Full opinion text
OPINION AND ORDER REGARDING DEFENDANTS’ MOTIONS TO DISMISS ROSEN, District Judge. I. INTRODUCTION The above-captioned securities fraud action is a consolidation of several complaints filed as putative class actions against five senior executive officers (the “Individual Defendants”) of Kmart Corporation and Kmart’s outside auditiors, Pri-cewaterhouseCoopers LLP. The case is presently before the Court on five separate Motions to Dismiss filed by the Defendants as their initial responsive pleadings. Plaintiffs have responded to the Defendants’ Motions to which response Defendants have replied. The Court also ordered supplemental briefing following the hearing held on this matter on July 10, 2003 and the parties filed Supplemental Briefs in accordance therewith. Having reviewed and considered the parties’ briefs and the applicable law, and having heard the oral arguments of counsel on July 10, 2003, the Court is now prepared to rule on this matter. This Opinion and Order sets forth the Court’s ruling. II. FACTUAL BACKGROUND PROCEDURAL HISTORY On February 21, 2002, D.E. & J Limited Partnership initiated this securities fraud action on behalf of a class consisting of persons and entities who purchased securities of Kmart Corporation between March 13, 2001 and May 15, 2002. In accordance with the Private Securities Litigation Reform Act, 15 U.S.C. § 78u-4, et seq. (the “PSLRA”), D.E. & J subsequently published notice of the potential class action and pursuant thereto, within six months of the filing of D.E. & J’s initial Complaint, a number of parties moved to intervene and requested to be named lead plaintiffs in the action. Four additional separate complaints were also filed on behalf of several other Kmart shareholders and bondholders. On August 22, 2002, the Court entered an Order consolidating the five separately-filed cases and directed the filing of an amended consolidated complaint. The parties thereafter stipulated to Plaintiffs’ amendment of the Amended Consolidated Complaint and, pursuant to that stipulation, on November 1, 2002, Plaintiffs filed their “Corrected Consolidated Amended Complaint.”. In lieu of an answer, the various Defendants filed separate Motions to Dismiss. Pre-hearing briefing on Defendants’ Motions continued through mid-June 2003. THE PARTIES Proposed Lead Class Plaintiffs, Ascend Capital, LLC, Ronald and Kathleen Bergh, and Frederick Dominikus collectively purchased 1,149,400 shares of Kmart stock between May 17, 2001 and January 22, 2002 (the “Class Period”) and suffered approximately $2,943,503.00 in losses. Kmart is a discount retailer based in Troy, Michigan. Kmart stores are located in all 50 of the United States, Puerto Rico, the United States Virgin Islands and Guam. On January 22, 2002, Kmart announced that it had filed for Chapter 11 bankruptcy protection. Defendant Charles Conaway served as Kmart’s Chairman and Chief Executive Officer (“CEO”) from May 2000 until his resignation in March 2002. Defendant Jeffrey Boyer served as the Company’s Chief Financial Officer (“CFO”) for approximately six months, from May 8, 2001 until November 9, 2001. Boyer was preceded by Defendant Martin Welch who served as the Company’s CFO until his resignation in May 2001. (Prior to assuming the CFO position, Boyer served as an Executive Vice President of the Company.) Defendant Mark Schwartz served as Kmart’s President and Chief Operating Officer (“COO”) from March 14, 2001 until November 9, 2001. Prior to that time, from September 2000 until March 2001, Schwartz served as Executive Vice-President, Store Operations. Defendant Matthew Hilzinger served as Kmart’s Vice President and Controller until his resignation in July 2001. Defendants Conaway, Boyer, Welch, Schwartz and Hilzinger are referred to collectively herein as the “Individual Defendants.” Defendant PrieewaterhouseCoopers LLP (“PwC”) is a worldwide firm of certified public accountants, auditors and consultants that provides a variety of accounting, auditing and consulting services. PwC, through its Detroit office, served as Kmart’s auditor and principal accounting firm prior to and throughout the Class Period. THE CONSOLIDATED COMPLAINT ALLEGATIONS OF FRAUD Plaintiffs allege that from March 2001 to May 2002, Kmart and certain of its officers made a series of false or misleading public statements and press releases about the Company’s financial performance. (See Compl., ¶¶ 47, 50-53, 56-58, 59-63, 66-72, 74.) Specifically, Plaintiffs allege throughout the Class Period, Kmart and the Individual Defendants represented through press releases that Kmart was experiencing a turnaround as it was improving its operations, maintaining and/or improving its gross margins and positioning the Company to better compete with Wal-Mart and Target. Plaintiffs allege, however, that these representations failed to disclose the following “adverse factors” affecting Kmart during the this period of time: 1. Vendor Rebates. (CompLIffl 33-35). Plaintiffs allege that prior to and throughout the Class Period, Kmart was utilizing an estimation process for the reporting of vendor rebates. Kmart reported vendor rebates as a reduction of expenses in its interim financial statements based on an estimated amount of sales that it expected to achieve by the end of the year. Kmart was recognizing these rebates without a written commitment from the vendor and prior to actually earning the rebate. Plaintiffs further allege that the Company was setting aggressive, unattainable sales forecasts and used these unattainable projections in making its rebate estimates, thereby causing the Company to recognize increased levels of rebates which it was not assured of receiving. 2. Supply Chain Management Problems. (Complin 36-41). Plaintiffs allege that Kmart was having problems tracking and monitoring its inventory and lacked the systems and internal controls to do so. 3. Problematic Relationship with Vendors. (ComplJI 42-43). Plaintiffs allege that both prior to and during the Class Period, Kmart was very aggressive in dealing with vendors, regularly charging them (which amounted to a deduction on an invoice of monies owed by Kmart) for even the slightest failure to comply with Kmart’s delivery policies, which created the risk that vendors would curtail their business with the Company. 