Full opinion text
OPINION AND ORDER LYNCH, District Judge. This consolidated class action arises from alleged accounting improprieties at the telecommunications firm Global Crossing, Ltd. (“GC”), during the period between February 1, 1999, and January 28, 2002, the “class period,” that artificially inflated the company’s stock price. According to the Consolidated Class Action Complaint, “[djuring the Class Period, insiders sold over $1.5 billion in artificially inflated Global Crossing stock while in possession of material, non-public information and the outside advisor defendants reaped hundreds of millions of dollars in fees and profits. But the Company and its purported multi-billion dollar revenues and strong, substantial cash flow were a complete sham.” (ComplY 1.) In addition to suing GC, its individual directors and officers, and numerous financial institutions, plaintiffs have named as defendants Arthur Andersen LLP (“Andersen”), GC’s outside auditor, as well as several of its officers, board members, and employees (“the individual Andersen defendants”). Plaintiffs later amended their Complaint to assert claims against a GC subsidiary, Asia Global Crossing, Ltd. (“AGC”), and against Andersen in its role as AGC’s outside auditor. Plaintiffs assert these claims under sections 11 and 15 of the Securities Act of 1933, 15 U.S.C. §§ 77k, 77o, and sections 10(b), 14, and 20(a) of the Exchange Act of 1934, 15 U.S.C. §§ 78j(b), 78n, 78t-l(a), as well as Rule 10b-5 promulgated thereunder by the Securities Exchange Commission (“SEC”),-17 C.F.R. § 240.10b-5. On April 4, 2003, Andersen and the individual Andersen defendants moved to dismiss all claims asserted against them in the original Complaint; on October 10, 2003, they further moved to dismiss all claims relating to AGC. Because both motions implicate similar legal issues, they will be decided together. For the reasons set forth below, Andersen’s motions will be granted in part and denied in part. BACKGROUND The facts underlying the Complaint in this case were briefly set forth in this Court’s December 18 Opinion, but will be outlined in more detail here. The claims against Andersen in particular center around allegedly fraudulent misstatements of GC’s and AGC’s assets, obligations, and cash revenues, arising from the manner in which the two companies accounted for certain transactions involving “indefeasible rights of use” (“IRUs”). In its role as independent auditor for both GC and AGC (“the Companies”), Andersen is alleged to have perpetrated a fraud on investors by dictating incorrect and misleading accounting systems for these transactions and by structuring them so as to inflate the Companies’ reported earnings, in violation of Generally Accepted Accounting Practices (“GAAP”) and Generally Accepted Accounting Standards (“GAAS”). An IRU is the “right to use a specified capacity, or bandwidth, over a designated communications cable owned by a telecommunications company for a set period of time.” (¶ 150.) Income from IRU transacT tions represented-a large'portion of the Compánies’ revenues during the class periods and therefore played a substantial role in determining the market value of their shares. Plaintiffs claim that the Companies, in order to meet performance expectations and thereby boost the value of their securities, (1) reported as immediate cash revenue income that should have been booked over the 25-year term of each IRU, while amortizing the related costs over the entire term; and (2) similarly reported income from unneeded reciprocal “swaps” with other carriers of such capacity, notwithstanding that, where cash actually changed hands, it was “round-tripped” in the return half of the swap, thereby yielding no actual revenue. They further assert that the Companies overstated the value of their assets by failing to mark down the value of the IRUs received in the swaps, which had been booked at or above their “fair market value,” even as the market price for capacity plummeted due to the glut on the market. (¶ 718.) Exchanges of capacity were common in the telecommunications industry from its inception. However, “[ujntil the late 1990s ... telecom companies did not treat these exchanges as sales and usually did not record revenue from the trades.” (¶ 210.) GC alone among these companies booked immediate revenue from these sales. (¶ 211.) Plaintiffs allege that the practice of booking IRU revenue up front violated Financial Accounting Standards Board (“FASB”) Statement No. 13, which restricts the circumstances under which a company may report as immediate revenue the total lease payments due under a mul-tiyear lease agreement. Indeed, effective July 1, 1999, the FASB issued “FASB Interpretation No. 43” (“FIN 43”), a clarification of FASB 13 that clearly prevented GC from continuing to book the IRU payments as immediate cash income. Following the issuance of FIN 43, GC changed its accounting to come into compliance with its requirements, although AGC continued to book revenue for leases of subsea (as opposed to terrestrial) cable as immediate revenue until mid-2000. (¶ 157.) Following the issuance of FIN 43, GC announced that compliance with its terms “would not have a material impact on the Company’s financial position or results of operations.” (¶ 220 (quoting unattributed source).) But plaintiffs allege that compliance with FIN 43 would, in fact, have been devastating had GC not found a new source of illusory revenue: reciprocal “swap” transactions with other telecommunications companies. According to the Complaint, Joseph Perrone, a senior partner in Andersen’s media and communications practice, devised a “roadmap” whereby telecom companies, and GC in particular, could structure trades of capacity to create the appearance of revenue, with the purpose of avoiding the strictures of GAAP. (¶¶ 216-224.) In particular, the transactions were structured to circumvent Accounting Principles Board Opinion No. 29 (“APB 29”), “Accounting for Non-monetary Transactions,” which specifies that no revenue or expense should be recorded for transactions that involve an exchange of like assets. Andersen’s scheme, which was embodied in a document that came to be known as the “White Paper,” advised that telecom clients could book revenue from IRU sales between companies if the transactions had separate contracts and separate cash settlements, and if the contracts were at least sixty days apart. (¶ 217.) Thereafter, the Companies followed these guidelines to structure their exchanges of capacity such that they could book revenue from the transactions. When revenue from IRU sales could no longer be reported immediately as cash revenue under GAAP, GC claimed that its own measures of revenue, styled by GC as “pro forma disclosures,” “Earnings Before Interest, Taxes, Depreciation, and Amortization” (“EBIDTA”), and “Adjusted EBIDTA,” were better measures of its financial health than financial statements according to GAAP. These financial statements, which were publicly disseminated to investors, reported as immediate revenue what they termed the “cash portion” of “deferred revenue”: in effect, these disclosures allowed GC to further circumvent the requirements of FIN 43 and APB 29, and to continue to represent as immediate revenue the up-front payments they received for IRU sales. Additionally, AGC