Full opinion text
OPINION KAPLAN, District Judge. International dairy conglomerate Par-malat S.p.A. and its affiliates (“Parmalat”) collapsed in scandal and filed for bankruptcy in Italy in late 2003. These actions are brought on behalf of the successors of two bankrupt Parmalat subsidiaries against a number of banks and accounting firms principally for helping conceal Parmalat’s true financial condition, thus causing the subsidiaries to incur debt in reliance on misrepresentations of Parmalat’s financial health. Before the Court are defendants’ motions to dismiss the second amended complaints in both actions. Facts The complaints in these two actions are substantially the same. The only relevant differences are that the complaint in Smith v. Bank of America names Banca Intesa as a defendant and asserts a cause of action against certain other defendants for aiding and abetting a fraudulent conveyance, while the complaint in Pappas v. Bank of America does not. Accordingly, the following allegations are drawn from both complaints unless otherwise indicated. I. The Parties A. Plaintiffs Parmalat USA Corp. (“Parmalat USA”) was a wholly owned subsidiary of Parma-lat. It had no operations or employees of its own, but was the sole owner of Farmland Dairies LLC (“Farmland”), which was in the business of processing, selling, and distributing dairy products in the United States. According to the complaints, both Parmalat USA and Farmland (the “Companies”) were insolvent and completely financially dependent on Parmalat. The Companies filed for bankruptcy in this district on February 24, 2004, following Parmalat’s collapse. On March 10, 2004, the bankruptcy court confirmed a liquidation plan for Parmalat USA and a modified reorganization plan for Farmland. Plaintiff G. Peter Pappas was appointed the administrator of Parmalat USA’s Plan of Liquidation. Plaintiff Gerald K. Smith was appointed the litigation trustee of Farmland Dairies LLC Litigation Trust. B. Defendants 1. The Deloitte Defendants Deloitte Touche Tohmatsu (“DTT”) is a Swiss association headquartered in New York and the umbrella firm for the international accounting enterprise commonly-known as “Deloitte.” Deloitte & Touche USA LLP and its subsidiary, Deloitte & Touche LLP (collectively, “Deloitte USA”) are Delaware limited liability partnerships. Together they constitute the United States member firm of the Deloitte organization. Deloitte USA audited Parmalat USA’s financial statements from 1999 to 2002. Deloitte & Touche, S.p.A. (“Deloitte Italy”) is an Italian limited liability entity and the Italian member firm of DTT. It audited Parmalat’s consolidated financial statements from 1999 to 2002. 2. The Grant Thornton Defendants Grant Thornton International (“GTI”) is an Illinois corporation headquartered in London and the umbrella organization for Grant Thornton entities throughout the world. Grant Thornton LLP (“GT USA”) is an Illinois limited liability partnership and the United States member firm of GTI. Grant Thornton S.p.A. (“GT Italy”) is an Italian limited liability entity and the Italian member firm of GTI. GT Italy audited the financial statements of Parma-lat’s off-shore subsidiary, Bonlat Financing Ltd. (“Bonlat”) from 1999 to 2002. 8. The Bank of America Defendants Bank of America Corp. (“BA Corp.”) is a Delaware corporation and the parent of Bank of America, N.A. (“BAÑA”), a national banking association based in North Carolina and successor of Bank of America National Trust & Savings Association (“BANTSA”). Banc of America Securities Ltd. (“BAS Ltd.”) is a United Kingdom limited liability investment bank and BANA’s wholly owned subsidiary. Its predecessor was Bank of America International Ltd. (BAI). Banc of America Securities LLC (“BAS LLC”), also a subsidiary of BA Corp., is a Delaware limited liability investment bank and brokerage firm based in North Carolina. A The Credit Suisse Defendants While the complaints are not entirely clear, it appears that there are three Credit Suisse defendants. Credit Suisse Group (“CSG”) is a Swiss global financial services company with a branch office in New York City. According to the complaints, an entity called Credit Suisse First Boston (“CSFB”) was its wholly owned subsidiary and investment banking and asset management arm until 2005 when it merged with Credit Suisse (“CS”), which the complaints describe as CSG’s private banking division. The complaints appear to name CS as a defendant. If, in fact, that was the intention and if, as plaintiffs suggest, CS is an unincorporated division of CSG, CSG would be a defendant. The Court notes, however, that CSG’s Report on Form 6-K for August 2007 describes CS as a wholly-owned subsidiary. In addition, counsel for the Credit Suisse defendants have appeared on behalf of CS rather than CSG. In 'consequence, the Court concludes that the plaintiffs sued CS, not CSG. In view of the outcome of these motions, however, any uncertainty ultimately is immaterial. The other two Credit Suisse defendants are Credit Suisse First Boston International (“CSFBI”), a London-based bank, and Credit Suisse Securities (Europe) Limited (“CSSEL”), a London-based broker-dealer. ' 5. Banca Nazionale Banca Nazionale del Lavoro S.p.A. (“BNL”) is an Italian banking conglomerate. It has branches in the United States, including New York and Chicago, and describes itself as one of the world’s 100 largest banks. BNL’s subsidiary, Ifitalia S.p.A. (“Ifitalia”), is an Italian bank and factoring company. 6. Banca Intesa Smith’s complaint names also Banca Intesa (“Intesa”), one of Italy’s largest banking companies, which provides a variety of commercial banking services. Its subsidiary, Nextra Investment Management SGT (“Nextra”), serves as Intesa’s asset management and investment banking arm. II. The Alleged Wrongdoing The complaints are long, rambling, repetitious, and disorganized. Their gist, however, can be summed up as follows. Plaintiffs allege that the Companies were insolvent and completely financially dependent on Parmalat at all relevant times. For example, the notes to Parma-lat USA’s consolidated financial statements for 2002 stated that the company’s ability to maintain its then-current debt arrangement, obtain additional financing from third-party lenders, and continue as a going concern was dependent on Parmalat’s ability to guarantee Parmalat USA’s debt to third parties and Parmalat’s forbearance from calling debts owed to it by Parmalat USA. Because of this dependence on Parma-lat, plaintiffs claim, certain “innocent decision makers” at the Companies relied on representations that Parmalat was financially healthy in (1) causing Parmalat USA to incur more than $20 million in debt guaranteed by Parmalat, and (2) causing Farmland to take out a loan in the form of a sale-leaseback transaction, whereby it transferred its dairy processing plants and equipment to a third party and leased them back under leases guaranteed by Parmalat. Plaintiffs allege, however, that Parmalat in fact was in financial ruin when the Companies entered into these transactions. Certain of Parmalat’s officers, directors, and other employees allegedly had looted the company for years and fraudulently concealed the company’s true financial condition in its financial statements. Plaintiffs allege that the Companies therefore incurred debt that they were unable to repay once Parmalat collapsed in 2003, thus deepening their insolvency. In addition, the proceeds