Full opinion text
MEMORANDUM OF DECISION AND ORDER SPATT, District Judge. TABLE OF CONTENTS I. Background. .225 A. The Procedural Nature of the Case. .225 B. The Second Amended and Consolidated Class Action Complaint .227 1. The Overall Scheme.227 2. The Allegations of the Six Putative Subclasses.230 a. The Allegations of the Advanced Voice Subclass.230 b. The Allegations of the Com/Tech Subclass.233 c. The Allegations of the Embryo Subclass.235 d. The Allegations of the Applewoods Subclass.237 e. The Allegations of the Lasergate Subclass .239 f. The Allegations of the ML Direct Subclass.241 3. Claim Thirty-One .242 II. Discussion. . 24?. A. The Motions to Dismiss the Second Amended Complaint. 1. Standing . 2. The Statute of Limitations. a. The Sterling Foster Defendants and the Shalek Defendants . b. Bear Stearns and BSSC. c. Randolph Pace. d. Applewoods. e. The Individual Applewoods Defendants. 3. The Claims Brought Pursuant to Section 11 of the Securities Act a. The Alleged Omissions are Not Immaterial. b. Reliance. c. Oral Misrepresentations. d. The Section 11 Claims are Pled With Sufficient Particularity 4. The Claims Brought Pursuant to Section 10(b) of the Exchange Act and Rule 10b-5 Promulgated Thereunder. CO a. Scienter. O b. Loss Causation and Reliance. ^ 5. Pleading Fraud With Particularity. GO 6. Control Person Liability. (NJ 7. Supplemental Jurisdiction . CO 8. Negligent Misrepresentation. CO 9. The Section 349 Claims. LO B. The Motions for a Temporary Stay of the Action Pending Resolution of Parallel Criminal Proceedings. t> CO C. The Motion to Lift the Automatic Stay of Discovery oo 00 III. Conclusion . .288 On February 17, 1999, the plaintiffs filed the Second Amended and Consolidated Class Action Complaint (“Second Amended Complaint”), which alleges that the defendants violated Sections 11 and 12(a)(2) of the Securities Act of 1933 (the “Securities Act”), 15 U.S.C. §§ 77k, 772(a)(2), as well as Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5. In addition, the Second Amended Complaint raises claims under New York State law for negligent misrepresentation, common law fraud, and violations of Section 349 of the New York General Business Law (“N.Y.Gen.Bus.L.”). The present decision addresses nine motions to dismiss the Second Amended Complaint, four motions to stay the action, and one motion to lift the automatic stay of discovery. I. BACKGROUND A. The Procedural Nature of the Case Before describing the allegations contained in the Second Amended Complaint, it is important to review the procedural nature of this complex action. The present case is a consolidation of five separate actions: Rogers, et al. v. Sterling Foster & Co., Inc., et al., 97 CV 189; Smith, et al. v. Sterling Foster & Co., Inc., et al., 97 CV 610; Wright v. Sterling Foster & Co., Inc., et. al., 97 CV 1689; Reynoso v. Sterling Foster, Inc., 97 CV 3253; and Petit v. Sterling Foster & Co., Inc., et al., 97 CV 3775. When these separate actions were commenced in 1997, they were assigned to the Hon. Dennis R. Hurley in the Eastern District of New York. In an order dated October 27, 1997, Judge Hurley consolidated the cases under Civil Action No. 97-189 and appointed lead plaintiffs and counsel. Two days later, on October 29, 1997, Judge Hurley issued an order (1) enjoining all arbitrations pending against Sterling Foster through December 15, 1997; (2) directing the plaintiffs to file a Consolidated Class Action Complaint by November 27, 1997; and (3) directing Sterling Foster & Co., Inc. (“Sterling Foster”) to serve a notice and a copy of the amended complaint on all arbitration claimants, advising the claimants that in order to proceed with their arbitration claims against Sterling Foster, they must file a request to be excluded from the putative class action within 45 days, and that if they failed to file a timely request for an exclusion, their arbitrations would be stayed. On December 1, 1997, the plaintiffs filed an Amended and Consolidated Class Action Complaint. Thereafter, in an order dated December 8, 1997, Judge Hurley approved the notice to be sent to the arbitration claimants, informing them of the pendency of the consolidated class action proceedings and their right to request early exclusion and to pursue arbitration. Judge Hurley specifically directed that once a party requests early exclusion from the consolidated class action proceedings, the Court’s October 29, 1997 order enjoining arbitration will no longer apply to the excluded party’s case, and that individual may proceed with arbitration immediately. Conversely, if a party did not request early exclusion, the party would be enjoined from proceeding with arbitration. In an order dated February 18, 1998, the Judicial Panel on Multidistrict Litigation (“J.P.M.L.”) granted a motion by Sterling Foster to centralize the following actions pursuant to 28 U.S.C. § 1407 for coordinated or consolidated pretrial proceedings in the Eastern District of New York: Rogers, et al. v. Sterling Foster & Co., Inc., 97 CV 189 (consolidated with, Civil Action Nos. 97 CV 610, 97 CV 1689, 97 CV 3253, and 97 CV 3775); Umbriac v. Sterling Foster & Co., Inc., et al., 98 CV 1469 (from M.D. Pa., 97 CV 1290); Mott v. Sterling Foster & Co., Inc., et al., 98 CV 1471 (from E.D. Tex., 97 CV 201); and Price v. Sterling Foster & Co., Inc., et al., 97 CV 1470 (from D.S.C., 97 CV 1082). The J.P.M.L. transferred Umbriac, Mott, and Price to the Eastern District of New York, and assigned the Multidistrict Litigation to this Court. In an order dated February 26, 1998, the J.P.M.L. transferred two tag-along eases to this Court pursuant to Rule 12 of the Rules of Procedure of the J.P.M.L.: Farida v. Sterling Foster & Co., Inc., et al., 98 CV 2290 (from E.D. Mich. 96 CV 70843); and Braymen, et al., v. Sterling Foster, Inc., et al., 98 CV 2291 (from E.D. Mo., 97 CV 2066). On April 22, 1999, the J.P.M.L., transferred the following tag-along cases to this Court: Greenberg v. Bear Stearns & Co., Inc., et al., 99 CV 2788 (from S.D.N.Y. 99 CV 359); and Levitt, et al. v. Bear Stearns & Co., Inc., et al., 99 CV 2789 (from S.D.N.Y. 99 CV 1115). The J.P.M.L. transferred Lund v. Sterling Foster & Co., Inc., et al., 99 MC 111 (from W.D. Wis. 97 CV 238), and Mihalevich, et al. v. Bear, Stearns & Co., et al., 99 CV 5012 (from W.D. Mo. 99 CV 126), to this Court on June 4, and July 28, 1999 respectively. On June 7, 1999, following the registration of a foreign judgment, the Lund ease, 99 MC 111, was closed. On October 21, 1999, the plaintiffs in Mihalevich, 99 CV 5012, voluntarily dismissed the action, and that case was closed. In a decision and order dated January 26, 2000, this Court dismissed Greenberg, 99 CV 2788. Accordingly, In re Sterling Foster & Co., Inc., Sec. Litig., MDL No. 1208 consists of eleven cases: the five that are consolidated under Civil Action No. 97-189 {Rogers); Umbriac, 98 CV 1469; Price, 98 CV 1470; Mott, 98 CV 1471; Farida, 98 CV 2290; Braymen, 98 CV 2291; and Levitt, 99 CV 2789. On February 17,1999, the plaintiffs in Rogers filed the Second Amended Complaint pursuant to a Court order granting them leave to do so. As noted above, the defendants in Rogers have filed nine motions to dismiss the Second Amended Complaint and four motions to stay the action pending the resolution of criminal proceedings. In addition, the plaintiffs have a motion to lift the automatic stay of discovery. The defendants in Levitt, 99 CV 2789, have filed