Full opinion text
ORDER HOLMES, Chief Judge. This matter comes before the Court pursuant to the following motions filed on November 25, 2002:(1) Motion to Dismiss of WCG Defendants and Brief in Support (Docket No. 189); (2) Motion of Williams Defendants to Dismiss the Consolidated Amended Class Action Complaint on Behalf of Purchasers of WCG Securities (Docket No. 196); (3) Defendant, Ernst & Young LLP’s, Motion to Dismiss Consolidated Amended Class Action Complaint for Securities Fraud on Behalf of Purchasers of Williams Communications Group, Inc. Securities (Docket No. 198). The Court heard argument on these motions on April 4, 2003. Based upon a careful review of Consolidated Amended Class Action Complaint for Securities Fraud on Behalf of Purchasers of Williams Communications Group, Inc. Securities (the “Complaint”), the parties’ lengthy submissions, and arguments at the hearing, the Court hereby enters the following Findings of Fact and Conclusions of Law: Findings of Fact Based on the pleadings, and solely for the purpose of deciding the instant motions, the Court finds as follows: 1. This action was brought on behalf of purchasers of the publicly-traded equity and debt securities of Williams Communications Group, Inc. (“WCG” or the “Company”), between July 24, 2000 and April 22, 2002 (the “Class Period”). During the Class Period, WCG was a broadband Internet communications provider that purported to own and operate a nationwide fiber-optic network focused on providing voice, data, Internet, and video services to communications services providers. Until midway through the Class Period, WCG was a wholly-owned subsidiary of The Williams Companies (“WMB”), and as such was controlled and dominated by WMB and its executives. 2. The named defendants in the Complaint are the “Individual Defendants,” WMB, and Ernst & Young (“E & Y”), the outside auditor at all relevant times for both WCG and WMB. The Complaint alleges claims against (1) all Defendants under § 10(b) of the Exchange Act of 1934 and Rule 10b-5 promulgated thereunder; and (2) the Individual Defendants and WMB as controlling persons under § 20(a) of the Exchange Act. 3. The Complaint alleges that, immediately prior to the inception of the Class Period, the Board of WMB had been provided with a confidential report by The Boston Consulting Group that described the financial condition of the telecommunications industry as a “train wreck.” The Boston Consulting Group report stated in part that substantial equity and debt resources for telecommunications companies were no longer readily available, if at all. According to the Complaint, to avoid having to take substantial writedowns, to unload debt off WMB’s balance sheet, to preserve WMB’s credit rating, and to take better advantage of energy trading opportunities (which then appeared bright) — and despite the fact that WCG was allegedly undercapitalized — on March 30, 2001, the Board of WMB approved the spin-off of WCG whereby approximately 400 million shares, approximately 95% of WCG, would be distributed to shareholders of WMB as a tax-free special dividend. 4. According to the Complaint, in the midst of the continuing slowdown in the Internet and telecom sectors, Defendants took steps that were designed to reassure the public that WCG was and would remain a viable entity capable of surviving independently from WMB. For example, throughout the Class Period, Defendants issued financial statements asserting that WCG was adequately funded, was not being adversely affected by any over-capacity or over-supply conditions, and was successfully executing on its business plan. According to the Complaint, these actions were intended to provide false reassurance and the statements were false and misleading when made. 5. The Complaint alleges that these statements were materially false and misleading when made because, among other things: (1) WCG was severely undercapi-talized prior to its spin-off, had only a few months of operating capital remaining, and did not have adequate access to new funding; (2) WCG was materially over-leveraged as compared to other companies in its peer group; and (3) WCG was continuously near default on its bank covenants (or was actually in default) because of its deficient balance sheet and operating performance. Furthermore, because WMB had burdened WCG with $7 billion in debt prior to the spin-off, WCG was so over-leveraged that the Company could not obtain necessary credit without WMB acting as its guarantor. At the same time, demand for bandwidth continued to slow and bandwidth pricing deteriorated. At this time, any significant write-down of WCG’s assets would have put the Company in violation of the terms of its credit facility covenants for which WCG’s assets provided backing. Further, WMB’s contingent $1.4 billion financial obligation to WCG— which WMB assumed in connection with a private offering of WCG’s debt in 2001— was not properly recognized on WMB’s books and WMB did not take proper reserves for this contingency. The debt financing WCG obtained through its private offering was at most a stopgap which did not cure WCG’s long-term financing shortfall, although it contributed to a near-term appearance of financial stability. 6.According to the Complaint, during the Class Period and prior to the spin-off, Defendants’ financial advisor, Lehman Brothers, confirmed that WCG had a serious funding problem and was in drastic need of additional capital, raising material undisclosed risks as to its ability to continue as a going-concern and to maintain or expand its network. Indeed, in August 2001 — four months after the spin-off and unknown to the public — WCG’s Board met in an emergency session to discuss WCG’s survival and to consider strategic alternatives, including a “forced” recapitalization. 7. The Complaint further alleges that, in the Fall of 2001 and Winter of 2002, despite the fact that WCG’s balance sheet was actually impaired and WCG was not in compliance with the covenants in its credit facilities, Defendants continued to falsely portray WCG’s financial condition and capital structure by denying that the Company was heading for bankruptcy or otherwise in precarious financial condition. On November 1, 2001, WCG secretly retained Blackstone Group, LP (“Blackstone”), a New York-based financial advisor that specializes in advising companies and creditors in financially distressed situations, including advising debtors, creditors, and other constituents in Chapter 11 proceedings. Nevertheless, according to the Complaint, Defendants continued making materially false and misleading statements in November 2001 and misrepresented WCG’s financial strength and ability to execute its business plan. 8. The Compliant further alleges that, throughout the Class Period, in order to conceal WCG’s true financial condition, and to avoid defaulting on the Company’s credit agreements, Defendants falsely inflated WCG’s revenue and balance sheet data for fiscal years 2000 and 2001 by improperly reporting revenue in connection with indefeasible rights of use (“IRU”) swap transactions and failing to timely write-down the value of WCG’s impaired assets in violation of generally accepted accounting principles (“GAAP”). In particular, Defendants allegedly: (1) improperly reported revenues and earnings before interest, taxes, depreciation, and amortization (“EBITDA”) in connection with $2 billion in IRU/swap transactions on WCG’s financial statements, when such financial results were not properly recognizable because the transactions served no legitimate business purpose; (2) improperly concealed material details concerning WCG’s IRU/swap transactions in order to report false revenues where GAAP mandated disclosure; and (3) materially overstated WCG’s reported earnings by failing to timely write-off approximately $2.9 billion in charges in connection with the impaired value of WCG’s excess optronics inventory, Winstar assets, international assets, and excess fiber and conduit. 