of the sale-leaseback transaction allegedly were looted by Par-malat insiders. According to plaintiffs, the innocent decision makers would have prevented the Companies from incurring these liabilities in the first instance, reported the fraudulent acts being committed by Parmalat’s insiders, and filed for bankruptcy at an earlier date if they had known the truth about Parmalat’s financial condition. Defendants are charged principally with assisting the Parmalat fraud or otherwise with being complicit in a scheme to hide Parmalat’s financial condition. The allegations of defendants’ wrongdoing may be divided into three categories. A. Misleading Parmalat Financial Statements The first includes claims that Deloitte Italy and GT Italy helped Parmalat insiders misrepresent Parmalat’s financial condition in financial statements. They allegedly did so by (1) failing to reveal in their audit reports that Bonlat was booking fictitious sales to boost Parmalat’s reported revenues, and that Bonlat’s sole purported asset, a $4.9 billion bank account, did not exist, (2) participating in a scheme with Parmalat’s insiders to reclassify improperly “Parmalat’s growing debts to third parties as obligations owed by one Parmalat entity to another,” and (3) deliberately preventing DTT’s Maltese member firm (“Deloitte Malta”), which audited Bonlat’s parent, Parmalat Capital Finance (“PCF”), from receiving Bonlat’s audited financial statements for the years 2001 and 2002, thus preventing Deloitte Malta from completing its audit work on PCF’s 2002 financial statements and blowing the whistle on the Bonlat fraud. The complaints allege that Deloitte Italy further assisted the fraud by (4) certifying Parmalat’s 2002 financial statements without having received certification of PCF’s financial statements for that year, (5) failing to reveal in its audit reports that reimbursement credits issued by Parmalat to its subsidiaries, which the subsidiaries booked as reductions in costs and expenses, were uncollectible, and (6) failing to ensure that a $26.5 million write-down of Parmalat USA’s goodwill in 2002 “flowed through” to Parmalat’s financial statements. B. Fraudulent Transactions The second category of allegations includes claims that certain defendants engaged in transactions that permitted Parmalat insiders to misrepresent the company’s financial health. Plaintiffs allege that the Bank of America and Credit Suisse Defendants structured or otherwise participated in fraudulent transactions designed to conceal Parmalat’s debt, and that BNL and Ifitalia repeatedly paid Parmalat cash in exchange for assignment of receivables that both parties knew were bad, thus permitting Parmalat to record as assets what essentially were loans from BNL. These allegations are substantially similar to those described in the Court’s earlier opinions in related matters, familiarity with which is assumed, and need not be recounted here. In addition, Smith alleges that Intesa assisted Parmalat’s insiders in fraudulently securing financing through the use of a company called Wishaw Trading S.p.A. (“Wishaw”). Although Smith does not so allege, he implies that Parmalat or its employees somehow controlled Wishaw. According to Smith, Parmalat insiders “used” Wishaw to manufacture fictitious promissory notes, purportedly representing trade debt owed to Intesa, which Inte-sa then endorsed and sold to third parties, thus acting as a “broker/banker of fraudulently obtained loans.” The purpose of the transaction, Smith claims, was to raise money to “prop up Parmalat’s ailing Brazilian operations and to improperly funnel money to” Parmalat’s corrupt insiders. Smith alleges also that in June 2003, Nextra purchased an entire 300 million bond issue of Parmalat Finance Corporation B.V., which it resold within a few months for a substantial profit, despite knowing of Parmalat’s “disastrous financial condition.” According to Smith, this transaction “artificially propped up Parma-lat and concealed Parmalat’s true financial condition.” C. Deloitte USA The third category of allegations involves claims arising from the conduct of Deloitte USA. 1. Auditing Services Plaintiffs claim that Deloitte USA misled innocent insiders at the Companies by issuing unqualified audit opinions of Parma-lat USA’s financial statements for the years 1999 to 2002. a. Reimbursement Credits They allege that Parmalat USA had booked millions of dollars worth of “reimbursement credits” issued by Parmalat between 1999 and 2002. The credits had been booked as reductions in costs and expenses and therefore increased Parma-lat USA’s reported net income and assets. Plaintiffs claim, however, that the credits in fact were “uncollectible.” They allege that Deloitte USA violated generally accepted auditing standards (“GAAS”) by failing to obtain sufficient audit evidence that the credits were genuine despite “red flags” that should have cued it into the fact that they were phony. In particular, plaintiffs claim that when Deloitte USA conducted a “successor audit” of Parmalat USA in 1999, it discovered that the company had not collected on similar reimbursement credits issued from 1995 to 1998. They allege also that when Deloitte USA “sought confirmation from [Parmalat and Deloitte Italy] of the calculations and nature of the reimbursement credits” and “questioned why the reimbursement credits were accounted for as reimbursement of expenses as opposed to a capital contribution from [Parmalat],” it “did not receive the confirmations and information it requested” because Parmalat and Deloitte Italy “repeatedly refused to provide such audit evidence.” Plaintiffs allege further that Carlo Zucchinali of De-loitte Italy sent a January 18, 2000 email to James Pickette, Deloitte USA’s audit manager, describing the reimbursement credits as “loss absorptions,” or “contributions — income for the receiving company— from other Parmalat companies to cover losses.” According to plaintiffs, Deloitte USA knew or should have known that the reimbursement credits were uncollectible and that Parmalat USA’s financial condition was overstated in its financial statements. It therefore acted improperly in failing to qualify its audit opinions. b. Going Concern Qualifications Plaintiffs claim that Deloitte USA failed to issue going concern qualifications in its audit opinions. Because Parmalat USA was financially dependent on Parmalat, they allege, Deloitte USA was required by GAAS either to obtain evidence that Par-malat in fact intended to give, and was capable of giving, continued financial support to Parmalat USA, or to reveal in its audit opinions that there was substantial doubt about the company’s ability to continue as a going concern. Plaintiffs claim that Deloitte USA failed to do either. In connection with its audits of Parmalat USA for the years 1999 to 2001, Deloitte USA allegedly sought only representations from Parmalat’s managers that Parmalat would continue to support Parmalat USA. Plaintiffs claim that this was insufficient under GAAS. On May 8, 2003, in connection with Par-malat USA’s 2002 audit, Astrid Potts of Deloitte USA allegedly “sought from [De-loitte Italy] and ParmalaNSpA details of the actual audit evidence — not just the representation from Parmalat-SpA’s management that had become the norm — that [Deloitte Italy] was relying upon to confirm Parmalab-SpA would not call loans to ParmalaNUSA due during 2003 and that Parmalat-SpA had the ability to