Full opinion text
Opinion and Order LAURA TAYLOR SWAIN, District Judge. Plaintiffs have filed a Third Amended Complaint (“TAC”) asserting claims on behalf of a putative class of investors against various Bear Stearns entities, Structured Asset Mortgage Investments II, Inc., (“SAMI”), and several individuals for violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (the “33 Act”), 15 U.S.C. §§ 77k, 77i(a)(2), 77o, in connection with the sale of mortgage-backed security (“MBS”) pass-through certificates (“Certific'ates”) that were offered for sale by means of documents that allegedly contained untrue statements and material omissions. Defendants have moved to dismiss the TAC pursuant to Federal Rule of Civil Procedure 12(b)(6) for failure to state a claim. The Court has jurisdiction of this matter under 28 U.S.C. § 1331. For the reasons stated below, Defendants’ motion is granted in part and denied in part. Background I. Mortgage-Backed Security Allegations The following facts are taken from the TAC, the documents incorporated by reference therein, and other documents of which the Court may properly take judicial notice. Plaintiffs’ factual allegations are taken as true for purposes of this motion practice. On March 10, 2006, and March 31, 2006, SAMI Depositor and Bear Stearns Depositor, respectively, filed Registration Statements with the Securities and Exchange Commission (“SEC”) indicating their intention to sell $50 billion in MBS Certificates. (TAC ¶ 4.) The Registration Statements and the accompanying Prospectus and Prospectus Supplements (collectively referred to as “Offering Documents”) contained untrue statements and omissions of material fact regarding the underwriting and appraising standards, the value of the collateral, the amount of credit support for each offering, and the credit ratings of the Certificates. (Id. ¶ 9.) These omissions and misstatements are alleged to have caused the Offering Documents to be materially false and misleading. (Id.) In brief, an MBS is created when a “depositor” buys an inventory of mortgages (or “loan pool”) from a primary lender (or “originator”). After the depositor obtains the loan pools, it places them in issuing trusts, securitizes them by organizing the loans into “tranches,” and issues securities backed by the loan pools. The depositor uses the borrowers’ monthly payments as the revenue stream to pay investors who have bought the securities. Each tranche has a different risk profile and is assigned a credit rating — here, by the rating agencies S & P and Moody’s (“Rating Agencies”). All of the tranches from which named Plaintiffs purchased Certificates were initially rated AAA, which ostensibly indicated the lowest likelihood of default. (TAC ¶¶ 40-41.) Because the value of an MBS depends on the ability of the borrowers to repay the principal and interest on the underlying loans as well as the adequacy of the collateral in the event of default, thorough assessments of the borrowers’ creditworthiness and the homes’ values are paramount. (Id. ¶ 3.) To this end, the MBS packaging process has three principal levels of quality control. First, underwriting and appraisal standards are crafted to assist the originator in weeding out excessively risky loan applications; second, the depositor reviews the loan pools to ensure that they meet the originator’s stated underwriting standards (id. ¶¶ 55-58); and third, the Rating Agencies review the securities’ risk profiles and assign ratings. (Id. ¶¶ 6,184-85.) The TAC details a systemic breakdown at each level, one that resulted largely from the misalignment of incentives in the MBS industry. Under the traditional mortgage investment model, the loan originator held the mortgage to maturity and made its profits from the borrower’s payment of interest and repayment of principal-an arrangement that gave the originator an economic interest in ensuring that (1) the borrower had the financial wherewithal to repay the promissory note, and (2) the underlying property had sufficient value to cover the lender’s losses in the event of default. (Id. ¶¶ 44-47, 168.) With the advent of securitization, originators quickly parted with the mortgages— and the attendant risk of default — by selling them to investors. (Id. ¶ 169). The primary source of profit shifted from borrowers’ interest payments to loan fees and sales revenue. Largely free from the risk of defaults, originators began pushing high-risk loan products and deviating from underwriting and appraisal standards in an attempt to maximize loan volume. (Id. ¶¶ 169-70). Wall Street banks like Bear Stearns, which profited enormously from the packaging and sale of MBS, were content to overlook the widespread degradation of underwriting and appraisal practices. (Id. ¶¶ 56-67, 171.) The final guarantors of the securities’ quality, the Rating Agencies, were equally compromised. The Rating Agencies’ models were outdated and failed to properly account for the increased riskiness of new loan products. (Id. ¶ 196.) Compounding the problem, banks such as Bear Stearns shopped for Rating Agencies willing to assign their securities top credit ratings, pitting the Agencies against each other and provoking a race to the bottom in rating quality. (Id. ¶¶ 195.) A. Misrepresentations and Omissions Regarding Underwriting Standards and Appraisals Plaintiffs allege that the Offering Documents misrepresented and omitted material facts regarding the underwriting standards applied by the loan originators. EMC Mortgage Corp. (“EMC”), Bear Stearns Residential Mortgage Corp. (“BSRM”), Countrywide Home Loans (“Countrywide”), American Home Mortgage (“AHM”), Wells Fargo Mortgage Corp. (“Wells Fargo”), Fieldstone Mortgage Corp. (“FMC”), as well as six additional corporations listed in the Prospectus Supplement, originated loans held by the trusts in which Plaintiffs invested. (Id. ¶¶ 82, 94,100,126, 141,157,166.) EMC was an originator of loans for the BSABS 2007-HE4, BSMF 2006-AR1, BSMF 2006-AR4, BSMF 2006-AR5, BAL-TA 2006-6, BALTA 2006-8, and BALTA 2007-1 trusts. (Id. ¶ 82.) The Offering Documents represented that: “Each mortgaged property relating to an EMC mortgage loan has been appraised by a qualified independent appraiser” in accordance with the “Uniform Standards of Professional Appraisal Practice.” (Id. ¶ 84.) The Offering Documents further represented that “underwriting standards are applied to evaluate the prospective borrower’s credit standing and repayment ability and the value and adequacy of the mortgaged property as collateral” and elaborated that: In determining whether a prospective borrower has sufficient monthly income available (i) to meet the borrower’s monthly obligation on their proposed mortgage loan and (ii) to meet the monthly housing expenses and other financial obligations on the proposed mortgage loan, each lender generally considers, when required by the applicable documentation program, the ratio of such amounts to the proposed borrower’s acceptable stable monthly gross income. (Id. ¶ 83.) The Prospectus Supplement also stated that, while certain loans did not require income verification, the originators would “obtain a telephonic verification of the borrowers’ employment without reference to income” and that “[b]orrower’s assets are verified.” (Id. ¶ 85.) EMC systematically disregarded its own underwriting and appraisal standards and prioritized the pursuit of loan volume over loan