Oklahoma Firefighters Pension & Retirement System v. Ixia (50 F. Supp. 3d 1328, 2014)

CLASS ACTION

ORDER GRANTING DEFENDANTS’ MOTIONS TO DISMISS

MARGARET M. MORROW, District Judge.

This is a putative securities class action against defendant Ixia and defendants Victor Alston, Atul Bhatnagar, Thomas B. Miller, and Errol Ginsburg (the “individual defendants”). Plaintiffs allege that during the class period, defendants misled the public by improperly classifying Ixia’s revenue. They assert that defendants sought to portray Ixia, which was exceeding its revenue and earnings per share targets during the class period, as a steady growth company. They contend that to foster this image, Ixia did not record certain present revenue and instead booked it as deferred revenue to give the impression that the company would continue to grow at an attractive rate in future quarters. Plaintiffs contend this misled inventors and caused them to conclude that Ixia’s growth would continue for some period of time.

They assert that by making these misleading statements, defendants violated section 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 that extended from November 28, 2007 to August 17, 2010. They also assert that defendants Victor Alston, Atul Bhatnagar, Thomas B. Miller, and Errol Ginsburg violated § 20(a) of the 1934 Act because they were controlling persons of Ixia.

On June 11, 2014, plaintiffs filed a first amended complaint. Defendants filed various motions to dismiss on July 18, 2014. Plaintiffs filed omnibus opposition on August 18, 2014.

I. BACKGROUND AND FACTUAL ALLEGATION

A. Background Concerning Ixia, the Individual Defendants and the Plaintiff Class

Ixia was incorporated in California in 1997 and maintains its headquarters in Calabasas. Ixia’s core operations focus on delivery of information technology solutions to a wide array of organizations through real-time monitoring and rapid assessment of network systems. Its products are used to provide “end-to-end visibility” — a more complete understanding of user behavior, security vulnerabilities, network capacity, application performance, and information technology resiliency.

Ginsburg founded Ixia in 1997; he has been chairman of its board of directors since January 2008 and chief innovation officer since March 2008. Alston joined Ixia in 2004 as vice president of application development. In 2006, he was promoted to vice president of engineering, and in June 2007 to senior vice president of product development. Alston became president and chief executive officer of the company in May 2012, and served in that capacity until his resignation on October 24, 2013. Bhatnagar was hired as Ixia’s chief operating officer on September 4, 2007; he served as president and chief executive officer from March 2008 until Alston assumed the position in May 2012. Miller served as Ixia’s chief financial officer from March 2000 to March 3, 2014.

Plaintiffs allege that each of the individual defendants had authority to control the contents of Ixia’s quarterly reports, annual reports, press releases, and presentations to securities analysts, money and portfolio managers, and institutional investors. Each of the individual defendants allegedly “received copies” of Ixia’s press releases and reports “prior to or shortly after their issuance,” and each purportedly “had the ability and opportunity to prevent their issuance or cause them to be corrected.” Plaintiffs contend that, as a result of their positions at Ixia, and their access to material nonpublic information, the individual defendants knew that the adverse information detailed in the complaint had not been publicly disclosed and was being concealed. As a result, each allegedly knew that the representations being made by the company were false and misleading.

Plaintiffs are public pension retirement funds that allegedly acquired shares of Ixia at artificially inflated prices during the class period and that have been damaged as a result. They bring this class action on behalf of all persons who purchased or otherwise acquired Ixia’s publicly traded common stock from February 4, 2011 to and including April 3, 2013.

B. Defendants’ Allegedly Fraudulent Scheme

Plaintiffs allege that Ixia’s common stock began to trade publicly on the NASDAQ on October 25, 2000. Analysts viewed Ixia as a growth company in 2004 and 2005, and the price of its stock rose steadily from approximately $11 per share in early 2004 to more than $16 per share by the end of that year. The share price continued to rise in 2005, as the stock trade in the high teens for the first half of the year and above $20 at some points during the second half of the year. Ixia’s growth began to slow at the end of 2005. Plaintiffs allege that at this point, investors lost their enthusiasm for the stock, which declined in value to roughly $10 per share by the end of November 2005. Ixia’s stock price languished in the mid-single digits for the next several years. Miller admitted during a December 4, 2012 conference call that the Ixia was “in a little bit of a rut.”

Plaintiffs allege that, as Ixia’s stock fell out of favor with investors, the company was forced to restate the way it recognized its software service and warranty contracts. On February 23, 2007, Ixia purportedly announced that it was restating its Forms 10-K for the years ended December 31, 2003, 2004, and 2005, as well as Forms 10-Q for quarters ended March 31, 2006 June 30, 2006, and September 30, 2006 (the “2007 restatement”). The restatement adjusted revenues, operating results, and deferred revenue because Ixia had recognized too much present revenue from the contracts, and should have deferred a portion of it as required by applicable accounting rules. Miller and Alston were high ranking Ixia officers at the time, and Ginsberg was the company’s founder; Bhatnagar joined the company as its COO a few months after the 2007 restatement.