a motion to dismiss that action, which the Court will address in a separate decision. The defendants in Pnce, 98 CV 1470, filed two motions to dismiss the complaint when the case was pending in the Eastern District of Texas. However, the case was transferred before the Eastern District of Texas had the opportunity to address the motions. Accordingly, this Court will decide the motions in a separate decision. The decisions in Levitt and Price bear the same date as the date of this decision. There are no motions pending in Umbriac, 98 CV 1469, Mott, 98 CV 1471, Farida, 98 CV 2290, or Braymen, 98 CV 2291, and there has been no activity in these four cases since March 21, 2000, October 27, 1998, October 27, 1998, and October 20, 1998, respectively. The Court will issue a decision in each of those cases, and those decisions also bear the date that appears on this decision. In an order dated December 18, 2000, this Court granted the unopposed motion of defendants Bear, Stearns & Co., Inc. (“Bear Stearns”); Bear, Stearns Securities Corp. (“BSSC”) (collectively, the “Bear Stearns Defendants”), and Richard Harri-ton (“Harriton”) to enjoin the arbitrations that had been filed against them by putative class members in Rogers, 97 CV 189. Similar to Judge Hurley’s October 29,1997 order, this directed the Bear Stearns Defendants and Harriton to provide the arbitration claimants with notice of the pending class actions and a copy of the Second Amended and Consolidated Class Action Complaint. The order further directed the Bear Stearns Defendants and Harriton to advise the claimants that if they wished to proceed with their arbitrations, they must file a request to be excluded from the putative class action within 45 days, and that if a claimant chose not to withdraw from the putative class or failed to do so in a timely fashion, his or her arbitration would be stayed. B. The Second Amended and Consolidated Class Action Complaint The facts contained in this decision are taken from the complaint and are accepted as true for the purposes of the present motions. See Koppel v. 4987 Corp., 167 F.3d 125, 127 (2d Cir.1999); Thomas v. City of New York, 143 F.3d 31, 36 (2d Cir.1998). The Second Amended Complaint is organized as follows: (1) it describes the overall scheme to defraud; (2) it sets forth allegations according to the six proposed subclasses of plaintiffs, each of which consists of purchasers of securities issued by one of the six defendant companies’; and (3) it contains 31 claims for relief, which are broken down into one set of five claims for each subclass plus one claim that pertains to the entire plaintiff class. 1. The Overall Scheme The claims in this case arise from the public offerings of six companies: Advanced Voice Technologies, Inc. (“Advanced Voice”), Com/Tech Communication Technologies, Inc. (“Com/Tech”); Embryo Development Corporation (“Embryo”); Applewoods, Inc. (“Applewoods”); Laser-gate Systems, Inc. (“Lasergate”) (collectively, the “Issuer Defendants”); and ML Direct, Inc. (“ML Direct”) (collectively, the “defendant companies”). Sterling Foster, a registered broker-dealer and a member of the National Association of Securities Dealers, Inc., (“NASD”) underwrote the offerings for each company except ML Direct, whose offering was underwritten by a different investment bank, Patterson Travis, Inc. (“Patterson Travis”). The public offerings of Advanced Voice, Com/Tech, Embryo, Applewoods, and ML Direct were initial public offerings (“IPO”), while the Lasergate offering was a secondary offering. Prior to each offering, certain company insiders and principal stockholders (“Selling Securityholders”) purchased a substantial amount of stock, sometimes almost as much as was being offered to the public, in each of the defendant companies. One of the Selling Securityholders in the Advanced Voice, Com/Tech, Embryo, Apple-woods, and ML Direct offerings was a company called “M.D. Funding”, which was controlled by defendant Michael Kras-noff (“Krasnoff”). The Selling Security-holders purchase their stock for no more than $1.00 per share while the same securities were being offered to the public for roughly $5.00 per share. Most of the Selling Securityholders agreed not to sell their shares for at least one year following the offering unless they received written permission from Sterling Foster to do so. These “lock-up agreements” were disclosed in the Issuer Defendants’ prospectuses. However, Sterling Foster, Adam Lieberman (“Lieberman”), the company’s president; Randolph Pace (“Pace”), the individual who is alleged to have secretly controlled the company; and Alan Novich (“Novich”), an attorney, entered into secret agreements with the Selling Security-holders. According to these undisclosed arrangements, shortly after the registration statements of the defendant companies became effective, Sterling Foster would release the Selling Securityholders from their lock-up agreements and would purchase the Selling Securityholders’ shares at prices ranging from $1.50 to approximately $3.00 per share in order to cover a short position Sterling Foster intended to assume in the aftermarket. The plaintiff alleges that the prospectuses and registration statements distributed by Sterling Foster, Lieberman, Pace, and No-vich were materially false and misleading because although they registered the shelf shares and lock-up agreements, they failed to disclose the secret arrangements between the Selling Securityholders and Sterling Foster. According to the plaintiffs, Sterling Foster customers purchased their securities in the defendant companies without the knowledge that Sterling Foster would release the Selling Securityhold-ers from their lock-up agreements and purchase the shelf shares at deeply discounted prices. In regard to the offerings themselves, the Second Amended Complaint does not specifically allege which plaintiffs purchased shares in an IPO as opposed to in the aftermarket. However, the Second Amended Complaint does set forth the dates on which the plaintiffs purchased their respective shares, and one could infer from that information that some plaintiffs might have purchased shares in the initial offering. In any event, the Second Amended Complaint asserts that when the registration statements of the defendant companies became effective, and perhaps prior to those dates, Sterling Foster’s sales force of 150 registered representatives, including defendants Matthew Hawley (“Hawley”) and Robert J. Paulson (“Paulson”), engaged in a massive and aggressive selling campaign designed to artificially inflate the price of the defendant companies’ stock through the use of, among other things, “boiler room” sales practices. Hawley, Paulson, and Sterling Foster’s other registered representatives told potential customers that: (1) the stocks underwritten by Sterling Foster were “oversubscribed” because so many investors were interested in purchasing the stocks; (2) large institutions were about to buy large blocks of the stock; and (3) the stock being sold was going to reach a target price within a matter of days. The Second Amended Complaint designates a “Broker Class” consisting of Sterling Foster registered representatives who sold securities. Haw-ley and Paulson are sued individually and as representatives of the Broker Class. Since the Broker Class has not been certified, this decision does not refer to claims as being brought against the Broker Class but, rather, as