Full opinion text
OPINION AND ORDER MARBLEY, District Judge. INDEX I. INTRODUCTION AND SUMMARY.........................................697 II. BACKGROUND...........................................................698 A. Defendants................................. 698 B. Plaintiffs’ Allegations...................................................702 C. The Parties’ Dispute............................................’........709 III. STANDARD OF REVIEW .................................................711 IV. ANALYSIS ...............................................................711 I.Plaintiffs’ Motion to Strike Defendants’ Appendices & Any Arguments Arising Therefrom.......................................................711 II. Cardinal Defendants ’ Motion to Dismiss.....................................715 A. Section 10(b) and Rule 10b-5 Claims......................................715 1. Whether the Complaint Sufficiently Alleges Facts Establishing a “Strong Inference” of Scienter.........'............................717 a. Scienter Under the PSLRA........._.............................717 b. Applying the Scienter Standard..................................719 c. Conclusion.....................................................741 2. Particularity of Fraud Allegations....................................741 a.. Particularity of Fraud Allegations with Respect To Each Defendant...................................................742 b. Whether Plaintiffs Pled Cardinal’s Accounting Misstatements With Particularity............................................744 c. Cardinal’s Forward-Looking Statements..........................746 3. Whether the Complaint Fails to Plead Loss Causation as to Any of the “Improprieties” Enumerated in the Complaint....................758 4. Conclusion.........................................................761 B. Control Person Claims Under Section 20(a)................................762 III. Defendant E & Y’s Motion to Dismiss.......................................763 A. Plaintiffs’ Section 10(b) and Rule 10b-5 Claims......................'.......763 1. Red Flags.........................................................765 2. Ignoring Audit Evidence Gathered from FY 2002 Through FY 2004.....766 a. Cardinal’s Classification of Operating Revenue.....................768 b. Premature Recognition of the Vitamin Litigation Settlement.........768 c. Changes in Cardinal’s Revenue Recognition Policy For Its Pyxis Business in FY 2002 ..................................... .770 d. Balance Sheet Reserves and Accrual Adjustments............. .770 e. Recognition of Cash Discounts.............................. .771 f. Special Charges........................................... .772 g. Off-Balance Sheet Transactions............................. .774 h. October 2004 Restatement.................'................. .775 3. Alleged Non-Compliance with GAAS Principles................... .777 4. E & Y’s Motivation to Keep Cardinal’s Business................... .778 5. Other Fraud Claims Brought Against E&Y...................... .778 6. Conclusion.................................................... .779 Y. CONCLUSION 780 I. INTRODUCTION AND SUMMARY Plaintiffs, investors in Cardinal Health, Inc. (“Cardinal” or “the Company”) bring securities fraud actions against Cardinal, Cardinal executives, Robert D. Walter, George L. Fotiades, Richard J. Miller, James F. Millar, Gary S. Jensen, and Mark Parrish (collectively, the “Individual Defendants”), and Cardinal’s independent auditor, accounting firm Ernst & Young (“E & Y”). Plaintiffs allege that from 1998 through 2002, while Cardinal’s pharmaceutical distribution unit underwent a reorganization, the corporation engaged in an elaborate accounting scheme designed to artificially inflate its earnings and conceal debt. Further, Plaintiffs allege that E & Y, hired as the Company’s independent auditor in 2002, aided Cardinal in perpetuating its fraudulent accounting. Cardinal and the Individual Defendants filed a joint motion to dismiss Plaintiffs’ Complaint under Federal Rules of Civil Procedure 12(b)(6) and 9(b) and the Private Securities Litigation Reform Act of 1995 (“PSLRA”), alleging that Plaintiffs failed to state a claim upon which relief can be granted. Defendants Miller, Mil-lar, and Jensen, and E&Y also filed separate motions dismiss Plaintiffs’ Complaint under Rules 12(b)(6) and 9(b) and the PSLRA. Plaintiffs filed a Motion to Strike Defendants’ Appendixes ## 58-60, 64-65, and 70, as well as any and all arguments relying on these Appendixes in Defendants’ various motions to dismiss. This Court holds that: (1) Plaintiffs allegations of Defendants’ accounting fraud, insider trading, motive, and opportunity were sufficient to state a § 10(b) claim against the Corporation and all of the various Individual Defendants except Defendant Jensen, and Defendants failed to show they were entitled to the protection of the statutory safe harbor for certain allegedly fraudulent forward-looking statements upon which Plaintiffs relied; (2) Plaintiffs stated § 20(a) claims against the Corporation and all of the Individual Defendants- except Defendant Jensen; (3) Plaintiffs’ failed to state a § 10(b) claim against Defendant E&Y because their allegations that E&Y had intimate knowledge of Cardinal’s fraudulent activities and that E&Y had failed to adhere to GAAP and GAAS rules did not establish the necessary inference of scienter required under the law. Defendants’ motions are GRANTED in part and DENIED in part. The following motions are GRANTED: (1) Cardinal Defendants’ Motion to Dismiss as to Defendant Jensen; (2) Defendant E & Y’s Motion to Dismiss. The following motions are DENIED: (1) Cardinal Defendants’ Motion to Dismiss as to Cardinal and Defendants Walter, Fotiades, Miller, Millar and Parrish; (2) Defendant Miller’s Motion to Dismiss; (3) Defendant Millar’s Motion to Dismiss. Plaintiffs’ Motion to Strike is GRANTED in part and DENIED in part. II. BACKGROUND This case involves a securities class action lawsuit brought on behalf of all persons and entities who purchased Cardinal’s publicly traded securities between October 24, 2000 and July 26, 2004, inclusive (the “Class Period”). The Complaint alleges that all Defendants knowingly or recklessly disregarded errors in Cardinal’s methods of revenue recognition, and that, through their public misrepresentations about the Company’s Operating Revenue, Defendants fraudulently induced Plaintiffs to purchase Cardinal stock at artificially inflated prices in violation of Section 10(b) of the Exchange Act, 15 U.S.C. §§ 78j(b) and 78t(a), and the rules and regulations promulgated thereunder by the Securities Exchange Commission (“SEC”), including Rule 10b-5, 17 C.F.R. § 240.10b-5. The Complaint further alleges that the Individual Defendants are liable as “controlling persons” of Cardinal, under Section 20(a) of the Exchange Act, 15 U.S.C. § 78t(a). A. Defendants The Complaint asserts causes of action against numerous defendants. The defendants have been grouped together based on their roles and the claims asserted against them. The first such group, which is collectively referred to as “the Cardinal Defendants,” includes Cardinal and the following six individuals who were either Cardinal directors or members of the Company’s senior management during the Class Period: Robert D. Walter, George L. Fo-tiades, Richard J. Miller, James F. Millar, Gary S. Jensen, and Mark Parrish. The roles and responsibilities of each of these six individuals during the Class Period, as alleged in the Complaint, are described below. 