created the terms “Proportionate Cash Revenue” and “Proportionate Adjusted EBITDA,” which purportedly reflected “the sum of our ownership percentage” of cash revenue and adjusted EBITDA of various GC affiliates with whom ACG participated in joint ventures. (¶¶ 240, 241.) The Companies’ tactics succeeded, plaintiffs claim, in inflating the value of their stock, resulting in steep losses for shareholders in 2002 when the house of cards collapsed and the Companies inevitably went bankrupt. Plaintiffs allege that Andersen, as independent auditor for both GC and AGC, played a central role in devising and implementing the accounting schemes in question. According to the Complaint, Andersen “created a web of interrelated transactions between [its] clients that had no economic substance but which were used to fool investors into believing that the industry and these companies were growing much faster than the reality.” (¶ 146.) In addition to issuing clean audit opinions on the Companies’ annual 10-K reports filed with the SEC, Andersen allegedly also had direct knowledge of the Companies’ unaudited pro forma reports (¶ 732(h)), and was responsible through defendants Perrone and, later, Mark Fagan, Andersen’s senior partner in charge of the GC account after Perrone was hired by GC, for overseeing all of GC’s public statements (¶ 77.) Plaintiffs accordingly seek to hold Andersen liable under section 10(b) and Rule 10b-5 for the financial statements it audited for GC in 1998,1999, and 2000, and for AGC in 2000, claiming that they included materially false or misleading information in their treatment of IRUs and swap transactions. They also seek to hold- Andersen liable for GC’s and AGC’s unaudited press releases and “pro forma” disclosures, which included falsely optimistic statements of income and misleading statements of “EBIDTA.” (Counts I, XIX.) As a corollary to the allegations of false and misleading statements in plaintiffs’ section 10(b) claims, they further assert that Andersen is liable under section 11 for including the allegedly misleading audited financial statements in registration statements filed in connection with various stock offerings (Counts VIII-XIV, XX), and under section 14 for consenting to the inclusion of the false audited financial statements in a proxy statement issued in connection with GC’s merger with Frontier Corporation (“Frontier”) in 1999 (Count II). Finally, they assert claims under sections 20(a) and 15 against Andersen as an entity, as well as against the individual Andersen defendants, for controlling the persons who engaged in these illegal activities. (Counts TV, XVI). • DISCUSSION On a motion to dismiss under Fed.R.CivP. 12(b)(6), the Court must accept “as true the facts alleged in the complaint,” Jackson Nat’l Life Ins. v. Merrill Lynch & Co., 32 F.3d 697, 699-700 (2d Cir.1994), and may grant the motion only if “it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” Thomas v. City of New York, 143 F.3d 31, 36 (2d Cir.1998) (citations omitted); see also Bernheim v. Litt, 79 F.3d 318, 321 (2d Cir.1996) (when adjudicating motion to dismiss under Fed.R.Civ.P. 12(b)(6), the “issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims” (citations omitted)). When deciding a motion to dismiss pursuant to Rule 12(b)(6), the Court may consider documents attached to the complaint as exhibits or incorporated in it by reference. Brass v. American Film Techs., Inc., 987 F.2d 142, 150 (2d Cir.1993) (“[T]he complaint is deemed to include any written instrument attached to it as an exhibit or any statements or documents incorporated in it by reference.”). In addition to facts alleged in the complaint, the Court may take judicial notice of public disclosure documents filed with the SEC. Kramer v. Time Warner Inc., 937 F.2d 767, 774 (2d Cir.1991). All reasonable inferences are to be drawn in the plaintiffs’ favor, which often makes it “difficult to resolve [certain questions] as a matter of law.” In re Indep. Energy Holdings PLC, 154 F.Supp.2d 741, 747 (S.D.N.Y.2001). I. Section 10(b) Claims A. Legal Standard Section 10(b) protects investors by making it unlawful “[t]o use or employ, in connection with the purchase or sale of any security ..., any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [Securities and Exchange] Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.” 15 U.S.C. § 78j(b). Pursuant to SEC Rule 10b-5, it is unlawful: (a) To employ any device, scheme, or artifice to defraud, (b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or (c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security. 17 C.F.R. § 240.10b-5. The purpose of section 10(b) was “to substitute a philosophy of full disclosure for the philosophy of caveat emptor and thus to achieve a high standard of business ethics in the securities industry.” Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128, 151, 92 S.Ct. 1456, 31 L.Ed.2d 741 (1972), citing SEC v. Capital Gains Research Bureau, Inc., 375 U.S. 180, 186, 84 S.Ct. 275, 11 L.Ed.2d 237 (1963). To better achieve this end, the Exchange Act is “to be construed not technically and restrictively, but flexibly to effectuate its remedial purposes.” Id. The majority of securities fraud claims under section 10(b) are brought pursuant to Rule 10b-5(b) for false or misleading statements or omissions. In order for a claim under this provision to survive a motion to dismiss, a plaintiff must allege that the defendant, “in connection with the purchase or sale of securities, made a materially false statement or omitted a material fact, with scienter, and that the plaintiffs reliance on the defendant’s action caused injury to the plaintiff.” Ganino v. Citizens Utils. Co., 228 F.3d 154, 161 (2d Cir.2000). A statement or omission is material if it “would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available.” TSC Industries Inc. v. Northway, Inc., 426 U.S. 438, 449, 96 S.Ct. 2126, 48 L.Ed.2d 757 (1976). Plaintiffs here bring their claims not only under Rule 10b-5(b), but also under the more general provisions of Rule 10b-5(a) and (c), which prohibit the use of “any device, scheme, or artifice to defraud” or the participation “in any act, practice, or course of business” that would perpetrate fraud on investors. While claims brought under Rule 10b-5(b) require plaintiffs to allege a false or misleading statement (or omission), “[t]he first and third subpara-graphs [of Rule 10b—5] are not so restricted.” Affiliated Ute, 406 U.S. at 153, 92 S.Ct. 1456. Rather, in order for such a claim to survive a motion to dismiss, plaintiffs must allege that “(1) they were injured; (2) in connection with the purchase or sale of securities; (3) by relying on a market for securities; (4) controlled or artificially affected by defendant’s deceptive or manipulative conduct; and (5) the defendants engaged in the manipulative conduct with scienter.” In re Initial Public Offering Sec. Litig., 241 F.Supp.2d 281, 385 (S.D.N.Y.2003), citing In re Blech Sec. Litig., 961 F.Supp. 569, 582 (S.D.N.Y.1997); see also SEC v. Zandford, 535 U.S. 813, 824-25, 122 S.Ct. 1899, 153 L.Ed.2d 1 (2002) (holding that broker’s actions in establishing phony escrow accounts and using the proceeds for his own purposes was an unlawful scheme “in connection with the purchase or sale of securities” within the meaning of § 10(b), where his “fraudulent intent deprived the [plaintiffs] of the benefit of the sale”). Finally, the pleading standard is stiffened by the requirements that plaintiffs plead the element of scienter, defined as “a mental state embracing intent to deceive, manipulate, or defraud,” which is a necessary element of any claim brought under section 10(b). Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 n. 12, 213-14, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976). The burden of pleading scienter is intensified by the requirement of Rule 9(b) that “[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity.” Fed.R.Civ.P. 9(b). Although Rule 9(b) allows the pleading party to aver scienter generally, the Second Circuit warns that “the relaxation of Rule 9(b)’s specificity requirement regarding condition of mind [must not be mistaken] for a license to base claims of fraud on speculation and conclusory allegations.” Chill v. General Elec. Co., 101 F.3d 263, 267 (2d Cir.1996) (citations omitted). Rather, plaintiffs must allege facts that “give rise to a strong inference of fraudulent intent.” Id. (citations omitted; emphasis in original). This requirement is further reinforced by the Private Securities Litigation Reform Act (“PSLRA”), which requires plaintiffs to “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). In addition, the PSLRA requires that where material misstatements or omissions are alleged, plaintiffs must “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.” 15 U.S.C. § 78u-4(b)(l). In cases where it is not a statement or omission that is alleged, but rather, a fraudulent scheme to affect the price of stocks, it is sufficient to specify “what manipulative acts were performed, which defendants performed them, when the manipulative acts were performed, and what effect the scheme had on the market for the securities at issue.” Blech, 961 F.Supp. at 580 (internal citation omitted). B. Primary Liability versus Aiding and Abetting Andersen’s chief argument is that plaintiffs’ claims run afoul of the Supreme Court’s mandate 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), which held that there is no private cause of action against mere aiders and abettors of section 10(b) violations. Andersen argues that plaintiffs’ allegations amount to nothing more than a claim that it aided and abetted the Companies’ violations, and that such a claim is prohibited under Central Bank and the Second Circuit’s case law interpreting it. At the outset, the Supreme Court’s ruling in Central Bank does not amount to a categorical prohibition on claims against secondary actors such as accountants. To the contrary, the Court explicitly emphasized that secondary actors such as accountants and lawyers may still be held liable where they commit a primary violation of securities laws: Any person or entity, including a lawyer, accountant, or bank, who employs a manipulative device or makes a material misstatement (or omission) on which a purchaser or seller of securities relies may be hable as a primary violator under 10b-5, assuming all of the requirements for primary liability under Rule 10b-5 are met_ In any complex securities fraud ... there are likely to be multiple violators. Central Bank, 511 U.S. at 191, 114 S.Ct. 1439 (emphasis in original). Nonetheless, the requirement of a primary violation is a precondition for liability: to allow otherwise, the Court held, would circumvent a necessary element of every section 10(b) claim by subjecting defendants to liability “without any showing that the plaintiff relied upon the aider and abettor’s statements or actions.” Id. at 180, 114 S.Ct. 1439. Interpreting this mandate, the Second Circuit has clarified that in cases brought under Rule 10b-5(b), defendants can only be held liable for statements that are publicly attributed to them. See Wright v. Ernst & Young, LLP, 152 F.3d 169 (2d Cir.1998). Thus, in order for a defendant to be held liable for a claim brought under Rule 10b-5, a plaintiff must allege that that defendant made a false or misleading statement or omission that was attributed to him or her, or that s/he “participated in [a] fraudulent scheme or other activity proscribed by the securities laws.” SEC v. U.S. Environmental, Inc., 155 F.3d 107, 111 (2d Cir.1998) (citations omitted). 1. Andersen’s Liability for False Statements in GC’s and AGC’s Unaudited Financial Statements The crux of Andersen’s argument is that it is shielded from liability under Central Bank and Wright because its only publicly attributed statements were the Companies’ audited financial reports, and these were not materially false or misleading. Andersen does not dispute that it is responsible for the statements in its audit reports on GC’s annual 10-Ks for 1998, 1999, and 2000 and on AGC’s 10-K for 2000. But most of the allegedly misleading “swap” transactions occurred in FY 2001, a year for which Anderson did not audit the fi-nancials of either GC or AGC. The bulk of plaintiffs’ Complaint concerns public statements regarding these swaps that were issued in various press releases, unaudited quarterly statements, and “pro forma” fi-nancials. Leaving aside, for the moment, the materiality and falsehood of the audited statements (see Part I.C. infra), the issue is thus whether Andersen can be held liable for GC’s and AGC’s other unaudited public statements and disclosures. Andersen argues that it cannot be because these statements were made not by Andersen, but by AGC or GC, and were never publicly attributed to Andersen. According to Andersen, claims that it reviewed and approved these statements, or assisted the Companies in making them, would amount to nothing more than impermissible aiding and abetting claims. Plaintiffs respond that Andersen played so central a role in the creation and perpetration of the allegedly false accounting schemes, and its role as auditor was so well-known to investors, that it should be subject to liability as a primary violator for these statements under Central Bank. The Second Circuit’s initial interpretation of Central Bank appeared to be clear that in order for liability to attach to a defendant, the misrepresentation had to be “attributed to that specific actor at the time of public dissemination, that is, in advance of the investment decision.” Wright, 152 F.3d at 175. This seemed to leave little doubt that the rule limiting liability to a defendant’s own publicly attributed statements was absolute. Indeed, Wright explicitly rejected liability on the part of an auditor for statements made by a public company on a theory that the defendant accounting firm had “reviewed and approved” the allegedly false and misleading statements. However, in a recent decision, the Second Circuit upheld a ruling that a company vice president could be liable for misstatements not specifically attributed to him, where he “was primarily responsible” for communications with investors and analysts and was “involved in the drafting, producing, reviewing and/or disseminating of the false and misleading statements.” In re Scholastic Corp. Sec. Litig., 252 F.3d 63, 75-76 (2d Cir.2001). Plaintiffs thus appear to be correct that, in this Circuit, “[a] defendant may be held liable for fraudulent statements under Section 10(b) where a plaintiff alleges sufficient facts that demonstrate