Full opinion text
OPINION AND ORDER WILLIAM C. CONNER, Senior District Judge. Plaintiff Peter Loftin brings this proposed class action against defendants Flag Telecom Holding Group, Ltd. (“Flag”), Sa-lomon Smith Barney, Inc. n/k/a Citigroup Global Markets, Inc. (“Citigroup” or the “underwriter”), Verizon Communications, Inc. (“Verizon”) and nine individual defendants: Andres Bande, Edward McCor-mack, Andrew Evans, Larry Bautista, Stuart Rubin, Daniel Petri, Edward McQuaid, Philip Seskin and Dr. Lim Lek Suan (collectively referred to as the “individual defendants”). Plaintiff purports to bring suit on behalf of those who purchased Flag’s stock from February 16, 2000 through February 13, 2002 (the “class period”). On October 18, 2002, this Court consolidated several similar suits raising claims under the federal securities laws against defendants, named Loftin lead plaintiff and appointed Milberg Weiss Ber-shad Hynes & Lerach n/k/a Miberg Weiss Bershad & Schulman lead counsel. Plaintiff subsequently filed a Second Corrected Consolidated Amended Complaint (“2CCAC”) and the individual defendants, Citigroup and Verizon moved to dismiss the 2CCAC. We dismissed the 2CCAC but granted plaintiff leave to replead his claims against all defendants named in the 2CCAC. In re Flag Telecom Holdings, Ltd. Sec. Litig., 308 F.Supp.2d 249, 274 (S.D.N.Y.2004) (Conner, J.) (hereinafter “Flag I”). In the Third Consolidated Amended Complaint (“3CAC”) plaintiff alleges that Flag, Citigroup and the individual defendants are liable under § 11 and § 12(a)(2) of the Securities Act of 1933 (the “Securities Act”). Plaintiff also asserts claims against Verizon and the individual defendants under § 15 of the Securities Act. Additionally, plaintiff alleges that Flag, Bande, McCormack, Bautista and Evans violated § 10(b) of the Securities and Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated thereunder and that Verizon, Bande, McCormack, Bautista and Evans are liable under § 20(a) of the Exchange Act. The Flag defendants, Verizon and Citigroup move to dismiss pursuant to Rules 12(b)(6) and 9(b) and the Private Securities Litigation Reform Act (“PSLRA”) for failure to state a claim. For the reasons stated herein, we grant the motions of Flag, Evans and Verizon to dismiss the claims raised in the 3CAC against them. Defendant Bautista’s motion to dismiss is granted in part and denied in part. Finally, the motions of defendants Bande, McCormack, Rubin, Pe-tri, McQuaid, Seskin, Suan, and Citigroup to dismiss are denied in their entirety. BACKGROUND I. Flag’s Initial Public Offering (the “IPO”) Flag offered its shares to the general public in an IPO held on February 16, 2000. (3CAC ¶ 90.) The company’s Prospectus (the “Prospectus”) was ineorporat-ed into the Registration Statement (the “Registration Statement”) filed in connection with the IPO. Bande, Flag’s Chief Executive Officer (“CEO”), McCormack, Flag’s Chief Financial Officer (“CFO”), and Rubin and Suan, both members of Flag’s Board of Directors, signed the Registration Statement. (Registration Statement at II — T.) In addition, McQuaid and Seskin were also members of Flag’s Board of Directors at the time of the IPO and signed the Registration Statement. (3CAC ¶¶ 59, 60.) In the Prospectus, Flag stated that its goal was to become a leading “global carriers’ carrier” and that it intended to achieve this goal through the expansion of its fi-beroptic cable network. (3CAC ¶ 2; Registration Statement at 2.) At the time of the IPO, Flag’s network consisted of: (1) the Flag Europe-Asia cable system (“FEA system”) which linked to “communications networks in the United Kingdom, Spain, Italy, Egypt, Jordan, Saudi Arabia, the United Arab Emirates, India, Malaysia, Thailand, Hong Kong, China, Korea and Japan,” (Registration Statement at 46); and (2) terrestrial connections linking a host of major European metropolitan areas. (Id. at 37.) Flag sold access to its network on a wholesale basis to international carriers, telecommunications companies and internet service providers. (3CAC ¶ 2.) Customers could purchase broadband telecommunications capacity on Flag’s network pursuant to a Right of Use contract (“ROU”) or an Indefeasible Right of Use agreement (“IRU”). (Registration Statement at 43.) Capacity on Flag’s network was “portable.” Thus, customers that acquired capacity on one segment of Flag’s network could later obtain capacity on a different segment in response their changing needs. (Registration Statement at 43.) Flag’s Prospectus revealed that it was in the process of expanding its global network through the construction of the Flag-Atlantic 1 cable system (the “FA-1 system”). , (3CAC ¶ 4.) The FA-1 system was a joint venture between Flag and GTS Transatlantic Holdings Ltd. (“GTS”) to build two digital fiberoptic cables connecting Paris and London to New York. (Id.; Registration Statement at 37.) The two cables would create a “self-healing ring”; if one cable failed, Flag could re-route the traffic on that cable onto the other cable in order to avoid service interruptions. (Registration Statement at 37.) The Prospectus also indicated that Flag might expand its network further by constructing or acquiring digital fiberoptic cables in other areas of the world or by purchasing capacity from competitors where “rapid access to a market [was] required or where it [was] not economically feasible to” construct or acquire new systems. (Id. at 2.) A. The Allegedly Misleading Statements or Omissions in the Prospectus Concerning Demand Plaintiff alleges that Flag falsely stated in the Prospectus that market demand for broadband telecommunications capacity was strong at the time of the IPO and that, demand was growing. Plaintiff points to the following statement in the Prospectus: We developed and are enhancing the FLAG Telecom network and our product and service offerings to participate in the following important growth and strategic shifts in the international telecommunications markets: ... RAPID GROWTH OF TELECOMMUNICATIONS TRAFFIC. According to an August 1999 research report published by Ovum Ltd., total world telecommunications traffic demand is expected to grow more than 50-fold between 1999 and 2005, with Internet and data traffic accounting.for 98% of total traffic by 2005_ IMPACT OF GLOBAL DEREGULATION. The continued deregulation of the global telecommunications industry has resulted in a significant increase in the number of competitors, including traditional carriers, wireless operators, Internet service providers and new local exchange service providers. This change in the global competitive landscape is generating significant demand for broadband telecommunications capacity as carriers seek to secure sufficient capacity for their expansion plans.... Global deregulation has also resulted in increased demand for city-to-city. services, as new entrants to the telecommunication industry seek to take advantage of the economic benefits of controlling facilities on an end-to-end basis. (Registration Statement at 39.) Plaintiff contends that these statements were false when issued because as of February 11, 2000, the effective date of the Registration Statement, FLAG possessed information demonstrating that the supply of broadband telecommunications capacity had substantially outstripped the market demand 'for that capacity. (3CAC ¶ 81.) B. Cautionary Language In the Prospectus In a section of the Prospectus