4. Failure of the “Bluelight Always” Marketing Campaign. (Compl.1ffl 44-46). Kmart expanded its “Bluelight Special” marketing program to “Blue-light Always” in the summer of 2001 by cutting prices in an attempt to enable it to compete with Wal-Mart and Target. The strategy was unsuccessful as Wal-Mart and Target responded by cutting its own prices and Kmart was unable to respond accordingly. As a result, customer traffic did not increase and inventory began to build up. Further, the price cuts that Kmart implemented in connection with the campaign significantly decreased the Company’s gross margins. In addition to these alleged omissions, Plaintiffs claim that Kmart issued false and misleading financial statements during the Class Period. (See Compl., ¶¶ 48, 54, 64, 73, 100, 139). Specifically, Plaintiffs claim that Kmart’s fiscal year 2000 annual, and fiscal year 2001 quarterly and annual financial statements were false or misleading in the following respects: • Kmart estimated vendor rebates to be received at year-end and recorded those estimates during the interim periods, allegedly in violation of GAAP (Generally Accepted Accounting Principles). (See Compl., ¶¶ 99-116). Plaintiffs allege that this practice impacted on Kmart’s interim (quarterly) financial statements (but not its annual financial statements). • The Company allegedly failed to disclose Kmart’s policy of estimating and recording vendor rebates during interim periods, and misrepresented the reason for Kmart’s change in this policy in the fourth fiscal quarter of 2001, which impacted on the Company’s 2001 annual financial statements. (Compl., ¶¶ 117-122). • Kmart allegedly failed to disclose certain retention loans made to key Kmart executives during 2001. (Compl., ¶¶ 123-25). • The Company failed to write down inventory. (Compl., ¶¶ 126-34). • Kmart failed to record a $167 million loss contingency in the second quarter of 2001, impacting on the Company’s interim financial statements for the second fiscal quarter 2001. (Compl., ¶ 139.) Plaintiffs allege that, because of the Individual Defendants’ positions within the Company, they had access to the adverse undisclosed information about Kmart’s business, and that as officers and controlling persons of a publicly-held company whose common stock was and is registered with the SEC, was traded on the New York Stock Exchange, and is governed by federal securities laws, the Individual Defendants had a duty to disseminate promptly accurate and truthful information with respect to the Company’s financial condition and performance, and to correct any previously-issued statements that had become misleading or untrue. Plaintiffs further allege that because of their Board membership and/or executive and managerial positions with Kmart, the Individual Defendants necessarily participated in the drafting, preparation and/or approval of the complained of press releases and reports, and were aware of, or recklessly disregarded, the misstatements and omissions therein, and were aware, of their materially false and misleading nature. Plaintiffs also allege that PwC was required to audit Kmart’s financial statements in accordance with Generally Accepting Auditing Standards, and that with knowledge of Kmart’s true financial condition and grossly inadequate financial controls, or in reckless disregard thereof, PwC certified the false and misleading financial statements of Kmart and provided an unqualified Independent Auditor’s Report on those financial statements which were included in various of the Company’s SEC filings and public disseminations. III. DISCUSSION A. STANDARDS APPLICABLE TO DEFENDANTS’ MOTIONS TO DISMISS In their Corrected Consolidated Amended Complaint, Plaintiffs allege two substantive claims. In their First Claim, Plaintiffs charge that the Defendants (collectively) violated § 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5. In their Second Claim, Plaintiffs allege that Defendants are hable pursuant to § 20(a) of the Exchange Act 15 U.S.C. § 78t(a). As indicated above, in lieu of an answer, Defendants filed Motions to Dismiss Plaintiffs’ claims pursuant to Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure. Defendants’ Motions require the Court not only to apply the pleading requirements of the Federal Rules of Civil Procedure, but also the Court must interpret and apply the provisions of the Private Securities Litigation Reform Act of 1995. As the Sixth Circuit observed in Helwig v. Vencor, Inc., 251 F.3d 540 (6th Cir.2001), [A private litigant’s securities fraud] complaint reflects the tension between the liberal requirements of notice pleading, See Miller v. American Heavy Lift Shipping, 231 F.3d 242, 248 (6th Cir.2000) (“This fundamental tenor of the Rules is one of liberality rather than technicality, and it creates an important context within which we decide cases under the modern Federal Rules of Civil Procedure”), and concern about “strike suits” aimed at jackpot discovery and predatory settlement, see Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 741, 95 S.Ct. 1917, 44 L.Ed.2d 539 (1975) (noting thát the discovery process in securities litigation “permits a plaintiff with a largely groundless claim to simply take up the time of a number of other people, with the right to do so representing an in terrorem increment of the settlement value, rather than a reasonably founded hope that the process will reveal relevant evidence.”). 251 F.3d at 547. In 1995, Congress attempted to resolve this tension by implementing “procedural protections to discourage frivolous litigation.” Id., quoting H.R. Conf. Rep. No. 104-369 at 32 (1995), U.S.Code Cong. & Admin. News at 730, 731. The resulting law, the Private Securities Litigation Reform Act of 1995 (the “PSLRA”) heightened the pleading standard for securities fraud. The PSLRA provides, in pertinent part, as follows: (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 statement 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)(l), (2) (emphasis added). The Act further requires dismissal of any action which fails to meet any of the above statutory pleading requirements: In any private action arising under this chapter, the court shall, on the motion of any defendant, dismiss the complaint if the requirements of paragraphs (1) and (2) are not met. 15 U.S.C. § 78u-4(b)(3) (emphasis added). As the Sixth Circuit explained in Helwig, supra, to a large extent, the standards applicable to Rule 12(b)(6) motions to dismiss remain unchanged. 251 F.3d at 553. Accordingly, the court “must construe the complaint in a light most favorable to the plaintiff,” id., (quoting Bloch v. Ribar, 156 F.3d 673, 677 (6th Cir.1998)), and accept as true “well pleaded facts” set forth therein. Comshare, supra, 183 F.3d at 547 (quoting Morgan v. Church’s Fried Chicken, 829 F.2d 10, 12 (6th Cir.1987)). While the Hehuig court noted the continued viability of the foregoing Rule 12(b)(6) standards in the aftermath of the PSLRA, the court made clear that securities fraud complaints are subject to a more stringent 12(b)(6) scrutiny: [T]he Reform Act did not reverse the polarity of securities pleading. As always under Rule 12(b)(6), we will indulge plaintiffs’ inferences of fraud— provided, of course, those inferences leave little room for doubt as to misconduct .... Inferences must be reasonable and strong — but not irrefutable. “Strong inferences” nonetheless involve deductive reasoning; their strength depends on how closely a conclusion of misconduct follows from a plaintiffs proposition of fact. Plaintiffs need not foreclose all other characterizations of fact, as the task of weighing contrary accounts is reserved for the fact finder. Rather the “strong inference” requirement means that plaintiffs are entitled only to the most plausible of competing inferences.... This represents a significant strengthening of the pre-PSLRA standard under Rule 12(b)(6), which gave the plaintiff the benefit of all reasonable inferences,” Cameron v. Seitz, 38 F.3d 264, 270 (6th Cir.1994) (emphasis added), and contemplated dismissal “only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations.” Bloch, 156 F.3d at 677 (emphasis added) (quoting Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984)). Helwig, supra, 251 F.3d at 553 (emphasis added). The Court will apply the foregoing standards, in deciding Defendants’ Motions to Dismiss in this case. B. PLAINTIFFS’ SECTION 10(b)/ RULE 10b-5 CLAIM To state a Section 10(b)/Rule 10b-5 claim, “a plaintiff must allege, in connection with the purchase or sale of securities, the misstatement or omission of a material fact, made with scienter, upon which the plaintiff justifiably relied and which proximately caused the plaintiff’s injury.” See, In re Comshare, supra, 183 F.3d at 548. See also, 15 U.S.C. § 78j(b); 17 C.F.R. § 240.10b-5. I. PLAINTIFFS MAY NOT “GROUP PLEAD” THEIR ALLEGATIONS OF SECURITIES FRAUD In Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N. A., 511 U.S. 164, 114 S.Ct. 1439, 128 L.Ed.2d 119 (1994), the Supreme Court held that a defendant in a civil suit under § 10(b) and Rule 10b-5 cannot be held liable for “aiding and abetting” the misleading statements or omissions of others. 