Full opinion text
ORDER REGARDING MOTIONS TO DISMISS PECHMAN, District Judge. INTRODUCTION This Complaint provides one explanation of how the now-infamous internet “bubble” occurred. Plaintiff in this putative class action is a shareholder in Homestore.com, Inc., (“Homestore”) an internet-based company that provides links to a wide range of services related to home ownership, including real estate sales, home renovation, and relocation services. Plaintiff alleges in its complaint that several Home-store insiders, with the knowledge of Homestore’s auditor and the active participation of various outside business entities, unlawfully created revenue through various types of dubious transactions in order to prop up Homestore’s stock price. Plaintiff claims that these transactions, combined with improper accounting and the release of written and oral public statements made to the SEC, analysts, and the general public, perpetrated a fraud on Homestore’s shareholders and the investing public in violation of Federal securities statutes and regulations promulgated thereunder. Eventually, Homestore was forced to restate seven quarters of revenue because of the improper transactions and accounting. By this action, plaintiff seeks to recover damages incurred when the market price of Home-store common stock fell dramatically once the need for restatement became public. This is a massive piece of litigation. In all, plaintiff has named twenty-eight (28) defendants who allegedly made misleading statements or omissions and/or participated in a scheme to defraud investors in contravention of federal securities laws. The Court notes from the outset that two other aspects set this case apart from most securities litigation reported in the case law. First, plaintiff makes allegations based on inside sources who were most probably former executives at Homestore and therefore provide a unique insight not generally available to most private securities litigants. Second, four former Home-store executives have pled guilty to various criminal charges involving securities fraud and insider trading. Thus, this case does not present the question of whether the fraud actually happened, but rather who knew about it, who participated in it, and who can be held liable for it. Defendants Homestore.com and Peter Tafeen have opted to answer the complaint. All other defendants with the exception of Jeff Kalina and Top Producers Systems have filed motions to dismiss pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b) and the Private Securities Litigation Reform Act (“PSLRA”) of 1995, 15 U.S.C. § 78u. Having considered the voluminous pleadings and papers filed by the parties, and having heard oral argument on the issues, the Court rules as follows: 1) The motions of the following defendants are hereby DENIED: Stuart H. Wolff (Dkt. No. 126), Pricewater-house Coopers, (Dkt. No. 185); 2) The motions of the following defendants are GRANTED, and the complaint as to each defendant is DISMISSED WITHOUT PREJUDICE: David Rosenblatt (Dkt. No. 116), Allan Merrill (Dkt. No. 104), Catherine Kwong Giffen (Dkt. No. 204), Sophia Losh (Dkt. No. 117); 3) The motions of the following defendants are GRANTED, and the complaint as to each defendant is DISMISSED WITH PREJUDICE: AOL Time Warner (Dkt. No. 122), Eric Keller (Dkt. No. 203), David Colburn (Dkt. No. Ill), Cendant Corporation (Dkt. No. 202), Richard Smith (Dkt. No. 202), L90 (Dkt. No. 205), Akonix (Dkt.Nos.108-109), Ci-tyRealty (Dkt. No. 108-113), Classmates Online (Dkt. No. 110), Corner-Hardware (Dkt. No. 108), Dorado Corporation (Dkt. No. 108), Glo-beExplorer (Dkt. No. 100), Internet Pictures (Dkt. No. 108), Promise-Mark (Dkt. No. 108), RevBox (Dkt. No. 108), SmartHome (Dkt. No. 108), and WizShop (Dkt. No. 153). This order does not include or cover named defendants Privista, Inc, Top Producer Systems, Inc., or Jeff Kalina. Pri-vista’s Motion to Dismiss (Dkt. No. 209) was filed on February 24, 2003, and therefore will be noted for consideration on March 21, 2003, unless agreed otherwise by the parties. BACKGROUND A. Factual Background Plaintiff makes the following factual allegations, which for purposes of this motion the Court must accept as true and construe in the light most favorable to the plaintiff. No. 84 Employer-Teamster v. America West, 320 F.3d 920, 930 (9th Cir.2003). The Court evaluates these allegations with the presumption that a complaint should not be dismissed “unless it appears beyond a doubt that the plaintiff cannot prove any set of facts in support of the claim that would entitle him or her to relief.” Id., citing Williamson v. Gen. Dynamics Corp., 208 F.3d 1144, 1149 (9th Cir.2000). In this section, the Court gives a brief description of the parties, then an overview of the alleged illicit transactions that form the basis of the fraud, followed by a detailed factual recitation based on the plaintiffs allegations. Allegations specific to each defendant are analyzed separately below. 1. The Parties Lead plaintiff California State Teachers’ Retirement System (“CalSTRS”), a pension fund for California teachers, brings this putative class action against the defendants for damages arising from plaintiffs purchase of large amounts of Homestore common stock. These purchases were based on allegedly false or misleading financial statements filed with the SEC, as well as public comments made by the defendants. For convenience, the Court has grouped the defendants into four general categories: present and former executives of Homestore (“the Insiders”), business partners involved in arranging various “triangular” transactions (“the business partners”), the third party vendors who typically sold services or stock to Home-store and purchased Homestore advertising (“the third party vendors”), and the auditor Pricewaterhouse Coopers (“PWC”). Factual allegations as to each category are similar in some respects, but the Court must consider the allegations made as to each individual defendant when determining whether the requirements of Federal Rules of Civil Procedure 12(b)(6) and 9(b) and the PSLRA have been met. a. The Insider Defendants Insider defendants include Peter Tafeen, former Executive Vice President of Business Development and Sales; Stuart Wolff, former CEO and Chairman; David Rosenblatt, former Senior Vice President and General Counsel; Catherine Kwong Giffen, former Senior Vice President of Human Resources; Allan Merrill, current Executive Vice President of Corporate Development; Sophia Losh, former Senior Vice President of the Strategic Alliance Group (“SAG”); and Jeff Kalina, former Director of Transactions. Other major participants in the scheme include Joseph Shew, former Vice President of Finance and later CFO; John Giesecke, former CFO, and John DeSimione, former Director of Operations, Planning and Transactions in the Finance Department. These last four pled guilty to various criminal charges of corporate financing fraud and insider trading. The Complaint alleges that each and every one of these inside defendants was motivated by personal profit to keep the price of Homestore stock high so that each could reap huge benefits from selling off vested and exercised stock options. Plaintiff alleges that these sales constituted illegal insider