Full opinion text
ORDER GRANTING DEFENDANTS’ MOTIONS TO DISMISS MARGARET M. MORROW, District Judge. This is a consolidated putative securities class action against defendants American Apparel, Inc., Dov Charney, Adrian Kowalewski, and Lion Capital, Inc. Plaintiffs’ primary allegation is that during the class period, defendants misled the public about its hiring of workers employed in American Apparel’s Los Angeles factory. Plaintiffs allege that defendants hired numerous undocumented workers in violation of the Immigration and Nationality Act (“INA”); that they failed to comply with the INA’s reporting requirements; and that they tried to conceal from investors the results of ongoing federal investigations regarding American Apparel’s hiring practices. Plaintiffs assert that when American Apparel’s misconduct came to light, it was forced to terminate a substantial number of factory workers and that it subsequently misled the public about the effect the staffing reduction would have on the company’s bottom line. Plaintiffs contend that defendants’ misrepresentations and omissions violated sections 10(b) of the Securities Exchange Act of 1934 (the “1934 Act”) and Securities and Exchange Commission (“SEC”) Rule 10b-5 during a class period extending from November 28, 2007 to August 17, 2010. They also contend that defendants Charney, Kowalewski, and Lion Capital violated § 20(a) of the 1934 Act because they were controlling persons of American Apparel. Defendants have moved to dismiss the consolidated class action complaint on several bases. They argue that the complaint fails to plead fraud with sufficient particularity, that it fails to satisfy the heightened requirements for pleading scienter under the Private Securities Litigation Reform Act (“PSLRA”), that some of defendants’ statements are protected by the 1934 Act’s safe harbor provisions, and that it fails to state a claim under § 20(a) of the 1934 Act. Defendants ask that, in evaluating their motions to dismiss, the court take judicial notice of numerous SEC filings, American Apparel press releases, news articles, analyst reports and other documents. Plaintiffs oppose a number of these requests. I. BACKGROUND AND FACTUAL ALLEGATIONS In deciding a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure, the court’s review is limited to the contents of the complaint. Campanelli v. Bockrath, 100 F.3d 1476, 1479 (9th Cir. 1996). All allegations of material fact must be accepted as true and must be construed in the light most favorable to the non-moving party. ARC Ecology v. U.S. Dep’t of Air Force, 411 F.3d 1092, 1096 (9th Cir.2005); Thompson v. Davis, 295 F.3d 890, 895 (9th Cir.2002). Accordingly, the court’s statement of facts recites and accepts as true the allegations contained in the consolidated class action complaint. A. Background on American Apparel, Inc. and the Defendants American Apparel is a Delaware corporation with its principal place of business in Los Angeles, California. The company manufactures garments and runs wholesale and retail operations throughout the United States and Canada. American Apparel’s primary manufacturing plant is located in downtown Los Angeles, in a facility that also houses its executive offices, as well as cutting, sewing, warehousing and distribution operations. The company markets itself to “culturally sophisticated, creative and independent-minded” consumers, who are located primarily in “large metropolitan areas, emerging neighborhoods, and select university communities.” The company prides itself on its “pro-labor” policies, touting the fact that its manufacturing operations are based in the United States in. contrast to many other clothing manufacturers. American Apparel’s touts its above-market compensation structure, positive working conditions for its employees, and numerous amenities and services it offers its workers. It emphasizes these qualities to take advantage of the increasing importance of workplace conditions and environmental issues in forming consumer buying habits. The company went public in December 2007. Dov Charney is American Apparel’s founder; during the class period, he was the company’s President, CEO, and Chairman of the Board. Charney founded American Apparel and served as director, President, and CEO of its predecessor corporation. Charney has “long been outspoken about immigration and labor reform,” and has specifically advocated amnesty for undocumented workers. It is reported that on one occasion Charney said that amnesty was “at the core of [his] company, at the core of [his] soul.” Adrian Kowalewski was American Apparel’s Executive Vice President and Chief Financial Officer (“CFO”) during the relevant time period. He also served as a director of the company. Kowalewski started at the company as an intern in 2006, and was ultimately promoted to Director of Corporate Financing and Development. He served as CFO of the company from late 2008 to February 2011, when he was replaced by John J. Luttrell. Lion Capital is a limited liability partnership with a registered office in London, England. The partnership has a New York-based American affiliate, and is purportedly a “recognized leader in investing in consumer businesses.” The partnership was founded by Lyndon Lea, Neil Richardson, and Robert Darwent. Lion Capital loaned American Apparel approximately $80 million in March 2009; in return, it was given two board seats and the right to designate one “Board Observer.” The role and responsibilities of the observer are not clearly delineated in the complaint. At various times during the class period, Lea, Richardson, and Jacob Capps were simultaneously partners of Lion Capital and members of American Apparel’s board. On May 12, 2010, Capps resigned from the Board, but remained as Board Observer. On March 30, 2011, Capps resigned as Board Observer, and Lea and Richardson resigned from the board, all citing “conflicts of interest.” B. Defendants’ Allegedly False and Misleading Statements During the Class Period Plaintiffs’ allegations regarding defendants’ false statements and scienter concern three primary issues. First, plaintiffs allege that although American Apparel touted its progressive labor policies and represented that the company was in full compliance with U.S. immigration laws, a substantial portion of the company’s manufacturing employees were not authorized to work in the United States. Plaintiffs assert that Charney and other defendants knew this fact during the class period, and materially misrepresented American Apparel’s compliance with the immigration laws. Ultimately, U.S. Immigration and Customs Enforcement (“ICE”) commenced an investigation regarding the company’s hiring and retention practices. The investigation eventually resulted in the termination of 1,800 individuals, or more than one-third of the company’s Los Angeles-based manufacturing workforce. Second, plaintiffs allege that during the class period, defendants misrepresented the seriousness of the workforce reduction’s effect. Plaintiffs allege that because of the company’s structure and the individual defendants’ personal and intimate knowledge of its operations, defendants knew that terminating so many employees would have a significant adverse impact on American Apparel’s ability to maintain its inventory levels, which in turn would affect its profitability. They assert that defendants nonetheless minimized the effect of the work force reduction, claiming that excess inventory and a backlog of employment applications would blunt the impact of the terminations. Third, plaintiffs allege that American Apparel and the individual defendants repeatedly misrepresented the company’s financial health not only to investors via conference calls, press releases, and SEC filings, but also to the company’s independent auditors. Plaintiffs assert that defendants, while repeatedly affirming the strength of American Apparel’s internal controls and its commitment to conservative financial practices, misled the public and its own auditors about the myriad problems the company was experiencing during the class period. The specific facts supporting these allegations are set forth below. 