511 U.S. at 183-84, 114 S.Ct. 1439. Instead, a defendant can only be held liable under Section 10(b) and Rule 10b-5 for the false or misleading statements that he actually makes. Wright v. Ernst & Young, LLP, 152 F.3d 169, 175 (2nd Cir.1998), cert. denied, 525 U.S. 1104, 119 S.Ct. 870, 142 L.Ed.2d 772 (1999) (“actor cannot incur primary liability under the Act for a statement not attributed to that actor at the time of its dissemination”). As the Second Circuit explained in Shapiro v. Cantor, 123 F.3d 717 (2nd Cir.1997), “If Central Bank is to have any real meaning, a defendant must actually make a false or misleading statement in order to be held hable under Section 10(b). Anything short of such conduct is merely aiding and abetting, and no matter how substantial that aid may be, it is not enough to trigger liability under Section 10(b).” Id. at 720. Thus, to state a claim against a particular defendant under Section 10(b)/Rule 10b-5, a complaint must identify each allegedly false or misleading statement or omission made by that defendant. Plaintiffs here have “group pled” their 10(b)/Rule 10b-5 claim, attributing all the alleged misrepresentations to all Defendants — the individual corporate officers and the outside auditors — collectively. Not only does such “group pleading” run afoul of Central Bank but also it fails to meet not only Fed.R.Civ.P. 9(b)’s specificity requirements but also the heightened standards for pleading a Section 10(b) violation after passage of the PSLRA. See In re First Union Corp. Sec. Litig., 128 F.Supp.2d 871, 888 (W.D.N.C.2001) (“[G]roup pleading is clearly inconsistent with Rule 9(b)’s express requirements of specificity”); Coates v. Heartland Wireless Comms., Inc. 26 F.Supp.2d 910, 916 (N.D.Tex.1998) (“the PSLRA codifies a ban against group pleading”); Marra v. Tel-Save Holdings, Inc., 1999 WL 317103 at *5 (E.D.Pa.1999) (“[T]he presumption inherent in group pleading is inconsistent with the PSLRA’s purpose”); In re Premiere Technologies Inc. Sec. Litig., 2000 WL 33231639 at *11 (N.D.Ga.2000) (“The group pleading doctrine did not survive the enactment of the PSLRA”). Although the Sixth Circuit has not addressed the issue of whether the group pleading doctrine survived the PSLRA and the courts, nationally, are divided on this issue, this Court agrees with those courts that have found that the. doctrine is at odds with new Act’s plain language and pleading requirements. The PSLRA requires that the untrue statements or omissions be set forth with particularity as to “the defendant” and that scienter be plead in regards to “each act or omission” sufficient to give rise to a strong inference that “the defendant” acted with the required state of mind. Where individual defendants are the target of the fraud allegations, it would be nonsensical to require that a plaintiff specifically allege facts regarding scienter as to each defendant, but to allow him to rely on group pleading in asserting that “the defendant” made the statement or omission. However, even assuming arguendo that the Court were to find that the group pleading doctrine survived the PSLRA, Plaintiffs’ Complaint allegations in this case are insufficient to invoke the doctrine. First, the mere fact that an individual defendant is an officer or director of the corporation is not enough to invoke to group pleading doctrine. Rather, the plaintiff must allege with specificity facts demonstrating a specific defendant’s personal involvement in the preparation of the allegedly misleading statements or direct “operational involvement” with the company; conclusory allegations that the defendant was “involved in the day to day operations” are insufficient. See, e.g., Morse v. McWhorter, supra, 200 F.Supp.2d at 903 (application of group pleading doctrine to corporate officers requires specific allegation that the defendant officers “participated in drafting, reviewing and approving the misleading statements;” disjunctive “and/or” pleading is insufficient. Id. (emphasis in original)); In re Autodesk Inc. Sec. Litig., 132 F.Supp.2d 833, 845 (N.D.Cal.2000) (“For claims against corporate insiders, a plaintiff must allege that the defendants were involved in the preparation of the allegedly misleading statement.”); In re Oak Tech. Sec. Litig., 1997 WL 448168 at *11 (N.D.Cal.1997) (“Since all inside officers in a corporation, by virtue of their positions are involved in daily corporate activities, merely pleading as much is not sufficient to establish their liability under the group pleading exception”); Molinari v. Symantec, 1998 WL 78120 at *11(N.D.Cal.1998) (“In a company as large as [defendant’s], the status of officer or director is not enough in itself to establish involvement in the group “functionally related” to the alleged fraud.”). Here, Plaintiffs allege only boilerplate conclusions that the “Individual Defendants participated in the drafting, preparation and/or approval of the various... reports and other communications” (Compl., ¶ 28), “were able to and did control the content of various... public statements” (id. ¶29), and were “responsible for the accuracy of the public reports and releases” because they were given copies of such documents before or shortly after dissemination and were in positions to “prevent their issuance or cause them to be corrected.” (Id. ¶ 29.) Application of the above-cited authorities establishes that Plaintiffs’ allegations are insufficient to invoke the group pleading doctrine. See e.g., Morse v. McWhorter, supra (alleging that defendants participated in drafting, reviewing and/or approving the misleading statements held insufficient to invoke group pleading). See also, Serabian v. Amoskeag Bank Shares, Inc., 24 F.3d 357, 368 (1st Cir.1994) (alleging only that defendants authorized or acquiesced in press releases held insufficient to establish their liability for the content of the press releases under group pleading doctrine). The group pleading doctrine is also inapplicable to oral communications by a single individual — such statements are not considered to be the product of the group’s “collective action.” See In re Gupta Corp. Sec. Litig., 900 F.Supp. 1217, 1239-40 (N.D.Cal.1994). Most of the statements Plaintiffs allege to be false and misleading are, in fact, quoted statements of one Defendant — Defendant Conaway. Because these statements were made by a specific individual, they cannot be attributed to the other Defendants under the group pleading doctrine. See In re Smar- Talk Teleservices, Inc. Sec. Litig., supra, 124 F.Supp.2d at 545 (“There can be no inference that an oral statement of one officer represents the ‘collective action’ of others”); Picard Chemical Inc. Profit Sharing Plan v. Perrigo Co., supra, 940 F.Supp. at 1128 (“[T]he group pleading presumption does not apply to oral statements made by individual defendants”); Gaylinn v. 3Com Corp., 2000 WL 33598337 at *9 (N.D.Cal.2000) (holding that “nonspeaking defendants” were not liable under the group pleading doctrine where “all of the allegedly false and misleading statements are either oral communications or written quotations of oral communications” of another defendant). Based upon the foregoing, the Court will examine the sufficiency of Plaintiffs’ Complaint with respect to statements Plaintiffs have specifically attributed to particularly-identified Defendants. 