Full opinion text
ORDER GRANTING IN PART AND DENYING IN PART MOTIONS TO DISMISS ARMSTRONG, District Judge. This is a consolidated putative securities class action brought against defendant Calpine Corporation (“Calpine”) and other defendants pursuant to Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. §§ 78j(b), 78t(a), and Sections 11 and 15 of the Securities Act of 1933 (the “Securities Act”), 15 U.S.C. §§ 77k, 77o. Mansukh B. Makadia and Laborers Local 1298 Pension Fund (“Plaintiffs”) have been named co-lead plaintiffs for the putative class. Now before the Court are two motions to dismiss brought by two sets of defendants pursuant to Federal Rule of Civil Procedure 12(b)(6): (1) the Individual Defendants’ Motion to Dismiss Second Consolidated Amended Class Action Complaint for Failure to State a Claim (the “Individuals’ Motion”), filed by defendants Peter Cartwright, Ann B. Curtis, Charles B. Clark, Jr., E. James Macias, and Paul J. Posoli (collectively, the “Individual Defendants”); and (2) Defendant Calpine Corporation’s Motion to Dismiss Second Consolidated Amended Class Action Complaint (“Calpine’s Motion”), filed by defendant Calpine alone. Having read and considered the papers submitted and being fully informed, the Court GRANTS IN PART AND DENIES IN PART both motions and DISMISSES the Second Consolidated Amended Class Action Complaint (the “SAC”) WITH LEAVE TO AMEND. I. BACKGROUND A. Factual Summary and Bases of Claims Asserted in SAC Plaintiffs bring this action pursuant to Sections 10(b) and 20(a) of the Exchange Act and Sections 11 and 15 of the Securities Act on behalf of all persons who purchased or acquired Calpine’s publicly traded securities, including those persons or entities who purchased Calpine’s 8.5% Senior Notes due February 15, 2011 (the “Class”), between January 5, 2001, and May 31, 2002, inclusive (the “Class Period”). (SAC ¶ 1.) The 8.5% Senior Notes were initially issued in the aggregate amount of $1.15 billion in February 2001 (the “February 2001 Tranche”) pursuant to a registration statement filed with the Securities Exchange Commission (the “SEC”) on December 1, 2000, using a “shelf’ registration or continuous offering process (the “Shelf Registration Statement”), and supplemental prospectus filed with the SEC on February 12, 2001 (the “February Supplemental Prospectus”). (Id.) On October 15, 2001, Calpine filed another supplemental prospectus (the “October Supplemental Prospectus”), deemed part of the Shelf Registration Statement, issuing an additional $850 million of 8.5% Senior Notes (the “October 2001 Tranche”) that were to be “offered as a further issuance of’ and to “be fungible with and form a single series” with the 8.5% Senior Notes issued in February 2001, with the same CUSIP number (131347 AW 6) “and were to trade interchangeably with the February 2001 Tranche.” (Id.) The notes issued pursuant to the February Supplemental Prospectus and the October Supplemental Prospectus will be referred to as the “2011 Notes.” The defendants in this consolidated action are Calpine, a Delaware corporation headquartered in San Jose, California, (id. ¶ 25); Peter Cartwright (“Cartwright”), who, at all relevant times, served as Chairman, Chief Executive Officer, President, and Director of Calpine, (id. ¶ 26); Ann B. Curtis (“Curtis”), who, at all relevant times, served as Executive Vice President, Chief Financial Officer, Corporate Secretary, and Director of Calpine, and on March 28, 2002, was appointed Vice Chairman of Calpine, (id. ¶ 27); E. James Macias (“Macias”), who, at all relevant times, served as Senior Vice President of Power and Industrial Marketing and on April 1, 2002, became Calpine’s Chief Operating Officer, (id. ¶ 28); Charles B. Clark, Jr. (“Clark”), who, at all relevant times, served as Controller, Chief Accounting Officer, and Senior Vice President of Calpine, (id. ¶ 29); and Paul Posoli (“Posoli”), who served as vice president of risk management beginning in 1999 and in April 2001 was promoted to Senior Vice President of Calpine Energy Services, (id. ¶ 30). The SAC asserts four claims for relief. Count I is brought against all defendants for violation of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5. Count II is brought against the Individual Defendants for violation of Section 20(a) of the Exchange Act and is predicated on the alleged violations on which Count I is based. (See id. ¶ 267.) Count III is brought against all defendants except Macias and Posoli for violation of Section 11 of the Securities Act. Count IV is brought against the Individual Defendants except Macias and Posoli for violation of Section 15 of the Securities Act and is predicated on the alleged violations on which Count III is based. (See id. ¶ 282.) Counts I and II are referred to herein as the “Exchange Act claims”; Counts III and IV, the “Securities Act claims.” 1. Calpine’s Business and Expansion of Power Generation Capacity Calpine is an independent power company engaged in the development, acquisition, ownership, and operation of power generation facilities and the sale of electricity mainly at the wholesale level. (Id. ¶ 40.) Calpine is one of the largest developers of power plants in the United States. (Id.) Its primary markets are California, Texas, and New England. (Id.) By December 31, 2000, Calpine had interests in 50 power generation facilities, mainly gas-fired, throughout the United States having a net capacity of 5,484 megawatts. (Id.) Calpine also had under construction 25 power generation facilities having a net capacity of 14,028 megawatts and had announced plans to develop an additional 28 power plants and expansions. (Id.) These facilities were to provide Calpine with an additional net. capacity of 15,142 megawatts. (Id.) By December 31, 2001, Cal-pine’s generating capacity had grown substantially: Calpine had interests in 64 power generation facilities representing 12,090 megawatts of net capacity; 22 gas-fired plants; and 2 expansion projects under construction to provide additional net capacity of 14,142 megawatts; and 34 projects in “advanced development” to provide further net capacity of 15,100 megawatts. (Id.) In power generation businesses, revenue is derived from a commodity price multiplied by the number of units sold, and profitability is determined by profit margins. (Id. ¶ 41.) Calpine’s revenue was generated by the aforementioned power generation facilities under long-term power sales agreements. (Id. ¶ 42.) Under these agreements, Calpine received energy payments for each kilowatt of energy delivered, as well as payments based on the capacity made available by each plant. (Id.) Electric utility deregulation created new price risks'for companies, such as Calpine, that consumed large quantities of power. (Id. ¶43.) To limit the risk of sudden, dramatic electricity price moves, companies like Calpine employ strategies akin to those used to tame the price volatility of energy commodities (e.g., oil or natural gas). (Id.) These companies hedge with private forward contracts, using new exchange-based electricity derivatives, or insurance to keep costs consistent. (Id.) A company that hedges simply takes a financial position intended to offset fluctuations in the price of a commodity. (Id.) Calpine engaged in “hedging, balancing and optimization” trading activities to hedge the risks arising from, inter alia, its long-term power agreements. (Id. ¶ 