that a defendant was personally responsible for making those statements, even if he or she is not identified as the speaker.” (P. Opp. GC 24-25, emphasis added.) However, Scholastic did not explicitly overrule Wright - in fact, it failed to cite either Wright or Central Bank- and it gave scant explanation of its holding. See 252 F.3d at 75-76. While Scholastic might indicate some relaxation of Wright’s requirement, then, it does not provide any guidance as to when a statement not attributed to a defendant might cross the line into a primary violation. Some district courts, in this Circuit and others, have allowed claims to survive the pleading stage even where the defendant was not alleged to have actually made the allegedly false statement. See, e.g., In re Vivendi Univ. S.A. Sec. Litig., 02 Civ. 5571(HB), 2003 WL 22489764, at *25 (S.D.N.Y. Nov. 3, 2003) (refusing to dismiss claim against CFO for public statements made by company but not specifically attributed to him); In re Lernout & Hauspie Sec. Litig., 230 F.Supp.2d 152, 166-67 (D.Mass.2002) (refusing to dismiss claims against auditor where auditor’s role was widely disseminated to the public and it was “appropriate to infer that ... investors reasonably attributed the statements” to the auditor); In re Livent, Inc. Noteholders Sec. Litig., 174 F.Supp.2d 144 (S.D.N.Y.2001) (holding broker potentially liable for “structuring and keeping secret the misrepresented [relationship]” between the underwriter and the company). However, as Andersen correctly points out, in many if not most of these cases, either the defendant was a corporate insider, rather than a secondary actor, or the complaint alleged that s/he had actually made a false or misleading statement or omission, thus stating a claim for a primary violation. For example, in Scholastic and Vivendi, defendants were both CFOs of the respective defendant companies. In Livent, the defendant underwriter had also served as a broker and had solicited and executed sales of company’s stock. 174 F.Supp.2d at 154-55. Among the cases cited above, the district court decision in Lemout & Hauspie, 230 F.Supp.2d 152, provides the most support for plaintiffs’ position. In that case, plaintiffs sued various corporate affiliates of Lernout & Hauspie’s outside auditor, KPMG, for having overseen and prepared unaudited financial reports submitted to shareholders. The court allowed certain claims to survive a motion to dismiss on grounds that plaintiffs had alleged that the KPMG affiliate had actually “made” the false statements through its active role in preparing them. With respect to the public attribution rule, the court distinguished Wright, noting that the necessary element of reliance had not been sufficiently pled in that case because the statements in question had specifically noted that the reports were unaudited, and because it had been made “without a whisper of [the defendant’s] involvement.” Id. at 162, citing Wright, 152 F.3d at 175-76 (alteration in original). Applying that principle, the court held that the plaintiffs had failed to state a claim against KPMG’s Singapore based affiliate where it had not directly participated in issuing any of the reports in question, but rather, had communicated its “clean” audit opinion to its Belgian affiliate responsible for issuing Lernout & Hauspie’s audit reports. Id. at 171. By contrast, the involvement of KPMG’s United States affiliate had been widely disseminated to investors in annual reports. Thus, even if the statements themselves were not publicly attributed to KPMG U.S., it was “appropriate to infer that ... investors reasonably attributed the statements” to KPMG U.S. Id. at 166-67. Put another way, the rule espoused in Lemout & Hauspie is that a plaintiff may state a claim for primary liability under section 10(b) for a false statement (or omission), even where the statement is not publicly attributed to the defendant, where the defendant’s participation, is substantial enough that s/he may be deemed to have made the statement, and where investors are sufficiently aware of defendant’s participation that they may be found to have relied on it as if the statement had been attributed to the defendant. Although Lemout & Hauspie is not controlling here, its reasoning is persuasive. Its analysis reconciles the Second Circuit’s ruling in Scholastic with the focus on reliance that was central to its holding in Wright. , It also comports with the broad preventative purpose of the Exchange Act. A strict requirement of public attribution would allow those primarily responsible for making false statements to avoid liability by remaining anonymous, and thus “would place a premium on concealment and subterfuge rather than on compliance with the federal securities laws.” In re Enron Corp. Sec., Deriv. & ERISA Litig., 235 F.Supp.2d 549, 587 (S.D.Tex.2002) (adopting SEC position). As the Massachusetts district court noted in Lemout & Hauspie, “[a]bsolving an auditor who prepares, edits, and drafts a fraudulent financial statement knowing it will be publicly disseminated simply because [it was signed by another, affiliated auditor] would stretch Central Bank’s holding too far.” 230 F.Supp.2d at 168. Under this standard, plaintiffs’ allegations against Andersen with respect to its role in the fraudulent statements made by Global Crossing are sufficient to survive a motion to dismiss, but fail to meet that threshold with respect to its role in the statements made by Asia Global Crossing. Plaintiffs’ most general allegations about Andersen’s role in preparing the Companies’ financial statements are insufficient to establish a primary violation. Plaintiffs have alleged that Andersen not only “reviewed [and] approved” GC’s financial statements, but also that it “prepared and directed the production of financial statements, reports, and releases” issued by the Companies. (¶¶ 73-74.) However, the Complaint never specifies which of the Companies’ public statements Andersen “prepared and directed” and which it merely “reviewed and approved.” This blanket allegation is vague and conelusory, and, without more, would not sustain a claim for primary liability under section 10(b). Similarly, as regards the unaudited “pro forma” financial reports, plaintiffs allege that “Andersen was instrumental in helping Global Crossing and Asia Global Crossing create these ‘pro for-ma’ numbers.” (¶¶242.) But allegations that an auditor “help[ed] create” financial documents, alone, have been held insufficient to sustain 10(b) liability. See Vosgerichian v. Commodore Int’l, 862 F.Supp. 1371, 1378 (E.D.Pa.1994) (dismissing as claims of aiding and abetting allegations that the audited company “consulted with Andersen” and that Andersen “advised or concurred with” the company’s accounting practices); In re Kendall Square Research Corp. Sec. Litig., 868 F.Supp. 26, 28 (D.Mass.1994) (“[B]ecause [defendant] did not actually engage in the reporting of the financial statements ... but merely reviewed and approved them, the statements are not attributable to [defendant] and thus [defendant] cannot be found liable for making a material misstatement.”). Plaintiffs’ specific allegations regarding Andersen’s role in GC’s statements, however, are more fully developed. The Complaint alleges that Andersen served as “the primary accomplice