continue to provide financial support to Parmalat-USA.” According to plaintiffs, “Lelio Bigogno of [Deloitte Italy] responded that same day to Potts, refusing to provide the requested audit evidence: T do not believe that out consideration on the capability of Finanziaria to support or on whatsoever information about our audit procedures should be shared with you [sic ].” Plaintiffs claim that Bigogno’s response to Potts should have signaled to Deloitte USA that there was serious doubt about Parmalat’s ability and intention to continue supporting the Companies. Nevertheless, plaintiffs allege, Deloitte USA improperly issued an unqualified audit opinion of Par-malat USA’s 2002 financial statements. c. Overstatement of Goodunll The complaints allege also that Deloitte USA failed to reveal that Parmalat USA’s goodwill was overstated in financial statements. According to plaintiffs, “[f]or the years 2000 and 2001, the goodwill reported on the balance sheet of ParmalaNUSA constituted approximately half or more of Par-malat-USA’s total reported assets” and that “[r]eported goodwill and other intangible assets totaled approximately $202 million at the end of fiscal year 2000 and $198 million at the end of fiscal year 2001.” Plaintiffs allege that “the results of the underlying operations of Parmalat-USA and its subsidiaries did not justify” the reported values. When it became clear that the company’s goodwill was overstated, Deloitte USA and Parmalat USA reduced reported goodwill by $26.5 million. Plaintiffs contend that “even this write-down was not sufficient.” They allege that Deloitte USA knew or should have known that Parmalat USA’s goodwill was misstated, and that had it conducted its audits in accordance with GAAS, it would have revealed this in its audit opinions. 2. The Sale-Leaseback Transaction The remaining allegations against De-loitte USA arise from a 2003 transaction between Farmland and General Electric Capital Corporation (“GECC”). a. The Proposed Deal The complaints allege that, in late 2002, Parmalat’s corrupt insiders “desperately needed increasing amounts of cash in order to fund their fraudulent scheme.” Parmalat hired Citigroup Global Markets (“CGM”) to locate an investor to provide financing using Farmland’s assets as security. GCM found GECC. GECC and Parmalat initially contemplated that GECC would lend $200 million to Farmland in the form of a sale-leaseback transaction — Farmland would transfer its dairy processing plants and equipment to GECC in exchange for $200 million in cash and then lease the assets back. It allegedly “was understood that the financing would be upstreamed to Parmalat-SpA and that Parmalat-SpA was the ultimate creditor.” Parmalat therefore would guarantee the leases. The transaction later was restructured and divided into two tranches, the first of which was $100 million and the second $94 million. GECC required that it be provided with Parmalat USA’s audited financial statements for the years 2000 and 2001. During the winter of 2002 and the spring of 2003, Deloitte USA provided GECC with the requested documents. Plaintiffs allege that “GECC also received Parmalat-USA’s unaudited financial statements for 2002.” GECC required also that Farmland’s dairy processing equipment be appraised. This was in part because GECC required “the outstanding loan amount to be over-collateralized at all times by at least 30% (i.e., 1.3 times).” GECC therefore required Farmland’s assets to be worth at least $252.2 million, or 130 percent of $194 million. b. The Deloitte USA-Deloitte Italy Dispute Plaintiffs allege that, in September 2002, CGM “requested” that GECC use Deloitte USA as the appraiser of Farmland’s assets. When Adolfo Mamoli of Deloitte Italy found out about this, he objected vigorously, claiming that the appraisal assignment necessarily would compromise Deloitte USA’s independence with respect to its audits of Parmalat USA. That is, Mamoli complained that if Deloitte USA served both as an appraiser of Farmland’s assets and as auditor of Parmalat USA, it ultimately would have to audit a transaction, the value of which would have been based upon its own appraisal. Plaintiffs allege that Mamoli voiced his objection repeatedly between September 5, 2002 and January 16, 2003. Charles Horstmann, DTT’s global director of ethics and independence, “was responsible for mediating disputes between [Deloitte] member firms, including those arising out of the Parmalat account.” Horstmann, “on behalf of DTT and at the request of [Deloitte USA],” allegedly intervened in the dispute between Deloitte USA and Deloitte Italy. Plaintiffs allege that Horstmann was able to “persuade Mamoli to withdraw his objection” “[a]fter a long series of e-mails, telephone conversations, and at least one face-to-face meeting.” Mamoli allegedly withdrew his objection “even though the substance of that objection was not resolved.” c. The Appraisal Sometime in March 2003, “GECC executed a letter agreement with [Deloitte USA] dated February 21, 2003, whereby [Deloitte USA] agreed to appraise” the property that would be subject to the sale-leaseback transaction. On April 30, 2003, Deloitte USA issued an appraisal report. According to plaintiffs, the report inflated the appraisal value of Farmland’s assets. It allegedly reported an appraisal value of $252.5 million— more than enough to meet GECC’s collat-eralization requirements for a $194 million transaction — even though an appraisal performed in 1999 by Daley-Hodkin Appraisal Corporation (“DHAC”) valued Farmland’s assets at about $35 million. Plaintiffs contend that Deloitte USA’s appraisal report “provided no explanation or justification for an over seven-fold increase in the value of Farmland’s assets in four years, despite Farmland having reported substantial operating losses over the same period.” Plaintiffs allege that the overvaluation stemmed from the fact that Deloitte USA “ignored two of the three basic approaches to valuation[, t]he Cost Approach and the Market Comparable Approach,” and instead applied only the “Discounted Cash Flow Approach.” Moreover, plaintiffs allege, in applying the discounted cash flow approach, Deloitte USA relied on “calculated” instead of actual values for Farmland’s 2001 and 2002 earnings before income taxes, depreciation, and amortization (“EBITDA”). Deloitte USA allegedly stated in its appraisal report that Farmland’s EBITDA for 2002 was unavailable, and therefore projected the company’s 2003 EBITDA value and then “calculated” EBITDA values for previous years “by reducing the 2003 projections by 2.5% per year.” Plaintiffs claim that Deloitte USA did this despite knowing Farmland’s actual EBITDA values for 2002. According to plaintiffs, Deloitte USA’s “calculated” EBITDA values “far exceeded” the actual values. d. The Aftermath On the same day that Deloitte USA issued its appraisal report, Farmland transferred its dairy processing plants and equipment to GECC for $100 million. It agreed to make periodic lease payments totaling $50 million plus interest and costs and a residual payment of $50 million at the end of the lease term. Although plaintiffs do not so allege, the complaints imply that this $100 million transaction represented only the first tranche of sale-leaseback transaction. In February 2004, Farmland was unable to make its lease payments. Moreover, as Parmalat already had been declared insolvent in Italy, Parmalat “failed to honor its obligations under its