Plaintiffs contend that the decline in Ixia’s stock price occurred largely because it had fallen out of favor as a technology “growth” company. By way of example, they allege that in a May 1, 2010 analyst report, Price Target Research noted that “Ixia’s growth rate has slowed very considerably in recent years. Annual revenue growth has been 10.6% per year. Total asset growth has been 9.6% per year. (More recently it has been 0.7%). Annual [earnings per share] has been 7.1% per year. Equity growth has been 7.3%. (More recently it has been -6.7%).” Plaintiffs assert that as a result of this lackluster performance, Ixia sought to “reinvigorate investor enthusiasm and drive up the price of its common stock by convincing the public that it was once again a ‘growth’ company.” To accomplish this, Ixia purportedly employed a variety of unlawful methods, including: “(1) improperly inflating [its] deferred revenues — a common indicator of a Company’s growth prospects — in violation of [Generally Accepted Accounting Principles (“GAAP”) ], so that investors would believe that Ixia’s growth would continue into future quarters; (2) promoting Alston to the position ofl CEO because Ixia’s board believed his reputation for being ‘aggressive’ would accelerate Ixia’s growth prospects; and (3) acquiring niche businesses engaged in growth areas.”

1. Ixia’s Focus on Future Growth Potential

Plaintiffs allege that Ixia began to focus on future growth potential after it strategically acquired two small businesses in 2009 — Catapult Communications, which designs, develops, manufactures, markets and supports software-based test systems for the telecommunications industry, on June 23, 2009, and the N2X product line from Agilent Technologies for $44 million in cash on October 21, 2009. These acquisitions allegedly piqued the interest of the investment community. On May 19, 2010, Wunderlich Securities reported that data center and core routing product cycles ensured a growth cycle for one of Ixia’s newly acquired products. Price Target Research noted on June 6, 2010 that Ixia’s growth rate forecast was 20%— “substantially above the average historical growth measures.” It also observed, however, that Ixia’s growth rate “ha[d] slowed very considerably in recent years.”

Plaintiffs cite numerous other analyst reports from 2010 that focused on Ixia’s potential for growth. They note that Morgan Keegan & Co. reported that “Ixia’s growth rates of 46% in 2010 (boosted by acquisitions) and 15% in 2011 compare[d] to its test & measurement end market growth rates of 18% and 21% in our estimates, which suggested] that [the] estimates [were] conservative with room for upside.” Wunderlich reported on October 22, 2010 that it was “increasing [its estimate of Ixia’s] 3-5 year growth rate to 22% from 20%.” Capstone analysts met with Ixia management in November 2010; Capstone reported on November 11, 2010, that management “talked about the industry trends providing tailwinds for their product growth,” and noted that Wall Street “estimates [were] currently for 16% and 12% [year over year] sales growth for 2011 and 2012.” Finally, on November 23, 2010, Wunderlich reported that it believed “most of the upside of Ixia’s recent results and guidance represented] the early stage of a demand cycle that [would] be lengthier and larger than what the company had previously experienced, because demand for data ha[d] multiplied ... and [was] expanding into emerging markets.” Wunderlich increased its 3-5 year net income growth rate forecast for Ixia from 22% to 28%.

Plaintiffs allege that during the period Ixia was “building its story as a growth company,” analysts were paying close attention to its deferred revenues, and in particular its ability to generate service-based or other types of renewable, recurring revenue. They contend that investors often view deferred revenues as an indication of a company’s future health and ability to grow. They cite a May 9, 2010 report by Wunderlich, which stated that it “expect[ed] continued strong software and service maintenance renewals,” and a July 21, 2010 analyst report in which Wunderlich commented on Ixia’s deferred revenues, stating: “Recent growth in deferred revenue adds visibility. Deferred revenue grew 10.5% sequentially in the March quarter, well ahead of the 2.4% sequential growth we forecast for both product and service revenue.” Plaintiffs also note Wunderlich’s comment that “Ixia saw little of the service revenue that contributed over 30% of [Catapult’s] sales when [it] was an independent company. Much of this was because of the elimination of deferred revenue through acquisition accounting_” Wunderlich reported, however, that it “expect[ed] visibility for maintenance renewals to have improved.” Indeed, during a July 22, 2010 analyst conference call, a Wunderlich analyst asked whether Ixia expected the maintenance revenues Catapult had typically earned as an independent company to come back. Miller responded that he believed they would, because the rate of renewals was essentially unchanged, and Ixia would be able to recognize 100% of the renewal revenue that it was initially unable to recognize because of post-acquisition accounting requirements. Plaintiffs assert the analyst’s question shows that the market was concerned that Ixia’s revenues were too dependent on product-based revenues as opposed to renewable maintenance and service-based revenues.

Wunderlich purportedly continued to focus on deferred revenue for the rest of 2010 and into 2011. During a February 3, 2011 analyst call, a Wunderlich analyst noted that Ixia had “good deferred revenue growth, along with activity decrease in [day sales outstanding].” In response, Miller commented that Ixia was a “very back-end loaded business.” The next day, Wunderlich reported that Ixia’s “deferred revenue grew the most in a year and [day sales outstanding] declined to the lowest level in more than a year.” Specifically, it reported that deferred revenue was up 11.9% — “the strongest sequential comparison since the 4Q09 N2x acquisition.”

Plaintiffs contend that Deutsche Bank also “bought in” to Ixia’s growth story; it observed in a February 3, 2011 report that although Ixia was trading at a premium in comparison with its peers, the premium was “merited by [Ixia’s] leadership position in the test equipment market and by the current network upgrade cycle.” Deutsche Bank also stated that Ixia continued to benefit from “several growth trends,” including consolidation of data centers, a shift toward cloud-based computing, and growth in mobile data.

