Full opinion text
MEMORANDUM OPINION PAYNE, District Judge. Pursuant to Fed.R.Civ.P 12(b)(6), De-loitte & Touche, L.L.P. (“Deloitte”) has moved for the dismissal of the Amended Complaint in which Plaintiffs allege that Deloitte committed securities fraud under Section 10(b) of the Securities Exchange Act of 1934 (15 U.S.C. § 783(b)) (the “1934 Act”) and Securities Exchange Commission Rule 10(b)(5) (“Rule 10(b)(5)”), and actual and constructive common law fraud. The grounds on which dismissal is urged are that: (1) Plaintiffs have failed to state a claim under the 1934 Act and Rule 10(b)(5) because -five of the seven Plaintiffs did not allege that they purchased or sold stock of Heilig-Meyers Company (“HM” or the “Company”) subsequent to De-loitte’s alleged misrepresentation; (2) the Amended Complaint fails to state with particularity facts giving rise to a strong inference of scienter, as required by the Private Securities Litigation Reform Act of 1995 (the “PSLRA”); (3) Cullather, the only Plaintiff who bought his HM shares after the alleged misrepresentations and in reliance upon them, made the purchases after he knew of the Company’s “true financial picture,” thereby foreclosing, as a matter of law, the adequate pleading of the elements of causation, justifiable reliance and material misrepresentation, which are the sine qua non of a valid claim under Section 10(b) and Rule 10(b)(5). Deloitte seeks dismissal of the constructive and actual common law fraud claims based on: (1) failure to adequately allege causation, and actual and reasonable reliance; and (2) the precept that constructive fraud cannot be premised on alleged negligent misrepresentation. Finally, Deloitte asserts that all of the Plaintiffs’ claims for punitive damages are unfounded because such damages are not recoverable under Section 10(b) or Rule 10(b)(5), and because Plaintiffs cannot show an injury caused by detrimental reliance on the fraud, or any element of wantonness, malice or overreaching. STATEMENT OF FACTS In this action, seven shareholders of HM, a home furnishings retailer, assert claims for securities fraud and common law fraud arising out of misrepresentations and omissions alleged to have been made by HM’s outside auditor, Deloitte, in connection with HM’s Annual Report issued on May 30, 2000. The facts, as alleged in the Amended Complaint, are recited below. Of course, for purposes of this motion the alleged facts must be taken as true and all favorable inferences that reasonably can be drawn from those facts must be extended to the Plaintiffs. Deloitte performed an audit of the financial statements of HM as of the fiscal year ending on February 29, 2000. The audit report was incorporated in full in HM’s Annual Report (Form 10-K) for that fiscal year issued on May 30, 2000. On March 22, 2000, Deloitte presented its unqualified audit report to the HM Board of Directors. On May 29, 2000, the HM Board of Directors approved the Annual Report and it was filed with the Securities and Exchange Commission (“SEC”) on May 30, 2000. The Annual Report included an audit opinion wherein Deloitte represented that: (1) Deloitte had audited the balance sheets, consolidated statements of operations and stockholders’ equity of HM; (2) HM’s financial statements “present fairly, in all material respects, the financial position” of HM as of February 29, 2000; and (3) the audit was in conformity with accounting principles generally accepted in the United States. Deloitte’s unqualified audit opinion also represented that, as of February 29, 2000, and May 30, 2000, HM was solvent; that it had almost $535 million in shareholder equity; and a book value of $8.81 per share. Amended Complaint, ¶ 14. It also is alleged that Deloitte knew that its unqualified opinion was to be used in HM’s Annual Report and that, as of May 30, 2000, when the Annual Report was issued, Deloitte knew that HM was not solvent; that the shareholder equity was not $535 million; that the book value was not $8.81 per share; and that the audited financial statements did not in most material respects fairly present HM’s financial position either as of February 29, 2000, or as of May 30, 2000. Amended Complaint, ¶ 127,141. Further, the Amended Complaint charges that, before the Annual Report was issued on May 30, Deloitte knew, or should have known, based on the financial information to which it was privy and discussions with HM’s management, that there were serious questions about the accuracy of HM’s financial statements and that there was material uncertainty about the ability of HM to continue as a going concern. Amended Complaint, ¶ 16. Further, it is averred that, by May 30, Deloitte knew that HM’s liquidity situation was not accurately portrayed in its audit opinion or i in the Annual Report, having been so informed by HM’s CEO at a meeting of the HM Board on May 17, and that the Com-I pany’s liquidity situation was a matter ofl great concern both to HM’s executives andl its Board. Amended Complaint, ¶ 27.1 Deloitte is said to have known that, before! the Annual Report was issued, the Bo arel had directed management to position th(| Company to seek protection under the bankruptcy laws, (Amended Complaint, ¶¶ 28, 29); and that the Company had retained an investment banker to determine whether there existed a potential purchaser for HM, facts that were not disclosed in the Annual Report or mentioned in Deloitte’s unqualified audit opinion. The Plaintiffs further charge that De-loitte knew that the Company’s financial position would be adversely affected by the termination of its Chief Executive, William DeRusha (“DeRusha”), because, as De-loitte knew, DeRusha’s termination would trigger a default in the Company’s revolving credit facility. According to the Amended Complaint, DeRusha, the Board and Deloitte all knew before May 30 that DeRusha’s employment likely would be terminated shortly thereafter. See Amended Complaint, ¶¶ 43-47. Plaintiffs also allege that, with Deloitte’s knowledge, the Annual Report made several other misrepresentations of material fact: • The Company had grown and was continuing to grow, with new and expansive remodeling plans and an enhanced advertising program; • As part of a “selective growth strategy”, HM planned to select new Heilig-Meyers locations and plans to expand the RoomStore format; • The Company’s competitive environment was comparable in all geographic regions in which it operates. There was no significant threat of competition that would materially affect HM’s business; • There were no significant factors affecting the business of the Company, including, the economy; «The Board intended to continue its present policy of paying regular quarterly dividends when justified by the financial condition of the company; • There were no problems with the Company’s receivables; • The allowance for doubtful accounts was adequate. According to the Amended Complaint, all of these statements were false because the Company’s liquidity was in jeopardy and because the Company was selling assets rather than remodeling and effecting a “selective growth strategy,” all of which affected the Company’s business, its ability to compete and its financial viability. On November 27, 2000, HM filed its quarterly report with the SEC. The quarterly report revealed that by August 31, 2000: 1. HM’s assets had