guarantee given to GECC.” Plaintiffs claim that the sale-leaseback transaction would not have gone forward if Farmland’s assets had been valued properly. They claim that a proper appraisal would have revealed not only that the transaction was not sufficiently collateral-ized to meet GECC’s requirements, but also that there were substantial doubts about the Companies’ abilities to continue as going concerns. Hence, plaintiffs contend that Farmland would not have incurred a liability on which it ultimately defaulted when Parmalat collapsed if De-loitte USA had acted properly. The complaints allege also that, after Farmland entered into the sale-leaseback transaction and received the $100 million from GECC, Parmalat’s insiders “looted the cash by causing Farmland to ultimately divert $20 million to Parmalat’s Canadian operations and $80 million to Parmalat” itself. III. Causes of Action Plaintiffs assert causes of action against all defendants for aiding and abetting breach of fiduciary duty and fraud by the Parmalat insiders, as well as for participating in a civil conspiracy to conceal Par-malat’s financial condition. They allege also violations by the Bank of America and Deloitte Defendants of the federal and New Jersey Racketeer Influenced and Corrupt Organizations Acts (“RICO”) based on alleged predicate acts of mail and wire fraud. In connection with the auditing services Deloitte USA provided to the Companies, plaintiffs sue the Deloitte Defendants for fraud, negligent misrepresentation, and professional malpractice. Finally, Smith asserts a claim against the Bank of America, Deloitte, and Grant Thornton Defendants for aiding and abetting a fraudulent transfer of Farmland’s assets. The Deloitte, Bank of America, and Credit Suisse Defendants, as well GTI, GT USA, and BNL move to dismiss the claims against them in both complaints. In addition, Intesa moves to dismiss the claims against it in Smith’s complaint. Discussion I. Standard In deciding a motion to dismiss, the Court ordinarily accepts as true all well-pleaded factual allegations and draws all reasonable inferences in the plaintiffs favor. Until recently, it frequently was said that dismissal is inappropriate “unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” This standard, however, has been supplanted. Now, in order “[t]o survive dismissal, the plaintiff must provide the grounds upon which his claim rests through factual allegations sufficient ‘to raise a right to relief above the speculative level.’ ” In addition, Federal Rule of Civil Procedure 9(b) requires allegations of fraud and breach of fiduciary duty consisting of fraud by a fiduciary to be stated with particularity. While the rule allows general aver-ments of intent, knowledge, and other mental conditions, it nevertheless requires a plaintiff to allege facts that give rise to a “strong inference” of the defendant’s culpable state of mind. This may be done by alleging facts that the defendant had both motive and opportunity to commit or assist fraud, or facts that constitute strong circumstantial evidence of the defendant’s conscious misbehavior or recklessness. II. Choice of Law Plaintiffs argue that New Jersey law applies to all of their claims. Some defendants resist this; others do not. However, the parties point to no conflict between the law of the forum and that of any other state with respect to the issues necessary to dispose of these motions. Accordingly, the Court applies New York law. III. Injury The complaints allege two kinds of injury to the Companies. First, plaintiffs contend that defendants’ improper actions misled innocent decision makers at the Companies about Parmalat’s financial health. Believing, incorrectly, that Parma-lat could provide the Companies with continuing financial support and guarantee its loans, the innocent decision makers caused the already-insolvent Companies to incur debt they were unable to pay, thus deepening their insolvency. Second, plaintiffs claim that the $100 million GECC paid to Farmland as part of the sale-leaseback transaction was looted by Parmalat’s corrupt insiders. A. Deepened Insolvency The parties devote a great deal of space to arguing whether courts recognize “deepened insolvency” damages or “deepening insolvency” causes of action. But this ultimately is beside the point, as plaintiffs have failed adequately to allege that the Companies were injured when they allegedly were induced to incur debt, whatever the claimed injury should be labeled. 1. Debt and Insolvency Plaintiffs assume that the mere act of incurring debt when a company already is insolvent — that is, when its liabilities are greater than the value of its assets or when it is unable to repay its existing debt — necessarily deepens the company’s insolvency. This is not the case. When, for example, a company borrows cash and receives the full amount of the loan, it receives an asset that directly offsets the newly incurred liability on its balance sheet. In other words, the company “expandís] debt in precise proportion — dollar-for-dollar proportion — to the expansion of assets in the form of new cash.” The difference between the company’s assets and liabilities therefore remains the same. Its ability to pay its debts as they become due is no worse; indeed, it may be better. The company’s insolvency is no greater than before. The Ninth Circuit recognized this in Rochelle v. Marine Midland Grace Trust Co. of New York. Rochelle, the trustee of a bankrupt company, Sunset, sued directors, officers, and auditors for mismanaging, looting, and otherwise breaching duties owed to the company. He asserted claims under the federal securities laws, arguing that Sunset was injured when the defendants misrepresented the company’s financial health in order to secure loans that the company actually was unable to pay, thus deepening Sunset’s insolvency. The court noted, however, that because Sunset received the full amount of the loans, it suffered no loss on the loan transactions in question. The court thus observed that Rochelle’s theory was that Sunset’s injury was caused not by the incurrence of debt, but rather by management’s subsequent squandering of the loan proceeds. This, the court concluded, amounted to a claim of corporate mismanagement, and was not actionable under the securities laws. The point is that a company’s insolvency is not deepened simply by the incurrence of new debt where the company suffers no loss on the loan transaction. The insolvency is deepened when, for example, the proceeds of the loan are squandered’ or assets otherwise are looted. It is at that point that the gap between liabilities and assets widens and the ability to service outstanding debt is impaired. The Companies are not alleged to have suffered any loss on the loan transactions in question. Accordingly, it would be misleading to refer to any injury the Companies may have suffered by incurring debt as “deepened insolvency.” This is not to say, however, that the Companies necessarily suffered no injury at all. 2. Debt and Injury In Official Committee of Unsecured Creditors v. R.F. Lafferty & Co., Inc., the successors of two bankrupt corporations alleged that the corporations had been induced fraudulently to incur debt that they were unable to pay, thereby forcing them into bankruptcy. Although the Third Circuit framed the issue as whether Pennsylvania recognizes a cause of action for “deepening insolvency,” it addressed the underlying