in perpetuating the fraud that ultimately caused the downfall of the Company.” (¶ 712.) It points to testimony of former GC executives before Congress that Andersen “reviewed every public filing, earnings release, and quarterly financial report released by [GC].” (Id. ¶ 714, emphasis in original.) It also alleges that Fagan “materially assisted in the preparation of all public financial disclosures, including public filings, statements to the press and investing public, earnings releases, and press releases relating to financial issues of GC.” (Id. ¶ 78.) Allegations that Andersen “prepared, directed or controlled,” “helped create” or “materially assisted in” preparing false statements issued by Global Crossing place its involveipent well beyond the realm of “aiding and abetting” liability precluded by Central Bank. With respect to the issue of attribution, it is undisputed, as a matter of public record, that Andersen’s audit reports were included in all of GC’s registration statements and annual reports from 1998 to 2000, and that they were widely available to shareholders during the class period. Andersen’s role as GC’s auditor was thus well known to investors, who could easily have relied on the accounting firm’s involvement in making any public financial reports, even where a particular statement was not publicly attributed to it. Moreover, Andersen’s aggressive marketing of the novel accounting strategies promoted in the White Paper, which allegedly “became a ‘must read’ in the telecom industry” (¶225), raises an inference that sophisticated investors would have known of Andersen’s role in creating the reporting practices behind GC’s false statements. These allegations are sufficient to raise a reasonable inference not only that Andersen was one of the “makers” of the statements, but also that investors viewed it as such. However, where the rest of the Amended Complaint carefully adds AGC to most of its allegations, the Complaint significantly lacks any specific allegations that Andersen made .or participated in making any of AGC’s public statements or unaudited financials. (See (¶¶ 573-629).) While the Complaint states that “Andersen ... audited Global Crossing’s and Asia Global Crossing’s materially false and misleading financial statements,” it states only that “Andersen reviewed, prepared, directed, and controlled all public financial disclosures ... relating to financial issues of Global Crossing made by the Company during the class period,” and asserts no parallel claim with respect to AGC. (¶ 77.) Similarly, plaintiffs’ claims with respect to Fagan relate entirely to his participation in the false statements made by GC, not AGC (¶ 78), and the Complaint fails to raise any comparable allegation with respect to the involvement any other individual Andersen defendant at AGC. Thus, although plaintiffs do assert that “Andersen was instrumental in helping Global Crossing and Asia Global Crossing create the[ ] ‘pro for-ma’ numbers” (¶ 242, emphasis added), this allegation, without more, cannot transcend the category of aiding and abetting. The allegations related to Asia Global Crossing thus do not meet the standard for liability under Rule 10b-5(b). Andersen can be held liable only for the statements it is alleged to have made, which in the case of AGC, is solely the audited financial statement for FY 2000. However, the allegations related to GC, taken together, are sufficient to satisfy the Second Circuit’s requirements of primary participation and reliance; Andersen may thus be liable for any statement it is shown to have made and that investors attributed to it. Establishing the actual extent of Andersen’s participation in making the statements will, of course, await summary judgment or trial, but drawing all inferences in favor of the plaintiff, the allegations against Andersen with respect to GC’s unaudited statements are sufficient to survive a motion to dismiss. 2. Andersen’s Liability for Participation in a Fraudulent Scheme In addition to liability for its statements in the Companies’ financial reports, plaintiffs posit an alternative theory of liability for Andersen’s role in the fraud alleged: subsections (a) and (c) of Rule 10b-5, which allow liability to be assigned based on the use of a manipulative or deceptive device or participation in a scheme to defraud. 17 C.F.R. § 240.10b-5(a), (c). Plaintiffs argue that Andersen should be liable for the fraud perpetrated by GC and AGC, even in the years for which it did not issue audits, because it essentially created the accounting schemes used to inflate the Companies’ financials at the outset. On these grounds Andersen raises few defenses on the merits; rather, it attempts to discredit plaintiffs’ theory by characterizing it as “a thinly disguised ... aiding and abetting claim” and an impermissible attempt to circumvent the Second Circuit’s public attribution requirement. (D. Reply Mem. AGC 12-14.) But in attempting to reduce plaintiffs’ arguments to a mere theory of “fraudulent statement by another name,” Andersen itself conflates the distinct elements of a claim for false statements under subsection (b) of Rule 10b-5 with those of a claim for engaging in a fraudulent scheme under subsections (a) or (c). 17 C.F.R. § 240.10b-5. It is apparent from Rule 10b-5’s language and the caselaw interpreting it that a cause of action exists under subsections (a) and (c) for behavior that constitutes participation in a fraudulent scheme, even absent a fraudulent statement by the defendant. See Affiliated Ute, 406 U.S. at 152-53, 92 S.Ct. 1456; SEC v. Zandford, 535 U.S. at 820, 122 S.Ct. 1899 (“[N]either the SEC nor this Court has ever held that there must be a misrepresentation about the value of a particular security in order to run afoul of the Act.”). In the wake of Central Bank, courts have not been reluctant to find fraud allegations sufficient under these subsections, provided that the other requirements for establishing a primary violation have been met. See, e.g., Zandford, 535 U.S. at 825, 122 S.Ct. 1899 (holding that broker’s actions in establishing phony escrow accounts and using the proceeds for his own purposes was an unlawful scheme in connection with securities sales within the meaning of section 10(b)); U.S. Environmental, 155 F.3d at 112 (holding trader could be liable for executing manipulative stock trades at his employer’s direction); SEC v. First Jersey Sec., Inc., 101 F.3d 1450, 1471-2 (2d Cir.1996) (affirming district court finding that CEO was liable for having “orchestrated” a scheme among branch offices to defraud customers into paying prices that included excessive markups). Claims for engaging in a fraudulent scheme and for making a fraudulent statement or omission are thus distinct claims, with distinct elements. Andersen attempts to lump plaintiffs’ fraudulent scheme claims together with their fraudulent misstatement claims, and asserts that plaintiffs have failed to allege that Andersen did anything more than aid and abet a violation by GC and AGC. But plaintiffs’ allegations against Andersen go far beyond mere aiding and abetting. All that is required in order to state a claim for a primary violation under Rule 10b-5(a) or (c) is an allegation that the defendant (1) committed a manipulative or deceptive act (2) in furtherance of the alleged