Full opinion text
OPINION & ORDER SIDNEY H. STEIN, District Judge. I. BACKGROUND...........................................................212 A. Parties ...............................................................213 B. Financial Instruments..................................................214 1. Subprime and Alt-A Mortgages......................................214 2. Residential-Mortgage-Backed Securities..............................214 3. Collateralized Debt Obligations.......................................215 4. Structured Investment Vehicles......................................215 5. Leveraged Loans and Collateralized Loan Obligations...................216 6. Auction Rate Securities .............................................216 C. CDO Allegations.......................................................217 1. Pre-November 4, 2007 Statements....................................217 a. Alleged Misleading Statements and Omissions about the Extent of Citigroup’s CDO Exposure ..................................217 i. Citigroup Discloses the Value of Its “CDO-Type Transactions”............................................217 ii. Citigroup Discloses Its “Maximum Exposure to Loss” from VIEs ...................................................218 iii. Citigroup Discloses an “Ownership Interest” in “Certain VIEs”...................................................218 iv. Citigroup States that It Has “Limited Continuing Involvement” with CDOs..................................219 b. Alleged Misleading Statements about the Nature of CDO Exposure....................................................219 i. Citigroup States that Securitizations Reduce Its “Credit Exposure”...............................................220 ii. Citigroup Presents Its “CDO-Type Transactions” as Distinct from Its “Mortgage-Related Transactions”...........220 iii. Citigroup Maintains its CDOs Contained Diverse Assets to Diversify Risk ...........................................221 c. Alleged CD O-Related Accounting Violations.......................221 i. Reporting CDO Exposure...................................221 ii. Consolidating Commercial Paper CDOs .......................222 iii. Valuing CDO Holdings......................................222 2. November 4, 2007 and Later Statements ..............................223 3. Allegations of Fraudulent Intent with Respect to CDO-Related Misstatements and Omissions......................................224 a. Citigroup Underwrote the CDOs It Owned.........................224 b. The Market Believed that CDOs Were at Risk......................225 c. Citigroup Analysts Express Concern About Subprime Mortgages and CDOs...................................................225 d. Citigroup Creates CDOs to Buy Unwanted CDOs...................226 e. Citigroup Creates a Special Entity to Assume the Risks of Liquidity Puts................................................226 f. Citigroup Makes Collateral Demands on Mortgage Originators.......226 g. Citigroup’s CDO Prospectuses Warn of Risks ......................227 h. Citigroup Purchases Insurance for Its CDO Holdings ...............227 i. Citigroup Executives Hold Daily Risk Exposure Sessions............227 j. Citigroup Makes a Margin Call on Basis Capital Funds..............227 D. A1L-A RMBS Allegations................................................227 E. SIV Allegations........................................................228 F. Mortgage Allegations...................................................229 1. Alleged Mortgage-Related Misstatements.............................229 2. Alleged Mortgage-Related GAAP Violations...........................230 3. Allegations of Fraudulent Intent with Respect to Mortgage-Related Misstatements and Omissions......................................230 G. ARS Allegations.......................................................230 H. Leveraged Loan and CLO Allegations....................................231 I. Solvency Allegations....................................................231 II. DISCUSSION.............................................................231 1. Standard of Review.................................................231 2. Section 10(b) Claims...............................................,231 a. Misstatements or Omissions of Material Fact.......................232 b. Scienter Standard ..............................................232 c. Loss Causation Standard........................................234 3. Section 20(a) Claims................................................234 B. CDO Allegations.......................................................234 1. Pre-November 4, 2007 Statements....................................235 a. Alleged misstatements and omissions..............................235 b. Materiality and Loss Causation...................................236 c. Scienter.......................................................236 i. Citigroup..................................................236 ii. Individual Defendants.......................................238 2. November 4, 2007 and Later Statements ..............................239 a. Alleged Misstatements and Omissions.............................239 b. Scienter.......................................................240 C. Alt-A RMBS Allegations................................................241 1. Alleged Misstatements and Omissions Concerning the Extent of Citigroup’s AlN-A RMBS Exposure.................................242 2. Alleged Misstatements and Omissions after the April 18, 2008 Disclosure of Citigroup’s A1N-A RMBS Holdings......................242 D. SIV Allegations........................................................243 1. Citigroup’s SIV Exposure ...........................................243 2. SIV-Related GAAP Violations .......................................243 3. Other Misstatements................................................244 E. Mortgage Allegations...................................................244 1. Mortgage-Related Misstatements and Omissions.......................244 2. Mortgage-Related GAAP Violations..................................245 F. ARS Allegations.......................................................245 G. Leveraged Loan and CLO Allegations....................................246 H. Solvency Allegations....................................................247 I. Control Person Liability................................................248 III. CONCLUSION............................................................249 Plaintiffs bring these consolidated securities fraud actions on behalf of a proposed class of investors in Citigroup, Inc., against the company and fourteen of its officials alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. Their claims span an array of Citigroup’s business—from the mortgages it sold to consumers to the mortgage-backed securities it sold to institutional investors—but sound a similar note: Citigroup allegedly knowingly understated the risks it faced and overstated the value of the assets it possessed. In this way, plaintiffs claim, Citigroup materially misled investors about the company’s financial health and caused them to suffer damages when the truth about Citigroup’s assets was finally revealed. Defendants move to dismiss plaintiffs’ claims pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, arguing primarily that plaintiffs’ complaint fails to satisfy the heightened pleading standards applicable in