Full opinion text
MEMORANDUM AND ORDER LAKE, District Judge. TABLE OF CONTENTS I. Introduction.818 II. Standard of Review.818 III. Factual Allegations.819 A. Black Thunder.819 B. Project Alpha.820 1. Misrepresentations .820 2. Olis Trial.820 C. Improper Accounting Practices .821 1. Natural Gas Contracts .822 2. Forward Power Contracts.822 3. Gas Trading Volume.822 4. Trading Losses.823 D. Debt and Securities Offerings.823 E. Disclosures.'.....■.823 1. December of 2001.823 March of 2002 . 824 M April of 2002 . May of 2002. 824 824 jMw July of 2002. 824 cn August of 2002 . 824 oí February through May of 2003 824 IV. Claims Asserted Under the 1933 Securities Act. 825 A. Applicable Law. 825 1. Section 11 . 825 (a) Elements of a § 11 Claim. 826 (b) Statute of Limitations . 826 (c) Affirmative Defenses. 827 (d) Pleading Standards. 827 2. Section 15 . 828 (a) Elements of a § 15 Claim. 828 (b) Affirmative Defenses. 828 B. Factual Allegations Specific to 1933 Securities Act Claims 829 1. Registration Statement for DHI 6.875% Notes. 829 (a) Factual Particulars. 829 (b) Misstatements and Omissions. 830 2. Registration Statement Offer for DI Common Stock.. 830 (a) Factual Particulars. 831 (b) Misstatements and Omissions. 831 3. Registration Statement for DHI 8.75% Notes . 831 (a) Factual Particulars. 832 (b) Misstatements and Omissions. 832 C. Defendants’ Motions to Dismiss § 11 Claims. 832 1. Certification Requirement. 833 2. Pleading Compliance with Statute of Limitations. 834 (a) Applicable Law... 834 (b) Allegations of Compliance. 835 (c) Analysis . 836 (1) Debt Security Offerings. 836 (2) Stock Offering . 836 (d) Conclusions . 837 3. Limitations Bar. 837 (a) Assertion of Limitations in Motion to Dismiss.... 838 (b) Relation Back . 839 (1) Applicable Law. 839 (2) Original Pleadings. 839 (3) Analysis. 840 (i) New Claims Against Existing Parties: DI, Watson, Bergstrom, Doty, and Mott. 840 (A) New Claims Asserted Against Existing Defendants by Existing Plaintiff. 840 (B) New Claims Asserted Against Existing Defendants on Behalf of Newly Proposed Plaintiffs. 841 (ii) New Claims Asserted Against DHI. 843 (4) Conclusions. 844 (c) Inquiry Notice. 845 (1) Applicable Law. 845 (2) Trigger Dates. 847 (i) March 13, 2002. 847 (ii) April 25, 2002 . 849 (iii) May 2002. 851 (A) Black Thunder. 852 (B) Project Alpha. 852 (C) Trading Practices . 854 (3) Conclusions. 855 (i) Trigger Date Conclusions. 855 (A) March 13, 2002 . 855 (B) April 25, 2002 . .855 (C) May 2002. .856 (ii) Application of Trigger Date Conclusions .... .856 (A) March 15,2001, Debt Offering . .856 (B) December 20, 2001, Stock Offering. .857 1. DI and the Individuals. .858 2. Director Defendants.■. .858 3. Arthur Andersen . .859 4. Lehman Brothers Inc. .861 (C) February 15, 2002, Debt Offering. .862 1. DHI . .862 2. The 1933 Act Individual Defendants .863 3. Andersen and Underwriters. .866 4. Negative Causation Defense. .867 (a) Applicable Law. .867 (b) Hawaii Ironworkers.•. .868 (c) The Regents. .870 5. Non-Issuer Affirmative Defenses. .871 (a) Reasonable Investigation (Due Diligence) . .871 (b) Reasonable Reliance on an Expert . .872 (1) Individual and Director Defendants. .872 (2) Underwriter and Related Defendants. .874 (c) Conclusions . .875 D. Defendants’ Motions to Dismiss § 15 Claims. .876 1. Dynegy Inc. .876 2. Individual Defendants.■. .876 3. Underwriters and Related Defendants. .877 E. Conclusions as to Motions to Dismiss 1933 Act Claims. .877 V. Claims Asserted Under the 1934 Securities and Exchange Act. 879 A. Applicable Law. .879 1. Section 10(b) and Rule 10b-5. .879 2. Rule 9(b) and Private Securities Litigation Reform Act ... .880 (a) Rule 9(b). .880 (b) PSLRA. .880 3. Pleading Standards. .881 (a) Misrepresentations and Manipulations. .882 (b) Scienter . .882 (1) Circumstantial Evidence. .882 (2) Motive and Opportunity.:. .883 (3) Totality of the Circumstances. .883 (e) Reliance. .883 (d) Proximate Cause of Injury. .884 4. Section 20(a).:. .885 B. Companies and Individual Defendants . .885 1. Limitations. .885 (a) Claims Asserted Against DI. .885 (b) Claims Asserted Against DHI. .885 (1) Relation Back. 886 (2) Sarbanes-Oxley Act . .887 (c) Conclusions . .889 2. Failure to State a Claim for Primary Liability under § 10(b) and Rule 10b-5. .890 (a) Misrepresentations .890 (1) Black Thunder .891 (2) Project Alpha. 891 (3) Accounting Practices. 892 (i) Natural Gas Contracts. 892 (ii) Forward Power Contracts. 892 (iii) Trading Volume. 893 (iv) Trade Losses. 894 (4) Conclusions. 894 (b) Scienter . 895 (1) Charles L. Watson. 895 (i) Black Thunder. 896 (ii) Project Alpha. 896 (iii) Motive and Opportunity. 898 (iv) Conclusions. 900 (2) Stephen W. Bergstrom. 900 (i) Black Thunder and Project Alpha 900 (ii) Improper Accounting Practices.. 901 (iii) Motive and Opportunity. 901 (iv) Conclusions. 902 (3) Robert D. Doty. 902 (i) Black Thunder. 903 (ii) Project Alpha. 903 (iii) Conclusions. 904 (4) Michael R. Mott. 904 (i) Black Thunder. 905 (ii) Project Alpha. 905 (iii) Motive and Opportunity. 906 (iv) Conclusions. 906 (5) Matthew K. Schatzman. 907 (i) Gas Trading Volume. 907 (ii) Motive and Opportunity. 908 (iii) Conclusions. 909 (6) Louis J. Dorey. 909 (7) The Companies. 909 (i) Black Thunder. 910 (ii) Project Alpha. 910 (iii) Round-trip Trades with CMS_ 911 (c) Reliance. 911 (d) Proximate Cause. 912 3. Failure to State a Claim for Secondary “Control-Person” Liability under § 20(a) . 912 (a) The Companies. 912 (b) Individuals. 912 C. Citigroup. 913 1. Claim for Primary Liability Against Citigroup and Citibank for Structuring, Funding, and Executing Black Thunder and Project Alpha. 914 (a) Central Bank. 914 (b) Citibank’s Allegedly Manipulative Acts. 915 2. Claim for Primary Liability Against Citigroup and Salomon for Issuing False Research Reports. 916 3. Claim for Secondary “Control-Person” Liability Against Citigroup for Acts of Citibank and Salomon. 918 D. Conclusions . 919 1. Conclusions as to Companies and Individuals. 919 (a) Claims Asserted Under § 10(b) and Rule 10b-5 919 (b) Claims Asserted Under § 20(a). 919 2. Conclusions as to Citigroup Defendants. 919 (a) Claims Asserted Under § 10(b) and Rule 10b-5 919 (b) Claims Asserted Under § 20(a). 919 3. Summary Table. .920 VI.Plaintiffs’ Requests to Amend. .'.920 VII.Order. .922 VIII.Order for Scheduling Conference-.923 This action for violation of federal securities law is brought against Dynegy, Inc. (DI), Dynegy Holdings, Inc. (DHI), and others for alleged violations of §§ 11 and 15 of the Securities Act of 1933 (1933 Act), 15 U.S.C. §§ 77k and 77o, during a proposed class period beginning on March 15, 2001, and ending on July 22, 2002, and for alleged violations of §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 (1934 Act), 15 U.S.C. §§ 78j(b), 78t(a) and Rule 10b-5, 17 C.F.R. § 240.10b-5, during a proposed class period beginning on January 27, 2000, and ending on July 22, 2002. Pending before the court are thirteen motions to dismiss filed by: (1) Charles L. Watson, former Chairman and Chief Executive Officer (Docket Entry No. 323); (2) Dynegy and Dynegy Holdings Inc. for claims alleged under the 1933 Act (Docket Entry No. 324); (3) Dynegy and Dynegy Holdings Inc. for claims alleged under the 1934 Act (Docket Entry No. 325); (4) Michael R. Mott, former Senior Vice-President and Controller (Docket Entry No. 327); (5) Matthew K. Schatzman, former President of Dynegy’s Energy Trading Division, and Louis