scheme to defraud, (3) scienter, and (4) reliance. See U.S. Environmental, 155 F.3d at 111. Postponing for the moment, once again, the questions of scienter and reliance, plaintiffs have clearly alleged here that Andersen “committed a manipulative or deceptive act in furtherance of the alleged scheme to defraud.” The Complaint asserts that Andersen masterminded the misleading accounting for IRUs and the subsequent sham swap transactions used to circumvent GAAP and inflate the Companies’ revenues, that it actively participated in structuring each swap, that it was intimately involved in all of GC’s and AGC’s accounting functions, and that it directly participated in the creation of the misleading “pro forma” numbers that concealed these practices from investors. Andersen’s allegedly central role in these schemes, as their chief architect and executor, leaves no doubt as to its potential liability as a primary violator under section 10(b). Andersen’s sole substantive argument on this front is that because plaintiffs have failed to allege “market manipulation” they have failed to state a claim for a fraudulent scheme under subsections (a) or (c). Market manipulation is defined as “[t]he illegal practice of raising or lowering a security’s price by creating the appearance of active trading.” Blacks Law Dictionary (7th ed.1999). Andersen argues that because plaintiffs failed to allege “tie-in agreements, wash sales, matched orders or rigged prices,” they have failed to state such a claim. (D. Reply Mem. AGC 13-14, citing Initial Public Offering, 241 F.Supp.2d at 387, citing in turn Santa Fe Indus., Inc. v. Green, 430 U.S. 462, 476-77, 97 S.Ct. 1292, 51 L.Ed.2d 480 (1977)). It is true that plaintiffs fail to assert a market manipulation claim, as those claims are technically understood - they have alleged no illegal trading activity that would artificially cause stock prices to rise. But subsections (a) and (c) encompass much more than illegal trading activity: they encompass the use of “any device, scheme or artifice,” or “any act, practice, or course of business” used to perpetrate a fraud on investors, 17 C.F.R. § 240.10b-5(a), (c). As demonstrated by the cases cited above, courts including this country’s highest court have held that a cause of action lies for claims that involve allegations of manipulative schemes used in connection with securities markets. If the behavior alleged does not make out a claim for engaging in “any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person,” then it is hard to imagine what would. The use of the term “manipulative” in section 10(b) itself “connotes intentional or willful conduct designed to deceive or defraud investors by controlling or artificially affecting the price of securities.” Ernst & Ernst, 425 U.S. at 199, 96 S.Ct. 1375 (emphasis added). Plaintiffs allege precisely such manipulative conduct, with precisely such a result. Schemes used to artificially inflate the price of stocks by creating phantom revenue fall squarely within both the language of section 10(b) and its broad purpose, to “prevent practices that impair the function of stock markets in enabling people to buy and sell securities at prices that reflect undistorted (though not necessarily accurate) estimates of the underlying economic value of the securities traded.” Sullivan & Long, Inc. v. Scattered Corp., 47 F.3d 857, 861 (7th Cir.1995) (Posner, C.J.). Provided that the other elements of a section 10(b) claim are met, nothing in the language of section 10(b) or Rule 10b-5 or in the case law interpreting them shields Andersen from liability for its direct participation in such a scheme. The imposition of liability on Andersen for the schemes underlying the Companies’ misleading accounting practices results in the survival of plaintiffs’ section 10(b) claims springing from practices that are not reflected in the audited financial reports. This means that Andersen may be liable for deceiving investors not only about its accounting for IRU sales, but also about swaps, which make up the bulk of the Complaint. Unlike the theory discussed in Part I.B.I., supra, this theory also applies to Andersen’s involvement in the alleged manipulation of AGC’s stock price. C. Materiality and Falsehood Because of Andersen’s reliance on its threshold argument is that it cannot be liable for any statements issued by GC or AGC that it did not audit, it focuses its materiality, falsehood, and scienter arguments almost solely upon the financial statements it audited for GC in 1998-2000 and for AGC in 2000. With respect to these statements, Andersen’s chief argument is that the accounting practices it created, marketed, and implemented were permissible under GAAP, and that they were therefore not “false or misleading.” However, it also adds that to they extent that these statements may have been false or misleading, they were not materially so. Neither argument has merit at this stage in the litigation. 1. Accounting for IR U Sales Andersen’s central argument is that its method of accounting for IRU sales - treating them as long-term leases of equipment and recognizing the revenue up front, in what is called “sales-type accounting” - was permissible under the applicable accounting standards in effect at the time. In particular, Andersen points to FASB 13, which appeared to allow sales-type accounting for long-term leases of equipment where, among other factors, the lease was for 75% of the useful life of the asset and the benefits and risks of ownership had passed to the lessee. It was not until July of 1999 that FIN 43 was issued, clarifying that in order for sales-type accounting to apply in such cases, title to the asset must actually pass to the lessee. This clarification made it impossible for the Companies to continue accounting for IRUs as sales-type leases, because title to the underlying land did not pass at the end of the lease term. Following the issuance of FIN 43, GC and AGC therefore reclassified revenue from the bulk of their IRU sales as “operating leases.” Operating leases require “service-type accounting,” causing revenue to be prorated over the lifetime of the lease. Andersen argues, in effect, that it cannot be held liable for accounting practices only later declared unacceptable, and that plaintiffs are impermissibly “pleading fraud by hindsight.” See Novak v. Kasaks, 216 F.3d 300, 309 (2d Cir.2000) (noting that defendants cannot be liable for failing to anticipate future events). Because FIN 43 was explicitly prospective in application, Andersen argues, the Companies’ use of sales-type accounting for IRUs prior to its issuance was in compliance with GAAP as it existed at the time, and Andersen’s certification that GC’s and AGC’s financials complied with GAAP was therefore not false or misleading. It claims, therefore, that its treatment of IRUs as sales-type leases was within “the range of reasonable alternatives that management can use.” Ganino, 228 F.3d at 160, citing In re Burlington Coat Factory, 114 F.3d 1410, 1421 n. 10 (3d Cir.1997). But plaintiffs have pled far more than fraud by hindsight. Whether or not the Companies violated specific provisions of GAAP, plaintiffs have asserted that the practice of booking revenue immediately while booking expenses over the life of the lease was fundamentally misleading to