44.) During the Class Period, Calpine had 5,489 megawatts of net baseload generation capacity (power generation is divided into baseload, which is continuous operation, and non-baseload, which involves a plant being turned on and off to meet variations in demand). (Id. ¶ 46.) Throughout the Class Period, Calpine announced that it intended to operate 70,000 megawatts of net generation by December 31,2005. (Id.) Calpine expanded its megawatts of net generation through plant development and acquisitions. (Id. ¶ 47.) Expansion, however, is very costly, as each megawatt costs approximately $625,000 to develop and build. (Id.) In order to finance its growth, Calpine required $2.2 billion of capital per quarter. (Id.) Cash flow from Calpine’s operations was insufficient to meet Calpine’s needs (e.g., cash flow for the eighteen months ended June 30, 2001, was reported to be $412 million, averaging $68.6 million per quarter, or 3.1% of its capital needs). (Id.) Calpine’s relatively large capital needs and minimal cash flow rendered Calpine reliant on capital markets for its financing needs. (Id. ¶ 48.) In the second quarter of 2001, Calpine raised $3.5 billion in three offerings: (1) Calpine sold $850 million of zero-coupon convertible debentures due 2021 in a private placement; (2) Calpine Canada Energy Finance ULC completed a $1.5 billion offering of 8.52% Senior Notes due 2008; and (3) Calpine priced a public offering of $1.15 billion in principal amount of 8.5% Senior Notes due 2011. (Id.) 2. The California “Energy Crisis” and California’s Negotiations of Energy Contracts with Calpine On March 31, 1998, California’s restructured electricity markets opened. (Id. ¶ 81.) For the next two years, the market operated fairly efficiently, although market power concerns required the Federal Energy Regulatory Commission (the “FERC”) to impose price caps in the California Independent System Operator (“ISO”) markets. (Id.) Accordingly, during these years, energy prices averaged approximately $33/Mwh. (Id.) Price caps of $250/Mwh set during most of that period were rarely reached. (Id.) By May 2000, problems appeared, with year-over-year prices 100% higher than in May 1999. (Id. ¶82.) According to the FERC, in June 2000, prices reached astronomic heights, and remained so for the ensuing year. (Id.) These prices were accompanied by declining reliability. (Id.) By the end of 2000, the ISO was forced to declare 55 system emergencies, compared to only 11 in 1998 and 1999 combined. (Id.) The crisis did not cease with the arrival of cooler weather in the fall of 2000. (Id. ¶ 83.) California-based generation owners withheld their supply from the markets by declaring the power plant units out of service for maintenance and other reasons, or by simply refusing to bid into the spot markets. (Id.) Outages persisted at three to four times historical rates throughout the late fall and into the spring of 2001. (Id.) Prices continued to rise rather than to decline. (Id.) Against these conditions, the California Department of Water Resources (the “CDWR”) found itself in need of energy to keep the lights on in California. (Id. ¶ 84.) On January 17, 2001, Governor Gray Davis issued an emergency order giving the CDWR authority to enter into agreements for the purchase of power necessary to mitigate the effects of electrical shortages in the state. (Id.) Pursuant to its new authority, the CDWR commenced a power procurement program that was unprecedented in the industry or state-sponsored procurement programs. (Id.) Due to the urgency of the energy crisis, CDWR negotiators failed to attend to the fine details of the contracts into which they were entering, such as those with Calpine. (Id. ¶ 85.) As one CDWR staff member noted, in negotiating the contracts, the agency operated pursuant to one overwhelming interest — to keep the lights on in California. (Id.) This staff member’s notes made of a conversation with negotiators stated: “In negotiating contracts/agreements, everyone needs to realize that perfection may destroy and make processes unmanageable. Our focus should be to come out of this ‘hole’ as soon as possible.” (Id.) At the time Calpine and, in particular, defendant Macias commenced negotiations with the CDWR, the energy crisis was at its peak. (Id. ¶ 86.) Thus, when soliciting bids for power contracts, the CDWR did not request contract terms and conditions that are standard in the power industry for entities that must ensure reliable power delivery. (Id.) On or about February 6, 2001, just days prior to the 2011 Note offering, Calpine signed a $4.6 billion contract with the CDWR to provide affordable-priced electricity to the state of California. (Id. ¶ 87.) Pursuant to the agreement, Calpine committed to sell up to 1,000 megawatts of clean, affordable-priced electricity from its portfolio of new and existing energy centers. (Id.) Initial deliveries were to commence on October 1, 2001, with 200 megawatts and build to 1,000 megawatts by January 1, 2004. (Id.) On or about February 26, 2001, Calpine signed two additional long-term power sales contracts with the CDWR, totaling $8.3 billion. (Id. ¶ 88.) Under the terms of the $5.2 billion, 10-year, fixed-price contract, Calpine committed to sell up to 1,000 megawatts of competitively priced generation from its portfolio of new energy centers. (Id.) Initial deliveries under this contract were scheduled to commence on July 1, 2001, with 200 megawatts of capacity; by as early as July 2002, Calpine expected the amount to increase to 1,000 megawatts and continue through 2011. (Id.) In the other contractr-a 20-year contract, totaling up to $3.1 billion — Calpine agreed to supply the CDWR with up to 495 megawatts of peaking generation, beginning with 90 megawatts as early as August 2001 and increasing to 495 megawatts by as early as August 2002. (Id. ¶89.) Calpine agreed to supply peaking capacity, with the option to purchase up to 2,000 hours of energy during certain peak periods from 11 new generating units. (Id.) Each of the CDWR contracts required California to take power during periods of low demand. (Id. ¶ 90.) One of the CDWR contracts also provided that Cal-pine could obtain $80 million to $90 million per year of “capacity payments” even if Calpine was unable to' provide any capacity during all but one of the twenty years of the contracts. (Id. ¶ 91.) Thus, under these terms, Calpine could have withheld power or redistributed it elsewhere, during years two through twenty, and Calpine would still receive $90 million in years two through five and $80 million in years six through twenty. (Id.) The CDWR contracts further deprived the state of virtually any remedy in the event of Calpine’s default, while giving to Calpine the right to an additional $1.8 billion in the event of California’s default. (Id. ¶ 92.) The CDWR contracts contained other unprecedented terms in the energy industry, terms that significantly disadvantaged California and provided potential windfalls to Calpine. (Id. ¶ 93.) 