quality. (Id. ¶ 86.) According to one study, EMC breached its representations and warranties with respect to 89% of its loans by providing misrepresentations about borrower income, employment, and assets, and by failing to adhere to its own mortgage lending guidelines. (Id. ¶ 88.) According to Matt Van Leeuwen, a former mortgage analyst with EMC, Bear Stearns forced EMC analysts to rush their loan analyses so that Bear Stearns would not have to hold the loans on its books. (Id. ¶ 92.) Mr. Van Leeuwen further revealed that EMC analysts were allowed to falsify missing loan data, that the documentation level of the loans was often incorrectly identified, and that Bear Stearns would declare the loan “fit” rather than investigating to fill in the missing information. (Id.) As of the date of the TAC, 98% ($7.3 billion) of the $7.45 billion of the initially AAA-rated Certificates from the seven trusts had been downgraded to or below speculative “junk” status. (Id. ¶ 93.) BSRM was an originator of loans for the BSMF 2006-AR1, BSMF 2006-AR4, BSMF 2006-AR5, and BSABS 2007-HE4 trusts. (Id. ¶ 94.) The Prospectus Supplements described stringent underwriting standards. For example, the Prospectus Supplement for the BSMF Series 2006-AR1 Certificate Offering stated: The BSRM Alt-A Underwriting Guidelines are intended to ensure that (i) the loan terms relate to the borrower’s willingness and ability to repay and (ii) the value and marketability of the property are acceptable .... Based on the documentation type each loan application package has an application completed by the prospective borrower that includes information with respect to the applicant’s assets, liabilities, income, credit and employment history, as well as certain other personal information. During the underwriting process, BSRM calculates and verifies the loan applicant’s sources of income (except documentation types, which do not require such information to be stated or independently verified), reviews the credit history of the applicant, calculates the debt-to-income ratio to determine the applicant’s ability to repay the loan, and reviews the mortgaged property for compliance with the BSRM Underwriting Guidelines. (Id. ¶ 95) (emphasis in original.) The Prospectus Supplements also described BSRM’s prudent underwriting standards for loans that required less documentation. (Id. ¶ 97.) However, BSRM systematically disregarded its own underwriting and appraisal standards to maximize loan volume. (Id. ¶ 98.) As of the date of the TAC, almost 100% ($3.74 billion) of the $3.75 billion of the initially AAA-rated Certificates from the above four trusts had been downgraded to or below speculative “junk” status. (Id. ¶ 99.) Countrywide was an originator of loans for the SAMI 2006-AR6, SAMI 2006-AR7, BALTA 2006-6, BALTA 2007-1, BSARM 2006- 4, BSARM 2007-3, and BSARM 2007- 1 trusts. The Prospectus Supplements describe Countrywide’s rigorous, stated underwriting standards. For example, the Prospectus Supplement for the SAMI 2006-AR6 offering stated that Countrywide evaluates “the prospective borrower’s credit standing and repayment ability and the value and adequacy of the mortgaged property as collateral” by verifying employment history and appraising the property, in a manner “conformfing] to Fannie Mae or Freddie Mac appraisal standards then in effect.” (Id. ¶¶ 101— 102.) The Prospectus Supplement represented that loans requiring less documentation were “limited to borrowers with excellent credit histories” and that the loan application would be “reviewed to determine that the stated income is reasonable for the borrower’s employment and that the stated assets are consistent with the borrower’s income.” (Id. ¶ 103.) However, in an effort to originate as many loans as possible, Countrywide routinely and systematically violated its stated underwriting standards. (Id. ¶ 104.) According to a confidential witness (“CW1”), a senior Countrywide underwriter, Countrywide regularly designated loans made to unqualified borrowers as “prime.” (Id. ¶ 105.) According to a second confidential witness (“CW2”), Countrywide created a computer system that identified high risk loans and routed them out of the normal loan approval process; instead of being rejected, the loans were reviewed to evaluate whether they should require a higher price or higher interest rate. (Id. ¶ 106.) Other confidential witnesses (“CW3” and “CW4”) stated that, between 2000 and 2007, Countrywide extended loans to individuals with increasing debt-to-income ratios, and that branch managers pressured underwriters to approve risky loans. (Id. ¶¶ 107-108.) According to a former Regional Vice President of Countrywide Mortgage Ventures, LLC, Countrywide also placed pressure on appraisers to appraise to predetermined values, which distorted the loan-to-value ratios and made the mortgage loans in the pool much riskier than suggested by the Offering Documents. (Id. ¶¶ 109-10.) As a result of these unlawful mortgage practices, Countrywide has been the target of federal investigations, lawsuits by several state attorneys general, and numerous civil actions. (Id. ¶¶ 111-124.) As of the date of the TAC, 98% ($9.31 billion) of the initially AAA-rated Certificates issued from the seven trusts had been downgraded to or below speculative “junk” status. (Id. ¶ 125.) AHM was an originator of loans for the SAMI Series 2006-AR5 trust. The Prospectus Supplement for that trust represented that: American Home’s underwriting philosophy is to weigh all risk factors inherent in the loan file, giving consideration to the individual transaction, borrower profile, the level of documentation provided and the property used to collateralize the debt.... American Home underwrites a borrower’s creditworthiness based solely on information that American Home believes is indicative of the applicant’s willingness and ability to pay the debt they would be incurring. (Id. ¶ 127) (emphasis in original). The Prospectus Supplement further represented that there would be “compensating factors such as higher credit score or lower loan-to-value requirements” for loans requiring less documentation. (Id. ¶ 129.) However, AHM systematically disregarded its underwriting guidelines and regularly approved low documentation loans in the absence of sufficient compensating factors in order to maximize its loan volume. An internal report circulated in October 2005 relaxed the underwriting standards by no longer requiring verification of income sources on stated-income loans, reducing the time required to have elapsed since the borrower was last in bankruptcy or credit counseling, reducing the required documentation for self-employed borrowers, and broadening the acceptable use of second and third loans to cover the property value. (Id. ¶ 131.) According to confidential witnesses CW6, CW7, and CW8, each of whom held senior positions at AHM, it was commonplace to overrule underwriters’ objections in order to complete a loan. (Id. ¶ 134-36.) Senior Executives encouraged loan officers to make risky loans, including stated-income loans, where neither the assets nor the income of the borrower were verified, “No Income” loans, which allowed for loans to be made without any disclosure of the borrowers’ income or assets, and “No Doc” loans, which allowed loans to be made to borrowers who did not disclose their income, assets or employment history. (Id. ¶ 132.) AHM’s mortgage practices