Full opinion text
RULING ON DEFENDANTS’ RENEWED MOTION TO DISMISS & PLAINTIFFS’ MOTION TO PRECLUDE DOCUMENTS & ARGUMENTS INCONSISTENT WITH JUDICIAL NOTICE DORSEY, District Judge. This action is a securities class action suit brought by various individual plaintiffs (collectively “Plaintiffs”) on behalf of purchasers of XL Capital Ltd. (“XL” or the “Company”) publicly traded securities from November 1, 2001 through October 16, 2003 (the “Class Period”) against XL and several of its executive officers: Brian M. O’Hara, Jerry de St. Paer, Ronald L. Bornhuetter, Nicholas M. Brown, Jr., and Henry Charles V. Keeling (collectively, the “Individual Defendants”). Plaintiffs bring this action alleging that Defendants engaged in securities fraud in violation of § 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. § 78j (b), and SEC Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5, and that the Individual Defendants were “controlling persons” under § 20(a) of the Exchange Act, 15 U.S.C. § 78t(a), and therefore derivatively liable for the Company’s fraudulent acts. The crux of Plaintiffs’ allegations is that Defendants knowingly issued false and misleading statements regarding the Company’s financial condition by failing to adequately reserve for losses in its NAC Re reinsurance operations in order to artificially inflate the price of the Company’s stock and maintain the Company’s financial strength and debt ratings. Defendants are now renewing their motion, pursuant to 15 U.S.C. § 78u-4(b)(3)(A) of the Private Securities Litigation Reform Act of 1995 (the “PSLRA”), to dismiss the Second Amended Class Action Complaint (the “SAC”) for violations of the Federal Securities Laws on the ground that the SAC fails to satisfy the pleading requirements of the PLSRA. Prior to the filing of this renewed motion, Plaintiffs moved to preclude Defendants from submitting documents and arguments inconsistent with judicial notice. For the reasons stated herein, Plaintiffs’ Motion to Preclude Documents and Arguments Inconsistent with Judicial Notice [Doc. No. 150] is granted in part and denied in part and Defendants’ Motion to Dismiss [Doc. No. 154] is granted. I. BACKGROUND XL is a Bermuda-based financial service holding company that provides reinsurance through its operating subsidiary, XL Reinsurance America, Inc. (“XLRA,” formerly NAC Reinsurance Corporation or “NAC Re”). (SAC ¶¶ 11, 13.) As a reinsurer, XL provides insurance to direct or primary insurers, or “ceding companies,” who transfer all or part of the risk they underwrite, pursuant to a policy or group of policies, to XL, as the reinsurer. The ceding companies pay premiums, in exchange for which the reinsurer agrees to indemnify the ceding insurer on the risk transferred. A portion of the premiums collected from the ceding companies are set aside as “loss reserves,” which represent the amount a reinsurance company estimates it will have to pay to cover the ceding insurers’ claims under the policies that have been written to date. Loss reserves are established when the insurance contract is signed and are later revised as claims are submitted and more information becomes available about the likely amount the reinsurer will have to pay under the policy. Here, Plaintiffs allege that XL and the Individual Defendants defrauded investors during the Class Period by knowingly and falsely representing that XL had sufficient loss reserves to cover the losses that fall within the coverage assumed. As a consequence of these alleged misrepresentations, Plaintiffs contend that the Company’s shares sold at artificially inflated prices which later fell after the truth became known to the market. Plaintiffs’ allegations are based on various SEC filings, analyst reports, press releases, “relevant Company documents” and interviews with four confidential witnesses (“CW1”, “CW2”, “CW3” and “CW4”), each of which is alleged to have been employed in various units at the Company. XL acquired NAC Re in June 1999 for $1.2 billion. In connection with the merger, XL increased loss reserves by $95 million. It later became apparent, however, that the 1997 through 2000 accident years were developing adversely. A Report on Examination of the NAC Reinsurance Corporation covering the five-year period from January 1, 1995 through December 31, 1999 was published on May 31, 2002 by the New York Insurance Department (“NYID”) (“NYID Report”). As set forth in the Report, the NYID found that the Company had, as of December 31, 1999, understated loss reserves by $189 million. (N.Y.ID Report 25, Ex. 2 to SAC.) In 2000, XL took another charge to income of $122 million to increase loss reserves for its NAC Re operations. During the Class Period, XL increased loss reserves three more times, taking additional charges of $180 million in 4Q01, $215 million in 4Q02 and $184 million in 3Q03. Following the October 17, 2003 announcement of the $184 million reserve shortfall, Defendant O’Hara, on behalf of the Company, announced in a press release that the Company would conduct “an intensive claims audit and review of the ceding company claims files,” with the intention of “fully addressing] [the Company’s] exposure to the 1997 through 2000 North American casualty reinsurance book written by the former NAC Re so that it will not adversely affect [XL’s] financial results in 2004 and beyond.” The “comprehensive claims audit review” uncovered an additional $663 million reserve shortfall, which was taken in 4Q03' and announced on January 13, 2004. XL’s loss reserve increases, taken together, totaled over $1.36 billion. On January 14, 2004, the day after XL announced the $663 million reserve shortfall, various insurance ratings agencies lowered their ratings and downgraded XL. Specifically, S & P downgraded the financial strength ratings of XL’s core operating subsidiaries to “AA-” from “AA” and removed them for CreditWatch, noting that “[t]he outlook is stable.” Rating agency A.M. Best placed XL’s “A+” (Superior) financial strength rating under review with negative implications, rating agency Moody’s downgraded XL Re’s financial strength rating to “Aa3” from “Aa2,” with a stable outlook, and rating agency Fitch put XL’s “AA” financial strength rating on Rating Watch Negative mainly due to uncertainty relating to capital raising. A.M. Best stated that the reserve charge “was larger than we had anticipated, cumulatively for the year,” and S & P similarly stated that “[w]e have taken a rating action on XL group because charges were higher than we had anticipated.” According to Moody’s, “the charges, together with others taken in 2002 and at the time of the acquisition of XL Reinsurance America in 1999, called into question the quality of the underwriting and actuarial controls under the operation’s former NAC Re control.” A report issued by Deutsch Bank-North America on January 15, 2004 discussed managements’ corrective actions to assure that further revenue shortfalls would not occur, stating: “Reserve review appears to be comprehensive.... Reserve charge appears extremely conservative.... The company appears to be taking a number of steps in its reserving process to reduce the possibility of- reserving errors in the future.” Also on January 14, 2004, XL. announced the firing of two executives, namely C. Fred