being brought against Haw-ley and Paulson as representatives of the Broker Class. The plaintiffs also allege that Sterling Foster, Lieberman, Hawley, Paulson, and the other registered representatives failed to provide the plaintiffs with copies of the prospectuses for the Issuer Defendants; led the plaintiffs to believe that they were purchasing securities in an initial public offering, when in fact the plaintiffs were purchasing the securities in the aftermarket at substantially higher prices; concealed excessive mark-ups that the defendants were receiving for the sale of shares; and misrepresented that the offering price was the purchase price. Sterling Foster also discouraged its customers from selling their shares by telling them that such action would cause the price of the shares to decline. At times, Sterling Foster failed to effect or avoided effecting sell orders and told its registered representatives that if they wanted to keep their commissions, they must prevent their customers from selling the securities for at least 30 days. Sterling Foster itself purchased a substantial number of securities on the open market shortly after each defendant company’s offering, thereby decreasing the number of shares available to the public. The Second Amended Complaint further asserts that the defendants’ sales practices were fraudulent, deceptive, manipulative, and designed to inflate the price of the defendant companies’ securities. The plaintiffs also allege that the sales campaign, together with the purchases made by Sterling Foster diminished the supply and increased the demand for the securities thus causing a dramatic rise in the price of each stock. The plaintiffs allege that the increased prices of the securities were not tied to a change in the underlying business operations or the corporate developments of the defendant companies. When the share price and demand reached certain levels, Sterling Foster satisfied the demand it had created by selling shares to the public at the prices it had artificially inflated. Sterling Foster often sold shares it did not own and, in some situations, sold twice the number of securities that had been sold to the public in the offering. By selling shares it did not own, Sterling Foster assumed huge “short” positions in each of the defendant companies’ stock. Sterling Foster covered its short positions by releasing the Selling Securityhold-ers from their lock-up agreements and purchasing their shelf shares at prices ranging from $1.50 to $3.00 per share, as per the terms of the secret agreements. As Sterling Foster covered its short positions with the deeply discounted shelf shares from the Selling Securityholders, the company realized profits of tens of millions of dollars. The Selling Security-holders also reaped millions of dollars in profits. Conversely, the flood of the shelf shares on the market caused the share price to drop to levels well below the offering prices, and the plaintiffs lost the value of their investments. Meanwhile, BSSC was serving as Sterling Foster’s clearing broker. Defendant Harriton was the Senior Managing Director of BSSC and had been friends with defendant Pace since the late 1980s. The plaintiffs claim that Pace’s friendship with Harriton prompted Sterling Foster to hire BSSC to clear its trades. Bear Stearns was the sole owner of BSSC. The plaintiffs contend that BSSC “leased out” its name to Sterling Foster in order to lend the brokerage house credibility and in exchange for the ability to reap great profits. The Second Amended Complaint also alleges that the Bear Stearns Defendants and Harriton knew that the statements contained in the defendant companies’ prospectuses and registration statements were false, misleading and intended to deceive the plaintiffs. The plaintiffs also claim that the Bear Stearns Defendants and Harriton acted with reckless disregard for the truth when they failed to disclose or cause the disclosure of the truth to the plaintiffs. The Bear Stearns Defendants and Har-riton were not named in the original complaint, filed on January 15, 1997, or in the Amended and Consolidated Class Action Complaint filed on December 1,1997. The plaintiffs added the Bear Stearns Defendants and Harriton to the action when they filed the Second Amended Complaint on February 17,1999. The complaint also contains allegations regarding Bartley T. Bernstein, Esq. (“Bernstein”), Steven F. Wasserman, Esq. (“Wasserman”), and Bernstein & Wasser-man, LLP (“Bernstein & Wasserman”) (collectively, the “attorney defendants”), who purportedly participated in the preparation of the prospectuses and registration statements in all of the public offerings except that for Lasergate. However, in a letter dated January 13, 2000, the parties advised the Court that they had entered into a Memorandum of Understanding settling the action with regard to the attorney defendants. Therefore, although the attorney defendants are mentioned in the complaint and at least one of them is named as a defendant in Claim Nos. 1, 13, 25, 2, 14, 26, 3, 15, 27, 4, 16, 28, 18, and 30, this decision does not refer to them. On October 8, 1996, the Bloomberg New-smre reported that the NASD had filed a complaint against Sterling Foster, charging the brokerage firm with netting $53 million in illegal profits from the IPOs for Advanced Voice, Com/Tech, and Embryo. The article states that the NASD accused Sterling Foster of inflating prices of three stocks it sold to thousands of customers and obtaining a virtual monopoly on trading by purchasing shares at discount prices from company insiders. The Bloomberg Newswire article also describes the boiler-room sales practices allegedly employed by the Sterling Foster sales force. The article states that the NASD complaint charges Sterling Foster brokers with falsely telling customers that the companies had been featured on the television show, “60-Minutes,” and that the IPO price was $12.75 per share when it actually was $5.50 per share. The following day, October 9, 1996, The Wall Street Journal ran an article entitled, Sterling Foster Charged by NASD for Illicit Trading, which began by stating “In one of its largest cases in recent years, the regulatory arm of the National Association of Securities Dealers alleged in a disciplinary proceeding that Sterling Foster & Co. and 15 of its officials, supervisors or brokers made $53 million in illicit profits from improper underwritings, manipulative trading and high-pressure ‘boiler room’ sales practices.” Deborah Lohse, Sterling Foster Charged by NASD for Illicit Trading, The Wall Street Journal, Oct. 9, 1996, at A15. The article states that the allegations in the complaint center on the alleged manipulations of the Advanced Voice, Com/Tech, and Embryo IPOs. The author states that the NASD alleged that Sterling Foster established huge short positions which they covered by buying the shares from company insiders at tremendous discounts and pursuant to previous agreements. Approximately two years later, The Wall Street Journal reported that Pace had been “indicted on charges he masterminded a $100 million fraud scheme by small-stock firm Sterling Foster & Co. by manipulating public offerings.” Frances A. McMorris, Former Oumer of Rooney Pace Indicted in Fraud, The Wall Street Journal, Nov. 10, 1998, at B12. The article explains that Pace and Novich allegedly defrauded investors who purchased stock in the fraudulent IPOs of