question— whether the corporations could have suffered any injury as a result of the alleged fraud. The court wrote: “Even when a corporation is insolvent, its corporate property may have value. The fraudulent and concealed incurrence of debt can damage that value in several ways. For example, to the extent that bankruptcy is not already a certainty, the incurrence of debt can force an insolvent corporation into bankruptcy, thus inflicting legal and administrative costs on the corporation. When brought on by unwieldy debt, bankruptcy also creates operational limitations which hurt a corporation’s ability to run its business in a profitable manner. Aside from causing actual bankruptcy, deepening insolvency can undermine a corporation’s relationships with its customers, suppliers, and employees. The very threat of bankruptcy, brought about through fraudulent debt, can shake the confidence of parties dealing with the corporation, calling into question its ability to perform, thereby damaging the corporation’s assets, the value of which often depends on the performance of other parties. In addition, prolonging an insolvent corporation’s life through bad debt may simply cause the dissipation of corporate assets. “These harms can be averted, and the value within an insolvent corporation salvaged, if the corporation is dissolved in a timely manner, rather than kept afloat with spurious debt.” Plaintiffs do not claim that defendants’ actions ultimately drove the Companies into bankruptcy. Indeed, they allege that the Companies already were insolvent by 1999 and would have filed for bankruptcy even sooner than they did had Parmalat’s true financial condition been revealed. Nor do plaintiffs allege that the Companies’ incurrence of new debt harmed their business relationships, reputations, or otherwise hindered their operations. The complaints instead appear to draw on Laf-ferty’s final theory of damages — that “prolonging [the Companies’] life through bad debt ... cause[d] the dissipation of corporate assets.” Plaintiffs allege that innocent decision makers at the Companies would have sought “an orderly reorganization or liquidation of [the Companies] at a much earlier date, thus preserving assets,” had Parmalat’s insolvency been revealed. In other words, plaintiffs claim that the Companies were injured in that they were induced to delay filing for bankruptcy. a. Delayed Liquidation Although plaintiffs assume that delayed liquidation and delayed reorganization would have injured the Companies equally, there is a critical difference. If the Companies were insolvent by 1999 and liquidation was inevitable, then they had nothing to lose simply by continuing to operate, even if that would have meant the continued depletion of their assets. As one commentator writes, “In a liquidation, assets will be sold and the proceeds distributed to creditors. [In cases where] liquidation is inevitable ... [the harm caused by delayed bankruptcy filing is a] harm to the beneficiaries of that liquidation — the creditors. The corporation is no more one of them than the deceased is a beneficiary at the reading of his own will. If asset liquidation is the inevitable best case, the corporation is defunct. Delay does not hinder its ability to purchase raw material, operate its factories, sell widgets, collect receivables, make payroll, or sponsor the Mite A hockey team. All of those attributes of corporate life are gone, and once again we are adding insult only to death.” Accordingly, insofar as plaintiffs claim that the Companies were induced to delay in liquidating, they have failed to allege harm to the Companies themselves. And they of course lack standing to recoup damages suffered by others, such as the Companies’ creditors. b. Delayed Reorganization However, insofar as plaintiffs claim that the Companies were injured because they were induced to delay filing for reorganization, the conclusion may be different. (1) Parmalat USA Parmalat USA currently is in liquidation. If, however, Parmalat USA, at some point prior to February 2004, might have filed for reorganization and continued operating under bankruptcy protection instead of simply liquidating, it arguably missed the opportunity to fight for survival under bankruptcy protection. Its successor in interest then might have a case if he could establish that defendants’ actions caused the company to miss that opportunity. The complaints allege few facts concerning Parmalat USA’s financial condition pri- or to February 2004. They allege that Parmalat USA’s financial statements for the years 2000 to 2002 reported that the company’s insolvency — the amount by which liabilities exceeded assets — increased from about $40 million to about $47.5 million. This hardly establishes, however, that reorganization and continued operation would have been a viable option had the company filed for bankruptcy sooner than it did. The allegations, if proven, would leave a fact finder to speculate not only as to whether Parmalat USA would have filed for bankruptcy sooner, but also as to whether the trustees would have sought reorganization as opposed to liquidation, and whether a plan for reorganization would have been approved. This is too much. Plaintiffs have not supplied factual allegations sufficient to raise a right to relief above the speculative level. (2) Farmland Farmland is in a slightly different boat, as it filed for reorganization, and a plan was approved. It therefore was not deprived of the opportunity to fight for survival under bankruptcy protection. Nevertheless, it perhaps could be argued that Farmland was injured because it emerged from bankruptcy with a lower enterprise value than it otherwise would have as result of being induced to delay reorganization. The viability of this theory is not free from doubt. Regardless, plaintiffs do not allege that Farmland operated at a loss or that its assets diminished in value simply as a result of the company’s continued operations. The allegations therefore do not support the conclusion that earlier rather than later bankruptcy would have stemmed any additional losses or left the company with more assets. Even if plaintiffs had alleged that Farmland’s assets were depleted merely by continued operations, the allegations still would fail. It is too speculative to conclude that an earlier reorganization would have left Farmland, as opposed to some other interested party, better off. Bankruptcy reorganization is an inherently flexible process, as a bankruptcy court has broad equitable powers to craft a reorganization plan. In exercising those powers, a court must consider the interests of a number of relevant parties, including not only the debtor, but also its creditors. Given this flexibility — and the paucity of allegations concerning Farmland’s financial condition before February 2004 — it is difficult, perhaps impossible, to say what a hypothetical reorganization plan might have looked like had Farmland filed for bankruptcy protection at some unspecified earlier date. Even assuming that Farmland’s estate would have been more valuable if bankruptcy protection had been sought earlier, it is far from clear that any of this additional value necessarily or probably would have been left to Farmland, as opposed to distributed to its creditors or other interested parties. Hence, too much speculation is required to conclude that Farmland itself would have benefitted from earlier bankruptcy