9. The Complaint alleges that Defendants’ false statements and falsely inflated financial results achieved their intended effect, as WCG’s stock price was artificially inflated throughout the Class Period and WCG continued to meet the revenue and EBITDA covenants in its credit and bank facilities. These false and misleading financial reports were contained in both WCG’s and WMB’s Form 10-Ks for the year ending 2000 and WCG’s Form 10-Qs disseminated during the Class Period. 10. On April 1, 2002, investors began to learn the true financial and operating condition of WCG, when Defendants announced that WCG was taking a massive impairment charge of $2.9 billion as of the fourth quarter 2001 and would report a net loss of $3.8 billion for fiscal year 2001. For the first time, Defendants publicly acknowledged that WCG was financially insolvent. WCG shortly thereafter filed for bankruptcy. According to the Complaint, by this time, Defendants had positioned WMB to benefit from WCG’s bankruptcy and acquire WCG’s assets virtually debt-free. Also, according to the Complaint, by this time the Individual Defendants had arranged for their corporate loans to be forgiven in the bankruptcy — a concrete benefit of approximately $13 million to them. By that time, E & Y had received millions of dollars in non-auditing consulting fees, which were several times greater than the fees it received for providing auditing services to both WCG and WMB. 11.WCG’s stock began the Class Period trading at $28.50 per share and traded at the end of the Class Period (post-bankruptcy) at approximately five cents per share. The common stock was completely extinguished through WCG’s bankruptcy. Conclusions of Law I. Introduction A. Standard of Review 1. In ruling on a motion under Fed. R.Civ.P. 12(b)(6), all well-pleaded factual allegations are accepted as true and viewed in the light most favorable to the nonmoving party. City of Philadelphia v. Fleming Cos., 264 F.3d 1245, 1257 (10th Cir.2001). 2. The Private Securities Litigation Reform Act of 1995, Pub.L. No. 104-67, 109 Stat. 737, (the “PSLRA”) mandates a more stringent pleading standard for securities fraud actions in general, and for scienter allegations in particular. Id. at 1258. 3. The PSLRA, therefore, requires the Court to disregard all “catch-all” or “blanket” assertions that do not live up to the particularity requirements of the statute. In re Navarre Corp. Sec. Litig., 299 F.3d 735, 741 (8th Cir.2002). 4. Moreover, while all inferences are drawn in Plaintiffs’ favor, inferences of scienter must be both reasonable and strong to survive dismissal. Kushner v. Beverly Enters., Inc., 317 F.3d 820, 827 (8th Cir.2003); Helwig v. Vencor, Inc., 251 F.3d 540, 551 (6th Cir.2001) (en banc); Greebel v. FTP Software, Inc., 194 F.3d 185,195-96 (1st Cir.1999). B.Elements of a § 10(b) Claim and Rule 10b-5 5. Plaintiffs may not bring suit under Rule 1 Ob-5, 17 C.F.R. § 240.10b-5, for acts not prohibited by the text of Securities Exchange Act of 1934 § 10(b), 15 U.S.C. § 78j(b). Cent. Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164, 173,114 S.Ct. 1439,128 L.Ed.2d 119 (1994); Ernst & Ernst v. Hochfelder, 425 U.S. 185, 214, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976). 6. Section 10(b) prohibits only manipulation or deception. Santa Fe Indus., Inc. v. Green, 430 U.S. 462, 473-74, 97 S.Ct. 1292, 51 L.Ed.2d 480 (1977). Manipulation refers to practices that are intended to mislead investors by artificially affecting market activity, Santa Fe, 430 U.S. at 476, 97 S.Ct. 1292. Deception involves the making of a material misstatement or omission. Cent. Bank, 511 U.S. at 177,114 S.Ct. 1439. Section 10(b) does not provide a remedy for corporate mismanagement or breach of corporate fiduciary duty, Santa Fe, 430 U.S. at 474, 477-79, 97 S.Ct. 1292, and the Court will not allow artful legal draftsmanship to avoid this requirement, see Panter v. Marshall Field & Co., 646 F.2d 271, 289 (7th Cir.1981). 7. In order to state a deception claim under § 10(b) and Rule 10b-5, Plaintiffs must allege that: (1) each Defendant made an untrue statement of material fact or failed to state a material fact; (2) the conduct occurred in connection with the purchase or sale of a security; (3) the Defendant made the statement or omission with scienter; and (4) Plaintiffs relied upon the misrepresentation and sustained damages as a proximate result thereof. Anixter v. Home-Stake Prod. Co., 77 F.3d 1215, 1225 (10th Cir.1996). C. Particularity 8. To the extent a Complaint is pled on information and belief, Plaintiffs must: (1) specify each statement alleged to have been misleading; (2) specify the reasons why the statement is misleading; and (3) state with particularity all facts upon which that belief is formed. 15 U.S.C. § 78u-4(b)(l). 9. When relying upon anonymous sources to support a belief stated in the Complaint, Plaintiffs must describe such sources with sufficient particularity to support the probability that a person in the position described would possess the information alleged. ABC Arbitrage Pis. Group v. Tchuruk, 291 F.3d 336, 353 (5th Cir.2002); Novak v. Kasaks, 216 F.3d 300, 314 (2d Cir.2000). If such anonymous sources are inadequately described, the belief can only be asserted if other facts, i.e., documentary evidence, provide an adequate basis for the belief. ABC Arbitrage, 291 F.3d at 353; Novak, 216 F.3d at 314. D. Scienter 10. Plaintiffs must, as to each act or omission alleged to violate § 10(b), state with particularity facts giving rise to a strong inference that each Defendant acted with scienter. 11. Scienter is a mental state embracing an intent to deceive, manipulate, or defraud. Fleming, 264 F.3d at 1259. Scienter includes (1) intentional misconduct, defined as deliberate illegal behavior; and (2) recklessness, defined as conduct that is an extreme departure from the standards of ordinary care, and which presents a danger of misleading buyers or sellers that is either known to the defendant or so obvious that he must have been aware of it. Id. at 1260. 12. To establish scienter for nondisclosure, Plaintiffs must show that each Defendant (l)(a) knew of the potentially material fact, and (b) knew that failure to reveal the potentially material fact would likely mislead investors; or (2) knew of a fact that was so obviously material that the Defendant must have been aware both of its materiality and that its non-disclosure would likely mislead investors. Id. at 1261. E. Motive and Opportunity 13. The Court must look to the totality of the pleadings to determine whether Plaintiffs’ allegations permit a strong inference of fraudulent intent. Id. at 1262. 