securities fraud actions. The Court finds that plaintiffs have stated a claim to relief only with respect to alleged misstatements and omissions occurring between February 2007 and April 2008 concerning Citigroup’s collateralized debt obligation holdings. Plaintiffs’ remaining allegations do not adequately state a claim for relief. Accordingly, for the reasons set forth below, defendants’ motion is granted in part and denied in part. I. BACKGROUND The Amended Consolidated Class Action Complaint (“Complaint”), filed on February 20, 2009, is 536 pages long, contains 1,265 paragraphs and weighs six pounds. The following facts are extracted from that tome and are presumed to be true for the purposes of this motion. A. Parties Plaintiffs are current or former Citigroup shareholders. Plaintiffs claim they purchased Citigroup common stock on the open market for a price that was inflated by defendants’ alleged fraud. (Compl. ¶¶ 21-27.) Plaintiffs purport to represent all persons who purchased Citigroup common stock between January 1, 2004 and January 15, 2009. (Id. at 1.) Citigroup is itself named as a defendant. Incorporated in Delaware with its principal place of business in New York, Citigroup is a financial services holding company operating in more than 100 countries. It employs over 300,000 people. (Id. ¶28.) Plaintiffs also bring this action against several current and former directors and officers of Citigroup. The Complaint describes the individual defendants as follows: • Charles Prince was Citigroup’s Chief Executive Officer (“CEO”) from 2003 to 2007 and Chairman of Citigroup’s Board of Directors from 2006 to 2007. Plaintiffs allege that Prince was “forced to resign” on November 5, 2007 as a result of substantial losses Citigroup reported. (Id. ¶¶ 33, 1154.) • Robert Rubin served as a Citigroup director beginning in 1999 and was named Chairman of the Board of Directors after Prince’s departure. (Id. ¶ 36.) • Lewis Kaden, starting in 2005, was Citigroup’s Chief Administrative Officer (“CAO”), responsible for “audit and risk review” at Citigroup. (Id. ¶ 37.) • Sallie L. Krawcheck was Citigroup’s Chief Financial Officer (“CFO”) from 2004 to 2007. (Id. ¶ 38.) • Gary Crittenden replaced Krawcheck as CFO in March 2007. (Id. ¶ 41.) • Steven Freiberg was the Chairman and CEO of Citigroup’s Global Consumer Group and his responsibilities included consumer lending in the mortgage area. (Id. ¶ 43.) • Robert Druskin was Citigroup’s Chief Operating Officer from 2006 to 2007 and previously held other officer positions. (Id. ¶ 44.) • Todd S. Thomson was Citigroup’s CFO prior to 2004 and was the CEO of a Citigroup division between 2004 and 2007. (Id. ¶ 46.) • Thomas G. Maheras held various officer positions with different Citigroup divisions, including the division responsible for Citigroup’s collateralized debt obligation holdings. (Id. ¶48.) • Michael Stuart Klein, like Maheras, held various officer positions with different Citigroup divisions, including the division responsible for Citigroup’s collateralized debt obligation holdings. (Id. ¶ 50.) • David C. Bushnell was Citigroup’s Senior Risk Officer from 2003 to 2007 and served as CAO for two months in 2007. (Id. ¶ 52.) • John C. Gerspach served as Citigroup’s Chief Accounting Officer and Controller beginning in March 2005. (Id. ¶ 54.) • Stephen R. Volk held various officer positions at Citigroup. (Id. ¶ 57.) • Vikram Pandit became Citigroup’s CEO following Prince’s departure. He previously was the CEO of a Citigroup division. (Id. ¶ 59.) Plaintiffs allege that many of the individual defendants sold large amounts of stock during the class period. (Id. ¶¶ 33-61.) Plaintiffs also allege that several individual defendants “signed and certified the accuracy of’ Citigroup’s SEC filings. (Id. ¶¶ 35, 40, 42, 46, 55, 60.) B. Financial Instruments The theory of plaintiffs’ case is that defendants materially misled them about the risks Citigroup was exposed to via various financial instruments, including CDOs, SIVs, Alt-A RMBS, CLOs and ARS. Understanding the allegations in this action requires understanding the nature of this gallimaufry of financial instruments. They are described in the Complaint as follows. 1. Subprime and Altr-A Mortgages A “conforming” mortgage is a mortgage that meets certain requirements designed to reduce the risk of default and to mitigate losses in the event of default. These include requiring the borrower to meet minimum standards of creditworthiness, to document his or her income and to make a down payment of at least 20% of the value of the home. In a conforming mortgage, the borrower’s debt-to-income ratio does not exceed 35%. If the loan’s interest rate is adjustable over time (for example, if the interest rate starts low but later increases), the borrower’s debt-to-income ratio must be gauged at the “fully indexed” rate, which is the highest interest rate the loan will reach. (Id. ¶ 221.) In the mid-2000s, banks increasingly issued “nonconforming” mortgages that departed from the requirements listed above. (Id. ¶ 222). They issued mortgages to borrowers who were less creditworthy. (Id. ¶ 231(a).) They did not verify borrower income. (Id. ¶ 231(f).) They accepted lower down payments or eliminated the down-payment requirement altogether. This practice increased the loan-to-value (“LTV”) ratio—the ratio of the loan amount to the home’s value—which enhanced the risk of default and the size of the loss upon default. (Id. ¶ 231(b).) Banks issued mortgages when mortgage payments exceeded 35% of the borrower’s income. (Id. ¶ 231(c).) In the case of “hybrid adjustable rate mortgages” or “hybrid ARMs,” which featured a low teaser rate that lasted for two or three years that then ballooned higher, banks failed to measure debt-to-income ratios at the fully indexed rate. (Id. ¶¶ 231(d), (e).) These nonconforming mortgages included both “subprime” mortgages, which carried the highest risk of default, and “alternative A class” (“Alt-A”) mortgages, which were riskier than conforming mortgages but not as risky as subprime mortgages. (Id. ¶ 945.) 2. Residentialr-MortgageBacked Securities Residential-mortgage-backed securities (“RMBS”) are a type of asset-backed security. In RMBS, an underwriter buys a large quantity of residential mortgages— typically three to four thousand individual mortgages—and transfers the mortgages to a special purpose corporate entity. The entity’s sole purpose is to receive those mortgages and issue securities—RMBS— that are collateralized by the mortgages the entity owns. An investor buys an RMBS and, over time, receives payments from the entity based on a “coupon” or interest rate. As homeowners make payments on their mortgages, the special purpose entity receives the income from the borrowers’ payments and uses it to pay its investors, the RMBS owners. Thus, the entity’s ability to continue making payments to the RMBS investor depends on the entity’s continuing receipt of mortgage payments from the homeowners. If the mortgages are not paid, the entity’s income stream decreases, undermining the entity’s ability to pay the RMBS investors. (Id. ¶¶ 74-82.) The risk of loss is not shared equally among all RMBS investors. Instead, the RMBS are divided into different “tranches” that carry different risks. The junior-most tranche absorbs the first losses until that tranche is completely wiped out, and is therefore the riskiest investment. Then the second-junior-most tranche begins to suffer losses. The senior-most tranche suffers losses only when all the other tranches have been eliminated. (Id. ¶ 78.) For example, if the junior-most tranche represents 4% of the RMBS securitization, and if mortgage defaults cause the securitization to lose four percent of its cash flow, then the junior-most tranche will suffer a complete loss. The other tranches, however, will suffer no loss whatsoever. The junior tranches thus protect the senior tranches by absorbing losses as mortgages default. (Id. ¶ 82.) Each RMBS tranche is assigned a credit rating (triple-A, double-A, single-A, triple-B, double-B, etc.) with the more senior, i.e. safer, tranches receiving higher ratings. (Id. ¶ 83.) The most senior RMBS tranche bears an AAA credit rating. (Id. at 32-33.) Tranches between the junior- and senior-most tranches are known as “mezzanine” tranches. (Id. ¶ 95.) 