entitled “RISKS RELATED TO OUR INDUSTRY,” Flag disclosed the following: BECAUSE OUR PRODUCT OFFERINGS ARE EXPANDING AND THE TELECOMMUNICATIONS INDUSTRY IS CHANGING SIGNIFICANTLY, WE FACE COMPETITION AND PRICING PRESSURE FROM A WIDE VARIETY OF SOURCES. Along the FLAG Europe-Asia cable route and the FLAG Atlantic-1 cable route, we face competition and pricing pressures from existing cables, planned cables, and satellite providers, including existing geosynchronous satellites and low-earth orbit systems now under construction .... Many of our competitors have, and some potential competitors are likely to enjoy, substantial competitive advantages, including the following: — greater name recognition; — greater financial, technical, marketing and other resources; — larger installed bases of customers; and — well established relationships with current and potential customers. Significant new and potentially larger competitors could also enter our market as a result of regulatory changes or the establishment of cooperative relationships. In addition, recent technological advances may greatly expand the capacity of existing and new fiberoptic cables. Although such technological advances may enable us to increase our capacity, an increase in the capacity of our competitors could lead to even greater competition. Increased competition could lead to price reductions, fewer large-volume sales, under-utilization of resources, reduced operating margins and loss of market share. (Registration Statement at 11.) Flag disclosed the following information in the Prospectus concerning competition in certain markets: GLOBAL SERVICES COMPETITORS A number of companies are presently engaged in building global carriers’ carrier networks. We believe that because of the high cost of building truly global networks this is a market in which there will always be a limited number of players. Two other companies at present propose to build global carriers’ carrier networks: Global Crossing and Level 3 Communications. Global Crossing is a Bermuda based telecommunications company which currently has three operational cable systems: Atlantic-Crossing-1 (AC-1), Pacific-Crossing (PC-1) and Pan-European Crossing (PEC). Global Crossing is currently building a number of other systems covering Asia (Asia Global Crossing) and Latin America (SAC, MAC and PAC).- We believe we compete with Global, Crossing on quality, as well as on the coverage and cost effectiveness of our network. Level 3 Communications currently operates a United States city-to-city cable network based on company owned infrastructure and is building a European city-to-city network. Level 3 Communications has announced the construction of a single, high capacity cable cross [sic] the Atlantic Ocean. Level 3 has made investments in a trans-Pacifie cable system (US-Japan) in addition to its own facilities. Over time, as we develop our wholesale services offerings, we expect to compete with major global telecommunications operators such as MCI World-Com and British Telecom/AT & T. These companies primarily focus on offering services to multinational corporations, although they also offer carriers’ carrier services. Such companies often participate in consortium cable projects, as well as in private network systems, such as those we own and operate. We also expect to face competition from carriers’ carriers and incumbent regional telecommunications providers with respect to our wholesale service offerings. TRANS-ATLANTIC SERVICES COMPETITORS We believe our key competitors in the trans-Atlantic services market are as follows: — TAT-14 — This loop cable system is a consortium system cable sponsored by British Telecom, AT & T and other incumbent telecommunications operators in the United States and Europe. It has a maximum design capacity of 640 gigabits per second. TAT-14 provides services on a coast-to-coast basis. It does not presently provide city-to-city services. — LEVEL 3 COMMUNICATIONS — Level 3 Communications is building a single cable system based on IP only technology, running at 1.28 terabits per second. The 'system provides city-to-city service. — GLOBAL CROSSING AC-1 AND AC-2 — AC-1 is a loop system across the Atlantic. AC-1 runs at 80 gigabits per second and may be subsequently upgraded to Í60 gigabits per second. AC-1 is fully operational. AC-2 is a proposed 2.56 terabits per second single cable system that, due to its increased capacity over AC-1, would only partially restore on AC-1. AC-2 is at an early stage of development. — HIBERNIA — This is a proposed 1.92 terabits per second system which is sponsored by Worldwide Fiber, a subsidiary of Ledcor Industries, a Canadian mining company. Worldwide Fiber principally offers dark fiber connectivity on terrestrial networks on a carriers’ carrier basis in the North American markets. INTRA-EUROPEAN. SERVICES COMPETITORS We believe that the intra-European market will become very competitive in ■the next 12-18 months as a result of the large number of proposed pan-European operators. At least eight pan-European networks have been announced or commenced operations, including: GTS, BT Farland, MCI WorldCom Ulysses, Alca-tel/The Petabit Network, iaxis, Global Crossing PEC, Viatel Circe and KPN/ Qwest. MIDDLE EASTERN TRANSMISSION SERVICES COMPETITORS We expect to compete against two primary competitors in this market: — SEA ME WE (SMW3) — This is a consortium cable system that connects the Asia/Pacific region via the Middle East to Western Europe along a similar route to the Flag Europe-Asia cable system. SMW3 was originally planned to route to the FLAG Europe-Asia cable system. SMW3 was originally planned to be in service in late 1997; however, it was significantly delayed and only recently entered commercial service. SMW3 has an initial capacity of 20 gigabits per second and is upgradeable to 40 gigabits per second. SMW3 has major investors that include many of the incumbent telecommunications operators along its route. — Satellite — In addition to the SMW3 cable, carriers have the alternative of transmission by satellite, including existing geosynchronous satellites and low earth orbit systems now under construction. In general, satellite service is considered to be of inferior quality, because time delays and echos affect transmission, and service interruptions are more frequent. Furthermore, satellite systems are more expensive to launch and to maintain per circuit and generally have a shorter useful life and less capacity. Nonetheless, there are many communications satellites in geosynchronous orbit which are available to provide service. ASIA/PACIFIC REGIONAL TRANSIT COMPETITORS At present, two other systems compete in the Asia/Pacific market, SMW3 and APCN. Both are consortium systems. — SMW3- — in Asia, this system connects from Singapore north through Asia to Japan, and also south to Australia. — APCN — This consortium system is an established regional transit system around Asia. Many of the region’s traditional operators are participants. In addition, several further systems are planned that may come into service between 2001-2003. These include APCN2, backed by incumbent Asian operators, PA-1, backed by NTT and U.S. and European operators, and a system proposed by Global Crossing. EUROPE-ASIA LONG HAUL SERVICES COMPETITORS We also participate in the Europe-Asia long haul market through the FLAG Europe-Asia cable system. SMW3 is the primary