Full opinion text
MEMORANDUM OPINION AMY BERMAN JACKSON, District Judge. “We may employ leverage without limit, which may result in the market value of our investments being highly volatile, limit our range of possible investments, and adversely affect our return on investments and the cash available for distributions.” “An investment ... is suitable only for investors who are experienced in analyzing and bearing the risks associated with investments having a very high degree of leverage.” “We cannot assure you that that the Liquidity Cushion will be sufficient to satisfy margin calls on our financed securities that may arise in connection with highly unusual adverse market conditions.” * * * “While borrowing and leverage present opportunities for increasing total return, they have the effect of potentially increasing losses as well.... [A]ny event which adversely affects the value of our investments would be magnified to the extent leverage is employed.” Carlyle Capital Corporation (“CCC”) Offering Memorandum [Dkt. # 52-3] at 13-14. This case involves highly leveraged, highly speculative investment products. It raises the question of whether plaintiffs were defrauded under the following circumstances: they bought shares in a company whose sole business consisted of buying residential mortgage-backed securities on margin; the shares were made available only to a restricted group of sophisticated, wealthy investors; the shares were marketed with ominous warnings such as the ones above; and the very risks that were disclosed materialized when conditions in the real estate market and global economy deteriorated in 2008. The consolidated complaint alleges claims of securities fraud under sections 10(b) and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b), 78t(a), and SEC Rule 10b-5,17 C.F.R. § 240.10b-5. The complaint includes common law fraud and negligent misrepresentation allegations, as well as claims under the laws of the United Kingdom and the Netherlands. As plaintiffs have explained it, the gravamen of the complaint is that the CCC Offering Memorandum was materially false and misleading because while it disclosed that liquidity issues that would threaten the company could occur, it omitted information that would have alerted investors to the fact that those events were already occumng. Plaintiffs also contend that after the Offering, defendants continued to conceal the worsening financial condition of the company until CCC collapsed in March of 2008. Defendants have moved to dismiss the consolidated complaint pursuant to Federal Rules of Civil Procedure 9(b) and 12(b)(6) and the Private Securities Litigation Reform Act of 1995 (“PSLRA”), 15 U.S.C. § 78u-4, for failure to state a claim upon which relief can be granted. [Dkt. # 51 and # 52], For the reasons set forth in more detail below, the Court will grant the motions to dismiss. Essentially, this complaint is an attack on how CCC was managed, and ultimately, it questions the wisdom behind the adoption of its business model in the first place. But chiding CCC with the benefit of hindsight for its failure to resist the stampede to purchase mortgage-backed securities is not the same thing as alleging fraud, particularly given the stringent standards of the PSLRA. With respect to the counts related to the Offering, the complaint does not plausibly allege a securities fraud claim grounded on omissions because the Offering documents — in particular, the Supplemental Memorandum issued after the initial Offering was postponed — specifically placed buyers on notice of what CCC was doing and the fact that it had recently experienced the very reversals that plaintiffs claim should have been disclosed. So, this action lacks the defining element of fraud: a falsehood. The federal claims also fall short of supporting the necessary allegation that the alleged fraud caused the plaintiffs’ losses. The common law claims related to the Offering suffer from the same flaws, and in addition, they fail to set forth facts that would support the element of actual reliance. As for the claims based on sales of securities in the aftermarket, the federal claims are barred since the shares were purchased on a foreign exchange and not in the United States. And, if the Court were to go on to consider the common law aftermarket claims, it would find those allegations to be devoid of the necessary allegations of reliance as well. I. BACKGROUND A. The Parties 1. Plaintiffs Plaintiffs bring this action pursuant to Federal Rules of Civil Procedure 23(a) and (b)(3) on behalf of two proposed classes. The first proposed class is the “Offering Class,” which the complaint defines as “all persons who purchased or otherwise acquired Class B Shares or Restricted Depository Shares (“RDS”) of CCC in its Offering and were damaged thereby” and a “U.S. Offering” subclass of U.S. residents. Compl. ¶ 30. The second proposed class is the “Aftermarket Class,” which the complaint defines as “all persons who purchased or otherwise acquired Class B Shares of CCC in market purchases from July 4, 2007 through March 17, 2008 ... and were damaged thereby,” and includes a “U.S. Aftermarket Subclass” of U.S. residents. Id. Plaintiffs estimate that there are at least 500 members of the Class. See id. ¶ 31. The named plaintiffs in this action are: • Plaintiff E.L. Phelps, a resident of Virginia who purchased (1) 15,789 RDSs in the Offering and (2) 15,000 Class B Shares listed for trading on the Euronext exchange in the aftermarket. Id. ¶ 4; • Plaintiff M.J. McLister, a resident of Virginia who purchased (1) 26,316 RDSs in the Offering, and (2) 54,225 Class B Shares listed for trading on the Euronext exchange in the aftermarket. Id. ¶ 5; • Plaintiff D.J. Wu, a resident of Washington, D.C. who purchased (1) 26,316 RDSs in the Offering, and (2) 25,000 Class B Shares listed for trading on the Euronext exchange in the aftermarket. Id. ¶ 6; • Plaintiff S.M. Liss, a resident of Maryland who purchased 15,789 RDSs in the Offering. Id. ¶ 7; • Plaintiff W.F. Schaefer, a resident of Maryland who purchased 7,895 RDSs in the Offering. Id. ¶ 8; • Plaintiff Jonathan Glaubach who purchased 500 shares of CCC securities in the Offering. Glaubach Decl. ¶ 4 to Mot. for App’t as Lead PI. [Dkt. # 4-3]; 2. Defendants The consolidated complaint names the following institutional defendants: • Defendant Carlyle Investment Management, LLC (“CIM”), a Delaware limited liability company with its principal place of business in Washington, D.C. Compl. ¶ 9. Under an investment management agreement with CCC, CIM served as the investment manager of CCC and “had full discretionary investment authority.” Id. According to the Offering Memorandum, CIM was responsible for “the day-to-day management and operations of [CCC’s] business.” CCC Offering Memorandum (“Off. Mem.”) [Dkt. # 52-3] at 62-63; • Defendant T.C. Group, LLC (“TCG”), a Delaware limited liability company with its principal place of business in Washington, D.C. Compl. ¶ 10. According to the complaint, TCG owned 75 percent of CIM. Id.; • Defendant TC Group Holdings, LLC (“TCG Holdings”), a Delaware limited liability company with its principal place of business in Washington, DC. TCG Holdings was the holding company and managing member of TCG. Id. ¶ 11; • Defendant CCC, a Guernsey limited company that is currently in liquidation. Id. ¶ 22. The