2. Allegations of Fraudulently Inflated Deferred Revenue in Quarterly and Annual Reports

Plaintiffs contend that simply acquiring new businesses was not sufficient to permit Ixia to grow. They assert that at some point during 2010, Ixia began fraudulently to inflate its deferred revenue to convince investors of its capacity for sustained growth, and that it continued the practice throughout the class period. Plaintiffs contend that on April 3, 2013, Ixia announced that deferred revenues had been inflated throughout the class period, and that its Audit Committee had recommended that it restate previously issued financial statements (“the first restatement”). Ixia’s Form 10-K for 2010, which was filed February 3, 2011, is the earliest of Ixia’s public statements that was restated. In it, Ixia reported total revenue of $276.8 million, an increase of 56% from the prior year, and deferred revenue of $46.7 million for the year 2010. The restatement revealed that deferred revenues had been artificially inflated, and total revenues deflated. Plaintiffs allege that had Ixia properly accounted for deferred earnings, it would have reported an additional 14% increase in net income. Although Ixia reported that the restatement “affect[ed] ... deferred revenues,” it did not state how much deferred revenue for 2010 had been inflated.

On April 21, 2011, Ixia held an analyst call to announce earnings for the first quarter of 2011. It reportéd that revenues had exceeded expectations, growing to a record $78.5 million; in addition, it reported deferred revenue of $45.2 million. The first restatement allegedly later revealed that deferred revenues were artificially inflated. Had correct revenue figures been used, Ixia’s net income would allegedly have declined by $.472 million, from $7.1 million to $6.6 million. Once again, Ixia’s restatement did not reflect the amount by which deferred revenues for the first quarter of 2011 had been inflated.

During the April 21 conference call, Ixia allegedly continued to encourage investors to view it as a growth company. Then-CEO Bhatnagar stated that Ixia was “excited about [its] market positioning, as well as the opportunities [it] [saw] for future growth and global expansion.” He also purportedly told a Deutsche Bank analyst that the company continued to expect growth of 15-20% in its core businesses. Deutsche Bank later highlighted the fact that Ixia “made a point to say [that it had] the ability to grow both organically and inorganically.” Capstone also focused on Ixia’s growth, remarking that Ixia “may be growing faster than the market, as well as gaining additional revenue cross selling other products to its existing customers.” Plaintiffs allege that Ixia continued to promote its story of growth by acquiring VeriWave, a privately held wireless LAN testing equipment company, on June 27, 2011.

On July 6, 2011, Ixia purportedly announced ahead of its earnings report that it expected to miss expectations for the second quarter of 2011. Ixia’s stock price fell 24% from a closing price of $13.01 on July 7, 2011 to $9.90 on July 8, 2011. Capstone questioned whether this was merely a “road bump or [a] major detour” on July 8. Wunderlich noted in a report the same day that Ixia “[did] not benefit from the flywheel effect of a strong subscription revenue base,” because “more than 80%” of its revenue came from product sales. Plaintiffs assert these analyst comments increased the pressure on Ixia to paint a positive picture of its capacity to generate recurring revenue from subscription-based services like maintenance. Thus, on July 21, 2011, after the close of trading, Ixia reported total second quarter 2011 revenue of $69 million, down from the prior quarter, and record deferred revenues of $49.9 million, up 10.3% from the first quarter of 2011, and 22.7% from the second quarter 2010. Ixia’s stock price remained relatively unchanged after the substantial loss caused by the pre-an-nouncement that Ixia had missed its earnings guidance. Plaintiffs allege that the deferred revenue reported was inflated, and was subsequently adjusted in the first restatement. In particular, they assert. that Ixia should have reported an increase in net income, and diluted earnings per share of $.02 cents instead of $.01 cents. The first restatement did not report .how much deferred revenue had been overstated; it simply noted that the restatement “affect[ed] ... deferred revenues.”

Miller and Bhatnagar also allegedly made’ statements focusing on deferred revenue during this period. During a conference call on July 21, 2011, Miller allegedly stated that there were deals Ixia hoped to pull out of deferred revenues in the next quarter; plaintiffs assert his statement served to reinforce investors’ belief that deferred revenues were an indicator of the company’s future success. Bhatnagar said he believed there was more room for growth; he stated that wireless traffic was doubling and that, that, despite the potential for a “blip” here and there, Ixia was poised for “very solid growth” over the next three to four years. Plaintiffs allege these statements were an attempt to convince investors that Ixia would have solid, sustainable, and overall smooth growth. Following the conference call, Deutsche Bank reported on July 22, 2011 that management had reassured investors that the company’s business trends were intact and that the major technology transitions relevant to its core operations still had momentum. Plaintiffs assert Ixia’s announcement of high deferred revenues defrayed analysts’ concerns following the negative earnings announcement. They note Wunderlich reported that the decline in revenues “was a function of ... deferred revenue growth, which was up 22.7% [year over year] and 10.3% sequentially; this was well more than the $0.16 per share of earnings that was expected before the preannouncement” of a negative quarter.

On October 20, 2011, Ixia held an analyst call to report third quarter 2011 earnings. It stated that revenue had increased to $77.3 million, “at the higher end of [the] guidance,” reflecting 9% year-over-year growth compared with the same quarter in 2010. It also reported deferred revenue of $49.2 million — an 18% increase from the third quarter of 2010. Wunderlich and Capstone greeted this information enthusiastically. Wunderlich reported that the “June quarter miss look[ed] like a hiccup instead of a heart attack,” while Capstone stated that the “Q2 miss appeared] ... to be short lived.” Plaintiffs allege that in reality, the company’s deferred revenue was artificially inflated, as the first restatement later revealed. Even after restating its financials, they charge, Ixia did not report the amount by it had overstated deferred revenue.