Madsen, President of NAC Re reinsurance operations, and Martha Bannerman, XL’s General Counsel and Chief Administrative Officer of its NAC Re reinsurance operations. One week later, Defendant Brown, Chief Executive Officer of XL’s insurance and formerly Chief of Reinsurance Operations at NAC Re, left the Company. On May 18, 2001 and September 4, 2001 respectively, XL issued $1.01 billion principal amount at maturity of Zero Coupon Convertible Debentures (“CARZ”) and $509 million principal amount at maturity of Liquid Yield Option Notes (“LYONs”). Each of the CARZ and LYONs debt securities gave bondholders the right to require XL to repurchase the bonds on predetermined dates (“put” dates) at predetermined values. During the Class Period, a put date for the CARZ was scheduled to occur on May 23, 2002 and for the LYONs on September 7, 2002 and September 7, 2003. The repurchase obligations were also subject to credit ratings assigned by S & P’s bond rating agency, such that if XL’s financial strength and credit ratings fell below the level of “BBB + ,” that too would trigger bondholders’ rights to demand conversion into shares at 5.9467 shares per CARZ and 5.277 shares per LYONs. The Individual Defendants named in this suit hold various positions at XL and XLRA. Brian M. O’Hara is and was, at all times during the Class Period, XL’s President and Chief Executive Officer (“CEO”), and has served as a director of XL since 1986. O’Hara signed all of the Company’s public filings with the SEC during the Class Period and was the chief spokesperson for the Company, as he was consistently quoted in Company press releases and spoke on behalf of the Company during conference calls. Jerry de St. Paer is and was, at all times during the Class Period, XL’s Executive Vice President and Chief Financial Officer (“CFO”). Along with O’Hara, de St. Paer signed all filings made with the SEC. Nicholas M. Brown, Jr. was, at all relevant times, XL’s Executive Vice President and Chief Executive of Insurance- Operations at XLRA. Brown also served as President and CEO of NAC Re until it merged with XL in June 1999, at which point Brown was appointed Chief Executive of Insurance Operations at XLRA. Henry Charles V. Keeling was, at all relevant times, CEO of XL’s Reinsurance Operations. According to the SAC, Keeling , was present during the October 20, 2003 and January 14, 2003 company conference calls. Ronald L. Bornhuetter is and was, at all times during the Class Period, an outside director at XL. Prior to the Class Period, Bornhuetter was an actuary and served as Chairman of NAC Re from 1993 until 1999 and Chairman of the Board of NAC Re Reinsurance Corporation from 1990 until 1999. Bornhuetter signed the Registration Statement and/or amendments to the Shelf Offering, the 2001 Report on Form 10-K and the 2002 Report on Form 10-K. During the Class Period, the Individual Defendants sold more than 400,000 shares of XL stock for proceeds of $35.6 million and took in over $8.1 million in incentive bonuses. Plaintiffs allege that these trades were timed in a manner designed to “t[ake] advantage of XL’s artificially inflated stock price.” (SAC ¶ 47.) II. STANDARD OF REVIEW A district court ruling on a motion to dismiss for failure to state a claim should accept all factual allegations in the complaint as true and draw all reasonable inferences in the plaintiffs favor. Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974); Ganino v. Citizens Utilities Co., 228 F.3d 154, 161 (2d Cir.2000). The court need not accept, however, “mere conclusions of law or unwarranted deductions,” First Nationwide Bank v. Gelt Funding Corp., 27 F.3d 763, 771 (2d Cir.1994), or “the truth of factual allegations that are contradicted by documents properly considered on a motion to dismiss.” In re Van der Moolen Holding N.V. Sec. Litig., 405 F.Supp.2d 388, 396 (S.D.N.Y.2005) (citing Rapoport v. Asia Elecs. Holding Co., 88 F.Supp.2d 179, 184 (S.D.N.Y.2000)). Even under Federal Rule of Civil Procedure 12(b)(6), a plaintiffs factual allegations must be sufficient “to state a claim to relief that is plausible on its face.” Bell Atlantic Corp. v. Twombly, — U.S. —, 127 S.Ct. 1955, 1960, 167 L.Ed.2d 929 (2007); see also Iqbal v. Hasty, 490 F.3d 143, 157 (2d Cir.2007) (“requiring a flexible ‘plausibility standard,’ which obliges a pleader to amplify a claim with some factual allegations in those contexts where such amplification is needed to render the claim plausible”). Although detailed factual allegations are not required, a plaintiff must provide the grounds of her entitlement to relief beyond mere “labels and conclusions”; “a formulaic recitation of the elements of a cause of action will not do.” Id. at 1964-65. As discussed more fully below, however, Plaintiffs also must meet the “exacting pleading requirements” of the PSLRA, which requires Plaintiffs to adhere to significantly more stringent pleading requirements. See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. —, 127 S.Ct. 2499, 168 L.Ed.2d 179, 2007 U.S. LEXIS 8270 (2007). Generally, district courts should decide the motion to dismiss on the complaint alone, excluding additional evidence, affidavits, exhibits, and factual allegations contained in legal briefs or memoranda. Friedl v. City of New York, 210 F.3d 79, 83 (2d Cir.2000); accord Chambers v. Time Warner, Inc., 282 F.3d 147 (2d Cir.2002) (reiterating that “a plaintiffs reliance on the terms and effect of a document in drafting the complaint is a necessary prerequisite to the court’s consideration of the document on a dismissal motion; mere notice or possession is not enough”). The following materials may, however, properly be considered on a Rule 12(b)(6) motion to dismiss: In re Merrill Lynch & Co. Research Reports Sec. Litig., 273 F.Supp.2d 351, 356-57 (S.D.N.Y.2003) (citations omitted), aff'd on other grounds, Lentell v. Merrill Lynch & Co., Inc., 396 F.3d 161 (2d Cir.2005), cert. denied, 546 U.S. 935, 126 S.Ct. 421, 163 L.Ed.2d 321 (2005); Mangiafico v. Blumenthal, 358 F.Supp.2d 6, 9 (D.Conn.2005). (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. Under the “incorporation by reference” doctrine, district courts may consider documents submitted by a defendant on a motion to dismiss if the documents are explicitly relied on in and integral to the plaintiffs complaint. I. Meyer Pincus & Assocs., P.C. v. Oppenheimer & Co., 936 F.2d 759, 762 (2d Cir.1991); accord Chambers, 282 F.3d at 152-53; Rothman v. Grregor, 220 F.3d 81, 88 (2d Cir.2000); see also Stuto v. Fleishman, 164 F.3d 820, 826 n. 1 (2d Cir.1999) (finding the district court’s consideration of a document on a motion to dismiss permissible because the document was discussed in the complaint, and thus incorporated by reference); Int’l Audio-text Network, Inc. v. AT & T Co., 62 F.3d 69, 72 (2d Cir.1995) (per curiam) (holding that even where a document is not incorporated by reference, the court may nevertheless consider it where the complaint “relies heavily upon its terms and effect,” which renders the document “integral” to the complaint); Cottec Indus., Inc. v. Sum Holding L.P., 949 F.2d 42, 48 (2d Cir.1991) (consideration of documents permissible when there is “undisputed notice to plaintiffs of their contents and [the documents] were integral to plaintiffs’ claim”), cert. denied, 503 U.S. 960, 112 S.Ct. 1561, 118 L.Ed.2d 208 (1992); Philadelphia Parking Auth. v. Federal Ins. Co., 385 F.Supp.2d 280, 285 (S.D.N.Y.2005). A court may take judicial notice of facts that are “not subject to reasonable dispute,” such that they are “capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned.” Fed.R.Civ.P. 201(b)(2); see also Kramer v. Time Warner, Inc., 937 F.2d 767, 774 (2d Cir.1991). In cases of securities fraud, the failure to view additional evidence could prevent courts from dismissing complaints which selectively quote portions of a company’s filings. See id. III. PLAINTIFFS’ MOTION TO PRECLUDE Defendants submitted ■ seven documents cited and relied upon in Plaintiffs’ SAC, none of which is cited by Defendants for the truth of what it says. Plaintiffs acknowledge that these documents are already properly incorporated into the SAC and contend that the Court may consider them not for the truth of their contents, but only to determine what the documents stated. (See Pis.’ Mem. Supp. Mot. Preclude 8.) Defendants also submitted SEC filings on Forms 3, 4 and 5 and a copy of Standard & Poor’s (“S & P”) Daily Stock Price Record for the truth of the matters contained therein. Plaintiffs argue that regardless of whether the remaining documents are incorporated by reference or are matters of which judicial notice may be taken, the Court may only look to these documents to determine what they stated and not to prove the truth of their contents. (See id. at 3.) A. Transcripts from XL’s January 29, 2002 Presentation and October 20, 2003 Conference Calls Defendants submitted transcripts from XL’s January 29, 2002 Presentation and October 20, 2003 Conference Calls in order to show that Plaintiffs’ characterizations and paraphrases thereof are inaccurate and misleading. Plaintiffs assert that “it is unknown who transcribed the conference calls, what medium they were transcribed from, and the source of the conference call recording,” and argue that the transcripts cannot be judicially noticed or considered for their truth because their accuracy is in dispute. (Pis.’ Mem. Supp. Mot. Preclude 14.) According to Defendants, however, the transcripts were obtained from Plaintiffs themselves in discovery, correspond verbatim to the quotes in the SAC and were represented by counsel for Plaintiffs during the parties’ discussions to be the sources of the quotes and paraphrases in paragraphs 18, 19, 91, 94, 185, 186, 232 and 246 of the SAC, even though they are not explicitly cited in the SAC. (See Defs.’ Mem. Opp’n Mot. Preclude 4.) Although in general, documents may be considered under the “incorporation by reference” doctrine if they are explicitly relied on in and integral to the plaintiffs complaint, Chambers, 282 F.3d at 152-53 (citing Int’l Audiotext Network, Inc., 62 F.3d at 72), courts have held with regard to transcripts that where the allegations do not expressly mention or refer to the transcripts and the plaintiffs dispute their authenticity, they cannot be considered. Cooper v. Pickett, 137 F.3d 616, 623 (9th Cir.1997); see also In re Scholastic Sec. Litig., No. 97 Civ. 2447(JFK), 1998 WL 560052, **1-2, 1998 U.S. Dist. LEXIS 13910, at *4-5 (S.D.N.Y. Sept. 1, 1998) (declining to consider an unverified transcript of a conference call, despite the fact that the complaint refers to the conference call, when the complaint does not expressly mention or refer to the transcript itself). In this case, however, Plaintiffs not only quote directly from the transcripts in the SAC, but also quote them and cite them numerous times in their Memorandum in Opposition to Defendants’ Renewed Motion to Dismiss. Defendants cite the transcripts merely to show that Plaintiffs’ quotations therefrom are misleading. Courts have routinely held that when a complaint quotes documents only in part and omits critical portions of the documents, it is permissible for the court ruling on a motion to dismiss to consider the full texts of the quoted documents. Cooper, 137 F.3d at 623; accord In re Hunter Envtl. Servs., Inc. Sec. Litig., 921 F.Supp. 914, 918 (D.Conn.1996); see also Kramer, 937 F.2d at 774 (“Were courts to refrain from considering such documents, complaints that quoted only selected and misleading portions of such documents could not be dismissed under Rule 12(b)(6) even though they would be doomed to failure” and such complaints might be filed “solely to extract nuisance settlements.”); In re Silicon Graphics Sec. Litig., 183 F.3d 970, 986 (9th Cir.1999) (“Although [the plaintiff] questions the veracity of the ... forms, her ongoing and substantial reliance on the forms as a basis for her allegations substantially weakens her position.”). For these reasons, the Court finds it appropriate to consider the contents of the transcripts in ruling on the Renewed Motion to Dismiss. B. SEC Forms 3, 4 and 5 Plaintiffs argue that the Court should only take judicial notice of SEC documents to determine what the documents stated, not to prove the truth of their contents. In their Renewed Motion to Dismiss, Defendants rely on information regarding sales, acquisitions and holdings of XL stock by the individual Defendants as set forth in the Forms 3, 4 and 5 filed with the SEC. (See Defs.’ Mem. Supp. Ren. Mot. Dismiss 34-45.) Defendants request that the Court take judicial notice of the contents of these SEC forms for the truth of the transactional data set forth therein. XL’s SEC documents, specifically SEC Forms 3, 4 and 5, are referenced in the SAC and therefore are properly incorporated by reference. Indeed, Plaintiffs concede that SEC Forms 4 are incorporated into the SAC, (see PL’s Mem. Supp. Mot. Preclude 19), and previously conceded, in their Memorandum in Opposition to Defendants’ original Motion to Dismiss, that they used the SEC Forms 4 to obtain the number of shares sold by each individual defendant in the SAC. (See PL’s Mem. Opp’n Mot. Dismiss 42, Mar. 31, 2006, Doc. No. 128.) The Second Circuit has held that district courts may consider and take judicial notice of public disclosure documents required by law to be filed and actually filed with the SEC, such as XL’s SEC Forms 3, 4 and 5, reasoning that: it is highly impractical and inconsistent with Fed.R.Evid. 201 to preclude a district court from considering such documents when faced with a motion to dismiss a securities action based on allegations of material misrepresentations or omissions. First, the documents are required by law to be filed with the SEC, and no serious question as to their authenticity can exist. Second, the documents are the very documents that are alleged to contain the various misrepresentations or omissions and are relevant not to prove the truth of their contents but only to determine what the documents stated. Third, a plaintiff whose complaint alleges that such documents are legally deficient can hardly show prejudice resulting from a court’s studying of the documents. Were courts to refrain from considering such documents, complaints that quoted only selected and misleading portions of such documents could not be dismissed under Rule 12(b)(6) even though they would be doomed to failure. Foreclosing resort to such documents might lead to complaints filed solely to extract nuisance settlements. Finally, we believe that