Full opinion text
OPINION SWEET, District Judge. Defendants Van der Moolen Holding, N.V. (“VDM Holding”), Friedrich M.J. Bottcher (“Bottcher”), Frank F. Dorjee (“Dorjee”), James P. Cleaver (“Cleaver”), and Casper F. Rondeltap (“Rondeltap”) have moved pursuant to Rules 9(b) and 12(b)(6) to dismiss the amended consolidated class action complaint (“the Complaint”) filed by co-lead plaintiffs Elizabeth Rick and Linda Greene (the “Plaintiffs”). Defendant Van der Moolen Specialists USA, LLC (‘VDM Specialists”) has moved separately to dismiss the Complaint pursuant to Rules 9(b) and 12(b)(6). For the reasons set forth below, the motions of VDM Holding and VDM Specialists are denied. The motions of the Individual defendants are granted in part and denied in part. Plaintiffs are granted leave to replead within thirty (30) days of entry of this opinion. Prior Proceedings This action was commenced on October 20, 2003, with the filing of a class action complaint against VDM Holding, VDM Specialists, Bottcher, Cleaver, Dorjee, and Rondeltap. By opinion and order dated April 14, 2004, co-lead plaintiffs were appointed and co-lead plaintiffs’ requests with regard to the appointment of counsel were granted. See Rozenboom v. Van Der Moolen Holding, N.V., No. 03 Civ. 8284(RWS), 2004 WL 816440, at *7 (S.D.N.Y. Apr.14, 2004). The Complaint was filed on September 14, 2004. On November 22, 2004, VDM Holding, Bottcher, Dorjee, Cleaver, and Rondeltap moved to dismiss the Complaint. Also on November 22, 2004, VDM Specialists moved separately to dismiss the Complaint. Both motions were heard and marked as fully submitted on March 30, 2005. The Parties Plaintiffs purchased publicly traded shares of VDM Holding ADRs between October 18, 2001 and October 15, 2003 (the “Class Period”). VDM Holding is a limited liability company organized and existing under the laws of the Netherlands. Its principal place of business in the United States is located at 45 Broadway, New York, New York. VDM Specialists, a limited liability company organized and existing under the laws of the United States, is a majority-owned subsidiary of VDM Holding. It was established on or about July 1999, when VDM Holding acquired majority interests in, and integrated the operations of, three previously separate NYSE specialist firms. VDM Specialists is a broker-dealer registered with the SEC pursuant to Section 15(b) of the Exchange Act. As of August 31, 2003, VDM Specialists acted as the registered specialist for approximately 377 NYSE-listed securities, which then accounted for approximately 11% of the dollar volume and 12% of the share volume traded on the NYSE. According to VDM Holding’s 2002 Annual Report, which is referenced in the complaint, VDM Specialists was at that time the fourth largest specialist firm on the NYSE. VDM Holding owns 75% of VDM Specialists. The other 25% of VDM Specialists is owned by its senior managers, senior traders and other individual members of VDM Specialists. These individual members of VDM Specialists are all employees of VDM Holding. Bottcher has been Chief Executive Officer (“CEO”) and Chairman of the Management Board (“Chairman”) of VDM Holding since January 2000. He has been a member of the VDM Holding Management Board (the “Board”) since 1997. Bottcher is alleged to have signed certain false and misleading statements published by VDM Holding during the Class Period. Dorjee has been the Chief Financial Officer (“CFO”) of VDM Holding since January 1, 2001. He has been a member of the VDM Board since April 11, 2001. Dorjee is alleged to have signed certain false and misleading statements published by VDM Holding during the Class Period. Cleaver has been a member of the VDM Holding Board since April 10, 2002. He has been Chairman of the VDM Specialists Board since 1998. Prior to joining VDM Specialists, Cleaver was the managing partner of an NYSE specialist firm acquired by VDM Holding in 1998. Cleaver is alleged to have signed certain false and misleading statements published by VDM Holding during the Class Period. Rondeltap has been a member of the VDM Specialists management committee since 2000, and he serves as VDM Specialists’ spokesman. Rondeltap has been a member of VDM Holding’s Board since April 9, 2003. Rondeltap is alleged to have signed certain false and misleading statements published by VDM Holding during the Class Period. The Action This action is brought on behalf of all persons who purchased American Depository Receipt shares (“ADRs”) in VDM Holding during the Class Period and who were damaged thereby. VDM Holding ADRS are alleged to have been traded actively on the NYSE throughout the proposed class period. VDM Holding, through one of its four operational segments known as VDM Specialists, acts as a specialist firm on the New York Stock Exchange (“NYSE”). Specialist firms are responsible for maintaining a fair and orderly market in one or more specific securities and must adhere to NYSE rules that require specialist firms to refrain from trading on the specialist firm’s own account when enough public investor orders exist to pair up naturally, without undue intervention. It is alleged that during the Class Period, VDM Holding materially overstated and artificially inflated its earnings, net income, and earnings per. The Complaint alleges that VDM Holding failed to disclose that throughout the Class Period, VDM Specialists derived a substantial share of its revenue from illegal trading practices and that subsequent declines in VDM Holding’s revenue were attributable to the apparent cessation of such practices. Count One of the Complaint asserts that the Defendants violated Section 10(b) of the Securities Exchange Act of 1934 (“the Exchange Act”) and Rule 10b-5 promulgated thereunder. Count Two asserts that VDM Holding and the Individual Defendants violated Section 20(a) of the Exchange Act. Facts The following facts are drawn from the Complaint and do not constitute findings of the Court. It should be noted that the Complaint’s allegations concerning the general duties and obligations of a specialist, the improper trading allegedly engaged in by members of VDM Specialists and others, and the NYSE and SEC investigations into such trading practices are substantially similar to those contained in the Consolidated Complaint filed in In re NYSE Specialists Securities Litigation, No. 03 Civ. 8264(RWS). Those allegations are described in significant detail in a companion opinion issued today in connection with the In re NYSE Specialists action. See In re NYSE Specialists Securities Litigation, No. 03 Civ. 8264(RWS), slip op. at 11-29 (S.D.N.Y. Nov. 9, 2005). Familiarity with this companion opinion is assumed. VDM Holding principally engages in the trading of securities on exchanges in the United States and Europe. Its NYSE specialist operations are conducted exclusively through VDM Specialists. VDM Specialists’ revenue is derived from two categories of activities: (1) executing trades as an agent, thereby earning a share of the commission on each trade that it facilitates, and (2) buying and selling stock shares on its own account, thereby capturing any profits that these trades generate. During the Class Period, VDM Holding derived a substantial majority of its revenue from VDM Specialists. For example, in 2000, 63.4% of VDM Holding’s