3. Collateralized Debt Obligations Like RMBS, collateralized debt obligations (“CDOs”) are a form of asset-backed security. (Id. 1174.) An underwriter creates a CDO by purchasing a pool of assets and transferring those assets to a special purpose entity. The entity then issues debt securities whose interest payments are backed by the income stream generated by the entity’s assets. Although RMBS and CDOs are similar in many ways, RMBS securitizations purchase mortgages and issue securities backed by those mortgages, whereas many CDOs purchase other securities—RMBS, for example—and issue securities backed by those. (Id. ¶ 88.) RMBS and CDOs have different tranche structures. In an RMBS securitization, the senior-most tranche is the AAA-rated tranche. In contrast, CDOs split the AAA tranche into a junior AAA tranche and a “super senior” AAA tranche. This super senior tranche is the last to suffer losses, insulated by the junior AAA tranche and all the tranches below that. Since it is insulated by a tranche with an AAA rating (the junior AAA tranche), the super senior’s credit rating is considered better than AAA. Because of this enhanced credit protection, the super senior tranche involves less risk and thus pays a lower interest rate. The money the CDO securitization saves by offering a lower yield to the super senior tranche is used to pay higher yields to the junior tranches. In a sense, yield is taken from the super senior tranche and added to the junior tranches. Because the super senior tranche is substantially larger than the junior tranches, a small yield decrease for the super senior tranche results in a substantial yield increase for the smaller junior tranches. (Id. ¶¶ 90-93.) A Structured Investment Vehicles A structured investment vehicle (“SIV”) is much like a CDO or RMBS securitization. The SIV is a special purpose corporate entity that invests in different kinds of long-term assets—for example, an SIV might invest in corporate bonds or RMBS. To finance its investments, the SIV issues securities in several tranches, with junior tranches absorbing the first losses and thus protecting more senior tranches. (Id. ¶¶ 645-48.) SIVs finance their investments mostly by means of short-term securities: commercial paper and medium-term notes. (Id. ¶ 647.) As a result, an SIV earns profits through a form of arbitrage. The SIV invests in long-term securities with a certain yield. It finances those long-term securities with short-term debt securities that carry a lower yield. The SIV makes a profit that is equal to the difference between the higher “incoming” yield the SIV earns from its long-term assets and the lower “outgoing” yield the SIV must pay on its commercial paper and medium-term notes. Some of that “profit” goes to an equity tranche, and the rest of the profit is paid in the form of fees to the SIV’s manager—here, Citigroup. (Id. ¶ 649.) In this way, a small “equity” investment in the SIV’s junior tranches can be used to leverage substantial arbitrage gains resulting from the existence of large senior tranches of short-term debt. (Id. ¶¶ 650-53.) Using short-term debt to purchase long-term assets creates “liquidity risk,” a risk caused by the fact that an SIV must continually “roll-over” its short-term funding. (Id. ¶ 655.) An SIV’s long-term assets generate income streams that are sufficient to pay the interest on the SIV’s short-term debt. But when the short-term debt comes due—-that is, when the SIV must return the principal of the commercial paper and medium-term notes—the SIV must issue new short-term debt to pay off the maturing short-term debt. This is called “rolling over” short-term debt. If an SIV were unable to roll-over its short-term debt, it would be forced to sell its long-term assets to pay its maturing short-term debt. (Id. ¶¶ 655-56.) Losses stemming from liquidity risk can be substantial. If an SIV’s long-term assets decline in value, the SIV will no longer be as safe an investment, and investors will become reluctant to purchase the SIV’s short-term debt. The SIV will have to sell its long-term assets to meet the amount due on any short-term debt that is not rolled over. Because the assets have declined in value, however, the SIV will take losses on its asset sales. Thus, when the SIV’s long-term assets lose value, the SIV is often forced to sell the assets immediately at a loss. A decline in asset value has the potential to cause the entire SIV to collapse. (Id. ¶ 656.) SIVs typically employ two mechanisms in response to liquidity risk. First, SIV covenants often stipulate that, if the value of the SIVs assets falls so far that the SIV cannot meet its short-term-debt obligations, the SIV is declared in “defeasance” and must immediately liquidate its assets to pay senior debt investors. (Id. ¶ 659.) Second, SIVs often obtain “liquidity backstops” from banks, where the banks will purchase a limited amount of short-term debt from the SIV. Liquidity backstops allow SIVs to ensure that a limited amount of short-term financing will always be available. (Id. ¶ 658.) 5. Leveraged Loans and Collateralized Loan Obligations Leveraged loans are loans that banks arrange for companies, often in anticipation of mergers and acquisitions, leveraged buyouts, recapitalizations, or restructurings. Leveraged loans are typically made to companies with high debt-to-equity ratios, and thus leveraged loans garner a low credit rating and a high yield. In the mid-2000s, the market for leveraged loans boomed, and banks began arranging leveraged loans that were riskier than the leveraged loans arranged in the past. (Id. ¶¶ 865, 867, 870-74.) Collateralized loan obligations (CLOs) are much like CDOs, except CLOs are collateralized primarily by corporate debt. In the mid-2000s, CLOs were increasingly collateralized by riskier leveraged loans. (Id. ¶¶ 866, 874.) 