investors and in violation of numerous overarching accounting principles, even prior to the issuance of FIN 43. (See ¶ 718.) It is not necessary to list here each of these multiple provisions plaintiffs allege were violated, because the principal rules cited are sufficient to survive a motion to dismiss. First, plaintiffs argue that booking revenue from IRU sales up front, while amortizing the associated expenses, violated the fundamental principle of accounting that requires expenses and revenues associated with an asset to be “matched” - that is, booked during the same accounting period, see Statement of Financial Accounting Concepts No. 6 - as well as other principles of transparency and accuracy in reporting. (See ¶ 718.) Second, plaintiffs assert in their amended Complaint that such leases should have been treated as contracts for real estate, rather than contracts for equipment, because the assets involved in an IRU lease, i.e. the fiber optic cable, are “integral to the underlying land.” (¶¶ 151-154.) This categorization would have subjected such leases to the requirements of FASB 66, which governs real-estate transactions as opposed to leases of equipment. FASB 66 would not allow revenue from such a lease to be booked under sales-type accounting unless title to the underlying land had passed (which is in effect what FIN 43 ultimately specified). Third, they assert that almost from its inception, GC was an outlier in the industry in its treatment of IRUs, and that its accounting practices were “the subject of increasing controversy” in the accounting and financial industries. (¶¶ 204-205.) They argue that to the extent that there was any uncertainty in the proper treatment of IRUs prior to the issuance of FIN 43, Andersen created that uncertainty through its overly aggressive accounting practices. Although the question of whether GAAP has been violated might appear to be a legal determination, the element of what is “generally accepted” makes this difficult to decide as a matter of law. As the Supreme Court has observed, GAAP is not the lucid or encyclopedic set of pre-existing rules that [it might be perceived] to be. Far from a single-source accounting rulebook, GAAP encompasses the conventions, rules, and procedures that define accepted accounting practice at a particular point in time. GAAP changes and, even at any one point, is often indeterminate. The determination that a particular accounting principle is generally accepted may be difficult because no single source exists for all principles. Shalala v. Guernsey Memorial Hosp., 514 U.S. 87, 101, 115 S.Ct. 1232, 131 L.Ed.2d 106 (1995) (internal citations and alterations omitted). Whether or not the Companies’ practice of accounting for IRUs was ever acceptable under the applicable provisions of GAAP cannot be determined in advance of the development of the record. Eventual evidence on industry practice or expert testimony are likely to shed light on this question, but at the current procedural phase, the plaintiffs’ assertion that they were not generally accepted must be taken as true. Even should Andersen prove that these accounting practices were in technical compliance with certain individual GAAP provisions, however, this would not necessarily insulate it from liability. This is because, unlike other regulatory systems, GAAP’s ultimate goals of fairness and accuracy in reporting require more than mere technical compliance. Federal tax law serves as a useful point of comparison. Under our tax system, although a loose overarching justification exists - to protect the public fisc - there is also an element of arbitrariness in the way the system is implemented, and in how its numerous components fit together. This arbitrariness is a function of many confluent forces, such as political realities, competing economic theories, and the power of various interest groups. The end result, though, is that where a loophole or shelter exists, the public is entitled to take advantage of it until Congress takes action to correct it; technical conformity to the code is all that is required, and indeed, such loopholes and shelters are central to the practice of many an accountant and tax lawyer. GAAP, by contrast, when viewed as a whole, provides no loopholes or shelters. It has a single unified purpose, one that it shares with section 10(b) of the 1934 Exchange Act: to increase investor confidence by ensuring transparency and accuracy in financial reporting. See Statement of Financial Accounting Concepts Nos. 1 (Objectives of Financial Reporting by Business Enterprises), 2 (Qualitative Characteristics of Accounting Information). Plaintiffs allege that the Companies’ accounting for IRUs amounted to a violation not only of FIN 43, but also of basic overarching principles of accounting aimed at meeting this goal. “Fair presentation is the touchstone for determining the adequacy of disclosure in financial statements. While adherence to generally accepted accounting principles is a tool to help achieve that end, it is not necessarily a guarantee of fairness.” Herzfeld v. Laventhol, Krekstein, Horwath & Horwath, 378 F.Supp. 112, 121-122 (S.D.N.Y.1974) (citing Theodore Sonde, The Responsibility of Professionals under the Federal Securities Laws, 68 Nw. U.L.Rev. 1, 3 (1973)), aff'd in part and rev’d in part on other grounds by 540 F.2d 27 (2d Cir.1976). Even assuming, therefore, that the Companies’ accounting for IRUs was arguably consistent with the terms of certain specific accounting standards, this would not insulate them or their accountants as a matter of law from liability under the securities laws, because under both GAAP and the securities laws, business entities and their accountants are required to provide whatever additional information would be necessary to make the statements in their financial reports fair and accurate, and not misleading. Id; 17 C.F.R. § 240.10b-5(b); see also 17 C.F.R. § 230.408 (requiring that “in addition to the information expressly required to be included in a registration statement, there shall be added such further material information, if any, as may be necessary to make the required statements, in the light of the circumstances under which they are made, not misleading”). The same reasoning holds true for plaintiffs’ allegations regarding AGC’s accounting for subsea capacity. Plaintiffs allege that AGC’s persistence in booking revenue from subsea IRUs up front, for a full year after GC ceased so doing in response to FIN 43, amounted to an ongoing violation of GAAP. Andersen argues that AGC’s accounting treatment was correct under FIN 43 and FASB 66, since leases on the ocean bed “did not implicate questions of title.” (D. Mem. AGC 12.) This distinction, again, misses the point. Plaintiffs allege that the accounting for IRUs was misleading from the start: it is the practice of booking revenues up front while amortizing the costs that is alleged to have misled investors. The technical distinction between capacity on underlying terrestrial land, which could be sold, or on underlying ocean bed, which could not, makes little difference to the outcome of the analysis. Plaintiffs allege facts that would permit a reasonable factfinder to infer that the methods of accounting utilized by Andersen in certifying the Companies’ financial statements constituted an utter “sham” - “a house of cards built on the illusion of revenue” fostered by “blatant abuses of applicable accounting rules.” (P. Opp. GC 1.) It may be that, when all the evidence is heard, a factfinder will conclude that it was reasonable for Andersen and GC to treat as immediate “revenue” payments due to be received over a twenty-five year period, while conveniently deferring to future years the costs that would be associated with those projected receipts. But plaintiffs’ claim that such apparently deceptive practices violated elementary, long-established accounting principles, even before the FASB issued FIN 43 to reject Andersen’s aggressive efforts to report revenue when there was none, is easily sufficient to survive a motion to dismiss. Plaintiffs have thus raised allegations sufficient to call into question not only the Companies’ compliance with specific GAAP provisions governing IRUs, but also the truth and accuracy of their financial statements overall. 