direct competitor along this route. However, we expect the strongest competition in the future to come from an alternative routing from Europe to Asia across the Atlantic Ocean, trans-US, and across the Pacific Ocean to Japan. (Id. at 52-54.) Finally, in Management’s Discussion and Analysis Flag stated: Because capacity sales recognized as revenues in 1997 were generally sold at a higher price per unit than the price per unit we expect to realize in the future, we have recognized a higher cost of sales per unit in 1997 than we expect to recognize in the future based on management’s current best estimate and third party market forecasts of capacity sales. (Id. at 31.) C. The Allegedly Misleading Statements or Omissions in the Prospectus Concerning Capacity Pre-Sales Plaintiff alleges that the disclosures in the Prospectus concerning capacity pre-sales on the FA-1 system were materially false or misleading. (3CAC ¶ 92.) According to plaintiff, Alcatel Submarine Networks (“Alcatel”) entered into an improper agreement with Flag (the “Alcatel Sales Agreement”) for the purchase of capacity on the FA-1 system. The Alcatel Sales Agreement, plaintiff alleges, was entered into as part of a “fraudulent scheme” to inflate FA-1 system pre-sales to create the illusion that there was demand for capacity on the FA-1 system and to secure a line of credit necessary for the construction of the FA-1 system. (Id. ¶¶ 91-92, 98.) II. Post-IPO Events A. The Allegedly False or Misleading Statements Plaintiff contends that subsequent to Flag’s IPO, Flag’s market position continued to deteriorate, but rather than reveal the company’s troubles, the Flag defendants issued false statements and financial results in press releases and SEC filings to give the impression that Flag was a sound company that “always met or exceeded the market’s expectations.” (Id. ¶ 8.) Plaintiff contends that the following statements made by Flag, McCormack and Bande after the company’s IPO were false or misleading. On March 3, 2000, Flag issued a press release announcing its financial results for FY:99. Flag reported Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”) of $128 million, and gross revenues of $162 million. Although gross revenues were down from $208 million in 1998, Flag explained that “[r]eported revenue trends reflected the requirement to defer some revenues to subsequent periods for accounting purposes as a result of ... [the adoption of FASB Interpretation No. 43] and the inclusion of non-cash items in 1998 reported revenues.” (Id. ¶ 99.) In Flag’s 10-K report filed on March 30, 2000, which was signed by Bande and McCormack, the company repeated the gross revenue disclosures and added that Flag “recognized revenue from the sale of capacity of $120.2 million.” (Id. ¶ 100.) In a press release issued on March 20, 2000, Bande commented on a capacity sale that involved Saudi Telecommunications Company stating: “We believe the size of capacity purchased underlines the importance of fiberoptic cables in today’s bandwidth hungry market, and the confidence of Saudi Telecom in Flag Telecom to deliver robust service.” . (Id. ¶ 102.) Shortly thereafter, Flag announced plans to build the Flag Pacific-1 system without disclosing the glut of supply that was allegedly already on the market. (Id. ¶ 103.) On April 26, 2000, Flag issued a press release'announcing its financial results for 1Q:00 which ended March 31, 2000. (Id. ¶ 106.) 'The company noted that it had EBITDA of $46.3 million and that “[sjtrong global demand for data/IP bandwidth drives cash revenue growth.... The results reflect continued strong demand for bandwidth, both in the form of capacity sales and short-term leases.” (Id.) Bande stated: “The strength of our results underscores the continuing growth in global demand for higher bandwidth capacity.” (Id.) McCormack added that Flag’s strong cash position “together with presales of network capacity and non-recourse bank debt, should fully fund our current business plan.” (Id.) In Flag’s 10-Q report for this quarter, which was signed by McCor-mack, the company reported total revenue for the quarter of $19.2 million and revenue from the sale of capacity of $7.8 million. The company sustained a net loss of $31.1 million for the quarter. Although these results represented a downward departure from 1Q:99, Flag attributed the less favorable figures “primarily to reduced accounting revenue and increased depreciation costs caused by the adoption of FASB Interpretation No. 43.” (Id. ¶ 110.) On May 16, 2000, Flag filed a Registration Statement for an exchange offer in connection with certain notes it had privately issued in March 2000. This filing did not disclose adverse market trends of which the Flag defendants were allegedly aware. (Id. ¶ 109.) On July 25, 2000, Flag issued a press release announcing its financial results for 2Q:00 which ended June 30, 2000. (Id. ¶ 12.) The company announced that it re-borded EBITDA of $1.8 million and stated that “[t]he move of EBITDA to positive territory comes a year ahead of Company expectations, reflecting both strong sales and cost containment.” - (Id.) In Flag’s 10-Q report for 2Q:00, which was signed by McCormack, Flag reported total revenues of $24.7 million and revenues from the sale of capacity of $10.2 million. (Id. ¶115.) On October 24, 2000, Flag issued a press release announcing it’s results for 3Q:00 which ended September 30, 2000. Flag-stated in the release that it recorded EBITDA of $1.8 million for the quarter and commented that “[t]he results show a continuing successful execution of the company’s strategy to meet the global growth in demand for IP capacity and value added services.” (Id. ¶ 117.) In the company’s 10-Q report filed for the quarter, which was signed by McCormack, Flag reported total revenue of $24.7 million and revenue from sales of capacity of $10.2 million. (Id. ¶ 115.) On October 31, 2000, Flag announced in a press release .that it had agreed to purchase GTS’s interest in the FA-1 system. Bande stated: The FA-1 system will support our fast developing network services business, delivering IP and network services across our global platform for carriers, ASPs and ISPs. Demand for capacity across the Atlantic continues to grow, and this agreement enables FLAG to increase its ownership of highly resilient capacity, and at a-very attractive cost base. (Id. ¶ 122.) Subsequent to the completion of the purchase of GTS’s interest, Bande made the following statement in a press release: The competitive landscape on this route is also encouraging. Market prices appear to have stabilized over the past two quarters and continue to be in line with our expectations. In particular, the number of competing systems we had expected has declined after the combination of two market players on to one cable system. (Id. ¶ 123.) On February 6, 2001, Flag issued a press release announcing its FY:00 results. Flag stated that “[c]ontinued growth in demand for bandwidth and Network Services was the driver behind the strong performance during the year.” (Id. ¶ 126.) McCormack stated: “We have seen continued demand for our traditional capacity and Network ’Services products in the fourth quarter, taking our cumulative sales to date over $2.0 bn.” Bande added the following: We expect our results for 2001 to reflect continued growth in sales of capacity on ’our" two completed systems, presales on systems under development and