Embryo, Laser-gate, Advanced Voice, Com/Tech, Apple-woods, and ML Direct. According to the article, Pace secured capital for Sterling Foster and established the clearing agreement with BSSC in exchange for control over the underwriter’s business activities and a cut of its net profits. The article states that Pace’s assistance was secret because when the Sterling Foster scheme began in 1994, Pace had been suspended from acting as a principal with any NASD firm. 2. The Allegations of the Six Putative Subclasses Following the description of the overall fraudulent scheme that is set forth above, the complaint contains the allegations of the six putative subclasses. As mentioned above, each subclass corresponds to one of the six defendant companies and consists of individuals who purchased the securities of that company. The claims raised by the subclasses against the defendants parallel one another, but the facts underlying these claims differ slightly from one subclass to the next. Therefore, the Court finds it important to set forth the factual allegations and legal claims of each subclass. a. The Allegations of the Advanced Voice Subclass The Advanced Voice Subclass consists of individuals who purchased Advanced Voice securities during the period commencing on February 6,1995, the date on which the Advanced Voice registration statement became effective, and terminating on October 8, 1996, the date on which the Bloomberg Newsmre reported that the NASD had charged Sterling Foster with securities fraud in connection with the Advanced Voice IPO. The lead plaintiffs of the Advanced Voice Subclass are William Wright (“Wright”), Michael Reynoso (“Reynoso”), and Michael A. Lepera (“Lepera”), who purchased Advanced Voice securities as follows:_ Number of Date of Plaintiff Securities_Purchase Pnce_ Wright 2000_10/3/96 71k_ Reynoso 500_9/96_13)6_ Lepera 2000_10/16/96 6 The additional plaintiffs include Douglas and Susan Morehead (the “Moreheads”), Ali Solimán (“Solimán”), and Jeffrey Stauf-fer (“Stauffer”), who purchased Advanced Voice securities as follows: Number of Date of Plaintiff Securities Purchase Price Moreheads 5000 warrants 2/7/95 1'k _2000 units 2/7/95 7%_ 1000_2/7/95 14 Solimán 1400 warrants 7/30/96 7)4 1800 9/4/96 14\ Stauffer 3000 warrants 7/19/95 3)4 The Advanced Voice Subclass contends that their shares are traceable to the Advanced Voice registration statement and prospectus. Advanced Voice developed custom hardware and software applications that would support the early stages of the voice processing industry. Defendant Nancy Sha-lek (“Shalek”) was the Chairperson of the Board of Directors for Advanced Voice. Prior to the public offering, Shalek and her husband each owned 9.9% of the company. The plaintiffs allege that Shalek was a “controlling person” of the company within the meaning of the Securities Act, 15 U.S.C. § 77o, and the Exchange Act, 15 U.S.C. § 78t(a). The Advanced Voice offering prospectus and registration statement declares that the company would issue 1,000,000 units (one share of common stock and one Class A redeemable common stock purchase warrant) at $5.50 per unit. The prospectus also registered 1,519,756 shares of common stock that had been issued to Selling Securityholders prior to February 6, 1995 and were not part of the IPO. The prospectus states that the Selling Securityholders had agreed to “lock-up” periods during which they would not sell their shares “without [Sterling Foster’s] prior written consent” for a period of 24 months from the effective date, except for certain Selling Securityholders who agreed to a 13-month period (Advanced Voice Prospectus, p. 41). The prospectus also provides that Sterling Foster had advised Advanced Voice “that it would consider releasing the lockup ... based upon the facts and circumstances at the time of the request to release the lockup, including but not limited to, general market conditions, the price of the Company’s securities, the liquidity of the trading market, and ... the financial needs of the company” (Advanced Voice Prospectus, p. 41). If the Selling Securityholders resold their securities, such resale was “subject to Prospectus delivery and other requirements of the [Securities] Act” (Advanced Voice Prospectus, p. 38). Shalek signed the registration statement, which includes the offering prospectus, and Sterling Foster, Lieberman, Novieh, Pace, Advanced Voice, and Shalek were responsible for disseminating the documents. The subclass claims that the prospectus failed to include the secret agreements between Sterling Foster and the Advanced Voice Selling Securityholders by which Sterling Foster would release the Selling Securityholders from their lock-up agreements and purchase their shares in the aftermarket at a substantial discount to the prevailing market price in order to cover a huge short position Sterling Foster intended to establish. The registration statement became effective on February 6, 1995, and trading in Advance Voice stock commenced the following day. Sterling Foster and 13 other broker-dealers distributed the 1,000,000 units to customers at a price of $5.50 per unit. Sterling Foster sold 74% of the offering to its own customers. Lieberman personally sold units to 35 customers at $5.50 per unit. Five minutes after aftermarket trading began, 33 of those customers sold their units back to Sterling Foster at $12,875 per unit. Shalek and her husband also sold their interest in the company. In one nine-minute period of trading, Sterling Foster executed 958 order tickets for retail customers who purchased a total of 2,355,085 shares of Advanced Voice common stock at prices ranging from $12.25 to $12.75 per share. Sterling Foster solicited purchasers for all of these shares by using their sales force to “cold call” potential customers prior to the opening of aftermarket trading. During these telephone conversations, Sterling Foster’s brokers made baseless predictions of a substantial and immediate rise in the aftermarket price of the securities. The brokers also employed tie ins and wooden tickets, two additional “boiler room” tactics, during aftermarket trading. Tie ins require customers who receive units in the IPO to make purchases in the aftermarket, and wooden tickets are simply unauthorized purchases. At the close of trading on February 7, 1996, Sterling Foster was short 2,120,560 shares of Advanced Voice common stock, which closed at $13.50 per share. Sterling Foster’s short position was more than twice the amount of the offering and was valued at $26,627,560, a sum that was more than ten times the firm’s net capital at the time. During the first two days of trading, Sterling Foster’s sale of Advanced Voice stock accounted for 91% of the total sale volume in the common stock. During the first month of trading, Sterling Foster accounted for over 83% of all the total retail purchase volume and over 79% of the total sale volume in Advanced Voice common stock. A Sterling Foster broker earned $1.75 per share when a customer purchased stock but only $.10 per share when the customer sold stock. Sterling Foster also penalized those registered representatives who permitted retail customers to sell their securities in the aftermarket by removing accounts and commissions the brokers had earned previously. In order to cover its short, Sterling Foster released the Advanced Voice Selling Securityholders from their lock-up agreements and purchased the 1,519,756 shelf shares