trading. b. The Business Partner Defendants There are three major players in the business partner category, with three individuals closely associated. Plaintiff alleges that America Online Time Warner (“AOL”) was a major player in arranging many of the illicit revenue boosting transactions. AOL employees David Colburn and Eric Keller are also named as defendants for their roles as the primary Home-store contacts within AOL and the architects of many of the improper “round trip” transactions. Both were released by AOL under suspicion of certain illegal transactions with Homestore and other companies. Plaintiff does allege, however, that the transactions continued after the two individuals left, further implicating AOL in the scheme to defraud. Cendant Corporation (“Cendant”) is a major player in the on-line real estate business, and has substantial activities in the car rental and travel industries as well. Plaintiff alleges that Cendant and its CEO Richard Smith engaged in “triangular” transactions between Homestore, Cendant and one of Cendant’s subsidiaries. This transaction also represents a “related party” transaction that was not appropriately accounted for as such. L90 is a media company. Plaintiff alleges that L90 engaged in illegal “triangular” transactions and “barter” transactions with Homestore and third parties. c. “Third Party Vendors” This is a catchall group of participants that is made up of smaller, thinly capitalized startup companies that allegedly engaged in illegal transactions with Home-store. They were either involved in barter transactions, “revenue purchasing” schemes, or made up the third leg of a “triangular” transaction, typically orchestrated through AOL. d.Pricewaterhouse Coopers PWC is a defendant in this action for its role in overseeing, approving and failing to properly audit the various transactions described below. Plaintiff alleges that PWC did not follow Generally Acceptable Auditing Standards and either tacitly approved and/or failed to reject several of the improper transactions and the accounting thereof. 2. The Transactions There are basically three different but related types of transactions that are alleged to have taken place, all of which created “revenue” for Homestore through various ways that the transactions are “booked.” These are the “barter transactions,” “buying revenues” or “revenue purchasing,” and the “triangular transactions.” Below is a brief description of each one, though the .complaint contains multiple descriptions of these accompanied by diagrams. “Barter transactions” — These are two-party reciprocal transactions. Plaintiff ah leges that Homestore and other companies agreed to trade services, generally advertising for some amorphous service such as “web services” or “marketing solutions.” Then, instead of just trading those services, the two companies agree to buy each other’s services for an extremely exaggerated rate. For example, Homestore might pay $5 million for marketing solutions, and the other company pays $5 million for advertising. Homestore then realizes the $5 million in revenues. The problem is that in accounting for these transactions, Homestore is supposed to provide actual market value of the services, “net out” the cost of the reciprocal transaction (making the net revenue zero), and report the two transactions as linked. Homestore allegedly did not properly account for transactions on several occasions. “Buying revenues” — These are two-party transactions as well, and are very similar to the barter transactions. The difference is that in this instance Homestore trades stock “warrants” (a form of stock option) for some service, and receives cash for some other service like advertising. The true transaction is the cash for the warrants, known as a “stock-for-revenue” transaction, which must be reported as such in accounting for the transactions. In addition, many of these transactions involved a guarantee by Homestore of a certain stock price by a specified date in the future — if the stock was not worth the amount guaranteed, Homestore was to be responsible for the difference. This is a safe transaction for the other company, but a very risky way of creating revenues for Homestore. “Triangular transactions,” a.k.a. “round-tripping” — These are slightly more complex transactions involving three parties. The transactions allegedly arranged through defendant AOL provide good examples. AOL and Homestore entered into a “revenue sharing agreement” or “advertising reseller agreement” in which AOL agreed to sell advertising for Homestore for a commission. This commission was far above market value. This agreement may be valid on its own, but set the stage for allegedly illegal transactions. Home-store would find some third party corporation, one that was thinly capitalized and in search of revenues in order to “go public.” Homestore then agreed to purchase shares in that company for inflated values or to purchase services or products that Home-store did not need. This transaction was contingent on the third party company “agreeing” to buy advertising from AOL for most or all of what Homestore was paying them. The money thus flowed through the third party to AOL, which then took a commission and shared “revenue” with Homestore. This is an exceptionally expensive way to create revenue due to the cuts taken in each step along the way. This practice depleted the cash reserves of Homestore, but created “revenue” in order to meet the revenue targets, resulting in an inflated stock price. 3. Detailed Factual Recitation The First Amended Consolidated Complaint (“FACC”) sets forth the following specific allegations regarding the improper transactions between Homestore and the other defendants: In 1996, Stuart Wolff founded “Realtor, com,” the predecessor to Homestore, which listed real estate on the internet. FACC ¶ 88. Homestore was founded shortly thereafter, and eventually “went public” in 1999. Id. As with all internet companies of the 1990’s, revenue growth was an important indicator of the financial well-being of the company. FACC ¶¶ 88, 109. Accordingly, there was enormous pressure on Homestore to show increasing revenues each quarter. FACC ¶ 109. The relationship between Homestore and defendant AOL began in April of 1998, when Homestore purchased from AOL the exclusive right to have the only online real estate listing product on the AOL web site. FACC ¶ 113. Homestore purchased this exclusive right for $20 million in cash to be paid in installments as well as $1.5 million in Homestore warrants at various “strike prices.” Id. Thus, when an AOL member sought real estate listings on the AOL website, that member would be directed to the Homestore.com website. FACC ¶ 114. The inception of the defendants’ scheme to deceive, manipulate and/or defraud the marked occurred in 1998 when Homestore entered into a series of improper “barter transactions” that formed the basis for transactions that were later restated. FACC.