revenue was generated by VDM Specialists, and in the first six months of 2001, 72% of VDM Holding’s revenue was so generated. During the Class Period, VDM Holding stated: “We depend heavily on our New York Stock Exchange specialist activities, and if they fail to grow as anticipated, it would hamper our revenue growth.” (Compl.lffl 42, 43.) It is alleged that from the start of the-Class Period until at least January 2003, VDM Specialists breached its obligations and duties as an NYSE specialist by: (1) causing and allowing its traders to trade ahead of its customers; (2) interpositioning itself between matching public buy and sell orders; (3) failing to properly execute limit orders; and (4) freezing the Display Book (which reflects incoming orders to the NYSE) so that VDM Specialists could complete proprietary trades before completing orders entered by public investors. VDM Holdings made statements during the Class Period concerning its revenue and the financial performance of VDM Specialists, which are alleged to be false and misleading because they failed to disclose that VDM Specialists was engaged in illegal forms of proprietary trading. These alleged misstatements fall into two categories: (1) risk disclosures by VDM Holdings that implied that the Defendants were in compliance with NYSE rules, and (2) financial reports that failed to disclose that the revenue figures for VDM Specialists and VDM Holding were materially inflated as a result of VDM Specialists’ reliance on illegal trading strategies. A description of all such statements is provided in the appendix to this opinion. Those statements relating to the revenue of VDM Specialists and VDM Holding are summarized below. Quarter VDM Specialists Total Revenue VDM Specialists Net Gain on Principal Transactions VDM Specialists Participation Rate (%) VDM Holding Total Revenue (Millions of Euros) _(Millions of Dollars) Ql ’01 65.4_53.4 31.5 100.7 Q2 ’01 51.7_41.6 32.1 81.2 Q3 ’01 57.6_48.0 31.4 73.9 Q4 ’01 61.8_51.6 30.7 89.3 Ql ’02 56.9_47.7 34.9 77.9 Q2’02 66.4_55.8 34.5 86.3 Q3 ’02 69.1_58.1 34.7 86.0 Q4’02 59.7 49.1 34.4 77.2 (Improper trading alleged to have been curtailed by VDM Specialists in January 2003.)_ Q1 ’03_407_3L6_31/7_48.4 Q2’03_306_209_27.7_ 47.5 03 ’03_373_27A_27/7_433 It is alleged that VDM Holding’s financial statements during the Class Period violated SEC regulations and Generally Accepted Accounting Principles (“GAAP”) in that they failed to: (1) disclose facts necessary to present a fair and truthful representation of VDM Specialists’ trading activities; (2) provide required disclosures; and (3) identify and address those variables that were necessary for an overall understanding and evaluation of the company. On or about January 13, 2003, the NYSE notified VDM Holding that its Division of Market Surveillance had opened an investigation of VDM Specialists’ conduct in connection with, individual specialists’ activities on the floor of the NYSE. As summarized in the chart below, it is alleged that once VDM Specialists learned of the NYSE investigation into its specialist trading activities (in or around January 2003), it was forced to curtail its illegal trading practices, which had a material adverse effect on VDM Specialists’ revenue and participation rates and also on VDM Holding’s revenue. However, it is alleged that instead of informing investors about the NYSE investigation on its profitability, VDM Holding told investors that the decline in income from VDM Specialists was the result of a challenging trading environment and modest increases in trading volume. On March 20, 2003, compliance officers of six of the seven NYSE specialists first met to discuss concerns about improper trading that had been raised in the NYSE’s then-confidential investigation. On March 31, 2003, NYSE investigators began taking depositions in connection with the specialist investigation. VDM Holding did not disclose this information to its investors. On April 16, 2003, VDM Holding ADRs dropped 3.5% from $11.10 per share to close at $10.71 per share. On April 17, 2003, an article on the front page of The Wall Street Journal, stated that the NYSE was probing “whether at least two of [its] largest [specialist] firms may have engaged in ‘front-running,’ or trading ahead of clients.... ” See Kate Kelly & Susanne Craig, Big Board Is Probing Specialists For Possible “Front-Running”, Wall St. J., Apr. 17, 2003, at Al. That same day, the NYSE issued a one paragraph statement in which it disclosed that it had begun an investigation of several NYSE specialist firms for trading abuses. The closing price for VDM Holding ADRs on April 17, 2003 was $10.19 per share. On April 18, 2003, The Wall Street Journal identified VDM Specialists as a target of the NYSE investigation, indicated that the investigation was focused on allegations that specialists had intentionally provided inferior stock-execution prices to certain of their customers, and stated that the SEC had launched an investigation of trading practices at VDM Specialists and other specialist firms. See Kate Kelly & Susanne Craig, NYSE Probe Reaches 5 of 7 Specialist Firms — “Front-Running” Investigation Involves Biggest Companies, Wall St. J., Apr. 18, 2003, at Cl. The following trading day, April 21, 2003, VDM Holding ADRs closed at $9.71 per share. On September 22, 2003, The Wall Street Journal reported that the SEC investigation had been expanded to examine whether specialist firms, including VDM Specialists, had traded ahead of customer orders. See Kate Kelly, Susanne Craig & Deborah Solomon, SEC Intensifies Inquiry at NYSE Of Trading Firms—Move Comes as Big Board Names Reed Interim Chief; Regulatory Role Questioned, Wall St. J., Sep. 22, 2003, at Al. That day, VDM Holding ADRs closed at $13.35 per share. The prior trading day, September 19, 2003, VDM Holding ADRs closed at $13.97 per share. On October 16, 2003, NYSE issued a press release stating that it was bringing disciplinary action and seeking fines from five specialist firms that had allegedly engaged in improper trading practices. That day, VDM Holding ADRs closed at $9.05. The day before, VDM Holding ADRs had closed at $10.61 per share. On March 30, 2004, VDM Specialists entered into a consent decree with the SEC and a substantially similar stipulation with the NYSE. These settlements state that between 1999 and 2003, VDMS Specialists engaged in interpositioning, trading ahead, and failing to execute marketable limit orders. The settlements state that this conduct, which is estimated to have resulted in approximately $34.9 million of customer disadvantage between 1999 and 2003, violated VDM Specialists’ duty to serve public customer orders over its own proprietary interests. Under the terms of these settlements, VDM Specialists neither admitted or denied these findings. Nonetheless, it agreed to pay $34.9 million in restitution and $22.7 million in civil fines to a fund benefitting customers allegedly disadvantaged from 1999 to 2003. On the day that the SEC and NYSE settlements were executed, VDM Holding ADRs closed at $9.29 per share. The previous day VDM Holding ADRs had closed at $8.91 per share. Based on the SEC and NYSE orders, Plaintiffs allege that Cleaver and Rondel-tap (who were each members of VDM Specialists’ management committee during some portion