J. Dorey, former President of Marketing and Origination, interim Chief Financial Officer, and Executive Vice-President of Finance (Docket Entry No. 328); (6) Kenneth E. Randolph, former General Counsel and Secretary (Docket Entry No. 329); (7) Arthur Andersen LLP (Docket Entry No. 332); (8) Robert D. Doty, former Executive Vice-President and Chief Financial Officer (Docket Entry No. 333); (9) Dynegy’s Outside Directors, Charles E. Bayless, Darald W. Callahan, Michael D. Capellas, Daniel L. Dienstbier, Jerry L. Johnson, George L. Kirkland, Richard H. Matzke, H. John Riley, Jr., Sheli Z. Rosenberg, Joe J. Stewart, and J. Otis Winters (Docket Entry No. 335); (10) Stephen W. Bergstrom, former President and Chief Operating Officer (Docket Entry No. 338); (11) Lehman Brothers Inc., Lehman Brothers Holding Inc., Merrill, Lynch, Pierce, Fenner & Smith, Inc., and Merrill Lynch & Co., Inc. (Docket Entry No. 339); (12) Certain Underwriter and Related Defendants, ABN AMRO Inc., Banc One Capital Markets, Inc., Bank of America Securities LLC, Commerzbank Capital Markets Corp., Crédit Lyonnais Securities (USA), Inc., Credit Suisse First Boston LLC (formerly known as Credit Suisse First Boston Corp.), The Royal Bank of Scotland pic, SG Cowen Securities Corp., TD Securities (USA) Inc., WestLB AG (formerly known as Westdeutsche Landesbank Girozentrale) (together the “Underwriter Defendants”), and ABN AMRO Holding N.V., ABN AMRO Bank N.V., Bank of America Corp., Bank One Corp., Commerzbank AG, Crédit Lyon-nais, The Royal Bank of Scotland Group pic, Société Générale Group (Docket Entry No. 342); (13) Citigroup Inc., Salo-mon Smith Barney Inc., and Citibank, N.A. (Docket Entry No. 347). Also pending is a motion to exceed page limits filed by Lead Plaintiff (Docket Entry No. 379) for its reply to the outside directors’ motion to dismiss. For the reasons set forth below, the motion to exceed page limits will be granted, the motions to dismiss filed by Schatzman and Dorey and by Citigroup will be granted, the motion to dismiss filed by the Lehman and Merrill Lynch entities will be denied, and the other motions to dismiss will be granted in part and denied in part as stated in the final section of this Memorandum and Order. I. Introduction The twenty-eight actions consolidated into this action were filed between April 26, 2002, and June 25, 2002. The first Order of Consolidation was entered on June 28, 2002 (Docket Entry No. 41). On October 28, 2002, the court entered a Memorandum and Order appointing The Regents of the University of California to serve as Lead Plaintiff (Docket Entry No. 88). On June 6, 2003, Lead Plaintiff filed a Consolidated Complaint for Violations of the Federal Securities Laws (Consolidated Complaint, Docket Entry No. 112). On June 10, 2003, a federal grand jury returned a six-count indictment that charged three Dynegy executives, Jamie Olis, Gene Shannon Foster, and Helen Christine Sharkey, with conspiracy to commit securities fraud, mail fraud, and wire fraud. In August of 2003 Foster and Sharkey pleaded guilty to conspiracy. In November of 2003 Olis was tried and convicted. On January 16, 2004, Lead Plaintiff filed a Motion for Leave to File Amended Complaints (Docket Entry No. 306) to add facts developed at the Olis trial. The court granted Lead Plaintiffs Motion to Amend on January 29, 2004 (Docket Entry No. 309). The First Amended Consolidated Complaint for Violations of the Securities Act of 1933 (SAC, Docket Entry No. 315), and First Amended Consolidated Complaint for Violations of the Securities Exchange Act of 1934 (SEAC, Docket Entry No. 316) were filed on January 30, 2004. II. Standard of Review A motion to dismiss for failure to state a claim tests the formal sufficiency of the pleadings and is “appropriate when a defendant attacks the complaint because it fails to state a legally cognizable claim.” Ramming v. United States, 281 F.3d 158, 161 (5th Cir.2001), cert. denied sub nom. Cloud v. United States, 536 U.S. 960, 122 S.Ct. 2665, 153 L.Ed.2d 839 (2002). The court must accept the factual allegations of the complaint as true, view them in a light most favorable to the plaintiff, and draw all reasonable inferences in the plaintiffs favor. Id. “[A] court may dismiss a complaint only if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations.” Swierkiewicz v. Sorema N.A., 534 U.S. 506, 122 S.Ct. 992, 998, 152 L.Ed.2d 1 (2002)(quoting Hishon v. King & Spalding, 467 U.S. 69, 104 S.Ct. 2229, 2232, 81 L.Ed.2d 59 (1984)). When a federal court reviews the sufficiency of a complaint, before the reception of any evidence either by affidavit or admissions, its task is necessarily a limited one. The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims. Id. at 997 (quoting Scheuer v. Rhodes, 416 U.S. 232, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974)). See also Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957)(“[A] complaint should not be dismissed for failure to state a claim 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.”). In deciding a motion to dismiss the court may consider documents attached to or incorporated in the complaint and matters of which judicial notice may be taken. See Lovelace v. Software Spectrum, Inc., 78 F.3d 1015, 1017-1018 (5th Cir.1996). In securities cases courts may take judicial notice of the contents of public disclosure documents that are required by law to be filed with the Securities Exchange Commission (SEC) and are actually filed with the SEC with the caveat that these documents may be considered only for the purpose of determining what statements they contain; not for proving the truth of then-contents. Id. at 1018 & n. 1 (citing and adopting rule of Kramer v. Time Warner, Inc., 937 F.2d 767, 774 (2d Cir.1991), and explaining that this rule does not apply to other forms of disclosure such as press releases or announcements at shareholder meetings). See also In re Azurix Corp. Sec. Litig., 198 F.Supp.2d 862, 877 (S.D.Tex.2002), aff'd sub nom. Rosenzweig v. Azurix Corp., 332 F.3d 854 (5th Cir.2003). Although defendants bear the burden of pleading and proving affirmative defenses, where facts alleged in plaintiffs pleadings make clear that a claim is barred, dismissal under Rule 12(b)(6) may be granted. See Jones v. Alcoa, Inc., 339 F.3d 359, 366 (5th Cir.2003), cert. denied, - U.S. -, 124 S.Ct. 1173, 157 L.Ed.2d 1206 (Jan. 26, 2004)(citing Kansa Reinsurance Co., Ltd. v. Congressional Mortgage Corp. of Texas, 20 F.3d 1362, 1366-70 (5th Cir.l994)(dismissing claim as time barred under Rule 12(b)(6) where the claim was clearly filed after the applicable statute of limitations had run and the pleadings established that plaintiff was not entitled to the benefit of the discovery rule). III. Factual Allegations Plaintiffs allege that in early 2000 when Dynegy was “planning several private and public offerings of equity and debt securities” (SAC ¶ 38; SEAC ¶ 39) defendants “sought by various financial statements and trading book manipulations” (SEAC ¶ 40), to have “market and credit rating agencies perceive Dynegy not just as an energy company that paid steady dividends ... [but also] as a fast-growing, energy-trading and communications company with rapidly growing earnings and a strong balance sheet.” (SEAC ¶ 39; SAC ¶ 38) The false and misleading statements for which plaintiffs seek recovery arise from two transactions, “Black Thunder” (SAC ¶¶ 40-52; SEAC ¶¶ 