They assert that the first restatement confirmed that Ixia’s inflation of deferred earnings continued into the fourth quarter of 2011. Ixia reported deferred revenue for the fourth quarter of $51.1 million — up 9.4% from the same quarter in 2010. It also reported total revenue for fiscal 2011 of $308.4 million, an increase of 11%. These revenues and the company’s earnings per share exceeded guidance and analyst expectations. Ixia’s stock rose 14% on this news, from a close of $12.74 on February 2, 2012, to a close of $14.55 on February 3, 2012. Plaintiffs contend, however, that once again, the numbers were artificially inflated and would be corrected in the first restatement. Deferred revenues for the fourth quarter should only have been $43.02 million — 18.7% lower than the number reported. Plaintiffs allege this was done to mislead investors and cause then to believe that Ixia was a growth company due at least in part to recurring revenue streams. They maintain that, properly reported, total net income for the fiscal year would have increased by $2.9 million, from $23.8 million to $26.7 million.

On March 15, 2012, Ixia announced it was replacing Bhatnagar with Alston, effective May 1, 2012. Alston was allegedly instrumental in defining Ixia’s strategy and identifying acquisitions; replacing Bhatnagar with Alston was purportedly a move intended to further enhance investor perceptions of Ixia as a growth company. Wunderlich expressed surprise, but noted that Ixia’s board saw potential for “even speedier execution with Alston in charge.”

On April 19, 2012, Ixia announced total revenue of $85.6 million for the first quarter of 2012; it also reported deferred revenues of $57 million. Ixia’s stock rose 9.1%, closing on April 19, 2012 at $11.21, and the following day at $12.23.

Deutsche Bank noted that Ixia had beat analysts’ consensus number of $83.5 million; Gabelli & Company, Inc. observed that the company’s solid growth trend was expected to continue; and Wunderlich remarked on Ixia’s “strong balance of deferred revenue [which could] diminish[] head-line risk for the current quarter.” Plaintiffs allege that Ixia’s deferred revenue was inflated, as the first restatement later revealed that deferred revenue for the first quarter of 2012 should have been $47.9 million, 18% less than the $57 million initially reported. Net income should purportedly have been $5.2 million — an increase of 15.2%

Plaintiffs also allege that Ixia made two more acquisitions in 2012. On May 4, 2012, it announced that it acquired Anue Systems, Inc. for $154.4 million, and on July 2, 2012, it announced that it acquired Breaking Point Systems. Plaintiffs assert that while these acquisitions may have signaled to investors that Ixia wanted to grow, it was the deferred revenue it reported that provided “factual and quantifiable evidence” that it could grow. Absent the reporting of inflate’d deferred revenue, plaintiffs contend, the acquisitions alone would not have convinced investors that Ixia was a growth company.

Ixia purportedly continued to report inflated deferred revenue during the remainder of 2012. On July 26, 2012, it announced second quarter results. These included revenue of $92.3 million and deferred revenue of $62.5 million, up 9.8% from the prior quarter, and 25.3% over the same quarter in 201 l. Plaintiffs assert that analysts were “generally pleased” with these results, commenting that the company’s “[gjrowth [did] not appear to be slowing,” that it had provided full year guidance for 2012 and 2013 that “reiterate[d] [its] belief in [its] growth prospects,” and that management was “optimistic” about the company’s growth trajectory for 2012. The first restatement, however, later revealed that deferred revenue had once again been inflated, and that it should have been $55.1 million or 13.4% lower. They also assert that actual revenue was overstated, and that, had the correct revenue figure been used, the company’s net income would have declined by $1.2 million.

Ixia announced third quarter 2012 results on October 24, 2012. It reported revenues of $109.6 million, and record deferred revenues of $76.8 million — up 22.8% from the prior quarter, and 56% form the third quarter 2011. Plaintiffs allege these figures were false and misleading because the first restatement revealed that Ixia’s deferred revenues were actually only $68.3 million, or 12.4% lower than the $76.8 million they initially reported. Net income also would have declined by $0.5 million, from $11.4 million to $10.9 million, if properly accounted for.

On February 6, 2013, Ixia announced yet another record breaking quarter. It reported that fourth quarter revenue was $124 million, up 48% from the same' quarter in 2011. Ixia noted that its “core businesses” had generated record revenue — up 12% from the prior year and 16% for the year. It also reported deferred revenue of $74.8 million — up 46.5% from the fourth quarter 2011. Plaintiffs allege that the first restatement later revealed that this figure had been artificially inflated, although it did not provide the correct amount.

3. Misstatements Concerning Internal Controls

Plaintiffs also allege that Ixia made misstatements concerning its internal controls. Specifically, they allege that Ixia made the following statement in each Form 10-Q that it filed during the restated periods:

There have not been any changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d — 15(f) under the Exchange Act) during the fiscal quarter ... that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Plaintiffs assert this statement was materially false and misleading because Ixia announced on April 3, 2013, as discussed in more detail infra, that there had been material weaknesses in its internal controls over revenue recognition related to software maintenance and warranty contracts. They contend Ixia’s 2010 and 2011 Forms 10-K were also false and misleading, in that they represented management had concluded that the company’s internal controls over financial reporting were effective as of December 31, 2010.” On April 3, 2013, however, Ixia acknowledged that there were material weaknesses in its internal controls. It stated that “the Company [had] not maintain[ed] effective disclosure controls and procedures and internal control over financial reporting as of December 31, 2012 because of ... material weaknesses related to the accuracy with which the Company had historically recognized revenues related to its warranty and software maintenance contracts and arrangements.”