shrunk over $611,474,000; 2. Total revenues for the quarter decreased 7.8%; 3. Operating expenses exceeded revenue by over $48 million; 4. The net loss increased $536,835,000; 5. Accounts payable increased by $27,313,000; 6. The loss per share was ($9.71); and 7. The total shareholder equity went from $534,748,000 in May 2000 to ($75,057), a decrease of $609,805,000. That quarterly report also stated that over $142.9 million in goodwill and all of the previously stated book value was gone, Amended Complaint, ¶ 119; and that “the equity interests of the Company’s shareholders may have no value”. Amended Complaint, ¶ 120 (citing the Quarterly Report). According to the Amended Complaint, all Plaintiffs, including Cullather, held onto the HM stock they owned as of May 30, rather than selling it because of their reliance on the material misrepresentations made by, and material facts deliberately not disclosed by, Deloitte. Also, Cullather claims to have bought additional HM Stock in reliance on representations made by Deloitte on May 30. The Plaintiffs assert that they sustained significant losses in the value of the stock that they bought, or onto which they held, after May 30. DISCUSSION Deloitte’s motion to dismiss the Amended Complaint must be assessed in perspective of the foregoing allegations, taken as true. The assessment must be made in perspective of the following legal framework for judging the legal sufficiency of claims for securities fraud and common law fraud. A. The Basic Standards For Assessing Motions To Dismiss Under Rule 12(b)(6) In considering a motion to dismiss a complaint for “fail[ing] to state a claim upon which relief can be granted,” a court must construe the complaint in the light most favorable to the plaintiffs, read the complaint as a whole, and take the facts asserted therein as true. Fed.R.Civ.P. 12(b)(6); see Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974); In re MicroStrategy, Inc. Securities Litigation, 115 F.Supp.2d 620, 627-28 (E.D.Va.2000); Higgins v. Medical College, 849 F.Supp. 1113, 1117 (E.D.Va.1994). All reasonable inferences must be made in favor of the nonmoving party, and “a count should be dismissed only where it appears beyond a reasonable doubt that recovery would be impossible under any set of facts which could be proven.” America Online, Inc. v. GreatDeals.Net, 49 F.Supp.2d 851, 854 (E.D.Va.1999) (citing Republican Party of N.C. v. Martin, 980 F.2d 943, 952 (4th Cir.1992)); see MicroStrategy, 115 F.Supp.2d at 627-28; Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101, 2 L.Ed.2d 80 (1957). A motion to dismiss tests only “the sufficiency of the complaint; importantly, it does not resolve contests surrounding the facts, the merits of a claim, or the applicability of defenses,” Republican Party, 980 F.2d at 952, and a motion to dismiss should not be granted unless the court “could not grant relief under any set of facts that the plaintiff could prove consistent with his allegations in the complaint,” Carter Machinery Co., Inc. v. Gonzalez, No. 97-0332-R, 1998 WL 1281295, at *2 (W.D.Va.1998) (citing Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232, 81 L.Ed.2d 59 (1984)). See also MicroStrategy, 115 F.Supp.2d at 627-28. Although, as explained below, the PSLRA affects how certain constituent elements of a securities fraud claim are to be measured, nothing in the PSLRA alters these basic precepts for applying Rule 12(b)(6). B. Failure To State A claim Under Section 10(b) and 10(b)(5) The basis for Plaintiffs’ statutory fraud claim is Section 10(b) of the 1934 Act, which provides: It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange— (b) to use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors. 15 U.S.C. § 78j. Furthermore, the SEC has promulgated regulations alleged to ¡ have been violated, specifically Rule 10(b)(5), which provides: It shall be unlawful for any person, di-j rectly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national security exchange: (a) To employ any device, scheme, or artifice to defraud, (b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or (c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security. 17 C.F.R. § 240.10b-5 (emphasis supplied). To properly plead a case under Section 10(b) and under Rule 10(b)(5), a plaintiff must allege that: (1) a defendant made a false statement or omitted to make a statement of material fact; (2) with scienter; (3) upon which the plaintiff justifiably relied; and (4) that proximately caused the plaintiffs damages. MicroStrategy, 115 F.Supp.2d at 628 (quoting Phillips v. LCI Int’l, Inc., 190 F.3d 609, 613 (4th Cir.1999)); accord Hillson Partners Ltd. Partnership v. Adage, Inc., 42 F.3d 204, 208 (4th Cir.1994); Malone v. Microdyne Corp., 26 F.3d 471, 476 (4th Cir.1994). 1. Plaintiffs’ Asserted Lack Of Standing Before turning to the legal sufficiency of the securities fraud claim, it is necessary to address whether, as Deloitte contends, some, or all, of the Plaintiffs lack standing to prosecute such claims. As explained [below, only one of the seven Plaintiffs, John Cullather, has standing to pursue any securities fraud claim. The analysis of this issue begins with the settled principle that private claims under Section 10(b) of the 1934 Act and Rule 10(b)(5) may be brought only by persons who sold or purchased stock after the date of an alleged misrepresentation, and that claims by persons alleging that they were fraudulently induced not to sell their shares are legally insufficient in most instances. Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 730, 95 S.Ct. 1917, 44 L.Ed.2d 539 (1975); Gurley v. Documation Inc., 674 F.2d 253, 255-56 (4th Cir.1982); Birnbaum v. Newport Steel Corp., 193 F.2d 461 (2d Cir.1952). Plaintiffs concede that these settled principles foreclose the securities fraud claims of Bert Arnlund, Robert D’Amico, Donald Duncan, Gregory Freeman and Joseph Graziano entirely and, the securities fraud claims of Daniel Mahoney and John Cullather to the extent that their purchases were made before May 30, 2000. Furthermore, although Mahoney also purchased a number of HM shares after the alleged misrepresentation on May 30, the Amended Complaint specifically avers that “Mahoney purchased the latter block of shares as a result of express misrepresentations made by Heilig-Meyers’ public relations personnel concerning the Heilig-Meyers’ bankruptcy.” Amended Complaint, ¶ 4. This, of course, concedes that Mahoney has no federal securities law claim against Deloitte as to shares bought by him after May 30 because he did not rely on any misrepresentation made by Deloitte. Hearing Transcript, February 14, 2002, at 53. Deloitte accepts that Cullather purchased some HM shares after May 30, 2000, the date of the alleged publishing of the misrepresentations. Defendant’s Reply Memorandum of Points, at 2-3. Cul-lather, then, is the only plaintiff whose federal securities claims need to be analyzed for legal sufficiency. 