41-58), and “Project Alpha” (SAC ¶¶ 53-58; SEAC ¶¶ 59-88), and a number of allegedly improper accounting practices. (SAC ¶¶ 79-92; SEAC ¶¶ 89-115) A. Black Thunder Lead Plaintiff alleges that Black Thunder was an off balance sheet transaction promoted and structured by Citigroup to disguise an $850 million loan to Dynegy as an equity interest investment that closed in June of 2000. (SAC ¶¶ 40^1; SEAC ¶¶41, 44) Lead Plaintiff alleges that DI and DHI’s 2000 second-fourth quarter Forms 10-Q, and DI and DHI’s 2000 and 2001 Forms 10-K misrepresented the Black Thunder transaction by falsely classifying the proceeds as equity instead of debt (SAC ¶ 45; SEAC ¶ 49), and failing to reveal “the repayment obligation, ratings triggers and other key terms” that would have identified Black Thunder as a financing, instead of as an equity transaction. (SAC ¶ 46; SEAC ¶ 50) Lead Plaintiff alleges that the misrepresentations about Black Thunder contained in these filings violated Generally Accepted Accounting Principles (GAAP) and Financial Accounting Standard Forms (FASB). (SAC ¶¶ 73-78) B. Project Alpha Plaintiffs allege that Project Alpha was a transaction promoted and structured by Citigroup to disguise a $300 million loan as cash flow from operations and to generate bogus tax savings of $79 million that closed in April of 2001. (SAC ¶¶ 53-54; SEAC ¶¶ 60-63) Plaintiffs allege that the “[c]ash flow from operations bolstered Dynegy’s financial statements, which was important because the Company needed to close what was known internally as the ‘disconnect,’ the gap between reported earnings and actual cash flow.” (SEAC ¶ 128) 1. Misrepresentations Plaintiffs allege that Project Alpha was a complex transaction that consisted of three components: (a) the loan to Dynegy through several intermediaries; (b) a series of related, off-market natural gas transactions; and (c) improper basis shifting that resulted in misstated tax losses, which in turn led to the reporting of increased profits. (SAC ¶ 54; SEAC ¶63) Plaintiffs allege that Project Alpha used a series of phony, manipulative, off-market gas contracts to create the appearance that Dynegy’s loan funding and payback was gas trading revenues and losses. The gas contracts were prewired at off-market prices, meaning the contract price had no relation to market prices other than to specifically create a purported profit or loss. Those contracts were under-priced in favor of Dynegy during months 1-9, when it borrowed $300 million, and overpriced against Dynegy in months 10-60, when it repaid the $300 million loan. As designed and executed by Citigroup, the Project Alpha loan was cloaked by ... circular gas contracts. (SEAC ¶73) Plaintiffs allege that beginning with the announcement of earnings for the second quarter of 2001, DI’s and DHI’s financial statements and other representations concerning results from operations, balance sheet, finances, financial ratios, and financial discipline were false and misleading because they omitted material facts about Project Alpha. (SAC ¶ 56; SEAC ¶ 87) Plaintiffs allege that DI and DHI restated their financial statements to eliminate at least $290 million in cash flow from operations and $79 million of purported tax savings, which reduced DI’s and DHI’s 2001 net income by 12%. (SAC ¶ 69; SEAC ¶¶ 286) 2. Olis Trial On June 10, 2003, a federal grand jury returned a six-count indictment arising from Project Alpha that charged three Dy-negy executives, Jamie Olis, Gene Shannon Foster, and Helen Christine Sharkey, with conspiracy to commit securities fraud, mail fraud, and wire fraud. In August of 2003 Foster and Sharkey pleaded guilty to conspiracy. In November of 2003 Olis was tried and convicted. (SEAC ¶ 120) The government charged that Project Alpha was funded with loans that required full repayment, and that Foster, Olis, Sharkey and others concealed from Dyne-gy’s auditor, Arthur Andersen (Andersen), hedging transactions and other “tear-up” agreements designed by Citigroup to eliminate the lenders’ risk. Plaintiffs allege that the 100% hedging strategy and “tear-up” agreements structured and executed by Citigroup violated GAAP and, if revealed, would have demonstrated that the transaction had no equity interest or economic substance. Plaintiffs allege that Foster testified at the Olis trail that “[t]he Dynegy co-conspirators ... included [himself] Olis, Sharkey, Tammy Norman (“Norman”), Richard Gould (“Gould”), Wendy Ho (“Ho”), and “CFO Doty.” (SEAC ¶ 130) Plaintiffs allege that Sharkey was a member of Dynegy’s Project Alpha team who worked with Andersen to determine the accounting for the transaction and ‘worked with us to conceal the documents from Arthur Andersen. She actively did that.’ [11/11/03 Trial Transcript at 94] Norman dealt with gas purchases, and gas sales on a regular basis. Gould, in the finance department, was responsible for dealing with the banks on Project Alpha and Ho was an in-house counsel who helped draft documents. Id. at 95. Foster told the jury that, ultimately, Project Alpha was CFO Doty’s project — Foster reported to Doty, and Olis reported to Foster. Id. at 96. (SEAC ¶ 130) Plaintiffs allege that Foster identified the team from Dynegy that participated in the Project Alpha closing session in New York City beginning on March 12, 2001, at the offices of Citigroup’s lawyers, Milbank, Tweed, Hadley & McCloy LLP (“Milbank Tweed”): Foster, Olis, Sharkey, Norman, Gould, Ho, and David Roth (“Roth”). (SEAC ¶ 138) Plaintiffs allege that Foster identified the primary equity investors as Deutsche Bank and CSFB, and admitted that “guaranteeing the so-called ‘equity investors’ would get their money back whey they were supposed to invest equity at risk” posed a problem. (SEAC ¶ 139) Foster testified that he understood that the lenders who put up the bulk of the money in the transaction were going to get an interest return that would be charged against operating margin of the company because the transaction was structured to look like a gas contract... [and] that in the final analysis, hedging and “tear-up” provisions in Project Alpha protected the ‘equity’ investors completely — the equity investors did not have their investment at risk and they were still going to get a premium return for their money, which was described as an ‘equity’ investment nonetheless. (SEAC ¶ 140) Foster testified that the tear-up provisions were put in amendments that were not given to Andersen (SEAC ¶ 141), that he and Olis informed Doty about the need to hide documents from Andersen (SEAC ¶ 142), and that he, Olis, Sharkey, and Gould worked to limit distribution of the documentation showing that Citigroup and Deutsche Bank had structured and executed impermissible transactions outside the Project Alpha transaction and the purview of Andersen’s scrutiny. (SEAC ¶ 144) C. Improper Accounting Practices In the 1933 Act Complaint plaintiffs allege that the Companies admitted that during the class period they had (a) misaccounted for natural gas contracts by failing to reconcile them on a quarterly basis once estimates were found to be incorrect; (b) misaccounted for forward-power contracts by using an unreliable method to calculate income from trades; (c) improperly classified capital leases as operating leases to understate debt and depreciation expense; (d) improperly accounted for implied dividends in a transaction with its largest shareholder (Dynegy); (e) failed