3. Governmental Investigations and Legal Proceedings Relating to Energy Crisis In August 2001, the California State Auditor commenced an audit of Calpine’s contracts with the CDWR. (Id. ¶ 94.) Prior to the completion of the audit, the FERC issued an order indicating that the CDWR contracts may have violated federal law. (Id.) On November 27, 2001, the FERC issued an order finding that the “dysfunction” in the short-term energy market in California in 2000 and 2001 may have impacted long-term power contract prices rendering them unjust and unreasonable under Sections 205 and 206 of the Federal Power Act (the “FPA”). (Id.) Sections 205 and 206 of the FPA, 16 U.S.C. §§ 824d, 824e, mandate that all rates and charges be “just and reasonable.” (Id. ¶ 95.) All sales or transmissions that are not just and reasonable are unlawful and subject to refund. (Id.) The FERC order prompted further investigation by western states into overcharges for power by companies such as Calpine. (Id. ¶ 96.) Legal action against Calpine was commenced by Nevada Power Company and Sierra Pacific Power Company, both of whom had entered into long-term power contracts with Calpine during the same time frame in which the CDWR contracts were entered into, alleging that the rates and terms violated the FPA. (Id.) On December 20, 2001, the California State Auditor issued its report, a separate detailed critique of the terms of the CDWR contracts. (Id. ¶ 98.) The State Auditor found that the CDWR contracts, entered into during the first five weeks after the CDWR was given its authority, were wholly inadequate for the intended goal — to provide a reliable source of power at the lowest possible cost as a means of addressing the Energy Crisis — set forth by the California legislature. (Id.) The CDWR had entered into approximately 40 contracts valued at $35.9 billion in just 30 days, which precluded the planning and analysis necessary for developing a portfolio of this size. (Id.) The report stated in part: Various factors hampered the department’s efforts in its new role. Specifically, the department initially had to purchase much of this power each day in a dysfunctional market from market-savvy sellers. The department’s challenge became especially difficult because it lacked the infrastructure and the experienced, skilled staff needed to perform at this level. (Id.) As a result, the CDWR failed to request even the most fundamental industry-standard contract terms and conditions to assure reliable power delivery. (Id. ¶ 99.) Calpine ultimately agreed to settle all 206 complaints the state had filed with the FERC against Calpine. (Id. ¶ 100.) Under the settlement, the Attorney General agreed to drop allegations that Calpine charged illegal prices during California’s energy crisis. (Id.) In return for this release, Calpine agreed to pay $6 million to fund, in part, a project to retrofit public facilities with solar power. (Id.) On February 25, 2002, the California Public Utilities Commission (the “CPUC”) commenced an action with the FERC against Calpine alleging violations of the FPA and certain rules, regulations, and orders promulgated thereunder. (Id. ¶ 101.) The CPUC requested the initiation of refund proceedings pursuant to Section 205 of the FPA. (Id.) The complaint specifically referenced the three CDWR contracts. (Id.) On April 22, 2002, Calpine announced that it had restructured its CDWR eon-tracts. (Id. ¶ 103.) Calpine agreed to reduce the value of those contracts by $4.3 billion by, inter alia, significantly reducing the terms and prices of these contracts. (Id.) Calpine also agreed to reduce the energy price on one ten-year baseload contract from $61.00 to $59.60 per megawatt-hour and convert the energy portion of its peaker contract to gas index pricing from fixed energy pricing. (Id.) Calpine further agreed to deliver up to 12.2 million megawatt-hours of additional energy in 2002 and 2003. (Id.) On April 24, 2002, the CPUC and the California Energy Oversight Board agreed to drop their FERC complaints against Calpine, in return for which Calpine agreed to restructure four CDWR contracts. (Id. ¶ 104.) 4. Alleged Misrepresentations and Omissions in Prospectuses Underlying Both Securities Act and Exchange Act Claims As noted above, Calpine issued the 2011 Notes pursuant to the February Supplemental Prospectus and the October Supplemental Prospectus. (Id. ¶ 132.) The February Supplemental Prospectus and the October Supplemental Prospectus were deemed to be part of the Shelf Registration Statement, which was signed by defendants Curtis, Cartwright, and Clark. (Id. ¶ 133.) Plaintiffs allege that the February Supplemental Prospectus and the October Supplemental Prospectus contained untrue statements of material fact and omitted to state material facts required to be stated to make the statements not misleading. (Id. ¶ 134.) These alleged statements and omissions are described immediately below. a. Discussion of “Factors” Contributing to Increase in Wholesale Energy Prices in Both Prospectuses Both prospectuses included a discussion concerning the shortage in power supply affecting California during the prior year. (Id.) In this regard, the prospectuses represented that a series of factors reduced the supply of power to California and that this reduction in supply resulted in wholesale prices that were significantly higher than historical levels. (Id.) These factors were represented as including: (1) “significantly increased volatility in prices and supplies of natural gas”; (2) “an unusually dry fall and winter in the Pacific Northwest, which reduced the amount of available hydroelectric power from that region”; (3) “the large number of power generating facilities in California nearing the end of them useful lives, resulting in increased downtime”; and “continued obstacles to new power plant construction in California, which deprived the market of new power sources that could have, in part, ameliorated the adverse effects of the foregoing factors.” (Id.) Plaintiffs allege that the statements concerning the “factors” that contributed to the increase in wholesale energy prices were materially false and misleading. (Id. ¶ 135.) They allege that the shortage in power supply was not caused by any of the reasons identified in the prospectus, but instead was attributable to power companies’ withholding capacity to drive up power prices. (Id.) Specifically, “ISO monthly data” demonstrated that, in 2000 and 2001, demand did not exceed capacity during the energy crisis and did not exceed prior year demand. (Id. ¶ 106.) In addition, energy consultant Robert McCullough, in his testimony before the United States Senate on April 11, 2002, stated that the Western Systems Coordinating Council (the “WSCC”) found, based on California ISO data, that there was no supply shortage in 2000 and 2001; California plants were operating during the crisis, but power was not being dispatched. (Id. ¶ 107.) Further, data in a report issued by the WSCC entitled “Ten Year Coordinated Plan Summary” suggested that new power plants were not needed during the energy crisis as there was no shortage of supply even assuming drought conditions (which did not exist during 2000, when most of the energy crisis transpired) in the Pacific Northwest. (Id. ¶ 108.) Other publicly available governmental and private studies of California plant and market operations and the California energy crisis assert that the energy crisis stemmed from the power providers’ withholding of power. (Id. ¶¶ 109-13.) Accordingly, Plaintiffs allege that the statements concerning the “factors” contributing to the increase in wholesale energy prices in the prospectuses were materially false and misleading. (Id. ¶ 135.) b. Statements Regarding CDWR Contract Announced in February Supplemental Prospectus