under such circumstances, a district court may take judicial notice of the contents of relevant public disclosure documents required to be filed with the SEC as facts “capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned.” Fed.R.Evid. 201(b)(2). Kramer, 937 F.2d at 774. The Kramer court also held that district courts may take judicial notice of facts contained in “related documents that bear on the adequacy of the disclosure as well as documents actually alleged to contain inadequate or misleading statements.” Id. The Kramer court did not squarely address the issue of whether documents required by law to be filed and actually filed with the SEC can be considered for the truth of their contents, stating both that such “documents ... are relevant not to prove the truth of their contents but only to determine what the documents stated,” and that “a district court may take judicial notice of the contents of relevant public disclosure documents required to be filed with the SEC.” Id. (emphasis added). Moreover, in In re Merrill Lynch & Co. Research Reports Sec. Litig., 273 F.Supp.2d 351, 356-67 (S.D.N.Y.2003), discussed above, the court held that the types of documents that may be considered on a motion to dismiss include “public disclosure documents required by law to be, and that have been, filed with the [SEC].” 296 F.Supp.2d at 356-57; see also Menowitz v. Brown, 991 F.2d 36, 39 (2d Cir.1993) (holding that the district court could look at all federally mandated disclosure documents); In re Hunter Envtl. Servs., Inc. Sec. Litig., 921 F.Supp. at 918 (noting the Second Circuit’s holding “that a court could view SEC filings even if the plaintiff did not specifically cite them in the complaint”). SEC Forms 3, 4 and 5, which are required to be filed with the SEC under penalty of perjury, are used by officers of public corporations . to publicly disclose their transactions in company stock. These documents are routinely accepted by courts on motions to dismiss securities fraud complaints and are considered for the truth of their contents. See, e.g., In re Advanta Corp. Sec. Litig., 180 F.3d 525, 540-41 (3d Cir.1999) (considering the Form 4 as evidence of how much stock was sold and how much stock the defendants continued to hold); In re Sina Corp. Sec. Litig., No. 05 Civ. 2154(NRB), 2006 U.S. Dist. LEXIS 71089, at *37, 2006 WL 2742048, at *11 (S.D.N.Y. Sept.26, 2006) (granting motion to dismiss while taking judicial notice of the defendants’ filings with the SEC “to conclusively determine that the Individual Defendants’ trading activity during the Class Period was not at all unusual when compared with their prior activity”); In re Bristol-Myers Squibb Sec. Litig., 312 F.Supp.2d 549, 561 (S.D.N.Y.2004) (relying on the Forms 4 and 5 filed by the individual defendants, which recorded changes in beneficial ownership of the securities held, as evidence of the individual defendants’ stock sales); In re Keyspan Corp. Sec. Litig., 383 F.Supp.2d 358, 383 n. 12 (E.D.N.Y.2003) (relying on publicly filed records of the individual defendants’ trading activity as evidence of how much stock was sold during the relevant time period); In re Vantive Corp. Sec. Litig., 110 F.Supp.2d 1209, 1219 (N.D.Cal.2000) (“In considering whether the stock sales are unusual or suspicious, the court may consider ... SEC filings ....”), aff'd, 283 F.3d 1079 (9th Cir.2002); Ressler v. Liz Claiborne, Inc., 75 F.Supp.2d 43, 57 (E.D.N.Y.1998) (considering SEC disclosure documents as evidence of stock transactions), aff'd, 189 F.3d 460, 1999 WL 568023 (2d Cir.1999); In re Hunter Envtl. Servs., Inc. Sec. Litig., 921 F.Supp. at 917-919 (finding it proper to consider the defendant’s relevant filings with the SEC). Under the PSLRA, Plaintiffs are required to show that Defendants acted with the requisite state of mind; i.e., that they possessed “an intent to deceive, manipulate or defraud.” Kalnit v. Eichler, 264 F.3d 131, 138 (2d Cir.2001) (quoting Canino, 228 F.3d at 161). To determine whether Defendants acted with the requisite scienter based on circumstantial evidence consisting of stock transactions, “the court must examine a variety of factors, including ‘the amount of profit from the sales, the portion of stockholdings sold, the change in volume of insider sales, and the number of insiders selling.’ ” Frazier v. VitalWorks, Inc., 341 F.Supp.2d 142, 160 (D.Conn.2004) (quoting In re Scholastic Corp. Sec. Litig., 252 F.3d 63, 74-75 (2d Cir.2001)). In order to make such a determination, the Court must review the trading data presented by either party, see id., and the only source of that information is the Forms 3, 4 and 5 filed with the SEC. As in the cases cited above, the Forms 3, 4 and 5 submitted to the SEC will be considered for the purpose of determining what statements the documents contain and- as evidence of Defendants’ stock transactions for the purpose of determining whether they acted with the requisite scienter. C. S & P’s Daily Stock Price Record Defendants submitted the Standard & Poor’s Daily Stock Price Record as evidence of the market price of XL stock. It is clear that courts “may take judicial notice of well-publicized stock prices without converting the motion to dismiss into a motion for summary judgment.” Ganino, 228 F.3d at 167 n. 8 (considering New York Stock Exchange data which was not attached to the complaint as an exhibit or incorporated by reference into the complaint); Frazier, 341 F.Supp.2d at 162 n. 9 (“The Court takes judicial notice of [] published stock prices”). Stock price data published by S & P has been permitted on a motion to dismiss a securities fraud complaint. See Flickinger v. Harold C. Brown & Co., 789 F.Supp. 616, 620 (W.D.N.Y.1992); Pryor v. USX Corp., No. 82 CIV. 0216(KMW), 1991 WL 346368, *17 n. 17 (S.D.N.Y. Nov.27, 1991). The Court finds that the accuracy of the S & P Daily Stock Price Record is “not subject to reasonable dispute,” and as such, will take judicial notice of it. D. Charts & Graphs Summarizing Information Plaintiffs argue that the summaries of information put together by Defendants, in the form of graphs, charts and tabulations, are not judicially noticeable and should be stricken. Federal Rule of Evidence 1006, however, provides that a party submitting “voluminous” data to a court may present that data “in the form of a chart, summary, or calculation,” so long as the originals or duplicates of the originals are made available to the court. Fed.R.Evid. 1006; see also In re Sec. Litig. BMC Software, Inc., 183 F.Supp.2d 860, 881-84 (S.D.Tex.2001) (“Under Fed.R.Evid. 1006, [a] summary chart [summarizing information contained in SEC filings] may be included because the underlying documents are also submitted for consideration by the Court and thus not hearsay.”). Plaintiffs argue that the summaries are misleading, but do not contend that they are inaccurate. Because the underlying documents are also submitted for consideration, the summaries, tables and charts will not be stricken from the record, however, the summaries will not be considered without reference to underlying documents. IV. MOTION TO DISMISS Plaintiffs’ claims essentially rest on the allegation that Defendants knew, and intentionally hid from investors, that XLRA’s loss reserves were hundreds of millions of