14. In order to show motive, Plaintiffs must assert a concrete and personal benefit to each Defendant resulting from the fraud. Fleming, 264 F.3d at 1270; In re K-tel Intern., Inc. § Lit., 300 F.3d at 881, 894 (8th Cir.2002). F. Accounting 15. Allegations of accounting irregularities or violations of generally accepted accounting principles ("GAAP”) or generally accepted auditing standards (“GAAS”) are insufficient to state a securities fraud claim, unless coupled with allegations of fact that the violations or irregularities were the result of a fraudulent intent to mislead investors. Fleming, 264 F.3d at 1261. G. Materiality 16. A statement or omission is material only if (1) a reasonable investor would consider it important in determining whether to buy or sell stock; and (2) it would have significantly altered the total mix of information available to current and potential investors. Id. at 1265. If an event is contingent or speculative in nature, its materiality depends at any given time on balancing both the indicated probability that the event will occur and the anticipated magnitude of the event in light of the totality of the company activity. Id. at 1265. H. Puffery 17. Vague statements of corporate optimism (or puffery) are not materially misleading as a matter of law, as such generalized statements of optimism are not capable of objective verification and reasonable investors do not rely on them in making investment decisions. Grossman v. Novell, Inc., 120 F.3d 1112, 1119-20 (10th Cir.1997). The market, rather, relies on facts and not mere expressions of optimism from corporate spokespersons in determining the value of a security and, thus, gives most credence to specific statements of fact. Raab v. Gen. Physics Corp., 4 F.3d 286, 290 (4th Cir.1993). I. Bespeaks Caution 18. Because the materiality of a statement depends upon the total mix of information available to the investor, a statement is not material if other documents available to the investing public bespeak caution about the subject matter of the alleged misstatement. Grossman, 120 F.3d at 1120. Under this doctrine, forward-looking statements are immaterial when a defendant has provided the public with sufficiently specific risk disclosures or other cautionary statements concerning the subject matter to nullify any potentially misleading effect. Id. The touchstone of this inquiry is not whether isolated statements are true but whether the defendant’s representations and omissions, considered together and in context, would affect the total mix of information and mislead a reasonable investor. Halperin v. eBanker Usa.com, Inc., 295 F.3d 352, 357 (2d Cir.2002). Under the doctrine, the cautionary statements need not be made in the same document as the alleged misrepresentations, and such statements are particularly important where fraud on the market is alleged. Grossman, 120 F.3d at 1120, n. 7, 1122-23. 19. While the bespeaks caution doctrine predated the PSLRA and is similar to the statutory safe harbor, the doctrine survived the PSLRA as an independent test of materiality. See H.R. Conf. Rep. No. 104-369, at 46 (1995), reprinted in 1995 U.S.C.C.A.N. 730, 745. J. Safe Harbor 20. The safe harbor of the PSLRA provides that no defendant shall be liable with respect to any forward-looking statement if and to the extent that: (A) the forward-looking statement is (i) identified as a forward-looking statement, and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statement; or (ii) immaterial; or (B) the plaintiff fails to prove that the forward-looking statement (i) if made by a natural person, was made with actual knowledge by that person that the statement was false or misleading, or (ii) if made by a business entity, was (I) made by or with the approval of an executive officer of that entity; and (II) made or approved by such officer with actual knowledge by that officer that the statement was false or misleading. 15 U.S.C. § 78u-5(c)(l). A plaintiff must plead facts giving rise to a strong inference of such actual knowledge. 15 U.S.C. § 78u-4(b)(2). 21. The safe harbor of the PSLRA provides two primary paths by which a defendant may avoid liability. H.R. Conf. Rep. No. 104-369, at 43. The application of the safe harbor under the “actual knowledge” prong does not depend on the use of cautionary language, and the application under the “cautionary language” prong does not depend upon a defendant’s state of mind. H.R. Conf. Rep. No. 104-369, at 47; Helwig, 251 F.3d at 554, n. 2; Theoharous v. Fong, 256 F.3d 1219, 1224-25, n. 6 (11th Cir.2001); Greebel, 194 F.3d at 201. 22. In order to be meaningful, the cautionary language need not mention the factor that ultimately belies the forward-looking statement, nor need it mention all possible factors. H.R. Conf. Rep. No. 104-369, at 44; Harris v. Ivax Corp., 182 F.3d 799, 807 (11th Cir.1999). Cautionary language is meaningful when it warns investors of risks of a significance similar to that actually realized, id., 182 F.3d at 807, and may incorporate by reference SEC filings, In re Humphrey Hospitality Trust, Inc. Sec. Litig., 219 F.Supp.2d 675, 684 (D.Md.2002). 23. The standards for satisfying the “cautionary language” prong for oral statements is set forth in 15 U.S.C. § 78u-5(c)(2). If Plaintiffs rely on a third-party account of a forward-looking statement, Defendants may take advantage of the “cautionary language” prong, even absent the inclusion of the necessary language in the third party’s account. To hold otherwise would be to allow Plaintiffs to eviscerate Congress’ intent by relying on third-party accounts outside of the Defendants’ control. In re Tech. Cherns. Sec. Litig., No. 98-7334, 2001 WL 543769, at *8 (S.D.Fla. Mar. 20, 2001). 24. The types of statements considered forward looking under the safe harbor are set forth at 15 U.S.C. § 78u-5(i)(l). Where factors underlying a forward-looking statement include both assumptions and statements of known (or past) fact, the entire list of factors is treated as forward looking. Harris, 182 F.3d at 805-07. K. Control Person Liability 25. To state a prima facie case of control person liability, Plaintiffs must establish (1) a primary violation of the securities laws; and (2) control over the primary violator by the alleged control person. Fleming, 264 F.3d at 1270. Control means “the power to direct ... the management and policies of a person, whether through the ownership of voting securities, by contract, or otherwise.” Maher v. Durango Metals, Inc., 144 F.3d 1302, 1305 (10th Cir.1998) (quoting 17 C.F.R. § 230, 405). Dismissal of a § 20(a) claim “is appropriate when ... a plaintiff does not plead any facts from which it can reasonably be inferred the defendant was a control person.” Id. at 1306. 26. Applying applicable law to the facts alleged in the Complaint, the Court finds that (a) the Complaint adequately satisfies the pleading requirements of Fed.R.Civ.P. 9(b) and the PSLRA, and (b) the alleged statements are materially false and misleading. 27. The PSLRA requires that a private securities plaintiff “specify each statement alleged to have been misleading, [and] the reason or reasons why the statement is misleading.” 