6. Auction Rate Securities Auction rate securities (ARS) are long term obligations, similar to bonds, with variable interest rates that reset through periodic auctions held as frequently as once a week. The issuer of an ARS, such as a company or municipality, selects a broker-dealer such as Citigroup to underwrite the offering and manage the auction process by which rates are set. Potential investors then bid the lowest interest rate at which they are willing to purchase ARS. The auction clears at the lowest rate bid that is sufficient to cover all of the securities for sale and that rate then applies to all of the securities until the next auction. If there are not enough bids to cover the securities for sale, the auction fails and the current holders are left in possession of the ARS. The interest rate is set at a predetermined “maximum rate” that may be higher or lower than the market rate for securities of similar credit quality and duration. (Id. ¶ 907.) C. CDO Allegations Plaintiffs allege that Citigroup made numerous material misstatements and omissions regarding its CDOs. Plaintiffs’ principal grievance is that Citigroup did not disclose that it held tens of billions of dollars of super-senior CDOs until November 4, 2007. As described in greater detail below, plaintiffs allege that the market knew, at least by late 2006 or early 2007, that CDOs faced a substantial risk of losses. Although the market knew that Citigroup had underwritten billions of dollars of CDOs, the market did not know who had purchased the CDOs that Citigroup had underwritten. In plaintiffs’ view, defendants intentionally hid the truth: namely that billions of dollars of CDOs had not been purchased at all but had, instead, been retained by Citigroup. Plaintiffs further allege that defendants affirmatively misled investors by disclosing facts about Citigroup’s CDO operations that were either half-truths or affirmatively misleading. First, plaintiffs claim that defendants failed to give a full and truthful account of the extent of Citigroup’s CDO exposure. Second, plaintiffs allege that defendants made misleading statements that failed to convey the subprime-related risks inherent in its CDO portfolio. Finally, plaintiffs take issue with Citigroup’s accounting practices, claiming that the company’s SEC filings violated accounting rules—and were thus misleading—because they failed to report Citigroup’s CDO exposure and failed to value Citigroup’s CDO holdings accurately. 1. Pre-November 4 2007 Statements a. Alleged Misleading Statements and Omissions about the Extent of Citigroup’s CDO Exposure Citigroup’s SEC filings did make certain disclosures related to Citigroup’s exposure to losses from its CDO holdings, but plaintiffs claim that those disclosures were misleading and incomplete because they provided scant details about Citigroup’s CDO operations and never disclosed the extent of Citigroup’s massive CDO holdings. To put it simply, plaintiffs allege that defendants “concealed and misrepresented the simple and very material fact that Citi had $45+ billion of CDO exposure.” (Pls.’ Mem. at 25.) The following alleged misstatements and omissions are all variations on this theme. i. Citigroup Discloses the Value of Its “CDO-Type Transactions” Citigroup did report the total value of the CDOs it had underwritten. For example, in Citigroup’s August 3, 2007 Form 10-Q, Citigroup reported that it had underwritten “CDO-type transactions” whose assets totaled $74.4 billion. (Compl. ¶ 545 (quoting Citigroup’s Form 10-Q, at 63-67 (Aug. 3, 2007).)) Plaintiffs claim that that disclosure was inadequate because it revealed only the size of Citigroup’s underwriting activities, not the size of Citigroup’s holdings of—and thus exposure to—the CDOs Citigroup underwrote. (Id. ¶¶ 560-62.) In other words, disclosing that Citigroup underwrote CDOs worth $74.4 billion did not, in plaintiffs’ view, give any indication that it was Citigroup who owned a large quantity of the CDOs that Citigroup had underwritten. ii. Citigroup Discloses Its “Maximum Exposure to Loss” from VIEs Citigroup considered its CDOs to be “variable interest entities” (“VIEs”). In total, Citigroup underwrote over $200 billion of investments that it considered VIEs. For example, in its August 3, 2007 Form 10-Q, Citigroup reported that it had underwritten $134.3 billion of VIEs involving “investment-related transactions,” $37.4 billion of VIEs involving “structured finance,” $10.3 billion of VIEs involving “trust preferred securities,” as well as $74.4 billion of VIEs involving “CDO-type transactions.” (Id. ¶ 545 (quoting Citigroup’s Form 10-Q, at 63-67 (Aug. 3, 2007).)) The Form 10-Q then reported Citigroup’s “maximum exposure to loss” in connection with all its VIEs: Although actual losses are not expected to be material, the Company’s maximum exposure to loss as a result of its involvement with VIEs that are not consolidated was $117 billion and $109 billion at June 30, 2007 and December 31, 2006, respectively. For this purpose, maximum exposure is considered to be the notional amounts of credit lines, guarantees, other credit support, and liquidity facilities, the notional amount of credit default swaps and certain total return swaps, and the amount invested where Citigroup has an ownership interest in the VIEs. (Id.) Plaintiffs believe that that statement was misleading because it did not disclose Citigroup’s exposure to CDOs, as opposed to Citigroup’s exposure to other variable interest entities, and thus investors were given no indication that Citigroup had massive exposure to CDO losses. Plaintiffs also maintain that the disclosure was inadequate because it provided no details about the nature of Citigroup’s exposure— in particular, it did not disclose that Citigroup actually owned billions of dollars of CDOs and had through liquidity puts agreed to purchase back from investors $25 billion worth of commercial paper CDOs in the event the underlying collateral deteriorated. iii. Citigroup Discloses an “Ownership Interest” in “Certain VIEs” Citigroup further disclosed that it “may” have an “ownership interest” in VIEs and “may” provide certain services to its VIEs. Citigroup’s August 3, 2007 Form 10-Q stated: The Company may provide various products and services to the VIEs. It may provide liquidity facilities, may be a party to derivative contracts with VIEs, may provide loss enhancement in the form of letters of credit and other guarantees to the VIEs, may be the investment manager, and may also have an ownership interest or other investment in certain VIEs. In general, the investors in the obligations of consolidated VIEs have recourse only to the assets of the VIEs and do not have recourse to the Company, except where the Company has provided a guarantee to the investors or is the counterparty to a derivative transaction involving the VIE. (Id. ¶ 545 (quoting Citigroup’s Form 10-Q, at 63-67 (Aug. 3, 2007).)) Plaintiffs claim that that disclosure was misleading for two reasons. First, disclosing that Citigroup “may have an ownership interest or other investment in certain VIEs” was disingenuous in light of Citigroup’s massive CDO holdings. In plaintiffs’ view, the statement downplayed Citigroup’s ownership of VIEs and failed to specify whether Citigroup’s ownership interest was in “CDO-type” VIEs, “investment-related” VIEs, “structured finance” VIEs, or some other type of VIE. (Id. ¶ 569.) Second, the statement expressed Citigroup’s exposure to CDOs in conditional, conjectural, or—as plaintiffs put it—“hypothetical” terms. (Id. ¶ 565.) Saying that Citigroup “may” own VIEs was, according to plaintiffs, deceptive in light of the fact that Citigroup did, in fact, own billions of dollars of CDOs. And saying that Citigroup “may provide liquidity facilities” and “commercial paper backstop lines of credit” was, as plaintiffs see it, misleading when Citigroup had, in fact, guaranteed that it would repurchase $25 billion of commercial paper super-senior CDOs. (Id. ¶¶ 565-69.) iv. Citigroup States that It Has “Limited Continuing Involvement” with CDOs Citigroup’s SEC filings stated that Citigroup had only “limited