1. Robert Walter Defendant Robert D. Walter (‘Walter”) founded Cardinal, and served, at all relevant times, as the Chairman and Chief Executive Officer (“CEO”) of the Company. During the Class Period, Walter prepared and signed the Company’s SEC filings, issued statements in press releases and led the Company’s conference calls with analysts and investors, representing himself as one of the primary persons with knowledge about Cardinal’s business, financial reports, and business practices. In conjunction with each of Cardinal’s public financial statements filed with the SEC beginning in the Company’s September 30, 2002, Form 10-K for FY 2002, Walter signed a certification pursuant to § 302 of the Sarbanes-Oxley Act, attesting that he had reviewed the contents of the filing to confirm that the “report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading.” During the Class Period, Walter received $136 million in total compensation, with bonuses and option awards totaling more than $132 million. Further, during the Class Period, Walter sold 593,910 shares of his personal Cardinal stock for proceeds of $38.19 million. 2. George L. Fotiades During the Class Period, Defendant George L. Fotiades (“Fotiades”) served as the President and CEO of Cardinal’s Life Science Products and Services division, overseeing Cardinal’s Pharmaceutical Technologies and Services segment. In February 2004, Fotiades was promoted to Executive Vice President and Chief Operating Officer (“COO”) of Cardinal. Further, throughout the Class Period, Fo-tiades was a member of the Executive Operating Committee (the “EOC”), a committee led by Walter, which met monthly to discuss Cardinal’s business, operations and finance. Fotiades participated in the preparation of the Company’s SEC filings and press releases, and took part in the Company’s conference calls with analysts and investors. During the Class Period, Fotiades received $48,984,750 in total compensation. Further, during the Class Period, Fotiades sold 65,960 shares of his personal Cardinal stock for proceeds of $4.68 million and obtained bonuses and option awards worth more than $46 million. 3. Richard J. Miller Defendant Richard J. Miller (“Miller”) served as Cardinal’s Executive Vice President, Chief Financial Officer (“CFO”) and Principal Accounting Officer from March 1999 through July 2004. Prior to that time, Miller had served as Cardinal’s acting CFO since August 1998, and as a Controller and Vice President from August 1995 through March 1999. Before joining Cardinal, Miller had been a partner with Deloitte & Touche with over thirteen years of financial and accounting experience; he is a certified public accountant (“CPA”) and holds a bachelor’s degree in accounting from Ohio State University. Miller prepared and signed the Company’s SEC filings, issued statements in press releases and participated in the Company’s conference calls with analysts and investors. Like Walter, in conjunction with each of Cardinal’s public financial statements filed with the SEC beginning in the Company’s September 30, 2002, Form 10-K for FY 2002, Walter signed a certification pursuant to § 302 of the Sarbanes-Oxley Act. Defendant Miller left Cardinal in July 2004. Upon his resignation, Miller admitted that “[cjertain financial reporting practices and judgments that occurred during my tenure as CFO have come under scrutiny in the ongoing investigations.” During the Class Period, Miller received $16,659,563 in total compensation, $15.4 million of which were incentive-based bonuses and option awards. 4. James F. Millar Defendant James F. Millar (“Millar”) served as the Executive Vice President and President and COO of Cardinal’s Pharmaceutical Distribution segment from the beginning of the Class Period through December 2002, at which time Millar was promoted to President and CEO of the Company’s Healthcare Products Segment. In February 2004, Millar was again promoted, this time to the position of Executive Director, Strategic Initiatives. Moreover, throughout the Class Period, Millar was a member of Cardinal’s EOC. Miller participated in the preparation of the Company’s SEC filings and press releases, and participated in the Company’s conference calls with analysts and investors, representing himself as one of the primary persons with knowledge about Cardinal’s pharmaceutical distribution business, financial reports and outlook and business practices. During the Class Period, Millar received $43,657,910 in total compensation. Further, during the Class Period, Millar sold 86,043 shares of his personal Cardinal stock for proceeds of $5.15 million and obtained incentive-based bonuses and option awards worth more than $41.76. million. 5. Gary S. Jensen Defendant Gary S. Jensen served as the Senior Vice President of Audit and Financial Services, Corporate Controller and Principal Accounting Officer for fiscal years 2003 and 2004, throughout the Class Period, and until February 2005, at which point he was asked to resign following Cardinal’s internal review in connection with investigations of the Company’s accounting practices by both the SEC and the U.S. Attorney’s Office. Though Plaintiffs contend that a Cardinal spokesperson acknowledged that Jensen’s resignation was “tied to the audit over how the company classifies revenue from its pharmaceutical distribution business,” the Cardinal Defendants counter that Jensen’s resignation was, in fact, voluntary. During the Class Period, Jensen sold 10,357 shares of his personal Cardinal stock for proceeds of $743,984. 6.Mark Parrish Defendant Mark Parrish (“Parrish”) was promoted to Chairman and CEO of Cardinal’s Pharmaceutical Distribution business in August 2004. Prior to that time, Parrish had served as the Executive Vice President and Group President of the Pharmaceutical Distribution businesses in which he was responsible for Cardinal’s pharmaceutical and specialty distribution businesses and reported directly to Defendant Millar. Further, in fiscal year 2003, Parrish became a member of Cardinal’s EOC. Parrish participated in the preparation of the Company’s SEC filings and press releases, and participated in the Company’s conference calls with analysts and investors. During the Class Period, Parrish sold 16,032 shares of his personal Cardinal stock for proceeds of $972,835. 7.Cardinal Defendant Cardinal is generally recognized as one of the three largest distributors of pharmaceutical products in the United States. Headquartered in Dublin, Ohio, Cardinal employs more than 55,000 people on six continents and produces annual revenue of nearly $75 billion. Cardinal divides its business into four reporting units: (1) Pharmaceutical Distribution and Provider Services; (2) Medical Products and Services; (3) Pharmaceutical Technologies and Services; and (4) Clinical Technologies and Services (formerly known as Automation and Information Services). Plaintiffs’ allegations primarily involve Cardinal’s oldest and historically largest segment, Pharmaceutical Distribution and Provider Services, which moves pharmaceutical products from manufacturers to retailers and from which Cardinal derives approximately 85% of its revenues. Despite Cardinal’s reputation as a leader in the pharmaceutical industry, by July 27, 2005, the end of the Class Period, the Company’s stock price had dropped 41% to $44.00 per share. 