15 U.S.C. § 78u-4(b)(1). A Complaint satisfies the Tenth Circuit’s standard for pleading securities fraud if it alleges the who, what, when, where, and why of the alleged misrepresentations, Grossman, 120 F.3d at 1124, with reasonably sufficient corroborating facts. In re Cabletron Systems, Inc., 311 F.3d 11, 29-30 (1st Cir.2002). As set forth below, the Court -finds that the Complaint has satisfied these requirements. II. WCG’s Allegedly False and Misleading Financial Statements 28. The Complaint sufficiently alleges that defendants materially misstated WCG’s financial results in its press releases and SEC filings for the second, third, and fourth quarters of 2000, year-end 2000, and first three quarters of 2001. See ¶¶ 61-64, 67-71, 83-87, 102-05, 116-18, 157, 160, 170, 260. Moreover, the Complaint describes in detail how the alleged accounting irregularities at WCG during the Class Period rendered each of the challenged statements materially false and misleading when made. ¶¶ 157-216. A. Swap/IRU Transactions 29.The Complaint alleges that WCG’s financial results were materially false and misleading because the Company engaged in improper IRU/swap transactions in violation of GAAP which improperly served to inflate WCG’s reported revenue and EBITDA performance without disclosure of that fact. ¶¶ 60(v), 208-209. In this regard, the Complaint alleges that from July 1, 1999 through December 31, 2000, WCG entered into over $2 billion worth of 20-year IRU/swap transactions that had no legitimate business purpose but were entered solely to inflate WCG’s financial results, and has identified a series of specific IRU transactions entered into by WCG, including the names of the entities involved, the amounts and the dates of the transactions. See ¶¶ 60(v), 194-204. These transactions, which were not accounted for in accordance with GAAP, were engaged in for the purpose of meeting WCG’s EBITDA and revenue covenants contained in the Company’s bank and loan facilities. Among other things, the swap transactions had the effect of inflating reported EBITDA because expenditures related to the swap are not recorded as an expense but as a capital expenditure, resulting in depreciation expense in future periods, thus never impacting EBITDA; however, the annualized revenues from these exchanges of capacity were still booked as part of overall earnings, thus inflating EBITDA. B. Asset Write-downs 30. In addition to the IRU/swap transactions, the Complaint also sufficiently alleges that WCG’s financial results were materially false and misleading because WCG’s asset values were overstated by approximately $2.9 billion during the Class Period. The Complaint alleges that WCG should have written down its (a) optronics inventory, (b) international assets, (c) Winstar assets, and (d) dark fiber much earlier than it ultimately did in April 2003, when it took an impairment charge of $2.9 billion for these assets, precipitating the Company’s move into bankruptcy. ¶¶ 157-190. 31. Optronics Inventory. With regard to the optronics inventory, the Complaint sufficiently alleges that the optronics inventory should have been written down by at least the first quarter of 2001 because Defendants kept track of the excess Op-tronics inventory through computer tracking, and knew or recklessly disregarded that the carrying amount of WCG’s Op-tronics inventory was materially overstated and needed to be written down. ¶ 87(a). The Complaint alleges that, in late 2000 and early 2001, eyewitnesses observed excess equipment in WCG’s warehouses that was not assigned to any particular job site and that was not needed. ¶¶ 87(b), (c), (d)(i)-(vi). Moreover, by December 2000, because WCG’s routes were 90% completed and WCG was in the process of winding down installation operations and the backbone of the network was almost in place, there was no reason why WCG’s warehouses were heavily stocked with equipment. ¶ 87(v). Further, even though many telecom companies were taking massive inventory charges during the Class Period due to negative industry trends, including Cisco, which took a $2.25 billion charge in April 2001 for excess inventory, and Nortel Networks, which took a $650 million charge for excess inventory in the quarter ended June 30, 2001 — WCG waited until roughly a year later to take similar write-downs based on the same reasons. ¶ 87(d)(ix). The Complaint also alleges that the excessive inventory buildup was due, in substantial part, to “friends and family” deals entered into between various WCG executives and pre-IPO companies whereby WCG purchased unneeded and often technically inferior products from pre-IPO companies so that certain WCG executives, could receive IPO shares and profit thereby when the stock prices increased dramatically in the IPO market. ¶¶ 64(c)(i)-(xii). Defendants’ failure to timely write-down these assets violated GAAP because, according to the Complaint, during the first quarter of 2001, the utility of WCG’s inventory, “in disposal in the ordinary course of business” was “less than cost” due to negative industry trends (violates ARB 43, Chapt. 4, Statement 5). ¶ 167. In addition, Defendants allegedly had information concerning negative industry trends that rendered it “probable” that the assets were impaired (violates SFAS No. 5), and required writedowns. ¶¶ 167-168. 32. International Assets. The Complaint alleges that charges of approximately $256 million for international assets should have been taken beginning in January 2001 — over a year prior to WCG’s eventual disclosure and prior to the spin-off. ¶¶ 19(b), 118(d). The Complaint alleges that, during the Class Period, Defendants knew or recklessly disregarded events which called for the write-down of millions of dollars of international WCG assets, including that: (a) WCG’s partner in its Latin American ventures had completely written-down all of its Latin American assets for the six months ended September 2001; (b) significant negative market changes in the Internet and telecommunications sectors had a materially negative impact on prices for international routes, resulting in a 29% decrease in world-wide bandwidth prices from November 2000 to April 2001 and even more pronounced negative trends in the Latin American space; and (c) other telecommunications companies had announced bankruptcy. ¶ 118(d), 171-177. As pled in the Complaint, GAAP provisions were violated because Defendants failed to write-down WCG’s Latin American assets when negative market trends were already forcing WCG’s partners in its Latin American ventures to completely write-off these assets and the other factors cited above indicated that the book values of these assets were impaired. Id. Thus, there was a “significant ... change in the business climate” that impaired the value of WCG’s Latin American assets (vi-dating SFAS No. 121, ¶ 4-5), and Defendants knew or recklessly disregarded as early as January 2001, that the “economic benefits” of WCG’s Latin American assets were “reduced or eliminated” (violating FASB Statement of Concepts No. 5), necessitating material write-downs. ¶¶ 174-177. 