¶ 111. The Court notes, however, that the class period does not begin until the first quarter of fiscal year 2000 (“FYE 2000”), the first quarter in which Home-store was later required to restate its revenues. Therefore, these transactions predating the class period are not described in detail here, but merely provide a background for the alleged improper transactions made during the class period. First, during the last half of fiscal year 1998 (“FYE 1998”), Homestore entered into reciprocal contracts constituting a barter transaction with RE/MAX International, Inc. FACC ¶ 118. Next, in the third quarter of fiscal year 1999 (“FYE 1999”), Homestore entered into reciprocal transactions with Wells Fargo’ Bank in which Homestore in essence traded 500,000 of its own warrants for $20 million in revenue. FACC , ¶¶ 119-22. Then in the fourth quarter of FYE 1999, Homestore entered into similar reciprocal transactions with General Motors Acceptance Corporation (“GMAC”) in essence trading 100,000 warrants at a specified strike price for another $20 million in revenue. FACC ¶¶ Í26-28. Meanwhile, in the first quarter of FYE 1999, Homestore entered into an advertising reseller agreement with AOL (hereinafter, the “second AOL agreement”). By this agreement, AOL would sell advertising on the Homestore website to third parties. FACC ¶ 124. AOL would retain a commission on the sale, and remit the remaining portion of the advertising' revenue to Homestore. Id. AOL’s commission was as high as 50% or more of the amount obtained from the third party company. FACC ¶ 337. Plaintiff alleges that most of the improper transactions described below occurred near the end of the quarter when Home-store realized that the company might fall short of revenue targets set by Wolff and/or market analysts. They were one time, non-recurring deals, the purpose of which was to “fill the plug” or “make the bogie.” During the first three quarters of FYE 2000, Homestore entered into a series of “equity deals” that constituted Homestore “buying revenues.” FACC ¶ 139. In these transactions, Homestore would purchase stock of seemingly worthless companies. Id. In return, these companies agreed to purchase advertising on Home-store’s website, using the money obtained in the stock sale. Id.. These companies included defendants Dorado Corporation (“Dorado”), CornerHardware.com (“Cor-nerHardware”), RevBox, Inc. (“RevBox”), and SmartHome, Inc. (“SmartHome”), as well as non-defendants Investor Plus, and OnhneChoice.com, Inc. FACC ¶ 140. Homestore then booked its recycled money as revenue. FACC ¶ 142. Meanwhile, PWC reviewed each of these “investment and distribution” deals, which in total resulted in approximately $40 million in revenues recognized by Homestore. FACC ¶ 147. There was much debate between PWC and Homestore executives regarding whether these transactions should be reported as gross revenues, or if they should be “netted out” against each other. Id. PWC allowed these transactions to be reported as gross, but later forced Home-store to report nearly identical transactions as net. Id. Throughout FYE 2000, Homestore entered into several other reciprocal, round trip transactions with third party vendors, including defendants CityRealty.com, Inc. (“CityRealty”), Classmates Online, Inc. (“Classmates”), PromiseMark, Inc. (“PromiseMark”), Privista, Inc. (“Privista”) and Akonix Systems, Inc. (“Akonix”), as well as non-defendant iPlace. FACC ¶¶ 148-50. In the first leg of each transaction, Homestore would pay cash to the third party vendor in exchange for advertising or other services. FACC ¶ 151. In the second or reciprocal component of the transaction, the third party vendor would recycle that cash in a nearly identical amount to Homestore in exchange for advertising or other services. Id. PWC had knowledge of the details of each of these transactions, and began to question their round trip nature in late 2000. FACC ¶ 152. PWC required the “netting” of some, but not all, of these transactions, including the CityRealty transaction in the first quarter of 2001. Id. In May of 2000, Homestore and AOL entered yet another agreement (hereinafter the “third AOL agreement”). The agreement established Homestore as the exclusive distributor of home-buying and moving services across AOL properties. FACC ¶ 154. The agreement also required AOL to establish the “House & Home” channel on its website for which Homestore would be the exclusive content provider, and included a revenue sharing agreement to share revenue generated from the traffic on that channel. Id. In return, AOL would obtain 3.9 million shares of Homestore stock at the guaranteed price of $68.50 per share, as well as $20 million in cash. Id. AOL would also receive a $90 million letter of credit that it could use if Homestore’s stock did not meet the guaranteed price. Id. The agreement received a great deal of news coverage, and analysts predicted that Home-store would exceed the guaranteed strike price. FACC ¶ 155-56. Plaintiff alleges that this transaction was improper because it constituted a “stock-for-revenue” transaction. FACC ¶ 158. During the fourth quarter of FYE 2000, Homestore entered into another “stock-for-revenue” transaction, this time with Bank of America. FACC ¶ 159. The agreement involved the exchange of 600,-000 unregistered shares of Homestore stock, advertising, and website services for $4.5 million in cash, with $15 million to follow, and “marketing solutions” for My-HomeSolutions.com. Id. PWC reviewed and approved this transaction, which was one of the transactions for which revenue was later restated. FACC ¶ 161. In late 2000, Homestore announced that it would acquire Cendant Corporation’s online real estate web site, Move.com. FACC ¶ 166. Homestore and Cendant completed this acquisition through a complex multi-legged transaction. First, Homestore gave Cendant 21.4 million shares of Home-store stock (a 20% share) worth approximately $750 million as payment for 100% of the stock in Move.com and another Cen-dant subsidiary, Welcome Wagon. FACC ¶ 167-68. Cendant’s acquisition of a 20% share of Homestore allowed it to elect two seats on the Homestore board, one of which was occupied by defendant Richard Smith. FACC ¶ 169. Second, Cendant funded the Real Estate Technology Trust (“RETT”) with $95 million. FACC ¶ 167. Third, RETT paid Homestore $80 million for certain commercial products and services. Id. These three transactions were simultaneous and contingent upon one another, and were considered “related party” transactions. FACC ¶ 170. PWC was “concerned” about the reciprocal nature of the transaction, and involved its national office in the accounting. Id. Meanwhile, RETT was left with $15 million remaining in cash. During the first quarter of FYE 2001, Homestore had acquired Internet Pictures Corporation (“iPix”). FACC ¶ 141. When Homestore needed revenues, its executives arranged through Cendant for RETT to purchase $15 million worth of “virtual tours” of houses. FACC ¶ 172. Homestore in turn agreed to give back the money through the purchase of $15 million in products from Cendant. Id. Defendant Tafeen allegedly signed a contract evidencing the return of the money, but hid it so that PWC would not discover the reciprocal nature of the transactions. FACC ¶ 385. During the first quarter of FYE 2001, Homestore entered into a series of illegal triangular transactions with third party vendors, resulting in “revenue” for Home-store. FACC ¶ 174. These transactions involved third party vendor defendants Classmates and Wizshop, as well as non-defendants