2. PLAINTIFFS’ ALLEGATIONS CONCERNING ALLEGEDLY FRAUDULENT STATEMENTS MADE BY THE VARIOUS DEFENDANTS a. Defendant Boyer Plaintiffs’ Complaint allegations regarding Defendants Boyer, Hilzinger, Welch and Schwartz are sparse. As indicated above, Mr. Boyer worked for Kmart for only six months, resigning on November 9, 2001. Plaintiffs’ only allegation concerning Mr. Boyer is that he signed the First and Second Quarter Form 10-Qs which were filed with the SEC. (Compl., ¶¶ 54, 64). In his capacity as Kmart’s CFO, Mr. Boyer was required by the SEC’s rules to sign each 10-Q. Plaintiffs’ Complaint, however, does not allege that any statement in the First Quarter 2001 Form 10-Q was false or misleading. Although the Complaint details numerous statements by Kmart and identifies which are alleged to be false or misleading, nowhere in the Complaint do Plaintiffs allege that the First Quarter 10-Q was false or misleading. Paragraphs 54 and 64 of the Complaint simply identify the First and Second Quarter 10-Qs, respectively, the persons who signed them, and certain statements they contained. Immediately following both of these paragraphs, the Complaint catalogues a total of ten statements made by Kmart and Defendants other than Mr. Boyer that Plaintiffs allege were false and misleading, but conspicuously omits any allegation that either the First or Second Quarter 10-Q was false or misleading. (See Compl., ¶¶ 55, 65.) Further, the Complaint’s text does not allege that Defendant Boyer himself engaged in any action other than signing the First and Second Quarter 10-Qs. In fact, Boyer is mentioned only five times in the 169-paragraph Corrected Amended Consolidated Complaint: (1) to identify him as Kmart’s former CFO and state his dates of employment [Compl., ¶ 21]; (2) to define him and the other individual defendants as the “Individual Defendants” id., ¶ ; (3) to state that he signed the First Quarter 10-Q, id., ¶ 54; (4) to state that he signed the Second Quarter 10-Q, id., ¶ 64; and (5) to state that he resigned on November 9, 2001. Id., ¶ 71. There is no allegation in the Complaint’s text that Defendant Boyer made false statements about Kmart or its financial condition, no allegation that Boyer authorized or received any retention bonuses or that these retention bonuses were paid to anyone while Boyer was employed at Kmart. Nor are there any allegations against Mr. Boyer in the anonymous letters purportedly from Kmart employees referenced in ¶¶ 8 and 9 of the Corrected Amended Consolidated Complaint. However, there is at least one allegation in the March 20, 2002 letter that the financials reported in the second quarter 2001 were “deliberately manipulated and misreported.” [See Exh. A, 3/20/02 letter.] Since Mr. Boyer signed the second quarter 2001 10-Q which contained these finan-cials, the Court finds that Plaintiffs’ Complaint sufficiently alleges that Mr. Boyer made a misrepresentation when he signed the second quarter 2001 10-Q which stated that the financial statements contained therein represented a “fair statement of the results” for the quarter. b. Defendants Hilzinger and Welch As indicated, Defendant Hilzinger signed Kmart’s 10-Q for the First Quarter of 2001 along with Defendant Boyer. As discussed above, Plaintiffs’ Complaint, however, does not allege that any statement in the First Quarter 2001 Form 10-Q was false or misleading. Therefore, no action of securities fraud against Defendant Hilzinger may be predicated upon this Form 10-Q. Defendants Hilzinger and Welch signed Kmart’s 10-K for fiscal year 2000. Plaintiffs allege that this Form 10-K contained the following two false statements: (1) Kmart’s “financial statements reasonably presented our finance position and results of operation,” and (2) “we maintain comprehensive systems of internal controls designed to provide reasonable assurance that assets are safeguarded and transactions are executed in accordance with established procedures.” (Compl., ¶ 49(e)). The excerpted statements in Paragraph 49(e) are excerpts from a statement contained within the 2000 Form 10-K entitled “Management’s Responsibility for Financial Statements.” See Compl., ¶ 48. The statement in full reads as follows: Management is responsible for the preparation of our consolidated financial statements and related information appearing in this annual report. These financial statements have been prepared in conformity with generally accepted accounting principles on a consistent basis applying certain estimates and judgments based upon currently available information and management’s view of current conditions and circumstances. On this basis, we believe that these financial statements reasonably present our financial position and results of operations. To fulfill our responsibility, we maintain comprehensive systems of internal controls designed to provide reasonable assurance that assets are safeguarded and transactions are executed in accordance with established procedures. The concept of reasonable assurance is based upon a recognition that the cost of the controls should not exceed the benefit derived. We believe our systems of internal controls provide this reasonable assurance. We have adopted a code of conduct to guide our management in the continued observance of high ethical standards of honesty, integrity, and fairness in the conduct of the business and in accordance with the law. Compliance with the guidelines and standards is periodically reviewed and is acknowledged in writing by all management associates. Our Board of Directors have [sic] an Audit Committee, consisting solely of outside directors. The duties of the Committee include keeping informed of the financial condition of Kmart and reviewing our financial policies and procedures, our internal accounting controls, and the objectivity of our financial reporting. Both our independent accountants and the internal auditors have free access to the Audit Committee and meet with the Committee periodically, with and without management present. Complaint, ¶ 48. The full text makes clear that the statements which Plaintiffs contend are false are statements of opinion. (“We believe that these financial statements reasonably present our financial position and results of operations”; “we maintain comprehensive systems of internal controls [which] we believe provide ... reasonable assurance [that asset are safeguarded