1. American Apparel’s Employment of Unauthorized Workers The complaint alleges that the class period began on November 28, 2007, the date American Apparel filed a Proxy Statement with the Securities and Exchange Commission (“SEC”) in preparation for an initial public offering. The Proxy Statement was filed on an SEC Form 14-A and included disclosures about the company’s then-existing employees, specifically that they were all “documented immigrants, authorized to work in the United States.” The Proxy Statement also “highlighted the Company’s heavy dependence on migrant labor and acknowledged that maintaining its foreign workforce was critically important to the Company’s manufacturing capabilities, operations, and financial results.” It stated: “Changes to existing U.S. immigration laws or labor laws could affect this labor force and could make it harder for members of such force to remain or legally work in the United States. Any changes in U.S. laws having such an [e]ffect could make it harder for American Apparel to maintain and expand its work force, which would be adverse to American Apparel’s manufacturing capabilities and harm American Apparel’s operations and financial results.” Approximately one month later, on December 21, 2007, the company went public. In January 2008, American Apparel received notice that ICE was conducing an audit of its records to ensure compliance with the immigration laws. On March 17, 2008, the company filed its 2007 Form 10-K stating that it was making “diligent efforts to comply with all employment and labor regulations, including immigration laws.” It was only when the company filed its first quarter 2008 Form 10-Q that it disclosed the ICE investigation; this was some four months after the company received notice of the investigation. The company’s representatives took a hard public stance against the federaL.government’s enforcement actions. Specifically, on April 30, 2008, American Apparel’s attorney Peter Schey stated that the company would “come down like a ton of bricks” on ICE if the agency and other law enforcement officials raided the company’s facilities. Schey represented that all of the company’s employees were “legal to the best of his knowledge,” although he admitted that immigration authorities were investigating the matter. On May 16, 2008, Charney reaffirmed his commitment to immigration reform and amnesty for undocumented immigrants, observing that Los Angeles’s “economy as a whole is deeply dependant on immigrant labor,” and that forcing local industries to move offshore because of increased enforcement activities would result in “irreparable” damage. Although the company allegedly had some hope that the Obama administration would secure passage of an immigration reform bill that included a path to legalization for at least some undocumented immigrants, by April 2009 it had become clear that reform would not occur in the immediate future. By the end of that month, the administration had articulated a new enforcement strategy designed to target employers who knowingly hired unauthorized workers and encourage companies to comply with the immigration laws. On June 30, 2009, American Apparel filed a Form 8-K without an accompanying press release. The Form 8-K stated that on June 24, 2009, ICE notified American Apparel that it could not verify the employment eligibility of “approximately 200 current employees because of discrepancies in the[] employees’ records.” In addition, ICE stated that another 1,600 employees “appear[ed] not to be authorized to work in the United States and appeared] to have obtained employment by providing, on Form 1-9, documentation which ICE believes ... to be suspect and not valid.” On July, 1, 2009, the company issued a press release concerning its Form 8-K, which revealed that many of the individuals mentioned in ICE’s investigative report had “worked at American Apparel for as long as a decade.” The release attempted to reassure investors that the loss of so many workers would not materially affect the company because it would “only need to hire for a fraction of those employees that would be terminated.” The release also stated that American Apparel had a significant backlog of job applications. It reported that “even if the Company were to lose substantially all of the 1,800 identified employees (which represent approximately one-third of the 5,600 employees the Company currently employs in its manufacturing operations in the Los Angeles area), the Company does not presently believe that the loss of employees would have a materially adverse impact on its financial results.... The Company believes that its current surplus levels of inventory and manufacturing capacity will mitigate the adverse impact of any disruption to its manufacturing activities that may potentially result from the loss of these employees.” The June 2009 Form 8-K stated that it was American Apparel’s policy “at all times, to fully comply with its obligations to establish the employment eligibility of prospective employers under immigration laws.” Despite these assurances, American Apparel’s stock price fell 16 percent between June 30, 2009, and July 2, 2009. On August 13, 2009, American Apparel had an earnings call with analysts and investors. Kowalewski said although it was “difficult to estimate what the impact [of the ICE investigation] would be on [the company’s] results, [American Apparel] didn’t believe it would have a material impact, given the fact that [it] had effectively hired significant amounts of people at the end of Q2 '08.” Kowalewski reported that the company had “more labor than was really justified by the amount of business” it was conducting given the economic decline, and that the “way [it] would mitigate [the loss of employees] would be by increasing the days per week of [existing] employees ... [which] would virtually pick up all of the reduction in labor that [it] might see if we had a loss in workers.” He also stated that while American Apparel did not “have an update on what the financial impact would be,” he suggested that the company “would ... reiterate what [it had] said at the beginning of July”-that the impact of the loss of employees was “difficult to estimate,” but should not be “material.” Charney participated in this call; he said that American Apparel was “set up to do more business than [it had been] doing,” and that was positioned to “get to those double-digit margins” when “the economy [came] back.” On September 3, 