PurchasePro, InvestorPlus, EasyRoommates, and FX Consultants. FACC ¶ 176. First, Homestore would buy a product from a third party vendor on the condition that the third party vendor would purchase Homestore advertising from AOL. FACC ¶ 175. AOL would then take a commission and round trip Home-store’s own money back to it under the reseller agreement. Id. The parties all agreed that AOL would not document the agreement by the third parties to purchase advertising from AOL. FACC ¶ 177. These transactions allowed Homestore to realize approximately $15 million in “revenue.” FACC ¶ 176. During the second quarter of FYE 2001, Homestore entered into a modified triangular transaction with InvestorPlus, a subsidiary of “IPG”. FACC ¶ 178. Homestore had an accounts receivable with IPG total-ling $5 or $6 million dollars from a previous transaction. Id. Now, Homestore agreed to forgive that debt in exchange for a website valued at $6 million, and IPG agreed to purchase advertising from AOL. FACC ¶ 179. Homestore’s money was then returned to it pursuant to the advertising reseller agreement. Id. The agreement to purchase advertising from AOL was not reported as related to the agreement to forgive the accounts receivable. FACC ¶ 181. During that same quarter, Homestore entered into a round trip transaction in acquiring “Homestyles,” a subsidiary of Buildnet. FACC ¶ 182-83. This transaction was negotiated and orchestrated by defendant Allan Merrill. FACC ¶ 182. In this set of transactions, Homestore paid Buildnet $23 million in cash to acquire Homestyles. FACC ¶ 183. Buildnet then paid between $5 and $6 million to AOL for Homestore advertising. Id. Some of this money was then round tripped back to Homestore, and was recognized as revenue. FACC ¶ 184. During the second and third quarters of FYE 2001, Homestore entered into triangular transactions with defendant L90 that were similar to those involving AOL. FACC ¶ 185. In these transactions, Homestore paid cash to a third party vendor such as “Hi-Speed Media” in exchange for purported goods and/or services. Id. That company then used that money to pay L90 for purported goods and/or services. Id. Finally, L90 recycled the money back to Homestore for advertising, which would be recognized as revenue. Id. The FACC also details a great number of press releases, analyst reports, news articles, and SEC filings that relate to or are based upon the above-described transactions. See FACC ¶¶ 186-195. The FACC also independently pleads scienter for each of the defendants. Id. pp. 103-238. For the sake of brevity, the Court will not discuss those allegations in detail here, but rather will reference those that are pertinent when analyzing the allegations as to each defendant. B. Legal Background Congress enacted the Securities Exchange Act of 1934 to regulate various practices of trading in securities in an effort to correct many of the abuses that led to the stock market crash of 1929. Plaintiffs in this case have brought causes of action under Sections 10(b) and 20(a) of the Act, as well as under the Security and Exchange Commission’s (“SEC”) Rule 10b-5, which implements § 10(b) of the Act. Section 10(b) of the Act states in relevant part: It shall be unlawful for any person, directly or indirectly ... (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 proscribe as necessary or appropriate in the public interest or for the protection of investors. 15 U.S.C. § 78j(b). Rule 10b-5 implements this statute, stating: 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, (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 operated 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. Section 20(a) of the Act confers liability on those who direct others to commit violations of the Act: 1) Joint and Several liability; good faith defense Every person who, directly or indirectly, controls any person liable under any provision of this chapter or of any rule or regulation thereunder shall also be liable jointly and severally with and to the same extent as such controlled person to any person to whom such controlled person is liable, unless the controlling person acted in1 good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action. 15 U.S.C. § 78t(a). Therefore, in order to allege a violation of § 20(a), plaintiff must establish a strong inference of (1) a primary violation of federal securities laws; and (2) that the defendant exercised actual power or control over the primary violator. Howard v. Everex Systems, Inc., 228 F.3d 1057, 1065 (9th Cir.2000). 1. The Private Securities Litigation Reform Act of 1995 In 1995, Congress enacted the Private Securities Litigation Reform Act, 15 U.S.C. § 78u, over a presidential veto. By this legislation, Congress “sought to reduce the volume of abusive federal securities litigation by erecting procedural barriers to fraud claims.” In re Silicon Graphics, Inc. Securities Litigation, 183 F.3d 970, 977 (9th Cir.1999). Put another way, the PSLRA was intended “to put an end to the practice of pleading ‘fraud by hindsight,’ ” by which investors allege fraud by questioning past corporate decisions once a company’s stock price has dropped. Id. at 988. In relevant part, the PSLRA states: (b) Requirements for securities fraud actions 1. Misleading statements and omissions In any private action arising under this chapter in which the plaintiff alleges that the defendant— (A) made an untrue statement of a material fact; or (B) omitted to state a material fact necessary in order to make the statements made, in the light of the circumstances in which they were made, not misleading; the complaint shall specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed. 2. Required state of mind In any private action arising under this chapter in which the plaintiff may recover money damages only 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, state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind. 15 U.S.C. § 78u—4(b)(1) and (2). The state of mind requirement is known as the “scienter” requirement. With respect to “forward-looking” statements, the PSLRA requires that the plaintiff plead and prove that the person making the statement had “actual knowledge” of its falsity or misleading character at the time the statement was made. 15 U.S.C. § 78u-5. This last requirement is designed to prevent insiders from being liable for mere “puf-fery” or corporate optimism. As with any litigant alleging fraud, the PSLRA plaintiff must plead with particularity all facts demonstrating that a specific defendant made a statement or committed an act or was involved in a scheme that was false or misleading. But the PSLRA goes beyond the requirements of Rule 9(b) and requires that the securities fraud plaintiff must plead facts demonstrating why the statement, act or scheme is misleading. Thus, not only does the PSLRA require that both falsity and scienter to be pled with specificity, it requires that the facts pled must give rise to a “strong inference” that each defendant acted with the requisite state of mind. But what is that state of mind? And what is a “strong inference”? Finally, how much specificity is enough? These are the questions that courts have struggled with since the passage of the PSLRA. The Ninth Circuit first squarely