and transactions are executed in accordance with established procedures].”) It is well-settled that opinions such as these provide a basis for liability only under very limited circumstances. Material statements which contain the speaker’s opinion are actionable under Section 10(b) only if the speaker does not believe the opinion and the opinion is not factually well-grounded. See Helwig, supra, 251 F.3d at 561; Mayer v. Mylod, 988 F.2d 635, 639 (6th Cir.1993). See also, Eisenberg v. Gagnon, 766 F.2d 770, 776 (3rd Cir.1985), cert. denied, 474 U.S. 946, 106 S.Ct. 342, 88 L.Ed.2d 290 (1985) (holding that statements of opinion only constitute actionable “false or misleading” statements under the securities laws if plaintiffs can plead and prove that they were made “without a genuine belief or reasonable basis.”) Here, the Plaintiffs’ Complaint pleads no facts with particularity giving rise to any inference that either Mr. Welch or Mr. Hilzinger did not actually believe these allegedly false opinions. Therefore, neither Mr. Welch nor Mr. Hilzinger can be held liable under § 10(b) for such statements of opinion by management, even if they ultimately are proven to be untrue. c. Defendant Schwartz Defendant Schwartz signed Kmart’s 10-Q for the Second Quarter of 2001, along with Defendants Boyer and Conaway. As discussed above, there is at least one allegation in the March 20, 2002 letter, attached to and incorporated by reference in the Corrected Amended Consolidated Complaint, that the financials reported in the second quarter 2001 were “deliberately manipulated and misreported.” Other than the second quarter 2001 10-Q, there are only six other paragraphs in the Complaint, containing three sets of allegations, explicitly about Defendant Schwartz. These allegations are as follows: (1) Mr. Schwartz served as Kmart’s President and COO from March 14, 2001 until November 2001, and before that, he acted as the Executive Vice-President of Store Operations; (2) Mr. Schwartz received a retention bonus, or loan, and “excessive” compensation during his tenure at Kmart; and (3) Kmart issued a January 17, 2002 press release announcing Schwartz’s termination. (See Compl., ¶¶ 12, 22, 31, 64, 75, and 90.) According to one of the Exhibit A anonymous letters, there was one additional “statement” allegedly made by Defendant Schwartz. In Paragraph 9 of the Complaint, Plaintiffs quote from this anonymous letter and state: In May 2001, Mr. Mark Schwartz, President and Chief Operating Officer, told our superior not to be surprised if Kmart shares were trading at four or five dollars per share by the end of the year. He did not explain why shares would drop to that level but suggested management employees could benefit significantly from stock options which would be priced at that depressed level. Compl., ¶ 9. Although Plaintiffs have not alleged that this particular alleged statement was false or misleading, as indicated above, the letters attached at Exhibit A contain sufficient allegations to create an inference that the second quarter 2001 10-Q, which Defendant Schwartz signed, was false, and that Schwartz had reason to know they were false. Therefore, the Court finds that Plaintiffs have sufficiently alleged that Defendant Schwartz made an untrue statement of material statement. d. Defendant Conaway By contrast to the foregoing paucity of allegations concerning Defendants Boyer, Hilzinger, Welch and Schwartz, Plaintiffs’ Complaint is replete with statements specifically attributed to Defendant Conaway and specifies the dates and specific content of each such misrepresentation. See e.g., Complaint ¶ 47 (March 13, 2001 Kmart press release with statements by Defendant Conaway concerning financial results for the full year and fourth quarter of fiscal year 2000); ¶48 (2000 Form 10-K signed by Conaway); ¶ 50 (April 2, 2001 Kmart press release with statements by Conaway concerning the return of the Bluelight Special); ¶51 (April 12, 2001 Kmart press release with statements by Conaway concerning same store sales for the four-week period ending April 4, 2001); ¶ 52 (May 10, 2001 Kmart press release with statements by Conaway concerning same store sales for four-week period ending May 2, 2001); ¶53 (May 17, 2001 Kmart press release with statements by Defendant Conaway concerning financial results for the first quarter of 2001); ¶ 56 (June 7, 2001 press release statements by Defendant Conaway concerning same store sales for the four-week period ending May 30, 2001); ¶ 58 (July 12, 2001 press release and statements by Conaway concerning same store sales for the four-week period ending July 4, 2001); ¶ 60 (August 1, 2001 press release and statements by Conaway concerning the acquisition of Bluelight.com); ¶ 61(August 9, 2001 press release and statements by Defendant Con-away concerning same store sales for the four week period ending August 1, 2001); ¶ 63 (August 23, 2001 press release and statements by Conaway concerning financial results for the second quarter 2001); ¶ 64 (Second Quarter 10-Q signed by Con-away); ¶ 66 (September 6, 2001 press release and statements by Conaway concerning same store sales for the four-week period ending August 29, 2001); ¶ 67 (September 6, 2001 press release and statements by Conaway concerning the Company’s plan to restructure its supply chain infrastructure); ¶ 68 (October 11, 2001 Kmart press release and statements concerning same store sales for the five-week period ending October 3, 2001); ¶ 69 (October 25, 2001 press release and statements by Conaway concerning the addition of Kmart supercenters to its portfolio); ¶ 70 (November 8, 2001 press release and sales concerning same store sales for the four-week period ending October 31, 2001); ¶ 72 (November 27, 2001 Kmart press release and statements by Conaway concerning financial results for the third quarter of 2001); and ¶ 74 (December 6, 2001 press release and statements by Conaway concerning same store sales for the four-week period ending November 28, 2001). The Complaint also details the precise manner in which these statements were false and misleading. For example, in ¶49, the Complaint details in five sub-paragraphs why the statements in ¶ 47 were materially false and misleading. Paragraph 55(a)-(h) set forth the reasons why Conaway’s April and May, 2001 press release statements were misleading, including the over-reporting of $311,000,000 of vendor rebates in the first quarter 2001, understating the cost of sales, buying and occupancy by $226,000,000 in the first quarter 2001, understating its losses by $208,000,000. Paragraph 65(a)-(i) similarly explains why Conaway’s June, July and August 2001 and the Second Quarter 10-Q signed by him were misleading including the over reporting of $211,000,000 of vendor rebates, overstating the amount of gross margin by $195,000,000, improperly recognizing $42 million in vendor rebates which Plaintiffs allege should have been deferred over the life of the contract, failing to accrue $167 million of expenses in the second quarter and understating its losses by $282,000,000. In paragraph 76(a)-(g), the Complaint summarizes why statements made by Conaway in September-December 2001 were misleading, including reporting $32,000,000 of vendor rebates before earned and without a commitment from the vendor, understating the cost of sales, buying and occupancy by $9,000,000, overstating the amount of gross margin by $9,000,000 and understating losses by $11,000,000. The facts giving rise to the foregoing summaries of alleged fraud are set forth in the Complaint in ¶¶ 9, 34-46, 104-148. Defendant Conaway argues, however, that the foregoing allegations regarding the false and misleading nature of his statements do not meet the PSLRA’s particularity requirement because Plaintiffs’ fraud claim is pleaded “based upon the investigation conducted by and under the supervision of plaintiffs’ counsel.” (Compl., Introduction). Because allegations pleaded on the investigation of counsel are not based upon the plaintiffs personal knowledge, Defendant Conaway maintains that they are subject to the PSLRA’s pleading requirement for “information and belief’ allegations — i.e., that the allegations must “state with particularity all facts on which that belief is formed.” 