complaint also names two groups of individual defendants. The first group of defendants, who are referred to as the “Carlyle Defendants,” is: • Defendant William Elias Conway, Jr., a resident of Virginia who served as managing director of CIM, a director of CCC, and the Chief Investment Officer of TCG. Id. ¶ 14; • Defendant John Crumpton Stomber, a resident of Connecticut who served as the Chief Executive Offer, Chief Investment Officer and President, and a director of CCC, as well as Managing Director of CIM and TCG. Id. ¶ 15; • Defendant James H. Hance, a resident of North Carolina who served as a Director of CCC from September 14, 2006 and at all relevant times thereafter. Id. ¶ 16. He also served as Chairman of the Board until March 2007 and was a senior adviser to CIM. Id.; • Defendant Michael J. Zupon, a resident of New York who served as a Director of CCC from September 14, 2006 and at all relevant times thereafter. Id. ¶ 17. According to the complaint, Zupon was a founding member, Chief Investment Officer, and Managing Director and Head of Carlyle’s U.S. Leveraged Finance Group and a Partner and Managing Director of Carlyle. Id. The second group of individual defendants, who are referred to as the “Outside Directors,” is: • Defendant Robert Barclay Allardice, III, a resident of New York who served as a Director of CCC from September 14, 2006 and at all relevant times thereafter. Id. ¶ 19; • Defendant Henry Jay Sarles, a resident of Massachusetts who was a Director of CCC from September 14, 2006 and at all relevant times thereafter. Id. ¶ 20; • Defendant John Leonard Loveridge, a resident of Guernsey who was a Director of CCC from September 14, 2006 and at all relevant times thereafter. Id. ¶ 21. B. Factual Background 1. CCC’s business model As the complaint sets forth, CCC was a closed-end investment fund that was formed as a limited company under the laws of Guernsey on August 29, 2006. Compl. ¶ 40. Although CCC was technically a separate business entity, the complaint alleges that CCC was “an investment product created and managed at all times by [defendants].” Id. ¶ 23. CCC’s business model involved using highly leveraged financing in the form of repurchase loan agreements (“repos”) to invest in residential mortgage-backed securities (“RMBS”). Id. ¶ 41; Off. Mem. at 45. CCC shares were initially sold to investors through a private placement of Class B shares, which was completed by December 31, 2006 and raised over $260 million. Compl. ¶ 50. A second private placement was completed by February 28, 2007, raising over $336 million. Id. ¶ 52. The total amount of capital raised through the private placements was approximately $600 million. Id. 2. The Offering and Offering Memoranda a. Types of securities sold in the Offering The Offering (“Offering”) was initially scheduled to take place in early July 2007. Off. Mem. at cover. There were two types of securities to be sold: Class B Shares and Restricted Depository Shares (“RDSs”). Class B shares were issued from CCC and were sold only outside the United States to foreign investors. Off. Mem. at cover. RDSs were issued by the Bank of New York and sold to investors in the United States, as well as foreign investors. Id. The securities sold in the Offering were not widely available — only certain types of investors and investors in certain locations were permitted to purchase the securities. In the United States, only qualified institutional buyers (“QIBs”) and accredited investors were permitted to purchase RDSs. Similarly, in order to purchase either type of security, an investor was required to be a “qualified purchaser,” meaning a QIB with at least $25 million in qualifying investments or an individual with at least $5 million in qualifying investments. Id. at A-2. Both types of securities were subject to transfer restrictions. See, e.g., id. at.136,138. b. The period preceding the issuance of the Offering Memorandum In the months leading up to the Offering, the CCC Board of Directors (“the Board”) reviewed drafts of the Offering Memorandum and took action on several issues related to the Offering. See, e.g., id. ¶¶ 53, 54, 56. The Memorandum was ultimately issued on June 19, 2007. Id. ¶ 74. According to the Offering Memorandum, CCC had an investment guideline stating that the fund would maintain a “liquidity cushion” of 20 percent, meaning that “unrestricted cash and cash equivalents ... [would be] equal to no less than 20% of [CCC’s] [a]djusted [c]apital.” Off. Mem. at 7. The liquidity cushion was set at 20% based on “extensive statistical testing of [CCC’s] expected portfolio, including testing during periods of significant financial market volatility and stress....” Id. at 50. The purpose of the liquidity cushion was to enable CCC “to meet reasonably foreseeable margin calls on [its] financed securities.” Id. at 50. But CCC also informed potential investors that it could change its investment guidelines without a shareholder vote at any time with approval of a majority of directors. Id. at 7. In fact, the Offering Memorandum disclosed that it had already deviated from the guidelines in the past and “may do so again in the future.” Id. In its critique of the Offering, the complaint focuses on events that were occurring during the same time period. It alleges that at some point in April 2007, the Board approved a request made by defendant Stomber to use the liquidity cushion to buy certain RMBSs prior to the Offering, which resulted in a reduction of the liquidity cushion to 15 percent. Id. ¶ 58. Also, during this period, CCC entered into a term loan agreement with CitiGroup Global Markets, Inc., which was one of the brokerage firms that agreed to market the Offering to U.S. investors. Id. ¶ 60. CCC thus secured a bridge loan in the amount of $191 million, which was “obtained in contemplation of the Offering and was required to be repaid from the proceeds of the Offering.” Id. The complaint also alleges that on June 7, 2007, defendant Stomber informed the Board in an email that CCC had recently sustained substantial losses. Id. ¶ 63. It states: Stomber told the Board that as a consequence of a change in the “5 years swap rate,” a $25 million unrealized gain had become an $8 million unrealized loss on CCC’s mortgage backed securities and that CCC’s New Asset Value had declined as a result. Stomber stated that “[t]oday was a wild day” in the market “where rates went up materially” and that CCC could sustain further significant losses.... Most importantly, Stomber was aware and informed the Board that those events had negatively impacted CCC’s Liquidity Cushion: “.... The Liq Cushion stands at 23 percent but could be called down close to 20 percent — that is why we have it.” Id. On June 13, 2007, Stomber announced to the Board that the Offering would be postponed because of “volatile market conditions” and the uncertainty of the valuation of CCC’s balance sheet. Compl. ¶ 64. According to the complaint, he reported that “CCC’s IFRS net income ‘was on target for a 14.5% 2nd quarter, but he also noted that CCC’s ‘Fair Value Reserve was down $63.9MM from inception and $76.2MM for the year,’ meaning that CCC had suffered unrealized losses in those amounts under IFRS.” Id. Stomber went on: We are having a major liquidity event so I invoked “emergency powers” on the balance sheet. The liquidity cushion is currently