8. Ernst & Young Plaintiffs, however, do not place the blame solely on Cardinal and the Individual Defendants; they also allege that E & Y, serving as Cardinal’s independent auditor, assisted the Company “in orchestrating or profiting from [its alleged] fraud.” On May 8, 2002, E & Y received $2.31 million from Cardinal for pre-engagement services, and took on Cardinal’s multi-mil-lion dollar account after Arthur Anderson (“AA”), Cardinal’s previous long-term auditor, imploded under the weight of its involvement in massive alleged accounting frauds. A large portion of E & Y’s services related to work that fell outside the scope of financial statements audits. In fact, in addition to auditing, during the Class Period, E & Y provided Cardinal with the following services: (1) due diligence services related to mergers and acquisitions, audit-related research and assistance and employee benefit plan audits; (2) tax advice and planning services; and (3) other services related to matters such as litigation assistance and internal audit services. E & Y made no public statement relating to Cardinal until September 30, 2002 when Cardinal filed its 10-K for FY 2002, containing its audited financial statement. E & Y certified Cardinal’s FY 2002 financial results, previously audited by AA. The only other public statement E & Y made during the Class Period was its audit opinion with respect to Cardinal’s financial statements for FY 2003, which was published in Cardinal’s 2003 10-K filed on September 29, 2003. Over the course of the Class Period, E & Y received a total of $27.1 million in fees from Cardinal, which was one of the largest clients of E & Y’s Columbus, Ohio office. E & Y’s fees were particularly important to the partners in E & Y’s Columbus, Ohio office whose incomes and bonuses depended on Cardinal’s continued business. Plaintiffs contend that, from the time it became Cardinal’s auditor, through the end of the Class Period, E & Y ignored obvious red flags and blindly certified Cardinal’s financial statements knowing that, in reality, Cardinal had intentionally misstated its financials to maintain an artificially inflated stock price. B. Plaintiffs’ Allegations 1. Cardinal’s Operating Model-Shifting from B + H to FFS The timing of the instant litigation is significant as the Class Period coincides with a monumental shift in the pharmaceutical distribution business’ operating model. As such, background information on this transition period is integral to the parties’ dispute. At the start of the Class Period, Cardinal and its major pharmaceutical distribution competitors operated through a “buy- and-hold” (B + H) model. Under a B + H model, pharmaceutical distributors “buy” pharmaceuticals from manufacturers and “hold” those products for a period of time before re-selling them to retailers. Through successful B + H acquisitions, Cardinal expanded its regional markets and customer base. Cardinal took advantage of the rapidly rising drug prices in the 1990s, and, accordingly, from the early 1990s through the year 2002, Cardinal regularly reported annual growth exceeding 20%. Nevertheless, Cardinal’s ability to continue such significant growth was sharply curtailed in FY 2001. By that time, the pharmaceutical distribution market was effectively divided between three major companies: Cardinal, McKesson Corporation, and AmerisourceBergen Corporation. In fact, when Cardinal made a $2.2 billion acquisition of Bindley Western Industries, Inc. in February 2001, and AmeriSource Health Corporation made a $2.4 billion merger with Bergen Brunswig Corporation in March 2001, the top three distributors effectively controlled 90% of the entire pharmaceutical distribution business. Investors realized that Cardinal’s distribution business would soon face increasing pressure on its profit margins as the top three distribution companies battled each other for the same market. Though the traditional B + H model had functioned well for many years, as the pharmaceutical business became increasingly complex, it became less efficient. On the one hand, pharmaceutical manufacturers could place their products into the retail market without significant line-item distribution expenses, and retailers, institutions, and other customers could receive those products with, at most, only minor markups. On the other hand, manufacturers were partially deprived of the advantage of their own price increases as B + H distributors would sell their existing inventory at the new, higher cost before buying more from the manufacturer. Over time, this latter dynamic led manufacturers to restrict the flow of pharmaceuticals to distributors like Cardinal — limiting the ability of these distributors to profit from B + H. Cardinal was one of the first to recognize this changing dynamic, advising investors in February 2003 that the market was beginning to transition to Inventory Management Agreements (“IMAs”) under which wholesalers would be compensated not through investment in an inflationary product, but rather through negotiated fees for inventory management and distribution services — a “fee-for-service” (FFS) model. Under the FFS model manufacturers pay a negotiated fee to Cardinal for the Company to distribute their products. Accordingly, manufacturers sell and ship their products to Cardinal and other pharmaceutical distributors only when there is a corresponding retail request. Thus, instead of making bulk shipments to the distributors without regard for demand, Cardinal began to make shipments only when they had an order to fill — “just-in-time” (JIT) shipments. Though Cardinal was considered to be a “pioneer” in the B + H to FFS business-model migration, analysts were skeptical about whether the Company would be able to continue to generate returns. Facing increasingly intense competition and margin pressure and losing the ability to profit from rising drug prices, investors turned their focus to whether Cardinal could continue to grow its revenues and earnings in the changing market. Cardinal began negotiations with several manufacturers, and in October 2003, eight months from its initial announcement of the possibility of a shift to IMAs, Cardinal disclosed that it had finalized its first largely FFS contract with drug manufacturing giant, Merck. Moreover, Cardinal revealed that it was “in active negotiations” on 47 other potential additional FFS contracts as of January 2004 and confirmed that the Company’s entire distribution process was “in transition.” 