addressed the issue of scienter under the PSLRA in In re Silicon Graphics, Inc. Securities Litig., 183 F.3d 970 (9th Cir.1999). There, the court held that a plaintiff “must plead, in great detail, facts that constitute strong circumstantial evidence of deliberately reckless or conscious misconduct.” Id. . at 974. Specifically, the court stated: We hold 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. Id. (emphasis in original). The court therefore seems to have converted what was a standard of “an extreme departure from the standards of ordinary care,” which is the definition of recklessness, to one that approaches the standard for “intent.” Id. at 976. Because the facts that support inferences of falsity and scienter are almost always the same, the Ninth Circuit has collapsed the elements into a single inquiry: “whether the particular facts in the complaint, taken as a whole, raise a strong inference that defendants intentionally or [with] deliberate recklessness made false or misleading statements.” Ronconi v. Larkin, 253 F.3d 423, 429 (9th Cir.2001). Alternatively, a complaint may allege facts giving rise to a strong inference of intentional misconduct or deliberate recklessness in the participation in a scheme or deceptive device to defraud investors. No. 84 Employer-Teamster v. America West, 320 F.3d at 937 (holding that controlling shareholders could be held liable for insider trading, which qualifies as a deceptive device). 2. Central Bank of Denver v. First Interstate Bank of Denver, 511 U.S. 164 (1994), and the Bar on Aider and Abettor Liability Each of the outside defendants argues strenuously that they cannot be held liable under § 10(b) and Rule 10b-5 as a result of the Supreme Court’s decision in Central Bank of Denver v. First Interstate Bank of Denver, 511 U.S. 164, 114 S.Ct. 1439, 128 L.Ed.2d 119 (1994), holding that the Securities Exchange Act and the rules promulgated thereunder did not provide for aider and abettor liability. In that case, a public housing authority issued a series of bonds to finance public improvements. Id. at 167, 114 S.Ct. 1439. The bonds were secured by land under a covenant that required that the land be valued at 160% of the value of the bond. Id. A question arose as to the actual value of the land that secured these particular bonds, which were held by indenture trustee Central Bank. Id. Land values were decreasing at the time, and a Central Bank underwriter expressed concern that the 160% requirement was not being met. Id. Central Bank was going to order an independent review, but the housing authority convinced it to hold off for 6 months. Id. at 168, 114 S.Ct. 1439. In the meantime, the authority defaulted on the bonds. Id. Central Bank was sued for its acquiescence as an aider and abettor of the primary violators, who included the authority and the underwriters. Id. In reversing the Court of Appeals, the Supreme Court analyzed the text and legislative history of the Securities and Exchange Act and determined that only primary violators of the Act could be held liable for fraudulent acts or misleading statements or omissions. The statute itself provided for no secondary aider and abettor liability. Each of the seventeen “outside” defendants defined above as “business partners” and “third party vendors” has asserted that even if all allegations concerning their participation in Homestore’s fraudulent acts are true, which for purposes of this motion this Court must assume, they cannot be held liable because their actions constitute mere “aiding and abetting.” 3. Liability of the Auditor Pricewater-house Coopers A plaintiff alleging a violation of Section 10(b) and Rule 10b-5 against an independent auditor such as PWC must satisfy the requirements of the PSLRA by alleging with specificity that “the accounting practices were so deficient that the audit amounted to no audit at all, or an egregious refusal to see the obvious, or to investigate the doubtful, or that the accounting judgments which were made were such that no reasonable accountant would have made the same decisions if confronted with the same facts.” DSAM Global, 288 F.3d at 390; citing In re Worlds of Wonder Secs. Litig., 35 F.3d 1407, 1426-27 (9th Cir.1994). ANALYSIS In determining the sufficiency of the FACC, the Court applies the above-stated legal standards to the facts alleged as to each defendant. For the insider defendants, the Court simply ascertains whether the pleading requirements of the PSLRA have been met. As for the business partner and third party vendor defendants, the Court holds that the Supreme Court’s decision in Central Bank precludes liability from being asserted against these aiding and abetting defendants as a matter of law. Therefore, no analysis of sufficiency of the Complaint is required. Finally, the Court determines whether the FACC alleges sufficient facts as to PWC in light of the PSLRA and the case law setting the standards for auditor liability. A. The Insider Defendants The Court must determine whether the facts alleged as to each of the insider defendants raises the required “strong inference” of intentional misconduct or “deliberate recklessness” as to the relevant false or misleading statements, acts, or scheme. In re Silicon Graphics, 183 F.3d at 974; No. 84 Employer-Teamster v. America West, 320 F.3d at 937. From the outset, two legal issues must be resolved. First, the Court must address plaintiffs allegations regarding the insider defendants’ stock sales. Second, the Court addresses plaintiffs reliance on the “group published” doctrine in its attempt to assign many of the inside defendants. In support of its allegations of scienter, plaintiff claims that each of the inside defendants’ sales of Homestore stock were unusual or suspicious and constituted insider trading. Unusual or suspicious stock sales may be circumstantial evidence of scienter, but only when the sales are “dramatically out of line with prior trading practices at times calculated to maximize the personal benefit from undisclosed inside information.” In re Apple Computer Secs. Litig., 886 F.2d 1109, 1117 (9th Cir.1989). A non-exclusive list of factors to consider includes: 1) the amount and percentage of shares sold by the insider, 2) the timing of the shares, and 3) whether the sales were consistent with the insider’s prior trading history. Silicon Graphics, 183 F.3d. at 986. In this case, two trading restrictions affected these factors. First, there was a 180-day window after the IPO of Home-store.com during which insiders were not allowed to sell shares. Second, the insiders had a 30-day (approximate) window in which to sell shares each quarter. This window began 3 days after each quarterly filing and ended 30 days prior to the start of the next quarter. The Court finds that none of the stock sales histories of any of the insider defendants is properly pled to support an inference of scienter. First, plaintiff does not provide the percentage of holdings sold in each of the transactions. The Court finds this to be a key piece of information in deciding whether stock sales support' an inference of deliberate recklessness as to any fraudulent statement, act, or scheme. Second, the timing of the sales is not suspicious. The insider defendants were restricted to