at $148MM, which is technically above 20% of our current MTM equity position. But please take no comfort in that, we could be margin called for up to another $70MM and therefore bring the cushion down to about 11 %. Therefore, we need independent Board Member approval to go under 20% — that is the purpose of the liquidity cushion — to be there so we'don[’t] not have to sell securities at depressed prices during a margin call. Therefore, I ask you for your formal approval. Id. (alteration in original). The complaint alleges that on June 14, 2007, the Board approved a resolution to give Stomber the authority he requested to reduce CCC’s minimum liquidity cushion. Compl. ¶ 66. Shortly thereafter, on June 19, 2007, CCC issued the original Offering Memorandum. Id. ¶ 74; Off. Mem. at cover. The Offering Memorandum contained detailed information about the Offering, including explanations of the types of securities that were to be sold, CCC’s business model and its associated risks, and the fund’s financial status. c. The description of CCC’s business model and associated risks in the Offering Memorandum The Offering Memorandum set forth CCC’s business model in detail, particularly its use of leverage and the risks associated with such an approach. The first page of the Memorandum summarized CCC’s investment strategy in the following way: Our objective is to achieve attractive risk-adjusted returns for shareholders through current income and, to a lesser extent, capital appreciation. We seek to achieve this objective by investing in a diversified portfolio of fixed income assets consisting of mortgage products and leveraged finance assets. Our income is generated primarily from the difference between the interest income earned on our assets and the costs of financing those assets as well as from capital gains generated when we dispose of our assets. We use leverage to increase the potential return on shareholders’ equity. The actual amount of leverage that we will utilize, although not limited by our investment guidelines, will depend on a variety of factors, including type and maturity of assets, cost of financing, credit profile of the underlying assets and general economic and market conditions. Id. at 1. The Offering Memorandum emphasized that CCC would “utilize leverage extensively” and “without limit.” Id. at 5. It noted that the fund’s leverage ratio, which was defined as “debt directly incurred to finance investment assets to total equity,” had already exceeded 26:1 by March 31, 2007, and that it was expected to exceed 29:1 after the Offering. Id. The Offering Memorandum also discussed the risk factors associated "with CCC’s business model, explaining: • “We may change our investment strategy or investment guidelines at any times without the consent of shareholders, which could result in us acquiring assets that are different from, and possibly riskier than, the investment guidelines described in the offering memorandum.” Id. at 10. • “We may change our ■ investment strategy and/or capital allocation guidelines without a vote of our shareholders, provided that any change to our investment guidelines must be approved by a majority of our independent directors. In the past, we have deviated from these guidelines with the approval of a majority of our independent directors and we may do so again in the future.” Id. at 7. • “We cannot assure you that the Liquidity Cushion will be sufficient to satisfy margin calls. Despite extensive statistical testing of relevant data, the Liquidity Cushion is not designed to protect us under all possible adverse market scenarios. Therefore, we cannot assure you that that the Liquidity Cushion will be sufficient to satisfy margin calls on our financed securities that may arise in connection with highly unusual adverse market conditions.” Id. at 14 (emphasis in original). • “Our organizational, ownership and investment structure may create significant conflicts of interest that may be resolved in a manner which is not always in our best interests or those of our shareholders.” Id. at 10. • “The price of Class B shares and the RDSs may fluctuate significantly and you could lose all or part of your investment.” Id. at 11. With respect to the use of leverage, the Offering Memorandum warned: • “We may employ leverage without limit, which may result in the market value of our investments being highly volatile, limit our range of possible investments, and adversely affect our return on investments and the cash available for distributions. An investment in the Class B shares or RDSs is suitable only for investors who are experienced in analyzing and bearing the risks associated with investments having a very high degree of leverage.” Id. at 13. • “Most leveraged transactions require the posting of collateral. The amount of collateral required to be posted may increase rapidly in the context of changes in market value of the assets to which we have leveraged exposure[.]” Id. • “While borrowing and leverage present opportunities for increasing total return, they have the effect of potentially increasing losses as well ... [A]ny event which adversely affects the value of our investments would be magnified to the extent leverage is employed. Increased leverage also increases the risk that we will not be able to meet our debt service obligations, and consequently increases the risk that we will lose some or all of our assets to foreclosure or sale.” Id. Finally, because CCC’s business model depended heavily on RMBS assets and financing with repo agreements, the Offering Memorandum outlined the risks related to those circumstances: • “If residential and/or commercial real estate property values decrease materially ... we may realize material losses related to foreclosures or to the restructuring of our mortgage loans and the mortgage loans that back the mortgage-backed securities in our investment portfolio.” Id. at 12. • “The adverse effect of a decline in the market value of our assets may be exacerbated in instances where we have borrowed money based on the market value of those assets. If the market value of those assets declines, the lender may require us to post additional collateral to support the loan. If we were unable to post the additional collateral, we would have to sell the assets at a time when we might not otherwise choose to do so.” Id. at 15. d. The description of CCC’s financial status in the Offering Memorandum The Offering Memorandum provided information regarding CCC’s financial status as of March 31, 2007, which was the end of the latest financial reporting period. Id. ¶ 77; Off. Mem. at 8. But in a section entitled “Recent Developments,” the document also supplied updated financial information that was current as of June 13, 2007. In particular, this section disclosed that prior to the Offering, CCC’s fair value reserves had declined by $28.9 million between April and June 2007: As a result of changes in interest rates, we estimate that from April 1, 2007 to June 13, 2007, our fair value reserved declined by approximately $28.9 million (unaudited), from approximately $24.0 million (unaudited) as of March 31, 2007 to an estimated $(4.9) million (unaudited) as of June 13, 2007. Off. Mem. at 8. Ultimately, the Offering did not take place as scheduled. e. Postponement of the Offering and the Supplemental Offering Memorandum