2. Corporate Acquisitions and Note Offerings At the same time that Cardinal underwent a switch from a B + H to an FFS model, the Company also began to expand its other business segments through both acquisition efforts and internal growth, making pharmaceutical distribution a smaller part of Cardinal’s overall revenues and earnings. In fact, during the four years covered by the putative class period, Cardinal acquired twenty-four companies, and the percentage of Cardinal’s earnings that came from pharmaceutical distribution declined from 52% to 46%. Further, to finance these acquisitions, Cardinal exchanged over 36 million shares of Cardinal stock (valued at over $3.0 billion) and expended more than $656 million in cash. During the Class Period, Cardinal also completed three separate note offerings, raising $1.3 billion. These note offerings “were necessary and used, in part, to repay Cardinal’s indebtedness (as of December 31, 2001, Cardinal had an outstanding debt of approximately $1.96 billion, and Cardinal’s subsidiaries had an outstanding debt of $611.20 million).” Plaintiffs allege that “Cardinal’s acquisition spree would not have been possible without the cash infusions” from the note offerings. Cardinal’s ’ acquisitions and note offerings allowed the Company’s stock to continue to trade at high levels. As such, over the course of the Class Period, Cardinal achieved and maintained investment grade commercial ratings. By achieving investment grade ratings, Cardinal was eligible to gain access to commercial paper, and Cardinal’s participation in the commercial paper program provided for issuance of up to $1.5 billion in credit facilities by June 30, 2001. That $1.5 billion was pursuant to unsecured bank facilities, $750 million of which were set to expire on March 27, 2003, and the other $750 million of which were set to expire on March 31, 2004. In FY 2003, because of Cardinal’s high stock value, the expiration dates were extended to March 26, 2004 and March 27, 2008. During a December 13, 2004 conference call, the Company’s then CFO, Mike Losh, said, We are definitely committed to maintaining investment grade ratings ... One, when you get to be noninvestment-grade, not only are there the costs of money costs, but we think there are certain hidden costs that you have to deal with that we do not think that is appropriate for us to ever put ourselves in that position. Also we want to regain access to the commercial paper market. So on a longer-term basis, we are targeting the return to an A-debt rating level. Complaint ¶249. By FY 2004, however, Cardinal’s stock price dropped, and Cardinal’s debt and commercial paper ratings were downgraded far below the A-level. 3. Bulk Deliveries and Operating Revenue The parties’ dispute centers on Plaintiffs’ allegations of Cardinal’s fraudulent or misstated accounting. Plaintiffs’ allege that over the four-year Class Period, Cardinal’s numerous accounting misstatements allowed the Company to overstate its revenues by approximately $26 billion. See Complaint ¶¶ 56-58, 63-66, 72-76, 80-85, 88-95, 97-105, 108-14, 118-28, 132-38, 141-46, 150-51, 153-59, 163-68, 171-78, 181-87, 191-95, 199-223. To provide the necessary background, a brief discussion of Cardinal’s basic accounting policies follows. Cardinal’s Pharmaceutical and Distribution and Provider Services (“Pharmaceutical Distribution”) primarily sells pharmaceutical products to its customers through “direct store door” (“DSD”) sales. Not all of Cardinal’s sales, however, are made in small shipments directly to retailers’ store doors. Customers who operate their own warehouses sometimes order products in bulk. On some occasions, Cardinal receives these bulk orders and fills them from the company’s own inventory. On other occasions, however, Cardinal receives bulk orders under terms that its customers have previously negotiated with manufacturers. For these orders, while Cardinal does not bear the risk of the transaction, Cardinal also has no significant opportunities to derive a profit from it. In 1998, to account for these non-DSD sales, Cardinal began to report its revenue in two separate categories: (1) “Operating Revenue”; and (2) “Bulk Deliveries to Customer Warehouses and Other” (“Bulk Deliveries”). Cardinal differentiated between “Operating Revenue” and “Bulk Deliveries” solely by considering how long the product was in the Company’s possession prior to its being shipped. If Cardinal possessed the product for more than 24 hours before its shipment, the proceeds were classified as “Operating Revenue”; however, if Cardinal possessed the product for less than 24 hours before its shipment, the Company considered those proceeds to be “Bulk Deliveries.” The Individual Defendants touted Cardinal’s reported Operating Revenue as “the main driver” of the Company’s growth rate. Further, investors and analysts considered Operating Revenues to be crucial in ascertaining the success of Cardinal’s conversion to an FFS model. Over the course of the Class Period, in their SEC filings and press releases, Defendants highlighted their steady Operating Revenue as a strong indicator that Cardinal was successfully increasing its market, expanding its customer base, migrating sales from no margin Bulk Deliveries to profitable direct-store business, and, most importantly, adapting well to the shifting drug distribution market. Unlike Operating Revenue, Cardinal’s Bulk Deliveries were unpredictable and provided little or no margin. Hence, most investment analysts did not consider them to be good indicators of Cardinal’s growth. Further, the market interpreted escalating Bulk Deliveries as a sign that Cardinal was not successfully converting pharmaceutical manufacturers from a B + H to an FFS model because, with most Bulk Deliveries, the large pharmaceutical retailers used Cardinal only as an intermediary, significantly limiting the Company’s earnings potential. 4. SEC Inquiries Begin From FY 2000 through FY 2003, Cardinal’s press releases and SEC filings made it appear to be a thriving company. Considering its burgeoning Operating Revenue, which increased at least 10 percent each quarter, Cardinal seemed to be making an easy transition to an FFS model. In actuality, however, Cardinal was not as successful as its numbers suggested, and on October 9, 2003, Cardinal disclosed that the SEC had opened an informal inquiry into its accounting practices. Primarily, the SEC sought information about the Company’s accounting treatment of $22 million that it had received in settling antitrust litigation with various vitamin manufacturers (the “Vitamin Litigation”). 5. Vitamin Litigation Settlement The Vitamin Litigation began in May 2000, when Scherer, a company acquired by Cardinal in 1998, filed a civil antitrust lawsuit against a group of vitamin manufacturers alleging that certain of its raw material suppliers and others had unlawfully conspired to fix wholesale vitamin prices. During the Class Period, Scherer entered into a series of multi-tiered settlement agreements with the various vitamin manufacturers under which Cardinal received settlement payments of $35.3 million by June 30, 2002. Cardinal recognized $22 million of these proceeds in two allotments disclosed specifically in its September 30, 2002 10-K filing. In its 2002 10-K, the Company disclosed for the first time that, in the second quarter of fiscal 2002 (before E & Y became its outside accounting firm) it had booked $10 million and $12 million reductions, respectively, in the cost of goods sold, to reflect anticipated recoveries for claims it had asserted in the course of the Vitamin Litigation. Six months later, critics began to question Cardinal’s accounting treatment of the first $22 million of the Vitamin Litigation settlement. On April 2, 2003, The Wall Street Journal published a “Heard on the Street” column challenging Cardinal’s decision to recognize those anticipated recoveries before an actual settlement agreement had been reached. Though the article acknowledged that Cardinal had subsequently entered into binding settlement agreements and had received payments in the amount of $35.5 million by the end of FY 