have also been the focus of several criminal probes and at least one AHM sales executive has admitted that he regularly falsified clients’ income or assets, with AHM’s knowledge, to get loans approved. (Id. ¶¶ 138-139.) On August 6, 2007, AHM filed for bankruptcy. (Id. ¶ 137.) As of the date of TAC, 77% ($687 million) of the initially AAA-rated Certificates issued from the SAMI Series 2006-AR5 trust had been downgraded to or below speculative “junk” status. (Id. ¶ 140.) Wells Fargo was an originator of loans for the BALTA 2006-8 and BSARM 2007-1 trusts. The BSARM 2007-1 Prospectus Supplement represented that its “general” underwriting standards were: applied by or on behalf of Wells Fargo Bank to evaluate the applicant’s credit standing and ability to repay the loan, as well as the value and adequacy of the mortgaged property as collateral. The underwriting standards that guide the determination represent a balancing of several factors that may affect the ultimate recovery of the loan amount, including, among others, the amount of the loan, the ratio of the loan amount to the property value (i.e., the lower of the appraised value of the mortgaged property and the purchase price), the borrower’s means of support and the borrower’s credit history. Wells Fargo Bank’s guidelines for underwriting may vary according to the nature of the borrower or the type of loan, since differing characteristics may be perceived as presenting different levels of risk. (Id. ¶ 143) (emphasis in original). The Prospectus Supplement also disclosed that Wells Fargo’s “modified” underwriting standards “permit different underwriting criteria, additional types of mortgaged properties or categories of borrowers ... and include certain other less restrictive parameters.” (Id. ¶ 144.) Finally, the Prospectus Supplement stated that in order to qualify for participation in Wells Fargo’s mortgage loan purchase program: lending institutions must (i) meet and maintain certain net worth and other financial standards, (ii) demonstrate experience in originating residential mortgage loans, (iii) meet and maintain certain operational standards, (iv) evaluate each loan offered to Wells Fargo Bank for consistency with Wells Fargo Bank’s underwriting guidelines and represent that each loan was underwritten in accordance with Wells Fargo Bank standards and (v) utilize the services of qualified appraisers. (Id. ¶ 146) (emphasis in original). However, Wells Fargo systematically disregarded its stated underwriting and appraisal standards. According to a confidential witness (“CW9”), loan officers applied “intense” pressure on underwriters to approve risky loans and rewarded “high producers.” (Id. ¶ 148.) Another confidential witness and former Wells Fargo employee (“CW10”) states that the mortgage unit would loosen its underwriting standards at the end of the year to meet the origination goals; those employees who did not approve risky loans “wouldn’t be around very long.” (Id. ¶ 150.) According to CW11, Wells Fargo instituted a program in 2006 called “courageous underwriting,” which CW11 described as “following the guidelines but also finagling the guidelines if it meant getting the loan approved.” (Id. ¶ 152.) According to CW12, a former Wells Fargo Home Mortgage employee who was employed as a Loss Mitigation Supervisor from 1999 through 2004, and as an REO Supervisor from July 2006 through May 2008, some of the information in the loans was “blatantly falsified.” (Id. ¶ 153.) As of the date of the TAC, 93.6% ($2.08 billion) of the initially AAA-rated Certificates issued from the BALTA 2006-8 and BSARM 2007-1 trusts had been downgraded to or below speculative “junk” status. (Id. ¶ 156.) FMC was an originator of loans for the BSABS 2007-HE3 trust. The BSABS 2007-HE3 Prospectus Supplement represented that: FMC’s underwriting policy is to analyze the overall situation of the borrower and to take into account compensating factors that may be used to offset areas of weakness. These compensating factors include credit scores, proposed reductions in the borrower’s debt service expense, employment stability, number of years in residence and net disposable income.... The underwriters review each non-conforming loan in one of FMC’s regional funding centers. FMC believes that this regionalized underwriting process provides them with the ability to fund loans faster than many of its competitors, and the experience of their loan originators and branch managers, information systems and rigorous quality control process ensure the continued high quality of their loans. {Id. ¶ 158 (emphasis in original).) The underwriting was not consistently monitored by FMC’s supposed rigorous quality control process; rather, FMC’s “underwriting personnel” regularly modified mortgage loan applications in order to increase the volume of loans and resulting fees. {Id. ¶ 159.) The rising rate of foreclosures and delinquencies resulting from these practices forced FMC to file for bankruptcy in November 2007. {Id. ¶ 163.) According to press reports, an undercover operation resulted in fraud charges against 24 defendants, including brokers, business owners and appraisers who dealt regularly with FMC. {Id. ¶ 164.) As of the date of the TAC, 64.4% ($461.1 million) of the initially AAA-rated Certificates issued by the BSABS 2007-HE3 trust had been downgraded to or below speculative “junk” status. (MU 165.) Six other originators — Aegis Mortgage Corporation, Mid America Bank, U.S. Bank, NA, Provident Funding Associates, L.P., Synovus Mortgage Corporation, and American Mortgage Express Corp. d/b/a American Residential Mortgage Corp.— contributed loans to several of the offerings at issue. The Prospectus Supplements for those trusts contained untrue statements and omitted material facts. {Id. ¶ 167.) As a result of these originators’ high-risk lending practices, 100% ($1.89 billion) of the initially AAA-rated Certificates backed by loans originated by these six entities had been downgraded to or below speculative “junk” status as of the date of the TAC. {Id. ¶ 176.) B. Misrepresentations Regarding Appraisals In each Prospectus Supplement, Defendants included Loan-to-Value (“LTV”) ratios that were based on inflated appraisals of the collateral. {Id. ¶¶ 177-78.) The LTV ratio expresses the loan amount as a percentage of the collateral’s value. For example, if an individual seeks to borrow $90,000 to pay for a house worth $100,000, the LTV ratio is 90%; however, if the home appraisal is artificially elevated to $120,000, the LTV ratio drops to 75%. {Id. ¶ 178.) Lower LTV ratios are indicative of less risk. The Offering Documents represented that the appraisals were conducted in accordance with Fannie Mae and Freddie Mac appraisal standards. {Id. ¶ 179.) Contrary to those representations, many appraisals were inflated, which resulted in class members paying more for the Certificates than they were worth. {Id. ¶¶ 178-80.) C. Misrepresentations and Omissions Regarding The Certificates’ Credit Support The Offering Documents also contained material misrepresentations concerning “credit support” or “credit enhancement,” which provides holders of senior Certificates with a degree of protection should there be a shortfall in payments received on the mortgage loans. {Id. ¶¶ 181-82.) Because the originators regularly disregarded their own underwriting and appraisal standards, the supposed credit support was insufficient to