further progress in our FNS business. We anticipate seeing continued strong interest from our traditional customer base as well as from new categories of customers whom we are reaching with our expanding range of Network Services. (Id.) In Flag’s 10-K for FY:00, which was signed by Bande and McCormack, the company reported total revenue of $99.3 million, revenue from the sale of capacity of $36.8 million and EBITDA of $2 million. (Id. ¶ 127.) On March 5, 2001, Flag issued a press release announcing “that in response to market demand [Flag] is bringing forward the planned upgrade programme for the ... [FA-1] cable system.” McCormack stated: “Following sales commitments and indications of future demand across this high-traffic route, we have accelerated the timing of the upgrade of our capacity on FA-1.” (Id. ¶ 132.) On April 24, 2001, Flag issued a press release announcing its financial results for 1Q:01 which ended on March 31, 2001. Bande stated in the release that “[d]emand across the network routes remains strong.” (Id. ¶ 170.) This statement from Bande appears to be the last occasion on which a Flag defendant represented to the public that market demand for broadband telecommunications capacity was strong. In Flag’s Form 10-Q for 1Q:01, which was signed by McCormack, the company reported total revenues of $29 million, a 51% increase from 1Q:00, revenue from sales of capacity of $8.1 million, a 4% increase from 1Q:00, and EBITDA of $1.2 million. (Id. ¶ 171.) On August 7, 2001, Flag issued a press release announcing its financial results for 2Q:01 which ended June 30, 2001. In that release, McCormack stated the following: While the current market conditions remain challenging, we find increasingly that customers are looking for the quality, flexibility of routing, rapid turn-up and certainty of supply that the FLAG Telecom network can provide. Going forward, we expect to benefit from marketing capacity and Network Services products across the elements of our network currently in service, and to experience continued demand from our strong traditional customer base as well as from new customers. (Id. ¶ 176.) In Flag’s Form 10-Q for 2Q:01, which was signed by McCormack, Flag reported total revenues of $36.1 million, a 46% increase from 2Q:00, and EBITDA of $2.8 million. (Id. ¶ 177.) On November 6, 2001, Flag issued a press release announcing its results for 3Q:01, which ended September 30, 2001, wherein Bande stated the following: We had a good quarter, remaining in line with our guidance and continuing to see the benefits of our focused approach to the business. FLAG Telecom remains a fundamentally sound company. Clearly, our ability to deliver revenue growth and meet our targets in challenging market conditions is a direct result of the competitive advantages and unique reach of our global network, the quality and stability of our customer base and the high levels of service we are able to provide to those customers.... [W]e believe we are well positioned in the global economic downturn and should stand to benefit from any market recovery in the future. (Id. ¶ 179.) Flag reported in the release that total cumulative revenues through the third quarter of 2001 were $723.9 million and that adjusted EBITDA was $612.7 million. This represented a substantial increase from the prior year. The company also stated that total revenues for 3Q:01 were $55.6 million and that it had enjoyed a “[s]trong cash position of $668.8m.” (Id. ¶ 179.) B. Flag Announces That It Is Reviewing Its Business On February 13, 2002, Flag issued a press release announcing its financial results for FY:01. Flag revealed the following: We believe' that our available sources of cash provide sufficient' liquidity to fund our obligations and our ongoing business operations throughout 2002. We are currently reviewing our business in the light of deteriorating market conditions. If there is no improvement in our operating environment,, we anticipate that at some point in 2003 we will not have sufficient liquidity to continue our operations, unless we are able to raise additional funds, find a strategic partner or restructure our indebtedness. Given the state of the capital markets generally, and especially for our industry sector, we think it is unlikely that we will be able to raise additional debt or equity capital under current market conditions. In connection with our review of our liquidity and capital resources, our desired capital expenditures and the current capital market conditions for companies in our sector, we have initiated discussions with potential strategic partners and potential financial advisors. In these discussions we are considering the impact on our industry sector of the insolvency of various industry participants, lower margins resulting from the amount of distressed assets in the marketplace, the current state of capital markets for companies in our industry sector, our liquidity and capital resources, and possible financing and strategic alternatives. (Id. ¶ 187.) Flag also revealed in this release that “14% of GAAP revenues for the full year 2001 was associated with reciprocal transactions entered into with other telecommunications companies and service providers.” (Id.) Subsequent to the issuance of this press release, Flag’s stock declined 46% to $0.36 a share on heavy volume. (Id. ¶ 190.) In Flag’s 10-K for FY:01, filed on April 1, 2002, the company disclosed that it would not be able to “make the required interest payments, due March 30, 2002, on ... [certain] outstanding senior notes.” (Id. ¶ 192.) Flag also revealed the following: Given the high degree of competition in terms of alternative supply, price erosion and continued lack of demand on the trans-Atlantic route ... we now believe that the asset value of our FA-1 system is impaired. We determined that the carrying value' of the FA-1 system exceeded its fair value and we have therefore recognized an impairment charge of $359.0 million in the year ended December 31, 2001. (Id. ¶ 192.) However, Flag noted, “at this time we do not believe that the FEA system is impaired.” (Id. ¶ 198.) Flag filed a Chapter 11 bankruptcy petition on April 12, 2002. During these proceedings Flag prepared a “Pro-forma Reorganized Balance Sheet as of September 30, 2002.” (3CAC ¶ 199.) According to plaintiff, the balance sheet indicated that the estimated value of Flag’s property and equipment was $385 million. Flag had reported in its financial results for 3Q:01 that its property and equipment were worth $2.3 billion. (Id.) Several lawsuits asserting claims under the federal securities laws were filed against Flag, the individual defendants, Citigroup and Verizon in the Spring of 2002. This Court consolidated these actions and appointed Loftin lead plaintiff. Plaintiff subsequently filed a 2CCAC and the individual defendants, Citigroup and Verizon moved to dismiss the 2CCAC. In Flag I, this Court dismissed the 2CCAC but granted plaintiff leave to replead his claims. 308 F.Supp.2d at 252. Plaintiff subsequently filed the 3CAC and defendants now move to dismiss the 3CAC. DISCUSSION I. Standard of Review On a motion to dismiss pursuant to Rule 12(b)(6), the court must accept as true all of the well pleaded facts and consider those facts in the light most favorable to the plaintiff. See Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974), overruled on other grounds by Davis v. Scherer, 468 U.S. 183, 104 S.Ct. 3012, 82 L.Ed.2d 139 (1984); Harris v. City of New York, 186 F.3d 243, 247 (2d Cir.1999). On such a motion, the issue is “whether the claimant is entitled to offer evidence to support the claims.” Scheuer, 416 U.S. at 236, 94 S.Ct. 1683. 