2009, the Los Angeles Times quoted Schey as saying that “[w]e do not anticipate [the immigration violations] will have a significant impact on American Apparel’s productivity because of the confluence of several factors including the slow economy and high preexisting inventory levels.” On September 30, 2009, The New York Times quoted Schey was in an article that reported the alleged firing of 1,800 American Apparel employees. It stated that Schey reported that ICE had cited “deficiencies in the company’s record keeping,” but that it had withdrawn a threatened fine against the company. In a Form 10-Q later filed with the SEC less than two weeks later, however, the company noted that it had indeed been fined by ICE. Schey told another newspaper more than a year later that he had been “misquoted” by The New York Times; the company, however, did not seek a retraction of the statement at the time the article appeared. In October 2009, American Apparel admitted that it had dismissed approximately 1,500 employees due to discrepancies in their immigration documentation. That month, Charney also lashed out in anger about immigration reform in general, venting his anger in a blog post. On November 10, 2009, the company held another earnings conference call. Kowalewski said that “the efficiency [of the workforce was] probably pretty comparable” to what it had been prior to the terminations. Charney noted that the transition to new workers had been “virtually seamless.” On March 25, 2010, the company issued a press release concerning its year-end financial results, which addressed the workforce reduction’s effect on the corporation. American Apparel also held a conference call where the impact of the reduction was mentioned. Charney acknowledged that the company’s “biggest problem ha[d] been employee productivity,” noting that American Apparel had “lost some of [its] best people.” Over the next two days, the company’s stock price fell more than 22.7 percent. On May 19, 2010, the company issued a preliminary report on its first quarter 2010 earnings in a press release. The release stated that there had been a “significant drop in [the company’s] gross margin due, in part to ‘reduced labor efficiency.’ ” It also reported that the workforce reduction had resulted in “reduced manufacturing efficiency at the company’s production facilities” beginning in the fourth quarter of 2009, and that the reduction “could impact the company’s financial results at least through early 2011.” On a conference call that same day, Charney said: “We didn’t move quickly enough after the immigration intervention.... We should have been hiring more people.... We are off our game but we are going to get back on our game as far asín a way the fact that we had this Made in USA factory we are not getting the full benefit of it because actually we don’t have enough people.” The day the press release issued and the conference call occurred, American Apparel’s stock price plunged 40.51 percent on “unusually heavy” trading volume. Since that day, the company has had no conference calls with analysts or investors. 2. Defendants’ Alleged Knowledge of the Effect of the Staffing Reduction Plaintiffs allege that during most, if not all, of the class period, American Apparel knew that many of its employees were not authorized to work in the United States. They assert that under the INA, employers can only hire persons who are legally authorized to work in the United States, and must verify employment eligibility using an 1-9 form. This form requires that employers review and record a prospective employee’s identity documents and determine whether the documents reasonably appear to be genuine. The employer must retain the 1-9 form for at least three years or one year after the end of the worker’s employment, whichever is longer. On its website, ICE notes that “diligent hiring practices” include a range of other procedures, including the use of E-Verify, a federal employment eligibility verification program. It encourages the adoption of internal controls and policies to assist in ensuring that workers are eligible for employment in this country. As evidence that American Apparel knew it had hired ineligible workers, plaintiffs cite Charney’s statement on April 11, 2006, prior to the commencement of class period, that if any apparel company failed to support legalization for undocumented immigrants, it would be “cut[ting] [its] nose off to spite [its] face.” They also note Charney’s speculation in the Los Angeles Times that “over 50% of the workers in [the apparel] industry are falsely documented”; Charney’s comment in 2006 that it “doesn’t matter what the documents say,” and that he did not “believe in any restrictions on exit or entry to the United States”; and Charney’s statement to The Guardian in January 2006 that he had “visuality [sic] to what’s going on in my stores every night, every day of the week. Right here and now.” They allege that Charney repeatedly called workers part of his “family.” The complaint also alleges a specific instance reported by a former American Apparel customer service representative, who worked at the downtown Los Angeles factory from late 2004 to May 2010. The former employee reported that a new customer service employee had been hired whom Charney had met on the street. The new employee did not speak English and was “scantily clothed” when she showed up for work. she was later transferred to the shipping department. Plaintiffs assert that American Apparel knowingly deceived the public about the effect the workforce reduction would have on its operations and profitability. They cite the Proxy Statement filed in November 2007, which acknowledged that shifts in immigration or labor laws could affect the ability of American Apparel workers to “remain or legally work in the United States,” and that “[a]ny changes in U.S. laws having such an [e]ffect could make it harder for American Apparel to maintain and expand its work force, which would be adverse to American Apparel’s manufacturing capabilities and harm [its] operations and financial results.” Plaintiffs also cite a number of statements Charney made during the class period about employee training. During a May 13, 2008 investor call, for example, Charney stated that “swallowing ... a lot of new workers” would “take a bit of a toll on the business.” During a November 10, 2008 call, he said that “it takes years [to] train[] these people____ Absorbing all the new workers is an issue.” Charney also made statements indicating that he kept close track of inventory amounts and trends. Plaintiffs allege that later, defendants admitted the full extent of the workforce reduction’s impact on American Apparel’s bottom line. On March 25, 2010, defendants acknowledged that the terminations had had a “substantial” impact, and that the “extended disruption o[f] [American Apparel’s] operations ha[d] been unprecedented.” On October 29, 2010, Charney told The Globe and Mail that the reduction had “broke[n] [American Apparel’s] efficiencies and generated a situation where [it was] late delivering garments. It lost [the company] an enormous amount of money.” 