On June 28, 2007, CCC announced that it had postponed the Offering and that it would issue a Supplemental Offering Memorandum (“the Supplement”) setting forth a revised timetable and changing the terms of the Offering. Compl. ¶ 83. The next day, CCC issued the Supplement, which stated that it was “supplemental to, forms part of and must be read in conjunction with the Offering Memorandum” and that it “amends and updates” any information in the Offering Memorandum. Compl. ¶ 84; Supplemental Offering Memorandum (“Supp. Off. Mem.”) [Dkt. #52-6] at 1. The Supplement specifically notified investors that where it contained information inconsistent with Offering Memorandum, the Supplement superseded the earlier document. Supp. Off. Mem. at l. The Supplement stated that the number of Class B shares available in the Offering would be reduced from 19,047,620 to 15,-962,673 and that the price of the shares would be reduced to $19, from the price range of $20-$22 stated in the Offering Memorandum. Supp. Off. Mem. at 5. In a section entitled “Recent Developments,” the Supplement also disclosed: [F]rom April 1, 2007 to June 26, 2007, our fair value reserves declined by approximately $84.2 million (unaudited), from approximately $24.0 million (unaudited) as of March 31, 2007 to an estimated ($60.2) million (unaudited) as of June 26, 2007. Supp. Off. Mem. at 8-9. The Offering was completed on July 11, 2007. Supp. Off. Mem. at 9. More than 18 million Class B Shares and RDSs were sold in the Offering, raising over $345 million in proceeds for CCC. Compl. ¶ 85. f. The subsequent financial crisis and collapse of CCC In the months following the Offering, CCC experienced a decline in the value of its investments. The complaint alleges that, in August 2007, several of CCC’s repo counterparties made substantial margin calls and sought “haircuts,” which required CCC to provide more collateral for the loans used to finance the RMBS assets. Id. ¶ 116. These demands negatively affected CCC’s liquidity cushion. Id. ¶ 117. Around August 7, 2007, Stomber sought and received permission from the Board to reduce the liquidity cushion to 15 percent for a period of ninety days. Id. On August 23, 2007, the Board held an emergency meeting, at which defendant Hance informed Board members that the recent market events had “diminished [CCC’s] liquidity cushion below zero.” Id. ¶ 119. Stomber allegedly told the Board at the meeting that “[m]anagement believes it would be prudent to wind down the Company to its core level at this time.” Id. On August 27, 2007, Stomber informed shareholders in a letter that the recent market volatility had resulted in increased margin calls and that “CCC’s liquidity cushion has not been sufficient to meet recent margin calls.” Id. ¶ 122. On September 11, 2007, the Carlyle Investor Conference took place in Washington, DC, at which Stomber said that “fundamental revisions to CCC’s business model were required and would be implemented.” Id. ¶ 126. He acknowledged that “CCC’s business model needed to be thoroughly restructured to reduce leverage and increase minimum liquidity cushion to. at least 40%.” Id. According to the complaint, defendants made a commitment to (1) “employ less leverage”; (2) “have more diversified asset classes”; and (3) “improv[e] and stabiliz[e] sources.” Id. But plaintiffs allege that despite these promises, defendants did not take any steps to maintain or increase the liquidity cushion, which had been reduced to 3 percent of CCC’s adjusted capital by November 13, 2007. Id. ¶ 130. At a meeting on November 13, 2007, the Board approved amendments to the definition of the term “liquidity cushion” to include undrawn debt from Carlyle as liquid assets. Id. ¶ 131. Plaintiffs allege that this revision made “CCC’s position appear more favorable than it was” because “the Board did not take any steps to actually address CCC’s precarious liquidity problems and over-accumulation of RMBSbased assets.” Id. The Board met again on February 27, 2008, and voted to suspend the 20 percent liquidity cushion until September 2008. Id. ¶ 137. The same day, CCC issued its annual report for the year ending December 31, 2007, which reported that “[d]uring the fourth quarter our portfolio stabilized and we were able to generate returns consistent with our near term targets.” Id. ¶ 138; see also Ex. 3 to CD Mem. at 4 [Dkt. # 52-5]. But on March 5, 2008, CCC issued a press release announcing that “since filing its annual report on February 28, 2008, the Company ha[d] been subject to margin calls and additional collateral requirements totaling more than $60 million.” Id. ¶ 140; Ex. 9 to CD Mem. at 1. The press release went on to say: Until March 5, the Company had met all of the margin requirements imposed by its repo counterparties. However, on March 5, the Company received additional margin calls from seven of its [thirteen] repo counter-parties totaling more than $37 million. The Company has met margin calls from three of these financing counter-parties that have indicated a willingness to work with the Company during these tumultuous times, but did not meet the margin requirements of the four other repo financing counter-parties. From this group of four counterparties, one notice of default has been received by the Company and management expects to receive at least one additional default notice. Id. One week later, on March 12, 2008, CCC issued another press release announcing: [Although it has been working diligently with its lenders, the Company has not been able to reach a mutually beneficial agreement to stabilize its financing. The Company expects that its lenders will promptly take possession of substantially all of the Company’s remaining assets. The only assets held in the Company’s portfolio as of today are the U.S. government agency AAA-rated residential mortgage-backed securities (RMBS). During the last seven business days, the Company received margin calls in excess of $40 million. As the Company was unable to pay these margin calls, its lenders proceeded to foreclose on the RMBS collateral. In total, through March 12, the Company has defaulted on approximately $16.6 billion of its indebtedness. The remaining indebtedness is expected soon to go into default. Ex. 10 to CD Mem. at 1; see also Compl. ¶ 141. On March 17, 2008, CCC entered liquidation, and the Royal Court of Guernsey appointed liquidators “to wind down the affairs of, and liquidate, the enterprise.” Id. ¶ 142. CCC’s liquidators filed suit in Delaware Chancery Court against the Carlyle entities and CCC’s former directors, alleging breach of fiduciary duty claims under Delaware and Guernsey law. Carlyle Capital Corp. v. Conway, et al., No. 10-5625 (Del.Ch. July 7, 2010). C. The Cases Before the Court 1.The consolidated cases There are currently four related cases pending before the Court: • Phelps v. Stomber, et al., 11-ev-1142. Plaintiffs filed this action on June 21, 2011, alleging violations of federal securities law; • Phelps v. Carlyle Capital Corp., 11-cv-1143. Plaintiffs filed this action on June 21, 2011, alleging the same violations of federal securities law as Phelps v. Stomber, • Glaubach v. Carlyle Capital Corporation Limited, 11-cv-1523. Plaintiff Jonathan Glaubach filed this related case on August 24, 2011, asserting one claim under the laws of the United Kingdom; • Wu v. Stomber, 11-cv-2287. Plaintiff Wu and four other plaintiffs filed this action in New York state court, asserting claims for common law fraud, negligent misrepresentation, and violations of Dutch statutory laws. The case was removed to federal court and transferred to this Court on December 27, 2011. On October 7, 2011, the Court granted plaintiffs’ motion to consolidate both of the Phelps actions, ll-cv-1142 and 11-cv-1143, and the Glaubach action, 11-cv-1523. Order, Oct. 7, 2012 [Dkt. # 22]. At the time of the consolidation, the Wu action had not yet been transferred to this Court, so it was not consolidated with the others. Defendants have also filed a pending motion to dismiss [Dkt. # 26] in the Wu case. The Court considers the motion to dismiss in the Wu case here, and an identical memorandum opinion will be filed in both the Phelps and Wu cases. 