2002, the article suggested that Cardinal had recognized the $22 million prematurely to avoid falling short of analysts’ quarterly earnings estimates. As established above, the SEC was also concerned that Cardinal may have prematurely recognized that $22 million in order to meet analyst estimates, in violation of Generally Accepted'Accounting Principles (“GAAP”). The Audit Committee of Cardinal’s Board of Directors, assisted by independent counsel, began its own internal review of the Company’s accounting procedures in April 2004. On May 6, 2004, the SEC converted its informal inquiry of Cardinal’s accounting into a formal investigation, while Cardinal’s Audit Committee continued to work with independent counsel to review the Company’s financial reporting. Further, Cardinal disclosed that the SEC and Audit Committee investigations were no longer limited to the Company’s accounting treatment of the $22 million from the Vitamin Litigation settlement. Nonetheless, Cardinal’s problems did not end with SEC and Audit Committee investigations. On June 21, 2004, as part of the SEC formal investigation, Cardinal received a subpoena, including a request for the production of documents relating to its revenue classification policies, and specifically those policies used in the Company’s pharmaceutical distribution segment. Further, the State Attorney General of New York, Eliot Spitzer, commenced an inquiry allegedly relating to the Company’s revenue classification. On July 30, 2004, Cardinal announced both the subpoena and the Spitzer inquiry to the public. 6. The October 2004 Restatement On September 13, 2004, due to its discussions with the SEC and the Spitzer investigation, Cardinal announced its plans to restate its financial statements for FY 2001 through FY 2003 and the first three quarters of FY 2004. The Company reversed its previous recognition of estimated recoveries from the Vitamin Litigation and recognized the income from such recoveries as a “special item” in the period it received the cash from the manufacturers. Moreover, Cardinal decided to delay its announcement of its FY 2004 financial re-suits until it had both completed its restatement and changed its accounting policies. On October 26, 2004, more than three months after the end of the Class Period, Cardinal issued its delayed 4Q and FY 2004 results and filed a Form 10-K (the “Restatement”) in which the Company restated certain items to correct past errors and announced changes in other accounting policies on a prospective basis, without restating past results. In the Restatement, Cardinal announced its decision to change its accounting policies to abandon the distinction between “Operating Revenues” (which included bulk sales out of Cardinal’s inventory) and “Bulk Deliveries to Customer Warehouses.” From the fourth quarter of FY 2004 forward, Cardinal classified all sales of pharmaceutical products as “Operating Revenue.” For FY 2002 through FY 2004, Cardinal reclassified all of the revenues it had previously reported and consolidated them in a single revenue line. Cardinal stated, “[t]he re-classifications have no effect on previously reported total revenue, related cost of products sold, net earnings or earnings per share,” and assured analysts that the “only impact of the reclassification” was on “previously reported growth rates.” Also on October 26, 2004, during a conference call with investors and analysts, Mike Losh, admitted that the Company had misclassified $23.5 billion over three years. He also revealed, among other things, that the Audit Committee had concluded that over the past few years, Cardinal had based its revenue classifications on its 24-hour rule, and that, at certain, specifically identified times, the Company had intentionally held Bulk Deliveries for more than 24 hours so as to label them high margin Operating Revenues instead. These transactions, Losh admitted, had caused the Company to overstate its Operating Revenues by $813 million in FY 2003 and to understate its Bulk Deliveries to Customer Warehouses by $414 million in FY 2002. Further, Losh conceded that Cardinal was feeling the pressure of the pharmaceutical distribution business model transition to an FFS model. Moreover, Cardinal restated its FY 2001 and FY 2002 financials to shift its recognition of the Vitamin Litigation settlement into later quarters, in particular, adding $22 million to the cost of goods sold in the relevant quarters in 2001 and 2002 and recording the $22 million as an income item in its fourth quarter 2004 results. C. The Parties’ Dispute On April 22, 2005, Lead Plaintiff, PFG, filed a Consolidated Amended Complaint (the “Complaint”) alleging that, during the Class Period, Defendants engaged in a scheme to defraud Plaintiffs by knowingly or recklessly disregarding errors in revenue recognition, and, through their public misrepresentations about Cardinal’s Operating Revenue, fraudulently induced Plaintiffs to purchase Cardinal’s stock at artificially inflated prices. In summary, Plaintiffs’ Complaint alleges the following: (1) Defendants materially misrepresented Cardinal’s revenues and earnings in violation of GAAP as evidenced by the Company’s press releases and SEC filings concerning revenues and earnings from FY 2000 through FY 2004, and Individual Defendants’ statements that routinely highlighted “increased revenues” over consecutive periods; (2) though Cardinal represented that its financial statements were prepared in compliance with GAAP, they were not: (a) Cardinal’s financial statements mis-characterized Operating Revenues and made inadequate disclosures regarding revenue classification procedures; (b) Cardinal improperly and prematurely recognized $22 million of expected lawsuit settlement proceeds prior to a settlement being reached in the Vitamin Litigation; (c) Cardinal used improper reserve accounting and improper accrual adjustments to overstate the Company’s net income by $64.2 million in violation of GAAP; (d) Cardinal failed to disclose the Company’s recognition of cash discounts earned from suppliers for prompt payment; (e) Cardinal improperly recognize Bulk Deliveries as Operating Revenue by manipulating its use of the 24-hour rule; (f) Cardinal understated its regular expenses by making excessive “special charges”; (g) Cardinal engaged in illegal off-balance sheet transactions, understating its receivables through securitization of Pyxis receivables; (h) Cardinal violated SEC regulations due to its inadequate internal controls; (i) Cardinal had ineffective internal mechanisms to dissuade Defendant misconduct; and (3) Cardinal’s financial statements artificially inflated the net income and earnings of Cardinal and caused Plaintiffs to suffer significant financial losses. The Plaintiffs’ Complaint identifies all of Cardinal Defendants’ allegedly false and misleading statements occurring over the course of the Class Period in 105 pages. See Complaint 55-238. The Plaintiffs allege that Cardinal Defendants made these misleading ■ statements in forward-looking statements, press releases, conference calls, and corporate documents, and they aver that analysts relied on these statements in their reports to the market. The Plaintiffs’ Complaint is meticulously detailed. On August 22, 2005, the Individual Defendants, and Defendant Cardinal, jointly brought a Motion to Dismiss the Complaint under Federal Rule of Civil Procedure 