2. Has The Element Of Scienter Been Adequately Pleaded? Deloitte’s attack on the adequacy of the securities fraud claim is principally a challenge to the sufficiency of the allegations about Deloitte’s state of mind, ie., the element of scienter. At its core, the argument is that the Amended Complaint fails the heightened standard for pleading scienter that is created by PSLRA. (a) The Legal Principles Applicable To Testing The Sufficiency Of The Scienter Element In Ernst & Ernst v. Hochfelder, 425 U.S. 185, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976), the Supreme Court held that a private plaintiff who seeks damages under Section 10(b) and Rule 10(b)(5) must allege that the defendant acted with scienter, an “intent to deceive, manipulate, or defraud.” Id., 425 U.S. at 193, 96 S.Ct. 1375. An allegation of negligence was deemed to be insufficient to state a claim for securities fraud. Id., 425 U.S. at 210, 96 S.Ct. 1375. The Supreme Court, however, did not decide whether pleading recklessness under Section 10(b) and Rule 10(b)(5) is sufficient to satisfy the scienter requirement. See id., 425 U.S. at 193 n. 12, 96 S.Ct. 1375. At the same time, the Court observed that recklessness “is considered to be a form of intentional conduct” in some areas of the law. Id. Since Hochfelder, the Courts of Appeals that have addressed this issue have accepted that some form of recklessness is sufficient to satisfy the element of scienter in private securities fraud cases. See, e.g., Securities and Exchange Commission v. Gotchey, 1992 WL385284, at * 8 n. 23, 981 F.2d 1251 (4th Cir.1992) (unpublished per curiam opinion) (holding that “severe recklessness satisfies scienter requirement” (citation omitted)); Securities and Exchange Commission v. Steadman, 967 F.2d 636, 641 (D.C.Cir.1992); Hollinger v. Titan Capital Corp., 914 F.2d 1564, 1569-70 (9th Cir.1990); In re Phillips Petroleum Sec. Litig., 881 F.2d 1236, 1244 (3d Cir.1989); Van Dyke v. Coburn Enter. Inc., 873 F.2d 1094, 1100 (8th Cir.1989); McDonald v. Alan Bush Brokerage Co., 863 F.2d 809, 814 (11th Cir.1989); Hackbart v. Holmes, 675 F.2d 1114, 1117-18 (10th Cir.1982); Broad v. Rockwell Int’l Corp., 642 F.2d 929, 961-62 (5th Cir.1981) (en banc); Mansbach v. Prescott, Ball & Turben, 598 F.2d 1017, 1023-24 (6th Cir.1979); Cook v. Avien, Inc., 573 F.2d 685, 692 (1st Cir.1978); Rolf v. Blyth, Eastman Dillon & Co., 570 F.2d 38, 46 (2d Cir.1978); Sundstrand Corp. v. Sun Chem. Corp., 553 F.2d 1033, 1044 (7th Cir.1977). Also, in the years following Hochfelder, there arose different standards by which to measure the adequacy of allegations of scienter in securities fraud cases. It is generally accepted that, by the time Congress enacted the PSLRA, the Second Circuit had adopted the most rigorous test for pleading scienter. See, e.g., Gregory P. Joseph, Developments Under the Private Securities Litigation Reform Act, November 12, 1998, SD39 ALI-ABA 753, 756; Kim Ferchau, Comment, The Circuits Divide: Pleading Scienter Under the Private Securities Litigation Reform Act of 1995, 31 U.Tol.L.Rev. 449, 452 (2000). Under the Second Circuit’s standard, a plaintiff had to allege facts showing either (1) a I defendant’s “motive and opportunity” to commit fraud, or (2) strong circumstantiall evidence of conscious or reckless behavior. See Shields, 25 F.3d at 1128. At the other end of the spectrum, the Ninth Circuit had declined to require a plaintiff to allege any specific facts to survive a motion to dismiss, finding that general allegations of scienter were sufficient to the adequate articulation of the element of scienter. See In re GlenFed, Inc. Securities Litig., 42 F.3d 1541, 1545 (9th Cir.1994). In 1995, Congress concluded that Fed. R.Civ.P. 9(b), requiring plaintiffs alleging fraud claims to plead with particularity, had “not prevented abuse of the securities laws by private litigants.” H.R.Conf.Rep. No. 104-369 (1995), reprinted in 1995 U.S.C.C.A.N. 730, 740. On December 22, 1995, Congress amended the 1934 Act by passing the PSLRA. See Private Securities Litigation Reform Act of 1995, Pub.L. No. 104-67 (1995). As to pleading the element of scienter, the PSLRA amendments require the following: In any private action arising under this chapter in which the plaintiff may recover money damages on proof that the defendant acted with a particular state of mind, the complaint shall, with respect to each act or omission alleged to violate this chapter, stale 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) (emphasis supplied). The PSLRA provides that, if a plaintiff does not meet this requirement, a court may, on any defendant’s motion, dismiss the complaint. See 15 U.S.C. § 78u-4(b)(3). As courts have observed, the PSLRA did not change the nature and degree of scienter that a plaintiff must prove to prevail in a securities fraud case, but instead changed only what a plaintiff must plead in the complaint in order to survive a motion to dismiss. See, e.g., In re Glenayre Techs. Inc. Sec. Litig., 982 F.Supp. 294, 298 (S.D.N.Y.1997). Indeed, the PSLRA “nowhere defines what the ‘required state of mind’ is for any of the kinds of actions that might be brought” under the 1934 Act. In re Baesa Sec. Litig., 969 F.Supp. 238, 240 (S.DN.Y.1997). However, as our Court of Appeals has put it, to establish scienter at trial, a plaintiff must prove that the defendant acted intentionally, which may be shown by recklessness, see Malone v. Microdyne Corp., 26 F.3d 471 (4th Cir.1994), but to “prevent abusive and merit-less lawsuits,” H.R.Conf.Rep. No. 104-369, at 31 (1995), U.S.C.C.A.N.1995, 679, at 730, the PSLRA heightens the standard for pleading scienter, and so “chang[es] what a plaintiff must plead in his complaint in order to survive a motion to dismiss.” Phillips v. LCI Intern., Inc., 190 F.3d 609, 620 (4th Cir.1999); see also In re Comshare, 183 F.3d 542, 548-49 (6th Cir.1999). The contours of this heightened standard are not defined in the PSLRA. However, the Conference Committee Report on the PSLRA indicated that the “strong inference” language is “based in part on the pleading standard of the Second Circuit.” House Conference Report No. 104-369, Joint Explanatory Statement of the Committee of Conference, reprinted in 1995 U.S.C.C.A.N. 730, 740 (“Conference Report”). The Conference Report cautioned, however, that “because the Conference Committee intends to strengthen existing pleading requirements, it does not intend to codify the Second Circuit’s case law interpreting this pleading standard.” Id. That textual statement in the report is annotated with the comment that: “[f]or this reason, the Conference Report chose not to include in the pleading standard certain language relating to motive, opportunity, and recklessness.” Id., 1995 U.S.C.C.A.N. at 747 n. 23. On the other hand, a separate report issued by the Senate Committee on Banking, Housing and Urban Affairs suggests that pre-PSLRA decisional law from the Second Circuit also is useful in defining whether a plaintiff has met the heightened pleading requirements. See Senate Report No. 104-98, reprinted in 1995 U.S.C.C.A.N. 679. That report explains: The Committee does not adopt a new and untested pleading standard that would generate additional litigation. Instead, the Committee chose a uniform standard modeled upon the pleading standard of the Second Circuit. Regarded as the most stringent pleading standard, the Second Circuit requires that the plaintiff plead facts that give rise to a ‘strong inference’ of defendant’s fraudulent intent. The Committee does not intend to codify the Second Circuit caselaw interpreting this pleading standard, although courts may find this body of law instructive. Id., 95 U.S.C.C.A.N. at 694 (emphasis supplied). The Conference