dollars less than they needed to be to cover its exposure. Section 10(b) of the 1934 Act, 15 U.S.C. § 78j (b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5, prohibit fraudulent activities in connection with securities transactions. Section 10(b) makes it unlawful to use or employ, in connection with the purchase or sale of any security ..., 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(b). Rule 10b-5 specifies the behavior that Section 10(b) forbids, making it unlawful “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 light of circumstances under which they were made, not misleading----” 17 C.F.R. § 240.10b-5. To state a valid cause of action under section 10(b) and Rule 10b-5, a plaintiff must allege “(1) a material misrepresentation (or omission); (2) scienter, i.e., a wrongful state of mind; (3) a connection with the purchase or sale of a security; (4) reliance, often referred to in cases involving public securities markets (fraud-on-the-market cases) as ‘transaction causation’; (5) economic loss; and (6) ‘loss causation,’ i.e., a causal connection between the material misrepresentation and the loss.” Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 341-342, 125 S.Ct. 1627, 161 L.Ed.2d 577 (2005) (internal citations omitted); accord Lentell v. Merrill Lynch & Co., 396 F.3d at 172. Defendants’ motion to dismiss challenges Plaintiffs’ claims under the first and second prongs of this analysis. A complaint alleging securities fraud under § 10(b) must also satisfy the heightened pleading requirements of Federal Rule of Civil Procedure 9(b) and the PSLRA. The Second Circuit has interpreted Rule 9(b) to require that complaints “(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.” Novak v. Kasaks, 216 F.3d 300, 306 (2d Cir.2000) (quotation marks and citations omitted). Similarly, the PSLRA requires that In any private action arising under this chapter in which the plaintiff alleges that the defendant— (A) made an untrue statement of a material fact; or (B) omitted to state a material fact necessary in order to make the statements made, in the .light of the circumstances in which they were made, not misleading; the complaint shall 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 is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed. 15 U.S.C. § 78u — 4(b)(1) (emphasis added). With regard to the required element of scienter, the PSLRA requires a securities fraud complaint to “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.” Id. § 78u-4(b)(2). “Read together, Rule 9(b) and the PSLRA mandate that ‘plaintiffs must allege the first two elements of a securities fraud claim-fraudulent acts and scienter-with particularity.’ ” In re Bristol-Myers Squibb Sec. Litig., 312 F.Supp.2d at 556 (quoting Elliott Assoc. L.P. v. Hayes, 141 F.Supp.2d 344, 353 (S.D.N.Y.2000)). Plaintiffs must satisfy both §§ 78u-4(b)(1) and (b)(2), otherwise, the SAC will be dismissed. See id. § 78u-4(b)(3)(A). A. PSLRA § 78u-4(b)(l) As set forth above, the PSLRA requires a securities fraud complaint to allege: (1) each misleading statement; (2) the reasons each statement was misleading; and (3) when an allegation regarding such a statement is based on information and belief, with particularity sufficient facts on which that belief is formed. 15 U.S.C. § 78u — 4(b)(1). The Second Circuit has ruled that contrary to the language of the statute, a securities fraud complaint need not plead with particularity “all” facts on which a plaintiffs beliefs regarding false or misleading statements are formed, but only “sufficient facts to support those beliefs.” Novak, 216 F.3d at 313-14. Plaintiffs allege, based on information and belief, that Defendants made false and misleading statements with regard to XL’s failure to adequately reserve for losses in its NAC Re reinsurance operations-specifically, the steps the Company was taking to correct the problem of insufficient loss reserves and changes it was making to the method of estimating those reserves-in order to artificially inflate XL’s stock price and maintain its high financial strength and debt ratings. In order to survive at this stage, the SAC must state with particularity sufficient facts to support the belief that Defendants knowingly and intentionally failed to properly reserve for the adverse loss developments at NAC Re and/or knowingly and intentionally failed to take steps to correct the problem, and accordingly that Defendants’ positive public statements concerning the loss reserves were false and misleading. Plaintiffs contend, based on their allegation that Defendants knew that NAC Re’s loss reserves were insufficient, intentionally failed to properly reserve for the adverse loss developments and/or knowingly and intentionally failed to correct the problem, that Defendants’ statements with regard to NAC Re’s loss reserves during the Class Period were designed to artificially inflate the share price and maintain the Company’s ratings in order to grow the Company’s business, avert payment of debt, allow the Individual Defendants to sell their stock at inflated prices, and collect large incentive bonuses. Plaintiffs have compiled a long list of allegedly false and misleading statements made by Defendants during the almost two-year Class Period in order to accomplish these goals. These statements were made in conference calls, press releases, XL’s financial statements and documents filed with the SEC. They pertain to matters such as the Company’s methodology of calculating loss reserves and the sufficiency of those reserves, the frequency and intensity with which the Company conducts claims audits, management’s expectations with regard to the reinsurance market and XL’s share price, the Company’s assets and ratings, and other general business projections. Plaintiffs have identified the speakers of the statements as well as the time frames and venues in which they were made. Accordingly, Plaintiffs have satisfied the Rule 9(b) requirement that the SAC allege the “time, place, speaker, and ... content of the alleged misrepresentation.” Shields v. Citytrust Bancorp., 25 F.3d 1124, 1129 (2d Cir.1994); accord Novak, 216 F.3d at 306. Accordingly, the Court must determine whether the SAC adequately explains “why the statements were fraudulent.” Novak, 216 F.3d at 306. With regard to the methodology of estimating loss reserves, the December 31, 2000 Report on Form 10-K (prior to the start of the Class Period), stated that “[t]he methodology of estimating loss reserves is periodically reviewed to ensure that the assumptions made continue to be appropriate and any adjustments resulting therefrom are reflected in income of the year in which the adjustments are made.” Similarly, XL’s April 6, 2001 and April 6, 2002 proxy statements explain that “[t]he Audit Committee reviews the Company’s reserving methodology and reserves.” With regard to claims audits, the December 31, 2000 and December 31, 2001 Reports on Form 10-K state that “claims audits are conducted for specific claims and claims procedures at the offices of selected ceding companies.” In the Form 10-K for the period ending December 31, 2001, the Company also stated that “[Underwriting and loss experience is reviewed regularly for loss trends, emerging exposures, changes in the regulatory or legal