at $2.00 per share, which was a huge discount to the prevailing market price. The plaintiffs allege that Sterling Foster’s release and subsequent purchase of the shelf shares was done pursuant to the pre-existing secret agreement among Advanced Voice, Shalek, Sterling Foster, Lieberman, Pace, and Novich. Sterling Foster’s purchases of the Selling Security-holders’ shares were not disclosed to the investing public except for a single SEC Form 4 filed for Shalek and her husband on March 10, 1995. BSSC did not clear the Selling Securityholders’ transactions. The Advanced Voice Subclass raises five claims against the defendants. None of these claims lists Advanced Voice as a defendant, because the company is in bankruptcy, and the action against it has been automatically stayed pursuant to 11 U.S.C. § 362(a). Claim one alleges that Shalek, Sterling Foster, Lieberman, Pace, Novich, and Krasnoff violated Sections 11 and 15 of the Securities Act, 15 U.S.C. §§ 77k, 77o, by signing and disseminating the Advanced Voice registration statement and prospectus which “contained untrue statements of material facts [and] omitted to state other facts necessary to make the statements made not misleading” (complaint ¶ 176). Claim seven alleges that Shalek, Lieberman, Pace, Novich, Hawley, and Paulson violated Sections 12(a)(2) and 15 of the Securities Act, 15 U.S.C. §§ 77i(a)(2), 77o. In claim thirteen, the Advanced Voice Subclass alleges that Shalek, Sterling Foster, Lieberman, Hawley, Paulson, Pace, Novich, Bear Stearns, BSSC, Harriton, and Krasnoff violated Sections 10(b) and 20(a) of the Exchange Act, 15 U.S.C. §§ 78j(b), 78t(a), and Rule 10b-5, 17 C.F.R. § 240.10b-5, by manipulating the market for Advanced Voice securities to artificially inflate the price of the company’s stock in order to defraud the Advanced Voice Subclass in connection with the purchase of Advanced Voice securities. The Advanced Voice subclass also alleges that the defendants made false statements or omitted material facts upon which the subclass relied and which caused them to suffer injury. The Advanced Voice Subclass maintains that its members were unaware of the market manipulation, false statements, and material omissions when they purchased shares of Advanced Voice, and had they been aware of the defendants’ conduct, they would not have purchased the securities at the artificially inflated prices. Claim nineteen alleges that Shalek, Sterling Foster, Lieberman, Hawley, and Paulson made negligent misrepresentations of fact to the subclass, and claim twenty-five alleges that Shalek, Sterling Foster, Lieberman, Hawley, Paulson, Pace, Novich, Bear Stearns, BSSC, Harri-ton, and Krasnoff violated Section 349 of the New York General Business Law. b. The Allegations of the Com/Tech Subclass The Com/Tech Subclass consists of individuals who purchased Com/Tech securities during the period commencing on August 23, 1995, the date on which the Com/ Tech registration statement became effective, and terminating on October 8, 1996, the date on which the Bloomberg New-swire reported that the NASD had charged Sterling Foster with securities fraud. The lead plaintiffs of the Com/Tech Subclass are Reynoso and Andrew Petit (“Petit”), who purchased Com/Tech securities as follows: Number of Date of Plaintiff Securities_Purchase Price_ Reynoso 3000_12/95_8)4_ Petit 5000 ■ 8/24/95 9%_ 000_12/18/95_7)4 The additional plaintiffs include William Kent (“Kent”), William Maxey (“Maxey”), David Valentine (“Valentine”), Control Touch Systems, Inc., (“Control Touch”), Stauffer, and Mayer Gross (“Gross”), who purchased Com/Tech securities as follows: Number of Date of Plaintiff Securities Purchase Price Kent 500 8/23/95 9% Maxey 1000 9/6/95 10)4 1000 9/14/95 10 2000 12/18/95 7)4 Valentine 1000 8/24/95 9% Control 10,000 6/25/96 5%¡ Touch Stauffer 2500 8/28/95 9% 4500 8/23/95 9% Gross 300 8/24/95 9% 700 9/14/95 95S The Com/Tech Subclass contends that their shares of Com/Tech are traceable to the Com/Tech registration statement and prospectus. Com/Tech developed interactive video programming and designs and managed private satellite networks that delivered one-way or interactive video programs and video teleconferencing to geographically dispersed places. Shalek was the Chairperson of the Board, the Chief Financial Officer (“CFO”), and the Secretary of Com/Tech. Prior to the public offering, Shalek owned 9.8% of the company while her husband controlled 50,000 shares. The plaintiffs allege that Shalek was a “controlling person” of the company within the meaning of the Securities Act, 15 U.S.C. § 77o, and the Exchange Act, 15 U.S.C. § 78t(a). The Com/Tech offering prospectus and registration statement declares that the company would issue 1,000,000 shares at the offering price of $5.00 per share. The prospectus also registered 1,360,000 shares of common stock that had been issued to Selling Securityholders prior to August 23, 1995, and were not part of the IPO. Defendant Krasnoff owned shares of Com/Tech as a Selling Securityholder. The prospectus states that the Selling Securityholders had agreed to “lock-up” periods, which meant that they would not sell their pre-offering shares for a period of 24 months from the effective date, except for certain Selling Securityholders who had agreed to a 13-month period. The prospectus also states that the shares owned by the Selling Securityholders were “subject to earlier release by [Sterling Foster],” which must be in writing (Com/Tech Prospectus, pp. 35, 38). The prospectus further provides that if the Selling Securityholders resold their shares, the resale was “subject to Prospectus delivery and other requirements of the Securities Act of 1933” (Com/Tech Prospectus, cover, p. 35). Shalek signed the registration statement, which includes the offering prospectus, and Com/Tech, Shalek, Sterling Foster, Lieberman, Pace, and Novich disseminated the registration statement and prospectus. The plaintiffs contend that the registration statement and prospectus contained misstatements and material omissions because they did not indicate that Sterling Foster and the Selling Securityholders had already agreed that Sterling Foster would release the Selling Securityholders from their lock-up agreements and would purchase their shares at a substantial discount to the prevailing market price in order to cover a huge short position Sterling Foster intended to establish shortly after trading commenced. The registration statement became effective on August 23, 1995, and trading in Com/Tech’s stock began the following day. On August 24, 1995, Sterling Foster accounted for approximately 90% of the total purchase and sale volume in Com/Tech. The brokerage house ended the first day of trading the net retail seller of approximately 2,000,000 shares of Com/Tech stock, which closed at $10,125. Sterling Foster’s short position was more than twice Com/Tech’s public float and was valued at over $20,000,000. As per the preexisting secret agreements, Sterling Foster, acting through Lieberman, covered its short by releasing the Selling Security-holders from their lock-up agreements and purchasing their shares at a substantial discount to the prevailing market price. From August 23, 1995 through October 8, 1996, Sterling Foster, acting through Lieberman, Pace, Novich, “and others” restricted the supply of Com/Tech securities available for trading, which enabled these defendants to establish and maintain arbitrary