2.Lead plaintiff Immediately after filing the complaint in the Phelps action, a group of plaintiffs referred to as the “McLister Group,” filed a motion for appointment as lead plaintiff [Dkt. # 3] under Section 21(d)(a)(3)(B) of the Exchange Act, 15 U.S.C. § 78u-4(a)(3)(B), as amended by Section 101(a) of the Private Securities Litigation Reform Act of 1995. Soon thereafter, plaintiff Glaubach filed a competing motion for appointment as lead plaintiff. [Dkt. # 4]. Because the Court found that the McLister Group best satisfied the requirements and purpose of the lead plaintiff procedure in the PSLRA, it granted their motion and denied Glaubach’s motion. [Dkt. # 37]. Glaubach subsequently filed a motion for reconsideration [Dkt. # 40], which was denied. [Dkt. # 64]. 3.The consolidated complaint Plaintiffs filed a consolidated complaint on December 5, 2011. [Dkt. #42], The complaint includes eleven counts: the first six address the Offering and the remaining five address the subsequent sale of CCC shares on the aftermarket. • Count I alleges a violation of Section 10(b) of the Exchange Act and Rule 10b-5 on behalf of the U.S. Offering Subclass against defendants Stomber, CCC, CIM and TCG. Compl. ¶¶ 156-71; • Count II alleges a violation of Section 20(a) of the Exchange Act on behalf of the U.S. Offering Subclass against all defendants. Id. ¶¶ 172-74; • Count III alleges a common law fraud claim on behalf of the Offering Class against all defendants. Id. ¶¶ 175-77; • Count IV alleges a common law negligent misrepresentation claim on behalf of the Offering Class against all defendants. Id. ¶¶ 178-80; • Count V alleges a violation of Dutch prospectus liability and tort law on behalf of the Offering Class against all defendants. Id. ¶¶ 181-86; • Count VI alleges a violation of Section 90 of the Financial Services and Markets Act (“FSMA”) of 2000, a law of the United Kingdom, on behalf of the Offering Class against all defendants. Id. ¶¶ 187-9 1; • Count VII alleges a violation of Section 10(b) of the Exchange Act and Rule 10b-5 on behalf of the U.S. Aftermarket Subclass against all defendants. Id. ¶¶ 192-206; • Count VIII alleges a violation of Section 20(a) of the Exchange Act on behalf of the U.S. Aftermarket Class against all defendants. Id. ¶¶ 207-OS; • Count IX alleges a violation a common law fraud claim on behalf of Aftermarket Class on behalf of the Aftermarket Class against all defendants. Id. ¶¶ 209-10; • Count X alleges a common law negligent misrepresentation claim on behalf of the Aftermarket Class against all defendants. Id. ¶¶ 211-12; • Count XI alleges a violation of Dutch prospectus liability and tort law on behalf of the Aftermarket Class against all defendants. Id. ¶¶ 213-227. 4. Motions to dismiss On January 17, 2012, defendants TCG, TCG Holdings, CIM, Stomber, Conway, Hance, and Zupon (“the Carlyle Defendants”) moved to dismiss all of the claims against them under Federal Rule of Civil Procedure 12(b)(6) and the PSLRA for failure to state a claim upon which relief can be granted. Carlyle Defendants’ Mot. to Dismiss and Mem. in Supp. (“CD Mem.”) [Dkt. # 52], The same day, defendants Allardice, Sarles, and Loveridge (the “Outside Directors”) moved to dismiss the nine claims filed against them under Rules 12(b)(6) and 9(b). [Dkt. # 51]. The Outside Directors were not named in Counts I and VII (the section 10(b) claims) — they argued that the claims filed against them under section 20(a) of the Exchange Act were insufficient to state a plausible claim. With respect to the common law and foreign law claims, the Outside Directors joined the arguments advanced by the Carlyle Defendants in their motion. The Court held a motions hearing on the motions to dismiss on May 23, 2012. II. STANDARD OF REVIEW “To survive a [Rule 12(b)(6) ] motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (internal quotation marks omitted); accord Bell 477 Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). In Iqbal, the Supreme Court reiterated the two principles underlying its decision in Twombly: “First, the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions.” 556 U.S. at 678, 129 S.Ct. 1937. And “[s]econd, only a complaint that states a plausible claim for relief survives a motion to dismiss.” Id. at 679, 129 S.Ct. 1937. A claim is facially plausible when the pleaded factual content “allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. at 678, 129 S.Ct. 1937. “The plausibility standard is not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that a defendant has acted unlawfully.” Id. A pleading must offer more than “labels and conclusions” or a “formulaic recitation of the elements of a cause of action,” id., quoting Twombly, 550 U.S. at 555, 127 S.Ct. 1955, and “[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Id. When considering a motion to dismiss under Rule 12(b)(6), the complaint is construed liberally in plaintiffs favor, and the Court should grant plaintiff “the benefit of all inferences that can be derived from the facts alleged.” Kowal v. MCI Commc’ns Corp., 16 F.3d 1271, 1276 (D.C.Cir.1994). Nevertheless, the Court need not accept inferences drawn by plaintiff if those inferences are unsupported by facts alleged in the complaint, nor must the Court accept plaintiffs legal conclusions. See Browning v. Clinton, 292 F.3d 235, 242 (D.C.Cir. 2002); Kowal, 16 F.3d at 1276. In ruling upon a motion to dismiss for failure to state a claim, a court may ordinarily consider only “the facts alleged in the complaint, documents attached as exhibits or incorporated by reference in the complaint, and matters about which the Court may take judicial notice.” Gustave-Schmidt v. Chao, 226 F.Supp.2d 191, 196 (D.D.C.2002) (citations omitted). For claims alleging fraud, Federal Rule of Civil Procedure 9(b) requires a plaintiff to “state with particularity the circumstances constituting fraud or mistake.” Fed.R.Civ.P. 9(b). And securities fraud claims are governed by the heightened pleading standard set forth in the PSLRA, which exceeds even the standard set forth in Rule 9(b). In its effort to curb potentially abusive lawsuits, the PSLRA requires plaintiffs to “specify each statement alleged to have been misleading [and] the reasons why the statement is misleading” and to “state with particularity facts giving rise to a strong inference that the defendant acted with the requisite state of mind.” 15 U.S.C. § 78u-4(b)(l)-(2); see also Plumbers Local No. 200 Pension Fund v. Wash. Post Co., 831 F.Supp.2d 291, 294 (D.D.C.2011). In order to assure