33.Winstar. The Complaint sufficiently alleges that WCG should have taken a material write-down of its Winstar assets by at least the fourth quarter of 2000 because: (a) WCG had purchased wireless technology from Winstar that it could not and would not ever use, and which Winstar failed to service; (b) there had been significant negative market changes in the Internet and telecommunications sectors; and (c) WCG and Winstar had amended their 1998 agreement for WCG’s 25-year indefeasible right to use a percentage of the wireless local capacity of Winstar, which required a reassessment of the Winstar assets by no later than that time. Indeed, by the time WMB spun-off WCG on April 23, 2001, a write-down of the Winstar assets was absolutely necessary because Winstar had announced it had filed for bankruptcy just days before, on April 18, 2001. Nevertheless, in order to assuage fears that the Winstar bankruptcy would affect the Company and to ensure WCG’s smooth spin-off, on April 20, 2001, during the five-day period between the Winstar bankruptcy filing and the spin-off, instead of announcing the need for a write-down, Defendants announced that the Winstar bankruptcy would not have a “significant cash impact in 2001” on WCG. ¶ 78. However, pursuant to GAAP, upon the triggering event of Winstar’s bankruptcy filing, WCG was required to recognize an impairment loss. ¶¶ 183, 184. WCG’s denial of any adverse “cash impact” was itself misleading because it masked, and was intended to divert attention from, its need to record a material write-down. WCG’s second and third quarter 10-Qs similarly failed to reflect this write-down. ¶¶ 103,117. 34. Dark Fiber. The Complaint sufficiently alleges specific facts prior to and during the Class Period that signaled the need to take a $1.9 billion charge to WCG’s excess fiber and conduit in late 2000 or, at the latest, by early 2001. The Complaint alleges that WCG had lit only two fibers on most of its routes and was reserving hundreds of dark fibers for itself. ¶ 87(e). However, these dark fiber assets were overvalued because of the precipitous decline in the prices of dark fiber during the Class Period, the huge oversupply of available routes, and the ability to meet the market’s communications needs on just minimal amounts of fiber. ¶ 87(e). The Complaint alleges that, according to a WCG employee involved with business development, WCG was swapping dark fiber in 1998 and 1999 at $2,000-$3,000 per fiber mile; however, by late 2000 or early 2001, the market for dark fiber “completely vanished.” ¶ 87(d). Nevertheless, Defendants knowingly or recklessly failed to timely write down $1.9 billion worth of dark fiber during the Class Period. ¶ 87(c). As pled, this practice violated GAAP provisions because, among other things, Defendants knew and/or recklessly disregarded that the market for dark fiber had virtually disappeared by early 2001 and such negative industry trends constituted “a significant adverse change ... in the business climate” (violating SFAS No. 121, ¶ 4-5), that adversely affected the value of the assets. ¶¶ 187-189. WCG’s delaying the write-down until the eve of bankruptcy was unjustified under GAAP and violated its reporting and disclosure requirements. III. Allegedly False and Misleading Statements Concerning the Reasons for the Spin-off 35. According to the Complaint, to condition the market prior to the spin-off, Defendants falsely portrayed the spin-off as being highly positive for both WMB and WCG, stating that: The spin-off was the best way to ensure that both our energy and communications businesses have the efficient and effective access to the capital necessary to pursue the substantial growth opportunities that each enjoys. ¶ 59, 7/24/00 WMB press release (“PR”). Our energy and communications businesses have tremendous opportunities before them. Creating the most effective and efficient access to capital will help fuel that growth, and we believe that can best be achieved by creating two independent businesses. ¶ 65,11/16/00 WMB PR. Given our revenue growth, our solid financing plan, our fully operational network and our stable customer base, this spinoff is the natural evolution of a business strategy begun in 1998 ...; We have taken steps to strengthen our balance sheet and fund our long-term business plan; [T]he spinoff gives Williams Communications the best opportunity to strengthen its leadership and the ability to attract investors who value the vast potential of broadband, ... Demand for high-speed bandwidth is growing rapidly ¶ 75, WCG PR. 36. As pleaded, Defendants’ stated reasons for the spin-off — (a) to provide WCG with “effective and efficient” access to capital, and (b) to allow WCG to realize its growth potential — are sufficiently alleged to have been materially false and misleading when made. In support of this conclusion, the Court notes that the Complaint specifically alleges that Defendants knew and/or were reckless in not knowing that the spin-off would not enable WCG to gain the requisite access to capital because the supply of new capital was unavailable in needed amounts, if at all. Indeed, prior to the spin-off, Lehman Brothers and The Boston Consulting Group both specifically advised Defendants that the capital market for telecom operations and build-out financing had already dried up and that equity and debt resources for telecom companies were no longer available. ¶¶ 9, 58, 66. Further, Defendants were aware that the spin-off was not really to allow WCG to realize its growth potential because the telecom industry was in severe decline. In fact, there existed a vast overcapacity of dark fiber (T8); Defendants were advised by The Boston Consulting Group that the telecom meltdown that was taking place was a “train-wreck” (¶¶ 9, 66(a)); and WCG’s business was deteriorating as it was not making high margins on large, established customers, and its high margin business dependent on dot corns was declining as these customers ran low on cash or their business failed (¶ 66(b)). According to the Complaint, contrary to Defendants’ stated reasons for the spin-off, the true reason for the spin-off was to enable WMB to remove WCG’s mounting losses from its balance sheet, avoid having to take substantial write-downs with respect to WCG, unload WCG’s debts off its balance sheet, and to preserve its credit rating so that it could take advantage of the booming opportunities then available in energy trading. ¶¶ 5, 6, 8. Thus, making false and misleading statements concerning the reasons for the spin-off, WMB was able to sell to the public its underperforming and undercapitalized subsidiary and to obtain the necessary consents from lenders and others whose approval was required. TV. Allegedly False and Misleading Statements Concerning the Company’s Business Condition and Prospects 37. The Complaint sufficiently alleges that, throughout the Class Period, both before and after the spin-off of WCG, Defendants made numerous false and misleading statements concerning WCG’s business condition and prospects. According to the Complaint, even as Defendants recognized that market conditions had deteriorated for telecom companies, they continued to portray WCG as being unaffected by these conditions, downplayed the negative impacts of the market on WCG, and even went so far as to state that WCG was actually benefiting from the market conditions. Defendants allegedly stated, for example: We have continued to see a dramatic ramp-up in overall industry demand for bandwidth. ¶ 61, 7/27/00 PR. Williams Communications keeps promising it will ride the crest of the bandwidth market ... The company tried to dispel what it called the myth of a coming bandwidth glut ... But perhaps most notably, Williams stood firm on what many observers are most concerned about: the health of its balance sheet. “We believe we are on a clear path to profitability,” Schubert said. “We have a sound funding strategy in place.’ ” ¶ 68, 2/15/01 TfieStreet.com article. During the course of the first quarter, the company took several important steps to improve its liquidity and strengthen its balance sheet. In a time of constant change and uncertainty in the telecom industry, Williams Communications continues to execute and deliver on its visionary business plan announced in January 1998. Although the current economic environment appears to be weakening, Williams Communications continues to see strong demand for bandwidth services. As capital becomes more difficult to obtain, many bandwidth centric companies are looking to Williams Communications as an alternative to investing heavily into their own network build-outs. ¶ 83, 4/26/01 WCG PR. It’s simply not accurate to add up dark fiber in the ground and then say there’s too much capacity ... You won’t find many industries that can match the growth we’re seeing as new broadband applications drive demand. I believe we’ll find that marketplace fears about bandwidth glut are unfounded .... It’s ironic that the market meltdown has actually created a bigger opportunity for us. ¶ 93, 6/19/01 WCG PR. “Emerging telecom companies are taking a tremendous beating. It’s almost like bodies that have been tripped to the ground and people are walking over those bodies and kicking them,” Janzen said. “Well some of those bodies have turned to corpses ... and yet some are still very healthy, ready to get up and run. We are certainly in that position.” ¶ 98, 6/28/01 The Daily Oklahoman. See also, ¶¶ 62, 67 and 92, containing similar statements. 38. The Court finds that these statements are sufficiently alleged to have been materially false and misleading when made. In support thereof, the Court finds the pleading sufficiently alleges that: (a) WCG was experiencing a huge glut of bandwidth capacity along with falling customer demand. ¶ 60(i); (b) by mid or late-2000, WCG was “decommissioning” switches from underutilized POP sites due to the lack of customers. ¶ 60(i); (c) in the third quarter of 2000 alone, WCG lost numerous accounts including Starfone, Con-nexions, Premier, Urban Media, Compass, and 1/2 of Lightyear’s due to technical problems on WCG’s network. ¶ 60(iv); (d) WCG’s capacity utilization dropped from 60% in first half of 2000 to 40% in the third quarter of 2000. ¶ 64(d); (e) by the first quarter of 2001, the market was soft, and by the second quarter of 2001, the value for which WCG could sell capacity “dropped by one-half to two-thirds.” ¶ 94(a)(i); (f) WCG’s sales in Asia for 2000 and 2001 were virtually non-existent, and the only way WCG was able to make its $50 million target in Asia was by entering into a $100 million dark fiber deal with Teleglobe in early May 2001, just weeks before Teleglobe filed for bankruptcy in late May 2001. ¶ 94(a)(ii); (g) WCG’s sales in Europe and South America were extremely weak, failing to attain even 10% of its revenue targets. ¶ 94(a)(iii); (h) between January and May 2001, data at weekly Service Delivery meetings showed that customer circuit disconnects were outnumbering new connects, and by June 2001, presentations at the meetings indicated that revenue losses were greater than revenue gains. ¶ 94(a)(iii); (i) by August 2001, not only was the Company not getting any new customers, but 25-50 of WCG’s 250 customers were in “workout” mode, trying to renegotiate contracts, including Vartech and Lightyear. ¶ 108(b); and (j) defendant Schubert subsequently admitted that conditions in the financial markets and in the telecom industries had weakened in late 2000 and early 2001. ¶ 151. 39. According to the Complaint, WCG’s problems were so pervasive that in August 2001 — within four months after WCG’s spin-off from WMB in April — WCG’s Board had already met and discussed how WCG could “survive” and considered strategic alternatives including a “forced recapitalization.” ¶ 108(a). In October, 2001, WCG’s largest customer, SBC, which constituted approximately 40% of WCG’s revenue, was (unbeknownst to investors) asserting its right to terminate its “alliance” with WCG. ¶ 113. On November 1, 2001, WCG retained Blackstone, a specialist in advising companies in financially distressed situations, including Chapter 11 proceedings. Yet, despite the gravity of WCG’s business and financial problems, of which defendants were aware, defendants continued to publicly promote the Company’s business conditions and prospects, causing unsuspecting investors to acquire WCG securities at inflated prices. These statements included the following: Rumor: Williams Communications’ business plan is failing. Fact: With a relentless focus on service delivery and a solid, growing customer base, Williams Communications continues to deliver on its business plan by driving profitable, long-term revenue ... So while others in the industry shift direction looking for the right formula, we’ve had it all along and continue to deliver. Rumor: A bandwidth glut threatens to sink the entire telecommunications sector. Fact: Many people are not differentiating between dark fiber and lit, usable capacity. The vast amounts of fiber in the ground referenced by recent reports will take a great deal of time, capital and expertise to light. So where does that leave Williams Communications? We have a fully lit and operational network capable of addressing market growth rates approaching 100% per year Rumor: Williams Communications is on the verge of disappearing. Fact: Williams Communications is here to stay. With funding that takes us into 2004, a plan to be free cash flow-positive by the end of 2003, and the right team and strategy in place, we are positioned to not only survive the current shakeout, but thrive in the years to come. ¶ 106, 8/15/01 Janzen’s letter to WCG shareholders. Williams Communications continues to deliver on its promises; the company has a fully funded business plan, is in compliance with all third quarter covenants and is on track to become operational EBITDA positive by year-end; demand growth is strong and will soon outpace supply as we dig beneath the surface of broadband’s potential; bandwidth providers who have fully operational networks — such as Williams Communications — are well positioned to succeed and prosper as demand continues to grow. ¶ 112,10/4/01 WCG PR. We continue to perform, drive greater revenue and deliver on our promises. It is with frustration, then, that we hear the news of Standard & Poor’s decision to downgrade our publicly-traded debt. While the downgrade is in keeping with Standard & Poor’s cautious view of our industry, it has no impact on the cost of our debt. Williams Communications will continue to execute on our plans and differentiate our performance. ¶ 123, 1 /16/02 WCG PR. See also, ¶¶ 107, 116, 119, 121, 122, containing similar statements. 40. For purposes of the instant motions, the Court finds that these and similar statements were neither puffery nor immaterial, because they altered the total mix of information available about WCG, Basic Inc. v. Levinson, 485 U.S. 224, 231-32, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988), and they were known by the speaker at the time expressed to be untrue or without reasonable basis, Grossman, 120 F.3d at 1120 n. 6. 