of the Class Period) and the other defendants had knowledge of the illegal trading practices engaged in by certain of VDM Specialists’ traders. The SEC order stated, in pertinent part, that: [c]ertain members of [VDM Specialists’] management committee engaged in in-terpositioning in one or more of the six stocks listed above [ (i.e., Nortel Networks Corporation, PFE, Hewlett-Packard Company, Time Warner Inc., The Walt Disney Company, and Eli Lilly & Co.) ], and these members of the management committee had the supervisory responsibility for [VDM Specialists’] trading operations on the NYSE floor, including supervising a floor captain who himself engaged in such interpositioning in one or more of the six stocks. The NYSE provided VDMS with an examination report, dated December 26, 2001, showing that the firm had traded ahead and disadvantaged fourteen orders, including ten orders in Nortel Networks. The NYSE also provided VDMS with an examination report, dated December 30, 2002, which identified nineteen instances of trading ahead violations in Hewlett-Packard. Senior management at VDMS received these reports and reviewed them with NYSE staff. See In the Matter of Van der Moolen Specialists USA, LLC, Corrected Order Instituting Administrative And Cease-And-Desist Proceedings (the “SEC Order”), Exchange Act Release No. 49,502, 83 SEC Docket 2366, 2004 WL 2093996, at ¶¶ 15-16 (Mar. 30, 2004). In April 2005, a grand jury in this district handed down criminal indictments against certain current and former individual specialists at the NYSE alleging violations of 15 U.S.C. §§ 78j(b) and 78ff and 17 C.F.R. § 240.10b-5. Since the information contained in these indictments can be judicially noticed by this Court, see Ives Labs., Inc. v. Darby Drug Co., 638 F.2d 538, 544 n. 8 (2d Cir. 1981), these materials will be considered in connection with this motion. See Kramer v. Time Warner Inc., 937 F.2d 767, 773 (2d Cir.1991). Standards Defendants have moved for dismissal of the Complaint pursuant to Fed.R.Civ.P. 12(b)(6), 9(b), and the PSLRA. In considering a motion to dismiss pursuant to Rule 12(b)(6), the Court construes the complaint liberally, “accepting all factual allegations in the complaint as true, and drawing all reasonable inferences in the plaintiffs favor.” Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d Cir.2002) (citing Gregory v. Daly, 243 F.3d 687, 691 (2d Cir.2001)). However, “mere conclusions of law or unwarranted deductions” need not be accepted. First Nationwide Bank v. Gelt Funding Corp., 27 F.3d 763, 771 (2d Cir. 1994). Furthermore, the truth of factual allegations that are contradicted by documents properly considered on a motion to dismiss need not be accepted. See e.g., Rapoport v. Asia Elecs. Holding Co., 88 F.Supp.2d 179, 184 (S.D.N.Y.2000). The following materials may be considered on a Rule 12(b)(6) motion: (1) facts alleged in the complaint and documents attached to it or incorporated in it by reference, (2) documents “integral” to the complaint and relied upon in it, even if not attached or incorporated by reference, (3) documents or information contained in defendant’s motion papers if plaintiff has knowledge or possession of the material and relied on it in framing the complaint, (4) public disclosure documents required by law to be, and that have been, filed with the Securities and Exchange Commission, and (5) facts of which judicial notice may properly be taken under Rule 201 of the Federal Rules of Evidence. In re Merrill Lynch & Co., Inc., 273 F.Supp.2d 351, 356-57 (S.D.N.Y.2003) (footnotes omitted). “The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims.” Villager Pond, Inc. v. Town of Darien, 56 F.3d 375, 378 (2d Cir.1995) (quoting Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974)). In other words, “ ‘the office of a motion to dismiss is merely to assess the legal feasibility of the complaint, not to assay the weight of the evidence which might be offered in support thereof.’ ” Eternity Global Master Fund Ltd. v. Morgan Guar. Trust Co. of New York, 375 F.3d 168, 176 (2d Cir.2004) (quoting Geisler v. Petrocelli, 616 F.2d 636, 639 (2d Cir.1980)). Dismissal is only appropriate when “it appears beyond doubt that the plaintiff can prove no set of facts which would entitle him or her to relief.” Sweet v. Sheahan, 235 F.3d 80, 83 (2d Cir.2000); accord Eternity Global Master Fund, 375 F.3d at 176-77. A claim under section 10(b) sounds in fraud and must therefore meet the pleading requirements of Rule 9(b), Fed. R.Civ.P. See, e.g., In re Scholastic Corp. Sec. Litig., 252 F.3d 63, 69-70 (2d Cir. 2001). Such a claim must also satisfy certain requirements of the Private Securities Litigation Reform Act of 1995 (“the PSLRA”). See 15 U.S.C. §§ 78u-4(b)(1) & 78u-4(b)(2); see generally Novak v. Kasaks, 216 F.3d 300, 306-07 (2d Cir.2000) (setting forth the heightened pleading standards of the PSLRA that must be met by a plaintiff who alleges securities fraud under Section 10(b) and Rule 10b—5); Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1127 (2d Cir.1994) (stating that “[securities fraud allegations under § 10(b) and Rule 10b-5 are subject to the pleading requirements of Rule 9(b)”). Rule 9(b) provides that “[i]n all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally.” Fed.R.Civ.P. 9(b). The Second Circuit “has read Rule 9(b) to require that a complaint [alleging fraud] ‘(1) specify the statements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where and when the statements were made, and (4) explain why the statements were fraudulent.’ ” Rombach v. Chang, 355 F.3d 164, 170 (2d Cir.2004) (quoting Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175 (2d Cir.1993)). In particular, the plaintiff must allege facts that “give rise to a strong inference of fraudulent intent.” Novak, 216 F.3d 300, 307 (2d Cir.2000). The Second Circuit has stated that this scienter requirement can be satisfied: “ ‘either (a) by alleging facts to show that defendants had both motive and opportunity to commit fraud, or (b) by alleging facts that constitute strong circumstantial evidence of conscious misbehavior or recklessness.’ ” Acito v. IMCERA Group, Inc., 47 F.3d 47, 52 (2d Cir.1995) (quoting Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1128 (2d Cir.1994)). Rule 8’s general pleading requirement and Rule 9(b)’s particularity requirement must be read together. See Ouaknine v. MacFarlane, 897 F.2d 75, 79 (2d Cir.1990) (stating that “Rule 9(b) ... must be read together with Rule 8(a) which requires only a ‘short and plain statement’ of the claims for relief’); Credit & Fin. Corp. v. Warner & Swasey Co., 638 F.2d 563, 566 (2d Cir.1981) (same); In re Initial Pub. Offering Sec. Litig. (“IPO”), 241 F.Supp.2d 281, 327 (S.D.N.Y.2003). These two rules have been read together to mean that a plaintiff need not plead evidentiary details. See, e.g., id. The Second Circuit has stated that it does “not require the pleading of detailed evidentiary matter in securities litigation.” Scholastic, 252 F.3d 63, 72. Courts of this district have stated that “the application of Rule 9(b) ... must not abrogate the concept of notice pleading.” IPO, 241 F.Supp.2d at 327 n. 46. DISCUSSION I. Plaintiffs Have Stated A Section 10(b) Claim As To VDM Specialists, VDM Holding, And The Individual Defendants Count I of the Complaint asserts that VDM Holding, VDM Specialists, and the Individual Defendants, violated Section 10(b) of the Exchange Act and Rule 10b-5. Section 10(b) provides in pertinent part as follows: It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange- (b) To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, or any securities-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act), any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors. 15 U.S.C. § 78j. Rule 10b-5 provides in pertinent part as follows: It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange, (a) To employ any device, scheme, or artifice to defraud, (b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or (c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security. 