Report thus seems to say that, although the heightened pleading requirement has its genesis, in part, in the Second Circuit’s “strong inference” concept, the decisional law of the Second Circuit respecting how “motive, opportunity and recklessness” may tend to establish such an inference was not codified because the Conference Committee’s purpose was to strengthen the existing pleading requirements. The comment by the Senate Committee on Banking, Housing and Urban Affairs suggests that the Second Circuit’s decisional law nonetheless can be useful as an interpretive aid. Given these somewhat contradictory observations, it is unsurprising that there is “widespread disagreement among courts” as to what constitutes the proper pleading of the element of scienter under the PSLRA. See Phillips, 190 F.3d at 620-21. For example, the United States Courts of Appeals for the Second and Third Circuits have held that the requisite “strong inference” of scienter may be established by: (a) alleging facts to show that defendants had both motive and opportunity to commit fraud; or (b) alleging facts that constitute strong circumstantial evidence of conscious misbehavior or recklessness. See Press v. Chemical Inv. Servs. Corp., 166 F.3d 529, 537 (2d Cir.1999); In re Advanta Corp. Securities Litig., 180 F.3d 525, 534-35 (3d Cir.1999). The United States Court of Appeals for the Ninth Circuit has held that “a private securities plaintiff proceeding under the PSLRA must plead, in great detail, facts that constitute strong circumstantial evidence of deliberately reckless or conscious misconduct.” In re Silicon Graphics Inc. Securities Litig., 183 F.3d 970, 974 (9th Cir.1999) (emphasis supplied). In Silicon Graphics, the Ninth Circuit distinguished “deliberate” recklessness from the “simple” recklessness standard required under the Second Circuit test, holding that: although facts showing mere recklessness or a motive to commit fraud and opportunity to do so may provide some reasonable inference of intent, they are not sufficient to establish a strong inference of deliberate recklessness. In order to show, a strong inference of deliberate recklessness, plaintiffs must state facts that come closer to demonstrating intent, as opposed to mere motive and opportunity. Accordingly, we hold that particular facts giving rise to a strong inference of deliberate recklessness, at a minimum, is required to satisfy the heightened pleading standard under the PSLRA. Id. (emphasis supplied). The United States Courts of Appeals for the Sixth and Eleventh Circuits have held that a plaintiff may survive a motion to dismiss under the PSLRA by pleading facts that give rise to a strong inference of simple recklessness, but that allegations of a motive and opportunity to commit securities fraud, standing alone, do not adequately plead the element of scienter for purposes of Section 10(b) liability. In re Comshare, Inc. Sec. Litig., 183 F.3d 542, 550-51 (6th Cir.1999) (The Sixth Circuit adopted the standard of recklessness defined in Sundstrand Corp. v. Sun Chem. Corp., 553 F.2d 1033, 1045 (7th Cir.1977)), stating that “recklessness [is] highly unreasonable conduct which is an extreme departure from the standards of ordinary care. While the danger need not be known, it must at least be so obvious that any reasonable man would have known of it,” Mansbach v. Prescott, Ball & Turben, 598 F.2d 1017, 1024 (6th Cir.1979) (citing Sundstrand), and concluded in In re Comshare that, “[bjecause it is clear that recklessness, understood as a mental state apart from negligence and akin to conscious disregard, may constitute scienter, we conclude that under the PSLRA, a plaintiff may survive a motion to dismiss by pleading facts that give rise to a ‘strong inference’ of recklessness.” 183 F.3d at 549); Bryant v. Avado Brands, Inc., 187 F.3d 1271, 1283 (11th Cir.1999) (“The ‘severe recklessness’ recognized by our Circuit, like the actionable level of scienter in most other circuits, was based on the Seventh Circuit’s formulation of recklessness in Sundstrand Corp. v. Sun Chem. Corp., 553 F.2d 1033, 1044 (7th Cir.1977)).” Bryant, 187 F.3d at 1284 n. 21. The Eleventh Circuit went on to recognize that the Ninth Circuit created a definition of “super-recklessness” and held that “the attempt [to create a higher standard of recklessness] is inconsistent with the plain statutory language [of the PSLRA].” (Id.) The United States Court of Appeals for the First Circuit adopted a standard that it characterized as being “close” to that articulated by the Sixth Circuit, but rejected the argument that facts showing motive and opportunity could never be enough to permit the drawing of a strong inference of scienter. Greebel v. FTP. Software, Inc., 194 F.3d 185, 196-98 (1st Cir.1999) (stating that the debate about adoption of the Second Circuit standard was “somewhat beside the point,” noting that the First Circuit has always “analyzed the particular facts alleged in each individual case to determine whether the allegations were sufficient to support scienter.”). The United States Court of Appeals for the Fourth Circuit has “not yet determined which pleading standard best effectuates Congress’s intent.” Phillips, 190 F.3d at 621. In Phillips, the Fourth Circuit did not address the issue because it found that the plaintiff stockholders “failed to allege facts sufficient to meet even the most lenient standard possible under the PSLRA, the two-pronged Second Circuit test.” Id. Phillips noted that other “courts, however, relying on further discussion in the PSLRA’S legislative history have interpreted the PSLRA as instituting an even more stringent standard.” 190 F.3d at 620 (citing to H.R.Conf.Rep. No. 104-369, at 41, U.S.C.C.A.N.1995, 730, 740 (“Because the Conference Committee intends to strengthen existing pleading requirements, it does not intend to codify the Second Circuit’s case law interpreting the pleading standard.”)). The Fourth Circuit also noted that, in Silicon Graphics, the Ninth Circuit required allegations constituting circumstantial evidence of deliberately reckless or conscious misconduct. 183 F.3d 970, 973 (9th Cir.1999). “The [Silicon Graphics] court distinguished ‘deliberate’ recklessness from the ‘simple’ recklessness required under the Second Circuit test, describing the former as ‘facts that come closer to demonstrating intent.’” Phillips, 190 F.3d at 620-21 (quoting [Silicon Graphics,] 183 F.3d at 973). However, in Phillips, our Court of Appeals defined “recklessness” under Section 10(b) as “an act so highly unreasonable and such an extreme departure from the standard of ordinary care as to present a danger of misleading the plaintiff to the extent that the danger was either known to the defendant or so obvious that the defendant must have been aware of it.” 190 F.3d at 621 (citing to Hoffman v. Estabrook & Co., Inc., 587 F.2d 509, 517 (1st Cir.1978)) (quoting Sanders v. John Nuveen & Co., 554 F.2d 790, 793 (7th Cir.1977), which employed the widely recognized recklessness standard established in Sundstrand Corporation v. Sun Chemical Corporation et al., 553 F.2d 1033 (7th Cir.1977)). That, then, is the definition of recklessness that animates the analysis of the scienter element in this case because the Amended Complaint does not articulate the scienter element in terms of motive and opportunity. Amended