41. According to the Complaint, by at least January 2002, Defendants either knew or recklessly disregarded that WCG was heading for bankruptcy. Indeed, on January 18, 2002, the Compensation Committee of WCG’s Board approved $13 million in “retention bonuses” to five top WCG executives, including Defendants Janzen, Schubert, Bumgarner and Semple, which was in the form of 20% loan forgiveness per year over five years. Importantly, however, forgiveness was guaranteed and accelerated to immediately forgive the entire amount if WCG filed for bankruptcy. ¶ 135. Moreover, on January 29, 2002, WCG was informed by its bankers that it may be in default of its credit agreements, and, on that same day, WMB announced that it would be delaying the release of its 2001 earnings “pending an internal assessment” of its “contingent obligations” to WCG. Even after these crucial events signaling Defendants’ knowledge of impending bankruptcy, Defendants continued to assure investors that all was well with the Company, stating: “The assessment WMB is undertaking has no direct impact on WCG’s operations, WCG’s financial performance or the contingent guarantees WMB provided in support of WCG’s $750 million network lease agreement (ADP facility) and the $1.4 billion of WCG senior notes issued in March of 2001,” Shubert said. “As a company, we remain focused on continued execution and delivering on our commitments.” ¶ 127,1/29/02 WCG PR. “Although the entire telecom sector is being painted with the same broad brush, Williams Communications continues to differentiate itself by delivering superior operational and financial results,” said Howard Janzen. ¶ 128,1/31/02 WCG PR. Successful execution of the options currently envisioned does not include seeking bankruptcy court protection or the substantial dilution of equity security holders. ¶ 131, 2/4/02 WCG PR. ‘Williams Communications does not plan to file for Chapter 11 bankruptcy protection,” Janzen said ... “If we are successful with the current plan, it would not involve declaring bankruptcy and it would not involve a significant dilution for equity holders.” ¶ 133, 2/4/02 Associated Press. In 2002, Williams Communications will continue to execute and deliver solid financial results by profitably growing our top-line revenue, strengthening our balance sheet and solidifying our liquidity positions. ¶ 134, 2/13/02 WCG PR. See also, ¶¶ 130, containing similar statements. 42. On February 25, 2002, two weeks after the last of these positive statements — and after WCG and WMB privately entered into an agreement whereby WMB arranged for the treatment of its unsecured claims in an manner substantially identical to the claims of the holders of WCG’s redeemable notes — WCG publicly disclosed that bankruptcy was under serious consideration. ¶¶ 135, 137. This Court finds that these statements are sufficiently alleged to have been materially false and misleading when made based on Defendants’ knowledge and/or reckless disregard of internal adverse facts to the contrary. V. Allegedly False and Misleading Statements Concerning WCG’s Capitalization 43. The Complaint also sufficiently alleges that, throughout 2001 and into early 2002, Defendants falsely stated that WCG was well-capitalized, was fully funded through 2003 or 2004, was anticipating becoming cash-flow positive, would not have to raise additional capital from outside sources, and was fully able meet all debt covenants and payments. These statements were made repeatedly in various press releases, SEC filings, and published articles. Each of these statements, and the overall image of the Company. they conveyed when put together, were material because, as alleged in the Complaint, a major concern in the marketplace with regard to telecommunications companies, since most such companies were still losing money, was whether they had sufficient capitalization to meet their ongoing needs and whether they would continue to meet their payments and debt covenants. In particular, the Complaint alleges the following statements concerning WCG’s capitalization: Closing this transaction [private placement of $1.4 billion in structured notes, which were guaranteed by WMB] enhances our overall liquidity and positions us well in anticipation of the proposed spin-off. ¶ 73, 3/15/01 WCG PR. [T]hese transactions pre-fund Williams Communications’ business plan into 2003, when it anticipates achieving free cash flow. ¶ 83, 4/26/01 WCG PR. WCG’s current financing plan is expected to fund the cash requirements under its current business plan into 2003, when it expects to achieve free cash flow. ¶ 86, 5/10/01 Form 10-Q. “We absolutely do not have a cash flow problem,” Schubert said in answer to speculation about its $7 billion in long-term debt. “With the financing we completed prior to the spinoff, we have liquidity well into 2003.” ¶ 88, 5/25/01 Tulsa World. This level of liquidity is expected to be sufficient to meet all of the company’s cash requirements well into 2003 ... It’s unfortunate that the telecom industry is being painted with the same brush, causing our stock and bond prices to be undervalued. ¶ 100, 7/10/01 WCG PR. Williams Communications continues to project ... becoming free cash flow positive by year-end 2003 and the company now expects to be funded into 2004. ¶ 102, 8/1/01 WCG PR. WCG’s current financing plan is expected to fund the cash requirements under its current business plan into 2004, consistent with its business objectives of becoming free cash flow positive by year-end 2003. In addition, WCG believes that its business plan provides a path for compliance with its covenant requirement throughout this period as well. ¶ 103, 8/10/01 Form 10-Q. With a funding that takes us into 2004, a plan to be free cash-flow positive by the end of 2003, and the right team and strategy in place, we are positioned to not only survive the current shakeout, but thrive in the years to come. ¶ 106, 8/15/01 WCG PR. Janzen said the sale and lease-back of the Williams Technology Center “is one more step in the successful execution of our financing plan and reaffirms Williams Communications’ commitment to deliver on its promises.” ¶ 109, 9/17/01 WCG PR. [WCG] has met all covenant requirements under its bank credit facility and publicly traded bonds for the third quarter of 2001 ... “We continue to execute on our financing plan,” said Scott Schubert, chief financial officer of Williams Communications Group. “We are committed to delivering on our promises, including meeting our covenant requirements.” ¶ 111, 10/1/01 WCG PR. With our success in executing on every part of our financing plan throughout this year, the company has a fully funded business plan and does not need to raise additional capital at this time,” said Schubert. ¶ 114, 10/31/01 WCG PR. See also, ¶¶ 80, 90, 92, containing similar statements. 44. The Court finds that the Complaint sufficiently alleges that based on these statements, WCG investors were led to believe that the Company was sufficiently capitalized both near-term and long-term. According to the Complaint, these positive statements concerning WCG’s capitalization were false and misleading when made because Defendants knew or recklessly disregarded that WCG was undercapital-ized over the time frame projected, overburdened with debt, and incapable of meeting its payments and debt covenants on an ongoing basis. Furthermore, WCG’s false accounting masked its poor financial condition, and the $1.4 billion guaranty by WMB was insufficient on a long-term basis to enable WCG to thrive but served merely as a stopgap. See ¶¶ 9, 10,14, 60, 64, 64, 74, 81, 105,108. VI. The Alleged Statements are Not Protected by PSLRA’s Safe Harbor Provision or the Bespeaks Caution Doctrine 45. The PSLRA provides that “a person ... shall not be liable with respect to any forward-looking statement ... if and to the extent that the forward-looking statement is identified as a forward-looking statement, and is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statement.” 