews with former, unnamed employees of Party City. Opposition Brief at 21. The Second Amended Complaint contains no such allegation. See generally Second Amended Complaint. The Plaintiffs have not only failed to identify, by name, these “former employees,” they have not “described [such sources] ... with sufficient particularity to support the probability that a person in the position occupied by the source would posses the information alleged.” Novak, 216 F.3d at 314. Therefore, any arguments based upon interviews with unnamed “former employees” need not be considered. See In re Nice Systems, 135 F.Supp.2d at 572 (holding that plaintiffs did not satisfy particularity requirement where plaintiffs’ assertions were based, in part, on the statements of unnamed former employees). As mentioned, moreover, in a case alleged on informat