environment as well as the efficacy of policy terms and conditions,” and asserted that it “believes the methods presently adopted [for estimating loss reserves] provide a reasonably objective result as it is based upon the Company’s loss data rather than more theoretical models often used in the low frequency high layer business the Company underwrites.” At a conference held on January 29, 2002, Defendant O’Hara spoke about the Company, saying that XL has “a tremendous track-record of claims handling.” Later, O’Hara asserted that XL “conduces] a full actuarial review of all our business units annually.” With regard to the loss reserve increases, O’Hara stated that the Company was, at the time, “in very good shape,” explaining that XL’s “problems reflect what every reinsurer faced. We have put it behind us, and all the other actuarial reviews checked out positively.” Management also expressed their opinion with regard to the sufficiency of XLRA’s loss reserves, stating in the December 31, 2000 Report on Form 10-K (prior to the start of the Class Period), that they “believe[ ] that the reserves for unpaid losses and loss expenses are sufficient to pay losses that fall within coverages assumed by the Company.” In a July 31, 2002 conference call, held five months after the Company announced a $180 million reserve increase for the fourth quarter of 2001, Defendant CEO O’Hara stated, “Now to address the outlook.... The adjustment for losses on WTC behind us, diminished exposure to asbestos, efficient [sufficient] reserves and a double a-rated balance sheet, I believe we are in an unencumbered position to move forward.” Subsequent to this statement, as noted above, the Company took an additional $1,062 billion in loss reserves, announcing a $215 million increase on February 11, 2003, a $184 million increase on October 17, 2003, and a $663 million increase for the fourth quarter of 2003. As late as August 1, 2003, O’Hara had reiterated his prior growth forecast for XL for 2003 in the range of $8 per share. In a press release issued on October 17, 2003 announcing the $184 million reserve increase, Defendant CEO O’Hara assured investors that he was going to be “personally leading a review of this book of business, which will include an intensive claims audit and review of the ceding company claims files that will be completed by year end,” and intended to “fully address our exposure to the 1997 through 2000 North American casualty reinsurance book written by the former NAC Re so that it will not adversely affect our financial results in 2004 and beyond.” ..After the Class Period and as a result of the “intensive claims audit” and reserve review described to investors, the Company announced the additional $663 million reserve increase on January 13, 2004. All of the reserve increases were described by the Company as stemming from adverse developments in the North American reinsurance operations, NAC Re, for the 1997 through 2000 accident years. Plaintiffs’ claims that these statements were false and- misleading are based primarily on the reports of confidential witnesses, a report issued by the New York Insurance Department, and Plaintiffs’ assumptions regarding what the Individual Defendants knew or should have known with regard to the loss reserves. 1. Confidential Witnesses Plaintiffs’ allegations of scien-ter are based in part on their discussions with four confidential witnesses. Reliance on confidential witnesses is not inappropriate at the pleading stage; however, those sources must be “described in the complaint with sufficient particularity to support the probability that a person in the position occupied by the source would possess the information alleged.” Novak, 216 F.3d at 314. Sources also need not be named if the other facts relied on by Plaintiffs “provide an adequate basis for believing that the defendants’ statements were false.” Id. Of the four confidential witnesses discussed in the SAC, only one-CWl-is alleged to have worked at XLRA during the Class Period. CW2 and CW3 are not alleged to have worked at XLRA at all, and CW4 is alleged to have left XLRA prior to the start of the Class Period. CW1 is alleged to have been a faculta-tive analyst in XL’s NAC Re reinsurance operations from 2001 to 2004, supporting XL’s Accounting, Claims and Underwriting based at its Stamford, Connecticut headquarters. In his or her capacity as a facultative analyst, CW1 served as a liaison between NAC Re’s accounting department and the direct insurers. CWl’s responsibilities included receiving and reviewing reports sent from direct carriers identifying batches of claims paid and seeking reimbursement for portions of liability assumed by NAC Re, communicating with direct insurers to verify claims paid on liability assumed by NAC Re, determining whether policies written in fact covered the losses claimed, verifying that ceding companies had actually made their premium payments on policies ceded to NAC Re, and interfacing the direct insurers and NAC Re’s accounting department regarding claims made and claims paid. According to CW1, NAC Re had “serious accounting problems” prior to XL’s acquisition of the company in 1999 that were not resolved after the merger. CWl reported that the accounting system was unreliable, and said that when he or she began working at NAC Re in 2001, there was a backlog of thousands of claims which had been submitted from the ceding companies over a period from 1997 through 2001, but which had not yet been paid by NAC Re. Apparently, the bulk of CWl’s daily responsibilities involved reconciling NAC Re cedant payments and NAC Re’s payment liabilities on claims for years pri- or to 2001 because NAC Re’s accounting department was unable to reconcile, through its accounting system, whether claims had been paid. With regard to the accounting system’s unreliability and disorganization, CWl reported that claims submitted by ceding companies were, at times, not paid even though NAC Re had erroneously represented that they were paid, and that the records of payments on reported claims were often incomplete, with some claims being left unpaid for years. CWl further reported that these record-keeping issues impacted NAC Re’s ability to collect premiums from the ceding companies, as the accounting department often had “no record whatsoever” or lost track of payments, CWl further reported that direct insurance brokers and direct insurance company customers “regularly” complained to the underwriters or facultative analysts, including CWl, about NAC Re’s failure to reimburse them, and consequently, NAC Re was involved in “many” disputes with ceding companies over whether NAC Re had paid claims. According to CWl, these disputes were a direct result of NAC Re’s poor accounting system and the fact that records were “so poorly kept.” CWl reported to Plaintiffs’ counsel that the accounting problems at NAC Re were “well known” to XL’s management team in Stamford, however, the only asserted basis for this knowledge is CWl’s report that the information regarding claims that he or she collected and assembled from ce-dant companies was sent directly to XL’s Vice President of Claims for NAC Re, David Hughes, in XL’s Stamford headquarters. CWl also reported that among direct insurers and brokers at other