15 U.S.C. § 78u — 5(c)(1)(A)(i). The common law bespeaks caution doctrine also may provide protection “when forecasts, opinions, or projections in a disclosure statement • are accompanied by meaningful warnings and cautionary language” that warn investors of exactly the risk that Plaintiffs claim was not disclosed. Harden v. Raffensperger, 65 F.3d 1392, 1404-1406 (7th Cir.1995) (discussing the bespeaks caution doctrine and holding that it is a narrow defense that only applies to statements concerning the future). 46. The Court finds that the alleged false and misleading financial results are not subject to either the PSLRA’s safe harbor or the bespeaks caution doctrine because they concerned the Company’s then-existing financial condition and/or cannot be construed as “forward-looking.” 47. The Court further finds that the alleged statements concerning the reasons for WCG’s spin-off, WCG’s business condition and prospects, and WCG’s capitalization are not protected by the safe harbor or the bespeaks caution doctrine for the reasons set forth below. 48. First, many of these alleged statements, including statements concerning growing demand and lack of bandwidth glut, are simply not forward-looking but rather are statements of historical or then-existing conditions. In addition, none of the statements concerning WCG’s capitalization, such as that WCG was fully funded in 2003 and 2004 and did not need to raise additional ■ capital, are protected by the PSLRA’s safe harbor provision because the majority of these statements are not truly “forward-looking” but, rather, are statements of present fact. See No. 84 Employer-Teamster Joint Council Pension Trust Fund v. America West Holding Corp., 320 F.3d 920, 936-37, (9th Cir.2003) (holding that statements “the settlement agreement’s provisions will not have a material adverse affect on the Company’s operations or financial results” and “[w]e are not anticipating any major increase in maintenance costs or the cost of oversights going forward as a result of [the settlement agreement]” are not forward-looking). To allow statements of this type to be shielded by the safe harbor would mean that “any corporation could shield itself from future exposure for past misconduct by making present-tense statements regarding the misconduct and its effects on the corporation. Such blanket protection would eviscerate the 1934 Act altogether.” Id. 49.Second, even as to those statements that could be considered forward-looking, for cautionary language to be effective, the forward-looking, statement must be “accompanied” by “sufficiently specific risk disclosures or other cautionary statements concerning the subject matter of the statements at issue to nullify any potentially misleading effect.” Gross-man, 120 F,3d at 1120. Here, the purported cautionary language fails to meet these exacting standards. In particular, the purported warnings contained in WCG’s September 30, 1999 IPO prospectus and its May 12, 2000 Form 10-Q— issued ten months and two months, respectively, prior to the start of the Class Period — do not apply because they did not “accompany” the alleged false statements pursuant to the PSLRA and were too remote to imply any caution. 15 U.S.C. § 78u — 5(c)(l)(A)(i); Grossman, 120 F.3d at 1123 (“remote cautions are less likely effectively to qualify predictions contained in separate documents”); Sprint, 232 F.Supp.2d at 1222 (risk disclosures in Joint Proxy issued about seven weeks prior to alleged statements did not sufficiently nullify the misleading effect, as the time lapse weighed against operation of the bespeaks caution doctrine and the safe harbor). Further, many of the documents containing the alleged statements did not refer at all to any potentially applicable cautionary language (see, e.g., ¶¶ 68, 88, 98, 127, 133), and even those which referred to other documents for cautionary language, did not refer to specific SEC filings or the specific sections of those voluminous filings, much less identify any specific warnings or disclosures contained therein as pertaining to the alleged statements. 50. In addition, as alleged in the Complaint, Defendants’ warnings were simply not enough in light of what Defendants knew at the time they made their false statements or the information to which they had access. Defendants contend that they disclosed, for example, the Company’s assets, liabilities, cash requirements and expenditures, and funding needs, and warned that delays in provisioning and delivering network services would adversely impact its operations through 2001, that operating losses attributable to its Solutions Unit would adversely affect its financial results in 2000, that “[i]ncreased competition could lead to price reductions”, and that “if prices for network services decline, we may experience decline in revenues.” However, Plaintiffs allege in the Complaint that Defendants’ statements during the Class Period were either made in light of adverse information known to them or specifically designed to downplay those risks. For example, as alleged in the Complaint, Defendants’ disclosed information does not affect the falsity of Defendants’ stated reasons for the spin-off— namely, to allow WCG effective and efficient access to capital and to allow it to pursue growth opportunities — when in fact the spin-off was to enable WMB to rid itself of WCG and transfer its problems to others. Also, Defendants’ warnings about potential declines in revenues and decline in prices are insufficient where the Company was already experiencing significant declines but was nevertheless assuring investors that there was no bandwidth glut and that WCG was thriving on others’ misfortunes. Further, Defendants’ disclosures are insufficient to warn of lack of capitalization where Defendants repeatedly affirmed that the Company was adequately funded into 2003 or 2004, even though Defendants were aware of the falsity of their statements because they had been told by their advisors that WCG’s access to capital markets had dried up, engaged in specific transactions designed to load up WCG with over $7 billion in debt prior to the spin-off, knew WCG was in danger of breaching debt covenants on numerous occasions, were notified by certain creditors that WCG was in breach of debt covenants, were cutting essential expenditures and staff, held meetings to discuss the ongoing viability of the Company, and hired outside advisors that specialized in distressed companies and restructuring in bankruptcy. The generic warnings of problems that can affect the Company’s revenues are insufficient because Defendants failed to disclose that these problems had already manifested themselves and were severely and adversely impacting the Company’s viability. Indeed, Defendants cannot be insulated from liability when they continued to make highly positive statements even as they took steps outside of public view in preparation for WCG’s impending bankruptcy. The fact that Defendants refuted any intention to seek bankruptcy and then repudiated it about two weeks later indicates the possible presence of deception that simply cannot be nullified by cautionary statements. See Virginia Bankshares, Inc. v. Sandberg, 501 U.S. 1083, 1097, 111 S.Ct. 2749, 115 L.Ed.2d 929 (1991) (“not every mixture with the true will neutralize the deceptive”); Mayer v. My