to record impairment of an investment on a timely basis; (f) improperly accounted for income taxes; and (g) improperly accounted for acquisitions, thereby overstating income. (SAC ¶ 5; SEAC ¶ 13) In the 1934 Act Complaint plaintiffs allege that Dynegy falsely portrayed the success of its natural gas and power business by (1) falsely inflating its gas trading volume and revenues with round-trip trades and manipulation of its electronic trading system to double- and triple-count gas and power trades, (2) creating bogus trades, (3) doctoring its trading books to hide losses, and (4) manipulating forward-price curves to falsely increase income. (SEAC ¶ 89) Plaintiffs allege that the fact that DI and DHI restated their financial statements for 1999, 2000, 2001, and 2002 is an admission that the financial statements originally issued were false and that the overstatement of revenues and income was material. (SAC ¶ 93; SEAC ¶¶ 7, 314) 1. Natural Gas Contracts Plaintiffs allege that DI and DHI overestimated earnings by $125 million from 1998-2002 by improperly estimating the value of natural gas contracts. (SAC ¶ 79; SEAC ¶¶ 90-92) Plaintiffs allege that this overestimate is exemplified by an overstatement of $7 million in DHI’s Form 10-Q for the third quarter of 2000, which was incorporated into the registration statement for the March 15, 2001, offering of debt securities. (SAC ¶ 79) Plaintiffs allege that these overestimates were not disclosed until November 14, 2002, when DI and DHI filed their third quarter 2002 Forms 10-Q, which included an after-tax charge of approximately $80 million ($124 million pre-tax) related to their natural gas marketing business. (SAC ¶ 81; SEAC ¶¶ 296-298) 2. Forward Power Contracts Plaintiffs allege that DI and DHI overestimated earnings by $94 million in 2001 by using their own proprietary model to account for forward power contracts. (SAC ¶ 82; SEAC ¶¶ 91, 99-106) Plaintiffs allege that the proprietary model (“Genesis”) was created “to predict forward-price curves, based on economic inputs that considered power-plant constraints, as well as volatility or mergers and acquisitions data.” (SEAC ¶ 105) Plaintiffs allege that Dynegy’s “use of forward-price curve models, in conjunction with mark-to-market accounting, was a recipe to manufacture earnings.” (SEAC ¶ 103) Plaintiffs allege that the economic factors in Dynegy’s forward-price curve were “knobs and dials” created to meet “whatever predetermined deal outcome was required.” (SEAC ¶ 106) Plaintiffs allege that in the amended 2001 Form 10-K filed on April 11, 2003, DI admitted that beginning in the third-quarter of 2001 its prior forward power curve methodology failed to appropriately reflect the value of its long-term power contracts. (SAC ¶ 83) Plaintiffs allege that DI and DHI reduced income by $25 million in the quarter ended September 30, 2001, and by $69 million in the quarter ended December 31, 2001, based on these improprieties and that the false Forms 10-Q for the third-quarter of 2001 were incorporated into DHI’s offering of debt securities on February 15, 2002. (SAC ¶ 84) 3.Gas Trading Volume Plaintiffs allege that Dynegy falsely inflated its gas trading volume and revenues by round-trip trading and manipulating the electronic trading system to double- and triple-count gas and power trades. (SEAC ¶¶ 94, 109) Plaintiffs allege that during 2000 the creator of a management reporting system called the “Executive Dashboard,” which was designed, inter alia, to incorporate all reported trades between Dynegy’s business units, discovered that Dynegy was double- and triple-counting gas and energy deal counts, trade volumes, and values and that Dynegy’s Abacus program was duplicating intra-company trades, and triple-counting trades involving Canadian operations. (SAC ¶57; SEAC ¶ 109) Plaintiffs allege that the double- and triple-counted trades materially inflated the value of transactions reported for Dyne-gydireet, an internet-based, commission-free business-to-business trading site for energy and communications commodities, and that Dynegy’s 2001 10-K form falsely stated that it included “immaterial amounts of inter-affiliate gas sales.” (SEAC ¶ 111) Plaintiffs allege that on November 15, 2001, Dynegy entered into two round-trip trades of electricity with CMS Energy Corporation (“CMS”), on Dynegydirect. (SEAC ¶ 94) Plaintiffs allege that the round-trip trades in which Dynegy simultaneously bought and sold power at the same price, terms, and volume, resulted in neither profit nor loss to either transacting party, but instead involved the simultaneous purchase and sale of electricity. Plaintiffs allege that in its fourth-quarter 2001 earnings release DI reported $13 billion in trading value of which $1.7 billion was attributable to the two round-trip trades. Plaintiffs allege that in its first quarter 2002 earnings release DI reported 89.7 million MWH hours of electricity traded of which approximately 5 million MWH hours were the product of round-trip trades. In that same press release DI improperly reported $236 million in revenue from the round-trip trades. (SEAC ¶ 95) Plaintiffs allege that when in April of 2002 the market questioned Dynegy and its officers about the round-trip trades, Bergstrom falsely attributed the trades to stress testing. (SEAC ¶¶ 96-98) 4. Trading Losses Plaintiffs allege that Dynegy improperly accounted for losses by declaring trading losses as hedges after the losses occurred. (SEAC ¶¶ 107-108) Plaintiffs allege that this “book doctoring” occurred in February of 2001 when Dynegy executives became aware that 10 trades had resulted in a loss of $2 million, but the reported loss was reduced to $500,000 by classifying the trades as hedges. (SEAC ¶ 108) D. Debt and Securities Offerings Plaintiffs allege that Dynegy’s market manipulations caused credit-rating agencies to rate Dynegy favorably, and that Dynegy’s favorable credit rating caused its stock price to rise from $10 per share in early 2000 to over $50 per share in late 2000 and, even in the wake of a declining market, to remain above $40 per share for most of 2001. (SEAC ¶ 116) Plaintiffs allege that while Dynegy stock was inflated DI and DHI raised close to three billion dollars through the following offerings (SEAC ¶ 116): Offering Date Proceeds Debt Offering 3/2000 $300 million Secondary Stock Offering 4/2000 $467.5 million Secondary Stock Offering 10/2000 $528.8 million Debt Offering 3/15/2001 $500 million Secondary Stock Offering 12/20/2001 $518.75 million Debt Offering 2/15/2002 . $500 million Plaintiffs’ 1933 Act claims arise from the offerings made in 2001 and 2002. E. Disclosures 1. December of2001 The December 4, 2001, Wall Street Journal examined the importance of energy companies’ cash flow from operations and questioned the quality of Dynegy’s earnings by noting that unrealized gains accounted for nearly half of its pretax profit in 1999 and 2000. (SEAC ¶¶218, 244-248) 2. March of2002 On March 13, 2002, DI filed its 2001 first-quarter Form 10-K that disclosed Black Thunder’s debt ratings trigger. (SAC ¶ 47; SEAC ¶¶ 51, 242) On March 22, 2002, DHI filed its 2001 Form 10-K, which contained similar disclosures about Black Thunder, including that DI and DHI were obligated to create a $270 million sinking fund and that a cash flow trigger could cost them an additional $60 million. (SAC ¶ 47; SEAC ¶ 51) Plaintiffs allege that these filings “still neglected to portray [DI] and [DHI] as obligated to repay the $850 million borrowed, only that they have an ‘option’ to acquire the ‘investor’s interest.’ ” (SAC ¶ 47; SEAC ¶ 51) 3. April of2002 The April 3, 2002, Wall Street Journal questioned Project Alpha. (SAC ¶ 142; SEAC ¶ 244) On April 25, 2002, DI and DHI issued a press release announcing that they would file 8-K forms to disclose a change in the presentation of cash flow associated with a natural gas supply transaction (Project Alpha), and that the transaction would be the subject of an informal review by the SEC. (SEAC ¶¶ 251-252) On April 26, 2002, the first of twenty-eight actions now consolidated in this action was filed (Docket Entry No. 1). 4. May of2002 On May 7, 2002, The Wall Street Journal named Dynegy as a company identified by internal Enron memoranda as having mimicked Enron’s practice of manipulating energy trades. (SEAC ¶ 261) On May 14, 2002, The New York Times described the Black Thunder transaction as a financing. (SAC ¶ 150; SEAC ¶ 263) On May 15, 2002, DI filed its 2002 first-quarter Form 10-Q, which contained information about Black Thunder but continued to refer to DI’s option instead of obligation to pay off the Black Thunder debt. (SAC ¶ 151; SEAC ¶ 54) 5. July of2002 On July 23, 2002, the Companies issued a press release announcing that cash flow from operations would be 30%-40% lower than prior estimates and canceling a bond sale. (SEAC ¶ 270) DI stock dropped 60% in one day from $3.38 to as low as $0.84 before closing at $1.23. (SAC ¶ 3; SEAC ¶ 271) 6. August of2002 In August of 2002 the Companies filed 2002 second-quarter Forms 10-Q in which they disclosed that the Black Thunder transaction had been amended in June of 2002 to include mortgages on Dynegy’s Illinova power generation assets. The amendment caused the transaction to be reclassified as debt instead of equity. (SAC ¶ 50; SEAC ¶ 56) 7. February through May of2003 In February of 2003 DI amended its 2001 Form 10-K to disclose additional features of Black Thunder. DHI made the same disclosures in an amended 2001 Form 10-K filed in April of 2003. (SAC ¶ 48; SEAC ¶ 52) In May of 2003 DI and DHI filed second amended second quarter 2002 Forms 10-Q in which references to an optional June 2005 due date for the Black Thunder loan were changed to reflect a firm June 2005 due date. (SAC ¶ 51; SEAC ¶ 57) Plaintiffs allege that these and other disclosures made in DI’s 2002 Form 10-K show that Black Thunder was debt from the outset and that its original presentation as equity was untrue. (SAC ¶ 52) IV. Claims Asserted Under the 1933 Securities Act Lead Plaintiffs claims for violation of the 1933 Act are brought on behalf of purchasers of publicly traded equity and debt securities for violation of §§ 11 and 15 codified at 15 U.S.C. §§ 77k and 77o, during a proposed class period beginning on March 15, 2001, and ending on July 22, 2002, against DI and DHI (together “the Companies”), Charles L. Watson, Robert D. Doty, Stephen W. Bergstrom, Michael R. Mott, and Kenneth E. Randolph (together “the 1933 Act Individual Defendants”), Charles E. Bayless, Darald W. Callahan, Michael D. Capellas, Daniel L. Dienstbier, Jerry L. Johnson, George L. Kirkland, Richard H. Matzke, H. John Riley, Jr., Sheli Z. Rosenberg, Joe J. Stewart, and J. Otis Winters (together “the Director Defendants”), outside accountant and auditor, Arthur Andersen LLP (Andersen), and Lehman Brothers Inc., Lehman Brothers Holding Inc., Merrill, Lynch, Pierce, Fenner & Smith, Inc., and Merrill Lynch & Co., Inc. ABN AMRO Inc., ABN AMRO Holding N.V., ABN AMRO Bank N.V., Banc One Capital Markets, Inc., Bank One Corp., Bank of America Securities LLC, Bank of America Corp., Commerzbank Capital Markets Corp., Commerzbank AG, Credit Lyonnais Securities (USA), Inc., Credit Lyonnais, Credit Suisse First Boston LLC (CSFB, formerly known as Credit Suisse First Boston Corp.), The Royal Bank of Scotland pic, The Royal Bank of Scotland Group, SG Cowen Securities Corp., Société Générale Group, TD Securities (USA) Inc., TD Bank Financial Group, and WestLB AG (formerly known as Westdeutsche Landesbank Girozentrale) (together “the Underwriting and Related Defendants”). Lead Plaintiffs claims for violation of the 1933 Act arise from the Companies’ alleged false statements about their finances and operating performance that were incorporated into the registration statements underlying DI’s offering of Class A Common Stock on December 20, 2001, and DHI’s offering of debt securities on March 15, 2001, and February 15, 2002. (SAC ¶¶ 1,131,164) A. Applicable Law 1. Section 11 “Section 11 of the 1933 Act allows purchasers of a registered security to sue certain enumerated parties in a registered offering when false or misleading information is included in a registration statement.” Herman & MacLean v. Huddle- ston, 459 U.S. 375, 103 S.Ct. 683, 687, 74 L.Ed.2d 548 (1983). In Herman & MacLean, 103 S.Ct. at 687, the Court explained that § 11 was designed to assure compliance with the disclosure provisions of the [Securities] Act by imposing a stringent standard of liability on the parties who play a direct role in a registered offering. If a plaintiff purchased a security issued pursuant to a registration statement, he need only show a material misstatement or omission to establish his prima facie case. Liability against the issuer of a security is virtually absolute, even for innocent misstatements. (a) Elements of a § 11 Claim The elements of a claim under § 11 are: (1) an omission or misstatement, (2) of a material fact required to be stated or necessary to make other statements made not misleading. Krim v. BancTexas Group, Inc., 989 F.2d 1435, 1445 (5th Cir.1993). “A ‘material’ fact is one which a reasonable investor would consider significant in the decision whether to invest, such that it alters the ‘total mix’ of information available about the proposed investment.” Id. See also Kapps v. Torch Offshore, Inc., 379 F.3d 207, 213-214 (5th Cir.2004) (“A fact is material ‘if there is a substantial likelihood that a reasonable shareholder would consider it important’ in making an investment decision.”) (quoting Basic Inc. v. Levinson, 485 U.S. 224, 108 S.Ct. 978, 983, 985, 99 L.Ed.2d 194 (1988)). Actual knowledge of falsity is not an element of a § 11 claim, and the § 11 plaintiff generally does not have to establish scienter. Herman & MacLean, 103 S.Ct. at 687 (citing Ernst & Ernst v. Hochfelder, 425 U.S. 185, 96 S.Ct. 1375, 1388, 47 L.Ed.2d 668 (1976)). (b) Statute of Limitations The statute of limitations for § 11 actions is provided by § 13 of the 1933 Act, 15 U.S.C. § 77m. Section 13 states that [n]o action shall be maintained to enforce any liability created under section 77k [§ 11] ... of this title unless brought within one year after the discovery of the untrue statement or the omission, or after such discovery should have been made by the exercise of reasonable diligence... In no event shall any such action be brought to enforce a liability created under section 77k ... of this title more than three years after the security was bona fide offered to the public. 