3. American Apparel’s Accounting Practices and Internal Controls Plaintiffs allege that during the relevant period, and contrary to Charney’s and Kowalewski’s representations, American Apparel’s finances and internal controls were in utter disarray. As noted, American Apparel went public by merging with a public company; as a result, it had to comply immediately with SEC regulations and standards. On March 17, 2008, a few months after American Apparel went public, Kowalewski assured investors that “[a] big focus for us in 2008 as a public company is going to be remediating these material weaknesses [in accounting procedures] so we can get into compliance with Sarbanes-Oxley.” On March 20, 2008, Charney stated in an interview with The Wall Street Journal that his then-CFO, Ken Cieply, had “no credibility” and was a “complete loser,” among other aspersions. Charney reversed course the next day and apologized for his comments. Less than two months later, during a May 2008 conference call with investors, Charney said he wanted to build a “world-class financial team” and affirmed the company’s commitment to a “strict corporate orthodoxy as far as financial accounting issues.” Charney reiterated some of these statements during a subsequent August 14, 2008, conference call, in which he stated that “[o]verall[,] SOX implementation [was] on track.” During a November 10, 2008, investor call, Charney said he was “confident in the numbers [American Apparel had] put out there,” and assured investors that the company was financially healthy. During the same call, Kowalewski told investors that American Apparel’s internal controls progress was still on track, stating, “[o]n the Sarbanes-Oxley front, we continue to be on track and continue to expect to demonstrate significant progress intermediating deficiencies by year[-]end.” Less than two months later, on January 7, 2009, CBS reported that on December 24, 2008, Kowalewski had sent a series of emails to American Apparel’s head of public relations. The Los Angeles Times eventually obtained a copy of the emails and ran an article on March 14, 2009, disclosing their contents. In the emails Kowalewski reportedly made such statements as “We almost went bankrupt last Friday” and “I’ve been sick and occupied with other company matters since Friday because we’re hardly out of the woods on [the near-bankruptcy].” Notably, at the end of December 31, 2008, Kowalewski replaced Cieply as chief operating officer. On March 17, 2009, as these news reports were emerging, the company held another investor call during which Charney stated that the company “fe[lt] [its] brand and the market segment [it] serve[d] [would] allow [it] to weather the economic storm well.” Charney again assured investors that during 2008, American Apparel was “able to build out [its] finance and accounting team and improve[][its] controls and systems”; plaintiffs assert that Charney misleadingly touted Kowalewski’s promotion to CFO, stating that Kowalewski’s “knowledge of the workings of our unique Company, his work ethic and work in building our team and our internal financial capabilities over the past year made him the absolute best choice for that position.” Analysts reacted positively to Charne/s statements, noting American Apparel’s performance in an economic downturn. A KeyBanc Capital Markets report dated April 22, 2009 highlighted the fact that the firm was “[c]ommitted to best practices,” and reported that Charney had emphasized its commitment to conservatism. The report stated that Charney had made these comments in response to a direct inquiry regarding what American Apparel’s “management view[ed] as a Street misperception about the Company.” This time period also marked the beginning of American Apparel’s relationship with Lion Capital. In a news release on March 13, 2009, and a Form 8-K press release dated March 16, 2009, American Apparel announced that it had entered into a private financing agreement with Lion Capital involving more than $80 million in secured second lien notes, which was designed to provide the company with much-needed capital. The Lion Financing Agreements gave Lion Capital the right to designate two members of American Apparel’s Board, as well as a “Board Observer.” In a press release, Charney asserted that Lion Capital’s investment gave the company “a long term solution for [its] capital structure and an enhanced ability to grow [its] brand both domestically and internationally over the coming years.” Plaintiffs allege, in contrast, that “[w]ith Lion Capital’s significant financial interest in the Company and its own Partners serving on the Company’s Board, Lion Capital had the power to control the Company’s management and policies at two critical junctures during the Class Period.” During a May 18, 2009 analyst call, “[t]he Company ... announced [the] April [2009] ... appointment of a new independent auditor [Deloitte], and [the fact that it had] completed a full quality of earnings review with Lion Capital’s accountants at KPMG.” The May 18, 2009 press release mentioned that the Company “might” have to restate its fiscal year 2008 financial statements, which it did later that month. During its review, Deloitte learned that on March 16, 2009 (the same day American Apparel filed its 2008 Annual Report), it notified investors in a separate filing that on March 13, 2009, it had refinanced its “long-term” debt by obtaining an $80 million credit facility from Lion Capital. It confirmed the fact that a restatement of financials was necessary to investors two months later, on July 23, 2009. On May 19, 2010, the Company issued an earnings press release, which stated it was likely to be in default on June 30, 2010, and that this “would have a material adverse impact on the Company’s operations which would result in the need for the Company to modify its current business plan and/or curtail its operations and [which] could affect the Company’s ability to continue operations as a going concern.” Despite this fact, Deloitte signed an audit opinion on March 31, 2010, less than two months earlier, that failed to include any “going concern” language. Plaintiffs allege that an auditor is responsible for including such language in the audit report if it believes it is “reasonably possible” that the audited company will go bankrupt within 12 months of the date of the audited financial statement. On July 22, 2010, Deloitte resigned as American Apparel’s auditor; the company announced the resignation publicly on July 28, 2010 in a Form 8-K filing. It stated that “Deloitte [had] advised the Company that certain information ha[d] come to [its] attention[ ] that if further investigated [might] materially impact the reliability of either its previously issued audit report or the underlying consolidated financial statements for the year ended December 31, 2009 included in the Company’s 2009 Form 10-K.” In response to this news, American Apparel’s stock declined 14.36 percent, to $1.55, on heavy trading. Deloitte resigned because, in its words, it was “no longer willing to rely on management’s representations [given its] belief that management [had] withheld from [it] the February 2010 monthly financial statements until after the filing of the 2009 Annual Report and [had] made related misrepresentations.” Analysts reacted strongly to the news. KeyBanc Capital Markets moved its rating of American Apparel’s stock from “Buy” to “Not Rated”; it noted that while the revelation did “not necessarily imply any