continuing involvement” with its CDOs. Citigroup consolidated some of its VIEs on its balance sheet (id. ¶ 545), but, as discussed below, Citigroup did not consolidate other VIEs, including its CDOs. Explaining its decision not to consolidate certain VIEs, Citigroup’s August 3, 2007 Form 10-Q stated: The Company typically receives fees for structuring and/or distributing the securities sold to investors.... A third-party manager is typically retained by the VIE to select collateral for inclusion in the pool and then actively manage it, or, in other cases, only to manage work-out credits. The Company may provide other financial services and/or products to the VIEs for market-rate fees. These may include the provision of liquidity or contingent liquidity facilities; interest rate or foreign exchange hedges and credit derivative instruments; and the purchasing and warehousing of securities until they are sold to the SPE. The Company is not the primary beneficiary of these VIEs under FIN 46-R due to its limited continuing involvement and, as a result, does not consolidate their assets and liabilities in its financial statements. (Id. ¶ 545 (quoting Citigroup’s Form 10-Q, at 63-67 (Aug. 3, 2007).)) That disclosure was misleading, plaintiffs claim, because it implied that Citigroup maintained only trivial ties to its CDOs after the underwriting process was complete. In plaintiffs’ view, the assertion that Citigroup had “limited continuing involvement” with its VIEs was deceptive in light of the fact that Citigroup actually owned tens of billions of dollars of its own CDOs. It was also allegedly deceptive in light of the fact that Citigroup had, through liquidity puts, agreed to purchase back from investors tens of billions of dollars of commercial paper CDOs. As plaintiffs see it, Citigroup’s “continuing involvement” in its CDOs was far from “limited.” (Id. ¶ 558.) b. Alleged Misleading Statements about the Nature of CDO Exposure In addition to withholding information about the extent of Citigroup’s CDO holdings—or making only inadequate disclosures about those holdings—plaintiffs also allege that Citigroup’s SEC filings affirmatively misled investors about the nature of the CDOs themselves: namely that defendants failed to convey in their statements the subprime related risks inherent in Citigroup’s CDO portfolio. i. Citigroup States that Securitizations Reduce Its “Credit Exposure” Citigroup’s SEC filings made the following statement regarding Citigroup’s securitization of mortgages: Mortgages and Other Assets The Company provides a wide range of mortgage and other loan products to its customers. In addition to providing a source of liquidity and less expensive funding, securitizing these assets also reduces the Company’s credit exposure to the borrowers. (Id. ¶ 543 (quoting Citigroup’s Form 10-Q, at 42 (Aug. 3, 2007).)) The SEC filings also made the following statement: The Company primarily securitizes credit card receivables and mortgages.... The Company’s mortgage loan securitizations are primarily non-recourse, thereby effectively transferring the risk of future credit losses to the purchaser of the securities issued by the trust. (Id. ¶ 545 (quoting Citigroup’s Form 10-Q, at 63-67 (Aug. 3, 2007).)) Plaintiffs claim that those statements were misleading because they suggested that Citigroup had, through securitization, reduced its exposure to losses from residential mortgage defaults. Plaintiffs maintain that, even if Citigroup had created RMBS from the mortgages it had originated, Citigroup then created CDOs of those and other RMBS and retained substantial CDO holdings. Thus, in plaintiffs’ view, Citigroup’s claim that securitization “reduces the Company’s credit exposure to borrowers” was misleading in light of the fact that Citigroup’s CDO operations exposed the company to billions of dollars of risk from mortgage defaults. Moreover, plaintiffs contend that Citigroup’s claim that “loan securitizations ... effectively transferí ] the risk of future credit losses to the purchaser of the securities” was misleading because Citigroup did not disclose that Citigroup itself was effectively “the purchaser” of billions of dollars of securities backed by loans. ii. Citigroup Presents Its “CDO-Type Transactions” as Distinct from Its “Mortgage-Related Transactions” Plaintiffs further allege that Citigroup’s SEC filings misled investors about the extent to which Citigroup’s CDO were backed by subprime mortgages. Plaintiffs claim that Citigroup’s SEC filings were misleading because they presented Citigroup’s underwriting of CDOs as distinct from Citigroup’s securitizing of mortgages, giving a false impression that Citigroup’s CDOs were backed by assets unrelated to mortgages. (Id. ¶¶ 550-53.) In a section titled “Off-Balance Sheet Arrangements,” Citigroup’s August 3, 2007 Form 10-Q stated: Mortgages and Other Assets The Company provides a wide range of mortgage and other loan products to its customers.... The Company recognized gains related to the securitization of mortgages and other assets .... (Id. ¶ 543 (quoting Citigroup’s Form 10-Q, at 42 (Aug. 3, 2007).)) A later passage from the same section stated: Creation of Other Investment and Financing Products The Company packages and securitizes assets purchased in the financial markets in order to create new security offerings, including arbitrage collateralized debt obligations (CDOs) and synthetic CDOs for institutional clients and retail customers, which match the clients’ investment needs and preferences. (Id.) Those statements were misleading, plaintiffs claim, because they placed Citigroup’s “gains related to the securitization of mortgages” under a different heading from Citigroup’s “new security offerings, including ... CDOs.” That, in plaintiffs view, falsely implied that Citigroup’s CDOs did not involve assets tied to subprime mortgages. In another section of the Form 10-Q, entitled “Securitizations and Variable Interest Entities,” Citigroup disclosed the total assets of the CDOs it had underwritten in a table reporting the total value of Citigroup’s VIEs: [T]he following table represents the total assets of unconsolidated VIEs where the Company has significant involvement: In billions of dollars June 30, 2007 December 31, 2006 CDO-type transactions 74.4 52.1 Investment-related transactions 134.4 122.1 Trust preferred securities 10.3 9.8 Mo Hgage-related transactions 5.0 2.7 Structured finance and other 37.4 41.1 Total assets of significant unconsolidated VIEs 261.8 227.8 (Id. ¶ 545 (quoting Citigroup’s Form 10-Q, at 63-67 (Aug. 3, 2007) (emphasis added).)) Plaintiffs claim that that disclosure misled investors by presenting Citigroup’s “CDO-type transactions” as distinct from Citigroup’s “mortgage-related transactions,” when, in reality, nearly all of Citigroup’s CDOs were collateralized primarily by subprime and Alt-A mortgages. (Id. ¶ 548.) Put differently, plaintiffs’ claim is that Citigroup’s CDOs were, in essence, “mortgage-related transactions,” and so to place them in a different category was to imply that they were backed by assets unrelated to mortgages—an implication that was manifestly false. iii. Citigroup Maintains its CDOs Contained Diverse Assets to Diversify Risk Plaintiffs allege that Citigroup represented that its CDOs were assembled to diversify risk. Specifically, in portions of Citigroup’s SEC filings describing CDOs, it stated, “Typically, these instruments