Plaintiffs allege that each Form 10-Q issued during the restated periods was signed and certified under § 302 of the Sarbanes-Oxley Act of 2002 by either Bhatnagar or Alston, and that Alston, Miller, and Bhatnagar were responsible for establishing and maintaining disclosure controls and procedures, and internal controls over financial reporting. They assert that, by signing the quarterly reports on Form 10-Q, each of them represented that the company’s internal controls and procedures were adequate and that they had designed appropriate disclosure controls and, procedures over financial reporting.

4. The First Restatement

Plaintiffs contend the truth behind Ixia’s “growth story” began to emerge on March 19, 2013, when Ixia announced that it had filed a Form 12b-25 with the SEC concerning its annual Form 10-K for the year ended December 31, 2012, and had to delay the filing of its annual report to “correct an error related to the manner in which [it] recognize[d] revenues for its warranty and software maintenance contracts.” On April 3, 2013, Ixia’s management recommended to the Board’s Audit Committee that Ixia restate previously issued financial statements for the fiscal years ended December 31, 2011 and 2010, and fiscal quarters ended March 31, 2011, June 30, 2011, September 30, 2011, March 31, 2012, June 30, 2012, and September 30, 2012 (the “restated periods”). It advised that the public could no longer rely on those financial statements. On April 8, 2013, Ixia issued a press release to this effect. Ixia also acknowledged that there had been material defects in its internal controls during the .restated periods. Plaintiffs assert the announcement and press release show that Ixia had violated Regulation S-X, Item 303. This rule requires certain supplemental disclosures in quarterly and annual financial statements to help investors better understand a company’s financial condition. Plaintiffs contend that by inflating deferred revenues, Ixia failed to disclose the effect that its accounting for implied warranty and maintenance contracts had on its trends and liquidity; it also purportedly created the false impression that deferred revenues were in line with its book-to-bill ratios, and that its operating and liquidity risks for future quarters were insignificant. Plaintiffs also allege that the inflated deferred revenue and deflated actual revenue reported violated several fundamental principles of GAAP. They contend that Ixia’s misstatements “could not have been inadvertent errors, nor could they have been the result of confusing or gray-area accounting policies.” Rather, Ixia purportedly violated GAAP rules that are followed by all software companies that have “multiple element arrangements,” i.e., contracts that include a service-based component, i.e., technical support, warranty, and software maintenance.

Many of Ixia’s product sales include up to one year of technical support, warranty, and software maintenance; customers can choose to extend the services for annual or multi-year periods thereafter. Ixia recognized revenues on its products on a “straight-line basis” over the contractual or estimated period during which services were to be rendered. The first restatement made two corrections to Ixia’s revenue recognition on such arrangements. These were identified as (1) an accounting practice error; and (2) an implied arrangement error. The accounting practice error involved the time at which Ixia recognized revenue from a new contract. In its original financial statements, Ixia failed to recognize revenue when it had evidence of a contract. This overstated deferred revenues on its balance sheet and understated revenue on its statement of operations. Plaintiffs allege that any competent accounting professional would have known revenue should be recognized as soon as there was evidence of a contract, assuming other criteria for revenue recognition were met. As a result, they assert, the accounting practice error could not have been the product of inadvertence or mistake.

The implied arrangement error concerned revenues generated by one of Ixia’s largest customers, Cisco. The company initially recorded deferred implied warranty and software maintenance revenue based on estimated amounts and estimated times of receipt. When it entered into an actual contract with Cisco, it should purportedly have adjusted these amounts based on the terms of the contract. Plaintiffs allege that, had Ixia made such an adjustment, it would immediately have reduced deferred revenue on its balance sheet and recognized additional revenue on its statement of operations. As with the accounting practice error, plaintiffs assert the accounting was straightforward and that any competent accounting professional with experience in the software industry would have used the correct methodology.

In response to the company’s announcement of the first restatement, Ixia’s share price dropped by 9.55%, from a closing price of $20.31 on April 3, 2013, to a closing price of $18.37 on April 4, 2013.

On May 3, 2013, following announcement of the first restatement, Ixia reported that its auditor, PricewaterhouseCoopers LLP (“PwC”) had “decline[d] to stand for reappointment as [Ixia’s] independent registered public accounting firm for the fiscal year ending December 31, 2013.”

On October 24, 2013, Ixia announced that Alston had resigned as CEO following a finding by the Audit Committee that he had misrepresented his academic credentials, his age and early employment history. Plaintiffs assert the fact that Alston lied about his education and employment history shows that he was willing to “take unscrupulous measures” to further his goals, including portraying Ixia as a growth company. They contend that Ixia’s decision to terminate Alston based on purported misrepresentations that had occurred ten years earlier, rather than for fraud, was no more than a “feeble, superficial attempt” to conceal the fact that he had been involved in the fraudulent scheme that had necessitated the first restatement.