degree of misstatement, it certainly raise[d] an already high risk profile.” News reports observed that the Deloitte announcement had had a significantly negative effect on American Apparel’s stock price. On August 17, 2010, the last day of the class period, American Apparel made a number of additional disclosures. First, it announced a preliminary report on its second quarter 2010 financial results, which stated: “Gross margin for the second quarter of 2010 is expected to be in the range of 50% to 52%, as compared to 59.0% for the prior year second quarter. Gross margin was negatively impacted by a shift in mix from retail to wholesale net sales, which generate lower margins, and by lower labor efficiency at the Company’s production facilities in the second quarter of 2010 compared to the prior year period. The lower labor efficiency was primarily a result of the hiring of over 1,600 net new manufacturing workers during the second quarter of 2010, as well as the impact of an increase in the mix of more complex retail styles produced. Loss from operations for the second quarter of 2010 is expected to be in the range of $5 million to $7 million, as compared to income from operations of $7.3 million in the second quarter of 2009.... ” “The Company expects to report a substantial loss from operations and negative cash flows from operating activities for the six months ended June 30, 2010. Based on this, and trends occurring in the Company’s business after the second quarter and projected for the remainder of 2010, the Company may not have sufficient liquidity necessary to sustain operations for the next twelve months. The Company’s current operating plan indicates that losses from operations are expected to continue through at least the third quarter of 2010. These factors, among others, raise substantial doubt that the Company will be able to continue as a going concern.” American Apparel also reported that the United States Attorney’s Office for the Southern District of New York had issued a grand jury subpoena to the company on July 30, 2010, requiring the production of documents related to the circumstances surrounding Deloitte’s resignation and a related SEC inquiry. In November 2010, it was revealed that the United States Attorney’s Office for the Central District of California had issued a subpoena in a criminal investigation concerning into Deloitte’s resignation and the Company’s financial reporting and internal controls, and that the SEC had issued subpoena related to a formal investigation as well. Plaintiffs allege that these investigations are ongoing. During the two days following these disclosures, American Apparel’s stock price fell approximately 46 percent on heavy trading, from $1.39 per share to just over $0.75 per share. 4. Post-Class Period Developments On August 18, 2010, WWD reported, following an interview with Charney, that he “traced most of the [company’s] current [financial] problems back to difficulties at the firm’s Los Angeles factory, which hired 1,600 new workers in the second quarter.” “Charney reportedly acknowledged that ‘[replacing the workers that we lost in [our] L.A. factory was far more difficult than [he had] anticipated.’ ” He noted that “‘because the consumer [had been] battered, having the right product at the right time at the right place [was] more important than ever,’ ” and conceded that American Apparel had been unable to “ ‘respond quickly enough because of [the] issues with the factory.’ ” On February 7, 2011, American Apparel filed what plaintiffs denominate “an unusual amendment” to its 2009 Annual Report. It was the company’s fourth amendment of the 2009 Annual Report. Plaintiffs allege that the amended 2009 Annual Report was filed to provide investors with “unaudited” financial statements for the year ended December 31, 2009 that had previously been filed as “audited.” It included an “Explanatory Note” denying that the amendment was an admission of any mistakes or untrue statements in prior filings. On March 31, 2011, American Apparel filed its 2010 Annual Report. It stated that Deloitte had alleged misrepresentations by management “based on the significance of the declines in operations and gross margin in the Company’s February 2010 monthly financial statement, combined with the January 2010 monthly financial statements, the Company’s issuance of revised projections in early May 2010 which reflected a significant decrease in the Company’s 2010 projections, and [Deloitte]’s disagreement with the Company’s conclusion that the results shown in the February 2010 monthly financial statements would not have required a revision to the Company’s projections as of the date of the 10-K filing and the issuance of [Deloitte]’s reports. [Deloitte] further indicated that [it was resigning due to its] inability to perform additional audit procedures ... and [its] professional judgment that [it was] no longer willing to rely on management’s representations due to [Deloitte]’s belief that management withheld from [Deloitte] the February 2010 monthly financial statements until after the filing of the 2009 10-K and made related misrepresentations. “The Audit Committee and the Company’s management are currently evaluating these matters. The Audit Committee of the Company has commenced an investigation into the assertions that management withheld the February 2010 monthly financial statements and related misrepresentations.” On April 1, 2011, the two Lion Capital members sat on American Apparel’s board resigned from their positions, citing “conflicts of interest.” American Apparel also went back to Lion Capital on October 1, 2010, in order to restructure its credit agreement or face possible bankruptcy. C. The Litigation Multiple shareholders initiated lawsuits against American Apparel. On December 3, 2010, the court ordered consolidation of the cases. On March 15, 2011, the court granted Charles Rendelman’s motion for appointment as lead plaintiff. On April 29, 2011, Rendelman filed a consolidated class action complaint. American Apparel, Lion Capital, Charney and Kowalewski have filed motions to dismiss the complaint, accompanied by requests for judicial notice. Plaintiffs filed an omnibus opposition to defendants’ motions on June 30, 2011; defendants filed replies on July 14, 2011. II. DISCUSSION A. Legal Standard Governing Motions To Dismiss Under Rule 12(b)(6) A Rule 12(b)(6) motion tests the legal sufficiency of the claims asserted in the complaint. A Rule 12(b)(6) dismissal is proper only where there is either a “lack of a cognizable legal theory” or “the absence of sufficient facts alleged under a cognizable legal theory.” Balistreri v. Pacifica Police Dept., 901 F.2d 696, 699 (9th Cir.1988). In deciding a Rule 12(b)(6) motion, the court generally looks only to the face of the complaint and documents attached thereto. Van Buskirk v. Cable News Network, Inc., 284 F.3d 977, 980 (9th Cir.2002); Hal Roach Studios, Inc. v. Richard Feiner & Co., Inc., 896 F.2d 1542, 1555 n. 19 (9th Cir.1990). The court must accept all factual allegations pleaded in the complaint as true, and construe them and draw all reasonable inferences from them in favor of the non-moving party. Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007) (“[Fjaced with a Rule 12(b)(6) motion to dismiss a § 10(b) action, courts must, as with any motion to dismiss for failure to plead a claim on which relief can be granted, accept all factual allegations in the complaint as true”); see also Cahill v. Liberty Mutual Ins. Co., 80 F.3d 336, 337-38 (9th Cir.1996); Mier v. Owens, 57 F.3d 747, 750 (9th Cir.1995). The court need not, however, accept as true unreasonable inferences or eonclusory legal allegations cast in the form of factual allegations. See Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 545, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (“While a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiffs obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do’ ”). Thus, a complaint must “contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ... 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); see also Twombly, 550 U.S. at 545, 127 S.Ct. 1955 (“Factual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact)” (citations omitted)); Moss v. United States Secret Service, 572 F.3d 962, 969 (9th Cir.2009) (“[F]or a complaint to survive a motion to dismiss, the non-conclusory ‘factual content,’ and reasonable inferences from that content, must be plausibly suggestive of a claim entitling the plaintiff to relief,” citing Iqbal and Twombly). B. Requests For Judicial Notice Both plaintiffs and defendants have asked that the court take judicial notice of various documents. Because Rule 12(b)(6) review is confined to the complaint, the court typically does not consider material outside the pleading (e.g., facts presented in briefs, affidavits, or discovery materials). In re American Continental Corp./Lincoln Sav. & Loan Securities Litig., 102 F.3d 1524, 1537 (9th Cir. 1996). It may, however, properly consider exhibits attached to the complaint and documents whose contents are alleged in the complaint but attached, if their authenticity is not questioned. Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir.2001). In addition, the court can consider matters that are proper subjects of judicial notice under Rule 201 of the Federal Rules of Evidence. Id. at 688-89; Branch v. Tunned, 14 F.3d 449, 454 (9th Cir.1994), overruled on other grounds by Galbraith v. County of Santa Clara, 307 F.3d 1119 (9th Cir.2002); Hal Roach Studios, Inc., 896 F.2d at 1555 n. 19; see also Tellabs, 551 U.S. at 322, 127 S.Ct. 2499 (“[CJourts must consider the complaint in its entirety, as well as other sources courts ordinarily examine when ruling on Rule 12(b)(6) motions to dismiss, in particular, documents incorporated into the complaint by reference, and matters of which a court may take judicial notice”). The court is “not required to accept as true conclusory allegations which are contradicted by documents referred to in the complaint.” Steckman v. Hart Brewing Inc., 143 F.3d 1293, 1295 (9th Cir.1998). 1. SEC Filings Plaintiffs and defendants first ask that the court take judicial notice of several of American Apparel’s SEC filings and of an SEC Investor Bulletin. The filings include the company’s Forms 10-K, 10-Q, and 8-K, Endeavor Acquisition Corp.’s Form 14-A, and Charney’s Schedule 13D/A. They also seek judicial notice of the transcripts of various earnings conference calls. Courts can consider securities offerings and corporate disclosure documents that are publicly available. See Metzler Inv. GMBH v. Corinthian Colleges, Inc., 540 F.3d 1049, 1064 n. 7 (9th Cir.2008) (“Defendants sought judicial notice for Corinthian’s reported stock price history and other publicly available financial documents, including a number of Corinthian’s SEC filings. In its dismissal order, the court granted Defendants’ unopposed requests for judicial notice. Metzler does not contest the propriety of the noticing of these documents on appeal, which in any event was proper”). In addition, courts may consider documents that are referenced in the complaint under the “incorporation by reference” doctrine. In re Stac Electronics Securities Litigation, 89 F.3d at 1405 n. 4 (discussing securities offering documents); Fecht v. Price Co., 70 F.3d 1078, 1080 n. 1 (9th Cir.1995) (“Defendants attached to their motion to dismiss the full text of the Company’s corporate disclosure documents and the securities analysts’ reports quoted in the Complaint. Plaintiffs argue that because the district court considered the full text of these documents — many portions of which were not pleaded in the Complaint — defendants’ motion to dismiss should have been converted into a motion for summary judgment, affording plaintiffs the opportunity to present additional evidentiary materials. This argument is foreclosed by Branch v. Tunnell, 14 F.3d 449, 454 (9th Cir.1994), cert. denied, 512 U.S. 1219, 114 S.Ct. 2704, 129 L.Ed.2d 832 (1994), in which we stated: As it makes sense and comports with existing practice, we hold that documents whose contents are alleged in a complaint and whose authenticity no party questions, but which are not physically attached to the pleading, may be considered in ruling on a Rule 12(b)(6) motion to dismiss. Such consideration does ‘not convert the motion to dismiss into a motion for summary judgment,’ ” quoting Branch, 14 F.3d at 454 (in turn quoting Romani v. Shearson Lehman Hutton, 929 F.2d 875, 879 n. 3 (1st Cir.1991))); see also In re Silicon Graphics, Inc. Securities Litigation, 183 F.3d 970, 986 (9th Cir.1999) (holding that the district court properly considered SEC filings under the incorporation by reference doctrine because their contents were alleged in the complaint). Many of the conference call transcripts, in particular, are referenced throughout the complaint, such that the court can consider them under the incorporation by reference doctrine. See In re Gilead Sciences Securities Litig., C 03-4999 MJJ, 2005 WL 181885, *4 (N.D.Cal. Jan. 26, 2005) (“The Court can take judicial notice of Exhibit D because ‘the Court may take judicial notice of documents on which allegations in the [complaint] necessarily rely, even if not expressly referenced in the [complaint], provided the authenticity of those documents is not in dispute.’ In re Calpine Corp. Sec. Litig., 288 F.Supp.2d 1054, 1076 (N.D.Cal.2003). Plaintiffs necessarily rely upon this conference call because they claim that Defendants perpetuated a fraud on the market with the July 31, 2003 financial announcement and estimated inventory build-up. Therefore, the statements made in the conference call directly relate to the claim of fraud on the market and the transcript reflects information available to the market at the time”); In re Northpoint Communications Group, Inc. Securities Litigation, 184 F.Supp.2d 991, 994 n. 1 (N.D.Cal.2001) (“In a securities-fraud suit, judicial notice can be had of documents directly related to documents referenced in the complaint that bear on the adequacy of the disclosure” (citations omitted)). Finally, the SEC Investor Bulletin is a proper subject of judicial notice, as it is a government publication and matter of public record. See Lee, 250 F.3d at 688; Branch, 14 F.3d at 454; see also In re Seracare Life Sciences, Inc., No. 05-CV-2335-H (CAB), 2007 WL 935583, *4 (S.D.Cal.2007) (taking notice of an Accounting Research Bulletin, as it “is not subject to reasonable dispute in that it is capable of accurate and ready determination by reference to sources whose accuracy cannot be reasonably questioned”). Therefore, the court takes judicial notice of the existence and contents of American Apparel’s Forms 10-K, 10-Q, and 8-K, Endeavor Acquisition Corp.’s Form 14-A, Charney’s Schedule 13D, the transcripts from various earnings conference calls, and the SEC Investor Bulletin. 