and artificially high prices in the aftermarket. To this end, Sterling Foster, among other things, placed approximately 74% of the Com/Tech offering with its own customers. The Com/Tech Subclass raises five claims against the defendants. In claim two, the Com/Tech subclass alleges that Com/Tech, Shalek, Sterling Foster, Lieberman, Pace, Novich, and Krasnoff violated Sections 11 and 15 of the Securities Act, 15 U.S.C. §§ 77k, 77o, because Com/Tech’s registration statement and prospectus contained untrue statements of material facts and omitted other facts necessary to make the statements made not misleading. Claim eight alleges that Com/Tech, Shalek, Sterling Foster, Lieberman, Pace, Novich, Hawley, and Paulson violated Sections 12(a)(2) and 15 of the Securities Act, 15 U.S.C. §§ 772(a)(2), 77o. In claim fourteen, the Com/Tech Subclass alleges that Com/Tech, Shalek, Sterling Foster, Lieberman, Hawley, Paulson, Pace, Novich, Bear Stearns, BSSC, Harri-ton, and Krasnoff violated Sections 10(b) and 20(a) of the Exchange Act, 15 U.S.C. §§ 78j(b), 78t(a) and Rule 10b-5,17 C.F.R. § 240.10b-5 by manipulating the market for Com/Tech securities thereby artificially inflating the price of the stock and defrauding the Com/Tech Subclass in connection with their purchase of the securities. The Com/Tech Subclass also alleges that the defendants made false statements or omitted material facts upon which the subclass relied and which caused them to suffer injury. The Com/Tech Subclass further maintains that its members were unaware of the market manipulation when they purchased the Com/Tech stock, and had they been aware of the scheme, the would not have purchased Com/Tech at the artificially inflated prices. Claim twenty alleges that Com/Tech, Shalek, Sterling Foster, Lieberman, Haw-ley, and Paulson made negligent misrepresentations to the Com/Tech Subclass, and claim twenty-six alleges that Com/Tech, Shalek, Sterling Foster, Lieberpian, Haw-ley, Paulson, Pace, Novich, Bear Stearns, BSSC, Harriton, and Krasnoff violated Section 349 of the N.Y. Gen. Bus. L. c. The Allegations of the Embryo Subclass The Embryo Subclass consists of individuals who purchased Embryo securities during the period commencing on November 17, 1995, the date on which the Embryo registration statement became effective, and terminating on October 8, 1996, the date on which the Bloomberg New-swire reported that the NASD had charged Sterling Foster with securities fraud. The lead plaintiffs of the Embryo Subclass are Thomas Rogers (“Rogers”), Marie Garrett (“Garrett”), Reynoso, Petit, and Lepera, who purchased shares as follows: Number of Date of Plaintiff Securities Purchase Price Rogers 500 11/17/95 9'k 500 12/11/95 13}S 1000 2/2/96 7% 1500 2/14/96 7'h Reynoso 4000 12/95 9% 1000 12/95 11Í4 1000 12/95 13 4000 2/96 Petit 5000 11/17/95 5 17,500 11/17/95 9% Lepera 1000 11/17/95 9% The additional plaintiffs include Maxey, Andres Montejo (“Montejo”), David Black (“Black”), and Leo A. Smith (“Smith”), who purchased shares as follows: Number of Date of Plaintiff Securities Purchase Price Maxey 1000 11/17/95 9fh 3000 2/7/95 13 Montejo & 30,000 6/24/96 6 Black Smith 500_11/17/95 5_ 1200_4/1/96 6% The Embryo Subclass contends that their shares of Embryo are traceable to the Embryo registration statement and prospectus. Embryo developed, acquired, manufactured, and marketed various bio-medical devices. Michael Lulkin (“Lulkin”) was the Chairman of the Board of Directors and the Secretary. Prior to the offering, he owned or controlled 7.1% of the company. The plaintiffs allege that Lulkin was a “controlling person” of Embryo within the meaning of the Securities Act, 15 U.S.C. § 77o, and the Exchange Act, 15 U.S.C. § 78t(a). The Embryo offering prospectus declared that the company would issue 1,000,000 shares of common stock at $5.00 per share. The prospectus also registered 3,030,000 shares of common stock that had been issued to Selling Securityholders pri- or to November 17, 1995, and were not part of the IPO. Krasnoff was a Selling Securityholder of Embryo stock. The prospectus states that the Selling Securityholders had agreed to “lock-up” periods, which meant that they would not sell their shares for a 24-month period, except for certain Selling Securityholders who agreed to a 13-month period. The prospectus also states that the shares owned by the Selling Securityholders were “subject to the earlier release by [Sterling Foster]” (Embryo Prospectus, p. 36). The prospectus further provides that Sterling Foster: has no agreements or understandings with any of the Selling Securityholders with respect to release of the securities prior to the 13 month or 24 month period, and has no present intention of releasing any or all of such securities prior to such periods. In recent offerings, however, [Sterling Foster] has released Selling Securityholders substantially pri- or to the expiration of such periods. (Embryo Prospectus, cover page). The prospectus further states that the “resale of the securities of the Selling Security-holders are subject to Prospectus delivery and other requirements of the Securities Act of 1933” (Embryo Prospectus, cover page). Lulkin signed the registration statement, which included the prospectus, and Embryo, Lulkin, Sterling Foster, and Lieberman disseminated the offering documents. The subclass contends that the registration statement and prospectus contain misstatements and omissions of material facts because they fail to indicate that Sterling Foster and the Selling Securityholders had already agreed that Sterling Foster would release the Selling Securityholders from their lock-up agreements and would purchase their shares at a substantial discount to the prevailing market price in order to cover a huge short position Sterling Foster intended to establish shortly after trading commenced. On November 17, 1995, Embryo common stock was approved for listing on the NASDAQ and trading in the stock commenced. Sterling Foster accounted for approximately 93% of the total trading volume on the first day of trading, most of this activity occurred in the first forty minutes of aftermarket trading. At the end of the day, Sterling Foster was a net retail seller of approximately 2,500,000 shares of Embryo stock, which closed at $10,875 per share. This short position represented more than double the company’s public float and was valued at over $27,000,000. The next day, Sterling Foster traded fewer than 40,000 shares, and the overall trading volume in Embryo dropped significantly. The Embryo Subclass maintains that three months later, on February 14, 1996, Sterling Foster mounted another massive sales effort, selling approximately 1,833,-720 shares to its retail customers and establishing another enormous short position, which was valued at approximately $15,000,000. To reach this end, Sterling Foster rewarded its registered representatives with a “$.70 per share sales credit with 100% payout, much more than they would have received for selling any other security at the time” (complaint ¶ 120). To cover its short positions, Sterling Foster, Lieberman, Pace, Novich, “and others” released the Selling Securityhold-ers from their lock-up agreements and purchased all of the 3,030,000 shelf shares at $2.00 per share, which price was a substantial discount to the prevailing market price for the securities. None of these transactions was reported to the NASDAQ or disclosed to the investing public. The