cover the heightened risk of loss. {Id. ¶ 183.) D. Bear Steams’ Failure to Conduct Due Diligence Prior to making bulk purchases of loans from third-party originators, Bear Stearns sent information about the loans to the Rating Agencies to enable them to advise Bear Stearns as to the appropriate purchase price. (Id. ¶ 54.) Once the Rating Agency’s analysis was complete, Bear Stearns submitted its bids; if the mortgage originator accepted the bid, Bear Stearns often retained third-party due diligence firms such as Clayton Holdings and Bohan Group, ostensibly to comb through the loan pools and eliminate loans that violated the underwriting standards. (Id. ¶ 55.) However, executives at these firms have characterized Bear Stearns’ due diligence process as lax and haphazard. (Id. ¶ 56.) Investment banks like Bear Stearns directed the due diligence firms to drastically decrease the number of loans that they evaluated (id. ¶ 63), and routinely ignored the numerous “red flags” about flaws in subprime mortgage loans. (Id. ¶ 64.) According to documents filed with the Financial Crisis Inquiry Commission, Clayton reviewed 19,248 Bear Stearns loans from January 2006 to June 2007, and initially rejected 4,494 (23%) of them; Bear Stearns waived the exceptions related to 1,295 (29%) of those loans. (Id. ¶ 65.) During that same period, Clayton reviewed 53,131 EMC loans, and initially rejected 7,277 (13.7%); EMC waived the exceptions related to 3,628 (50%) of those loans. (Id.) E. Misrepresentations and Omissions Regarding The Certificates’ Ratings Each of the Certificates was provided a rating by Standard & Poor (“S & P”) and Moody’s. (Id. ¶ 184.) The Offering Documents stated that the Certificates’ ratings: address the likelihood of the receipt by Certificateholders of all distributions to which the Certificateholders are entitled. These ratings address the structural, legal and issuer-related aspects associated with the Certificates and notes, the nature of the underlying mortgage assets and the credit quality of the guarantor, if any. (Id.) All of the ratings set forth in each of the Prospectus Supplements were within “Investment Grade” range for Moody’s (Aaaa through Baa3) and S & P (AAA through BBB.) (Id. ¶ 185.) These ratings were premised on false representations that the originators had complied with the underwriting guidelines. (Id.) Moreover, Rating Agency executives have since admitted that the ratings were based on inaccurate data (id. ¶ 187), and relied on deficient statistical models. (Id. ¶¶ 188-195.) The Rating Agencies succumbed to market pressure to lower their standards. According to former Moody’s Managing Director Jerome S. Fons, securities issuers were free to shop around for the Rating Agency that would give them the highest rating and “typically chose the agency with the lowest standards, engendering a race to the bottom in terms of rating quality.” (Id. ¶ 195.) These unreliable ratings made it impossible for class members to accurately assess the risk of the Certificates and caused class members to pay more for the Certificates than they were worth at the time of the Offerings. (Id. ¶ 186.) II. Procedural History On August 20, 2008, Plaintiff New Jersey Carpenters Health Fund (“NJ Carpenters”) filed a complaint (the “Original Complaint”) in New York state court, asserting claims against Bear Stearns and Structured Asset Mortgage Investments II, Inc. (“SAMI”), for violations of Sections 11, 12(a)(2), and 15 of the Securities Act of 1933 (the “33 Act”), 15 U.S.C. §§ 77k, 77i(a)(2), 77o, in connection with the sale of MBS Certificates that were offered for sale by means of Offering Documents that allegedly contained untrue statements and material omissions. That action was removed to this Court on September 18, 2008. Thereafter, this action accreted parties and offerings as follows. On May 15, 2009, NJ Carpenters filed its first consolidated class action complaint (“FAC”) with Plaintiff Boilermaker Pension Trust (“Boilermaker”), adding seven offerings. On July 9, 2009, Pension Trust Fund filed a separate complaint (“Pension Trust Complaint”) against Bear Stearns and SAMI, listing six offerings. On December 23, 2009, 2009 WL 5103276, this Court granted an application to consolidate the two suits and appointed NJ Carpenters and MissPERS as co-lead plaintiffs. (See Order, docket entry no. 89.) On February 19, 2010, co-lead plaintiffs NJ Carpenters and Public Employees’ Retirement System of Mississippi (“MissPERS”), along with Boilermakers, filed a second consolidated class action complaint (“SAC”). Defendants moved to dismiss the SAC, in part on the grounds that the named plaintiffs lacked standing to assert claims with respect to offerings from which they had not purchased securities. On September 29, 2010, the Court denied Defendants’ motion to dismiss the SAC without prejudice and granted Plaintiffs leave to file a final amended complaint. (See Order, docket entry no. 133.) On October 29, 2010, Plaintiffs filed their third consolidated class action complaint (“TAC”), adding as named plaintiffs the Police and Fire Retirement System of the City of Detroit (“Detroit”), the Oregon Public Employee Retirement Fund (“OP-ERS”), the Iowa Public Employees’ Retirement System (“IPERS”), the City of Fort Lauderdale Police & Fire Retirement System (“Fort Lauderdale”), and the San Antonio Fire and Police Pension Fund (“San Antonio”). The parties, offerings, and claims in each complaint are as follows (“X” designates offerings that were listed in the class definition even though no named Plaintiff purchased from that offering): Offering/Trust Original FAC Pension Trust SAC TAC (10/29/2010) Compl. (5/15/2009) Compl. (2/19/2010) (8/20/2008) (7/9/2009) BSMF 2006-AR1 NJ Carpenters NJ Carpenters NJ Carpenters NJ Carpenters SAMI 2006-AR5 Boilermakers Boilermakers Boilermakers SAMI 2006-AR6 Boilermakers Boilermakers, Boilermakers, _MissPERS MissMPERS SAMI 2006-AR7_X_Pension Trust X_IPERS, OPERS BSABS 2007-HE3_X_X_IPERS_ BSABS 2007-HE4 X X IPERS San Antonio BSMF 2006-AR4 San Antonio BSMF 2006-AR5 MissPERS MissPERS, IPERS BALTA 2006-6 OPERS, Detroit BALTA 2006-8 IPERS, OPERS BALTA 2007-1 MissPERS MissPERS BSARM 2006-4 Ft. Lauderdale BSARM 2007-1 MissPERS MissPERS BSARM 2007-3 Plaintiffs bring this action on behalf of “all persons or entities who purchased or otherwise acquired beneficial interests in the Certificates” issued in the above-mentioned offerings. (TAC ¶¶ 1, 204.) Defendants now move to dismiss the TAC, arguing that (1) all of Plaintiffs’ claims are time-barred by the applicable statute of limitations and that certain claims are barred by the statute of repose, (2) Plaintiffs have failed to allege any actionable misrepresentation or omission, (3) Plaintiffs’ failure to allege a primary violation or plead facts demonstrating that any Individual Defendant is a control person requires dismissal of the Section 15 claim, (4) Plaintiffs have failed to allege any cognizable injury, (5) Plaintiffs’ sole remedy under the Offering Documents is repurchase or replacement of non-complying loans, and (6) Plaintiffs lack standing to sue on behalf of purchasers of individual tranches within each offering that no named Plaintiff purchased. Discussion Sections 11, 12(a)(2), and 15 of the Securities Act impose civil liability on certain persons when communications in connection with a registered securities offering contain material misstatements or omissions. 