12(b)(6), staying all discovery pursuant to 15 U.S.C. § 78u-4(b)(3)(B). Also on August 22, 2005, Defendant E & Y brought its own Motion to Dismiss the Complaint. Defendants deny the existence of a scheme to defraud and maintain that Cardinal’s drop in stock value was primarily due to the Company’s transition from a B + H to an FFS model. Further, they assert that Plaintiffs fail to plead scienter and do not connect Defendants’ alleged fraud to any true market loss. The Court conducted oral argument on these motions on February 6, 2006. III. STANDARD OF REVIEW It is settled law that a court may not grant a defendant’s Rule 12(b)(6) motion to dismiss unless it appears beyond doubt that the claimant can prove no set of facts supporting its claim which would entitle it to relief. See H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229, 249-50, 109 S.Ct. 2893, 106 L.Ed.2d 195 (1989); Windsor v. The Tennessean, 719 F.2d 155, 158 (6th Cir.1983). The purpose of Rule 12(b)(6) is to allow a defendant to test whether, as a matter of law, the plaintiff is entitled to legal relief even if everything alleged in the complaint is true. See Mayer v. Mylod, 988 F.2d 635, 638 (6th Cir.1993). In considering a Rule 12(b)(6) motion to dismiss, the Court must assume as true all well-pleaded facts, and must draw all reasonable inferences in favor of the nonmovant. Murphy v. Sofamor Danek Group, Inc., 123 F.3d 394, 400 (6th Cir.1997). “In the securities context, Rule 12(b)(6) dismissals are difficult to obtain because the cause of action deals primarily with fact-specific inquiries such as materiality.” See Grossman v. Novell, Inc., 120 F.3d 1112, 1118 (10th Cir.1997) (internal quotations and citations omitted). Nevertheless, “courts do not hesitate to dismiss securities claims pursuant to Rule 12(b)(6) where the alleged misstatements or omissions are plainly immaterial, or where the plaintiff has failed to allege with particularity, circumstances that could justify an inference of fraud under Rule 9(b).” Id. (citations omitted). The issue in reviewing the sufficiency of a complaint is not whether the plaintiff will ultimately prevail, but whether the claimant is entitled to offer evidence to support its claim. See Scheuer v. Rhodes, 416 U.S. 232, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974). IV. ANALYSIS I. Plaintiffs’ Motion to Strike Defendants’ Appendices and Any Arguments Arising Therefrom The parties are not in agreement as to what materials outside the Complaint the Court may properly consider in ruling on Cardinal Defendants’ motion to dismiss. Cardinal Defendants have attached 70 appendices to their brief in support of their Motion to Dismiss. In response, Plaintiffs have filed a Motion to Strike certain of these documents arguing that they are not properly subject to judicial notice. Because these matters relate to the general issue of what documents (if any) outside the pleadings the Court may consider in ruling upon Cardinal Defendants’ 12(b)(6) motion, the Court will address them first before proceeding to the substantive merits of the motions to dismiss. A. Standard for Motion to Strike Rule 12(f) permits the court to strike from a pleading “any insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.” Fed. Civ. R. Proc. 12(f). The Sixth Circuit has held that “because of the practical difficulty of deciding cases without a factual record it is well-established that the action of striking a pleading should be sparingly used by the courts. It is a drastic remedy to be resorted to only when required for the purposes of justice.” Brown & Williamson Tobacco Corp. v. United States, 201 F.2d 819, 822 (6th Cir.1953) (citations omitted). Though many courts disfavor motions to strike for fear that they serve only to delay, they can also expedite cases by removing “unnecessary clutter.” See Heller Fin., Inc. v. Midwhey Powder Co., Inc., 883 F.2d 1286, 1293 (7th Cir.1989). 1. Judicial Notice of Public Documents When considering a motion to dismiss, courts should generally not consider matters outside the pleadings. Weiner v. Klais & Co., 108 F.3d 86, 88-89 (6th Cir.1997). In securities fraud cases, however, courts may consider the full text of SEC filings, prospectuses, and analysts’ reports regardless of whether they are attached to a plaintiffs complaint (in part or in whole) as long as they are integral to statements within the complaint. See Albert Fadem Trust v. American Elec. Power Co., 334 F.Supp.2d 985, 995 (S.D.Ohio 2004) (Marbley, J.); see also, In re Royal Appliance Sec. Litig., 1995 WL 490131, at *2 (6th Cir. Aug.15, 1995) (emphasis added); see also, In re Keithley Instruments, Inc. Sec. Litig., 268 F.Supp.2d 887 (N.D.Ohio 2002). Furthermore, a court may consider any matters of which a court may take judicial notice without converting a party’s motion to dismiss into a motion for summary judgment. Id. (referencing Weiner, 108 F.3d at 89); (see also Jackson v. City of Columbus, 194 F.3d 737, 745 (6th Cir.1999)). Whether a document is considered integral is within the court’s discretion and is guided by Federal Rule of Evidence 201. In re Unumprovident Corp. Sec. Litig., 2005 WL 2206727 (E.D.Tenn. Sept.12, 2005) (finding that a court may take judicial notice of a statement if the court finds that its reliability is “not subject to reasonable dispute”) (referencing Bovee v. Coopers & Lybrand C.P.A., 272 F.3d 356, 360-61 (6th Cir.2001)). When considering public documents in the context of a motion to dismiss, however, the court may not accept a document to decide facts that are in dispute. See In re Firstenergy Corp. Sec. Litig., 316 F.Supp.2d 581, 592 (N.D.Ohio 2004) (citing Hennessy v. Penril Datacomm Networks, 69 F.3d 1344, 1354-55 (7th Cir.1995) (holding district court properly refused to take judicial notice of Form 10-K to decide a fact in dispute)). 2. Appendices ## 58, 59, 60, 64, 65, 70 The Court agrees that Plaintiffs do not reference the contents of Cardinal Defendants’ Appendices ## 58, 59, 60, 64, 65, and 70 in the Complaint. Therefore, this Court may take judicial notice of these documents only if it finds: (1) that they are public documents integral to the parties’ dispute; and (2) that the documents do not ask the Court to adopt disputed facts as true. See Keithley Instruments, 268 F.Supp.2d at 887. Appendixes ## 58, 59, and 60 consist of the annual reports and Form 10-K’s of AmerisourceBergen (“AmBerg”), and McKesson Corporation for certain years within the Class Period. See supra note 33. Appendixes ## 64, and 65 are certain Baird analysts’ reports on McKesson Corporation (“McKesson”). See id. Cardinal Defendants submit the Appendixes as evidence of widespread financial problems faced by the drug distribution business during the Class Period. AmBerg and McKesson are Cardinal’s two top competitors; therefore, Cardinal asserts that the companies’ financial situations, as presented in their annual reports and 10-K’s, provide support for Cardinal Defendants’ theory that a general market downturn, not fraudulent misstatements, caused Cardinal’s stock price to drop. Courts may consider the full text of SEC filings, prospectuses, and analysts’ reports regardless of whether they are attached to a plaintiffs complaint (in part or in whole) as long as they are integral to statements within the complaint. See Albert Fadem, 334 F.Supp.2d at 995 (emphasis added). Such documents are