Embryo Subclass raises five claims against the defendants, many of which are asserted against Lulkin and Embryo. However, in a letter dated January 13, 2000, the parties informed the Court that they have entered into a Memorandum of Understanding settling the action with Lulkin and Embryo. Accordingly, this decision does not refer to Lulkin or Embryo as defendants to any of the particular claims. In claim three, the Embryo Subclass alleges that Sterling Foster, Lieberman, Pace, Novich, and Krasnoff violated Sections 11 and 15 of the Securities Act, 15 U.S.C. §§ 77k, 77o. The Embryo Subclass claims that the company’s registration statement and prospectus contained untrue statements of material facts and omitted other facts necessary to make the statements made not misleading. In claim nine, the Embryo Subclass alleges that Sterling Foster, Lieberman, Pace, Novich, Hawley, and Paulson violated Sections 12(a) and 15 of the Securities Act, 15 U.S.C. §§ 77Z(a)(2), 77o. Claim fifteen alleges that Sterling Foster, Lieberman, Hawley, Paulson, Novich, Bear Stearns, BSSC, Harriton, and Kras-noff violated Sections 10(b) and 20(a) of the Exchange Act, 15 U.S.C. § 78j(b), 78t(a), and Rule 10b-5, 17 C.F.R. § 240.10b-5, by manipulating the market for Embryo stock, thereby artificially inflating the price of the stock and defrauding the Embryo Subclass in connection with the purchase of the securities. The subclass also alleges that the defendants made misstatements and omissions of material fact upon which the subclass relied and which caused them to suffer injury. The Embryo Subclass further maintains that its members were unaware of the market manipulation when they purchased the Embryo stock, and had they been aware of the scheme, they would not have purchased Embryo at the artificially inflated price. Claim twenty-one alleges that Sterling Foster, Lieberman, Hawley, and Paulson made negligent misrepresentations to the Embryo Subclass by failing to fulfill their obligation of disclosing material facts. In claim twenty-seven, the Embryo Subclass alleges that Sterling Foster, Lieberman, Hawley, Paulson, Pace, Novich, Bear Stearns, BSSC, Harriton, and Krasnoff violated Section 349 of the N.Y. Gen. Bus. L. d. The Allegations of the Applewoods Subclass The Applewoods Subclass consists of individuals who purchased Applewoods securities during the period commencing on April 10, 1996, the date on which the Ap-plewoods registration statement became effective, and terminating on October 8, 1996, the date on which the Bloomberg Newswire reported that the NASD had charged Sterling Foster with securities fraud. The lead plaintiffs of the Apple-woods Subclass are Wright and Reynoso, who purchased Applewoods securities as follows: Number of Date of Plaintiff Securities Purchase Price Wright 1600_4/12/96 14_ _1600_4/12/96 14_ _3000_4/19/96 16’/i Reynoso 1000_4/11/96 13%_ _600j_4/22/96 16%_ 400_4/23/96 16% The additional plaintiffs include Noam and Stephanie Sharf (the “Sharfs”), who purchased shares of Applewoods Securities as follows:_ Number of Date of Plaintiff Securities_Purchase Price_ Sharfs 1000_4/11/96 13 it_ _400_4/22/96 25%0 400_4/23/96 16% The Applewoods Subclass contends that their shares of Applewoods are traceable to the Applewoods statement and prospectus. Applewoods created, manufactured, and marketed natural beauty products. Defendant Roger Buoy (“Buoy”) was the CEO; defendant Terence McAuley (“McAuley”) was a CFO and Secretary; defendant Tony Swash (“Swash”) was the Chief Operating Officer (“COO”) and a Director; defendant Carmen Villalon (“Vil-lalon”) was a Director; and defendant Armando Araujo (“Araujo”) was a Director (collectively, the “Individual Applewoods Defendants” or the “IADs”). The plaintiffs allege that the IADs were “controlling persons” of Applewoods within the meaning of the Securities Act, 15 U.S.C. § 77o, and the Exchange Act, 15 U.S.C. § 78t(a). The Applewoods prospectus and registration statement declare that the company would issue 1,200,000 shares at the offering price of $5.00 per share. The prospectus also registered 480,000 shares of common stock that had been issued to Selling Securityholders. The prospectus states that “[t]he securities held by the Selling Securityholders may be resold at any time following the date of this Prospectus,” but such resale would be “subject to Prospectus delivery and other requirements of the Securities Act of 1933” (Ap-plewoods Prospectus, p. 44). According to the prospectus, the shelf shares could be sold by the Selling Securityholders or by Sterling Foster. However, if Sterling Foster were to sell them, it must receive NASD approval prior to any sale. The IADs signed the registration statement, and Sterling Foster, Lieberman, Pace, and Novich were responsible for disseminating the registration statement and prospectus. The Applewoods Subclass contends that the registration statement and prospectus contain misstatements and omissions of material fact because they do not indicate that Sterling Foster and the Selling Secu-rityholders, one of whom was Krasnoff, had already agreed that Sterling Foster would sell the Selling Securityholders’ shares on the open market shortly after the Applewoods IPO at prices far greater than the Selling Securityholders had paid for their shares. The Applewoods Subclass alleges that from April 10, 1996 through October 31, 1996, “the defendants engaged in substantially the same, if not the identical, wrongful conduct in connection with Applewoods as that described above concerning Advanced Voice, Com/Teeh, and Embryo.” According to the Second Amended Complaint, Sterling Foster, acting through Lieberman, Pace, Novich, “and others” controlled the aftermarket trading in Ap-plewoods in a manner that restricted the supply of securities available for trading, thus enabling the defendants to maintain an artificially inflated price for the securities. The Applewoods Subclass raises five claims against the defendants. In claim four, the Applewoods Subclass alleges that Applewoods, the IADs, Sterling Foster, Lieberman, Pace, Novich, and Krasnoff violated Sections 11 and 15 of the Securities Act, 15 U.S.C. §§ 77k, 77o. The Apple-woods Subclass maintains that the company’s registration statement and prospectus contain untrue statements of material facts and omitted other facts necessary to make the statements made not misleading. Claim ten alleges that Applewoods, the IADs, Sterling Foster, Lieberman, Pace, Novich, Hawley, and Paulson violated Sections 12(a)(2) and 20(a) of the Securities Act, 15 U.S.C. § 772(a)(2), 77o. In claim sixteen, the Applewoods Subclass alleges that Applewoods, the IADs, Sterling Foster, Lieberman, Hawley, Paul-son, Pace, Novich, Bear Stearns, BSSC, and Krasnoff violated Sections 10(b) and 20(a) of the Exchange Act, 15 U.S.C. § 78j(b), 78t(a) and Rule 10b-5, 17 C.F.R. § 240.10b-5 by manipulating the market for Applewoods securities, thereby artificially inflating the price of the stock and defrauding the Applewoods Subclass in the purchase of Applewoods securities. The Applewoods Subclass also alleges that the defendants made false statements of material fact or omitted material facts upon which the subclass relied and which caused them to suffer injury. The Applewoods Subclass maintains that its members were unaware of the market manipulation, misstatements, and omissions of material fact when they purchased the Applewoods stock, and had they been aware