Complaint, ¶¶ 127-141. Hence, it is unnecessary to address the adequacy of a pleading in which motive and opportunity are the pleaded predicates of the scienter element. Whether a plaintiff adequately has set out facts constituting conscious misbehavior requires no dissertation on what that term means. Instead, that determination is made by assessing the words in the Amended Complaint in the context of the events on which it focuses. And, to measure the adequacy of the recklessness aspect of the scienter assertions, the Amended Complaint must be examined to see whether it alleges acts that are “so highly unreasonable and such an extreme departure from the standard of ordinary care as to present a danger of misleading the plaintiff to the extent that the danger was either known to the defendant or so obvious that the defendant must have been aware of it.” Phillips, 190 F.3d at 621. When making the assessment whether scienter has been adequately pleaded, it is prudent to keep in mind that the PSLRA does not require a plaintiff to prove his case in his complaint. And, it is appropriate to recall that the heightened standard of pleading scienter was meant simply to prevent strike suits and other abuses that had arisen in securities fraud litigation, largely because, in many jurisdictions, trial judges simply had not enforced the rather obvious requirements of Rule 9 in securities class action litigation. See, e.g., In re Advanta, 180 F.3d at 531 (“The purpose of the Act was to restrict abuses in securities class-action litigation, including: (1) the practice of filing lawsuits against issuers of securities in response to any significant change in stock price, regardless of defendants’ culpability; (2) the targeting of “deep pocket” defendants; (3) the abuse of the discovery process to coerce settlement; and (4) manipulation of clients by class action attorneys.) See also In re Comshare, Inc. Sec. Litig., 183 F.3d 542, 548 (6th Cir.1999); S.Rep. No. 104-98, at 2 (1995), reprinted in 1995 U.S.C.C.A.N. 679, 683. Also, it must be remembered that a plaintiff generally must frame the facts respecting the defendant’s mental state (i.e., the scienter element of the claim) without the benefit of discovery, and therefore, most often, allegations about a defendant’s culpable state of mind must be drawn from limited state of mind evidence augmented by circumstantial facts and logical inferences. These several guideposts teach that it is sufficient to plead scienter by setting forth facts that constitute circumstantial evidence of either reckless or conscious behavior, and the adequacy of the scienter allegations is to be measured by the facts collectively alleged in the complaint. MicroStrategy, 115 F.Supp.2d at 628-30, 633. Thus, a plaintiff can satisfy the heightened burden of pleading scienter under the PSLRA by identifying specific facts and circumstances available to the auditor that are unusual, suspicious or that, for other reasons, would put the auditor on notice of matters that ought to be looked into or reported on because, if true, they could alter an auditor’s opinion or foreclose it entirely, and by alleging that these facts were ignored, either deliberately, recklessly or by failing to follow generally accepted accounting and auditing principles. In re SmarTalk, 124 F.Supp.2d 505, 513-514 (S.D.Ohio 2000). And, if the conduct is alleged to be reckless (rather than conscious) behavior, it must be, for cases in this circuit, of the sort that meets the standard of recklessness set by our Court of Appeals in Phillips. Of course, conclusory allegations and assertions based on “information and belief,” not accompanied by the support required by Section 78u-(b)(1), are inadequate. See In re Aetna Inc. Sec. Lit., 34 F.Supp.2d 935, 942-43 (E.D.Pa.1999); Krim v. Coastal Physician Group, Inc., 81 F.Supp.2d 621 (M.D.N.C.1998); Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1129 (2d Cir.1994) (pleading techniques that couple a factual statement with a conclusory allegation of fraudulent intent are so broad and conclusory as to be meaningless). But, if supported by particularized facts upon which that belief was formed, even allegations based on information and belief are available to help state a valid claim. Each relevant factual allegation is to be considered individually and “as part of the overall factual picture painted by the complaint.” MicroStrategy, 115 F.Supp.2d at 631. “If the totality of the circumstances alleged raises a ‘strong inference’ of the requisite state of mind, it is immaterial whether plaintiffs satisfy their burden by ‘pleading motive and opportunity, conscious misbehavior, recklessness, or by impressing upon the Court a novel legal theory.’” MicroStrategy, 115 F.Supp.2d at 631 (quoting In re Health Management, Inc. Sec. Litig., 970 F.Supp. 192, 201 (E.D.N.Y.1997)). (b) Assessment Of The Amended Complaint; Allegations Of Scien-ter In this case, it is alleged in the Amended Complaint that, on May 30, 2000, Deloitte, intentionally or with deliberate recklessness, certified the financial condition of Heilig-Meyers, and falsely represented that Deloitte had audited the balance sheets, consolidated statements of operations and stockholders’ equity of HM, that HM’s financial statements presented fairly, in all material respects, the financial position of HM, and that the audit was in conformity with accounting principles generally accepted in the United States. See Amended Complaint, at 2, ¶¶ 13,127. It is alleged in the Amended Complaint that “[p]rior to issuance of the annual report, Deloitte knew or should have known that there were serious questions concerning the accuracy of Heilig-Meyers’ financial statements and material uncertainty as to the Company’s ability to continue as a going concern.” Amended Complaint, ¶ 16. “In spite of its knowledge, Deloitte never amended its audit opinion or the notes accompanying the financial statements or issued a qualified opinion.” Amended Complaint, ¶ 17. Subsequent paragraphs in the Amended Complaint detail the reasons why Deloitte knew, or should have known, either with intent or recklessly, that there were material deficiencies in the Annual Report and that the audit report should have been amended or qualified. Those augmenting allegations are described below as part of the totality of the circumstances. i. Deloitte’s Familiarity With The Company’s Finances, Its Documents And Its Management Not infrequently, the Amended Complaint makes reference to: (1) the function and role of Deloitte as HM’s auditor for the period at issue and for several years previously; and (2) the extensive access that Deloitte is said to have had to HM’s records and to its highest executives. From these allegations, Deloitte draws the conclusion that the pleaded predicate for the scienter element is access to HM’s documents and personnel. Thus, says De-loitte, the scienter element is inadequately pleaded. Without doubt, merely pleading access to the company’s personnel (even highly placed executives) and records does not adequately allege scienter, see, e.g., In re Criimi Mae, Inc. Sec. Litig., 94 F.Supp.2d 652, 661 (D.Md.2000), because, otherwise, “every corporate executive who participates in the day-to-day management of his company would be exposed to liability for securities fraud.” The same is true for accountants