15 U.S.C. § 77m. Under § 13 the limitations period begins to run when the plaintiff has actual knowledge of the facts giving rise to his claims or has notice of facts that in the exercise of reasonable diligence should have led to such knowledge. See Topalian v. Ehrman, 954 F.2d 1125, 1133 (5th Cir.), cert. denied, 506 U.S. 825, 113 S.Ct. 82, 121 L.Ed.2d 46 (1992) (“The controlling date for purposes of the running of the respective statutes of limitations is when a purchaser of securities knew — or in the exercise of reasonable diligence, should have known — of the alleged wrongdoing.”). See also Jensen v. Snellings, 841 F.2d 600, 606 (5th Cir.1988) (“[u]nder federal law, the limitations period commences when ‘the aggrieved party has either knowledge of the violation or notice of facts which, in the exercise of due diligence, would have led to actual knowledge,’ thereof’) (quoting Vigman v. Community National Bank & Trust Co., 635 F.2d 455, 459 (5th Cir.1981)). (c) Affirmative Defenses All defendants may assert affirmative defenses based on limitations, § 13, 15 U.S.C. § 77m, and proof that defendants’ misconduct did not cause the investors’ loss, § 11(e), 15 U.S.C. § 77k(e). All defendants except an issuer may assert certain statutorily recognized affirmative defenses, ie., (1) the person conducted a reasonable investigation, § 11(b)(3)(A)-(B)(the due diligence defense), 15 U.S.C. § 77k(b)(3)(A)-(B); and (2) the person reasonably relied on the opinion of an expert, § 11(b)(3)(C), 15 U.S.C. § 77k(b)(3)(C). Defendants bear the burden of proof for affirmative defenses. See Fed.R.Civ.P. 8(c), and 15 U.S.C. 77k(b). Affirmative defenses may support dismissal under Rule 12(b)(6) where facts alleged in plaintiffs’ complaint clearly establish that the action is barred. See Jones, 339 F.3d at 366 (recognizing that certain affirmative defenses that clearly appear on the face of the plaintiffs complaint — most commonly that the limitations period has run — may properly be asserted in a Rule 12(b)(6)) motion to dismiss; Kansa, 20 F.3d at 1366-1370 (same). (d) Pleading Standards When § 11 claims are grounded in negligence and not in fraud there is no scienter requirement, and the plaintiff need only satisfy the liberal pleading requirements of Rule 8(a). See Lone Star Ladies Inv. Club v. Schlotzsky’s Inc., 238 F.3d 363, 368 (5th Cir.2001). See also Kapps, 379 F.3d at 210. When § 11 claims sound in fraud instead of negligence, the plaintiff is required to plead the circumstances constituting the alleged fraud with particularity to satisfy Rule 9(b). See Melder v. Morris, 27 F.3d 1097, 1100 n. 6 (5th Cir.1994). Lead Plaintiffs 1933 claims are “solely strict liability and negligence claims.” (SAC ¶ 1) “Plaintiffs do not assert that defendants are liable for fraudulent or intentional conduct and disavow and disclaim any allegation of fraud.” (SAC ¶ 163) Because Lead Plaintiff has alleged that the §11 claims asserted in this action sound only in strict liability and negligence, they are only subject to the notice pleading standard of Rule 8(a), which “substituted the requirement of ‘a short and plain statement of the claim showing that the pleader is entitled to relief for the technical formula, such as ‘facts constituting a cause of action,’ which typified the preexisting codes.” Heimann v. National Elevator Industry Pension Fund, 187 F.3d 493, 509 (5th Cir.1999), overruled on other grounds by Arana v. Ochsner Health Plan, 338 F.3d 433 (5th Cir.2003), cert. denied, — U.S.-, 124 S.Ct. 1044, 157 L.Ed.2d 889 (2004). See also Swierkieioicz, 122 S.Ct. at 998 (Rule 8 is a simplified notice pleading standard that applies to all civil actions with limited exceptions, ie., those enumerated in Rule 9(b), and requires only a statement that gives “the defendant fair notice of what the plaintiffs claim is and the grounds upon which it rests.”)- “However, mere conclusory allegations will not suffice to prevent a motion to dismiss.” Kapps, 379 F.3d at 210 (citing Kane Enterprises v. MacGregor (USA) Inc., 322 F.3d 371, 374 (5th Cir.2003) (asserting that a plaintiff must plead specific facts not mere conclusions)). 2. Section 15 Section 15 of the Securities Act defines controlling person liability. It provides that Every person who, by or through stock ownership, agency, or otherwise ... controls any person liable under section[ ] 77k ... shall also be liable jointly and severally with and to the same extent as such controlled person to any person to whom such controlled person is liable, unless the controlling person had no knowledge of or reasonable ground to believe in the existence of the facts by reason of which the liability of the controlled person is alleged to exist. 15 U.S.C. § 77o. “The term ‘control’ means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise.” 17 C.F.R. § 230.405. Although worded differently, the control person liability provisions of § 15 of the 1933 Act and § 20(a) of the 1934 Act are interpreted in the same manner. See Abbott v. Equity Group, Inc., 2 F.3d 613, 619 n. 15 (5th Cir.1993), cert. denied sub mm. Turnbull v. Home Insurance Co., 510 U.S. 1177, 114 S.Ct. 1219, 127 L.Ed.2d 565 (1994). (a) Elements of a § 15 Claim To state a claim for control person liability a plaintiff must allege that a primary violation was committed and that the defendant directly or indirectly controlled the violator. See Kapps, 379 F.3d at 221 (citing Klein v. General Nutrition Companies, Inc., 186 F.3d 338, 344 (3d Cir.1999)). Control can be established by demonstrating that the defendant possessed the power to direct or cause the direction of the management and policies of ... a person through ownership of voting securities, by contract, business relationships, interlocking directors, family relations, or the power to influence and control the activities of another. See Ellison v. American Image Motor Co. Inc., 36 F.Supp.2d 628, 638-639 (S.D.N.Y.1999) (applying same test to 1933 Securities Act § 15 claims and 1934 Exchange Act § 20(a) claims, 15 U.S.C. § 78t(a)). In this circuit plaintiffs need not allege that the controlling person actually participated in the underlying primary violation to state claim for control person liability. See G.A. Thompson & Co. Inc. v. Partridge, 636 F.2d 945, 958 (5th Cir.1981) (rejecting as a requirement for a prima facie case an allegation that the controlling person actually participated in the underlying primary violation). Nevertheless, a plaintiff needs to allege some facts beyond a defendant’s position or title that show the defendant had actual power or control over the controlled person. Dennis v. General Imaging, Inc., 918 F.2d 496, 509-510 (5th Cir.1990). (b) Affirmative Defenses Good faith constitutes an affirmative defense for one charged with controlling person liability. See 15 U.S.C. § 77o (liability under § 15 attaches unless “the controlling person had no knowledge of or reasonable ground to believe in the existence of the facts by reason of which the liability of the controlled person is alleged to exist”). The plaintiff bears the burden of establishing control, and the defendant bears the burden of establishing good faith. Thompson, 636 F.2d at 958 & n. 23. B. Factual Allegations Specific to 1933 Securities Act Claims Lead Plaintiff alleges that the registration statements for DI’s offering of Class A Common Stock on December 20, 2001, and DHI’s offering of debt securities on March 15, 2001, and February 15, 2002, violate the 1933 Act because they incorporate the Companies’ false financial statements for 1999-2001. (SAC ¶¶ 1, 131) Lead Plaintiff alleges that the Companies’ financial statements for 1999-2001 were false because they understated debt and taxes, overstated net