15 U.S.C. §§ 77k, 77l(a)(2), 77o; In re Morgan Stanley Info. Fund Sec. Litig., 592 F.3d 347, 358 (2d Cir.2010). Section 11 provides a cause of action for material misstatements and omissions in registration statements; Section 12(a)(2) provides a cause of action for material misstatements and omissions in prospectuses and oral communications. 15 U.S.C. §§ 77k, 77i(a)(2); see also In re Morgan Stanley, 592 F.3d at 358-59. Section 15 provides a cause of action against “[e]very person who ... controls any person liable under [Sections 11 or 12(a)(2) ] of this title.” 15 U.S.C. § 77o. A claim under Section 15, therefore, can only succeed if a plaintiff can first demonstrate liability under Section 11 or Section 12. See In re Morgan Stanley, 592 F.3d at 358. “[Sjections 11 and 12(a)(2) create[] three potential bases for liability based on registration statements and prospectuses filed with the SEC: (1) a misrepresentation; (2) an omission in contravention of an affirmative legal disclosure obligation; and (3) an omission of information that is necessary to prevent existing disclosures from being misleading.” In re Morgan Stanley, 592 F.3d at 360; see also 15 U.S.C. §§ 77k(a), 77((a)(2). For a misstatement or omission to be actionable under Section 11 or 12(a)(2), a defendant must have a duty to disclose the information, and the omitted or misstated information must be material to the investor. In re Morgan Stanley, 592 F.3d at 360. Where a plaintiff establishes any of the three bases of liability, “the general rule in a Section 11 [or Section 12(a)(2) ] case is that an issuer’s liability ... is absolute.” Hutchison v. Deutsche Bank Securities Inc., 647 F.3d 479, 484 (2d Cir.2011) (quoting Litwin v. Blackstone Grp., L.P., 634 F.3d 706, 715-16 (2d Cir.2011)). “Plaintiffs bringing claims under sections 11 and 12(a)(2) need not allege scienter, reliance, or loss causation.” In re Morgan Stanley, 592 F.3d at 359. On a motion to dismiss a complaint pursuant to Federal Rule of Civil Procedure 12(b)(6), the Court “accept[s] as true all factual statements alleged in the complaint and draw[s] reasonable inferences in favor of the non-moving party.” McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir.2007). The movant bears the burden of demonstrating that the complaint fails to state a claim upon which relief may be granted. Lerner v. Fleet Bank, N.A., 318 F.3d 113, 128 (2d Cir.2003). To survive a Rule 12(b)(6) motion, a complaint must “plead enough facts to state a claim that is plausible on its face.” Ruotolo v. City of New York, 514 F.3d 184, 188 (2d Cir.2008) (internal quotation marks omitted) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009). “Where a complaint pleads facts that are merely consistent with a defendant’s liability, it stops short of the line between possibility and plausibility of entitlement to relief.” Id. (internal quotations and citations omitted). I. Timeliness of Plaintiffs’ Claims Claims brought under Section 11 and Section 12(a)(2) are subject to the two-pronged timing provision of Section 13 of the Securities Act. 15 U.S.C. § 77m. The first prong of Section 13 is a statute of limitations, which provides that claims must be brought within one year of “the discovery of the untrue statement or the omission, or after such discovery should have been made by the exercise of reasonable diligence.” Id. The statute of limitations may be tolled based on equitable considerations for up to three years, at which point a plaintiffs claim is extinguished by Section 13’s second prong — the statute of repose — which provides that “fi]n no event shall any such action be brought ... more than three years after the security was bona fide offered to the public.” Id. (emphasis added). Defendants argue that each of Plaintiffs’ claims is time-barred by the statute of limitations because various news reports and other publicly accessible information placed Plaintiffs on inquiry notice more than one year prior to the filing of the operative complaint. Defendants further argue that the claims first asserted by Plaintiffs with standing more than three years after the initial offerings are barred by the statute of repose. A. Statute of Limitations The Court must first determine whether the inquiry notice standard is still applicable, or whether, as Plaintiffs contend, it was rendered inoperative by the Supreme Court’s decision in Merck & Co. v. Reynolds, — U.S. -, 130 S.Ct. 1784, 176 L.Ed.2d 582 (2010). Inquiry notice has been held to arise when circumstances — often called “storm warnings” — “ ‘suggest to an investor of ordinary intelligence the probability’ that she has a cause of action.” In re Openwave Sys. Sec. Litig., 528 F.Supp.2d 236, 245 (S.D.N.Y.2007) (quoting Levitt v. Bear, Stearns & Co. Inc., 340 F.3d 94, 101 (2d Cir.2003)). The emergence of storm warnings triggers the potential plaintiffs duty to investigate. If the potential plaintiff makes an inquiry when that duty arises, the one-year statute of limitations begins to run when a plaintiff “in the exercise of reasonable diligence[] should have discovered” the violation. Lentell v. Merrill Lynch & Co., Inc., 396 F.3d 161, 168 (2d Cir.2005), accord In re IndyMac Mortgage-Backed Securities Litigation, 718 F.Supp.2d 495, 502-03 (S.D.N.Y.2010). Where, on the other hand, the plaintiff fails to investigate, the statute of limitations begins to run on the date the storm warnings triggered the duty to inquire. Id. In effect, the inquiry notice standard can penalize the heedless would-be plaintiff by commencing the limitations period before a reasonably diligent plaintiff could have discovered the actionable conduct. Plaintiffs argue that the Supreme Court’s recent ruling in Merck & Co. v. Reynolds, — U.S. -, 130 S.Ct. 1784, 176 L.Ed.2d 582 (2010), invalidated inquiry notice as a statute of limitations measuring point in securities cases. In Merck, the Supreme Court rejected the inquiry notice standard in the context of a claim brought under Section 10(b) of the Securities Act of 1934 (“34 Act”), holding that “the discovery of facts that put a plaintiff on inquiry notice does not automatically begin the running of the limitations period.” Id. at 1798. Rather, the Court held, “the limitations period does not begin to run until ... a reasonably diligent plaintiff would have discovered ‘the facts constituting the violation,’ ... irrespective of whether the actual plaintiff undertook a reasonably diligent investigation.” Id. at 1792 (quoting 28 U.S.C. § 1658(b)). The Second Circuit elaborated on Merck in City of Pontiac Gen. Emps. Ret. Sys. v. MBIA, Inc., 637 F.3d 169 (2d Cir.2011), holding that a fact is not deemed “discovered” for limitations purposes until “a reasonably diligent plaintiff would have sufficient information about that fact to adequately plead it in a complaint.” Id. at 175. Put differently, “the reasonably diligent plaintiff has not ‘discovered’ one of the facts constituting a securities fraud violation until he can plead that fact with sufficient detail and particularity to survive a 12(b)(6) motion to dismiss.” Id. The question before the Court is whether the Supreme Court’s invalidation of the inquiry notice standard for '34 Act claims extends to claims brought under Sections 11 and 12(a)(2) of the '33 Act. The Court concludes, in accord with the majority of judges in this district, that it does. See In re Wachovia Equity Sec. Litig., 