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.” Padavan v. United States, 82 F.3d 23, 26 (2d Cir.1996) (quoting Hughes v. Rowe, 449 U.S. 5, 10, 101 S.Ct. 173, 66 L.Ed.2d 163 (1980)). Generally, “[cjonclusory allegations or legal conclusions masquerading as factual conclusions will not suffice to prevent a motion to dismiss.” 2 James Wm. Moore et. al., MOORE’S FEDERAL PRACTICE § 12.34[l][b] (3d ed.1997); see also Hirsch v. Arthur Andersen & Co., 72 F.3d 1085, 1088 (2d Cir.1995). Allegations that are so conclu-sory that they fail to give notice of the basic events and circumstances of which the plaintiff complains, are insufficient as a matter of law. See Martin v. New York State Dep’t of Mental Hygiene, 588 F.2d 371, 372 (2d Cir.1978). In assessing the legal sufficiency of a claim, the court may consider those facts alleged in the complaint, documents attached as an exhibit thereto or incorporated by reference, see Fed. R. Crv. P. 10(c); De Jesus v. Sears, Roebuck & Co., Inc., 87 F.3d 65, 69 (2d Cir.1996), and documents that are “integral” to plaintiffs claims, even if not explicitly incorporated by reference. Cortec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 46-48 (2d Cir.1991). A company’s prospectus is integral to a plaintiffs § 11 and § 10(b) claims and can be considered in its entirety even where plaintiff has quoted from it sparingly. I. Meyer Pincus & Assocs. v. Oppenheimer & Co., 936 F.2d 759, 762 (2d. Cir.1991). Indeed, when considering a motion to dismiss § 11 claims, the court must consider the prospectus as a whole. Olkey v. Hyperion, 98 F.3d 2, 5 (2d Cir.1996). II. Whether Plaintiff’s Claims Against Flag Were Timely Filed Flag contends that plaintiffs claims brought under § 11 and § 12(a)(2) of the Securities Act are time-barred because plaintiff failed to commence suit on these claims within “three years after the security was bona fide offered to the public.” 15 U.S.C. § 77m. Flag also argues that plaintiffs § 10(b) and Rule 10b-5 claims against it are time-barred because plaintiff failed to commence suit “within one year after the discovery of the facts constituting the violation.” Lampf Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 364, 111 S.Ct. 2773, 115 L.Ed.2d 321 (1991) overruled on other grounds by § 27A of the Securities and Exchange Act. On April 2, 2002, Michel-Garcia v. Flag Telecom Holdings, Ltd., 02 Civ. 2541(WCC) was filed in this Court naming, inter alia, Flag as a defendant and asserting claims under the Exchange Act. Shortly thereafter, Kurtz v. Flag Telecom Holdings, Ltd, 02 Civ. 2767(WCC) (S.D.N.Y.) (filed Apr. 9, 2002), Mehan v. Flag Tele-com Holdings, Ltd, 02 Civ. 3023(WCC) (S.D.N.Y.) (filed Apr. 19, 2002), Kane v. Flag Telecom Holdings, Ltd., 02 Civ. 3314(WCC) (S.D.N.Y.) (filed Apr. 29, 2002), and McNeely v. Flag Telecom Holdings, Ltd., 02 Civ. 3234(WCC) (S.D.N.Y.) (filed Apr. 26, 2002), were filed. The plaintiffs in these actions also named Flag as a defendant and asserted claims .under the Exchange Act. On May 1, 2002, Loftin filed a Class Action Complaint (the “May 2002 Complaint”) on behalf of purchasers of Flag’s stock during the class period. Loftin v. Bande, 02 Civ. 3400(WCC) (S.D.N.Y) (filed May 1, 2002). In the May 2002 Complaint, plaintiff asserted Exchange Act and Securities Act claims and named as defendants, inter alia, the individual defendants, Citigroup and Verizon. (May 2002 Complaint ¶¶ 7-14, 61-89.) Plaintiff noted in the May 2002 Complaint that Flag had not been named because it had filed a Chapter 11 bankruptcy petition on April 12, 2002. (Id. ¶ 6.) On October 18, 2002, we consolidated Loftin, Michel-Garcia, Kurtz, Mehan, McNeely and Kane by Order and named Loftin lead plaintiff (the “Consolidation Order”). Around the time that the Consolidation Order was issued, Michel-Garcia, Kurtz, Mehan, McNeely and Kane were voluntarily dismissed without prejudice with respect to Flag only. (Fortinsky Deck, Ex. T.) On December 18, 2002, we “So Ordered” a stipulation signed by the attorney for the individual defendants, who also currently represents Flag and represented FTGL when FTGL was a party to this action, captioning the action In re Flag Telecom Holdings, Ltd, Securities Litigation (the “December 2002 Order”). (Id.) Counsel for the individual defendants signed the stipulation that later became the December 2002 Order solely in his capacity as attorney for the individual defendants.' The December 2002 Order also provided that plaintiff was to serve- a Consolidated Amended Complaint (“CAC”) by January 16, 2003. (Id.) The time to serve the CAC was subsequently extended by Order on two other occasions (the “Extension Orders”) but Flag was never a party to the Extension Orders. Flag’s Plan of Reorganization (the “Plan”) was approved by the bankruptcy court on September 26, 2002 and Flag’s reorganized successor, FTGL, emerged from bankruptcy on October 9, 2002. The Plan discharged Flag’s direct liability for violations of the federal securities laws but provided that the discharge ... shall not prohibit holders of security-related Claims against [Flag] ... from asserting such Claims solely for the purpose of accessing, and to the extent of, any applicable insurance policies, provided however, that [neither Flag nor FTGL] ... shall have any direct liability on account of any such claims exclusive of such insurance policies. (Fortinsky Decl. ¶ 3(e).) On March 20, 2003, plaintiff filed the CAC and described Flag as follows: “Defendant Flag Telecom Group Limited is the re-organized successor of Flag Tele-com Holdings Limited (collectively ‘FLAG’).” (CAC ¶ 43.) Plaintiff also named as defendants, inter alia, Citigroup, Verizon and the individual defendants. (Id. ¶¶ 44-56.) In July 2003, FTGL, along with the individual defendants, Citigroup and Verizon moved to dismiss the CAC and counsel for FTGL informed plaintiff that FTGL did not hold title to the policies at issue and was not the proper party. (Fleishman Deck ¶¶ 2-3.) On November 12, 2003, before FTGL’s motion to dismiss was fully submitted, plaintiff filed a Second Corrected Consolidated Amended Complaint (“2CCAC”) for the sole purpose of naming Flag as a defendant instead of FTGL. In considering the motions to dismiss, we treated FTGL’s submissions in support of its motion as if they had been filed by Flag. Flag I, 308 F.Supp.2d at 252 n. 2. However, during the March 2004 conference the parties informed the Court that Flag had yet to be served with a consolidated complaint in this action. Counsel for plaintiff informed the Court that she had been unable to serve Flag because counsel for Flag denied that he was representing Flag. Counsel for Flag informed the court that he had not been retained by Flag and that, as of the date of the conference, he only represented FTGL and the individual defendants. The Court advised counsel for plaintiff that she should serve Flag’s bankruptcy counsel, Millbank, Tweed, Hadley & McCloy, and that if Flag’s bankruptcy counsel refused service the Court would take the appropriate action. The 3CAC provides factual allegations indicating that Flag’s investors were placed on inquiry notice of their claims against Flag by February 