In its “Recent Developments” section, the February Supplemental Prospectus announced the signing of the 10-year, $4.6 billion fixed-price contract with the CDWR. (Id. ¶ 136.) Plaintiffs allege that the statements in this announcement were materially false and misleading because the terms of this contract were unjust and unreasonable and subject to abrogation or reformation by the FERC for violation of the FPA for the reasons discussed supra in Parts I.A.2-3. (Id. ¶ 137 (referencing paragraphs 87 and 91-105).) Plaintiffs point out that on April 22, 2002, the contract was reduced to a term of eight years from ten years and revalued at $3.7 billion, an approximately $900 million reduction. (Id.) c. Statements Regarding CDWR Contract Announced in October Supplemental Prospectus In its “Recent Developments” section, the October Supplemental Prospectus announced the signing of the two long-term contracts with the CDWR valued at $8.3 billion. (Id. ¶ 138.) Plaintiffs allege that the statements in this announcement were materially false and misleading because the terms of this contract were unjust and unreasonable and subject to abrogation or reformation by the FERC for violation of the FPA for the reasons discussed supra in Parts I.A.2-3. (Id. ¶ 139 (referencing paragraphs 87 and 91-105).) Plaintiffs note that the PUC subsequently renegotiated these contracts, thereby reducing Calpine’s expected revenue by approximately 41%, from $8.3 billion to $4.9 billion. (Id.) 5. Alleged Misrepresentations and Omissions Underlying Exchange Act Claims Only a. January 5, 2001 Press Release and ABN-Amro Report On January 5, 2001, Calpine issued a press release concerning its earnings expectations for 2000 and 2001. (Id. ¶ 140.) These earnings estimates beat analyst expectations, and Calpine’s common stock shares rose after their release. (Id.) In a conference call discussing Calpine’s reported earnings, defendant Cartwright stated, among other things, “Calpine’s position is extremely strong and the demand for electricity is up.” (Id.) Based on this press release, on January 8, 2001, analysts at ABN-Amro .issued a report raising their 2000 and 2001 EPS estimates for Calpine’s stock. (Id. ¶ 141.) Plaintiffs allege that the statements in the press release, Cartwright’s statement in the conference call, and the' statements in ABN-Amro’s report were materially false and misleading for a number of' reasons. (Id. If 142.) Plaintiffs allege that defendants knew or recklessly disregarded that the earnings figures discussed would be achieved only through “accounting machinations.” (Id.) They point to Calpine’s capitalization of interest on debt at a rate higher than the rate it used to expense debt, shifting interest expense from the income statement to the balance sheet. (Id.) Although Plaintiffs allege that this practice was “improper[ ],” they do not allege that it violated any law or accounting standard. (See id. (referencing ¶¶ 51 and 52).) Plaintiffs also allege that defendants knew or recklessly disregarded that these expected returns were predicated on manipulative transactions between Calpine and Enron. (Id. ¶ 143.) Plaintiffs invoke an article appearing in the New York Times on December 9, 2001 (the “December 9 Article”), that allegedly stated that Calpine entered into an agreement with Enron in January 2001 to swap energy capacity and that these “swaps” were used to artificially inflate revenues. {Id. (referencing ¶¶ 74 through 76); id. ¶ 73.) Plaintiffs contend that the sole purpose of artificially inflating revenues was to meet earnings expectations. {See id. ¶ 143.) Finally, Plaintiffs allege that Cartwright’s statement that “Calpine’s position is extremely strong and demand for electricity is up” was materially false and misleading for two reasons. {Id. ¶ 144.) First, Plaintiffs contend, Cartwright knew or recklessly disregarded that the strength of Calpine was deteriorating and that the only way , to conceal the weakness was through accounting machinations. {Id.) Second, Plaintiffs contend, demand for electricity was not then increasing. {Id.) b. February 6, 2001 Press Release On February 6, 2001, Calpine announced its financial and operating results for the fourth quarter and year ended December 31, 2000. {Id. ¶ 144.) In the press release, Calpine described “strong” financial and operating results, providing pertinent figures. {Id.) Commenting on the reported results, Cartwright stated: “2000 was another outstanding year for Calpine. The execution of our successful growth strategy continues to deliver strong earnings growth and generate exceptional shareholder value.” {Id. ¶ 145.) Plaintiffs allege that the statements in the February 6, 2001 press release concerning Calpine’s “strong” financial results, particularly reported earnings, were materially false and misleading. {Id. ¶ 146.) Plaintiffs allege that defendants knew or recklessly disregarded that fourth quarter and year-end earnings were inflated due to Calpine’s over-capitalization of interest on debt. {Id.) Plaintiffs further allege that defendant knew or recklessly disregarded that reported EBITDA (earnings before interest, taxes, depreciation, and amortization) was materially false and misleading because the calculation used to reach the figure did not comply with Generally Accepted Accounting Principles (“GAAP”) and was not appropriately labeled so as to inform investors of its variance with GAAP. {Id.) Plaintiffs also allege that defendants knew or recklessly disregarded that the reported earnings figures were materially false and misleading because they were the result of defendants’ failure to adhere to FAS 133, a set of accounting principles that are allegedly premised on the proposition that, for traded contracts, the value reflected should be the fair value based on market prices. {Id. ¶¶ 54-55, 146.) Finally, Plaintiffs allege that Cartwright’s statement in the press release was materially false and misleading because the reported earnings figures were produced through manipulating accounting rules and procedures. {Id. ¶ 146.) On February 6, 2001, in reliance on the truth and accuracy of Calpine’s February 6, 2001 press release and other prior public statements, Salomon Smith Barney issued' a research report reiterating its “Strong Buy” rating and $60 price target on Calpine stock. {Id. ¶ 147.) Plaintiffs allege that statements in this report regarding Calpine’s financial results were materially false and misleading in that Cal-pine’s earnings were the result of defendants’ manipulative accounting techniques rather than a representation of its true financial state. (Id.) c. February 7, 2001 Press Release On February 7, 2001, Calpine announced the $4.6 billion contract with the CDWR in a press release. (Id. ¶ 148.) Macias was quoted in the press release as stating, “Calpine is very pleased to provide California consumers with a vital new source of clean and affordable electricity. This contract between Calpine and the State brings competitively priced power to the market to help stabilize electricity prices for consumers.” (Id.) Plaintiffs allege that the statements in the press release concerning Calpine’s bringing “competitively priced power to the market” and “affordable electricity” to California consumers were materially false and misleading. (Id. ¶ 150.) Plaintiffs allege that, as Macias was the lead negotiator of and signatory to the