5. The Second Restatement

On March 5, 2014, Ixia announced in a Form 8-K filed with the SEC that its Audit Committee had completed an internal investigation and that certain of its financial statements would have to be restated as a result of the investigation. On April 11, 2014, Ixia announced the results of the investigation, and described the forthcoming second restatement as follows:

“[T]he Company’s management and the Audit Committee concluded that the Company’s previously issued condensed consolidated financial statements contained in its Quarterly Reports on Form 10-Q for the quarters ended March 31, 2013 and June 30, 2013 should no longer be relied upon, and should be restated due to the following errors: For certain sales transactions, ... [Ixia] improperly recognized product revenues when the additional products were shipped rather than deferring a portion of the consideration and recognizing the related revenues over the remaining term of the applicable fixed fee, multi-year extended maintenance and warranty arrangements. For certain other sales transactions, the Company recognized product revenues prematurely (I) in advance of delivering certain product functionality or other deliverables that were committed to be provided to the customers or. (ii) due to an incorrect assessment of certain multiple-element arrangement sales transactions which included professional services that were provided based on a purchase order separate from the product purchase order but that were negotiated concurrently with the customer.

The correction of these errors is expected to reduce total revenues by approximately $2.0 million and $4.5 million for the quarters ended March 31, 2013 and June 30, 2013, respectively.”

Plaintiffs assert that the second restatement “sheds further light” on defendants’ fraudulent scheme to inflate deferred revenues and create the illusion that Ixia was a growth company. They contend that during periods of accelerating revenue growth, Ixia “managed” the growth by improperly deferring revenue and moving it into future periods. The revenue growth was purportedly driven, in large part, by Ixia’s acquisition of -new companies. Plaintiffs assert that had the revenue from the acquired companies been removed, and only Ixia’s “organic revenue” been considered, the company’s revenue would have begun to decline, year over year, in the third quarter of 2012. This revenue slide allegedly turned negative during the first two quarters of 2013. Plaintiffs assert that, “to mask this decline,” Ixia recognized more revenue than it should have during the first two quarters of 2013. Ixia was able to do this, they contend, because it had inflated deferred revenue in prior quarters. Thus, it was able to draw on those reserves and inflate revenue for the first two quarters of 2013.

The second restatement reflected that the decline in year-over-year and quarter-over-quarter organic revenue was steeper than originally reported. Revenue for the first quarter of 2013 was 13.1% lower than for the fourth quarter 2012; revenue for the second quarter of 2013 was 5.2% lower than for the first quarter of 2013. Year-over-year results showed a similar decline of 5% for the first quarter of 2013 and 9.9% for the second quarter of 2013.

6. Insider Trading

Plaintiffs also allege that the individual defendants engaged in insider trading. Specifically, they assert that on March 6, 2013, less than two weeks before the first restatement was issued, Alston sold 44,504 shares of Ixia common stock at approximately $21.50 per share, netting almost $1 million. Plaintiffs contend that Alston “had no discernible usual trading practices,” and that “these trades were unusual for him,” given that they represented 42.2% of his Ixia shares at the time. Plaintiffs assert the fact that he “unloaded” so many shares of stock just prior to announcement of the first restatement is indicative of scienter. They also allege that Alston realized a large gain from stock sales he made and options he exercised at the start of the class period; in February and March 2011, he sold 85,690 shares for proceeds of almost $1.43 million. Other than these sales, plaintiffs contend, Alston never sold more than 2,000 shares in any given month. They contend that this too is indicative of scienter.

Plaintiffs allege that Ginsburg also profited from suspicious trades he made in May 2011 and February 2013. Specifically, they assert that Ginsburg was able to capitalize on Ixia’s strong April 21, 2011 earnings report, which inflated deferred revenue and drove up Ixia’s share price by nearly 5%. Between May 3 and May 6, Ginsburg sold 75.82% of his shares, netting more than $1.9 million. In addition to capitalizing on the strong April 2011 earnings report, Ginsburg avoided losses from the 24% share price drop that followed the company’s announcement of disappointing second quarter 2011 results on July 7, 2011. Plaintiffs contend that the trades were “highly unusual” for Ginsburg, and that they were his only sales during the class period.

Finally, plaintiffs allege that Miller too engaged in suspicious trading. They note that he sold more than 122,000 shares between February 7 and February 18, 2011, just prior to the start of the class period, netting $1.97 million. They assert that, like Ginsburg, Miller avoided the losses associated with Ixia’s July 7, 2011 announcement that it would not meet its guidance for the second quarter of 2011, selling 50,741 shares, or 36.75% of his holdings, between April 27 and May 16, 2011. Finally, they contend that two months prior to announcement of the first restatement, on February 7 and March 5, 2013, he sold 34,741 shares — or 25% of his holdings and netted $722,400. Other than these sales, Miller did not sell more than 1,300 shares in any given month.

Plaintiffs contend that the sales made by Alston, Ginsburg, and Miller coincide with some of the peak prices of Ixia’s stock, and that they were made shortly before precipitous stock price declines.

7. The Confidential Witnesses (“CWs”)

Plaintiffs also allege that they interviewed certain confidential witnesses (“CWs”). CW1 worked at Ixia’s corporate headquarters in Calabasas from September 2007 to January 2014. He was the company’s international finance manager during this period, and reported to corporate comptroller, Andalón Candelario. Candelario, in turn, reported to Miller. CW1 was responsible for international financial reporting within Ixia. CW2 began working at Ixia in 1998; CW2 began as an office manager, became a sales administrator, and later served as director of inside sales. In 2006, CW2 was promoted to senior business systems analyst and reported to the senior director of quality, Mike Glish, who in turn reported to the vice president of operations, Raymond de Graaf.