13, 2002. Indeed, on that date, plaintiff contends, Flag “stunned the market” when it admitted “that 14% of Flag’s 2001 GAAP revenues were based on reciprocal transactions, and that the Company was likely to be forced to discontinue operations in 2003.” (3CAC ¶ 187.) Accordingly, plaintiffs Securities Act claims were required to be filed on or before February 16, 2003, three years after Flag’s IPO, 15 U.S.C. § 77m, and his Exchange Act claims against Flag were required to be filed on or before February 13, 2003. Lampf Pleva, Lipkind, Prupis cfe Petigrow, 501 U.S. at 364, 111 S.Ct. 2773. Plaintiff did not attempt to name Flag or FTGL as a defendant until he filed his CAC on March 20, 2003, more than one month after the applicable statute of limitations and statute of repose had run. Plaintiff contends that the amendment adding Flag as a party should relate back to the filing of his May. 2002 Complaint. Rule 15(c) provides that an amendment to a complaint adding a party will relate back to the date of the filing of the original complaint when the claim ... asserted in the amended pleading arose out of the conduct, transaction, or occurrence set forth or attempted to be set forth in the original pleading ... and, within the period provided by Rule 4(m) for service of the summons and complaint, the party to be brought in by amendment (A) has received such notice of the institution of the action that the party will not be prejudiced in maintaining a- defense on the merits, and (B) knew or should have known that, but for a mistake concerning the identity of the proper party, the action would have been brought against the party. Fed. R. Civ. P. 15(c). Although Flag had notice of the commencement of this action, plaintiff has not shown that Flag “knew or should have known that; but for a mistake concerning the identity of the proper party the action would have been brought against that party” before the expiration of the limitations period. Id. Indeed, the record demonstrates that, although Flag was named as a defendant in Michel-Garcia, Kurtz, Mehan, McNeely and Kane, plaintiff made a conscious decision to discontinue those actions insofar as they raised claims against Flag. Presumably, plaintiff caused these actions to be dismissed because he believed it was necessary to ensure that the bankruptcy stay applicable to litigation involving Flag did not interfere with the progress of his suit against Citigroup, Verizon and the individual defendants. Plaintiff contends that he failed to name Flag “because of confusion — a confusion affirmatively encouraged by defense counsel and counsel for [Flag’s] Joint Provisional Liquidators' — concerning which Flag entity held the insurance policies post-bankruptcy.” (PI. Mem. Opp. Mot. Dismiss at 43.) However, plaintiff does not contend that there was any confusion as to the identity of the proper party prior to the filing of the CAC on March 20, 2003. Plaintiff contends only that he became aware in July 2003 of the possibility that he had named FTGL in error. (Id. at 46; Fleishman Deck ¶ 2.) The fact that plaintiff may have been confused as to the identity of the proper party until July 2003 is immaterial because neither Flag nor FTGL had been named on or prior to February 13, 2003, the date the statute of limitations ran on plaintiffs Exchange Act claims, or on or prior to February 16, 2003, the date the statute of repose ran on plaintiffs Securities Act claims. Moreover, the defendants’ acts that plaintiff contends encouraged plaintiffs confusion occurred several months after FTGL and Flag had been named. (Fleishman Deck ¶ 2, Ex. 2.) ■ Accordingly, we conclude that plaintiffs failure to amend the May 2002 Complaint prior to the expiration of the relevant limitations period to add Flag or FTGL as a defendant was not caused by a mistake concerning the identity of the proper party. Plaintiff made a strategic decision to dismiss the claims filed against Flag in Michel-Garcia, Kurtz, Mehan, McNeely and Kane and continued to pursue this tactic until after the expiration of the limitations period. Thus, plaintiffs March 20, 2003, amendment adding Flag does not relate back to the filing date of the initial pleading under Rule 15(c), see Cornwell v. Robinson, 23 F.3d 694, 705 (2d Cir.1994), and we grant Flag’s motion to dismiss as untimely all .the claims raised against it in the 3CAC. III. Plaintiff’s § 11 Claims Plaintiff asserts claims under § 11 of the Securities Act against the individual defendants and Citigroup. In order to state a claim under § 11, a plaintiff must allege that “the registration statement ... contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading ....” 15 U.S.C. § 77k(a). The truth of a statement made in the prospectus is adjudged by the facts as they existed when the registration statement became effective. In re MobileMedia Sec. Litig., 28 F.Supp.2d 901, 923 (D.N.J.1998). A claim under this section may be asserted against, inter alia, every person who signed the registration statement, the directors of the issuer and the underwriter of the security. 15 U.S.C. § 77k(a). The test for determining whether the prospectus contained material misstatements or omissions is “whether the defendants’ representations [made in the prospectus], taken together and in context, would have misled a reasonable investor ...Olkey, 98 F.3d at 5 (citations omitted). A. The Allegedly False or Misleading Statements in the Prospectus Concerning Demand Plaintiff contends that the following statements in the Prospectus concerning demand for broadband telecommunications capacity were false as of the effective date of the Registration Statement: We developed and are enhancing the FLAG Telecom network and our product and service offerings to participate in the following important growth and strategic shifts in the international telecommunications markets: ... RAPID GROWTH OF TELECOMMUNICATIONS TRAFFIC. According to an August 1999 research report published by Ovum Ltd., total world telecommunications traffic demand is expected to grow more than 50-fold between 1999 and 2005, with Internet and data traffic accounting for 98% of total traffic by 2005.... IMPACT OF GLOBAL DEREGULATION. The continued deregulation of the global telecommunications industry has resulted in a significant increase in the number of competitors, including traditional carriers, wireless operators, Internet service providers and new local exchange service providers. This change in the global competitive landscape is generating significant demand for broadband telecommunications capacity as carriers seek to secure sufficient capacity for their expansion plans.... Global deregulation has also resulted in increased demand for city-to-city services, as new entrants to the telecommunication industry seek to take advantage of the economic benefits of controlling facilities on an end-to-end basis. (Registration Statement at 39-40; 3CAC ¶ 80.) In a section of the Prospectus labeled “Our Products and Services,” Flag stated the following: ‘We offer packages of circuits with delivery staged over time; this allows our customers’ capacity to grow in time with anticipated demand growth.” (Registration Statement at 43; 3CAC ¶ 80.) Upon reviewing these statements, we conclude that Flag represented in the Prospectus that there was “significant demand for broadband telecommunications capacity” at the time of the company’s IPO and that demand