contract, Macias knew or recklessly disregarded that the terms of the contract were unjust and unreasonable and subject to abrogation or reformation by the FERC for violation of the FPA for the reasons stated supra in Parts I.A.2-3. (Id.) d. February 28,2001 Press Release On February 28, 2001, Calpine issued a press release announcing the signing of the two long-term power contracts with the CDWR. (Id. ¶ 155.) The press release stated, inter alia, that under the terms of the $5.2 billion, 10-year, fixed-price contract, Calpine committed to sell up to 1,000 megawatts of “competitively priced” power. (Id.) The press release also quoted Macias as commenting in part, “This is another win-win for California consumers and Calpine.... Calpine will soon be providing up to 2,500 megawatts of clean, rehable and affordable energy.” (Id.) Plaintiffs allege that the statement in the February 28, 2001 press release concerning Calpine’s providing California with “competitively priced” power and Macias’ statements that the contracts would provide California with “affordable electricity” and presented California consumers and Calpine with a “win-win” situation were materially false and misleading. (Id. at ¶ 156.) Plaintiffs allege that defendants knew or recklessly disregarded that the terms of these contracts were unjust and unreasonable for the reasons stated supra in Parts I.A.2-3 and benefitted Calpine solely. (Id.) e.Calpine’s 2000 Form 10-K and Ac-companyiny Annual Report On March 15, 2001, Calpine filed with the SEC its 2000 10-K. (Id. ¶ 159.) Defendants Cartwright, Curtis, and Clark, among others, signed the 2000 10-K. (Id.) According to the 2000 10-K, Calpine’s financial statements and methods of accounting were accurate and prepared in conformity with GAAP. (Id.) The 2000 10-K also discussed, among other things, certain financial market risks that Calpine faced and the definition of EBITDA used in the 10-K. (Id.) Plaintiffs allege that Calpine’s financial statements in the 2000 10-K were materially false and misleading and did not, as defendants knew or recklessly disregarded, comply with GAAP in all material respects. (Id. ¶ 160.) Plaintiffs allege that the statements concerning the accounting for financial swaps were materially false and misleading. (Id.) They allege that defendant knowingly and recklessly failed to consistently account for hedges in each successive filing and did not always designate hedges as cash flow hedges. (Id.) Plaintiffs further allege that the statement concerning the definition of reported EBITDA was materially false and misleading because it failed to explain that Calpine’s calculation of EBITDA did not conform to GAAP. (Id.) They allege that defendants knew or recklessly disregarded that Calpine’s presentation of EBITDA did not comply with recent SEC guidance concerning the disclosure of non-GAAP measures such as EBITDA. (Id.) Within the annual report to shareholders, which accompanied the 2000 10-K, defendant Cartwright made a number of statements in his Letter to Shareholders concerning the energy crisis and the demand for energy. (Id. ¶ 161.) Cartwright stated, inter alia: “Events in California and its markets across the country validate Calpine’s version of the increased opportunities to the power industry. Demand is exceeding supply.” (Id.) Plaintiffs allege that Cartwright’s statements concerning the events in California in 2000 and early 2001 and the demand for electricity were materially false and misleading. (Id. ¶ 162.) Plaintiffs allege that, “based on contemporaneous government reports available to defendants,” Cartwright knew or recklessly disregarded that neither a shortage of capacity nor an increase in demand drove increases in power prices. (Id.) f. March 29, 2001 Press Release On March 29, 2001, Calpine issued a press release entitled “Calpine Anticipates Higher Financial Results for 2001.” (Id. ¶ 163.) Calpine stated that it expected net income for the year ending December 31, 2001, to exceed that of the previous year and to exceed previous expectations. (Id.) The press release also quoted Cartwright as stating in part: “This increase reflects Calpine’s accelerated growth in the U.S. power industry-[W]e are looking forward to another strong year for Calpine.” (Id.) Plaintiffs allege that the statement in the press release concerning increased earnings was materially false and misleading. (Id. ¶ 165.) Plaintiffs allege that defendants knew or recklessly disregarded that their earnings estimates would not be achievable but for the manipulation of accounting rules and regulations. (Id.) Plaintiffs further allege that Cartwright’s statement concerning the increase in expected earnings as being reflective of Cal-pine’s growth in the U.S. power industry was knowingly or recklessly false and misleading for the same reasons. (Id.) Plaintiffs additionally allege that Cartwright knew or recklessly disregarded that some of the purported growth was the result of the contracts with the CDWR, contracts that were unjust and unreasonable under the FPA for the reasons stated supra in Parts I.A.2-3. (Id.) g. April 26,2001 Earnings Release On April 26, 2001, Calpine announced its financial results for the quarter ended March 31, 2001. (Id. ¶ 166.) The statement provided EBITDA figures showing an increase relative to the prior year. (Id.) In a footnote to the consolidated condensed statement of operations for the first three months of the year, defendants stated that the reported EBITDA figure represented a “non-GAAP measure” and provided a definition for that measure illustrating how it was calculated. (Id.) Defendants also mentioned the three long-term power sales agreements with the CDWR, stating that they provided “needed sources of clean, competitively priced electricity for its customers.” (Id.) Plaintiffs allege that the statement concerning reported earnings was materially false and misleading because defendants knowingly or recklessly inflated the value of Calpine’s long-term energy contracts and misapplied FAS 133. (Id. ¶ 168.) Plaintiffs further allege that the statements concerning the definition of EBIT-DA were materially misleading because “an examination of the footnote’s dense prose revealed that certain expenses had been added back” to the reported EBIT-DA figure, “artificially inflating the figure.” (Id. ¶ 169.) Plaintiffs allege that defendants failed to comply with an SEC directive (discussed infra in Part I.A.6) either to remove all reconciling items or to retitle EBITDA as “EBITDA, as adjusted,” which would have informed investors that Calpine’s reported EBITDA did not conform to GAAP. (Id.) Finally, Plaintiffs allege that the statements concerning the CDWR contracts were materially false and misleading because defendants knew or recklessly disregarded that they would not provide California with competitively priced power and that they were unjust and unreasonable in violation of the FPA. (Id. ¶ 170.) h. Cartwright’s June 11, 2001 Wall Street Transcript Statement On June 11, 2001, the Wall Street Transcript conducted an interview with Cartwright in which he stated, in pertinent part: “We are comfortable that we are going to continue to have very healthy margins.” (Id. ¶ 174.) Plaintiffs allege that Cartwright’s statement concerning Calpine’s continued “healthy margins” was materially false and misleading because Cartwright knew or recklessly disregarded that Calpine’s