CW1 allegedly reported that Ixia hired an expert in recognizing revenue from software and maintenance contracts, Will Liang, and that Liang was ultimately appointed director of accounting. CW1 also purportedly stated that “everyone above Will Liang” would “have been involved in any decision about how to recognize revenue relating to Ixia’s software and maintenance contracts.” Plaintiffs contend that CW2 “confirmed” Will Liang was hired as “director of revenue recognition” in 2007.

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 conelusory 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).

B. Requests For Judicial Notice

Both plaintiffs and defendants ask 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 pleadings (e.g., facts presented in briefs, affidavits, or discovery materials) in deciding such a motion. 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 not 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. Tunnell, 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 conelusory 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. Defendants’ Request for Judicial Notice

Defendants ask that the court take judicial notice of several of Ixia’s SEC filings. 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, defendants ask that the court take judicial notice of Ixia’s class period stock price. Because publically traded companies historical stock prices can be readily ascertained and those prices are not subject to reasonable dispute, courts routinely take judicial notice of them. See Patel v. Parnes, 253 F.R.D. 531, 547-48 (C.D.Cal.2008) (judicially noticing historical stock prices because such information is capable of accurate and ready determination); In re Homestore.com Inc. Sec. Litig., 347 F.Supp.2d 814, 816 (C.D.Cal.2004) (“[A] court may take judicial notice of a company’s published stock prices”).

Additionally, courts can consider documents that are referenced in the complaint under the “incorporation by reference” doctrine. In re Stac Electronics Securities Litigation, 89 F.3d 1399, 1405 n. 4 (9th Cir.1996) (discussing securities offering documents); 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), superseded by statute on other grounds; In re Copper Mountain Sec. Litig., 311 F.Supp.2d 857, 864 (N.D.Cal.2004) (taking judicial notice of an analyst report that was referenced in the complaint); 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)).

The complaint references many of Ixia’s SEC filings, as well as multiple analyst reports. The court will therefore consider the SEC filings, analyst reports, and data concerning Ixia’s share price that defendants have proffered.

2. Plaintiffs' Request for Judicial Notice

The parties dispute whether the court may properly consider certain Forms 4 that the individual defendants filed with the SEC during the class period. Plaintiffs seek to have the court take judicial notice of the documents. Because the documents are SEC filings, they are proper subjects of judicial notice. Defendants contend, however, that the court should decline to take judicial notice of the documents because plaintiffs are attempting to use them to supplement allegations included in the complaint. Although plaintiffs assert that they relied on the documents in pleading certain of their allegations, they did not include other facts that are referenced in their opposition to the motion to dismiss. Plaintiffs cannot utilize the documents to amend the complaint and defeat defendants’ motions to dismiss. See In re Turbodyne Technologies, Inc. Sec. Litig., No. CV99-00697-MMM-BQRx, 2000 WL 33961193, *10 (C.D.Cal. Mar. 15, 2000) (“Plaintiffs’ complaint alleges much of the information contained in Exhibit Q, including Turbodyne’s stock price on certain days and the dates the stock’s upward and downward price swings began. The complaint lacks any allegations regarding Turbodyne’s daily trading volume, however, and plaintiffs clearly seek to have the court take judicial notice of Exhibit Q to cure this omission. In deciding a motion to dismiss, courts may not ‘take into account additional facts asserted in a memorandum opposing the motion to dismiss, because such memoranda do not constitute pleadings under Rule 7(a).’ The effect of plaintiffs’ request that the court take judicial notice of Exhibit Q is the same, and the court declines to do so for that reason” (internal citation omitted)). Consequently, the court declines to take judicial notice of the individual defendants’ Forms 4.

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 Rule 9(b) 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 th[e Rule 9(b) ] standard”); see also In re Oracle Corp. Securities Litigation, 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 Securities Litigation, 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)(1); 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[d] 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 requirements “prevent[ ] 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) a misrepresentation or omission of a material fact, (2) scienter, (3) reliance (4) a connection with the purchase or sale of a security, (5) economic loss, 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).

As noted, 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)(1). In addition to pleading falsity adequately, the pleading 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)(2). “Scien-ter” 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). The Ninth Circuit has articulated a “two-part inquiry for scienter: first, [the court must] determine whether any of the allegations, standing alone, are sufficient to create a strong inference of scienter; second, if no individual allegation is sufficient, ... the court [must] conduct a ‘holistic’ review of the same allegations to determine whether the insufficient allegations combine to create a strong inference of intentional conduct or deliberate recklessness.” New Mexico State Investment Council v. Ernst & Young, 641 F.3d 1089, 1095 (9th Cir.2011) (citing Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 991—92 (9th Cir.2009)).