2. News Reports and Press Releases Plaintiffs and defendants next request that the court take judicial notice of multiple news reports and press releases describing American Apparel’s business before and during the class period, as well as purported statements by representatives of the company. Although the parties dispute the purpose for which some of these documents should be considered, the requests for judicial notice of the existence and contents of the reports are largely unopposed. Taking judicial notice of news reports and press releases is appropriate for show “that the market was aware of the information contained in news articles .... ” Heliotrope Gen., Inc. v. Ford Motor Co., 189 F.3d 971, 981 n. 18 (9th Cir.1999); see also In re White Electronic Designs Corp. Sec. Litig., 416 F.Supp.2d 754, 760 (D.Ariz.2006) (“[Jjudicial notice is appropriate for SEC filings, press releases, and accounting rules as they are capable of accurate and ready determination by resort to sources whose accuracy cannot be reasonably questioned” (internal quotations and citations omitted)). Courts in the Ninth Circuit routinely take judicial notice of press releases. See, e.g., In re Netflix, Inc. Securities Litig., Nos. C 04-2978 WHA, C 04-3021, C 04-3204, C04-3233, C 04-3329, C 04-3770, C 04-3801, 2005 WL 3096209, *1 (N.D.Cal. Nov. 18, 2005); In re Ligand Pharmaceuticals, Inc. Securities Litig., CV 04-1620 DMS LSP, 2005 WL 2461151, *2 n. 1 (S.D.Cal. Sept. 27, 2005); In re Homestore.com. Inc. Sec. Litig., 347 F.Supp.2d 814, 816-17 (C.D.Cal.2004) (stating that the court can take judicial notice of press releases). In addition, some of the documents in question, such as the Los Angeles Times article titled “Employer is for Open U.S. Door” and The New York Times article titled “Politics Wrapped in a Clothing Ad,” are explicitly referenced in the complaint, making consideration of them proper under the incorporation by reference rule. Branch, 14 F.3d at 454. Defendants object to one of plaintiffs’ requests for judicial notice of a newspaper article, a news report published in The New York Times on June 13, 2011, titled “The Importance of Being Audited.” This story concerns “problems with reverse mergers, including murky financial disclosure[s].” The focus of the article appears to be reverse mergers with Chinese companies. Defendants cite Patel v. Parnes, 253 F.R.D. 531 (C.D.Cal.2008), a securities fraud action in which the court declined to take judicial notice of news articles that concerned general economic conditions in a defendant’s industry rather than the defendant itself. Id. at 549-50. The cases that discuss news articles as part of the “total mix” of information available to investors concern articles about the defendant’s activities and performance, not articles about an industry as a whole. See, e.g., In re Yukos Oil Co. Securities Litig., Civ 04-5243 WHP, 2006 WL 3026024, *21 (S.D.N.Y. Oct. 25, 2006) (noting in the context of a motion to dismiss that “[t]o‘ the extent Plaintiffs allege that Yukos failed to disclose that Khodorkovsky was politically active, such a non-disclosure, even if true, was immaterial in light of the wealth of publicly available information to that effect. In fact, the newspapers were saturated with references to Khodorkovsky’s pro-Yeltsin, anti-Putin proclivity. Thus, even if Yukos failed to make that fact explicit, no reasonable juror could find ‘a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having altered the “total mix” of information made available,’ ” quoting Halperin v. eBanker USA.com, Inc., 295 F.3d 352, 357 (2d Cir. 2002), and citing Ganino v. Citizens Utils. Co., 228 F.3d 154, 167 (2d Cir.2000) (holding that a misstatement or omission is not material if the undisclosed fact is already in the public domain); and White v. H & R Block, Inc., Civ. 02-8965 MBM, 2004 WL 1698628, *12 (S.D.N.Y. July 28, 2004) (dismissing claims because the allegedly omitted fact was disclosed in the press)); Smith v. Circuit City Stores, Inc., 286 F.Supp.2d 707, 721 (E.D.Va.2003) (considering news articles directly related to the defendant and observing that “[djisclosure of information already publicly available does not materially alter the ‘total mix’ of available information,” citing Cooke v. Manufactured Homes, Inc., 998 F.2d 1256, 1262-63 (4th Cir.1993) (disclosure of company’s fiscal problems by third parties in newspaper articles and analyst’s reports “more than cured any omission by [the company]”)). The court, therefore, declines to take judicial notice of Exhibit 2 to the Abadou Declaration, as it does not explicitly reference any of the defendants, is not discussed in the complaint, and does not relate to American Apparel’s business or financial condition during the relevant period. Additionally, as defendants note, “[although a court may take judicial notice of a newspaper article, petitioner must meet the burden of demonstrating that the facts of the article are either ‘(1) generally known within the territorial jurisdiction of the trial court or (2) capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned’ as required under Rule 201(b) of the Federal Rules of Evidence.” See Hardison v. Newland, No. C984517CRB(PR), 2003 WL 23025432, *5 (N.D.Cal. Dec. 17,2003); see also Castaneda v. Saxon Mortg. Servs. Inc., 687 F.Supp.2d 1191, 1196 (E.D.Cal.2009) (denying a request for judicial notice of an unpublished article “which expresse[d] opinions of the author that may reasonably be questioned”); Ekdahl v. Ayers, No. C 07-3642 SBA (PR), 2008 WL 4344314, *3 (N.D.Cal. Sept. 22, 2008) (denying a request for judicial notice of two articles containing opinions regarding policy). 3. Documents Received as a Result of Plaintiffs’ FOIA Request Shortly before the hearing, plaintiffs filed a request for judicial notice of two documents they had obtained by submitting a FOIA request to DHS. One document is an internal “Report of Investigation” concerning ICE’s 1-9 inspection. The second is an “ICE Memorandum to Case File-Determination of Civil Money Penalty.” Plaintiffs assert that the court should judicially notice these documents because they show that ICE made certain “findings” regarding American Apparel’s hiring of unauthorized workers. Defendants oppose the request to the extent plaintiffs rely on the documents for the truth of the assertions they contain. Because plaintiffs obtained the documents by making a FOIA request, the court will take judicial notice of them as matters of public record. See Silverstrand Investments v. AMAG Pharmaceuticals, Inc., Civil Action No. 10-10470-NMG, 2011 WL 3566990, *4 (D.Mass. Aug. 11, 2011) (taking judicial notice of “FDA Meeting Minutes and [an] accompanying FOIA Letter”). It notes, however, that the documents are heavily redacted, as is often true of documents received in response to FOIA requests. Although the documents refer to a January 3, 2008, 1-9 inspection at the company, as well as various dates on which ICE personnel interacted with American Apparel representatives, the documents themselves are not