15 U.S.C. § 78u-4(b)(3)(A). Conaway argues that Plaintiffs’ Complaint does not meet this requirement because the sources of many of the allegations — in particular, the allegations contained in ¶¶ 9, 34-40, 43, 45-46, 104-106, 110-111, 130-133, 148(h), and 148(m) — are unnamed. The sources of these allegations are identified in the Complaint as Kmart employees and their positions within the Company (e.g., a former employee “who was employed in the finance department”) or their job titles (a former employee “who was a vice president at the Company”; “a former operations manager”; “a former employee of Kmart who was employed as a customer care manager.”) See Compl., ¶¶ 34, 35, 36, 37. Contrary to Defendant Conaway’s assertions, the PSLRA does not require Plaintiffs to reveal the names of these sources. As the Second Circuit specifically held in Novak v. Kasaks, 216 F.3d 300 (2nd Cir.2000), cert. denied, 531 U.S. 1012, 121 S.Ct. 567, 148 L.Ed.2d 486 (2000), [W]e find no requirement in existing law that, in the ordinary course, complaints in securities fraud cases must name confidential sources.... Imposing a general requirement of disclosure of confidential sources serves no legitimate pleading purpose while it could deter informants from providing critical information to investigators in meritorious cases or invite retaliation against them. Id. at 313-14. The First Circuit recently adopted the Second Circuit’s approach in Novak in In re Cabletron Sys., supra, and held in that case that a court should look at all the facts alleged to see if they provide an adequate basis for believing that a defendant’s statements were false. The Cable-tron court explained: This involves an evaluation inter alia, of the level of detail provided by the confidential sources, the corroborative nature of the other facts alleged (including from other sources), the coherence and plausibility of the allegations, the number of sources, the reliability of the sources, and similar indicia. 311 F.3d at 29-30. The First Circuit further reasoned that a blanket ban on unnamed sources presents obvious policy problems: “Employees or others in possession of important information about corporate malfeasance may be discouraged from stepping forward if they must be identified at the earliest stage of a lawsuit.” Id. Even In re Silicon Graphics Sec. Litig., 183 F.3d 970 (9th Cir.1999), the case principally relied upon by Defendant Conaway, does not require the identification of confidential sources. Rather, all that the Ninth Circuit held was that the plaintiffs had to allege corroborating details to indicate that the allegations were reliable. Id. at 985. Plaintiffs here meet Silicon Graphics standard by providing the position or title of each source which is sufficient to support an inference that the source was in a position to perceive first-hand the information attributed to him or her in the Complaint. Contrast ABC Arbitrage v. Tchuruk, 291 F.3d 336, 358 (5th Cir.2002) (finding that only the general reference to “employee” was not sufficient to support the probability that a person in the position occupied by the source as described would possess the information pleaded). Based upon the foregoing, the Court finds no merit in Defendant Conaway’s argument that Plaintiffs’ Complaint does not state the facts upon which the allegations of fraud are based with sufficient particularity. e. Defendant PricewaterhouseCoopers Of the statements that Plaintiffs complain about, only two are attributed to Defendant PwC: PwC’s audit opinions on Kmart’s 2000 and 2001 annual financial statements. (Compl., ¶¶ 145-46). As discussed above, a statement of opinion is not the same as a statement of historical fact. Instead, it is an expression of belief, made by an actor at a particular time, under particular conditions, and based on known information. Accordingly, as indicated, it is well-settled that “under securities laws a reasoned and justified statement of opinion, one with a sound factual or historical basis is not actionable.” Connellan v. Himelhoch, 506 F.Supp. 1290, 1298 (E.D.Mich.1981) (citing G & M, Inc. v. Newbern, 488 F.2d 742 (9th Cir.1973)); see also, Renz v. Shreiber, 832 F.Supp. 766, 777-78 (D.N.J.1993). The opinion rule discussed above is particularly applicable with respect to opinions by auditors, which generally involve issues such as the auditor’s dependence on information supplied by the client, application of complex accounting and auditing standards, and varying degrees of professional judgment. As the court observed in Reiger v. Price Water House Coopers LLP, 117 F.Supp.2d 1003 (S.D.Cal.2000), aff'd, 288 F.3d 385 (9th Cir.2002): [T]he report generated by an independent accountant often represents a professional opinion based on numerous and complex factors. Although ultimately expressed in shorthand form, the report is the final product of a complex process involving discretion and judgment on the part of the auditor at every stage. Using different initial assumptions and approaches, different sampling techniques, and the wisdom of 20/20 hindsight, few CPA audits [are] immune from criticism. Id. at 1008 (citations omitted). Thus, as indicated above, statements of opinion, such as PwC’s audit opinions on Kmart’s annual financial statements, only constitute actionable “false or misleading” statements under the securities laws if Plaintiffs can plead and prove that they were made “without a genuine belief or reasonable basis.” Eisenberg v. Gagnon, supra, 766 F.2d at 776; Helwig, supra, 251 F.3d at 561; Mayer v. Mylod, supra, 988 F.2d at 639. Plaintiffs have not satisfied this requirement. First, Plaintiffs claim that because PwC had access to certain unspecified Kmart “internal accounting records,” PwC “knew or recklessly disregarded” that Kmart’s 2000 and 2001 financial statements did not conform with GAAP [generally accepted accounting principles] and did not fairly present Kmart’s financial position, as the opinions stated. (Compl., ¶¶ 144, 147). Plaintiffs, however, have alleged no facts to support these claims. Conclusory allegations of access to unspecified “internal records” are insufficient to support a claim of “knowledge” or “reckless disregard” on the part of an auditor. See, e.g., Zucker v. Sasaki 963 F.Supp. 301, 306 (S.D.N.Y.1997) (“[T]he amended complaint simply asserts that as Cygne’s auditors, with