was expected to grow in the future. Plaintiff has not pled facts demonstrating that these statements were false as of the Effective Date. Plaintiff contends that because he has alleged that prices declined by at least 70% on the trans-Atlantic route in the year prior to Flag’s IPO, (3CAC ¶¶ 82-83,) he is “entitled to the benefit of a reasonable inference in this regard.” (PI. Mem. Opp. Citigroup’s Mot. Dismiss at 7.) Allegations of precipitous price declines in the year prior to a company’s IPO ■ may tend to show that a company falsely stated in a prospectus that prices had been trending upwards prior to the IPO. The same allegations, however, do not demonstrate that generalized statements regarding market demand were false as of the effective date of the registration statement. Indeed, prices may fall for a variety of reasons unrelated to demand especially where there is substantial competition in the relevant market. Moreover, industries that utilize advanced technologies, such as the telecommunications industry, may experience price declines when technological advances allow for more efficient production or transmission processes. Similarly, plaintiff argues that the fact that Flag had been able to sell only 5% of its capacity on the FEA system supports the inference that demand for broadband telecommunications capacity was stagnant and not growing as of the Effective Date. We disagree. First, the FEA system had a useful life of approximately 25 years. (Registration Statement at 48.) It would be unreasonable to presume that the capacity on that system would be purchased soon after the system was placed into service or not at all. Second, the Prospectus revealed that Flag hoped to participate in the “growth” that it and others expected to occur in the telecommunications industry. The fact that Flag had so much capacity available on its FEA system was consistent with its strategy to profit from the predicted explosion in telecommunications traffic. Plaintiff argues that on a motion to dismiss we must “make all reasonable inferences in [his] favor.” (PI. Mem. Opp. Citigroup’s Mot. Dismiss at 9.) Thus, we must sustain his allegations because it is reasonable to conclude that the price declines that occurred prior to Flag’s IPO were caused by a lack of demand. (Id.) Although, on a motion to dismiss we must view the facts alleged in the 3CAC in the “light most favorable to the plaintiff,” see Scheuer, 416 U.S. at 236, 94 S.Ct. 1683, we are not required to take' every inferential leap suggested by plaintiff. In Rombach v. Chang, the plaintiffs alleged that the defendants’ optimistic statements concerning their company were misleading because those statements were made when the company faced a liquidity crisis. 355 F.3d 164, 173-74 (2d Cir.2004). The complaint contained allegations tending to show that the defendants’ statements were made when the company had failed to pay certain creditors, execute certain projects and integrate certain newly acquired properties. Id. at 173. The Second Circuit held that these allegations v?ere insufficient to plead falsity because “the allegations in the complaint are consistent with unremarkable circumstances short of financial peril or instability.” id. at 173-74. The court noted: “A company that operates 119 separate facilities nationwide is bound to have problems assimilating this or that property, to have disputes over payments with vendors and landlords, and to have some bills unpaid by reason of contested amounts or spot episodes of illi-quidity.” Id. at 173. In the present case, we have accepted as true plaintiffs factual allegations concerning price declines and sales on the FEA system. However, we conclude that these factual allegations are entirely consistent with conditions other than lack of demand for broadband telecommunications capacity or a belief within Flag that demand would not grow in the future. Therefore, plaintiff has failed to allege that the above cited statements were false as of the Effective Date. Plaintiff argues that Flag’s representations in the prospectus that “telecommunications traffic demand is expected to grow more than 50-fold between 1999 and 2005” and other optimistic statements concerning the potential for growth in telecommunications traffic were false or misleading because, as of the Effective Date, Flag was in possession of a report (the “Little Report”) prepared by Arthur D. Little Inc. (“Arthur Little”) which concluded: (1) supply would outstrip demand through 2006; (2) interviews with carriers who had purchased capacity on competing trans-Atlantic cables revealed that they did not “expect to need additional capacity for the next 3 to 4 years”; and (3) carriers generally expected prices for broadband telecommunications capacity to decline for a “few” years following the IPO. (Id. ¶ 84.) Although Flag never mentioned the Little Report in the Prospectus, no reasonable investor would have been misled by Flag’s citation of a research report indicating 50-fold growth between 1999 and 2005 or Flag’s optimistic statements regarding the potential for future growth in telecommunications traffic. The Prospectus, when read as a whole, informed investors that Flag faced stiff competition and pricing pressures from more established telecommunications operators and contained sufficient cautionary language to warn investors of the relevant risks. The Prospectus contained extensive cautionary language, the relevant portions of which are quoted supra in the Background Section Part I.B. Flag stated in no uncertain terms that “WE FACE COMPETITION AND PRICING PRESSURE FROM A WIDE VARIETY OF SOURCES.” Flag then described in detail the competition it faced on each of its routes. If a reasonable investor had read these disclosures he would have been alerted to the fact that Flag was only one of a number of companies that wished to sell broadband telecommunications capacity in various' markets throughout the world. Indeed, Flag disclosed that the FA-1 system would have to compete with: (1) TAT-14, an established system created by “British Telecom, AT & T and other incumbent telecommunications operators in the United States and Europe”; (2) Global Crossing’s AC-1 cable; (3) a cable that, at the time of Flag’s IPO, Level 3 Communications was constructing; (4) AC-2, a cable proposed by Global Crossing; and, (5) Hibernia, a cable proposed by Worldwide Fiber. (Registration Statement at 53.) Armed with these facts, a reasonable investor should have concluded that, although there was substantial demand for broadband telecommunications capacity on the trans-Atlantic route and demand was expected to grow as the Internet grew, there were a number of companies, some better established than Flag, that endeavored to meet this need for capacity. The Prospectus also revealed that Flag expected the intra-European market to “become very competitive” after Flag’s IPO “as a result of the large number of proposed pan-European operators.” (Id.) On the Middle Eastern route Flag stated that it faced competition from a consortium cable system built by incumbent telecommunications operators and from satellite providers. (Id. at 53.) On the Asia-Pacific route, Flag disclosed that it faced competition from incumbents and that several new cables were expected to come into service. (Id. at 54.) Finally, Flag expected to face competition on the Europe-Asia “long haul route” from an incumbent operator