income, earnings per share, and cash flows from operations, and assert that they were prepared in accordance with GAAP and SEC rules when, in fact, they were not. (SAC ¶¶ 1, 4-6, 59-63, 109) Lead Plaintiff alleges that the Companies’ financial statements for 1999-2001 omitted material facts about the Black Thunder and Project Alpha transactions, and Dynegy’s energy trading business that, if disclosed, would have revealed that the financial statements overstated income and understated debt and taxes. (SAC ¶ 165) Because both DI and DHI have amended their financial statements for 1999-2001 to correct material misstatements and omissions, Lead Plaintiff alleges that both companies have admitted that their financial statements for 1999-2001 that were incorporated into the challenged registration statements contained false statements and omissions of fact that were material. (SAC ¶ 93) Lead Plaintiff alleges that each of the representative plaintiffs and the class members purchased securities traceable to a false and misleading registration statement and suffered substantial damages as a result of their purchases. (SAC ¶ 173) 1. Registration Statement for DHI 6.875% Notes Lead Plaintiff alleges that proposed Class Representative Hawaii Ironworkers Annuity Trust Fund (Hawaii Ironworkers) “purchased $220,000 par value of Dynegy Holdings’ 6.875% Notes due April 1, 2011, as reflected in the Certification previously filed in this action, and that it was damaged thereby.” (SAC f 14) The Certification demonstrates that Hawaii Ironwork-ers purchased DHI notes on April 17, 2001, for $99.76 each and sold them a month later, on May 16, 2001, for $97.56 each. (a) Factual Particulars Lead Plaintiff alleges that the 6.875% notes were issued pursuant to a registration statement dated September 26, 2000 (SAC ¶ 131), signed by Bergstrom, Doty, Randolph, and Watson (SAC ¶ 164). Lead Plaintiff alleges that the offering date was March 15, 2001, the underwriters were Lehman Brothers Inc., ABN AMRO Inc., Commerzbank Capital Markets Corp., CSFB, and Merrill Lynch, and that the controlling underwriters were Lehman Brothers Holding, Inc., ABN AMRO Holding N.V., ABN AMRO Bank N.V., Com-merzbank AG, CSFB, and Merrill Lynch & Co., Inc. (SAC ¶ 164) (b) Misstatements and Omissions Lead Plaintiff alleges generally that the registration statement for DHI’s 6.875% notes was “false and misleading ... [because it] omitted to state facts necessary to make the statements made not misleading and failed to adequately disclose material facts.” (SAC ¶ 165) Lead Plaintiff alleges specifically that the registration statement for the 6.875% notes contained false statements and omissions of material fact because it incorporated the Companies’ 1999 Forms 10-K (SAC ¶ 131), as well as their first(SAC ¶ 131) and second(SAC ¶ 46) quarter 2000 Forms 10-Q (SAC ¶ 46). Lead Plaintiff also alleges that this registration statement incorporated by reference all documents filed pursuant to § 13(a) of the Exchange Act prior to the offering (SAC ¶ 133), including the Companies’ third-quarter 2000 Forms 10-Q (SAC ¶¶ 79, 131) and 2000 Forms 10-K (SAC ¶ 46) because these forms were filed prior to the March 15, 2001, offering. Lead Plaintiff alleges that DHI’s 1999 Form 10-K overstated net income by $2 million due to improper accounting for tax matters (SAC ¶¶ 89-90), and by $19 million due to various accounting misstatements (SAC ¶ 91). Lead Plaintiff alleges that DHI’s third-quarter 2000 Form 10-Q overstated net income by $7 million due to improper accounting for natural gas contracts (SAC ¶ 79). Lead Plaintiff alleges that DHI’s 2000 Form 10-K overstated net income by $48 million (SAC ¶ 134), $2 million of which is attributable to improper accounting for tax matters (SAC ¶¶ 89-90), understated liabilities by $1 billion, understated liabilities from risk management activities by $1.2 billion (SAC ¶ 134), omitted key terms of the Black Thunder transaction, including triggers that could, and ultimately did, cause DHI to put up cash collateral of $270 million (SAC ¶¶ 46, 134), and repeated errors stated in DHI’s 1999 Form 10-K (SAC ¶ 91) that resulted in an overstatement of net income for 1999 of $15 million (SAC ¶ 134). 2. Registration Statement Offer for DI Common Stock Lead Plaintiff alleges that proposed class representative, The Regents of the University of California (The Regents) purchased more than four million shares of Dynegy’s common stock during the Class Period, including 50,000 shares purchased in the December 20, 2001 offering of Dynegy stock, on December 20, 2001, at offering price of $20.75 per share, as described in the Certification previously filed in this action and was damaged thereby. (SAC ¶ 12) The Amended Certification filed by Lead Plaintiff on July 20, 2004, states that The Regents made additional purchases of DI common stock on May 6 and May 7, 2002, and sold all of its DI common stock between May 21 and June 28, 2002. (a) Factual Particulars Lead Plaintiff alleges that the DI Class A common stock that it purchased on December 20, 2001, was offered pursuant to a registration statement dated July 27, 2001 (SAC ¶ 131), for which the responsible individuals were officers Bergstrom, Doty, Mott, and Watson, and outside directors, Bayless, Winters, Dienstbier, Kirkland, Callahan, Matzke, Capellas, Johnson, Riley, Rosenberg, and Stewart (SAC ¶ 164). Lead Plaintiff alleges that the offering date for the Class A Common Stock was December 20, 2001, the underwriter was Lehman Brothers Inc., and the controlling underwriter was Lehman Brothers Holding, Inc. (SAC ¶ 164) (b) Misstatements and Omissions Lead Plaintiff alleges generally that the registration statement was “false and misleading ... [because it] omitted to state facts necessary to make the statements made not misleading and failed to adequately disclose material facts.” (SAC ¶ 165) Lead Plaintiff alleges specifically that the registration statement for the December 20, 2001, stock offering incorporated the Companies’ 2000 Forms 10-K (SAC ¶ 131) as well as their first(SAC ¶ 131) and second(SAC ¶ 56) quarter 2001 Forms 10-Q. Lead Plaintiff also alleges that this registration statement incorporated by reference all documents filed pursuant to § 13(a) of the Exchange Act prior to the offering date, including the Companies’ subsequently filed third-quarter 2001 Forms 10-Q because they were issued pri- or to the December 20, 2001, offering. (SAC ¶¶ 181,133) Lead Plaintiff alleges that the Companies’ 2000 Forms 10-K omitted key terms of the Black Thunder transaction (SAC ¶ 46), and overstated net income for DI by $12 million and for DHI by $2 million due to errors in accounting for tax matters (SAC ¶¶ 89-90). Lead Plaintiff alleges that the second-quarter 2001 Form 10-Q contained false statements about earnings and cash flow from operations due to improper accounting for Project Alpha (SAC ¶ 56), and that the third-quarter 2001 Form 10-Q overstated cash flow from operations for the nine months ended September 30, 2001, by $182 million due to improper accounting for Project Alpha (SAC ¶¶ 136-137). Lead Plaintiff also alleges that “beginning with the third quarter 2001, ... [Dynegy’s] prior forward power curve methodology failed to appropriately reflect the value of its long-term power contracts” (SAC ¶ 83), and that when in January of 2003 Dynegy corrected this methodology the correction “resulted in a $94 million ... reduction to previously reported 2001 net income.” (SAC ¶ 83) Lead Plaintiff also alleges that DI’s reported earnings for 2000 and 2001 would have been materially lower had DI correctly recorded impairments to its telecommunication assets and goodwill; impairments that were eventually reported in their 2002 Forms 10-K filed in April of 2003 when the write-off of $897 million in goodwill associated with the Wholesale Energy Network segment was announced (SAC ¶ 100). 