serving as auditors. Queen Uno Ltd. P’ship v. Coeur D’Alene Mines Corp. et al., 2 F.Supp.2d 1345, 1360 (D.Colo.1998). Thus, courts rightly have rejected efforts to plead scienter solely by pleading access. However, this case is markedly different from the decisions on which De-loitte relies. An appropriate illustration of the point is found by examining the decision in Queen Uno, wherein the court held that it was “implausible that because an accountant had access to a company’s internal data, it by implication was aware of any fraudulent scheme, no matter how far-reaching.” Id. That simply is not the picture painted by the Amended Complaint in this case. As the Amended Complaint alleges, Deloitte, which was engaged to review HM’s financial documents, and to audit the company’s financial statements, had long been the auditor for HM. Amended Complaint, ¶ 10. And, it is alleged that: Deloitte’s involvement and participation was integral to the creation of all HeiligMeyers’ SEC filings. Deloitte worked intimately and in concert with management and key executives of Heilig-Meyers to produce quarterly and annual financial reports and to give tax planning advice for many years. Deloitte audited the Company’s 1998 and 1999 annual reports. Deloitte had unrestricted and unfettered access to Company employees, management, books and records. Amended Complaint, ¶ 10 (emphasis supplied). It is then averred that “[i]n performing its audit, Deloitte was privy to inside, confidential information concerning the Company’s financial condition and intended future course of operations.” Amended Complaint, ¶23. This privileged position is not offered alone as the requisite strong inference of scienter, rather, it simply is posited as part of the context to support the particulars of scienter set forth in the other allegations of the Amended Complaint. It is inferrable that Deloitte was in a position to appreciate the significance of a number of events that had occurred by, or that were underway in, the fiscal year being audited. And, from the kind of tasks Deloitte is said to have engaged in, the concert of activity with executive management (who no doubt knew exactly what the true financial and operational affairs of the Company were) and the responsibility of an auditor, it is inferrable that Deloitte either knew of the deterioration of the Company’s finances between February 28 and May 30 or with great recklessness ignored it. Those inferences are underscored by the specifically alleged access to, and discussions with, HM’s management and its Board of Directors about facts that were highly pertinent to HM’s financial affairs and its viability as a going concern as of May 30. It is also reasonable to infer that, because of Deloitte’s essential function, De-loitte was familiar with the employment agreements of key executives and knew that, upon termination, a severance compensation package would be due. Amended Complaint, ¶ 43. Thus, it is said that Deloitte knew, or should have known, that: [t]ermination of DeRusha’s employment [would] substantially and materially affect[ ] the Company’s financial position. Deloitte was familiar with the terms of the revolving credit facility. Amended Complaint, ¶ 46. It also is alleged that: Upon information and belief, Deloitte reviewed the loan documents during its audit to determine whether Heilig-Mey-ers was in compliance. Prior to May 30, 2000, Deloitte knew or certainly should have known that the ‘special bonuses’, severance and other additional compensation awarded to DeRusha would trigger an actual default under Heilig-Mey-ers’ revolving credit facility and create further financial pressure for Heilig-Meyers. Amended Complaint, ¶ 46. There also are allegations that Deloitte knew that the Company’s operations were not as represented. For instance, it is alleged that the Company was achieving liquidity, in part, by selling off assets, not, as represented in the Annual Report, by restructuring its operations. Amended Complaint, ¶ 68 (“Unbeknownst to Plaintiffs, the representations in the annual statement were also false in that Heilig-Meyers was not implementing ‘strategic initiatives associated with core store turnaround’. It was simply selling off assets.”). Those allegations too are supported by the claims that Deloitte was intimately knowledgeable about the Company’s financial affairs and operations by virtue of its access to, and involvement with, HM’s management. Indeed, it is alleged that Deloitte affirmatively participated in the positioning of HM for bankruptcy as directed by HM’s Board of Directors. That is said to have begun before May 30. In other words, the Amended Complaint alleges not only that Deloitte had access to financial documents, but also that Deloitte was directed by the high level executives as it participated in this alleged fraudulent scheme. See infra, Part B.2.b.iv. At the same time, a goodly number of corroborating facts and inferences assist the claim of access and participation in finances. These allegations are integral to the establishment of scienter under the circumstances of this case, because Deloitte did not just have access, but rather, the Amended Complaint alleges that, along with being intimately familiar with the finances of HM, Deloitte played a key role in assisting in the preparation for bankruptcy, knew about the discussion of De-Rusha’s departure, and knew about the liquidity and credit concerns. ii. Knowledge Of Undisclosed Liquidity Issues It is alleged in the Amended Complaint that, before February 29, 2000, Deloitte knew about the financial problems that HM was having and about the ongoing negotiations with lenders and banks to secure lines of credit to resolve some of HM’s liquidity issues. It is reasonable to infer that Deloitte was necessarily aware of the Company’s concerns about liquidity because lines of credit and liquidity are highly relevant to the cash flow of a going concern, and Deloitte’s charge is to know, and to understand, the financial statements as well as the financial contingencies with which the Company was grappling. Furthermore, the Amended Complaint alleges that: Through conversations with DeRusha and other key executives and review of the Company’s financial and operational documents as part of the audit, De-loitte knew, for instance, that prior to February 29, 2000, Heilig-Meyers faced certain liquidity issues and that it was in negotiations with the Banks concerning the Company’s revolving credit facility. The liquidity issues were discussed extensively by management and the Board. The Company’s liquidity issues persisted past February 29, 2000 and the ‘negotiations’ with lenders who comprised the revolving credit facility were not complete prior to February 29, 2000. Amended Complaint, ¶ 23 (emphasis supplied). And, the Amended Complaint specifically asserts that “[t]he nature and effect of the Company’s liquidity issues and the status of the negotiations over the revolving credit facility were ignored by Deloitte.” Amended Complaint, ¶ 24. The Amended Complaint also avers that: Between March 22, 2000 and May 30, 2000, Deloitte became aware of certain matters that ought to have caused it to question or revise its unqualified audit opinion. Through its interaction and discussions with management and preparation of the Company’s financial statements and