generally “capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned.” see Fed. Rule Evid. 201(b). Because this Court finds Cardinal Defendants’ theory that Cardinal’s stock drop was due to a general downturn in the drug distribution market integral to the parties’ dispute, the Court DENIES Plaintiffs’ motion to strike Appendices ## 58, 59, 60, 64, and 65 and any arguments arising therefrom. Appendix # 70 is a Business Week Online article from July 2, 2004. Among other things, the article cites the industry switch from a B + H model to a JIT model as being responsible for the drop in Cardinal’s stock price, as well as the downward trend of both AmBerg and McKesson’s stock prices. The article reads: Beginning in late 2003, the [drug distribution] industry pushed to change the payment system for distributing medical products (drugs, devices, and other supplies) to customers (hospitals, doctors’ offices, etc.). Wholesalers essentially want “fee-for-service” deals with manufacturers that would create less volatility in profit margins. However, the switchover to such contracts could remain problematic. The dramatic hit to Cardinal suggests other wholesalers are pretty deep in the woods, ... Cardinal had expected many customers to have agreed to [the] new contracts by now. Instead, the majority are still in negotiations. See Amy Tsao, “A Common Cold for Drug Distributors? News of Cardinal Health’s poor earnings surprised the Street, which fears rivals McKesson and AmBerg may not be immune,” Business Week Online, July 2, 2004. In the context of a motion to dismiss, a court may not accept an otherwise reliable public document to decide facts that are in dispute. See Firstenergy Corp., 316 F.Supp.2d at 592. Cardinal Defendants rely on Tsao’s argument that the switch from a B + H business model to a FFS business model caused financial problems for all drug distribution companies, not just Cardinal. Plaintiffs, however, contend that Cardinal’s stock price dropped because of the Company’s fraud, not because of a general market downturn. As such, Cardinal Defendants urge the Court to accept the truth of the matters asserted in the article to decide factual disputes in their favor. Because this is an improper use of documents, the Court GRANTS Plaintiffs’ motion to strike Appendix # 70 and any arguments related thereto. 3. Appendices ## 61, 62, 66, 67 Appendices ## 61, 62, 66, and 67 are various analysts’ reports regarding the financial outlook of Cardinal. See supra note 33. In considering a motion to dismiss, a court may not “assume the truth of the statements cited by defendants [in Appendices], or accept the inferences asserted by defendants ... based on [those statements].” See Firstenergy Corp., 316 F.Supp.2d at 592. Plaintiffs concede that they cite Appendices ## 61, 62, 66, and 67 in their Complaint. They contend, however, that the Court may examine these exhibits “for the sole purpose of determining whether particular statements were made,” and posit that Cardinal Defendants unlawfully ask the Court to assume the truth of the statements they cite in the Appendixes. Plaintiffs argued that Cardinal’s fraud was the impetus for the Company’s significant drop in stock price. Cardinal Defendants cite the analysts’ reports to counter that “financial analysts long have lauded Cardinal’s management team and Cardinal’s strong market positions.” Plaintiffs aver that this statement directly contradicts Plaintiffs’ allegations that Cardinal Defendants’ malfeasance stunned investors and materially impacted the Company’s earnings. Nevertheless, because Plaintiffs cited to the Appendixes in their Complaint, and because the dispute over the effect of Cardinal’s fraud is certainly integral to the instant litigation, the Court DENIES Plaintiffs’ motion to strike these appendixes and any arguments related thereto. 4. Jensen Motion at 8-9 In addition to the Plaintiffs’ motion to strike the foregoing appendixes, Plaintiffs also ask the Court to strike Cardinal Defendants’ argument in Defendant Jensen’s Motion to Dismiss asserting that Defendant Jensen voluntarily resigned from Cardinal. In their Complaint, Plaintiffs allege that a source informed them that Jensen was forced to resign from Cardinal as a result of his involvement in the Company’s accounting fraud. After Congress’ enactment of the PSLRA, in assessing whether a plaintiff has offered “facts giving rise to a strong inference ” of defendants’ scienter, “plaintiffs are entitled only to the most plausible of competing inferences.” Id.; see Miller v. Champion Enter. Inc., 346 F.3d 660, 673 (6th Cir.2003) (citing Helwig, 251 F.3d at 553). Both sides present plausible arguments as to the reasons Jensen left Cardinal. Therefore, to advance the purpose of the PSLRA, the Court should not adopt Plaintiffs’ view of the facts without also considering the merits of Cardinal Defendants’ assertions. Therefore, without adopting either side’s assessment of why Jensen left Cardinal, the Court DENIES Plaintiffs’ motion to strike the contents of Jensen Motion at 8-9, allowing both sides’ arguments to remain on the record. II. Cardinal Defendants’ Motion to Dismiss A. Section 10(b) and Rule 10b-5 Claims Cardinal Defendants first contend that the Court must dismiss Plaintiffs’ claims pursuant to Section 10(b) of the Exchange Act on the following grounds: (1) Plaintiffs’ fail to plead that any Defendant possessed scienter, particularly in light of the heightened pleading standard mandated by the PSLRA, 15 U.S.C. § 78u-4 and controlling Sixth Circuit law; (2) the Complaint does not state a claim based upon any of Cardinal’s alleged accounting misstatements; (3) the Complaint fails to plead loss causation as to any of the seven “improprieties” they enumerate in the Complaint; and (4) the Complaint does not allege particularized facts sufficient to state a claim based upon Cardinal’s transition to a new business model. Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder prohibit “[fjraudulent, material misstatements or omissions in connection with the sale or purchase of a security.” See PR Diamonds v. Chandler, 91 Fed.Appx. 418, 426 (6th Cir.2004) (citing Morse v. McWhorter, 290 F.3d 795, 798 (6th Cir.2002)). In order to state a claim under Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, a plaintiff must allege: (1) that defendants made a false statement or omission of material fact; (2) in connection with a purchase or sale of securities; (3) scienter; (4) reliance; and (5) damages. See In re Comshare, Inc. Secs. Litig., 183 F.3d 542, 548 (6th Cir.1999). Prior to the enactment of the PSLRA, the pleading requirements for stating a claim under Section 10(b) were governed by Federal Rule of Civil Procedure 9(b). See In re Telxon Sec. Litig., 133 F.Supp.2d 1010, 1025 (N.D.Ohio 2000) (citing DiLeo v. Ernst & Young, 901 F.2d 624, 627 (7th Cir.1990)). Rule 9(b) provides: “[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. Crv. Pro. 9(b). Originally, the Rule 9(b) heightened pleading requirement (requiring a plaintiff to plead fraud with particularity) was meant to curb any possible vexatious litigation under Rule 10b-5. See Comshare, 183 F.3d at 548 (citing Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 739-44, 95 S.Ct. 1917, 44 L.Ed.2d 539 (1975)). In 1995, however, Congress concluded that Rule 9(b) had “not prevented the abuse of the securities laws by private litigants.” Id. (citing H.R. Conf. Rep. No. 104-369 (1995), reprinted in 1995 U.S.C.C.A.N. 730, 818) “Indeed, Congress echoed the concerns expressed by the Supreme Court in Blue Chip, noting that frivolous securities fraud litigation ‘unnecessarily increased] the cost of raising capital and ehill[s] corporate disclosure [and is] often based on nothing more than a company’s announcement of bad news, not evidence of fraud.” Id. (citing S.Rep. No. 104-98 (1995), reprinted in 1995 U.S.C.C.A.N. 679, 690). Thus, on December 22, 1995, Congress passed the PSLRA, which, amends the Exchange Act and applies to private class actions brought pursuant to the Federal Rules of Civil Procedure. See 15 U.S.C. §§ 77k, 771, 77z-l, 77z-2, 78a, 785-1, 78t, 78u, 78u-4, 78u-5. Adding to the Rule 9(b) requirement that plaintiffs state them fraud allegations with particularity, the PSLRA requires a plaintiffs to, “specify each statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission, or made on information and belief, ... [to] state with particularity all facts on which that belief is formed.” 