The Ninth Circuit has also emphasized that “plaintiffs ‘must plead, in great detail, facts that constitute strong circumstantial evidence of deliberately reckless or conscious misconduct.’ ” Middlesex Retirement System v. Quest Software Inc., 527 F.Supp.2d 1164, 1179 (C.D.Cal.2007) (quoting Silicon Graphics, 183 F.3d at 974); see also Silicon Graphics, 183 F.3d at 977 (“recklessness only satisfies scienter under § 10(b) to the extent that it reflects some degree of intentional or conscious misconduct”). The requisite state of mind must be a “ ‘departure from the standards of ordinary care [that] presents a danger of misleading buyers that is either known to the defendant or so obvious that the actor must have been aware of it.’ ” Zucco Partners, 552 F.3d at 991 (quoting Silicon Graphics, 183 F.3d at 984). If plaintiffs rely on allegations of recklessness, the pleading standard requires that they “state specific facts indicating no less than a degree of recklessness that strongly suggests actual intent.” Silicon Graphics, 183 F.3d at 979. Allegations of mere negligence are insufficient. Glazer Capital Management, LP v. Magistri, 549 F.3d 736, 748 (9th Cir.2008) (“At most, it creates the inference that he should have known of the violations. This is not sufficient to meet the stringent scienter pleading requirements of the PSLRA”); Police Retirement Systems of St. Louis v. Intuitive Surgical, Inc., No. 10-CV-03451-LHK, 2011 WL 3501733, *7 (N.D.Cal. Aug. 10, 2011) (“[T]he Ninth Circuit defines ‘recklessness’ as a highly unreasonable omission [or misrepresentation], involving not merely simple, or even inexcusable negligence, but an extreme departure from the standards of ordinary care, and which presents a danger of misleading buyers or sellers that is either known to the defendant or is so obvious that the actor must have been aware of it”).

“To qualify as ‘strong’ within the intendment of ... the PSLRA ... an inference of scienter must be more than merely plausible or reasonable — it must be cogent and at least as compelling as any opposing inference of nonfraudulent intent.” Tellabs, 551 U.S. at 314, 127 S.Ct. 2499 (emphasis added). “[C]ourts 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.... The inquiry ... is whether all of the facts alleged, taken collectively, give rise to a strong inference of scienter, not whether any individual allegation, scrutinized in isolation, meets that standard.” Id. at 322-23, 127 S.Ct. 2499 (emphasis original).

In determining whether plaintiffs have alleged facts showing a strong inference of scienter, the court must draw all reasonable inferences from the allegations presented, including inferences unfavorable to plaintiffs. Gompper v. VISX, Inc., 298 F.3d 893, 897 (9th Cir.2002). “However, the ‘inference that the defendant acted with scienter need not be irrefutable, i.e., of the “smoking-gun” genre, or even the “most plausible of competing inferences.” ... [T]he inference of scien-ter must be more than merely “reasonable” or “permissible[,]” [however] — it must be cogent and compelling ... in light of other explanations.’ ” Middlesex Retirement System, 527 F.Supp.2d at 1179 (quoting Tellabs, 551 U.S. at 314, 127 S.Ct. 2499).

The first amended complaint relies, to some extent, on the statements of confidential witnesses. Before those witnesses’ statements can support a strong inference of scienter, they must meet two requirements. First, “the confidential witnesses whose statements are introduced to establish scienter must be described with sufficient particularity to establish their reliability and personal knowledge.” Zucco Partners, 552 F.3d at 995; see also In re Siebel Systems, Inc. Sec. Litig., No. 04-0983, 2005 WL 3555718,*8-9 (N.D.Cal. Dec. 28, 2005) (allegations attributed to a confidential witness “ ‘must be accompanied by enough particularized detail to support a reasonable conviction in the informant’s basis of knowledge,’ ” quoting In re Metawave Communications Corp., 298 F.Supp.2d 1056, 1068 (W.D.Wash.2003)). Second, the information “reported by confidential witnesses with sufficient reliability and personal knowledge must [itself] be indicative of scienter.” Zucco Partners, 552 F.3d at 995.

The Ninth Circuit often treats the falsity and scienter analyses as “a single inquiry, because falsity and scienter are generally inferred from the same set of facts.” In re New Century, 588 F.Supp.2d 1206, 1227 (C.D.Cal.2008) (citing In re Read-Rite Corp., 335 F.3d 843, 846 (9th Cir.2003), abrogated by Tellabs on other grounds, as recognized in South Ferry LP, No. 2 v. Killinger, 542 F.3d 776 (9th Cir.2008), and Ronconi v. Larkin, 253 F.3d 423, 429 (9th Cir.2001)). The court therefore analyzes plaintiffs’ falsity and scienter allegations in tandem below.

E. Whether Plaintiffs Have Adequately Alleged that Ginsburg and Alston “Made” Misstatements

In their motions to dismiss, Ginsburg and Alston argue that plaintiffs fail adequately to plead that they “made” a material misstatement for which they can be held primarily liable under Rule 10b-5. Specifically, they contend that plaintiffs engage in “group pleading,” and that that is impermissible under the Supreme Court’s recent decision in Janus Capital Group, Inc. v. First Derivative Traders, - U.S. -, 131 S.Ct. 2296, 180 L.Ed.2d 166 (2011). Janus Capital examined whether a publicly traded company could be held liable for the actionable misrepresentations of a separate, but related, legal entity that served as its investment advis- or. Id. at 2299. The Court addressed the proper construction of Rule 10b-5, which, as noted, makes it unlawful for “any person, directly or indirectly, ... [t]o make any untrue statement of a material fact” in connection with the purchase or sale of securities. Id. at 2301. Specifically, it construed the operative verb “to make,” and held that

. “[f]or purposes of Rule 10b-5, the maker of a statement is the person or entity with ultimate authority over the statement, including its content and whether and how to communicate it. Without control, a person or entity can merely suggest what to say, not ‘make’ a statement in its own right. One who prepares or publishes a statement on behalf of another is not its maker. And in the ordinary case, attribution within a statement or implicit from surrounding circumstances is strong evidence that a statement was made by — and only by— the party to whom it is attributed.” Id. at 2302.

In reaching this conclusion, the Court dec