protection. Accordingly, even if the complaints contained allegations supporting .this theory of injury, they would not raise plaintiffs’ right to relief beyond the speculative level. * * * In sum, while the incurrence of debt by itself cannot deepen a company’s insolvency, the Court is not prepared to conclude that it never can cause injury to an insolvent company. But plaintiffs nevertheless have failed to allege that it caused injury to the Companies in this case.. Accordingly, plaintiffs’ claims must be dismissed insofar as they seek damages for the Companies’ wrongful incurrence of debt. B. Looting This does not dispose of all of plaintiffs’ claims, however. The complaints allege that Farmland acquired $100 million as part of the sale-leaseback transaction, and that this money subsequently was looted when Parmalat insiders diverted the funds to other Parmalat entities. As the foregoing analysis indicates, the looting of the proceeds of a loan can constitute an injury to a company. Even assuming the truth of plaintiffs’, allegations, however, the question whether the complaints adequately allege that defendants’ actions caused the Companies’ injuries would remain. IV. Causation Plaintiffs cannot succeed on any of their claims unless they establish that defendants’ conduct caused the Companies’ losses. It is not sufficient that they show “but for”' causation. They must prove also that defendants’ actions were the proximate cause of the Companies’ losses. A. Defendants Other Than Deloitte USA In Bloor v. Carro, Spanbock, Londin, Rodman & Fass, the trustee of a bankrupt company alleged a massive scheme in which the company’s officers and controlling stockholders mismanaged the firm and looted corporate funds. The trustee sued, among others, a law firm in connection with its preparation of the company’s SEC filings and other documents, which allegedly misrepresented the company’s financial condition. The trustee claimed that these misrepresentations allowed the company to raise large amounts of capital, which ultimately was looted as part of the ongoing fraud at the company. The Second Circuit held, however, that this was insufficient to plead loss causation under the securities laws, as it amounted merely to a claim of “but for” causation. The company’s alleged losses, the court held, were caused by theft or mismanagement of corporate funds, not the raising of the funds that occurred with the defendant’s help. Plaintiffs allege that Parmalat’s true financial condition would have been revealed had defendants acted properly and that either the innocent decision makers at the Companies or GECC would not have allowed the sale-leaseback transaction to go forward. They do not allege, however, that any of the defendants, with the exception of Deloitte USA, had any connection to the Companies or even knew about, assisted, or otherwise participated in the sale-leaseback transaction, let alone the looting of the proceeds. Absent such allegations, the Court fails to see how the Companies’ losses were a foreseeable result of these defendants’ alleged schemes to hide Parmalat’s financial condition. As in Bloor, plaintiffs perhaps allege that “but for” defendants’ actions, the Companies would not have acquired the money that ultimately was looted. But they fail to allege that these defendants could have foreseen not only that the sale-leaseback transaction would have taken place, but also that the proceeds would have been squandered. Plaintiffs cite the Court’s decision in a related case brought by Dr. Enrico Bon-di, the Italian representative of Parma-lat’s bankrupt estate. Dr. Bondi, like plaintiffs here, sued the Bank of America Defendants and others for structuring fraudulent transactions that concealed Parmalat’s mounting losses. The Court held that Dr. Bondi adequately pleaded proximate cause where he alleged that the defendants’ “material omissions lulled Parmalat’s innocent insiders into a false sense of security in the health of the Company” and that “the innocent insiders relied on the mirage” in failing to investigate further and thus failing to discover and halt the fraud. Dr. Bondi’s case, however, involved a substantially shorter chain of causation than plaintiffs allege here. It is reasonably foreseeable that misrepresenting a company’s financial condition, and thus hiding from its innocent managers that the company is being driven into the ground, will cause the company harm. But it is significantly less foreseeable that doing so will cause a subsidiary with which the defendant has no contact to enter into a transaction of which the defendant has no knowledge and that the subsidiary subsequently will be injured when the proceeds are upstreamed to the parent and looted by its corrupt insiders. In other words, even assuming plaintiffs adequately have alleged that defendants helped perpetuate the Parmalat fraud, they have not alleged that it was foreseeable that the assets of one of Parmalat’s subsidiaries would get swept into that scheme and looted and that the Companies thus would be injured. Accordingly, plaintiffs have failed to plead proximate cause as to defendants other than Deloitte USA. B. Deloitte USA Deloitte USA is in a unique position because it audited the Companies and appraised Farmland’s assets for purposes of the sale-leaseback transaction. The question, however, is whether these connections made it reasonably foreseeable to Deloitte USA that causing Farmland to enter into the sale-leaseback transaction would result in the looting of the proceeds. The district court in the Bloor case held that neither auditors who overstated the victim company’s financial condition in audit reports nor appraisers who overvalued its assets were liable when the money raised as a result of these misrepresentations eventually was looted by the company’s management. “While it was arguably foreseeable that, as a result of [the defendants’ actions], securities issued and sold by [the company] would command a higher price than their true value, thus injuring purchasers and providing excessive funds to the corporation, it was not reasonably foreseeable that inside management of [the company] would embezzle the funds so received for their personal use.” Plaintiffs argue that this case is different because Deloitte USA knew that the proceeds of the sale-leaseback transaction would be upstreamed to Parmalat and that Parmalat was being looted by corrupt insiders. It therefore could have foreseen that if Farmland entered into the sale-leaseback transaction, the proceeds would be swept up into the Parmalat fraud. The question thus becomes whether plaintiffs adequately have alleged Deloitte USA’s knowledge of the Parmalat fraud. 