3. Registration Statement for DHI 8.75% Notes Lead Plaintiff alleges that proposed Class Representative “West Virginia Investment Management Board (WVIMB) purchased $2,340,000 par value of Dyne-gy Holdings’ 8.75% Notes due February 15, 2012, as reflected in the Certification previously filed in this action, and was damaged thereby.” (SAC ¶ 13) The Certification demonstrates that WVIMB purchased DHI notes on February 15, March 1, April 25, and April 29, 2002. (a) Factual Particulars Lead Plaintiff alleges that the 8.75% notes were offered pursuant to a registration statement dated July 27, 2001 (SAC ¶ 131), signed by Bergstrom, Doty, Mott, Randolph, and Watson (SAC ¶164). Lead Plaintiff alleges that the offering date was February 15, 2002, the underwriters were Banc of America Securities LLC, CSFB, ABN AMRO Inc., Banc One Capital Markets Inc., Commerzbank Capital Markets Corp., Credit Lyonnais Securities (USA) Inc., SG Cowen Securities Corp., The Royal Bank of Scotland pie, TD Securities (USA) Inc., and Westdeutsche Landesbank Girozentrale (West LB AG), and the controlling underwriters were Bank of America Corp., ABN AMRO Holding N.V., ABN AMRO Bank N.V., Banc One Corp., Commerzbank AG, Credit Lyonnais, Société Générale Group, and The Royal Bank of Scotland Group pic. (SAC ¶ 164) (b) Misstatements and Omissions Lead Plaintiff alleges generally that the registration statement was “false and misleading as ... [it] omitted to state facts necessary to make the statements made not misleading and failed to adequately disclose material facts.” (SAC ¶ 165) Because the registration statement for the DHI debt securities offered on February 15, 2002, bears the same date as the registration statement for the DI common stock offered on December 20, 2001, Lead Plaintiffs specific allegations concerning the false statements and omissions incorporated in the registration statement for the 8.75% notes, and the reasons for their falsity, are identical to those asserted in relation to the registration statement for the common stock offered on December 20, 2001. C. Defendants’ Motions to Dismiss § 11 Claims Defendants argue that the claims alleged in the 1933 Act Complaint should be dismissed under Rule 12(b)(6) because Lead Plaintiff failed to file the certification required by § 27, 15 U.S.C. § 77z-l, because Lead Plaintiff failed to plead compliance with the statute of limitations, § 13, 15 U.S.C. § 77m, and because the facts pleaded in the 1933 Act Complaint establish that plaintiffs’ claims are barred by limitations, that plaintiffs’ claims are subject to the negative causation defense, and that the non-issuer defendants are entitled to one or more affirmative defenses. 1. Certification Requirement Five defendants, Andersen, Lehman Brothers, Inc. and Lehman Brothers Holdings, Inc. (Lehman entities), Merrill Lynch, Pierce, Fenner & Smith Inc., and Merrill Lynch & Co., Inc. (Merrill Lynch entities), argue that the § 11 claims asserted against them should be dismissed because Lead Plaintiff did not file a certification as required by § 27 of the 1933 Act, 15 U.S.C. § 77z-l. Section 27 requires “[e]ach plaintiff seeking to serve as a representative party on behalf of a class” to “provide a sworn certification, which shall be personally signed by such plaintiff and filed with the complaint” that states among other things “the plaintiff has reviewed the complaint and authorized its filing,” and set forth “all of the transactions of the plaintiff in the security that is the subject of the complaint during the class period specified in the complaint.” 15 U.S.C. § 77z-l(a)(2)(A)(i) and (iv). Section 21D of the 1934 Act, 15 U.S.C. § 78u-4, contains an identical requirement for securities fraud claims. Citing In re Eaton Vance Corp. Sec. Litig., 219 F.R.D. 38 (D.Mass.2003), Andersen, the Lehman entities, and the Merrill Lynch entities argue that the § 11 claims arising from the offering of DI common stock should be dismissed because Lead Plaintiff, the only plaintiff with standing to assert those claims, has not filed a certification as required by § 27. Defendants argue that although Lead Plaintiff filed a certification in satisfaction of § 21D of the 1934 Act together with the complaint that it filed in Civil Action H-02-2374 on June 25, 2002, in which it asserted 1934 Act claims against other defendants (ie., DI, Watson, Doty, and Bergstrom), Lead Plaintiff failed to file a certification in satisfaction of § 27 together with the Consolidated Complaint that it filed in this action on June 6, 2003 (Docket Entry No. 112), or either of the two First Amended Consolidated Complaints that were filed on January 30, 2004 (Docket Entry Nos. 315 and 316). These defendants argue that because the certification filed with the 2002 complaint states only that Lead Plaintiff reviewed the 1934 Act claims asserted therein against other parties, that certification “cannot possibly serve as a certification for a Securities Act complaint filed against Andersen [and other previously unnamed defendants] almost two years later [in this action].” On July 20, 2004, Lead Plaintiff filed amended certifications for both its 1933 and 1934 Act complaints. In relevant part the amended certification states, “[p]laintiff reviewed the First Amended Consolidated Complaint for Violations of the Securities Act of 1933 filed in In re Dynegy Inc. Sec. Litig., No. H-02-1571 (S.D.Tex.) and authorized its filing.” Because Lead Plaintiff has now filed an amended certification, and because the defendants challenging Lead Plaintiffs failure to file an amended certification do not argue that they have been prejudiced by Lead Plaintiffs failure to file the certification earlier, the court concludes that the issue of whether the § 11 claims asserted against Andersen and the Lehman and Merrill Lynch entities should be dismissed because Lead Plaintiff failed to file an amended certification is moot. 2. Pleading Compliance with Statute of Limitations The Companies and the 1933 Act Individual Defendants argue that Lead Plaintiffs allegations of compliance with § 13 are insufficient to state a claim arising from the registration statements challenged in this action because they do not allege when plaintiffs became aware of misstatements or omissions in those registration statements. Then defendants assert that “[djespite having devoted an eighteen-paragraph section of the [19]33 Act Complaint to purported compliance with the statute of limitations, [Lead] Plaintiff fails to plead the three required allegations,” i.e., (1) the time and circumstances of the discovery of the fraudulent statement; (2) the reasons why it was not discovered earlier (if more than one year has lapsed); and (3) the diligent efforts which plaintiff undertook in making or seeking such discovery. These defendants assert that because compliance with § 13’s statute of limitations is “ ‘an essential substantive ingredient’ of a Section 11 cause of action ... ‘