access to Cygne’s internal documents, Ernst & Young knew or was reckless in not knowing that FWM goodwill was materially overstated.... This conclusory and fact-deficient allegation is insufficient to allege securities fraud.”) Nowhere does the Complaint here specify what, if any, “internal accounting records” PwC allegedly saw (or “recklessly disregarded”), let alone any records which showed the specific problems with Kmart’s 2000 and 2001 annual financial statements that Plaintiffs allege existed. Absent such specific allegations, Plaintiffs have not alleged that PwC’s opinions were issued “without a genuine or reasonable basis.” Plaintiffs also claim that PwC’s opinions were false because PwC “knew or recklessly disregarded” that PwC had not conducted its 2000 and 2001 audits in accord with GAAS. (Compl., ¶ 147). The Sixth Circuit, however, has expressly held that violations of accounting or auditing standards standing alone do not support a strong inference of recklessness. See In re Comshare, supra, 183 F.3d at 553. Furthermore, nowhere does the Complaint specify the “who, what, when, where and how” of any purported GAAS [generally accepted auditing standards] violations. All that Plaintiffs have done is recite a list of general GAAS requirements, and then assert, without any factual support, that because Kmart’s financial statements were allegedly incorrect, PwC “must have” violated those requirements. (See Compl., ¶¶ 148-149). This precise kind of pleading was found to fail to satisfy the requirements of the PSLRA by the court in In re SmarTalk Teleservices, Inc. Sec. Litig., supra: In short, the Plaintiffs plead that because errors [in the financial statements] were committed, [the auditors] must have violated the procedures set up to catch such errors and had they not violated these procedures they would have caught the errors. These allegations fail under the PSLRA as overly general and speculative. 124 F.Supp.2d at 517. Because Plaintiffs fail to allege any facts establishing that PwC’s 2000 and 2001 audit opinions were issued “without a genuine belief or reasonable basis,” they have failed to sufficiently specify “the reason or reasons why” the subject audit opinions were allegedly false or misleading as required by the PSLRA. Plaintiffs’ 10(b) claim against PricewaterhouseCoopers, therefore, will be dismissed. 3. THE COMPLAINT’S SCIENTER ALLEGATIONS Pursuant to the PSLRA, a plaintiff must “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.” 15 U.S.C. § 78u-4(b)(2); see also, Helwig, supra, 251 F.3d at 548. This “state of mind” requirement requires some form of fraudulent intent. Id. See also, Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 n. 12, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976) (holding that scienter, “a mental state embracing intent to deceive, manipulate or defraud” is an essential element of a § 10b/Rule 1b-5 claim). Under the Sixth Circuit’s interpretation of the PSLRA, recklessness— that is, “highly unreasonable conduct which is an extreme departure from the standards of ordinary care” — may satisfy the “state of mind” requirement. Helwig, supra, 251 F.3d at 550. The Helwig court emphasized, however, that bare allegations of recklessness or facts showing only a “motive and opportunity” to commit fraud, are insufficient to meet the PSLRA’s heightened pleading requirement: We hold that plaintiffs may meet PSLRA pleading requirements by alleging facts that give rise to a strong inference of reckless behavior but not by alleging facts that illustrate nothing more than a defendant’s motive and opportunity to commit fraud.... While facts regarding motive and opportunity may be relevant to pleading circumstances from which a strong inference of fraudulent scienter may be inferred, and may on occasion, rise to the level of creating a strong inference of reckless or knowing conduct, the bare pleading of motive and opportunity does not, standing alone, constitute the pleading of a strong inference of scienter. 251 F.3d at 550 (quoting Comshare, supra, 183 F.3d at 551.) Instead, the Helwig court suggested a “totality of the circumstances” analysis, and pointed to several factors to aide lower courts in deciding whether the scienter requirement has been met. These factors are as follows: 1) insider trading at a suspicious time or in an unusual amount; 2) divergence between internal reports and external statements on the same subject; 3) closeness in time of an alleged fraudulent statement or omission and the later disclosure of inconsistent information; 4) evidence of bribery by a top company official; 5) existence of an ancillary lawsuit charging fraud by a company and the company’s quick settlement of this suit; 6) disregard of the most current factual information before making statements; 7) disclosure of negative accounting information in such a way that its negative implications could only be understood by someone with a high degree of sophistication; 8) the personal interest of certain directors in not informing disinterested directors of an impending sale of stock; and 9) the self-interested motivation of defendants in the form of saving them salaries or jobs. 251 F.3d at 552 (citing Greebel v. FTP Software, Inc., 194 F.3d 185, 196 (1st Cir.1999)). See also, Gompper v. VISX, Inc., 298 F.3d 893, 897 (9th Cir.2002) (citing Helwig). The determination of whether Plaintiffs have sufficiently alleged the requisite state of mind as to each of the Defendants, therefore, requires a “fact sensitive” analysis of the Complaint’s allegations “to determine whether the facts as pled produce a strong inference that [each of the particular Defendants] acted at least recklessly.” In re Ford Motor Co. Sec. Litig., 184 F.Supp.2d 626, 630 (E.D.Mich.2001). Further, even assuming arguendo that the group pleading (or group publication) doctrine survived the passage of the PSLRA, those courts that have continued to apply the group pleading doctrine have held that scienter must be pled separately as to each defendant. See e.g., In re Sunbeam Sec. Litig., supra, 89 F.Supp.2d 1326 (“[G]roup pleading does not apply to the [PSLRA’s] scienter requirements”); In re Lemout & Hauspie Sec. Litig., 208 F.Supp.2d 74, 84 (D.Mass.2002) (group publication doctrine “does not, however, obviate the requirement that a court evaluate separately the allegations concerning the scienter of each of the individual defendants”); In re Baan Co. Sec. Litig., supra, 103 F.Supp.2d at 17-18 (group publication doctrine applies to attribute misrepresentations but scienter must be pleaded as to each defendant). Applying the foregoing standards in this case, the Court finds as follows. a. Defendant Boyer First, with respect to Defendant Boyer the Court finds that the Complaint fails to allege facts giving rise to a strong inference that he acted with the requisite state of mind to establish a securities fraud claim against him. There are no factual allegations within the Complaint that show that Mr. Boyer made any intentional misstatements or omissions or that when he made the statements attributed to him (i.e., by signing the First and Second Quarter 10-Qs) that he engaged in “highly unreasonable conduct” evincing an “extreme departure from the standards of ordinary care.” Comshare, supra. Furthermore, statements made in the