1. Direct Knowledge To the extent that plaintiffs rely on allegations that Deloitte USA in fact knew that the proceeds would move upstream to Parmalat and that the corrupt insiders were looting that entity, Rule 9(b) applies, as they allege in substance Deloitte USA’s culpable participation in the insiders’ fraud. As noted, Rule 9(b) requires a plaintiff to allege facts raising a strong inference of the defendant’s knowledge. The inference may arise where the complaint sufficiently alleges that the defendant (1) benefitted in a concrete and personal way from the purported fraud, (2) engaged in deliberately illegal behavior, (3) knew facts or had access to information suggesting that fraud was being committed, or (4) failed to check information it had a duty to monitor. The complaints contain no allegations that Deloitte USA stood to receive any benefit from the Parmalat fraud. Rather, they allege that Deloitte USA engaged in deliberately fraudulent behavior by overstating Farmland’s assets in its appraisal report, and that it improperly failed to investigate numerous “red flags” indicating that something was amiss at Parmalat. In other words, plaintiffs do not claim that Deloitte USA had motive and opportunity to perpetuate the Parmalat fraud, but that it consciously or recklessly misbehaved. a. Fraudulent Appraisal Plaintiffs argue that Deloitte USA’s fraudulent intent can be inferred from the fact that it ignored certain valuation methods and relied on projected instead of actual earnings to arrive at an appraisal value of Farmland’s assets that inexplicably was seven times greater than the value reported by DHAC four years earlier. They contend also that the inference is strengthened by the fact that Deloitte USA improperly served as both Parmalat USA’s auditor and the appraiser for the sale-leaseback transaction. The argument has superficial appeal. But greater scrutiny reveals that it is not as strong as it appears at first blush. (1) DHAC’s 1999 Appraisal First, it simply is not the case that Deloitte USA failed to explain why it reported a higher value than DHAC. Unlike DHAC’s appraisal, which considered only Farmland’s property in Wallington, New Jersey, Deloitte USA’s appraisal considered this property as well as property in Atlanta, Brooklyn, Grand Rapids, and Decatur, Alabama. In addition, Deloitte USA’s appraisal report explained that there had been a “major investment” in the Wallington facility in “the past few years” and that other equipment had been installed there “recently.” This of course does not establish, nor may the Court conclude on a motion to dismiss, that Deloitte USA provided accurate appraisal values in its report. But it substantially undercuts any inference of Deloitte USA’s fraudulent intent based on the fact that its appraisal values were higher than DHAC’s. (2) Valuation Approaches Second, contrary to plaintiffs’ allegations, Deloitte USA’s appraisal report did not “ignore” the cost and market comparable approaches to valuation. Rather, it considered these approaches, but concluded that the discounted cash flow approach was the most appropriate for valuing Farmland’s assets. It stated in the report that the cost approach was not viable because there was a dearth of information “regarding the composition of the components” of Farmland’s property. Moreover, it stated that the market comparable approach was disadvantageous because comparisons to similar properties — the backbone of that approach — necessarily are imperfect. Deloitte USA nevertheless provided a valuation based on the market comparable approach and indicated that it “considered the indication of value from this approach in assessing the reasonableness of the indication of value from [its] primary approach, the discounted cash flow approach.” Plaintiffs do not explain why this was improper. Indeed, DHAC’s appraisal report — which plaintiffs assume was accurate — also considered various approaches before concluding that one approach was appropriate for valuing certain properties while other approaches were more useful for valuing other properties. Plaintiffs fail also to explain how or why using other valuation methods besides the discounted cash flow approach would have produced better or more accurate appraisal values. Accordingly, allegations that Deloitte USA ignored certain valuation methods do not raise a strong inference of fraudulent intent. (S) “Calculated” EBITDA Values Third, the allegations that Deloitte USA improperly used “calculated” EBITDA values for the years 2001 and 2002 in employing the discounted cash flow approach are belied by Deloitte USA’s appraisal report. According to the report, Deloitte USA projected 2003 EBITDA values and then reduced them by 2.5 percent per year to arrive at 2001 and 2002 values in employing the market comparable approach, not the discounted cash flow approach. The report states that this was done in order to make Farmland’s EBITDA values consistent with those of “guideline companies” to which Farmland was compared for purposes of the market comparable approach, and for which actual 2002 EBITDA values were unavailable. But as noted, Deloitte USA stated in the appraisal report that the market comparable approach was not as appropriate for valuing Farmland’s assets as the discounted cash flow approach. In employing the discounted cash flow approach, the report stated, Deloitte USA used historical revenue and other information for 2001 and 2002. It did not “calculate” EBITDA values the way it did for purposes of the market comparable approach. In fact, the report does not state that Deloitte USA considered EBITDA values, “calculated” or otherwise, in applying the discounted cash flow approach. In light of this, the complaints must be interpreted as alleging that Deloitte USA’s statements about the data it used for purposes of employing the discounted cash flow approach were false. But the complaints allege no facts raising an inference, let alone a strong inference, that this was the case. A bald allegation that Deloitte USA said one thing and did another is too conclusory to satisfy Rule 9(b). (k) Failure to Maintain Independence Finally, an auditor’s violation of an ethical duty of independence by itself does not give rise to a strong inference of fraud. It may bolster other facts that tend to demonstrate fraud. Generally, however, an auditor’s decision to take on non-audit work that threatens to compromise its duty of independence gives rise to a strong inference of culpable intent only when it is shown that the auditor had a “direct stake” in the alleged fraud. Plaintiffs do not allege that Deloitte USA stood to benefit from aiding the Par-malat fraud or that it had anything to gain from appraising Farmland’s assets other than ordinary appraisal fees. The mere expectation of ordinary fees is not a sufficient motive to raise a strong inference of culpable intent. Moreover, it is of more than passing interest that it was CGM — an entity that is not alleged to have had anything to do with the Parmalat fraud — that “requested” that Deloitte USA conduct the appraisal for GECC. Had Parmalat or some other allegedly culpable entity done so, this perhaps would have taken plaintiffs closer to raising the inference that Deloitte USA’s supposed violation of its duty of independence was motivated by fraudulent intent. But that is not what the complaints allege. Accordingly, none of plaintiffs’ allegations of improper appraisal methods raises a strong inference of Deloitte USA’s knowledge of the Parmalat fraud. b. Improper Auditing Practices Plaintiffs next contend that culpable knowledge can be inferred from Deloitte USA’s allegedly improper audits of Parma-lat USA. Allegations that an auditor failed to follow GAAS or other auditing procedures do not alone support a claim of fraud. “Only where such allegations are coupled with evidence of ‘corresponding fraudulent intent,’ might they be sufficient.” Accordingly, the issue is not whether plaintiffs have alleged GAAS violations, but whether they have alleged facts indicating that those violations were motivated by or indicative or products of fraudulent intent. The complaints allege that Deloitte USA encountered