2. Accounting for Swaps In contrast with Andersen’s arguments defending the Companies’ accounting for IRU sales, Andersen makes only a weak attempt to justify the Companies’ accounting for swap transactions. Its principal argument is that its treatment of swaps, like its accounting for IRUs, was “within the range of reasonable alternatives available to management.” (D. Mem. GC 27, citing Ganino 228 F.3d at 154.) Andersen’s only other argument is that the bulk of the swaps alleged occurred after Andersen ceased performing audits for GC and AGC, that is, in 2001; what swaps did occur in 2000 were immaterial “as a matter of law” because in the case of GC, plaintiffs failed to allege that they amounted to a significant amount of GAAP revenue for that year or because, and in the case of AGC, plaintiffs failed to allege that GAAP revenue (as opposed to cash revenue) was misstated at all. In light of the discussion in Part I.C.l. above, Andersen’s first argument can be disposed of fairly quickly. Plaintiffs argue that the Companies’ accounting for swaps violated Accounting Principles Board Opinion No. 29, which specifies that while the seller of an asset may generally record revenue based on the fair market value of the asset received or given up, no revenue may be recognized in exchanges of assets of like kind. Andersen argues that following the issuance of FIN 43, GC considered the capacity swapped to be a service, rather than an asset, since FIN 43 mandated “service-type accounting”; therefore the stricture on revenue recognition for like-kind assets did not apply. (D.Mem.26.) As plaintiffs correctly point out, the issue of whether an IRU should be classified as a service or an asset is a red herring. The gravamen of plaintiffs’ Complaint is that these exchanges were essentially unnecessary mirror-image transactions created with the specific intention of inflating the Companies’ revenues and deceiving investors into thinking the company was financially sound when it was, in fact, in increasingly perilous straits. Plaintiffs have alleged voluminous facts, including internal correspondence among former employees, analysts’ reports, and congressional testimony, indicating that these transactions had no business purpose, but rather, were structured with the specific goal of increasing quarterly revenue and meeting “the street’s expectations.” (¶¶ 361, 363.) In addition, they have alleged that the transactions were specifically structured, at Andersen’s direction, to avoid the strictures of APB 29 that would preclude the Companies from booking the revenue at all. Statements conforming to specific GAAP rules may be misleading or false where “the purpose and effect of structuring [the transaction] was to avoid the Equity Accounting method under GAAP.” In re JiffyLube Sec. Litig., 772 F.Supp. 258, 265 (D.Md.1991). The issue of whether the underlying exchange involved “services” or “assets,” and the technical compliance with APB 29, is therefore irrelevant in light of GAAP’s goals of fairness and accuracy in reporting. At a minimum, the facts alleged are sufficient, if proven, to establish that the transactions in question were designed from the outset to mislead investors. With respect to GC, Andersen’s only other argument is that because GC reported over $3.7 billion in revenue in 2000, and because by that time it had begun prorating revenue from IRU sales, its reported FY 2000 revenue of $20 million from reciprocal transactions was immaterial as a matter of law. (D. Reply GC 11.) It is true that this amount is relatively small compared with the company’s total revenue. However, it is not so small as to be considered per se immaterial. A statement or omission is material if it would “be viewed by the reasonable investor as having significantly altered the total mix of information available.” TSC Industries, 426 U.S. at 449, 96 S.Ct. 2126; In re Time Warner Inc. Sec. Litig., 9 F.3d 259, 267-68 (2d Cir.1993) (applying TSC Industries). Materiality is generally a mixed question of law and fact, First Jersey, 101 F.3d at 1466, and “only if no reasonable juror could determine that the [statement or omission] would have assumed actual significance in the deliberations of the reasonable investor” should materiality be determined as a matter of law. Press v. Chemical Investment Services Corp., 166 F.3d 529, 538 (2d Cir.1999) (citations and alterations omitted). The allegation of a $20 million overstatement of revenue hardly falls into this category, especially coupled with the allegation that the entire body of GC’s financial reports, both audited and unaudited, were also inflated. Plaintiffs have therefore sufficiently alleged that Andersen made material misstatements regarding swaps in GC’s audited financial statements. Andersen’s arguments with respect to AGC’s accounting for swaps, however, are more persuasive. Andersen points out that although the Complaint identifies specific swaps that AGC entered into during FY 2000, it alleges only that “cash revenue” and not “GAAP revenue” was overstated in the company’s financial reports. All other alleged misstatements with respect to AGC’s accounting for swaps occurred in the context of unaudited pro forma reports and press releases. Because plaintiffs have failed to allege a primary violation by Andersen in connection with AGC’s unaudited statements, it cannot be held liable for these statements under Rule 10b-5(b). With respect to AGC, then, Andersen is correct that plaintiffs have failed to allege any material misstatement in its audit report on AGC’s FY 2000 financial statements regarding swaps. However, this distinction is somewhat academic in light of the determination above that Andersen may be held liable for its participation for the scheme underlying those statements under Rule 10b-5(a) and (c). 3. Failure to Write Doum Assets Plaintiffs raise the additional charge that the Companies’ failure to write down the value of network capacity to reflect declines in the market value of that capacity violated FASB 121, “Accounting for the Impairment of Long-Lived Assets,” which requires an annual evaluation of the market value of long-lived assets carried on a corporation’s books, and appropriate adjustments to the book value in accordance with market value. Andersen raises objections to plaintiffs’ pleading only with respect to AGC’s