a specific trading window during which they could sell stock — that window occurs after the release of public financial statements. This restriction is presumably in place in order to keep insiders from dumping their stock just prior to the release of adverse information. The trading window also explains why the insider defendants had common trading days. The timing is simply not suspicious. Third, there is no showing that sales made within the class period were' somehow inconsistent with the insiders’ trading histories. In many cases, no trading history was available, since the insiders were restricted from trading within the 180 days after the company went public. Because the Court finds that none of the insiders’ stock sales were unusual or suspicious, these allegations will not be considered in the individual analyses below. Next, the Court analyzes the viability of the “group published doctrine” after the enactment of the PSLRA. Prior to the enactment of the Reform Act, this doctrine allowed for a presumption that false and misleading information conveyed in documents, including press releases, are made by the collective action of the officers of a corporation. In re GlenFed, Inc., 60 F.3d 591, 593 (9th Cir.1995). Yet even then, the doctrine applied only to defendants who either “participated in the day-to-day corporate activities or had a special relationship with the corporation, such as participation in preparing and communicating group information at particular times.” Id. Since the enactment of the PSLRA, district courts in this circuit have struggled with the doctrine’s continued viability in light of the PSLRA’s stringent pleading requirement regarding scienter. Of the courts that have heard the issue, some have continued to recognize the continued viability of the group published doctrine despite the enactment of the PSLRA. In re Secure Computing Corp. Secs. Litig., 120 F.Supp.2d 810, 821-22 (N.D.Cal.2000) (applying doctrine to officers and members of executive committee after enactment of PSLRA); In re Stratosphere Corp. Sec. Litig., 1 F.Supp.2d 1096, 1108 (D.Nev.1998) (holding that PSLRA did not abolish doctrine, and applying it to those with high level positions within a company); but see Allison v. Brooktree Corp., 999 F.Supp. 1342, 1350 (C.D.Cal.1998) (doctrine’s continued vitality suspect where the PSLRA refers specifically to pleading specific facts as to the misleading statements of the defendant, not a group of defendants, and where it is not reasonable to presume that in every case every officer joined in the scheme to fraud investors). For purposes of the present case, this Court holds that, at a minimum, plaintiffs must explain the nature of the misrepresentation in the published statement, and establish that the defendants were involved in the day-to-day management of those parts of the corporation involved in the alleged fraud. Pegasus Holdings v. Veterinary Ctrs. of America, Inc., 38 F.Supp.2d 1158, 1166 (C.D.Cal.1998). Furthermore, “with regard to allegations concerning the liability of the individual defendants for ‘group published’ information, plaintiffs must indicate the statements that they contend fall under the doctrine.” In re Autodesk, Inc. Secs. Litig., 132 F.Supp.2d 833, 846 (N.D.Cal.2000). 1. Homestore.com and Peter Tafeen The Court simply notes that defendants Homestore.com and its former Executive Vice President of Business Development and Sales Peter Tafeen have opted to answer the complaint rather than file motions to dismiss. 2. Stuart Wolff Defendant Wolff moves to dismiss the FACC on the ground that the facts alleged as to him do not establish deliberate recklessness as to any of Homestore’s fraud. Mr. Wolff primarily argues 1) that the FACC does not support a strong inference that he knew of improper accounting; 2) that allegations regarding his stock sales do not support a strong inference of scienter; and 3) that his statements of general corporate optimism and forward looking statements are immaterial and/or insufficient to state a claim. The Court disagrees, and finds that the factual allegations in the FACC, when considered cumulatively and in context, are sufficient to support a “strong inference” of deliberate recklessness. First, the Complaint provides important background information giving insight into defendant Wolffs state of mind. Wolff was the CEO, Chairman and co-founder of Homestore. Plaintiff alleges that he was a controlling manager with a hands-on managerial style, and thus was in a position to know how revenue was being recognized. FACC ¶ 437. He was obsessed with the “revenue growth rates” at the company, and set unrealistically high revenue targets each quarter because he wanted to compete with major internet companies. FACC ¶¶ 328, 439, 585, 601. Plaintiff alleges that Wolffs obsession with hitting revenue targets, combined with his concern for selling his own stock, set the stage for the illegal revenue recognition that eventually took place. FACC ¶ 578. These allegations, standing alone, support no inference of deliberate recklessness. However, they provide important background information by which to assess other alleged facts. Plaintiff also alleges that defendant Wolff received and understood internal reports that document the fraud. Specifically, plaintiff alleges that Wolff received and understood the periodic “Risk and Opportunity” (“R & 0”) schedules circulated to senior management. FACC ¶ 328 and Ex. E. The purpose of these schedules was to evaluate the quality of anticipated revenues for the quarter, and to determine what the shortfall would be for hitting the quarterly revenue targets. Id. Plaintiff alleges that senior management understood that “good quality” revenues frequently would not materialize, and that the company would have to scramble in the last few days of the quarter to make the “plug” or “bogie.” Id. Additionally, separate schedules were created to assess the costs involved in the triangular deal done with AOL in the first quarter of FYE 2001. FACC ¶ 348. Wolff himself presented a schedule depicting the triangular nature of the AOL deals. Id. All those who received these schedules also understood that they depicted the cost of “buying revenue,” as detailed in line items such as “SAG carry-over costs,” and knew that these amounts would not be coming back to Homestore because of the commission taken by AOL. FACC ¶ 338, 348. Next, plaintiff alleges that Wolff was intimately involved with statements to analysts, investors, and the public. FACC ¶ 437. For example, in conjunction with an October 19, 2000, press release, defendant Wolff was quoted as saying, “This quarter we joined an elite group of Internet companies that have achieved cash profitability,” touting the company’s past successes. FACC ¶ 214. This statement is neither forward looking, nor mere “puf-fery.” This is a definitive statement about a specific aspect of the company’s financial health, and was made while Mr. Wolff was in possession of non-public information that would prove his statements false. That knowledge is proven by Mr. Wolff’s possession and understanding of the R & O sheets and the end of the quarter deals that were made simply to meet or beat the revenue targets. Plaintiff alleges that Wolff was also