17 C.F.R. § 240.10b-5. “The language of Section 10(b) and Rule 10b-5 does not explicitly create a private right of action. In fact, the legislative history fails to indicate whether Congress even contemplated creating such a right.... Nevertheless, courts long have held that a private right of action was indeed created.” Ontario Public Service Employees Union Pension Trust Fund v. Nortel Networks Corp., 369 F.3d 27, 31 (2d Cir.2004). To state a claim under Section 10(b) and Rule 10b-5 a plaintiff must plead that the defendant “(1) made misstatements or omissions of material fact; (2) with scien-ter; (3) in connection with the purchase or sale of securities; (4) upon which plaintiff ] relied; and (5) that plaintiff’s] reliance was the proximate cause of [the] injury.” In re Livent, Inc. Sec. Litig., 78 F.Supp.2d 194, 213 (S.D.N.Y.1999). A. Plaintiffs Properly Relied on Group Pleading As an initial matter, it is determined that Plaintiffs’ Section 10(b) claim properly relied on group pleading. The group pleading doctrine “allows plaintiffs to ‘rely on a presumption that statements in prospectuses, registration statements, annual reports, press releases, or other group-published information, are the collective work of those individuals with direct involvement in the everyday business of the company.’ ” Polar Int’l Brokerage Corp. v. Reeve, 108 F.Supp.2d 225, 237 (S.D.N.Y.2000). However, the doctrine “is extremely limited in scope. Courts in the Second Circuit and elsewhere have construed the doctrine as applying only to clearly cognizable corporate insiders with active daily roles in the relevant companies or transactions.” Id. (citing Ouaknine, 897 F.2d at 80; DiVittorio v. Equidyne Extractive Indus., Inc., 822 F.2d 1242, 1249 (2d Cir.1987); Powers v. Eichen, 977 F.Supp. 1031, 1041 (S.D.Cal.1997)); see also In re Indep. Energy Holdings PLC Sec. Litig., 154 F.Supp.2d 741, 767-68 (S.D.N.Y.2001). It has been argued that the group pleading doctrine has not survived the particularity requirements imposed by the PSLRA. See, e.g., Southland Sec. Corp. v. Inspire Ins. Solutions, Inc., 365 F.3d 353, 364-65 (5th Cir.2004) (stating that the group pleading doctrine “cannot withstand the PSLRA’s specific requirement that the [misstatements] be set forth with particularity as to ‘the defendant’ and that scien-ter be pleaded with regard to ‘each act or omission’ sufficient to give ‘rise to a strong inference that the defendant acted with the required state of mind.’ ”) (quoting 15 U.S.C. § 78u-4(b)); In re Cross Media Marketing Corporation Securities Litigation, 314 F.Supp.2d 256, 262 (S.D.N.Y. 2004) (stating that the PSLRA pleading requirements “eounsel[ ] against group pleading in actions arising in securities fraud eases....”); Bond Opportunity Fund v. Unilab Corp., No. 99 Civ. 11074(JSM), 2003 WL 21058251, at *4 (S.D.N.Y. May 9, 2003) (stating that the PSLRA has eliminated the group pleading doctrine with respect to corporate directors). The majority rule in this district is that the group pleading doctrine has survived the PSLRA. See, e.g., In re AOL Time Warner, Inc. Securities and “Erisa” Litigation, No. 02 Civ. 5575(SWK), 2004 WL 992991, at *17 (S.D.N.Y. May 5, 2004) (holding that “[w]ith respect to group-published documents such as prospectuses, plaintiffs may rely on a presumption that the group-information is the collective works of those individuals” directly involved in the day-to-day affairs of the corporation); In re Emex Corp. Sec. Litig., No. 01 Civ. 4886(SWK), 2002 WL 31093612, at *7 n. 3 (S.D.N.Y.2002) (stating that “[n]othing in the PSLRA has altered the group pleading doctrine”); In re American Bank Note Holographics, Inc. Sec. Litig., 93 F.Supp.2d 424, 442 (S.D.N.Y.2000) (stating that “[i]t is well settled that plaintiffs may engage in ... group-pleading under 10(b) and Rule 10b-5; nothing in the PSLRA has altered that doctrine”); In re Oxford Health Plans, Inc. Sec. Litig., 187 F.R.D. 133, 142 (S.D.N.Y.1999) (stating that “ft]he PSLRA has not altered the group pleading doctrine”). This Court has previously taken the position that the group pleading doctrine remains viable even after the enactment of the PSLRA. See Jordan (Bermuda) Inv. Co., Ltd. v. Hunter Green Investments Ltd., 205 F.Supp.2d 243, 253 (S.D.N.Y. 2002); In re Livent, Inc. Sec. Litig., 78 F.Supp.2d 194, 219 (S.D.N.Y.1999) (quoting In re Oxford Health Plans, 187 F.R.D. at 142). Since there is no dispute that the Individual Defendants — all of whom were officers and/or members of the VDM Holding management board during the Class Period — were clearly cognizable corporate insiders with active daily roles in the company, the group pleading doctrine is applicable in this case. B. The Complaint Properly Alleges That The Statements At Issue Were False and Misleading To plead a Section 10(b) claim, a complaint must describe with particularity each allegedly fraudulent statement and explain why it is fraudulent. See Acito v. IMCERA Group, Inc., 47 F.3d 47, 51 (2d Cir.1995) (quoting Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175 (2d Cir. 1993)). Defendants argue that Plaintiffs have failed to allege any such misstatements with requisite particularity. As described above, the alleged misstatements generally fall into two categories: (1) warnings concerning the potential legal and regulatory risks confronting VDM Specialists that allegedly failed to disclose the actual occurrence of such risks, and (2) statements concerning the financial performance of VDM Holding and VDM Specialists that allegedly failed to disclose that VDM Specialists’ revenue had been generated, at least in part, by trading practices that violated NYSE rules. Defendants argue that the first category of alleged misstatements' — i.e., VDM Holding’s warnings concerning the potential legal and regulatory risks confronting VDM Specialists — are non-actionable as a matter of law. Although the Second Circuit previously has held that cautionary statements concerning forward-looking statements cannot insulate a defendant from potential liability for failure to disclose known material, adverse facts, see Rombach, 355 F.3d at 173, it has not had occasion to consider whether cautionary statements are themselves actionable under Section 10(b). There is a split in authority among those courts that have considered the issue. Compare Voit v. Wonderware Corp., 977 F.Supp. 363, 371 (D.Pa.1997) (holding that under proper circumstances, cautionary statements are actionable pursuant to Section 10(b)), with Zeid v. Kimberley, 930 F.Supp. 431, 437 (N.D.Cal.1996) (holding that warnings in a 10-Q report concerning adverse factors that could effect company earnings are not actionable as a matter of law). The better rule is the one adopted by the Voit court, which reasoned that “ ‘to warn that the untoward may occur when the event is contingent is prudent; to caution that it is only possible for the unfavorable events to happen when they have already occurred is deceit.’ ” Voit, 977 F.Supp. at 371 (quoting In re Westinghouse Sec. Litig., 90 F.3d 696, 710 (3d Cir.1996)). The Second Circuit has expressed a similar view. See Rombach, 355 F.3d at 173 (stating that that “[c]autionary words about future risk cannot insulate from liability the failure to disclose that the risk has transpired”). Based on the foregoing, it is determined that under certain circumstances, cautionary statements can give rise to Section 10(b) liability. Here it is alleged that at the time that VDM Holding was warning investors about regulatory risk, it knew or was recklessly ignorant of the fact that VDM Specialists’ employees were violating NYSE rules. Therefore, VDM Holding’s cautionary statements concerning the risks associated with the misconduct of its employees are actionable pursuant to Section 10(b). Defendants argue that the second category of alleged misstatements — i.e., that VDM Holding’s financial statements failed to disclose that VDM Specialists’ revenue had been generated, at least in part, by trading practices that violated NYSE rules — are non-actionable because federal securities laws do not require a company to accuse itself of wrongdoing. In support of this argument, Defendants cite In re Citigroup, Inc. Sec. Litig., 330 F.Supp.2d 367 (S.D.N.Y.2004) (holding that defendant was not subject to Section 10(b) liability for incurring and not disclosing litigation risks associated with its securities analyst and investment banking businesses). However, the better view is the one expressed by the court in In re Providian Fin. Corp. Sec. Litig., 152 F.Supp.2d 814 (E.D.Pa.2001). The Providian court held that although a defendant does not have a Rule 10b-5 duty to speculate about the risk of future investigation or litigation, if it puts the topic of the cause of its financial success at issue, then it is “obligated to disclose information concerning the source of its success, since reasonable investors would find that such information would significantly alter the mix of available information.” Id. at 824-25 (citing Shapiro v. UJB Fin. Corp., 964 F.2d 272, 281-82 (3d Cir.1992); United Paperworkers Inter’l Union v. Int’l Paper Co., 801 F.Supp. 1134, 1143 (S.D.N.Y.1992)). Here, the Complaint alleges that the Defendants made numerous statements during the Class Period concerning the sources and significance of the revenue generated by VDM Specialists. For example, in August 2002, Bottcher stated, “[i]n exceedingly turbulent market circumstances we were able to maintain our second quarter result at almost the level we achieved in the first quarter. The development of our NYSE business showed once again that trading volumes and price volatility determine our opportunities to trade.” (Press Release, VDM Holding, “Van der Moolen earns second quarter, 2002 net income of $16.9 million” (Aug. 1, 2002), reprinted in the 08/08/02 Form 6-K, at 2.) Statements such as these put the sources of VDM Specialists revenue at issue. Under the circumstances, the alleged failure to disclose the true sources of such revenue could give rise to liability under Section 10(b). Based on the foregoing, it is determined that Plaintiffs have adequately alleged that the statements at issue were false and misleading. C. The Alleged Misstatements Are Publicly Attributed to VDM Specialists VDM Specialists asserts that pursuant to the Supreme Court’s holding in Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N. A., 511 U.S. 164, 114 S.Ct. 1439, 128 L.Ed.2d 119 (1994), it cannot be subject to Section 10(b) liability for statements made by VDM Holding, its corporate parent. As stated by the Second Circuit, [i]n Central Bank, the Supreme Court held that private civil liability under § 10(b) applies only to those who “engage in the manipulative or deceptive practice,” but not to those “who aid and abet the violation.” [511 U.S. at 167, 114 S.Ct. 1439]. The Court observed that “[a]iding and abetting is a method by which courts create secondary liability in persons other than the violator [or violators] of the statute.” [Id. at 184, 114 S.Ct. 1439] (quotation marks omitted) (emphasis added). SEC v. U.S. Envtl. Inc., 155 F.3d 107,110-111 (2d Cir.1998). In the wake of Central Bank, the Second Circuit adopted a bright-line rule that in order to state a Section 10(b) cause of action based on an alleged misstatement, the plaintiff must allege that the defendant made a false or misleading statement. See Wright v. Ernst & Young LLP, 152 F.3d 169, 175 (2d Cir.1998) (affirming dismissal of 10b-5 claim against company’s auditor for approving false and misleading financial figures that were subsequently disseminated by the company) (quoting Shapiro v. Cantor, 123 F.3d 717, 720 (2d Cir.1997)). The Wright court stated that while the plaintiff need not allege that the defendant directly communicated the misrepresentation to investors, it is necessary that “the misrepresentation ... be attributed to [the defendant] at the time of public dissemination, that is, in advance of the [plaintiffs] investment decision.” Id. This bright-line public attribution rule notwithstanding, a subsequent Second Circuit panel held that under proper circumstances, a defendant can be held liable pursuant to Section 10(b) for a false and misleading statement even if the statement at issue was not attributed to the defendant at the time of its public dissemination. See In re Scholastic Corp. Sec. Litig., 252 F.3d 63, 75-76 (2d Cir.2001) (holding that a complaint properly pled primary violation of Section 10(b) by company’s vice president where facts were alleged demonstrating that: (1) the company had disseminated false and misleading statements to its investors; (2) the defendant had primary responsibility for the company’s communications with investors and securities analysts; and (3) the defendant was “involved in the drafting, producing, reviewing and/or disseminating of false and misleading statements”). The Scholastic decision does not refer to Wright, and no subsequent Second Circuit panel has attempted to synthesize the two decisions. Some district courts have taken the position that Scholastic did not significantly alter the public attribution rule articulated in Wright. See, e.g., In re Par-malat Sec. Litig., 376 F.Supp.2d 472 (S.D.N.Y.2005) (stating that the Scholastic court “did not question, let alone purport to set aside, the attribution rule set forth in Wright ... ”). Other courts have adopted the view that Scholastic relaxed Wright’s public attribution requirement. See, e.g., SEC v. Pimco Advisors Fund Mgmt. LLC, 341 F.Supp.2d 454, 466 (S.D.N.Y.2004). A particularly useful synthesis of the two cases can be found in In re Global Crossing, Ltd. Sec. Litig., 322 F.Supp.2d 319, 330-32 (S.D.N.Y.2004). Based on a close reading of Wright and Scholastic, the Global Crossing court provided the following restatement of Wright’s public attribution rule: [A] plaintiff may