reports, Deloitte knew that the liquidity issues had not been resolved and that they were of major concern to Heilig-Meyers executives. De-loitte knew that if the Company did not enter into an extension of its existing bank credit facility by May 25, 2000, it would be in default under the terms of that facility. Deloitte knew that in the event that satisfactory arrangements could not be reached with the lenders, Heilig-Meyers would be required to seek protection under the federal bankruptcy laws. Amended Complaint, ¶ 27 (emphasis supplied). It is further alleged that the liquidity issues, as a general matter, were viewed as such a significant problem by the Board members and executives that bankruptcy had to be considered as an option, and that discussions of these topics took place in Deloitte’s presence. Even though Goodman [the Chief Financial Officer] advised on May 17, 2000 that the ‘liquidity discussion’ in the annual report ‘needed to be revised’, the discussion of liquidity in the report and the notes accompanying the financial statements made absolutely no mention of the Company’s ‘extensive’ discussions with McGuire Woods and the investment bankers concerning the ‘strategic alternative’ of bankruptcy. Amended Complaint, ¶ 64. Upon information and belief, when Goodman advised the Board that the liquidity discussion in the annual report ‘needed to be revised’, he also advised Deloitte that at least part of the notes accompanying the annual report also ‘needed to be revised’. Deloitte knew about the Company’s liquidity problems, but never revised its unqualified opinion. Deloitte’s report made no provision for the material uncertainty of the Company’s financial position as of February 29, 2000. Amended Complaint, ¶ 66. It is reasonable to infer that, when the Chief Financial Officer of a corporation suggests that the liquidity discussion in the Annual Report needs to be revised, and given the then extant financial circumstances (in particular, ongoing credit negotiations, possible defaults, and business steadily on the decline) such revisions would have included discussion with Deloitte, the Company’s auditor, about commensurate revisions to the audit report. Furthermore, it is alleged that Deloitte knew about particular financial arrangements and covenants, and that those arrangements were in trouble. Deloitte actively ignored and concealed critically significant ‘red flags’, which ought to have been obvious to anyone who examined Heilig-Meyers’ books and records and which should have alerted Deloitte to the fact that Heilig-Meyers’ financial statements failed to disclose massive contingencies — the same liabilities that led the Company to seek bankruptcy protection 2/6 months later in August 2000. First, Deloitte knew about the existence of the liquidity problems prior to February 29, 2000. This alone should have compelled Deloitte to either increase its audit work and investigation to determine whether the Company was financially able to continue to meet its obligations going forward, or to issue at least a qualified opinion. Second, De-loitte knew about the various defaults in Heilig-Meyers’ $200,000,000.00 revolving credit facility and the negotiations with the Banks prior to February 29, 2000. The inability of DeRusha and the Board to reach an agreement with the Banks prior to May 25, 2000 (and thereafter) led the Board to direct management to position the Company for bankruptcy. Deloitte did no investigation and gave no opinion concerning the effect of the defaults upon the Heilig-Meyers’ financial condition and made no determination of the company’s ability to continue as a going concern. Amended Complaint, ¶ 135 (emphasis supplied). Finally, the Amended Complaint alleges that Deloitte was deliberately reckless because “Deloitte failed to exercise due professional care and independent judgment. Deloitte did no investigation of the liquidity issues. Deloitte did not determine whether Heilig-Meyers had any short or long-term ability to address the liquidity needs.” Amended Complaint, ¶ 70. As a result, it is alleged that “Heilig-Meyers’ liquidity problems, the conversations with the Banks, the default in the revolving credit facility, the decision to position the Company for bankruptcy, and Deloitte’s knowledge of the problems, were totally concealed from the Plaintiffs.” Amended Complaint, ¶ 49. The Amended Complaint thus charges specifically that, before May 30, Deloitte knew that HM was in serious financial trouble, what that trouble was, and what Deloitte did not disclose about it. In its Motion to Dismiss, Deloitte seeks to dispose of those allegations with a brief discussion suggesting that a sticker placed on the “Liquidity and Capital Resources” section of “Management’s Discussion and Analysis” of the Annual Report resolved concerns regarding liquidity. The argument misses the mark because the sticker does not address all of the alleged misrepresentations. Moreover, the sticker itself can be considered misleading because, although it indicates that there had been trouble with the revolving credit facility, it suggests that the Company’s liquidity problems had been resolved. With the ongoing and substantial financial troubles facing HM at the time, the understated appearance of resolution offered by the sticker might well be considered by a finder of fact to be insufficient to negate the allegations of the Amended Complaint that the liquidity problems were evidence of a very troubled company and Deloitte knew that HM was in serious financial trouble, yet did nothing to qualify its clean bill of health audit opinion. These allegations, in context of the Amended Complaint as a whole, provide further substantial support for a strong inference of scienter. iii. Knowledge About DeRusha’s Termination It is alleged that the termination of De-Rusha, HM’s CEO, obligated HM to make severance payments that it could not make and caused a default in HM’s credit facility. An independent auditor, intimately familiar with a company’s financial situation, reasonably would be expected to know what effect DeRusha’s termination likely would have on this precariously poised company and, if known, the fact should have been disclosed or perhaps a qualified opinion should have been issued. The Amended Complaint does not allege that Deloitte knew before May 30 that DeRusha was going to leave the Company or that his employment was to be terminated, but facts are alleged that lead to the inference that DeRusha’s termination was the focus of serious consideration before May 30. For instance, the minutes of the Board meeting of May 29 disclose that the issue of retaining DeRu-sha was discussed and then voted on, the Board voting to retain him. The fact that the Board voted to retain DeRusha permits an inference that the possibility of his termination was on the table. Further evidence leading to the inference that serious discussions concerning DeRusha’s termination were under way before May 30, comes from the allegation that “Shaffer had already replaced DeRu-sha long before July 24, 2000, and was holding himself out to the public, investment bankers and others as Heilig-Mey-ers’ ‘chief executive officer’ and was executing contracts and documents as CEO. Deloitte knew this.” Amended Complaint, ¶ 94. Given the evidence that the Board considered whether or not