itself that it had distilled all of the fraud allegations from plaintiffs’ sixty-five page, 227 paragraph consolidated complaint, so that it could properly assess them under these standards, the Court ordered plaintiffs to prepare a supplemental memorandum after the hearing on the motions. Plaintiffs were ordered to create a chart that listed every statement in the Offering documents that they alleged was false as well as every omission that they alleged was actionable because it rendered the Offering documents to be false. PM Tr. 63-68. Defendants were then permitted to complete a second column pointing out when and where they contended the allegedly omitted facts had actually been disclosed and responding to the alleged affirmative misrepresentations as well. Id. III. ANALYSIS Plaintiffs’ claims can be divided into four categories, which the Court will discuss in turn: (1) federal securities claims pertaining to the Offering; (2) federal securities claims pertaining to the aftermarket; (3) common law claims pertaining to the Offering; and (4) common law claims pertaining to the aftermarket. For the reasons set forth below, these claims will be resolved as follows: • Federal Offering Claims: dismissed for failure to allege a materially misleading statement or omission and failure to allege loss causation; • Federal Aftermarket Claims: dismissed under Morrison v. National Australia Bank, [— U.S.-] 130 S.Ct. 2869 [177 L.Ed.2d 535] (2010). • Common Law Offering Claims: dismissed on the same grounds and for failure to plead reliance; • Common Law Aftermarket Claims: in the absence of federal claims, the Court declines to exercise jurisdiction, but it notes a failure to plead reliance in any event. A. Federal Offering Claims 1. Morrison v. National Australia Bank Counts I and II allege claims under federal securities law related to the Offering. Counts VII and VIII allege claims under federal securities law pertaining to the aftermarket. Defendants seek dismissal of all of these claims under the Supreme Court’s decision in Morrison v. National Australia Bank, — U.S.-, 130 S.Ct. 2869, 2883, 177 L.Ed.2d 535 (2010). Since the analysis of Morrison’s application to the Offering claims and the aftermarket claims is intertwined, the Court will discuss both sets of claims in this section, but only the aftermarket claims will be dismissed on these grounds. In Morrison, the Supreme Court held that Section 10(b) does not apply extraterritorially to foreign securities transactions. Id. at 2877-78, 2883. Rejecting what had become known as the “conduct and effects” test, the Court set forth a bright-line “transactional” test for determining whether a securities purchase is within the scope of section 10(b). The Court held that section 10(b) covers: (1) “the purchase or sale of a security listed on an American stock exchange,” or (2) “the purchase or sale of any other security in the United States.” Id. at 2888. The Court reasoned: [W]e think the focus of the Exchange Act is not upon the place where the deception originated, but upon purchases and sales of securities in the United States. Section 10(b) does not punish deceptive conduct, but only deceptive conduct “in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered.” Id. at 2884, citing 15 U.S.C. § 78j(b). With respect to the first part of the Morrison test, the parties agree that neither the RDSs nor the Class B shares was listed on an American stock exchange. Mem. of Points and Authorities in Opp. to Motions to Dismiss (“Pis.’ Opp.”) [Dkt. # 56] at 40; CD Mem. at 25; see also Compl. ¶ 93; Off. Mem. at 33, 145. Rather, plaintiffs contend that they meet the second part of the Morrison test because both the RDSs and Class B shares were “bought or sold in the United States.” Id. a. No Class B shares were purchased in the Offering, and the Class B shares sold in the aftermarket were purchased on a foreign exchange. Taking the Class B shares first, there is no allegation in the complaint that any plaintiff purchased Class B shares in the Offering in the United States. Indeed, the Offering Memorandum specifically states that “the Class B shares [could] not be offered or sold within the United States or to U.S. persons.” Off. Mem. at cover. Plaintiffs do not dispute this. See PM Tr. at 17 (stating at oral argument that no plaintiff bought any Class B shares at the time of the Offering). With respect to the Class B shares purchased in the aftermarket, the complaint alleges that Class B shares were only listed on the foreign exchange, Euronext. Compl. ¶¶ 32, 109. But plaintiffs argue that the fact that the shares were sold on a foreign exchange is not dispositive under Morrison. Their position is that Morrison addressed what they describe as a “foreign cubed transaction,” involving “foreign plaintiffs, a foreign issuer, and a foreign exchange.” Pis.’ Opp. at 44. Plaintiffs contend that by contrast, this case involves a “U.S. purchaser, a U.S. issuer, and a foreign stock exchange.” Id. They argue that CCC was actually a U.S. company, even though it was incorporated under the laws of Guernsey, and that Euronext was actually a U.S. exchange because while it is located in the Netherlands, it was owned by a Delaware company. Id. at 44-45. Although plaintiffs acknowledge that other courts have extended Morrison’s holding to “foreign-squared transactions (those involving a U.S. purchaser, foreign issuer, and foreign stock exchange”), they state that “no court has yet extended Morrison to a fact pattern involving a U.S. purchaser, a U.S. issuer, and a foreign stock exchange.” Id. at 44. But plaintiffs’ effort to label everything “Made in America” to get around Morrison requires the Court to ignore allegations in the complaint and information contained in the Offering documents referenced in the complaint. According to plaintiffs’ own allegations, CCC is not a U.S. company — it was incorporated under the laws of Guernsey. Compl. ¶ 40. And Euronext is not a U.S. exchange. The exchange is located in the Netherlands. Off. Mem. at cover (stating that Euronext is the “regulated market of Euronext Amsterdam. ...”). Plaintiff points to no authority that would suggest that there is any significance to the fact that a foreign exchange was owned by a U.S. entity. To the contrary, Morrison specifically directed courts to focus on the geographic location of the transaction, 130 S.Ct. at 2884, and here, the aftermarket purchase of Class B shares occurred on a foreign exchange. The Court notes that other courts that have considered similar questions after Morrison have treated Euro-next as a foreign exchange. Carlyle Defendants’ Reply Brief in Supp. of Mot. to Dismiss (“CD Reply”) [Dkt. # 63] at 7, citing In re Vivendi Universal, S.A. Sec. Litig., No. 02 Civ. 5571(RJH) et al., 842 F.Supp.2d 522, 524-26 (S.D.N.Y.2012); In re Société Générale Sec. Litig., No. 08 Civ. 2495(RMB), 2010 WL 3910286, at *5 (S.D.N.Y. Sept. 29, 2010). So, the aftermarket securities claims do not survive the motion to dismiss under Morrison. b. No RDSs were purchased in the aftermarket, and the RDSs sold in the Offering were “bought or sold” in the United States. The complaint does not allege that plaintiffs purchased RDSs in the aftermarket, so the Court is only concerned with RDSs that were purchased in the Offering. See, e.g., Compl. ¶¶ 4, 5, 6, 7, 8 (alleging that each plaintiff