financial statements were not truly representative of its financial status but, rather, were the result of manipulative accounting practices. (Id. ¶ 175.) i. July 26, 2001 Second Quarter 2001 Report On July 26, 2001, Calpine announced its financial results for the three and six months ended June 30, 2001. (Id. ¶ 176.) The announcement, inter alia, provided EBITDA figures, along with the definition mentioned supra in Part I.A.5.g. (Id. ¶¶ 177, 179.) The announcement also quoted Cartwright as commenting on the reported results in pertinent part as follows: “It was a great quarter for Calpine .... Our unique systems approach enables Calpine to better serve our customers, secure strong long- and short-term’ contracts, lower costs and maximize value.... Calpine’s outlook remains strong.... Cal-pine expects continued strong financial results through the balance of 2001 and beyond, with 2001 year-end earnings from recurring operations to be approximately $2.00 per share.” (Id. ¶ 178.) Plaintiffs allege that the statement concerning reported earnings was materially false and misleading because defendants knowingly or recklessly inflated the value of Calpine’s long-term energy contracts, misapplied FAS 133, and misused the pooling of interest method of accounting. (Id. ¶ 180.) Plaintiffs also allege that the statements concerning the definition of EBIT-DA were misleading for the reasons identified supra in Part I.A.5.g. (Id. ¶ 181.) Plaintiffs further allege that statements by Cartwright in particular, were materially false .and misleading in several respects. (Id. ¶ 182.) They allege that Cartwright knew or recklessly disregarded that Cal-pine’s financial statements were not representative of Calpine’s financial status but were the result of manipulative accounting practices. (Id.) They allege that Cartwright’s statements about serving its customers were materially misleading because Calpine’s long-term contracts were unreasonable and unjust and would not provide customers with lower costs for their energy. (Id.) Finally, Plaintiffs' allege that given the accounting machinations used by defendants to meet earnings estimates, Cartwright lacked any basis in fact to represent that Calpine’s outlook remained “strong” and that ■ Calpine expected “strong” future financial results. (Id.) j. July 27, 2001 Contra Costa Times Article On July 27, 2001, the Contra Costa Times published an article in which Cartwright was quoted as stating that, because of the high prices it had locked in, Calpine expected its full-year operating income to exceed Calpine’s previous prediction of $1.90 per share. (Id. ¶ 186.) He added that he was “very confident” that Calpine’s earnings would exceed $2 per share in 2001. (Id.) Plaintiffs allege that Cartwright’s statements in this article were materially false and misleading when made because the prices “locked in” were unjust and unreasonable in violation of the FPA and thus subject to abrogation or reformation by the FERC. (Id. ¶ 187.) Plaintiffs allege that Cartwright had no basis on which to be “very confident” that Calpine’s income would exceed $2 per share in 2001. (Id.) k. Second Quarter 200110-Q On August 14, 2001, Calpine filed with the SEC its Second Quarter 2001 10-Q. (Id. ¶ 188.) Defendants Curtís and Clark signed the 10-Q, which stated, among other things, that Calpine’s financial statements complied with GAAP. (Id.) In the 2001 Second Quarter 10-Q, Calpine recognized $94.6 million of commodity derivative mark-to-market gains on its income statement. (Id.) Calpine reported commodity derivative comprehensive income (excluding mark-to-market income) of $176.9 million. (Id.) Plaintiffs allege that defendants’ statements in the Second Quarter 2001 10-Q were materially false and misleading “for the reasons stated in paragraphs 51-81” of the SAC. (Id. ¶ 189.) Plaintiffs further allege that “virtually all of [Calpine’s] commodity derivatives should have been designated as cash flow hedges.” (Id.) According to Plaintiffs, this designation of cash flow hedges was made in the first quarter of 2001 but not in the second quarter, “thus leading to an inconsistent application of accounting principles, and rendering defendants’ statements concerning earnings false and misleading.” (Id.) The Second Quarter 2001 10-Q also contained statements purporting to give the causes of the California energy crisis. (Id. ¶ 190.) Plaintiffs allege that these statements were materially false and misleading for the reasons discussed supra in Part I.A.4.a. (Id.) l. August 28, 2001 Conference Call with Analysts During an August 28, 2001 conference call with analysts (in which Cartwright, Curtis, Posoli, and Macias participated), Calpine officials said that there were no discussions underway to renegotiate the long-term contracts with the CDWR. (Id. ¶ 191.) Plaintiffs allege that these statements were materially false and misleading because Calpine knew, at the time such statements were made, that the CDWR contracts were unjust and unreasonable and, consequently, subject to abrogation or reformation by the FERC for violations of the FPA. (Id. ¶ 192.) m. October 2, 2001 Press Release Announcing Debt Upgrade On October 2, 2001, Calpine announced that its corporate credit and senior unsecured notes had been upgraded by Moody’s Investor Service. (Id. ¶ 193.) The press release commented that the upgrade “reflect[ed] the company’s strong operating portfolio of efficient and low-cost power facilities and solid cash flow positions over the next five years.” (Id.) Plaintiffs allege that the statement regarding the reasons for the upgrade was materially misleading because defendants knew or recklessly disregarded that Cal-pine’s operating portfolio figures and cash flow positions were derived through manipulative accounting. (Id. ¶ 194.) Plaintiffs allege that defendants deliberately made false financial projections to insure that Calpine’s credit ratings would continually be upgraded, thus insuring that future financings would be easily obtained and less costly. (Id.) n. October 25,2001 Press Release On October 25, 2001, Calpine announced its earnings for the three and nine months ended September 30, 2001. (Id. ¶ 195.) The press release provided essentially the same types of financial. figures as those provided in the July 26, 2001 Second Quarter report, including EBITDA figures. (See id. ¶¶ 195-96; compare id. ¶¶ 195-96 with id. ¶¶ 176-77.) In the press release, Cartwright stated, inter alia, that the third quarter of 2001 was “another record quarter”; that Calpine’s “new energy resources will go a long way to help meet increased demand”; and that Calpine’s future outlook remained “strong.” (Id. ¶ 197.) Plaintiffs allege that the various statements in the press release were materially false and misleading when made for the same reasons identified supra in Parts I.A.5.g and I.A.5.