insurance companies, the NAC Re accounting department was considered a “joke and an embarrassment.” CW2 is a former Senior Vice President of XL Insurance who worked at the Company’s Bermuda headquarters. He was responsible for managing direct insurance business, rather than reinsurance, for coverage of liability, property and professional liability. CW2 did not work at XLRA. According to CW2, XL “did not do the due diligence that needed to be done” when it acquired NAC Re in 1999, and “did not look a heck of a lot” at NAC Re’s claims history. Specifically, CW2 reported to Plaintiffs’ counsel that XL’s due diligence process for the NAC Re acquisition did not consist of a detailed review of claims within NAC Re or communications with the direct insurers (ceding companies) from which NAC Re assumed liabilities. CW2 alleges that XL’s actuaries used NAC Re’s loss data — or “loss runs” — at the time of the acquisition and that XL based its actuarial computations for setting reserves on the data provided by NAC Re, but that NAC Re’s claims data was not fully tested, i.e., reviewed at the claims level from the ceding companies. According to CW2, in the context of acquisitions in the reinsurance industry, “it is known” that loss data is often incomplete, resulting in a “bad base” upon which actuarial analysis can be performed in order to set reserves for future losses. CW3 was a Vice President of Finance of XL Insurance and XL America, Inc. in Stamford, Connecticut and was responsible for writing direct insurance policies before leaving in 2001, prior to the start of the Class Period. Like CW2, CW3 did not work at XLRA. Prior to working for XL Insurance, CW3 worked for Intercargo Insurance as Vice President of Finance for a few years before it was acquired by XL Insurance. CW3 reported to Plaintiffs’ counsel that while working at Intercargo, he was aware of faulty record-keeping on the part of NAC Re. According to CW3, Intercargo shared liability on a number of policies with NAC Re, and there were “always problems” in dealing with NAC Re when attempting to get reimbursements for claims payments fronted by In-tercargo. CW3 apparently related to Plaintiffs’ counsel “many disputes” between Intercargo and NAC Re over whether NAC Re had been paid (ceded) premiums that it showed no record of having received or whether NAC Re had reimbursed Intercargo for claims fronted by it, however, Intercargo was able to prove, by producing records of reimbursements for claims payments and other information, to XL that it had made the requisite payments to NAC Re. According to CW3, “any carrier who did business with [NAC Re]” knew of its accounting deficiencies. CW4 is a former Assistant Vice President, Internal Consultant at NAC Re, employed in the IT segment of operations responsible for various internal IT projects and system upgrades. CW4 worked at NAC Re for over six years, but left in 2000, prior to the start of the Class Period. According to CW4, from the time of the NAC Re acquisition in 1999 until he or she left the Company in 2000, there was no effort to integrate NAC Re’s accounting system into XL. Both CW1 and CW3 make general, unsupported allegations that NAC Re’s alleged accounting deficiencies were “well known” in the industry. It is well-established, however, that “[gjeneric and con-clusory allegations based upon rumor or conjecture are undisputedly insufficient to satisfy the heightened pleading standard of 15 U.S.C. § 78u — 4(b)(1).” Cal. Pub. Emples.’ Ret. Sys. v. Chubb Corp., 394 F.3d 126, 155 (3d Cir.2004); see also In re Vertex Pharms., Inc., Sec. Litig., 357 F.Supp.2d 343, 354 (D.Mass.2005) (“Mere rumors cannot reasonably satisfy the requirement that the facts alleged provide an adequate basis for believing that the defendants’ statements were false.”) (internal quotation marks and citation omitted); Druskin v. Answerthink, Inc., 299 F.Supp.2d 1307, 1333 (S.D.Fla.2004) (holding that the plaintiffs allegations, based on confidential witness reports, that information was “ ‘known’ or ‘common knowledge’ within the Company” were too vague and conclusory to support a finding that the defendants knew or were severely reckless in not knowing that they were making false statements). Therefore, the allegations that the accounting problems at NAC Re were “well known” to XL’s management team in Stamford; that among direct insurers and brokers at other insurance companies, the NAC Re accounting department was considered a “joke and an embarrassment;” and that “any carrier who did business with [NAC Re]” knew of its accounting deficiencies are not sufficient to satisfy § 78u-4(b)(l). CW3’s allegations regarding Intercargo’s experiences with NAC Re are problematic in two respects. First, the allegations pertain to the time period before the Class Period, and there is no allegation that these problems continued into the Class Period. Second, there is no allegation that these alleged problems affected loss reserves or were known to Defendants. The only evidence going to Defendants’ knowledge of the alleged accounting problems at XLRA is CWl’s report that information regarding claims that he or she collected and assembled from ceding companies was sent directly to XL’s Vice President of Claims for NAC Re, David Hughes, in XL’s Stamford headquarters. David Hughes, however, is not a defendant, and is not alleged to have communicated information to any of the Individual Defendants. Moreover, there is no evidence that the information communicated from CW1 contained any information regarding the alleged accounting deficiencies at NAC Re or any indication that the Company had not set aside sufficient loss reserves. The existence of one line of communication between CW1 and a non-defendant officer at XL’s Stamford headquarters is not sufficient to support a theory of scienter based upon knowledge or reckless conduct on the part of the Individual Defendants. See Fadem v. Ford Motor Co., 352 F.Supp.2d 501, 522-23 (S.D.N.Y.), aff'd, 157 Fed.Appx. 398 (2d Cir.2005) (finding a confidential witness’s report that internal channels of communication existed insufficient to support a finding of scienter, holding that “the existence of channels is not enough” without “evidence of what information was actually passed through these channels,” and refusing to “accept that the existence of an internal communication network, in and of itself, sufficiently supports a theory of scienter based upon reckless conduct in the context of specific information at a specific time”). Moreover, none of the CWs present any evidence that they communicated any of the alleged problems detailed above to any of the Individual Defendants or that the Individual Defendants otherwise knew about these issues. See Druskin, 299 F.Supp.2d at 1333 (finding the confidential witness reports insufficient to support a finding of scienter because, inter alia, they did not “specifically allege that they ‘told’ any Defendant” the relevant information, “only that it was ‘generally known’-that is not sufficient”). As the Fadem court noted, “[i]t is doubtful, at best, that such a former employee is in a position to predict (he cannot know) what was said or unsaid by whom and to whom” regarding the information in question. 