obsessed with increasing the value of Home-store common stock in order to sell his own personal holdings at the highest possible value. FACC ¶ 444. Wolff also apparently instructed other Homestore insiders as to volume and timing of stock sales so as not to alarm Wall Street. FACC ¶¶ 456, 458, 469, 511, 518. He personally sold 693,600 shares for proceeds of $13,763,389.75. FACC ¶429. While the sales of stock themselves do not support an inference of scienter as “dramatically out of line” with- his prior trading history, In re Apple Computer, 886 F.2d at 1117, the fact that he instructed others in how to sell off holdings without raising suspicions, a fact this Court must accept as true, supports an inference that Mr. Wolff was trading on non-public information, yet trying to avoid detection. This fact goes directly to defendant Wolffs culpable state of mind and supports a finding of scienter. Wolff was involved in the negotiation and orchestration of many of Homestore’s illicit revenue transactions. Specifically, plaintiff alleges that Wolff knew of the improprieties of the triangular transactions with AOL, and knew that Homestore did not document the “hidden” third leg of these transactions in which third party vendors purchased Homestore advertising from AOL. FACC ¶335. Again, Wolff attended meetings in which accounting schedules were circulated that clearly depicted the cost of the triangular deals. FACC ¶ 338. Wolff told Shew that he did not like the AOL deals, but rationalized them as a one-time occurrence that would be covered up by the potential AOL merger or an upswing in the economy. FACC ¶ 344. Perhaps the most revealing allegations tending to show defendant Wolffs scienter are those of the “pre-meeting” at the Cal Amigos Ranch Retreat, which took place on May 7, 2001. FACC ¶ 349. The FACC describes a meeting that included Wolff, Tafeen, Shew and Giesecke, the entire focus of which was how to buy revenues. The current R & O schedule was discussed, which depicted an impending revenue shortfall of $40-50 million. FACC ¶ 350. Wolff and Tafeen both asked if there were any other sources of “good revenues.” Id. Tafeen suggested that they try another Cendant or AOL barter deal. Id. At one point, Wolff wondered out loud: “where do we get the revenue?” Id. While brainstorming about how to come up with the “plug,” Shew explained to everyone that as a result of “raising the guidance” and the fact that only net revenues could be booked, a much larger amount would be needed. FACC ¶ 351. The four discussed a deal with Cendant, and while both Shew and Giesecke acknowledged that a Cen-dant deal could happen, they reiterated that the “back end” could not be documented. FACC ¶351. Thus, this small group of executives plotted a scheme to create revenues to make the target, and discussed how to manipulate the documentation in order to avoid detection by PWC. The description of this pre-meeting leaves little room for interpretation. The Court finds that the very detailed allegations concerning this meeting raise a strong inference of at least deliberate recklessness regarding a scheme to defraud Home-store’s shareholders and the investing public. Plaintiff has alleged thát it was explained to Wolff in no uncertain terms that certain aspects of' certain transactions could not be disclosed to Homestore’s own auditor. The FACC thereby alleges sufficiently specific facts that tend to support a strong inference of intentional misconduct or at the very'least deliberate recklessness. The Court also notes that defendant Wolff signed each and every one of the SEC-mandated financial reports on behalf of Homestore. FACC ¶ 437. Wolff tries to argue that this doesn’t mean that he understood what he was signing or that he in any meaningful way participated in their fraudulent nature or content. The Court finds this argument hard to accept in the context of the other allegations contained in the Complaint. “Key corporate officers should not be allowed to make important false statements knowingly or recklessly, yet still shield themselves from liability to investors simply by failing to be involved in the preparation of those statements.” Howard v. Everex, 228 F.3d 1057, 1062 (9th Cir.2000). While a signature alone may not be.enough to establish liability, the signing of Homestore’s filing does establish that Mr. Wolff made “statements” within the meaning of the act and the rule. Plaintiff has independently alleged Wolffs scienter as to the falsity or misleading nature of those statements. Even in the face of these specific factual allegations, Mr. Wolff claims that nothing in the complaint alleges that he knew that improper accounting was going on. Mot. at 7. Even if “actual knowledge” were the standard instead of “deliberate recklessness,” this claim of innocence falls flat. Lest there be any doubt as to the sufficiency of allegations about Mr. Wolffs scienter as to accounting practices, the Court cites at length from paragraph 359 of the Complaint: 359. On June 29, 2001, the last day of the second quarter, AOL had yet to receive confirming letters from a number of the third party vendors about placing the required advertising. AOL was taking the position that it could not agree to pay Homestore until the letters were received .... Ripp called back late in the evening on the 29th, and Wolff gathered Shew for the call who then told Giesecke that AOL was on the line and that AOL had not yet authorized most of the deal. Wolff, Tafeen and Shew got on the line and at some point Giesecke came in as well ... DeSimone, Kalina and Tafeen put a schedule together for Wolff so that he could address the details of the deal. Wolff emphasized that the deal had been agreed to long ago by Keller, and he threatened litigation. Ripp and Rindner said that Keller was gone, but never denied Keller’s authority to do the deal or that he had done the deal. Wolff responded that Keller was the authorized agent acting for AOL when he cut the deal, and suggested if there was any doubt about it, they should get Keller on the line. Tafeen said he had just talked to him and knew how to get a hold of him, but the AOL representatives declined the offer. There was a discussion about the size of the deal, the revenue recognition problems from AOL’s end, and whether the Homestyles deal should be included. Shew then addressed the fact that he had already confirmed that money had already gone to certain of the third party vendors and AOL had received the payments for the advertising. The manner in which Shew explained how the money flowed left no doubt about the “round trip” nature of the subject transaction, and neither Rindner nor Ripp denied knowledge of the structure as described by Shew. Essentially, Shew told Rindner and Ripp in no uncertain terms that Homestore had fronted the money to the third party vendors in order to solve AOL’s revenue recognition issues, that Homestore knew AOL had received the money, and based on the way the deal was structured, AOL had no reason not to pay Home-store and complete the deal. 360. AOL sent in their confirmation of the deal that evening after the call ... If Wolff didn’t already understand the nature of the deals, he had it explained to him “in no uncertain terms” during the June 29, 2001, telephone conference call. Plaintiff makes numerous other allegations regarding Mr. Wolff that the Court will not detail here. The facts outlined above are sufficient to satisfy the stringent pleading requirements of the PSLRA. Relying on background contextual information, internal reports at Homestore, public statements made by Wolff, his personal involvement in deals that were later restated, as well as specific, detailed allegations regarding personal behind-the-scenes conversations, the plaintiff adequately puts forth facts that give rise to a strong inference of deliberate recklessness, if not intentional misconduct, on the part of defendant Wolff. In addition, because the plaintiff has alleged a primary violation of § 10(b), and because Mr. Wolff was a “control person” within the meaning of § 20(a), plaintiff has stated a claim under § 20(a). Wolffs- motion to dismiss is therefore DENIED. 