Í, as well as for the reason that demand for power was in fact not increasing. (See id. ¶¶ 198-200.) o. Third Quarter 200110-Q On November 14, 2001, Calpine filed with the SEC its quarterly report on Form 10-Q for the quarter ending September 30, 2001. (Id ¶ 203.) Defendants Curtis and Clark signed the 10-Q, which stated, among other things, that Calpine’s financial statements complied with GAAP. (Id.) The Third Quarter 2001 10-Q contained a discussion regarding the California energy crisis and the causes therefor. (Id.) Plaintiffs allege that the statement that Calpine’s financials were prepared in accordance with GAAP was materially false and misleading because, as defendants knew, in an effort to meet its earnings expectations, Calpine engaged in a variety of improper accounting procedures that did not comply with GAAP. (Id. ¶204.) Plaintiffs further allege that the statements concerning the energy crisis were materially false and misleading for the reasons identified supra in Part I.A.4.a. (Id.) 6. Drop in Calpine Stock Price and Credit Rating On November 14, 2001, the price of Cal-pine stock traded between $26.90 per share and $28.85 per share. (Id. ¶ 205.) On or about November 27, 2001, the FERC issued the aforementioned order finding that the “dysfunction” in the short-term energy market in California in 2000 and 2001 may have impacted long-term power contract prices, rendering them unjust and unreasonable under Sections 205 and 206 of the FPA. (Id. ¶ 206.) On the same day, the FERC also instituted a proceeding under the FPA to investigate the justness and reasonableness of the price of power charged to California by power companies, including Calpine. (Id.) On this news, Calpine’s stock price dropped from $23.29 per share on November 27, 2001, to $21.10 per share on November 28, 2001. (Id. ¶ 207.) On December 9, 2001, the New York Times published the December 9 Article, described supra, which discussed Calpine’s financial statements and its dealings with Enron. (Id. ¶ 209.) As to the former, the article described Calpine’s financial statements as “opaque” and “so complex as to be almost unfathomable.” (Id.) The article further described Calpine’s practice of recording on its balance sheets hedging activity that produced losses while recording all hedges that produced gains on its income statement. (Id.) As to the latter, the article discussed Calpine’s increased reliance on Enron as a trading partner through 2001. (Id.) Further, the December 9 Article noted that, in many respects, Calpine’s balance sheet was as complex and incomprehensible as Enron’s. (Id. ¶ 210.) In response to publication of the December 9, 2001 Article, the price of Calpine’s common stock fell 17% from its Friday, December 7, 2001, close of $21.37 per share to $17.79 per share on Monday, December 10, 2001. (Id. ¶ 211.) On December 11, 2001, Calpine announced that it had scheduled a meeting with California officials for later that week to discuss the terms of the CDWR contracts. (Id. ¶ 212.) On December 11, 2001, Calpine’s common stock price closed at $15.50 per share. (Id. ¶ 213.) On December 13, 2001, the New York Times published an article entitled “Cal-pine’s Accounting Ways Have Been Issue With S.E.C.” (the “December 13 Article”) concerning Calpine’s correspondence with the SEC and Calpine’s continued failure to rectify its reported EBITDA in its public filings. (Id. ¶214.) The article stated in pertinent part that in an April 19 letter to Clark, the assistant director of corporation finance at the SEC complained that Cal-pine’s version of EBITDA included terms added to or taken away from earnings that were not normally part of EBITDA. (Id.) The article quoted the letter as instructing Calpine to, at a minimum, retitle the non-GAAP measure as “ebitda, as adjusted.” (Id.) The article stated that Calpine responded to the SEC in a letter dated May 7, 2001, that affirmed that Calpine would henceforth label the measure at issue as “ebitda, as adjusted.” (Id.) On December 14, 2001, Lehman Brothers downgraded Calpine to “Market Perform” from “Strong Buy” due to “increasing liquidity concerns and an uncertain earnings outlook.” (Id. ¶ 218.) Also on December 14, 2001, prior to the opening of the market, Moody’s Investors Service announced that it might cut the credit rating on Calpine’s $11.6 billion of debt to junk. (Id. ¶ 219.) Calpine shares fell from a closing price of $16.05 per share on December 13, 2001, to a closing price of $13.20 per share on December 14, 2001. (Id. ¶ 217.) Following the close of the market on December 14, 2001, Moody’s Investor Service announced that it had cut its rating of Calpine’s debt to junk. (Id. ¶ 220.) On December 20, 2001, the California State Auditor issued a report in which it determined that the CDWR was overcharged on long-term power contracts. (Id. ¶ 221.) On February 13, 2002, the Dow Jones Newswire reported that Cal-pine had amended its Third Quarter 2001 10-Q to reflect losses sustained on cash flow hedges. (Id. ¶ 222.) On February 14, 2002, the San Francisco Chronicle published an article that also discussed the amended filing. (Id. ¶ 223.) On May 31, 2002, Calpine issued a press release in response to the FERC investigation of power trading activities. (Id. ¶ 224.) Calpine admitted that it did engage in the trading activities, specifically “wash trades” and “round-trip trades.” (Id.) With regard to its “wash trade” trading practices, Calpine stated in part: “Of more than 72,000 transactions, 31 resulted in the simultaneous purchase and sale of the same electricity product between the same counterparties. These transactions were completed for risk management reasons, and represented approximately one-tenth o[f] one percent of 2001 total revenue. There were no such transactions in 2000.” (Id.) Calpine’s common stock fell 12% that day, to $8.48 per share. (Id. ¶ 225.) 1. Individual Defendants’ Stock Sales During the Class Period, commencing on February 22, 2001, and ending on February 6, 2002, Cartwright sold a total of 403,000 shares of Calpine stock, for proceeds totaling $15,621,007. (Id. ¶ 233.) Commencing on February 22, 2001, and ending on November 14, 2001, Curtis sold a total of 270,000 shares of Calpine stock, for proceeds totaling $13,567,400. (Id.) 8. Defendants’ Alleged Motives and Opportunities Plaintiffs allege that the Individual Defendants were motivated to inflate the stock price and financial results of Calpine to maximize their executive compensation packages. (Id. ¶¶ 234-36.) Plaintiffs further allege that defendants were motivated to inflate the stock price and financial results of Calpine to ensure Calpine’s continued access to capital markets. (Id. ¶ 237.) In addition, defendants knew that without a continual capital infusion, Calpine would be unable to meet its revenue expectations and finance its expansion program. (Id. ¶239.) Thus, according to Plaintiffs, defendants were motivated to conceal Cal-pine’s financial results and the true reason for the energy crisis to avoid compromising the success of Calpine’s numerous debt offerings, which were necessary to fund Calpine’s expansion. (Id. ¶ 240.) Plaintiffs further allege that defendants were motivated to conceal adverse information about the underlying causes of the energy crisis by their desire to negotiate contracts with California on enormously favorable terms. • (Id. ¶ 241.) B. Procedural History The initial securities class action complaint against defendants was filed by plaintiff Caroline Weisz on March 11, 2002. Fourteen other putative class actions were subsequently commenced against defendants, including two commenced by now-lead plaintiffs Mansukh B. Makadia and Laborers Local 1298 Pension Fund. In an Order filed on August 16, 2002, the Court consolidated the fifteen actions. On August 19, 2002, the Court filed an Order appointing Mansukh B. Makadia and Laborers Local 1298 Pension Fund lead plaintiffs for the putative class action. On