15 U.S.C. § 78u-4(b)(l). 1. Whether the Complaint Sufficiently Alleges Facts Establishing a “Strong Inference” of Scienter Courts consider scienter the most difficult element of a 10(b) and 10b-5 claim for plaintiffs to plead under the PSLRA; therefore, should the Court find that Plaintiffs’ Complaint does not adequately plead the scienter element of their Section 10(b) and Rule 10b-5 claims, it must grant Cardinal Defendants’ motion to dismiss. See PR Diamonds, 91 Fed.Appx. at 426. The parties’ dispute centers on whether the Plaintiffs’ Complaint adequately pleads scienter. As such, before getting to the merits of Plaintiffs’ allegations, the Court will first examine the meaning of “scienter” in the securities fraud setting. If the Court finds that the Plaintiffs have established scienter, then it may consider whether Plaintiffs have adequately pled the other elements of their prima facie case. a. “Scienter” under the PSLRA The Supreme Court has defined “scienter” as “a mental state embracing intent to deceive, manipulate, or defraud.” Ernst & Ernst, 425 U.S. at 193 n. 12, 96 S.Ct. 1375. In securities fraud claims based on statements of present or historical fact — such as the claims Plaintiffs bring in this case — scienter consists of knowledge or recklessness. PR Diamonds, 91 Fed.Appx. at 426 (citing Helwig v. Vencor, Inc., 251 F.3d 540, 552 (6th Cir.2001) (en banc)). The Sixth Circuit defines “recklessness” as “highly unreasonable conduct which is an extreme departure from the standards of ordinary care. While the danger need not be known, it must be at least so obvious that any reasonable man would have known of it.” See id. (citing Mansbach v. Prescott, Ball & Turben, 598 F.2d 1017, 1025 (6th Cir.1979)). Recklessness is “a mental state apart from negligence and akin to conscious disregard.” Id. (citing Comshare, 183 F.3d at 550). Next, the Court must examine the special requirements for pleading scienter in federal securities fraud claims such as this. As with all fraud claims, Federal Rule of Civil Procedure 9(b) applies to pleading a defendant’s state of mind, allowing that “[m]alice, intent, knowledge, and other condition of mind of a person may be averred generally.” PR Diamonds, 91 Fed.Appx. at 426. Through the passage of the PSLRA, however, Congress heightened the standard of pleading scienter in a securities fraud case. See supra Part IV. II.A.l.a. The PSLRA provides that if a plaintiff fails to meet its requirements, a court may, on any defendant’s motion, dismiss the complaint. See 15 U.S.C. § 78u-4(b)(3); PR Diamonds, 91 Fed.Appx. at 427. As courts have noted, “the PSLRA did not change the scienter that a plaintiff must prove to prevail in a securities fraud case but instead changed what a plaintiff must plead in his complaint in order to survive a motion to dismiss.” See Comshare, 183 F.3d at 548-49. As the foregoing authorities make clear, a plaintiff may survive a motion to dismiss by pleading with particularity facts giving rise to a strong inference that the defendant acted with knowledge or recklessness. See PR Diamonds, 91 Fed.Appx. at 427. In other words, not only must the complaint make particular factual allegations but the inference of scienter which those allegations generate must be strong. Id.; see Comshare, 183 F.3d at 550 (citing Mansbach v. Prescott, Ball & Turben, 598 F.2d 1017, 1024 (6th Cir.1979) (emphasis added)). In Helwig, the Sixth Circuit provided a definitive explanation of the meaning of a “strong inference,” instructing: Inferences must be reasonable and strong but not irrefutable. “Strong inferences” nonetheless involve deductive reasoning; their strength depends on how closely a conclusion of misconduct follows from a plaintiffs proposition of fact. Plaintiffs need not foreclose all other characterizations of fact, as the task of weighing contrary accounts is reserved for the fact finder. Rather, the “strong inference” requirement means that plaintiffs are entitled only to the most plausible of competing inferences. 251 F.3d at 553 (emphasis added). The PSLRA does not change the Rule 12(b)(6) maxim that when an allegation is capable of more than one inference, it must be construed in the plaintiffs favor. Id. (“Our willingness to draw inferences in favor of the plaintiff remains unchanged by the PSLRA.”). The “strong inference” requirement, however, means that a plaintiff is entitled to only the most plausible of competing inferences. Id. Moreover, the Helwig Court enumerated factors which, though not exhaustive, may be probative of scienter in securities fraud actions: (1) insider trading at a suspicious time or in an unusual amount; (2) divergence between internal reports and external statements on the same subject; (3) closeness in time of an allegedly fraudulent statement or omission and the later disclosure of inconsistent information; (4) evidence of bribery by a top company official; (5) existence of an ancillary lawsuit charging fraud by a company and the company’s quick settlement of that suit; (6) disregard of the most current factual information before making statements; (7) disclosure of accounting information in such a way that its negative implications could only be understood by someone with a high degree of sophistication; (8) the personal interest of certain directors in not informing disinterested directors of an impending sale of stock; and (9) the self-interested motivation of defendants in the form of saving their salaries or jobs. 251 F.3d at 552 (citing Greebel v. FTP Software, Inc., 194 F.3d 185, 196 (1st Cir.1999)). b. Applying the Scienter Standard The Sixth Circuit employs a “totality of the circumstances analysis” whereby the facts argued collectively must give rise to a strong inference of at least recklessness. See PR Diamonds, 91 Fed.Appx. at 427 (citing Telxon, 133 F.Supp.2d at 1026 (“Thus, the Sixth Circuit employs a form of ‘totality of the circumstances’ analysis; this Court, accordingly, declines to examine plaintiffs’ allegations in piecemeal fashion, and will instead assess them collectively to determine what inferences may be drawn therefrom.”)). Plaintiffs maintain that the Complaint in its entirety, establishes a strong inference that, throughout the Class Period, the Cardinal Defendants either knew or were at least reckless in disregarding serious accou