753 F.Supp.2d 326, 370-71, n. 39 (S.D.N.Y.2011) (applying Merck to claims under Sections 11 and 12(a)(2) of the '33 Act); New Jersey Carpenters Health Fund v. Residential Capital, LLC, Nos. 08 CV 8781(HB), 08 CV 5093(HB), 2011 WL 2020260, at *4 (S.D.N.Y. May 19, 2011); Brecher v. Citigroup Inc., 797 F.Supp.2d 354, 367 (S.D.N.Y.2011); but see In re IndyMac Mortgage-Backed Securities Litigation, 793 F.Supp.2d 637, 648 (S.D.N.Y.2011) (holding that Merck is limited to claims brought under the '34 Act). The limitations provisions for '33 Act and '34 Act claims are functionally identical. Compare 28 U.S.C. § 1658(b) (limitations period commences “after the discovery of the facts constituting the violation”) with 15 U.S.C. § 77m (limitations period commences after “the discovery of the untrue statement or the omission, or after such discovery should have been made by the exercise of reasonable diligence”). In both instances, the limitations clock starts when the plaintiff discovers, or should have discovered, the factual predicates of the offense-whether it be facts constituting the fraud in the case of a Section 10(b) claim, or the facts constituting the “untrue statement or the omission” in the case of a Section 11 or 12(a)(2) claim. See Dodds v. Cigna Sec., Inc., 12 F.3d 346, 349-50 (2d Cir.1993) (treating § 77m and § 1658(b) as equivalent). Given this identity of operation, the Court finds no principled basis for cabining Merck’s holding to Section 1658(b). In light of Merck and City of Pontiac, the Court finds that Defendants’ focus on inquiry notice is misplaced. The operative question is no longer when a reasonable plaintiff would have known that she had a likely cause of action and inquired further. Rather, the question is whether a plaintiff could have pled '33 Act claims with sufficient particularity to survive a 12(b)(6) motion to dismiss more than one year prior to the filing of the operative complaint. Whether sufficient facts existed at that time is, by definition, a fact-intensive inquiry and, thus, generally ill-suited for resolution at the motion to dismiss stage. Cf. In re Dreyfus, No. 98 Civ. 43180HB), 2000 WL 10211, at *3 (S.D.N.Y. Jan. 6, 2000) (“[T]he issue of constructive knowledge and inquiry notice should more properly be resolved by the trier of fact at a later stage in this litigation.”). Accordingly, a motion to dismiss will only be granted where “uncontroverted evidence irrefutably demonstrates [that the] plaintiff discovered or should have discovered” facts sufficient to adequately plead a claim. Newman v. Warnaco Group, Inc., 335 F.3d 187, 193 (2d Cir.2003) (quoting Muram Corp. v. Harcourt Brace Jovanovich, Inc., 840 F.Supp. 243, 249 (S.D.N.Y.1993)). I. Timeliness of the Original Complaint Defendants provide the following pre-August 2007 documents in support of their claim that the statute of limitations began to run more than one year before the August 20, 2008, filing of the Original Complaint by NJ Carpenters: 1) two news articles documenting a mortgage fraud scheme in Alaska (Exs. LL, MM); 2) a news article describing AHM’s financial troubles due to its investment in sub-prime mortgage loans (Ex. NN); 3) two news articles describing the loosening of lending standards across the country and the high rates of defaults (Exs. OO, PP); 4) a news article and congressional testimony describing widespread pressure on appraisers to inflate home values to clear loans (Exs. QQ, WW); 5) a news article describing government allegations that certain brokers pressured Manhattan-based appraisers to inflate property values (Ex. RR); 6) a Moody’s report describing increased foreclosure rates and their adverse impact on mortgage-backed securities (Ex. SS); 7) a news article describing flaws in mortgage rating methodologies (Ex. TT); 8) a news article describing a decision by Moody’s and S & P to downgrade hundreds of mortgage-backed securities (Ex. UU); 9) a news article describing a suit against EMC for violating consumer protection laws by, among other things, posting mortgage payments inaccurately (Ex. W); 10) a report on the impact of widespread appraisal fraud (Ex. XX); and 11) two lawsuits alleging that Countrywide violated Truth in Lending laws and misrepresented the quality of its mortgage investments. (Exs. MMM, NNN.) In addition, Defendants cite to events and reports that Plaintiffs referenced in the earlier complaints but “sanitized” from the TAC— specifically, a news report that two Bear Stearns hedge funds that invested in mortgage-backed securities had filed for bankruptcy in July 2007 (Original Compl. ¶ 49), and a news report that Moody’s had revised its model for evaluating subprime mortgages in April 2007. (FAC ¶ 180.) Defendants’ own motion papers persuasively explain why a complaint assembled from the information contained in the above exhibits would not survive a 12(b)(6) motion. The bulk of these exhibits canvass general, industry-wide practices that are not merely “untethered to the transactions that are the subject of [the Original] Complaint” (Defs’ Memo, at 16), but are unconnected to any of the entities that were involved in the origination, packaging, and sale of the BSMF 2006-AR1 trust. “Allegations of industry-wide or market-wide troubles alone ordinarily are insufficient to state a [securities] claim.” Freidus v. ING Groep N.V., 736 F.Supp.2d 816, 831 (S.D.N.Y.2010); see also Yu v. State St. Corp., 686 F.Supp.2d 369, 380 (S.D.N.Y.2010) (“To survive a motion to dismiss, plaintiffs must allege some facts to close the loop between the market turmoil and the accuracy of the Fund’s valuations.”). More significantly, even though evidence of improprieties and irresponsible risk-taking in the MBS industry began to emerge in early 2007, there is no indication that the BSMF 2006-ARl Certificates declined in value. Indeed, according to Defendants’ chart detailing Certificate downgrades, the earliest downgrade of any Certificate issued from the BSMF 2006-AR1 trust occurred on December 14, 2007, and the earliest downgrade of a AAA-rated Certificate (the only Certificates any Plaintiff held) from that trust occurred on June 19, 2008. (Ex. ZZ.) The fact that the Certificates retained their ratings amidst growing concerns about the MBS industry is significant for two reasons. First, absent a decline in the Certificates’ ratings (or some other indicator of a steep decline in the Certificates’ value), it is difficult to see how a plaintiff could have plausibly pled that the epidemic of indiscretions in the MBS industry had infected his or her Certificates. A complaint couched in nothing more than the sweepingly general allegations contained in Defendants’ exhibits would almost certainly “stop[ ] short of the line between possibility and plausibility of entitlement to relief.” Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (quotations omitted); Freidus v. ING Groep N.V., 736 F.Supp.2d at 831; Yu v. State St. Corp., 686 F.Supp.2d at 380. Second, absent a showing that the Certificates’ value had diminished by August 2007, NJ Carpenters could not have stated a claim supportive of statutory damages. While a complaint “is not required to plead damages under Section 11, it fails to state a claim if the allegations of the complaint do not support any conceivable statutory damages.” NECA-IBEW Health & Welfare Fund v. Goldman, Sachs & Co., 743 F.Supp.2d 288, 290-91 (S.D.N.Y.2010); see also In re Initial Public Offering Securities Litigation, 241 F.Supp.2d 281, 347 (S.D.N.Y.2003) (dismissing claims for failure to allege cognizable damages where plaintiffs sold securities for an amount in excess of the offering price). Because Defendants have failed to show that NJ Carpenters could have pled facts sufficient to survive a 12(b)(6) motion in August 2007, the Court concludes that the Original Complaint was timely. 