obvious signs that something was amiss at Parmalat, but failed to investigate and blow the whistle. Plaintiffs therefore rely on a theory of recklessness to show fraudulent intent. The Second Circuit defines reckless conduct as conduct that is “highly unreasonable” and represents “an extreme departure from the standards of ordinary care ... to the extent that the danger was either known to the defendant or so obvious that the defendant must have been aware of it.” “[A]n egregious, refusal to see the obvious, or to investigate the doubtful, may in some cases give rise to an inference of ... recklessness.” (1) Reimbursement Credits Plaintiffs argue that it should have been obvious to Deloitte USA that something improper was going on at Parmalat because it knew that Parmalat’s reimbursement credits were bogus. They contend that Deloitte USA knew this because it conducted a successor audit of Parmalat USA in 1999 and discovered that Parmalat USA had not collected on any of the credits it had received from 1995 to 1998. This is unavailing. The complaints do not allege why Par-malat’s failure to pay past credits within a few years necessarily or probably should have indicated that it never would pay them. They do not allege, for example, that Parmalat had promised to the pay reimbursement credits within a certain time frame or that its consistent practice prior to 1995 had been to pay reimbursement credits more quickly. Accordingly, it cannot be said that Parmalat’s failure to pay past reimbursement credits within a four-year span should have signaled to De-loitte USA that its credits were a sham altogether, let alone that Parmalat’s insiders were engaged in a fraudulent scheme to loot the company. Plaintiffs contend also that Deloitte USA should have known something was amiss at Parmalat when Deloitte Italy and Par-malat refused to provide it with “confirmation ... of the calculations and nature ... [and] accounting treatment” of the reimbursement credits. If Parmalat and De-loitte Italy were evasive in providing information material to Parmalat USA’s audit and Deloitte USA failed to follow up, this perhaps would go some way towards raising an inference of recklessness. But plaintiffs’ allegations nevertheless are insufficient. The complaints do not explain what it means to receive “confirmation” of the “calculations and nature” of reimbursement credits, or what a response to a request for such “confirmation” would look like. The most reasonable interpretation the Court can supply, bearing in mind that it must construe the pleadings in the light most favorable to plaintiffs, is that Deloitte USA sought confirmation that Parmalat USA had booked the proper amount of credits and that it had accounted for them properly by booking them as reimbursement of expenses as opposed to a capital contribution from Parmalat. Plaintiffs do not explain, however, how Deloitte Italy’s or Parmalat’s failure to answer these questions would have indicated to Deloitte USA that Parmalat never would pay the reimbursement credits or that Parmalat’s insiders were committing fraud. Plaintiffs do not allege that Parmalat or Deloitte Italy failed to confirm that Par-malat would pay the credits or that it had the financial means to do so. Had Parma-lat or Deloitte Italy been evasive in answering these questions, perhaps this would have made the fact that Parmalat was concealing financial difficulties sufficiently obvious to Deloitte USA to support an inference of conscious recklessness. But that is not what plaintiffs allege. The allegations imply that Deloitte USA acted improperly in failing to ask these questions. This, however, amounts at best to a claim that Deloitte USA violated auditing standards or that it was negligent, perhaps even grossly so. But it does not raise the inference that Deloitte USA recklessly disregarded a substantial possibility that Parmalat was being looted. (2) Going Concern Qualifications The allegations regarding going concern qualifications fail to raise an inference of culpable knowledge as well. Plaintiffs allege that, in connection with Parmalat USA’s audit for the years 1999 to 2001, Deloitte USA improperly relied on management representations instead of “actual audit evidence” that Parmalat intended to provide continuing financial support to the Companies. But GAAS, AU Section 333.02, provides that “representations from management are part of the evidential matter the independent auditor” must obtain. Moreover, AU Section 333.11 provides that “if the independent auditor performs an audit of the financial statements of a subsidiary but does not audit those of the parent company, he or she may want to obtain representations from management of the parent company concerning matters that may affect the subsidiary, such as related-party transactions or the parent company’s intention to provide continuing financial support to the subsidiary.” Plaintiffs claim that this does not get Deloitte USA off the hook because AU Section 333.02 permits an auditor to use management representations as a supplement to other audit evidence, not as “a substitute for the application of those auditing procedures necessary to afford a reasonable basis for an opinion regarding the financial statements under audit.” Plaintiffs fail to allege, however, what else beside management representations would qualify as “actual audit evidence” of Par-malat’s future intent to continue supporting the Companies and therefore why management representations alone were insufficient. In any event, even if there were some other audit evidence that De-loitte USA failed to obtain, plaintiffs’ allegations would amount only to a claim that Deloitte USA violated GAAS, which is not enough to raise an inference of culpable knowledge. The only allegations that bring plaintiffs close to raising a sufficient inference of recklessness are the claims that Bigogno of Deloitte Italy refused to honor Potts’ request for audit evidence in connection with Parmalat USA’s 2002 audit. As noted, allegations that Deloitte Italy or Par-malat refused to provide necessary audit information to Deloitte USA may be sufficient to satisfy Rule 9(b). The Court need not decide the issue, however. Even assuming that the Bigogno-Potts exchange is sufficient to raise a strong inference of Deloitte USA’s culpable knowledge, this would not help plaintiffs on the proximate cause issue. The Bigogno-Potts exchange allegedly occurred on May 8, 2003. This, however, was after Deloitte USA’s audits of Parma-lat USA for the years 1999 to 2001 and its April 30, 2003 appraisal of Farmland’s assets. The only alleged conduct of Deloitte USA that occurred after May 8, 2003, was its 2002 audit of Parmalat USA. But plaintiffs do not allege that GECC or any other party relied on audited financial statements for 2002 in deciding whether the sale-leaseback transaction should go forward. They allege only that GECC required Parmalat USA’s audited financial statements for the years 2000 and 2001, and that it received unaudited financial statements for 2002. Accordingly, it cannot be said that the Bigogno-Potts exchange made it reasonably foreseeable that Deloitte USA’s actions, at the time they were taken, would lead to the looting of the proceeds of the sale-leaseback transaction. (3) Overstatement of Goodwill Finally, allegations that Deloitte USA failed to reveal that Parmalat USA’s goodwill was overstated in financial statements fail to raise a strong