3. David Rosenblatt Defendant Rosenblatt moves to dismiss the FACC on the ground that the facts alleged as to -him do not establish deliberate recklessness as to any of Home-store’s fraud. Mr. Rosenblatt principally argues that the FACC does not attribute any of the.false or misleading statements to him, that the FACC does not allege sufficient facts establishing his knowledge of improper accounting practices, and that scienter cannot be inferred simply from his position within the company and his stock sales. The Court agrees, and the Complaint as to David Rosenblatt is DISMISSED WITHOUT PREJUDICE. Plaintiffs allegations as to Mr. Rosen-blatt are very thin and all too often conclu-sory. Plaintiff first relies on Mr. Rosen-blatt’s position as General Counsel of Homestore, stating that as such, he “played a key role in drafting and/or approving Homestore’s public filings and was instrumental in developing and implementing the revenue deals which are the subject of the complaint.” FACC ¶ 39. This statement itself is non-specific, and never appears to have been properly corroborated in the other allegations in the complaint. Plaintiff also alleges that Rosenblatt “executed his ‘own deals.’ ” FACC ¶ 462. Yet the only “deals” that are tied directly to Rosenblatt are the “Marriott” and “Champion Enterprises” deals, FACC ¶¶ 462, 463, neither of which is alleged to have been improper. All other allegations as to Mr. Rosen-blatt are similarly conclusory or non-specific — that he “was aware of and participated in the scheme to defraud,” FACC ¶ 459, that he “participated in the negotiations- and documentation of Homestore’s transactions,” FACC ¶460, and that he “had an opportunity to see all legs of the transactions and knew that they were bogus.” Id. Without more, these allegations do not achieve the requisite level of specificity as to the alleged wrongdoing. Plaintiffs rebanee on the group published doctrine with respect to Rosenblatt does not save it. Plaintiff has not pled with any specificity the nature of Mr. Ro-senblatt’s “participation in day-to-day activities” or that he had the requisite special relationship with the company. Being close to Tafeen and Wolff simply is not enough. Furthermore, plaintiff has not indicated which deceptive or misleading statements or acts fall within the doctrine. Taken on the whole and in context, the allegations contained in the FACC are insufficient to establish the “strong inference” of deliberate recklessness as to any statement, act or scheme on Rosenblatt’s part. Likewise, because no primary violation has been shown, and because plaintiff did not state in the FACC the primary violators over which Rosenblatt had “control,” the FACC is insufficient to establish a claim for control person Lability under § 20(a). Nevertheless, - the Court finds that the most prudent course of action is to allow leave to amend, as the allegations against Mr. Rosenblatt, if properly supported in sufficient detail, would state a claim upon which relief could be granted. Eminence Capital v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th Cir.2003) (dismissal without leave to amend not appropriate unless clear that pleading could not be saved by amendment). Therefore, the FACC is DISMISSED WITHOUT PREJUDICE as to defendant Rosenblatt. 4. Allan Merrill Defendant Allan Merrill moves to dismiss the Complaint on the ground that it does not plead sufficient factual allegations to support the required “strong inference” of deliberate recklessness of a false or misleading statement, act or scheme. The Court agrees, and the FACC is DISMISSED WITHOUT PREJUDICE as to him. Plaintiffs allegations of securities fraud as to Mr. Merrill basically come down to his participation in one transaction involving the acquisition of “Homestyles.” According to plaintiffs sources, Merrill was the “architect” of the $23 million deal. FACC ¶ 474. Plaintiff alleges that the deal was presented to Homestore’s board of directors as a $15 million deal, but was later recorded in the minutes as a $23 million deal. Id. Plaintiffs sources believe that the board minutes were forged and that the remaining $8 million was used as part of a round trip transaction with AOL. Id. But plaintiff does not provide any corroborating details in support of this belief. Furthermore, there are no allegations to support the inference that Merrill acted with scienter when he negotiated and orchestrated the Homestyles deal. All other allegations made as to Merrill do not tend to support an inference of deliberate recklessness, and often support the contrary inference. The Court first notes that Merrill only became a Home-store insider at the tail end of the Class Period, and is still an officer of Homestore. Next, plaintiffs allegations regarding the L90 triangular deal do not support a strong inference of scienter. Merrill was apparently peripherally involved in what appears to be an attempt at extortion by Mark Roah' of L90. FACC ¶¶ 389-97. Roah allegedly tried to get Homestore to pay him $50-100,000 to provide confirmation of the deal consummated during the second and third quarters of FYE 2001. FACC ¶¶ 395-96. “Merrill told Shew that Homestore would not pay.” FACC ¶ 395. If anything, this shows Merrill attempting to follow securities laws, not break them. Other allegations regarding: 1) Merrill’s role in the preparation and filing of Home-store’s third quarter FYE 2001 financial statement, 2) Merrill’s role in the “spin” on the company’s downfall, and 3) Merrill’s inability to formulate a response to an audit committee member’s question about Homestore’s accounting practices, all fail either for lack of specificity or because they simply do not support an inference of deliberate recklessness with respect to any allegedly false or misleading statement, act or scheme. Plaintiffs reliance on the group published doctrine does not save its claims against Mr. Merrill. To begin with, Mr. Merrill could not possibly have been involved in the day-to-day affairs of the company for the vast majority of the class period, as he was not even an officer of the company. Further, plaintiff has not shown what statements or acts it asserts fall under the doctrine. Taken as a whole and in the context of the entire complaint, the allegations stated in the FACC are not sufficient as to defendant Merrill. Likewise, because plaintiff has not succe