2. Timeliness of Subsequent Complaints Defendants also allege that the FAC (filed May 15, 2009) and the Pension Trust Complaint (filed July 9, 2009) are untimely. Defendants marshal publicly available sources that refer to missteps, misfortunes, and malefactions of corporations involved in the packaging and sale of the securities at issue here, including: 1) two complaints from May and July 2007 against Countrywide for violating Truth in Lending laws and misrepresenting the quality of its mortgage investments (Ex. MMM, NNN); 2) the collapse of Bear Stearns in March 2008 (FAC ¶ 105); and 3) AHM’s worsening financial condition as a result of its investment in subprime mortgages. (Ex. NN.) In addition, Defendants catalogue more than 900 downgrades to investment grade Certificates issued by the 13 trusts added after the Original Complaint. (See Defs’ Memo, at 37; Ex. ZZ.) It is not clear that a complaint whose allegations were supported solely by this body of information would survive a Rule 12(b)(6) motion. The two complaints against Countrywide detail conduct that is only tangentially related to the TAC’s allegations concerning underwriting practices and improper appraisals. (See Ex. MMM (suit alleging deceitful lending practices); Ex. NNN (suit alleging insider trading, artificial inflation of stock prices, and misrepresentations concerning stock prospects)). As for the collapse of Bear Stearns, there is nothing in Defendants’ submission suggesting that Plaintiffs knew or should have known by May or July of 2008 that their securities were tainted by the irresponsible practices that drove Bear Stearns into bankruptcy; the same holds for the collapse of AHM. It is far from clear that speculative attempts to link those events to the securities in question would have survived a motion to dismiss. Defendants’ treatment of the downgrade history is equally unpersuasive. As an initial matter, downgrades alone do not convey facts sufficient to plead a Section 11 or 12(a)(2) claim. As Defendants point out in their papers, a downgrade can occur for any number of reasons — for example, a recession or a collapse in housing prices— that are unrelated to the problematic underwriting and quality control practices that form the basis of each complaint. Cf. Public Employees’ Retirement System of Mississippi v. Goldman Sachs Group, Inc., No. 09 CV 1110(HB), 2011 WL 135821, at *8 (S.D.N.Y. Jan. 12, 2011) (while minor downgrades and negative watches “may have been an indication that the Certificates were performing badly, [they] do[ ] not constitute triggering information [that] relate[s] directly to the misrepresentations and omissions that the Plaintiff alleges”) (internal quotations omitted). Defendants’ downgrade figure is also severely misleading. First, it characterizes hundreds of “negative watches” as downgrades even though the latter do not constitute rating changes. Cf. In re Morgan Stanley Mortg. Pass-Through Certificates Litigation, 810 F.Supp.2d 650, 663-65 (S.D.N.Y.2011) (declining to find inquiry notice based on “negative watches” where securities maintained their investment-grade rating); Public Employees’ Retirement System of Mississippi v. Merrill Lynch & Co. Inc., 714 F.Supp.2d 475, 479-80 (S.D.N.Y.2010); New Jersey Carpenters Vacation Fund v. Royal Bank of Scotland Group, PLC, 720 F.Supp.2d 254, 267 (S.D.N.Y.2010). Second, Defendants’ figure includes as many as nine months of legally irrelevant downgrades that occurred less than a year prior to the filing of the relevant complaint. Third, Defendants arrive at their downgrade count primarily by itemizing downgrades to the most subordinate tranches, which exist to absorb losses to the underlying collateral and protect the cash flow of higher-rated Certificates. (See Pis’ Opp. at 36.) It bears emphasis that Plaintiffs purchased exclusively from the AAA-rated tranches. When Defendants’ chart is re-examined with a focus on the tranches from which Plaintiffs purchased their securities, the following picture emerges: in the year pri- or to being listed in a complaint, only one trust had AAA-rated tranches that were downgraded; five trusts had AAA-rated tranches that were subject to scattered negative watches (ie., from AAA to AAA*- or Aaa to Aaa*-); the AAA-rated tranches from the remaining seven offerings retained their AAA ratings unblemished. In sum, a year prior to the filing of the operative complaint, the securities that Plaintiffs held were (at least as judged by the ratings) seemingly untarnished by the problems that plagued the MBS industry as a whole. As with the Original Complaint, it is far from clear that Plaintiffs could have adequately pled, one year prior to the filing of the operative complaint, that the Offering Documents for their securities contained material misrepresentations and omissions, or that they suffered cognizable injuries. Accordingly, the Court finds that the subsequent complaints were timely filed. B. Statute of Repose Defendants further argue that Plaintiffs’ claims are untimely to the extent they were first asserted by actual buyers from offerings more than three years after the offering date. The Court recently addressed this very argument in In re Morgan Stanley Mortg. Pass-Through Certificates Litigation, 810 F.Supp.2d 650 (S.D.N.Y.2011). That decision concluded that, under the tolling rule announced in American Pipe & Construction Co. v. Utah, 414 U.S. 538, 94 S.Ct. 756, 38 L.Ed.2d 713 (1974), the commencement of the original class action tolled the statute of repose for all members of the putative class, even where the original named plaintiffs lacked standing to bring some of the claims. In re Morgan Stanley, 810 F.Supp.2d at 665-71. Here, named Plaintiffs had asserted claims on behalf of purchasers of Certificates from each of the 14 trusts as of July 19, 2009, Pension Trust Complaint-less than three years after each of the offerings’ issuance dates. Accordingly, none of the claims is barred by the statute of repose. Because the Court finds that the statute of repose was tolled under American Pipe, it need not decide whether relation back could save the later claims. II. Pleading Actionable Misrepresentations/Omissions The Court will address Defendants’ arguments that Plaintiffs have failed to state viable claims of misrepresentations or omissions as they relate to the three categories of allegations — underwriting standards, appraisals, and investment ratings — made in the TAC. A. Misrepresentations and Omissions Regarding Underwriting Standards Defendants first contend that Plaintiffs fail to meet their pleading burden under Twombly and Iqbal by failing to proffer facts linking the alleged disregard for underwriting standards with the decline in the Certificates’ value. This contention is without merit. The Complaint is replete with public reports and detailed statements by numerous confidential witnesses that describe the systematic disregard of underwriting standards by the specific parties involved in the origination