state a claim for primary liability under section 10(b) for a false statement (or omission), even where the statement is not publicly attributed to the defendant, where the defendant’s participation is substantial enough that s/he may be deemed to have made the statement, and where investors are sufficiently aware of defendant’s participation that they may be found to have relied on it as if the statement had been attributed to the defendant. Id. at 332 (citing In re Lernout & Hauspie Sec. Litig. v. Lernout, 230 F.Supp.2d 152 (D.Mass.2002)). Pursuant to Wright, Scholastic, and Global Crossing, dismissal of Plaintiffs’ Section 10(b) misrepresentation claim against VDM Specialists is not warranted. Plaintiffs have specifically alleged that VDM Holding’s SEC filings and press releases, in some instances, clearly identified VDM Specialists as the source of the information concerning revenue and earnings attributable to its NYSE specialist operations at the time of their public dissemination. Defendants are correct in their assertion that Plaintiffs have not alleged any facts demonstrating that VDM Specialists participated in any way in the drafting, producing, reviewing and/or disseminating of the alleged misstatements. However, the defendant need not directly communicate the misrepresentation to plaintiffs in order to be held liable under section 10(b). See Shapiro, 123 F.3d at 720. In these instances, the public was made aware that the misstatements were attributable to VDM Specialists, and VDM Specialists knew or should have known that the investing public would rely upon them. Therefore, under Wright, to the extent that plaintiffs’ claims allege that the misrepresentations were publicly attributed to VDM Specialists, they have adequately stated a 10b-5 claim against VDM Specialists. Plaintiffs also contend that even where VDM Holdings did not clearly attribute the alleged misstatements to VDM Specialists, VDM Specialists may be held primarily liable for the statements disseminated by VDM Holding where it is shown that it was “the original and knowing source of a misrepresentation and that [it] knew or should have known that the misrepresentation would be communicated to investors.” In re Kidder Peabody Sec. Litig., 10 F.Supp.2d 398, 407 (S.D.N.Y. 1998) (holding that a corporate subsidiary could be held primarily hable under Section 10(b) for statements made by the corporate parent where it was alleged that the subsidiary was the “original and knowing source” of the misstatements). The facts at issue here closely mirror those the Kidder Peabody court confronted. As in Kidder Peabody, “there is no dispute that [VDM Specialists] provided [VDM Holding] with financial data on a quarterly basis and that the data was incorporated in [VDM Holding’s] financial statements and quarterly and annual reports.” Id. at 407. When VDM Holding reported VDM Specialists principal trading revenues, it was the “mere” conduit through which the information was disseminated. Id. It should be noted that Kidder Peabody was decided prior to Wright and Scholastic, and as such, its continued viability has been called into question. It is determined, however, that regardless of the weight that should be accorded Kidder Peabody, Plaintiffs have adequately pled a Section 10(b) claim against VDM Specialists in accordance with Central Bank, Wright, and Scholastic. VDM Specialists made material misstatements attributable to it at the time of dissemination upon “which a purchaser or seller of securities relied.” Central Bank, 511 U.S. at 191, 114 S.Ct. 1439. It is noteworthy that VDM Specialists is the subsidiary through which VDM Holdings conducts all of its specialist operations on the NYSE. (See Compl. ¶ 3). Under the circumstances, the misstatements— namely quarterly and annual reporting of principal trading revenues and profits for VDM Holding’s specialist activity — could have come only from VDM Specialists. In other words, when VDM Holding disseminated financial information to the public regarding its specialist operations, it related only to the activity of VDM Specialists and could have been provided only by VDM Specialists. Additionally, because VDM Holding referred only to the activity of VDM Specialists in reporting its specialist earnings, investors may be deemed to have been “sufficiently aware of [VDM Specialists’] participation that they may be found to have relied on it as if the statements] had been publicly attributed to [it].” Global Crossing, 322 F.Supp.2d at 332. Under these facts, it is reasonable to infer that VDM Specialists’ financial data were incorporated directly into VDM Holding’s public statements regarding the earnings of its specialist operations. Therefore, even where VDM Holding failed to explicitly identify VDM Specialists as the source of the information concerning revenue and earnings of its specialist operations, the misrepresentations may be constructively attributed to VDM Specialists. See id. at 333 n. 14 (noting that a rule of constructive attribution comports with the Second Circuit’s emphasis on reliance). To hold otherwise would enable parent companies to create subsidiaries under which all of its business would be conducted and then to shield the subsidiaries from section 10(b) liability by disseminating the subsidiary’s false information. See id. at 333 (holding that the “strict requirement of public attribution would allow those primarily responsible for making false statements to avoid liability by remaining anonymous and thus would place a premium on concealment and subterfuge rather than on compliance with the federal securities laws.” (internal quotations and citations omitted)). In the alternative, Plaintiffs argue that VDM Specialists can be found primarily liable pursuant to Section 10(b) for engaging in a scheme to defraud investors. Plaintiffs argue that they have properly alleged that VDM Specialists’ traders engaged in a scheme to defraud certain of their customers and that the holders of VDM Holding’s ADRs were thereby indirectly harmed. The underlying scheme has been summarized as follows: [C]ertain specialists at [VDM Specialists] engaged in ... unlawful proprietary trades with scienter, violating their implied representations to public customers that they were limiting dealer transactions to those reasonably necessary to maintain a fair and orderly market. In those instances, individual specialists at [VDM Specialists] violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Under Section 15(b)(4)(E) of the Exchange Act, VDMS failed reasonably to supervise those individual specialists with a view to preventing their violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. VDMS also violated NYSE Rules 92, 104, 123B, 342, 401 and 476. (SEC Order at ¶ 2.) Such allegations may well be adequate to state a 10(b) fraudulent scheme claim against VDM Specialists. However, these plaintiffs lack standing to assert that claim. It is axiomatic that in order to have standing, “a 10b-5 plaintiff in a private damages action must have been either a purchaser or seller of the securities that form the basis of the ... deceptive conduct.” 