purchased RDSs in the Offering). Plaintiffs point to the following allegations in the complaint as support for the conclusion that the RDSs were purchased in the United States for Morrison purposes: • The RDSs were sold to U.S. investors in the Offering under Regulation D, 17 C.F.R. §§ 230.501-230.508, and Rule 144A, 17 C.F.R. § 230.144A, which are the two registration exemptions applicable to securities sold in the United States. Id. ¶ 85. • The RDSs were issued by the Bank of New York, which described them as “U.S. securities” on their website. Id. ¶ 90. • The subscription documents were transmitted to Citigroup Global Markets, a U.S. brokerage-dealer in New York. Id. ¶ 94,104. • CCC hired six New York-based broker-dealers for “solicitation of purchasers” throughout the United States. Id. ¶ 101. • U.S. investors were only permitted to purchase RDSs in the Offering because they were not eligible to buy Class B shares. Id. ¶¶ 92, 93. • In addition, the complaint alleges that the plaintiffs were residents of the United States and that their participation in the Offering was solicited by their stockbrokers, who were registered U.S. broker-dealers. Id. ¶¶ 4-8. Taking these allegations together, there is no question that the RDSs were “bought and sold in the United States,” and defendants do not appear to challenge that conclusion seriously. Rather, their primary contention is that the RDSs sold here were “tethered” to the Class B shares sold only on the foreign exchange. CD Mem. at 27. What we really have here is we have a[n] actual security that has to be traded on the foreign exchange. So the loop is not completed. If I buy an RDS, it’s not over. There has to be a corresponding purchase of a Class B share. Tr. of Mot. Hr’g, Morning Session (“AM Tr.”), at 54 (May 23, 2012). Under those circumstances, defendants urge the Court to look at the “economic reality” underlying the transaction and to conclude that purchasing an RDS was “a transaction that has a necessary foreign connection” for Morrison purposes. Id. at 50. In support of this argument, defendants point to several post-Momsore cases from courts in other districts. CD Mem. at 27-28, citing Société Générale, 2010 WL 3910286, at *6-7 and Elliott Associates v. Porsche Automobil Holding SE, 759 F.Supp.2d 469, 477 (S.D.N.Y.2010). In Société Générale, the plaintiffs had purchased securities known as American Depository Receipts (“ADRs”) in the United States, which are similar to RDSs in that they represent the shareholder’s ownership of a foreign security traded on a foreign exchange. 2010 WL 3910286, at *1. The court determined that because “trade in ADRs is considered to be a predominately foreign securities transaction,” section 10(b) did not apply. Id., at *4 (internal quotation marks omitted). Elliott concerned the purchase of securities-based swap agreements that referenced the share price of a foreign stock. 759 F.Supp.2d at 470. The district court observed that the swap agreements at issue were “the functional equivalent of trading the underlying [company’s] shares on [a foreign] exchange” and therefore the “economic reality” is that such agreements are “essentially ‘transactions conducted upon foreign exchanges and markets,’ and not ‘domestic transactions’ that merit the protection of [section] 10(b).” Id. at 476, citing Morrison, 130 S.Ct. at 2882, 2884. The court therefore dismissed the section 10(b) claims on those grounds. Relying on these cases, defendants suggest that the Court employ an “economic reality” or “functional equivalent” test to determine whether the claims are barred under Morrison. AM Tr. at 50. But, in the Court’s view, the “functional equivalent” gloss that the Elliott and Société Générale courts have developed is inconsistent with the bright line test set forth by the Supreme Court in Morrison, which focuses specifically and exclusively on where the plaintiffs purchase occurred. The Supreme Court was clear in its holding that “the focus of the Exchange Act is not upon the place where the deception originated, but upon purchases and sales of securities in the United States.” Morrison, 130 S.Ct. at 2884. While defendants’ contention that an investor could not purchase an RDS in the United States without a corresponding overseas transaction may be true, it does not change the fact that a purchase in the United States still took place. In sum, the Court concludes the following with respect to Morrison: • The federal securities claims with respect to the Offering are not barred by Morrison because plaintiffs’ purchases of RDSs constituted a “purchase or sale of [a] security in the United States.” Id. at 2993. • The federal securities claims with respect to the aftermarket are barred by Morrison because the Class B shares were purchased on a foreign exchange and therefore were not bought or sold in the United States. Accordingly, Counts VII and VIII are dismissed with prejudice. 2. Statute of limitations Defendants next contend that the federal securities claims pertaining to the Offering are time-barred. This is a close question, which the Court need not resolve in this case. Federal securities claims are governed by a two year statute of limitations which begins to run “[two] years after the discovery of the facts constituting the violation[.]” 28 U.S.C. § 1658; see also Merck & Co. v. Reynolds, 559 U.S. 633, 130 S.Ct. 1784, 1790, 176 L.Ed.2d 582 (2010). The Supreme Court has explained that “discovery of the facts constituting the violation ‘encompasses not only those facts that the plaintiff actually knew, but also those facts a reasonably diligent plaintiff would have known.’ ” Merck, 130 S.Ct. at 1796. And, in Merck, the Court made it clear that “the facts constituting the violation” to be known or discovered include facts showing scienter. Id. Accordingly, the question the Court must resolve is when the limitations period began to run in this case. The complaint was filed on June 21, 2011. [Dkt. # 1]. Defendants argue that the latest possible date that a reasonably diligent plaintiff would have discovered the facts underlying the alleged violation is February 27, 2008 — the date that CCC issued its 2007 annual report for the year ending December 31, 2007. CD Mem. at 17; AM Tr. at 13-14. Plaintiffs do not dispute that the annual report contained significant financial information about the company, but they maintain that they did not discover, and could not have discovered, “the facts constituting the violation” until the liquidators’ complaint was filed, because that document provided them with the internal Board communications that support the necessary scienter allegations. Pis.’ Opp. at 79-83, 85-86. The gist of the complaint is that defendants fraudulently concealed the true financial nature of the company by misrepresenting and omitting material information, and plaintiffs point to the internal communications as the critical evidence allegedly revealing the difference between what CCC officials knew and what they stated publicly. See id. Under plaintiffs’ theory, the operative date when the limitations period began running was July 7, 2010, when the liquidators filed their complaint. But the Merck test is not simply what these plaintiffs know — it asks what a reasonably diligent plaintiff could have known. Are plaintiffs’ claims time-barred as defendants claim because there is no allegation that they even attempted to undertake an investigation — that is, there were no reasonably diligent efforts made to obtain the information at all? Or, can the Court presume, as plaintiffs ask it to do, that no diligent investigation could have unearthed the internal emails because that is not the sort of information that is typically available to investors in advance of litigation? Plaintiffs may well be correct that it is unlikely that the Board would have handed over its internal communications absent the compulsion of a lawsuit. But it strikes the Court that adopting the plaintiffs’ approach would mean that the statute of limitations would be held in abeyance in just about every securities fraud case, and that would be inconsistent with Merck. The Supreme Court did provide some guidance in Merck, as it instructed courts to apply an objective test, not a test that turns on what a particular plaintiff actually did: We conclude that the limitations period in [28 U.S.C. § 1658] begins to run once the plaintiff did discover or a reasonably diligent plaintiff would have “discovered] the facts constituting the violation” — whichever comes first. In determining the time at which “discovery” of those “facts” occurred, terms such as “inquiry notice” and “storm warnings” may be useful to the extent that they identify a time when the facts would have prompted a reasonably diligent plaintiff to begin investigating. But the limitations period does not being to run until the plaintiff thereafter discovers or a reasonably diligent plaintiff would have discovered “the facts constituting the violation,” including scienter — irrespective of whether the actual plaintiff undertook a reasonably diligent investigation. Merck, 130 S.Ct. at 1798 (emphasis added). While this language weighs in favor of plaintiffs on the statute of limitations question, the Court need not resolve the issue because it finds that the complaint fails to plead adequately a securities fraud claim. 3. Whether the complaint adequately pleads a materially misleading statement or omission Defendants seek dismissal of plaintiffs’ securities fraud claims under sections 10(b) and 20(a) of the Exchange Act on the grounds that the complaint fails to allege that defendants made the necessary false statements or material omissions. Because the viability of plaintiffs’ section 20(a) claim depends on whether they have adequately alleged an underlying section 10(b) claim, the Court addresses section 10(b) first. Section 10(b) makes it unlawful for any person to “use or employ, in connection with the purchase or sale of any security ..., any manipulative or deceptive device or contrivance in contravention of such rules or regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.” 15 U.S.C. § 78j(b). Rule 10b-5 implements this section by making it unlawful “[t]o make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading[.]” 17 C.F.R. § 240.10b-5(b). To state a claim under section 10(b), a complaint must include six elements: (1) a material misstatement or omission; (2) scienter—an intent to deceive or defraud; (3) in connection with the purchase or sale of a security; (4) through the use of interstate commerce or a national securities exchange; (5) upon which plaintiffs relied; and (6) which caused injury to plaintiffs. In re XM Satellite Radio Holdings Sec. Litig., 479 F.Supp.2d 165, 175 (D.D.C.2007), citing In re Baan Co. Sec. Litig., 103 F.Supp.2d 1, 11 (D.D.C.2000). Under the PSLRA, a complaint must “specify each statement alleged to have been misleading [and] the reason or reasons why the statement is misleading” and must “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)(l), (2). With respect to omissions, a company must disclose information “ ‘when silence would make other statements misleading or false.’ ” XM Satellite, 479 F.Supp.2d at 178, quoting Taylor v. First Union Corp., 857 F.2d 240, 243-44 (4th Cir.1988) and In re Time Warner Inc. Sec. Litig., 9 F.3d 259, 268 (2d Cir.1993) (“A duty to disclose arises whenever secret information renders prior public statements materially misleading[.]”); In re NAHC, Inc. Sec. Litig., 306 F.3d 1314, 1330 (3d Cir.2002) (“To be actionable, a statement or omission must have been misleading at the time it was made; liability cannot be imposed on the basis of subsequent events.”). In addition, the misstatement or omission must be material. “A statement or omission is material if a reasonable investor would consider it important in deciding whether to buy or sell a stock.” XM Satellite, 479 F.Supp.2d at 176, citing TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449, 96 S.Ct. 2126, 48 L.Ed.2d 757 (1976). “ ‘The touchstone of the [materiality] inquiry is ... whether defendants’ representations or omissions, considered together and in context, would affect the total mix of information and thereby mislead a reasonable investor regarding the nature of the securities offered.’ ” Id. at 178, quoting Halperin v. eBanker USA.com, Inc., 295 F.3d 352, 357 (2d Cir.2002). In this case, the complaint expresses a series of general concerns about how CCC was structured and managed, and it takes issue with the overall wisdom of the company’s chosen business model. But the theory underlying the fraud claims in particular emerged more clearly at the motions hearing. Counsel for plaintiffs told the Court: The offering claim, in its essence, is a claim that CCC failed to disclose that it was experiencing a liquidity crisis in June of 2007, just days before the offering memorandum was published. We’re not talking about generic liquidity problems; we’re talking about a very specific liquidity crisis that was happening days before the [OJffering. AM Tr. at 20. Counsel went on: That’s the gravamen of the complaint, is that the company was experiencing a liquidity crisis certainly by the June 7th to June 14th time frame, as revealed by internal e-mail correspondence that only became public upon filing of a complaint by the liquidator of Carlyle Capital, which was filed in July of 2010. Id. Plaintiffs submit that the omitted information about the financial condition of CCC at the time of the Offering was “sufficiently material to affect the ‘total mix’ of information available to prospective investors, who, if given full disclosure” may have- been dissuaded from investing. Pis.’ Opp. at 11. Specifically, plaintiffs place emphasis on an e-mail sent by defendant Stomber to CCC’s directors just days before the Offering on June 13, 2007, which stated: We are having a major liquidity event so I invoked “emergency powers” on the balance sheet. The liquidity cushion is currently at $148MM, which is technically above 20% of our current MTM equity position. But please take no comfort in that, we could be margin called for up to another $70MM and therefore bring the cushion down to about 11%. Therefore, we need independent Board Member approval to go under 20% — that is the purpose of the liquidity cushion — to be there so we don[’t] not have to sell securities at depressed prices during a margin call. Therefore, I ask you for your formal approval. Compl. ¶ 64. According to plaintiffs, the Offering Memorandum was misleading because it did not disclose this “liquidity event” to investors prior to the Offering, and it did not accurately describe the decline in the company’s fair value res