of the loans populating the offerings, as well a failure to conduct proper due diligence by the depositors. (TAC ¶¶ 56-67, 87-93, 98-99, 105-25, 131-40, 148-55, 160-65.) The facts alleged in the TAC are sufficient to support a reasonable inference that the loan pools were inferior in credit quality to loans that would have been selected had Defendants’ originators employed the sort of underwriting standards described in the Offering Documents. Defendants next contend that the Offering Documents contained “robust risk disclosures” (Defs’ Memo, at 15), including disclaimers that a downturn in the housing market could adversely affect the value of Plaintiffs’ Certificates, and that the originators would grant exceptions from stated underwriting guidelines. These warnings, Defendants contend, “bespoke caution.” Under the “bespeaks caution” doctrine, “[cjertain alleged misrepresentations in a stock offering are immaterial as a matter of law because it cannot be said that any reasonable investor could consider them important in light of adequate cautionary language set out in the same offering.” See Halperin v. eBanker USA.com, Inc., 295 F.3d 352, 357 (2d Cir.2002). The “bespeaks caution” doctrine is inapposite to the market-downturn disclosure. The doctrine only applies where a plaintiff alleges that the defendant made misleading statements about the possibility that future, unforeseen events could undermine an investment’s value; it does not apply to cases, such as this, where a plaintiff alleges omissions or misrepresentations of historical fact — ie., that the underwriting standards were followed. P. Stolz Family Partnership L.P. v. Daum, 355 F.3d 92, 97 (2d Cir.2004). The doctrine is also inapposite to the disclaimer that exceptions had been granted. For the “bespeaks caution” doctrine to shield a seller from liability, the “cautionary language ... must relate directly to that by which the plaintiffs claim to have been misled.” Hunt v. Alliance N. Am. Gov’t Income Trust, Inc., 159 F.3d 723, 729 (2d Cir.1998). No language in the Offering Documents disclosed, for example, that the originators had systematically violated their own stated underwriting standards, that exceptions were improperly granted, or that Bear Stearns had directed its third-party due diligence firms to keep non-conforming loans in the Offering pools. (TAC ¶¶ 55-67.) Accordingly, the Court finds that the TAC properly states a claim as to the underwriting allegations. B. Misrepresentations and Omissions Regarding Appraisals Defendants also argue that Plaintiffs’ appraisal-related allegations fail to state a claim. According to the allegations in the TAC, the Offering Documents represented that the property appraisals conformed to the Uniform Standard of Professional Appraisal Practice (“USPAP”) and were conducted by “qualified independent appraisers.” (TAC ¶¶ 80, 84, 96, 102.) In fact, originators systematically disregarded their stated appraisal standards, and strong-armed appraisers to inflate property values. (See, e.g., id. ¶¶ 58, 109-10, 121, 154, 190.) In moving to dismiss the appraisal-related claims, Defendants rely principally on Tsereteli v. Residential Asset Securitization Trust 2006-A8, 692 F.Supp.2d 387 (S.D.N.Y.2010), which held that property appraisals and corresponding LTV ratios are “subjective opinion[s]” that are “actionable under the Securities Act only if the [plaintiff] alleges that the speaker did not truly have the opinion at the time it was made.” Id. at 393-94. Defendants argue that the appraisal claims fail because the TAC does not allege that any Defendants were involved in appraising properties or knew that the loans underlying the Certificates were based on “inflated appraisals.” Defendants’ argument misses the mark. Plaintiffs do not merely allege that the appraisal amounts were incorrect; they allege that the appraisals were not conducted in accordance with the industry standards identified in the Offering Documents. The former allegation differs from the latter in the same way the statement “the cook baked a delicious cake” differs from the statement “the cook followed the cake recipe on the box”: the former is opinion, the latter an assertion of fact. Likewise, the conclusion that a house is worth $500,000 may be a statement of subjective opinion, but the assurance that the $500,000 figure was reached in accordance with a body of professional appraisal standards is a statement of verifiable fact. Second, to the extent the TAC does bring a claim based on the inaccuracy of the appraisal values — as opposed to’ appraisal methodology used — Plaintiffs have pled facts supporting an inference that these opinions were not only objectively false, but also subjectively false. Because the appraisal “opinions” were expressed by both the originators and Bear Stearns (by incorporating the originators’ representations into the Offering Documents), Plaintiffs can state a claim by showing that either one disbelieved the appraisal amounts. Cf. In re Twinlab Corp. Sec. Litig., 103 F.Supp.2d 193, 203 (E.D.N.Y.2000) (liability under '33 Act may attach even for innocent misrepresentation); Plumbers’ Union Local No. 12 Pension Fund v. Nomura Asset Acceptance Corp., 632 F.3d 762, 775 (1st Cir.2011) (liability may attach for accurately conveying ratings that are false and misleading). The TAC alleges that, during the due diligence stage, Clayton submitted reports to Bear Stearns which revealed that many of the loans contained no appraisals at all. (Compl. ¶ 58.) The TAC also alleges that the originators pressured their employees to inflate appraisal values. (Id. ¶¶ 109-10, 121,154.) These allegations suffice to support an inference that Bear Stearns and the originators did not believe that the appraisal numbers were accurate. Accordingly, the TAC’s allegations that the Offering Documents failed to disclose the allegedly rampant violation of appraisal standards is sufficient to state a claim. C. Misrepresentations and Omissions Regarding Investment Ratings Defendants further contend that the TAC fails to state a claim regarding the investment ratings. The Offering Documents stated that the Certificates’ ratings: address the likelihood of the receipt by certificateholders of all distributions to which the certificateholders are entitled. These ratings address the structural, legal and issuer-related aspects associated with the certificates and notes, the nature of the underlying mortgage assets and the credit quality of the guarantor, if any. (TAC ¶ 184.) The Offering Documents also stated that “[i]t is a condition to the issuance of each class of Offered Certificates that it receives at least the ratings set forth [in the prospectus supplement] from S & P and Moody’s.” (Id.) The TAC alleges that the Offering Documents failed to disclose that the ratings process relied on inaccurate mortgage loan data, stale delinquency, and outdated models, and that the ratings process was compromised by conflicts of interest. While the TAC does not allege that the Offering Documents misstated the ratings that the Agencies assigned to the Certificate, Plaintiffs argue that Defendants nonetheless had a duty, under 17 C.F.R. § 230.408(a), to disclose flaws underlying the ratings to prevent the ratings from being misleading to investors. It is well-settled that investment ratings are subjective opinions and, accordingly, only actionable where “the speaker did no