diversify investors’ risk to a pool of assets as compared with investments in an individual asset.” (Id. ¶ 554.) This description was misleading, plaintiffs contend, because CDOs “were not based on diversified assets, but on a singular investment in sub-prime mortgages.” (Id. ¶ 555.) c. Alleged CDO-Related Accounting Violations Plaintiffs contend that Citigroup violated “Generally Accepted Accounting Principles” (“GAAP”) by failing to disclose its CDO exposure and take write downs for its CDO holdings before November 2007. The failure to adhere to GAAP, plaintiffs claim, made many of Citigroup’s SEC filings false and misleading. i. Reporting CDO Exposure Plaintiffs claim that Citigroup’s SEC filings were false because they failed to disclose Citigroup’s exposure to credit risk in its CDO holdings pursuant to Financial Accounting Standards Board, Summary of Statement No. 107 (“SFAS 107”). Paragraph 15A of SFAS 107 provides: [A]n entity shall disclose all significant concentrations of credit risk arising from all financial instruments, whether from an individual counterparty or groups of counterparties. Group concentrations of credit risk exist if a number of counterparties are engaged in similar activities and have similar economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. (Id. ¶¶ 1019-20.) Financial Accounting Services Board Staff Position, Statement of Position 94-6-1 (“FSP SOP 94-6-1”), further provides that the “terms of certain loan products”—including many of the terms of subprime mortgages—“may increase a reporting entity’s exposure to credit risk and thereby may result in a concentration of credit risk as that term is used in [S]FAS 107, either as an individual product type or as a group of products with similar features.” (Id. ¶¶ 1022-24 (quoting FSP SOP 94-6-1).) Plaintiffs contend that SFAS 107 and FSP SOP 94-6-1 required Citigroup to disclose its CDO exposure because Citigroup’s CDO holdings were “significant concentrations of credit risk.” ii. Consolidating Commercial Paper CDOs Plaintiffs allege that Citigroup violated GAAP by failing to consolidate its commercial paper CDOs on its balance sheet. Citigroup considered its CDOs to be VIEs governed by Financial Accounting Standards Board, Interpretation No. 46(R) (“FIN 46(R)”). Citigroup asserted in its SEC filings that FIN 46(R) did not require consolidation of certain VIEs, including CDOs. Plaintiffs argue that Citigroup’s SEC filings were false because Citigroup failed to consolidate its commercial paper CDOs onto its balance sheet. Paragraph B 10 of FIN 46(R) provides that “written put options ... are variable interests if they protect holders of other interests from suffering losses.” (Compl. ¶ 1039.) Plaintiffs claim that Citigroup’s liquidity puts for super-senior CDOs were “variable interests” because they protected the holders of the CDOs from suffering losses. Paragraph 14 of FIN 46(R) provides that an “enterprise,” such as Citigroup, “shall consolidate a [VIE] if that enterprise has a variable interest ... that will absorb a majority of the [VIE]’s expected losses.” (Id. ¶ 1036.) Plaintiffs claim that Citigroup should have consolidated its commercial paper CDOs because Citigroup’s liquidity puts were variable interests that would have absorbed a majority of the expected losses of the CDOs. (Id. ¶¶ 1032-43.) iii. Valuing CDO Holdings Plaintiffs claim Citigroup, over a period stretching from March 2007 to April 2008, consistently over-valued its CDO holdings. Citigroup first took a writedown on its CDO holdings on November 4, 2007. Plaintiffs contend that Citigroup’s SEC filings should have reported a CDO-related writedown well before. The company stated that it “accounted] for its CDO super senior subprime direct exposures and the underlying securities on a fair-value basis with all changes in fair value recorded in earnings.” (Id. ¶ 1055 (quoting Citigroup’s 2007 Form 10-K).) Plaintiffs allege that from through September 30, 2007, Citigroup valued its CDO holdings at par. (Id. ¶ 594) They contend that had Citigroup actually undertaken a “fair value” assessment of its CDO holdings, it should have begun taking periodic writedowns on its impaired CDO holdings in March 2007. (Id. ¶¶ 600, 604, 608.) The failure to take these writedowns allegedly resulted in inflated revenue and income statements in Citigroup’s periodic SEC filings. For example, “Had Citigroup valued its Mezzanine CDO super senior holdings at fair value as of March 31, 2007, it would have "•had to take a writedown of $1.2 billion. This would have reduced Citigroup’s reported revenues by $1.2 billion and pre-tax income by $1.2 billion.” (Id. ¶ 600) Plaintiffs support that argument by citing Financial Accounting Standards Board, Statement of Position 157 (“FAS 157”), which defines “fair value” as “the price that would be received to sell an asset ... in an orderly transaction between market participants.” (Id. ¶ 1047 (quoting FAS 157 ¶ 5.)) FAS 157 sets forth “inputs” that companies should use to arrive at a “fair value” calculation. (Id. ¶ 1049.) “Level 1” inputs are the most favored, as they include quoted prices in active markets for identical assets or liabilities. (Id. ¶ 1051-52 (citing FAS 157 ¶¶ 22, 24).) “Level 2” inputs are second-best; they include: a. Quoted prices for similar assets or liabilities in active markets; b. Quoted prices for identical or similar assets or liabilities in markets that are not active ...; c. Inputs other than quoted prices that are observable for the asset or liability ...; and d. Inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs). (Id. ¶ 1053 (quoting FAS 157 ¶ 28).) “Level 3” inputs are the least favored means of calculating fair value, as they involve unobservable inputs. (Id. ¶ 1051-52.) Plaintiffs claim that Citigroup’s falsely calculated the fair value of Citigroup’s CDO holdings because Citigroup valued those holdings by means of Level 3 inputs—“credit ratings and other valuation methodologies” (Defs.’ Mem. at 29)—rath-er than readily available Level 2 inputs. In particular, plaintiffs claim that Citigroup should have taken writedowns on its CDO holdings in reaction to precipitous drops in the “TABX,” a widely used index that tracked the price of mezzanine CDOs. (Compl. ¶ 1057; see also id. ¶ 309.) Plaintiffs allege that, while Citigroup valued its CDO holdings at par—or full value—until November 2007, the TABX was at 85% of par in March 2007, 69% of par in June 2007, and 33% of par in September 2007. In plaintiffs’ view, Citigroup was required to use the TABX—a Level 2 input—to take a writedown on its CDO holdings far before November 4, 2007. Defendants respond that the TABX index—as well as the related ABX index— were not designed to measure the entire market for RMBS and CDOs, and thus the indexes did not provide a suitable valuation tool for Citigroup’s CDOs. In addition, defendants argue the ABX and TABX indexes were inapplicable because they tracked only BBB-rated and A-rated RMBS and CDOs, and many of Citigroup’s holdings were higher-rated super-senior CDOs. (Defs.’ Mem. at 28-31.) 