2 Thomas Lee Hazen, The Law of Securities Regulation § 12.7[1] (5th ed.2005); see also Dabit v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 395 F.3d 25, 37 (2d Cir.2005) (citing Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 754-55, 95 S.Ct. 1917, 44 L.Ed.2d 539 (1975); Birnbaum v. Newport Steel Corp., 193 F.2d 461, 463-64 (2d Cir. 1952)). Here, Plaintiffs allege only that they were buyers of VDM Holding ADRs. They have not, and cannot, allege that they were customers defrauded by VDM Specialists’ improper proprietary trading. Therefore, Plaintiffs fraudulent scheme claim asserted against VDM Specialists fails as a matter of law. D. The Complaint Properly Alleges Scienter As noted above, in the context of Section 10(b), Plaintiffs may satisfy the scienter requirement by alleging facts showing that the defendant had the motive and the opportunity to commit the fraud or facts constituting strong circumstantial evidence of conscious misbehavior or recklessness. See Acito, 47 F.3d at 52. 1. Plaintiffs Properly Allege Recklessness On The Part Of VDM Holding, VDM Specialists, And The Individual Defendants Plaintiffs contend that the Complaint properly alleges conscious misbehavior and recklessness on the part of VDM Holding, VDM Specialists, and the Individual Defendants. The Second Circuit has stated that “conscious misbehavior” encompasses “deliberate illegal behavior” such as insider trading or knowing sale of company stock at an unwarranted discount. Novak, 216 F.3d at 308. In the context of securities fraud claims, the Second Circuit has defined “recklessness” as an “egregious refusal to see the obvious, or to investigate the doubtful” Chill, 101 F.3d at 269 (quoting Goldman v. McMahan, Brafman, Morgan & Co., 706 F.Supp. 256, 259 (S.D.N.Y.1989) (internal quotations omitted)). The Second Circuit has “found allegations of recklessness to be sufficient where plaintiffs alleged facts demonstrating that defendants failed to review or check information that they had a duty to monitor, or ignored obvious signs of fraud.” Novak, 216 F.3d at 308-09 (citing, inter alia, SEC v. McNulty, 137 F.3d 732, 741 (2d Cir.1998) (holding that the pleading standard was met where the defendant allegedly included false statements in SEC filings that were so obviously suspicious that outside counsel had recommended against their inclusion)); see also In re WorldCom, Inc. Sec. Litig., 346 F.Supp.2d 628, 672 (S.D.N.Y.2004) (stating that “in an attempt to demonstrate recklessness, plaintiffs in Section 10(b) cases often assert that a defendant ignored ‘red warning flags’ of another actor’s wrongdoing”) (citing Chill, 101 F.3d at 269; In re Philip Servs. Corp. Sec. Litig., No. 98 Civ. 0835(MBM), 2004 WL 1152501, at *9 (S.D.N.Y. May 24, 2004); In re Complete Mgmt. Inc. Sec. Litig., 153 F.Supp.2d 314, 334 (S.D.N.Y.2001)). In order to establish scienter on the part of VDM Specialists, Plaintiffs allege that VDM Specialists engaged in “deliberate illegal behavior” of which VDM Specialists was aware early in the Class Period. According to Plaintiffs, VDM Specialists’ “deliberate illegal behavior” is demonstrated by the SEC Order, which recounts thousands of instances throughout the Class Period in which VDM Specialists engaged in front-running, trading ahead, inter-positioning, and other forms of manipulative and deceptive trading practices. These allegations are buttressed by Plaintiffs’ allegations that VDM Specialists was alerted early in the Class Period that its specialists were engaging in fraudulent specialist trading. Specifically, Plaintiffs allege: [t]he NYSE provided VDM [Specialists] with an examination report, dated December 26, 2001, showing that the firm had traded ahead and disadvantaged fourteen orders, including ten orders in Nortel Networks. The NYSE also provided VDM [Specialists] with an examination report, dated December 30, 2002, which identified nineteen instances of trading ahead violations in Hewlett Packard. SEC Order at ¶ 16. The allegation that VDM Specialists was specifically put on notice of the very conduct that resulted in the fraudulent overstatement of VDM Specialists’ — and therefore VDM Holdings— revenues and earnings is sufficient to satisfy recklessness on the part of VDM Specialists. In order to establish scienter on the part of VDM Holding and the Individual Defendants, Plaintiffs argue, in essence, that the Complaint properly alleges that the VDM Holding Defendants ignored red flags concerning NYSE rule violations by its subsidiary. First, it is alleged that Cleaver, who is alleged to have signed certain of the VDM Holding’s false and misleading statements during the Class Period, was chairman of the VDM Specialists’ management committee and that he became a member of VDM Holding’s six-member management board on April 10, 2002. Second, it is alleged that Rondeltap, who is alleged to have signed certain of VDM Holding’s false and misleading statements during the Class Period, was a member of VDM Specialists’ management committee since 2000, and that he became a member of VDM Holding’s management board on April 9, 2003. Third, it is alleged that the SEC determined: (1) that certain members of the VDMS Specialists’ management committee had engaged in interpositioning; (2) that on December 26, 2001, the NYSE provided VDM Specialists with an examination report documenting instances in which VDM Specialists traders had traded ahead of orders involving shares of Nortel Networks Corporation; (3) that on December 30, 2002, the NYSE provided VDM Specialists with an examination report documenting instances in which VDM Specialists traders had trading ahead of orders involving shares of common stock of Hewlett-Packard Company; and (4) that VDM Specialists’ senior management received these examination reports and reviewed them with NYSE staff. Fourth, it is alleged that VDMS Specialists operations accounted for the vast majority of VDM Holding’s revenue. Drawing all reasonable inferences in favor of the Plaintiffs, the Complaint adequately alleges that each of the two NYSE examination reports constituted red flags suggesting the possibility that a significant portion of VDM Specialists’ revenue from principal transactions might be derived from trades that violated NYSE rules. The Complaint also adequately alleges that Cleaver and Rondeltap, who sat on VDM Specialists’ six-person management committee throughout the Class Period, had been made aware of (or had access to) the information contained in the examination reports. Finally, recklessness can be inferred from the Complaint’s allegations that upon joining the VDM Holding management board, Cleaver and Rondeltap each acquired the authority to raise questions and voice doubts concerning the validity of VDM Holding’s financial statements. Defendants argue that the NYSE examination reports were legally insufficient to serve as red flags of the securities fraud alleged in the Complaint — i.e., a scheme to defraud holders of VDM Holding’s ADRS. The law, at least in this circuit, imposes no such requirement that a red flag reveal to a defendant all aspects of a given fraud. Rather, the sine qua non of red flags are “facts which come to a defendant’s attention that would place a reasonable party in defendant’s position ‘on notice that the audited company was engaged in wrongdoing to the detriment of its investors.’ ” In re WorldCom, Inc. Sec. Litig., 346 F.Supp.2d 628, 672 (S.D.N.Y.2004) (quoting In re Sunterra Corp. Sec. Litig., 199 F.Supp.2d 1308, 1333 (M.D.Fl.2002)). Here, it has been adequately alleged that the NYSE examination reports provided reasonable notice that the revenue figures disseminated by VDM Holding to its investors included some non-negligible quantity of revenue generated through trades that violated NYSE rules. Relying on two cases from this district, see In re Philip Servs. Corp., 383 F.Supp.2d 463 (S.D.N.Y.2004) and In re Leslie Fay Companies, Inc., 871 F.Supp. 686, 698-99 (S.D.N.Y.1995), modified on other grounds, 918 F.Supp. 749 (S.D.N.Y. 1996), Defendants argue that the examination reports could not have constituted red flags because they constituted mere warning signs that VDM Specialists were engaged in illegal trading. As an initial matter, it should be noted that the Complaint does not allege that the examination reports merely warned that employees of VDM Specialists might be engaged in trading practices that violated NYSE rules. Rather, they are alleged to have documented numerous specific instances in which such rules were violated. Furthermore, neither the Philip Services court nor the Leslie Fay court articulated any rigid distinction between “warning signs” and “red flags.” Rather, each court evaluated the complaint to determine whether the plaintiff had properly alleged that the defendant ignored obvious signs of fraud. Here, Plaintiffs have adequately alleged that Cleaver and Rondeltap ignored obvious signs that VDM Holding’s financial statements were false and misleading to the extent that they failed to disclose that some portion of VDM Specialists’ revenue generated by trades that violated NYSE rules. Defendants also argue that Plaintiffs have failed to adequately allege that the information contained in the examination reports was known to Cleaver and Rondel-tap. Defendants point out that the Complaint contains no allegations that such information was ever directly communicated to Cleaver and Rondeltap. Rather, it must be inferred from the facts alleged (particularly the fact that NYSE officials discussed each of the examination report with individual members of the VDM Specialists’ management committee) that the information contained in the examination reports was brought to their attention or made available to them. Defendants argue this court’s decision in In re Aegon N.V. Sec. Litig., No. 03 Civ. 603(RWS), 2004 WL 1415973, at *17 (S.D.N.Y. June 23, 2004) renders that seemingly reasonable inference impermissible. In Aegon, the Plaintiffs failed to identify any specific documents or any specific pieces of information that would have given defendants’ notice that the company’s public statements were false and misleading. The Aegon plaintiffs argued unsuccessfully that despite their failure to identify any specific documents or reports that could be considered red flags, recklessness had been properly pled based on their general allegations that the defendants’ senior positions in the company gave them access to “adverse undisclosed information.” Aegon stands for the proposition that recklessness cannot be alleged merely by stating that based on a defendant’s position in a company it is likely that he or she had access to unspecified nonpublic adverse information. Id. (citing In re Interpublic Sec. Litig., No. 02 Civ. 6527(DLC), 2003 WL 21250682, at *14 (S.D.N.Y. May 29, 2003)); see also In re Health Mgmt. Sys., Inc. Sec. Litig., No. 97 Civ. 1865(HB), 1998 WL 283286, at *6 (S.D.N.Y.1998) (rejecting plaintiffs theory that based solely on defendants’ membership on certain boards of directors, they “must have known the true seriousness of [a company’s] problems”). Neither Aegon nor any of the other cases described above provide support for the proposition that in order to allege adequately that a defendant has ignored red flags, plaintiff must allege with particularity that the defendant engaged in the physical act of reading a report. In' contrast to Aegon, the fact that there were reports concerning illegal trading and that these reports were available to certain members of the VDM Specialists’ management committee support a reasonable inference that Cleaver and Rondeltap either were aware of or had access to the NYSE examination reports and the information contained therein. However, the above-described allegations concerning the examination reports fail to allege recklessness on the part of Bottcher and Dorjee. Even though the group pleading doctrine applies in this case, allegations of Rondeltap’s and Cleaver’s reckless disregard of red flags cannot be imputed to Bottcher and Dorjee. See, e.g., In re Bayer AG Sec. Litig., No. 03 Civ. 1546(WHP), 2004 WL 2190357, at *15 (S.D.N.Y. Sept.30, 2004) (stating that even where statements are imputed to all defendants pursuant to the group pleading doctrine, “plaintiffs must still establish scienter as to each defendant”) (citing Steed Fin. LDC v. Nomura Sec. Intern., Inc., No. 00 Civ. 8058(NRB), 2004 WL 2072536, at *5 (S.D.N.Y. Sept.14, 2004)); see also In re Regeneron Pharm., Inc. Sec. Litig., No. 03 Civ. 3111(RWS), 2005 WL 225288, at *11 (S.D.N.Y. Feb.1, 2005). Defendants also argue that Plaintiffs have not adequately pled recklessness, arguing that “plaintiffs’ conclusion that VDM Holding or the Individual Defendants should have detected an improper source of revenue alleged to average such a small portion of VDM Holding’s revenues — less than 0.56 percent — is legally untenable.” Indeed, the Second Circuit has recognized that the magnitude of fraud is relevant in weighing an alleged inference of recklessness. See, e.g., Novak, 216 F.3d at 309 (holding that “the failure of a parent company to interpret extraordinarily positive performance by its subsidiary — even the ‘unprecedented and dramatically increasing profitability’ of a particular form of trading — as a sign of problems and thus to investigate further does not amount to recklessness under the securities laws.” (quoting Chill, 101 F.3d at 269-70)). This argument fails. Defendants’ argument improperly assumes that the fraudulent activity cited by the SEC and the NYSE constitutes the full scope of the improper trading activities engaged in the VDMS during the Class Period. Plaintiffs have not alleged that the trades cited by the SEC and the NYSE comprise the entirety of Defendants’ wrongdoing. Accordingly, Defendants’ argument that the minimal magnitude of wrongdoing negates an adequate allegation of recklessness fails. Finally, the Complaint alleges that on January 13, 2003, VDM Specialists received written notice that the NYSE Division of Market Surveillance had opened an investigation into its specialist activities on the floor of the NYSE. It is alleged that as soon as the Defendants were notified about the investigation, they were forced to curtail the abusive trading practices that had been taking place at VDM Specialists, and as a result, VDM Specialists’ revenue production fell off precipitously. It is alleged that instead of disclosing the real reason for the decline in VDM Specialists’ revenue, Bottcher and Dorjee falsely represented that such declines were temporary and due to poor market conditions. Plaintiffs urge the Court to assume that Bottcher and Dorjee, who are based in the Netherlands, would have been informed of the NYSE investigation on January 13, 2003. Defendants argue that these allegations a