four anonymous letters from Kmart financial department employees attached as Exhibit A and incorporated by reference in the Corrected Amended Consolidated Complaint actually exonerate Boyer and give rise to a strong inference that he acted with a high degree of care “directing” his subordinates “to closely follow standard accounting principles,” and being “forced” out of his job as a result. (See Ex. A, 1/9/02 Letter.) The only scienter allegations concerning Mr. Boyer in the Corrected Amended Consolidated Complaint is the conclusory “group” allegation that all the Individual Defendants must have known of the alleged misstatements’ falsity because of their high managerial positions within Kmart. (See Compl., ¶¶28, 89). However, courts have routinely rejected the attempt to plead scienter based on allegations that because of the defendants’ board membership and/or their executive managerial positions, they had access to information concerning the company’s adverse financial outlook. See, e.g. Abrams v. Baker Hughes, Inc., 292 F.3d 424, 432 (5th Cir.2002); In re Credit Acceptance Corp. Sec. Litig., 50 F.Supp.2d 662, 676 (E.D.Mich.1999) (stating that alleging defendants knew or should have known because of their positions in a company does not raise a strong inference of scienter); In re Sunterra Corp., 199 F.Supp.2d 1308, 1325 (M.D.Fla.2002); In re Azurix Corp. Sec. Litig., 198 F.Supp.2d 862, 890 (S.D.Tex.2002), aff'd, 332 F.3d 854 (5th Cir.2003) (“merely alleging that the defendants knew or had access to information by virtue of their managerial positions is not sufficient to plead scienter”). The Complaint also alleges that the Defendants collectively “knew or recklessly ignored” GAAP violations. However, “[cjourts have determined that GAAP violations standing alone, do not satisfy the scienter requirement for securities fraud.” Stavroff v. Meyo, 1997 WL 720475, at * 6 (6th Cir.1997) (unpublished decision); see also Comshare, 183 F.3d at 549. There are no allegations in the Complaint about Boyer’s compensation or that he received any “retention loans.” To the contrary, the Exhibit A letters assert that “the retention loan program was put into effect following the forced departure of CFO Boyer.” (Ex. A, 1/9/02 Letter). Further, there are no allegations of any “insider trading” by Mr. Boyer. The foregoing establishes that Plaintiffs’ Complaint fails as a matter of law to adequately allege that Defendant Boyer acted with the requisite scienter. b. Defendants Hilzinger and Welch Similarly, Plaintiffs’ Complaint does not allege that either Defendant Hil-zinger or Welch had any personal motive to commit fraud. The Complaint does not allege that either of these Defendants obtained retention loans or bonuses, nor are there any allegations of insider trading. As with Defendant Boyer, the Complaint does not allege that Messrs. Hilzinger and Welch were aware of any fact, discussion, meeting or memorandum that would have put them on notice of any alleged fraud or GAAP violations. Nor does the Complaint allege that any of the informants relied upon by Plaintiffs reported the problems within the Company to Mr. Hilzinger or Welch. And, as discussed above, generalized allegations that a defendant “knew or should have known” based solely upon the defendant’s position within a company, are insufficient, as are allegations of GAAP violations. Accordingly, the Court finds that Plaintiffs have failed to adequately allege that Defendants Hilzinger and Welch acted with the requisite scienter. c. Defendants Conaway and Schwartz The scienter issue, however, is a different story with respect to Defendants Schwartz and Conaway. Reviewing the Complaint in light of the Sixth Circuit’s suggested factors in Helwig, the Court notes that the Complaint alleges that Defendants Conaway and Schwartz renegotiated their employment contracts during the Class Period, and both of these Defendants received substantial “retention loans”' — Conaway received a $5 million retention loan just eight months before Kmart’s bankruptcy filing and Defendant Schwartz received a $3 million retention loan just one month before the bankruptcy. Furthermore, just two months before the bankruptcy filing, Defendant Conaway continued to make positive statements concerning Kmart’s earnings and business. Although not as close in proximity, it was only four months prior to the bankruptcy that Mr. Schwartz along with Mr. Cona-way, signed the Second Quarter 10-Q. As noted in Helwig, this closeness in time between the allegedly false statements and the “bad news” (of the bankruptcy filing) is evidence of Conaway’s and Schwartz’s scienter. See also Shaw v. Digital Equip. Corp., 82 F.3d 1194, 1224 (1st Cir.1996) (“[W]e think the proximity of the date of the allegedly misleading statements and omissions to the end of the ongoing quarter (and the date of eventual disclosure) provides some circumstantial factual support to be taken into account in determining whether the complaint pleads an adequate basis for inferring defendants’ culpable knowledge”); Powers v. Eichen, 977 F.Supp. 1031, 1038 (S.D.Cal.1997) (proximity of bad news to optimistic statements is circumstantial evidence that the defendants knew that their optimistic statements were false); In re Grand Casinos, Inc., Sec. Litig., 988 F.Supp. 1273, 1283 (D.Minn.1997) (revelations shortly after allegedly fraudulent statements were made can support an inference of earlier knowledge). And, while GAAP violations, standing alone, will not establish a strong inference of scienter, such violations may be considered as one of the Helwig factors. Thus, although the GAAP violations are insufficient to establish scienter on the part of Defendants Boyer, Hilzinger and Welch, when considered in conjunction with their renegotiated salaries and substantial retention loans, the “optimistic” statements made by Conaway and Schwartz within only a few months of the bankruptcy filing, and the alleged statement of Defendant Schwartz in May 2001 “not to be surprised if Kmart shares were trading at [only] four or five dollars by the end of the year” (Compl., ¶ 9), the Court finds sufficient evidence supporting a strong inference of scienter on the part of these two Individual Defendants. Thus, to the extent that Defendants Conaway and Schwartz seek dismissal of Plaintiffs’ 10(b)/Rule 10b-5 claim against them on the grounds of failure to sufficiently allege scienter, the Court rejects their arguments. d. PricewaterhouseCoopers As noted above, Plaintiffs’ 10(b) claims against Defendant PwC are predicated upon PwC’s audit reports of Rmart’s 2000 and 2001 annual financial statements. However, Plaintiffs have failed to allege facts that would support a strong inference that PwC issued its two audit reports with scienter. While recklessness can satisfy the scienter requirement in certain circumstances, see In re Comshare, supra, allegations of recklessness as a form of negligence are not sufficient. Id. 183 F.3d at 550. Instead, as the Sixth Circuit has explained, “some form of fraudulent intent is required.” Helwig, supra, 251 F.3d at 548. Accordingly, the degree of recklessness required to state a securities fraud claim must be such that it equates with intentional conduct, and thus must involve highly unreasonable conduct which is an extreme departure fro