352 F.Supp.2d at 523. Also problematic is the fact that none of the CWs are alleged to have been involved in or to have any familiarity with the process of setting or estimating loss reserves. See In re Trex Co., Inc. Sec. Litig., 454 F.Supp.2d 560, 573 (W.D.Va. 2006) (“the plaintiffs must sufficiently allege that the confidential witness was in a position to know the facts related”). CW1 reported that there were thousands of backlogged claims, but Plaintiffs do not allege that the backlogged claims payments were the subject of reinsurance reserve increases. According to Defendants, these reserve increases arose “primarily from new casualty claims for the 1997 to 2000 underwriting years.” (Def.’s Reply 1-2; SAC ¶¶ 177, 232.) Finally, the bulk of the information relayed by the CWs relates to the time prior to the start of the Class Period in 2001. For example, the allegation regarding thousands of backlogged claims payments relates to the time “when CW1 began working at NAC Re in 2001,” (see SAC ¶ 78); CW2’s allegation regarding the lack of due diligence relates to the acquisition of NAC Re in 1999; and CW3 and CW4 left in 2001 and 2000 respectively, both prior to the start of the Class Period. Plaintiffs do not allege and produce no evidence to show that the situations and problems described continued through the class period. Cf. Chubb Corp., 394 F.3d at 154 (“Plaintiffs do not allege that this former vice president was employed at the appropriate time.”). For the reasons detailed above, the information collected from the CWs, although substantial in amount, is inadequate substantively to support an inference of scienter on the part of any of the defendants. See Chubb Corp., 394 F.3d at 155 (“Cobbling together a litany of inadequate allegations does not render those allegations particularized in accordance with Rule 9(b) or the PSLRA”). Although the CW accounts are sufficient to establish accounting and management problems at XLRA, there is no evidence that Defendants were aware of these problems. As set forth more fully below, accounting deficiencies, without more, do not violate the PSLRA. See Novak, 216 F.3d at 309 (“allegations of allegations of GAAP violations or accounting irregularities, standing alone, are insufficient to state a securities fraud claim”) (internal citations omitted). 2. NYID Report The SAC alleges that the CW reports and “the impact of the Company’s lack of internal controls” are “confirmed by” the “scathing” NYID Report. (SAC ¶¶84, 117-123.) In that Report, the NYID made findings regarding the Company’s accounting deficiencies, violations of New York Insurance Law, and understatement of loss reserves. The NYID Report found, inter alia, that NAC Re had failed to have several ceded reinsurance contracts signed within nine months of their effective dates, that some of the reinsurance contracts for which NAC Re had taken credit did not have executed interest and liability pages or had not been reduced to writing, that NAC Re was not in compliance with Section 1308(a) of the New York Insurance Law which requires contracts to contain an insolvency clause in order to take credit for the reinsurance, that several amounts reported by NAC Re in its filed annual statement could not be supported by internal records, that some of the annual statement balances in cash and payable for securities were incorrectly classified, that NAC Re did not have support for three of the annual statement balances, including reinsurance payable on paid losses & loss adjustment expenses, and that there was a discrepancy in two of the four balances tested during the NYID’s review of reinsurance payable on paid losses & loss adjustment expenses. (See NYID Report 12-13, 17-19, Ex. 2 to SAC.) For these violations, however, the NYID found that the amounts involved were immaterial. No examination changes were made to the financial statements; the NYID simply recommended that the Company rectify these problems going forward and comply with the rules in the future. (Id. at 13.) Although these accounting deficiencies are problematic, the Report, on its own, is insufficient to give rise to an inference of scienter. The Report is “as of’ December 31, 1999, and there is no allegation or evidence that these problems continued into or during the Class Period. The Report indicates that the Company had resolved the problems noted in the prior NYID Report, and there is nothing to suggest that they would not have acted similarly after this Report. Moreover, the Report was not issued until May of 2002, and there is no evidence that any Defendant was aware of the contents of the Report prior to its publication. Finally, although the Report, like some of the confidential witnesses, refers to accounting deficiencies at the Company, the Report indicates that the amounts involved were “immaterial,” and Plaintiffs have not supplied any evidence linking these deficiencies to NAC Re’s inadequate loss reserves. More pertinent to this motion, the NYID also found that the Company had, as of December 31, 1999, understated loss reserves by $189 million: The examination liability of $1,175,734,849 is $189,000,000 more than the $986,734,849 reported by the Company as of December 31, 1999. The examination analysis was conducted in accordance with generally accepted actuarial principles and practices and was based on statistical information contained in the Company’s internal records and in its filed annual statements. The $189,000,000 increase is based on the Company’s subsequent two year loss development at December 31, 2001. (Id. at 25.) Plaintiffs contend that the $189 million deficiency in XL’s loss reserves was as of December 31, 2001. Although the Report states that the increase is “based on the Company’s subsequent two year loss development at December 31, 2001,” it used the examination liability amount as reported by XL on December 31, 1999. It appears, therefore, that the NYID found a $189 million reserve deficiency as of December 31, 1999 based on the loss patterns that developed in the subsequent two years, leading to the con-elusion, in 2001, that the examination liability as of 1999 was understated. The Report itself was “as of December 31, 1999,” and therefore did not address subsequent financial statements. Presumably then, the $122 million increase taken by the Company in the fourth quarter of 2000 would have, in large measure, alleviated this deficiency. In any event, the $180 million increase taken in the fourth quarter of 2001 certainly did. Plaintiffs argue that XL’s February 12, 2002 announcement that it would increase NAC Re’s loss reserves by $180 million for the 1997 to 1999 underwriting years was in direct response to the NYID’s findings, contending that the NYID Report put Defendants on notice of the flaws in NAC Re’s accounting and the problems associated with the 1997-1999 underwriting years. (See Pis.’ Mem. Opp’n Mot. Dismiss 2-3.) Plaintiffs admit, however, that Defendants announced the $180 million increase on February 12, 2002, three and a half months before the report was published on May 31, 2002. Moreover, as discussed above, Defendants also took a $122 million increase in the fourth quarter of 2000. Plaintiffs concede that there is no evidence that Defendants were aware of the contents of the NYID Report prior to its publication. (See SAC ¶ 261 (“XL knew