2. November J, 2007 and Later Statements According to the Complaint, Citigroup on November 4, 2007 disclosed a net exposure to super-senior CDO tranches in the amount of $43 billion and estimated a writedown of $8 to $11 billion on those assets. (Compl. ¶ 615). Plaintiffs allege that the $43 billion figure was misleading. It did not include $10.5 billion worth of holdings that Citigroup had hedged by-swapping the risk off to certain insurers. But according to plaintiffs, this insurance was effectively meaningless because the insurers could not honor it. (Id. ¶ 185). The omission of these holdings from Citigroup’s November 4 disclosure created the false impression that these hedged CDOs would not expose Citigroup to further losses. (Id.) Plaintiffs further allege that the writedowns Citigroup took on its CDOs on November 4 and thereafter were materially misleading because they did not reflect the actual value of those assets. (Id. ¶¶ 613-26) 3. Allegations of Fraudulent Intent with Respect to CDO-Related Misstatements and Omissions Plaintiffs also allege that defendants acted with fraudulent intent when they purportedly made material misstatements and omissions regarding CDOs. Plaintiffs contend that defendants knew that Citigroup’s CDOs were risky investments and would suffer substantial losses if nationwide housing prices declined. Plaintiffs also allege that defendants knew that, once housing prices declined and the subprime mortgage market collapsed, Citigroup should have written down the value of its CDO holdings—even if the CDOs’ credit ratings had not yet been downgraded. Plaintiffs allege the following facts in support of their allegations that the defendants acted with fraudulent intent. a. Citigroup Underwrote the CDOs It Owned Plaintiffs allege that defendants knew that Citigroup’s CDO holdings were at risk of substantial losses by virtue of the fact that Citigroup had underwritten the very CDOs it owned. That is, Citigroup had selected assets for the CDOs and created the financial models to value them. As a result, plaintiffs allege that defendants knew that the CDOs involved concentrated, correlated risk and would suffer substantial losses if nationwide housing prices declined. In particular, plaintiffs allege that Citigroup calculated the “expected loss” of its CDO tranches by assuming that housing prices would rise six percent per year. As a substantial player in the subprime mortgage market, moreover, Citigroup allegedly knew that subprime mortgages were viable only if housing priced continued to rise. Thus, according to plaintiffs, Citigroup knew that its CDOs—even the super-senior tranches—would suffer considerable losses if nationwide housing prices fell. (Id. ¶¶ 1108-11.) Plaintiffs point to Citigroup’s mezzanine CDOs as an especially salient example of Citigroup’s understanding that its CDOs were risky investments. Plaintiffs contend that, as underwriter for its mezzanine CDOs, Citigroup knew (1) that a nationwide fall in housing prices would cause an increased percentage of subprime mortgages to default; (2) that a high default rate would quickly wipe out the BB-rated junior tranches of all subprime-backed RMBS; (3) that once junior RMBS tranches were wiped out, the mezzanine RMBS tranches would begin to suffer losses; and (4) that once mezzanine RMBS tranches were impaired, even the super-senior tranches of Citigroup’s mezzanine CDOs would suffer losses, as the mezzanine CDOs were collateralized almost entirely of mezzanine RMBS. In other words, plaintiffs allege that Citigroup designed its AAA-rated mezzanine CDO tranches to be far riskier investments than their ratings reflected. Indeed, Citigroup must have known, plaintiffs contend, that its AAA-rated mezzanine CDO tranches were not much safer than BBB-rated mezzanine RMBS tranches, for if a nationwide housing decline wiped out all mezzanine RMBS tranches, AAA-rated mezzanine CDO super-senior tranches would likewise fail, b. The Market Believed that CDOs Were at Risk Plaintiffs also allege that defendants knew that Citigroup’s CDO holdings were at risk of substantial losses because there was a consensus in the market, at least by March 2007, that CDOs were at risk. Plaintiffs allege that, beginning in October 2006, the market began to suspect that CDOs were vulnerable. Plaintiffs base that allegation on the following facts: • Financial analysts from late 2006 noted that subprime mortgages were defaulting at high rates and concluded, as a result, that RMBS and CDOs were likely to begin to take losses. (Id. ¶¶ 315, 317-19, 321.) • Two indices—the ABX, which tracked the price of subprime RMBS, and the TABX, which tracked the price of mezzanine CDO tranches—began to decline. (Id. ¶¶309, 322.) • Newspaper articles reported on a possible decline in RMBS and CDO values. (Id. ¶¶ 312, 316, 323.) Then, from March 2007 onward, plaintiffs allege that there was a “market consensus” that CDOs would suffer losses. (Id. ¶ 308.) Plaintiffs base that allegation on the conclusions of several financial analysts, many times reported in national newspapers, that “even investment grade rated CDOs [would] experience significant losses” (id. ¶ 327), that the “scenario where the BBB[-rated RMBS tranches] blow up [was] a reasonably possible scenario” (id. ¶ 328), that the credit ratings of CDO tranches were suspect (id. ¶ 329), that there was the possibility of “severe” credit downgrades on CDOs (id. ¶ 331), and that there had, in fact, already been “massive losses in the CDO market” (id. ¶ 337). In addition, plaintiffs allege that the ABX and TABX indices fell substantially in February and March 2007. (Id. ¶ 309.) Thus, plaintiffs allege that defendants knew that Citigroup’s disclosures were false and misleading because, at least after March 2007, there was a consensus that CDOs were vulnerable. Indeed, plaintiffs allege that defendants intentionally misled the market, which was keenly interested in learning which companies were exposed to CDO-related risk. According to plaintiffs, many in the market assumed that CDO underwriters had sold their CDOs to outside investors, thereby divesting themselves of any attendant risk. (Id. ¶¶ 338, 343-48.) Defendants encouraged that misconception, plaintiffs claim, by failing to disclose Citigroup’s allegedly massive CDO holdings. c. Citigroup Analysts Express Concern About Subprime Mortgages and CDOs In addition, plaintiffs cite three statements by Citigroup analysts showing, in plaintiffs’ view, that Citigroup understood the weaknesses in the subprime mortgage market and Citigroup’s CDO holdings: • A report by Citigroup’s “Fixed Income” division, issued in January 2007, concluded that the subprime mortgages originated in 2006 were the “worst vintage in subprime history.” (Id. ¶ 1115.) • A report by Citigroup’s “Quantitative Credit Strategy and Analysis Group,” issued in March 2007, concluded that recent troubles in the subprime mortgage market were capable of causing widespread credit rating downgrades and resulting in losses even to senior CDO tranches. (Id. ¶¶ 1121-25 (“Translated into the CDO space, widespread downgrades [on the underlying ABS tranches] would, relatively speaking, be far worse for the senior tranches than for junior ones.”).) The report recommended that investors either sell their senior CDO tranches or hedge their risks through credit default swaps. (Id. ¶ 1126.) • At a Citigroup-sponsored conference in March 2007, Citigroup’s “head of credit strategy” stated that the as for the “ ‘near-term risk of further [sub-prime] market correction is concerned, it’s at the top of the list’ of worries.” He went on to say that, in response to declines in the subprime market, some banks have engaged in a “ ‘massive provisioning for losses.’ ” “ ‘And to be honest,’ ” he said, “ ‘that makes us deeply suspicious’ of banks ‘with exposures in that space who have not declared anything like the same degree of provisioning.’ ” (Id. ¶ 1128 (quoting Subprime Surprise for Europeans, Wall. St. J., Mar. 9, 2007).) d.Citigroup Creates CDOs to Buy Unwanted CDOs Plaintiffs allege that, in late 2006 and early 2007, Citigroup found it increasingly difficult to find buyers for its CDOs. According to plaintiffs, Citigroup created new CDOs and used those CDOs to purchase unwanted tranches of old CDOs. That, in plaintiffs’ view, shows that both (1) Citigroup realized that its CDOs were overly risky and overvalued and (2) Citigroup intended to create the appearance of CDO sales when, in reality, Citigroup was simply transferring assets between Citigroup-controlled entities. (Id. ¶¶ 448-80, 1112— 14.) e.Citigroup Creates a Special Entity to Assume the Risks of Liquidity Puts As discussed above, Citigroup sold $25 billion of CDO super-senior tranches with liquidity puts in which Citigroup agreed to purchase back the CDOs from investors at full value. In addition, plaintiffs allege that, in February 2007, Citigroup created a special purpose entity called “Foraois Funding Ltd.” for the purpose of engaging in a “credit default swap” involving part of Citigroup’s liquidity puts. That is, Citigroup created Foraois and then paid Foraois a fee in order to assume Citigroup’s liabilities on $1.32 billion of Citigroup’s liquidity puts. To finance the Foraois entity, Foraois issued debt securities that were, in part, purchased by a Citigroup-underwritten CDO. Plaintiffs claim that the Foraois transaction shows that Citigroup was attempting to hide or dispose of its liability for liquidity puts, demonstrating Citigroup’s awareness that the liquidity puts would lead to substantial losses. (Id. ¶¶ 436-47, 1117-20.) f.Citigroup Makes Collateral Demands on Mortgage Originators Citigroup and other banks had an arrangement with subprime mortgage originators in which Citigroup would extend so-called “warehouse lines of credit.” The originators would make loans to borrowers using the warehouse credit, and then Citigroup would purchase the loans from the originator, resetting the credit line. According to plaintiffs, in March 2007, Citigroup and other banks began pulling out of the warehouse credit arrangements by making large collateral demands on the originators. In particular, plaintiffs allege that Citigroup’s collateral demands caused New Century Financial, one of the nation’s largest subprime mortgage originators, to file for bankruptcy protection. Citigroup’s collateral demands, plaintiffs claim, demonstrate Citigroup’s awareness of the weakness of the subprime mortgage market. (Id. ¶¶ 304-05, 1130-33.) g. Citigroup’s CDO Prospectuses Warn of Risks Plaintiffs allege that, beginning in April 2007, Citigroup CDO prospectuses disclosed certain risk factors, including that: • Defaults on subprime mortgages had increased, which had the possibility of “affect[ing] the performance of RMBS Securities.” • Adjustable-rate subprime mortgages were especially susceptible to default. • A decline in housing prices had the possibility of leading to greater sub-prime mortgage defaults. • Subprime mortgage originators had recently gone bankrupt, and the federal government had recently promulgated new rules for subprime mortgages, which had made it possible that subprime borrowers would have difficulty refinancing. (Id. ¶ 1136.) All of those risk factors, the prospectuses explained, could “reduce the cash flow which the [CDO] receives from RMBS Securities or CDO Securities held by the [CDO]” and “decrease the market value of such RMBS Securities and CDO Securities and increase the incidence and severity of credit events.” (Id. ¶¶ 1134-36.) Plaintiffs allege that the new language in Citigroup’s CDO prospectuses demonstrates that Citigroup understood that its CDOs faced substantial risks from the collapse of the subprime mortgage market. h. Citigroup Purchases Insurance for Its CDO Holdings Plaintiffs allege that, beginning in February 2007, Citigroup began to purchase insurance for its super-senior CDO holdings. That, in plaintiffs’ view, shows that Citigroup understood that its super-senior CDO holdings faced a substantial risk of losses. (Id. ¶ 1116.) i. Citigroup Executives Hold Daily Risk Exposure Sessions Plaintiffs allege that, according to news reports, defendant Rubin began in July 2007 to hold daily meetings regarding Citigroup’s CDO exposures. (Id. ¶¶ 1140-42.) That, in plaintiffs’ view, demonstrates that Citigroup understood that its CDO holdings faced massive losses. j. Citigroup Makes a Margin Call on Basis Capital Funds Citigroup had lent money to several hedge funds called the Basis Capital Funds. Plaintiffs allege that, in mid-July 2007, Citigroup began making margin calls on Basis Capital on the understanding that a large portion of the collateral that Basis Capital had put up for the loans—CDOs tied to subprime mortgages—had declined in value and no longer provided sufficient security. That, in plaintiffs’ view, shows that Citigroup understood that CDOs had, in general, become devalued. (Id. ¶¶ 1143-48.) D. Alt-A RMBS Allegations Plaintiffs allege that Citigroup’s misled investors by failing to disclose Citigroup’s Alt-A RMBS exposure and, once revealed, by failing to value those assets properly. First, plaintiffs assert that Citigroup should have disclosed its Alb-A RMBS exposure prior to April 18, 2008, because plaintiffs claim that the market knew beginning in late 2007 that Alt-A RMBS holdings were impaired. (Id. ¶¶ 949-55.) Citigroup, plaintiffs claim, knew the risks facing Alt-A RMBS even better than the market because Citigroup, as the underwriter of the securities, “was in a uniquely advantageous position to observe the deteriorating performance of these assets before they became public knowledge.” (Id. ¶ 954.) Plaintiffs further allege that defendant Crittenden misled investors about the scope of Citigroup’s Alt-A RMBS exposure in a January 22, 2008 earnings conference call. Crittenden stated that he did not “anticipate” that Citigroup’s “AINA portfolio” would pose “a substantial risk.” An analyst asked, “Is that a function of size or you just don’t think that area is going to have the same deterioration we have seen in other credit buckets?” Crittenden responded, “It is a function of size.” (Id. ¶ 956.) Plaintiffs claim that Crittenden’s statement was misleading because, in fact, Citigroup’s AINA RMBS holdings were massive—approximately $22 billion at the time of Crittenden’s statement. (Id. ¶ 957.) Finally, plaintiffs allege that, even when Citigroup announced its Alt-A RMBS exposure, Citigroup overvalued its AINA RMBS holdings. Plaintiffs claim that when Citigroup wrote down its AINA RMBS holdings to 66 cents on the dollar, other banks had written down their AINA RMBS holdings to between 35 and 50 cents on the dollar. (Id. ¶ 961.) E. SIV Allegations Plaintiffs’ SIV allegations can be grouped into three categories. First, plaintiffs contend that Citigroup misled investors by failing to disclose the SIV exposure it had on account of its “implicit guarantee” to provide liquidity support for its SIVs in the event they began to fail. According to plaintiffs, Citigroup’s SIVs had sold $100 billion of securities to Citigroup customers, marketing them as safe investments. If the SIVs ever failed, Citigroup’s reputation among its customers would be severe