dated, making it difficult to discern when the agency made its findings. In addition, plaintiffs appear to seek judicial notice of the truth of the documents’ contents, suggesting that the court can infer scienter from the number of substantive violations reported in the documents. Doing so would be inappropriate in the context of a motion to dismiss under Rule 12(b)(6). In re Easysaver Rewards Litig., 737 F.Supp.2d 1159, 1171 (S.D.Cal.2010) (“The Court will not, however, consider the findings within the Senate’s reports. As the Defendants correctly note, the facts can be disputed, the findings pertained to other companies, and the conclusions involve interpretation, opinion, and judgment”); Cactus Corner, LLC v. U.S. Dep’t of Agric., 346 F.Supp.2d 1075, 1100 (E.D.Cal.2004) (refusing to take notice of data prepared by a government agency to the extent it was offered for the “accuracy and validity of the [report’s] contents”); Silverstrand, 2011 WL 3566990 at *4 (declining to take notice of documents for “truth of the contents therein”). C. Legal Standard Governing the Pleading of Securities Fraud Claims Rule 9(b) of the Federal Rules of Civil Procedure provides that the “circumstances constituting fraud or mistake shall be stated with particularity.” Fed.R.Civ. Proc. 9(b). A securities fraud claim cannot survive a motion to dismiss under this rule merely by alleging that certain statements were false. Metzler, 540 F.3d at 1070 (“A litany of alleged false statements, unaccompanied by the pleading of specific facts indicating why those statements were false, does not meet this standard”); see also In re Oracle Corp. Sec. Litig., 627 F.3d 376, 390 (9th Cir.2010) (“Plaintiffs must “demonstrate that a particular statement, when read in light of all the information then available to the market, or a failure to disclose particular information, conveyed a false or misleading impression,” ” quoting In re Convergent Technologies Sec. Litig., 948 F.2d 507, 512 (9th Cir.1991)). Rather, the complaint must allege “why the disputed statement was untrue or misleading when made.” In re GlenFed, Inc. Securities Litigation, 42 F.3d 1541, 1549 (9th Cir.1994) (en banc) (emphasis added). In 1995, Congress passed the Private Securities Litigation Reform Act, 15 U.S.C. § 78u-4, which amended the Securities Exchange Act of 1934. The PSLRA modified Rule 9(b)’s particularity requirement, “providing that a securities fraud complaint [must] identify: (1) each statement alleged to have been misleading; (2) the reason or reasons why the statement is misleading; and (3) all facts on which that belief is formed.” 15 U.S.C. § 78u-4(b)(l); see Silicon Graphics, 183 F.3d at 996. The statute requires, with respect to pleading that each allegedly misleading statement or omission was made with scienter, that plaintiff “state with particularity ... facts giving rise to a strong inference that the defendant acted with the required state of mind.” 15 U.S.C. § 78u-4(b)(2). If the complaint does not contain such allegations, it must be dismissed. 15 U.S.C. § 78u-4(b)(3)(A). In enacting the PSLRA, “Congress ‘impose^] heightened pleading requirements in actions brought pursuant to § 10(b) and Rule 10b-5.’ ” Tellabs, 551 U.S. at 320, 127 S.Ct. 2499 (citing Merrill Lynch, Pierce, Fenner & Smith Inc. v. Dabit, 547 U.S. 71, 81, 126 S.Ct. 1503, 164 L.Ed.2d 179 (2006)). The PSLRA’s heightened particularity requirement “prevents a plaintiff from skirting dismissal by filing a complaint laden with vague allegations of deception unaccompanied by a particularized explanation stating why the defendant’s alleged statements or omissions are deceitful.” Metzler, 540 F.3d at 1061 (citing Falkowski v. Imation Corp., 309 F.3d 1123, 1133 (9th Cir.2002)). D. Legal Standard Governing Liability Under Section 10(b) and Rule 10b-5 Rule 10b-5, promulgated by the Securities and Exchange Commission pursuant to section 10(b) of the 1934 Act, makes it unlawful for any person to use “manipulative or deceptive deviee[s]” in connection with the purchase or sale of securities. 15 U.S.C. § 78j(b). Specifically, one cannot “(a) ... employ any device, scheme, or artifice to defraud; (b) ... make any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or (c) ... engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.” 17 C.F.R. § 240.10b-5. The elements of a section 10(b) or Rule 10b-5 violation are (1) the misrepresentation or omission of a material fact, (2) scienter, (3) reliance (4) in connection with the purchase or sale of a security, (5) economic loss and damages, and (6) loss causation. Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 341, 125 S.Ct. 1627, 161 L.Ed.2d 577 (2005); see also Paracor Finance, Inc. v. General Electric Capital Corp., 96 F.3d 1151, 1157 (9th Cir.1996) (en banc); McCormick v. Fund American Companies, Inc., 26 F.3d 869, 875 (9th Cir.1994). “Scienter” refers to “a mental state embracing intent to deceive, manipulate, or defraud.” Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 n. 12, 96 S.Ct. 1375, 47 L.Ed.2d 668 (1976). mile recklessness can constitute scienter, see Nelson v. Serwold, 576 F.2d 1332, 1337 (9th Cir.1978), the Ninth Circuit in Silicon Graphics clarified that recklessness “satisfies scienter under § 10(b)” only to the extent that it “reflects some degree of intentional or conscious misconduct.” Silicon Graphics, 183 F.3d at 977; see also Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 991 (9th Cir.2009) (reiterating the standard for scienter articulated in Silicon Graphics following Tellabs); Metzler, 540 F.3d at 1066 (same). E. Whether Plaintiffs Have Adequately Pled Defendants’ Alleged Material Misrepresentations and/or Omissions To state a claim for securities fraud, the complaint must specify “each statement alleged to have been misleading, [and] the reason or reasons why the statement is misleading.” 15 U.S.C. § 78u-4(b)(l). Plaintiffs allege that defendants made three types of false statements. First, they assert defendants falsely claimed that all their employees were authorized to work in the United States, when in fact large numbers of employees had to be terminated after ICE could not verify their eligibility to work in this country. Second, after the results of the ICE investigation were disclosed and the company laid off a significant number of employees at its Los Angeles manufacturing plant, defendants purportedly misrepresented the extent to which those layoffs would affect the company’s profitability. Finally, plaintiffs allege that defendants repeatedly assured the public that American Apparel’s accounting practices were conservative and careful, when in fact the company’s financial statements contained material misrepresentations and omissions, and it failed to disclose material information to its auditors. Defendants contend that plaintiffs have failed to plead falsity with the requisite particularity. The court addresses defendants’ arguments below in the context of the three categories of misstatement identified in the complaint. 1. American Apparel’s Employment of Unauthorized Workers and Its Compliance with Federal Immigration Laws Plaintiffs assert that during the class period, American Apparel claimed it was in compliance with the immigration laws when in reality it had employed hundreds of undocumented workers and workers who had not su