October 18, 2002, Plaintiffs filed an Amended Complaint for Violations of the Federal Securities Laws (the “AC”) against Calpine, Cartwright, and Curtis. On January 21, 2003, pursuant to stipulation of the parties and Order of the Court, Plaintiffs filed the SAC, which names Cal-pine, the Individual Defendants, and Arthur Andersen LLP (“Andersen”) as defendants. On April 8, 2003, the Individual Defendants filed the Individuals’ Motion, and Calpine filed Calpine’s Motion. On June 23, 2003, Andersen filed Arthur Andersen LLP’s Motion to Dismiss Second Consolidated Amended Class Action Complaint (“Andersen’s Motion”). On July 24, 2003, the Court filed an Order taking the hearing on the three pending motions off-calendar and taking them under submission. On August 8, 2003, the Court granted Plaintiffs’ motion to dismiss Andersen as a defendant. II. LEGAL STANDARD A. Motion to Dismiss Pursuant to Rule 12(b)(6) Generally A Rule 12(b)(6) motion to dismiss tests the legal sufficiency of a claim. Navarro v. Block, 250 F.3d 729, 731 (9th Cir.2001). A motion to dismiss should not be granted “unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); accord Johnson v. Knowles, 113 F.3d 1114, 1117 (9th Cir.1997). The complaint is construed in the light most favorable to the plaintiff, and all properly pleaded factual allegations are taken as true. Jenkins v. McKeithen, 395 U.S. 411, 421, 89 S.Ct. 1843, 23 L.Ed.2d 404 (1969); see also Everest & Jennings, Inc. v. Am. Motorists Ins. Co., 23 F.3d 226, 228 (9th Cir.1994). “Dismissal is proper only where there is no cognizable legal theory or an absence of sufficient facts alleged to support a cognizable legal theory.” Navarro, 250 F.3d at 731. Although the Court is generally confined to consideration of the allegations in the pleadings, “a document is not ‘outside’ the complaint if the complaint specifically refers to the document and if its authenticity is not questioned.” Branch v. Tunnell, 14 F.3d 449, 453 (9th Cir.1994). The Court may also consider matters of which it may properly take judicial notice without converting the motion to dismiss to one for summary judgment. Barron v. Reich, 13 F.3d 1370, 1377 (9th Cir.1994) (records and reports of administrative bodies); Emrich v. Touche Ross & Co., 846 F.2d 1190, 1198 (9th Cir.1988) (court records). In adjudicating a motion to dismiss, the court need not accept as true unreasonable inferences or conclusory legal allegations east in the form of factual allegations. W. Mining Council v. Watt, 643 F.2d 618, 624 (9th Cir.1981). Nor is the court “required to accept as true conclusory allegations which are contradicted by documents referred to in the complaint.” Steckman v. Hart Brewing Inc., 143 F.3d 1293, 1295 (9th Cir.1998); see also Miranda v. Clark County, Neu, 279 F.3d 1102, 1106 (9th Cir.2002) (“[C]onclusory allegations of law and unwarranted inferences will not defeat a motion to dismiss for failure to state a claim.”); Sprewell v. Golden State Warriors, 266 F.3d 979, 987 (9th Cir.) (“Nor is the court required to accept as true allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences.”), amended, 275 F.3d 1187 (9th Cir.2001); McGlinchy v. Shell Chem. Co., 845 F.2d 802, 810 (9th Cir.1988) (“[Cjonclu-sory allegations without more are insufficient to defeat a motion to dismiss for failure to state a claim.”). When the complaint is dismissed for failure to state a claim, “leave to amend should be granted unless the court determines that the allegation of other facts consistent with the challenged pleading could not possibly cure the deficiency.” Schreiber Distrib., Co. v. Serv-Well Furniture Co., 806 F.2d 1393, 1401 (9th Cir.1986). Leave to amend is properly denied “where the amendment would be futile.” DeSoto v. Yellow Freight Sys., Inc., 957 F.2d 655, 658 (9th Cir.1992). B. Heightened Pleading Requirements for Securities Fraud Claims 1. Rule 9(b) Plaintiffs’ two Exchange Act claims, Counts I and II, are subject to the heightened pleading requirements of Federal Rule of Civil Procedure 9(b). In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541, 1545 (9th Cir.1994) (en banc). Rule 9(b) provides: “In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally.” Fed.R.Civ.P. 9(b). To comport with Rule 9(b), the complaint must allege the time, place, and content of the alleged fraudulent representation or omission; the identity of the person engaged in the fraud; and the “circumstances indicating falseness” or “the manner in which [the] representations [or omissions at issue] were false and misleading.” In re GlenFed, 42 F.3d at 1547-48. Thus, a plaintiff must provide an explanation as to how an alleged statement or omission was false or misleading when made. Id. at 1548. The failure to plead fraud with the requisite particularity is grounds for dismissal. See Wool v. Tandem Computers, Inc., 818 F.2d 1433, 1439 (9th Cir.1987). Dismissal under Rule 9(b) is governed by the same standard applicable to Rule 12(b)(6). Id. 2. The Private Securities Litigation Reform Act (PSLRA) Counts I and II are also subject to the heightened pleading requirements of the Private Securities Litigation Reform Act (PSLRA). The PSLRA reiterates the particularity requirements of Rule 9(b). First, the complaint must specify “each statement alleged to have been misleading.” 15 U.S.C. § 78u-4(b)(l). Second, it must specify the reason or reasons why the statement was false or misleading. Id. If an allegation regarding a misleading statement is made on information or belief, the complaint must state with particularity all facts forming the basis for the belief. Id. The PSLRA’s third obligation moves beyond Rule 9(b)’s requirements. When pleading scienter, the PSLRA requires the complaint, with respect to each act or omission alleged to violate a provision of the Exchange Act, to “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.” Id. § 78u-4(b)(2). In this Circuit, this heightened scienter pleading standard “requires plaintiffs to plead, at a minimum, particular facts giving rise to a strong inference of deliberate or conscious recklessness” — a degree of recklessness strongly suggesting actual intent. In re Silicon Graphics Inc. Sec. Litig., 183 F.3d 970, 979 (9th Cir.1999). Merely alleging that a defendant had the motive and opportunity to commit fraud is insufficient. Id. III. DISCUSSION A. Requests for Judicial Notice 1. Defendants ’ Requests a. Individuals’Request The Individual Defendants have filed the Individual Defendants’ Request for Judicial Notice in Support of Motion to Dismiss the Second Amended Complaint for Failure to State a Claim (the “Individuals’ Request”). The Individuals’ Request asks the Court to take judicial notice of three documents. The first consists of selected pages of a document purportedly issued by the SEC and obtained from the SEC website. The second and third documents consist of copies of Cartwright’s and Curtis’ Forms 3, 4, and 5 filed with the SEC. Plaintiffs have not filed any opposition to the Individuals’ Request. The Individuals’ Request is proper. The first document pertains to SEC guidance on disclosure of non-GAAP measures such as EBITDA. (Individuals’ Req. Ex. A.) Plaintiffs expressly cite and quote from this document in the SAC. (SAC ¶ 65.) In adjudicating a motion to dismiss under Rule 12(b)(6), the Court may properly take judicial notice of documents referenced in a complaint without converting