and, most significantly,- “alternative routing from Europe to Asia across the Atlantic ■ Ocean, trans-US, and across the Pacific Ocean to Japan.” (Id.) Flag also indicated in the Prospectus that competition among telecommunications operators had resulted in pricing pressure and prices were likely to decline going forward. Under the heading “RISK DISCLOSURES” Flag stated, ' “WE FACE COMPETITION AND PRICING PRESSURE FROM A WIDE VARIETY OF SOURCES.”' (Id. at 11.) In Management’s Discussion and Analysis discussing previous years financial results Flag stated: Because capacity sales recognized as revenues in 1997 were generally sold at a higher price per unit than the price per unit we expect to realize in the future, we have recognized a higher cost of sales per unit in 1997 than we expect to recognize in the future based on management’s current best estimate and third party market forecasts of capacity sales. (Id. at 31.) Flag thus clearly disclosed that it expected prices for broadband telecommunication capacity to decline. In the “BUSINESS” section of the prospectus under the heading “WE PROVIDE SUPERIOR CUSTOMER SERVICE” Flag disclosed that its “marketing and sales personnel ... will seek to maintain ongoing communication with customers and market sources in order to adapt pricing and product structures to changed conditions and changed competitive pressures.” (Id. at 45.) In the same section under the heading “MARKETING AND SALES” Flag stated: ‘We are committed to an ongoing market review ... with a view to price adjustments and incentive discounts which will attract carriers and other telecommunications companies to the FLAG Telecom network.” (Id. at 51.) Plaintiff appears to intimate that the Prospectus led investors to conclude that Flag was a good investment because there was not enough capacity to meet the projected growth in demand for telecommunications capacity. However, as a whole, Flag’s disclosures could not have reasonably given investors that impression. Flag made a few relatively innocuous statements regarding demand for telecommunications capacity at the time of the company’s IPO and some optimistic statements concerning the growth in demand for broadband telecommunications capacity that was expected in the future. Flag then revealed that, while there was significant demand for capacity and a belief within the industry that demand would grow with the Internet, the company faced stiff competition and pricing pressure on all of its routes. Rather than leading investors to conclude that Flag would succeed because there simply was not enough capacity to go around, Flag disclosed that there was intense competition that it hoped to overcome by providing better service, lower prices and portable capacity to its customers. Accordingly, we conclude that Flag had no duty to disclose the conclusions contained in the Little Report because the disclosures in the prospectus revealed all the relevant information contained in that report, i.e. there was a great deal of competition on the trans-Atlantic route that would continue to force prices down. See Rombach, 355 F.3d at 175 (holding that the prospectus was not misleading for failing to disclose that a public offering was necessitated by a liquidity crisis and integration problems because the prospectus contained disclosures that should have led investors to that conclusion); Olkey, 98 F.3d at 5 (affirming dismissal where the prospectuses warned “investors of exactly the risk the plaintiffs claim[ed] was not disclosed”). Plaintiff, at the time of Flag’s IPO, may have been very impressed to know that Arthur Little had forecast that supply on the trans-Atlantic route would outstrip demand until 2006. However, Arthur Little’s forecast was just that, a forecast. Having disclosed to investors facts sufficient to allow them to determine the nature of the competition that the company would face on the trans-Atlantic route, Flag was under no duty to disclose the opinion of an outside consultant based on essentially identical information. See In re Time Warner Inc. Sec. Litig., 9 F.3d 259, 267 (2d Cir.1993) (“[A] corporation is not required to disclose a fact merely because a reasonable investor would very much like to know that fact.”). B. The Alcatel Sales Agreement Plaintiffs failure to identify a material misstatement or omission in the prospectus concerning demand is not fatal to his § 11 claims because plaintiff has alleged facts sufficient to demonstrate that the Prospectus contained a material misstatement or omission in connection with the Alcatel Sales Agreement. The existence of the Alcatel Sales Agreement was not alleged in the 2CCAC. According to plaintiff, he learned of the improper sales agreement by reading the complaint (the “Trustee’s Complaint” or the “Rahl Complaint”) filed by the Trustee of the Flag Litigation Trust (the “Trustee”) in Rahl v. Bande, et al, No. 04 Civ. 1019 (S.D.N.Y.) (WCC). (3CAC, Preface.) Rahl was filed in the Supreme Court of New York State, New York County, by the Trustee against certain officers and directors of Flag (the “individual Rahl defendants”), Dallah Abarak Holding Co. (“Dallah”), Verizon, Qwest Communications International Inc. (“Qwest”), Arthur Andersen Worldwide S.C., Arthur Andersen Bermuda and Arthur Andersen & Co. n/k/a Arthur Andersen LLP (“Andersen”). The Rahl defendants removed the action to this Court and we subsequently-denied the Trustee’s motion to remand the action to state court by Order & Opinion dated July 28, 2004. See Rahl v. Bande, 316 B.R. 127 (S.D.N.Y.2004) (the “Rahl Opinion”). The Flag Litigation Trust is a New York liquidating trust created by Flag’s Plan of Reorganization which was approved by the bankruptcy court on September 26, 2002. Under the Plan, certain Flag bondholders (the “FTGL shareholders”) became the sole shareholders of FTGL, the entity that emerged from Flag’s bankruptcy case. See Rahl Opinion at 129-130. The Plan also assigned all choses in action against the individual Rahl defendants possessed by Flag at the time of the filing of its Chapter 11 bankruptcy petition to the Flag Litigation Trust for the benefit of the FTGL shareholders. See Rahl Opinion at 130-131. In the Rahl Complaint, the Trustee alleges that the individual Rahl defendants breached their fiduciary duties to the company by: (1) deepening Flag’s insolvency for their personal gain; (2) issuing false financial statements; and (3) entering into transactions on terms that were unfavorable to Flag and advantageous to Verizon. See id. at 130-131. The Trustee asserts claims against Verizon seeking to avoid a fraudulent conveyance and to hold Verizon, Qwest and Dallah liable for aiding and abetting the individual Rahl defendants’ breaches of fiduciary duty. Finally, the Trustee alleges that Andersen breached its fiduciary duties owed to Flag and committed professional malpractice. See id. at 131. Plaintiff contends that the factual allegations that appear in the Trustee’s Complaint are “particularly credible because the Trustee was granted access to certain internal FLAG documents and files, and the Trustee’s Complaint contains factual allegations that are drawn from, and which reference, those internal documents and files.” (3CAC, Preface.) According to plaintiff, the Trustee “uncovered a scheme by which FLAG fraudulently inflated the amount of its so-called pre-sales” that were disclosed in the Prospectus. {Id. ¶¶ 91-92; Regi