of the scheme, they would not have purchased Applewoods at the artificially inflated prices. Claim twenty-two alleges that Apple-woods, the IADs, Sterling Foster, Lieberman, Hawley, and Paulson made negligent misrepresentations to the Applewoods Subclass, and claim twenty-eight alleges that Applewoods, the IADs, Sterling Foster, Lieberman, Hawley, Paulson, Pace, Novich, Bear Stearns, BSSC, Harriton, and Krasnoff violated Section 349 of the N.Y. Gen. Bus. L. e. The Allegations of the Lasergate Subclass The Lasergate Subclass consists of individuals who purchased Lasergate Securities during the period commencing on October 17, 1994, the date on which the registration statement became effective, and terminating on October 8, 1996, the date on which the Bloomberg Newsivire reported that the NASD had charged Sterling Foster with securities fraud. The lead plaintiff of the Lasergate Subclass is Petit, who purchased the securities in the following manner: Number of Date of Plaintiff Securities_Purchase Price_ Petit 10,000_10/10/95 4% The additional plaintiffs include Valentine, Stauffer, and Gross, who purchased shares as follows: Number of Date of Plaintiff Securities Purchase Price Valentine 2000 2/17/95 13% 2000 3/9/95 1% 1000 4/27/95 8% 3000 6/27/95 5% Stauffer 500 11/18/94 11¡4 Gross 2500 10/11/95 6% 300 3/29/96 1% The Lasergate Subclass contends that their shares of Lasergate are traceable to the Lasergate’s registration statement and prospectus. Lasergate sells admissions systems for amusement parks, theme parks, and other public facilities. Lasergate had an IPO of its common stock in July 1987 at $1.00 per share. Active trading ceased in August 1990. In October 1994, Sterling Foster underwrote the secondary offering of La-sergate securities. The prospectus de-dares that the company would issue 800,-000 units (one common share and two warrants to purchase common stock) at a price of $5.50 per unit. The prospectus also registered 1,734,895 shares of common stock belonging to Selling Shareholders “for concurrent or future sales by the Selling Shareholders” (Lasergate Prospectus, p. 40), but states that these shares were subject to lock-up agreements. In particular, the prospectus states, “All of the Selling Shareholders will agree not to offer, sell or otherwise dispose of the Selling Shareholders’ Shares for a period of 18 months after the date of this Prospectus without the prior written consent of the Underwriter” (Lasergate Prospectus, p. 40). Lasergate, Sterling Foster, and Lieberman were responsible for disseminating the registration statement and prospectus. The Lasergate Subclass contends that the prospectus and registration statement contained false statements and material omissions because it failed to disclose that Sterling Foster and the Lasergate Selling Securityholders had already agreed that Sterling Foster would release the Selling Securityholders from their lock-up agreements and would purchase their shares at a substantial discount to the prevailing market price in order to cover a huge short position Sterling Foster intended to establish shortly after trading commenced. On October 17, 1994, the Lasergate registration statement became effective and trading in the stock began the next day. The Lasergate Subclass contends that from October 17, 1994 through October 31, 1996, the defendants engaged in the same wrongful conduct in connection with La-sergate as it did in connection with Advanced Voice, Com/Tech, Embryo, and Applewoods. The subclass specifically alleges that Sterling Foster, acting through Lieberman, Pace, Novich, “and others” controlled the market for Lasergate securities so that the supply of Lasergate securities available for trading was significantly restricted, thus artificially inflating the price of the security in the aftermarket. The Lasergate Subclass raises five claims against the defendants. Claim five alleges that Lasergate, Sterling Foster, Lieberman, Pace, and Novich violated Sections 11 and 15 of the Securities Act, 15 U.S.C. §§ 77k, 77o, because the registration statement and prospectus contained false statements of material fact and omissions of fact that were necessary to make other statements made not misleading. In claim eleven, the Lasergate Subclass alleges that Lasergate, Sterling Foster, Lieberman, Pace, Novich, Hawley, and Paulson violated Sections 12(a)(2) and 15 of the Securities Act, 15 U.S.C. §§ 77Z(a)(2), 77o. Claim seventeen alleges that Lasergate, Sterling Foster, Lieberman, Hawley, Paul-son, Pace, Novich, Bear Stearns, BSSC, and Harriton violated Sections 10(b) and 20(a) of the Exchange Act, 15 U.S.C. §§ 78j(b) 78t(a), and Rule 10b-5, 17 C.F.R. § 240.10b-5 by manipulating the market for Lasergate stock, thereby artificially inflating the price of the stock and defrauding the Lasergate Subclass in connection with their purchase of the securities. The subclass also alleges that the defendants made false statements and omissions of material fact upon which the subclass relied and which caused them to suffer injury. The Lasergate Subclass maintains that its members were unaware of the market manipulation when they purchased the Lasergate stock, and had they been aware of the scheme, the would not have purchased the Lasergate at artificially inflated prices. Claim twenty-three alleges that Laser-gate, Sterling Foster, Lieberman, Hawley, and Paulson made negligent misrepresentations to the Lasergate Subclass, and claim twenty-nine the Lasergate Subclass alleges that Lasergate, Sterling Foster, Lieberman, Pace, Novich, Bear Stearns, BSSC, Harriton, Hawley, Paulson, and Krasnoff violated Section 349 of the N.Y. Gen. Bus. L. f. The Allegations of the ML Direct Subclass The ML Direct Subclass consists of individuals who purchased ML Direct Securities during the period commencing on September 3, 1996, the date on which the registration statement became effective, and terminating October 8, 1996, the date on which the Bloomberg Newswire reported that the NASD had charged Sterling Foster with securities fraud. The lead plaintiffs are Wright, Reynoso, and Petit, who purchased shares of ML Direct as follows: Number of Date of Plaintiff Securities Purchase Price Wright 3000_9/9/96 14_ Reynoso 1000 ■ 9/4/96 14!4 Petit_3400_9/4/96 13% The additional plaintiffs include Maxey who purchase shares of ML Direct as follows] Number of Date of Plaintiff Securities Purchase Price Maxey 3500_9/4/96 14% The ML Direct Subclass contends that their shares of ML Direct are traceable to the company’s registration statement and prospectus. Defendants Pace and Novich organized ML Direct to sell consumer products through a home shopping network. During the Subclass period, Shalek was Chairperson of the Board, and prior to the offering, she owned or controlled 17.1% of the company. The plaintiffs allege that she was a “controlling person” of ML Direct within the meaning of the Securities Act, 15 U.S.C. § 77o, and the Exchange Act, 15 U.S.C. § 78t(a). Lulkin was a principal stockholder of ML Direct, and his company, Special Equities, Inc. (“Special Equities”), owned 1,080,000 shares of ML Direct, 34.6% of the company, prior to the IPO. The ML Direct offering was underwritten by Patterson Travis, not by Sterling Foster. The offering prospectus declares that ML Direct would issue 480,000 units (two shares of common stock and one common stock purchase warrant at $15 per unit). The prospectus also registered 2,400,000 shares of co