to retain DeRu-sha on May 29, the proximity of the issuance of the Annual Report to DeRusha’s exit from the Company, the allegation that the CEO designated to replace DeRusha was already acting as CEO “long before DeRusha’s actual termination date,” and taking into account Deloitte’s rather intimate connection to HM’s management and knowledge of its financial and business affairs, it is inferrable that, before May 30, Deloitte knew that HM was at least considering the replacement of DeRusha. Further, given that Deloitte knew the terms of the revolving credit agreement and about the liquidity issues that would arise from the substantial severance package apparently owing to DeRusha upon termination, it is inferrable that Deloitte knew that HM’s finances were in such a state that reorganization might be required upon DeRusha’s termination. The Amended Complaint says as much: Termination of DeRusha’s employment substantially and materially affected the Company’s financial position. Deloitte was familiar with the terms of the revolving credit facility. Upon information and belief, Deloitte reviewed the loan documents during its audit to determine whether Heilig-Meyers was in compliance. Prior to May 30, 2000, De-loitte knew or certainly should have known that the ‘special bonuses’, severance and other additional compensation awarded to DeRusha would trigger an actual default under Heilig-Meyers’ revolving credit facility and create further financial pressure for Heilig-Meyers. Amended Complaint, ¶ 46. Taken together with the other allegations of the Amended Complaint, the allegation about DeRusha’s termination, and Deloitte’s knowledge of it, help to form an adequate pleading for the element of scienter. iv. Deloitte’s Awareness That HM Sought Assistance for Strategic Alternatives, Including Bankruptcy As further support for a strong inference of scienter on the part of Deloitte, the Amended Complaint contains allegations that Deloitte was aware of, and did not inquire into, or disclose the significance of, the retention of Goldman Sachs, Lazard Freres and McGuire Woods by the Company in seeking strategic alternatives, including bankruptcy. The relevant allegations include: a. that, on May 29, 2000, Goodman disclosed that management had engaged Goldman Sachs to review strategic alternatives (Amended Complaint, ¶ 31); b. that, “[p]rior to May 30, 2000, management of Heilig-Meyers also determined that there was a need and researched the hiring of both special counsel and a debt restructuring ad-visor to assist the Company with reviewing alternatives in view of the Company’s financial condition[,]” (Amended Complaint, ¶ 51); c. that, before May 17, 2000, the Board had sought and received, legal advice from McGuire Woods concerning filing for protection under the federal bankruptcy laws (Amended Complaint, ¶ 67(b)); and, d. that, upon information and belief, the Lazard Freres retainer agreement was considered, discussed and negotiated over the period from late May 2000 to July 1, 2000, (Amended Complaint, ¶ 52). It is alleged that Deloitte knew that these firms had been engaged and knew why they had been engaged. If, as is alleged, Deloitte knew that HM was seeking bankruptcy advice and advice respecting strategic alternatives, and, at the same time knew about the Company’s other financial woes, it is inferrable that Deloitte knew that HM was not as financially stable as presented in Deloitte’s audit of the financial statements, or acted with severe recklessness in failing to qualify its opinion. v. The Temporal Proximity Of Related Events An inference of scienter can be supported by the temporal relationship among several events. However, pleading temporal proximity alone has not been viewed as adequately establishing scienter: “[m]ere proximity in time between optimistic or reassuring statements about a company’s prospects and filing for bankruptcy protection does not give rise to a strong inference of scienter when, as here, the event that forced the company to seek bankruptcy protection did not occur until after the statements were made.” In re Criimi Mae, 94 F.Supp.2d at 662. See also Pitten, 903 F.Supp. at 949 (“a general averment that one can infer from a negative event or poor performance that the defendant had earlier knowledge of that event or performance without more, will not do.”). Here, the Amended Complaint does not seek to ground the scienter element in temporal proximity alone. Instead, allegations indicate that, in light of all the facts elsewhere discussed, the brief lapse of time between the unqualified audit opinion and the reporting by HM of total financial devastation provides further support for Deloitte’s knowledge that its unqualified audit opinion was false when issued as part of HM’s Annual Report. For example, it is alleged that Deloitte knew by May 30, that HM was in a state of severe financial distress that became publically manifest only two months after Deloitte had blessed the Company as in good financial health. To illustrate the magnitude of HM’s precipitous fall into financial terminal illness, the Amended Complaint focuses on the quarterly report filed with the SEC by HM on November 27, 2000. That report revealed that the following had occurred between May 30, 2000, the date the Annual Report was issued with Deloitte’s unqualified audit report, and August 31, 2000, the date that Deloitte completed its audit report for the November 27, 2000, Quarterly Report: i. HM’s assets shrank over $611,474,000; ii. Total revenues for the quarter decreased 7.8%; iii. Operating expenses exceeded revenue by over $48 million; iv. Net loss increased $536,835,000; v. Accounts payable increased by $27,313,000; vi. Loss per share was ($9.71); vii.Total shareholder equity went from $534,748,000 in May 2000 to ($75,-057), a decrease of $609,805,000. Amended Complaint, ¶ 113. The quarterly report stated that over $142.9 million in goodwill and all of the previously stated book value to which HM had attested was gone. Moreover, the report announced that “the equity interests of the Company’s shareholders may have no value”. Amended Complaint, ¶ 120. The Amended Complaint alleges that experts have opined that losses of that enormity in that proximity to an unqualified audit opinion are “unprecedented” and “shocking.” Amended Complaint, ¶ 115. The temporal proximity between financial viability on May 30 and financial expiration two or so months later supports an inference that can augment the other aspects of the scienter allegations here. That is especially true in perspective of the allegations about Deloitte’s knowledge of the details of HM’s financial circumstances, its plans, the requisite state of economic activity for the Company to be financially healthy, the knowledge that the Company was considering bankruptcy before May 30, the Company’s precarious liquidity status, the possible, perhaps likely, loss of its CEO with the attendant unaffordable financial consequence and the other allegations of the Amended Complaint. Amended Complaint, ¶ 119. vi. Deloitte’s Alleged Knowledge Of The Imminent Bankruptcy Ultimately, if Deloitte knew that HM was considering bankruptcy and reorganization before the issuance of the Annual Report on May 30, and Deloitte did not qualify its opinion, it would be inferrable that Deloitte omitted this material fact in