Full opinion text
MEMORANDUM AND ORDER BRIEANT, Chief Judge. This securities class and derivative litigation was transferred to the Southern District of New York by the Judicial Panel on Multidistrict Litigation on August 14, 1987, pursuant to 28 U.S.C. § 1407, for coordinated or consolidated pretrial proceedings. This Court on September 11, 1986 entered Pretrial Order No. 1, approving plaintiffs’ steering committee as lead counsel and certifying other ministerial and procedural matters. Since that time, the parties have engaged in substantial pretrial discovery, with the cut-off date for merits discovery extended, by Stipulation and Order filed. June 16, 1987, to September 30, 1987 and for expert witness discovery to November 30, 1987. Defendant Union Carbide (“Carbide”), on behalf of the Corporation and the individually named directors and officers, has moved to dismiss pursuant to Rule 12(b)(6), F.R.Civ.P., for failure to state a claim, or in the alternative, for summary judgment pursuant to Rule 56, F.R.Civ.P. Defendants First Boston Corporation, First Boston, Inc. and First Brands Corporation (sued herein as First Boston Acquisition Holdings, Inc.) (“First Boston”); Morgan Stanley & Co. Incorporated (“Morgan Stanley”); and the individual defendants Alfred E. Dudley and Alan C. Egler, who were officers of the Home and Automotive (“H & A”) division of Union Carbide during the relevant time periods; move separately to dismiss on several grounds, or in the alternative, for summary judgment incorporating the briefs and arguments of Union Carbide. Oral argument on these motions was held on April 28, 1987, and a specimen of the Rights Certificate central to this action was submitted by counsel for Union Carbide on May 14, 1987. After supplemental submissions essentially comprised of a series of correspondence among the parties and with the Court as to additional facts disclosed or confirmed through ongoing discovery, these motions were fully submitted for a decision on July 7, 1987, with the filing of a letter to the Court from plaintiffs’ liaison counsel in response to additional arguments proffered by defendant Union Carbide via letter filed June 24, 1987. Summary of the Claims Plaintiffs bring this litigation as a class action under provisions of federal securities law and pendent state law on behalf of all persons who received the original issue of approximately 31 million Rights from Union Carbide on March 3, 1986, or subsequently purchased such Rights on the open market, and who continue to hold such Rights to their detriment allegedly as a result of the conduct charged. The facts, alleged or represented by the plaintiffs, which must be taken as true for the purpose of resolution of the within motions, are as follows. The Union Carbide Rights were created, and issued without cash consideration, to common shareholders of Carbide as an outgrowth of a power struggle during which the Union Carbide management and directors sought to avoid a takeover of the company as a result of a public tender offer by the GAF Corporation (“GAF”). In response to an offer by GAF to acquire Carbide shares at $78.00 per share, a price publicly claimed by Union Carbide management to be grossly unfair and less than true value, at a meeting on January 2, 1986, Union Carbide’s Board of Directors decided as part of its strategy to resist GAF, to sell its two major Consumer Products businesses and to distribute the proceeds of these sales to shareholders as a special dividend payable on March 1, 1986. It was also determined at this meeting, and announced publicly by Letter to the Shareholders dated January 2, 1986 and Supplement dated January 3, 1986 (Exhibits B and C, respectively, to Fusaro Aff. of Union Carbide), that if the Consumer Products businesses were not sold by March 1, 1986, holders of record as of February 16, 1986 would receive transferable Rights which would enable the holder to realize such proceeds upon sale. The sale of the Consumer Products businesses, comprised of two divisions, Home and Automotive Products and Battery Products, was not accomplished by March 1, 1986. In consequence, on March 3,1986, Union Carbide issued transferable and marketable Rights Certificates to all persons who were shareholders of record of Union Carbide as of February 15, 1986, which entitled the holder to a pro rata share of the proceeds from the sale of the Consumer Products businesses. This special cash dividend was to be equal, in the aggregate, to the difference between the pretax net sale proceeds and the net book value of the Consumer Products business at the time of sale (Complaint para. 36). The Rights Certificate provided on its face that each Right: “entitles the registered holder thereof, to receive from Union Carbide Corporation ... from time to time payments in accordance with the Rights Agreement, dated as of March 1, 1986 ... between the Company and Manufacturers Hanover Trust Company, as Rights Agent..., provided that the final payment hereunder shall only be made after presentation and surrender of this Rights Certificate by hand.... Nothing contained in the Rights Agreement or herein shall be construed to confer upon the holder hereof, as such, any of the rights of a shareholder of the Company or any right to vote for the election of directors or any right to vote for the election of directors or upon any matter submitted to shareholders at any meeting thereof, or to give or withhold consent to any corporate action, or to receive notice of meetings or other actions affecting shareholders, or to receive dividends or subscription rights, or otherwise.” (See Specimen Security, docketed as No. 56). These Rights were distributed to shareholders pursuant to a contract between Union Carbide and Manufacturers Hanover Trust Co. (“Rights Agreement”, Fusaro Aff. Exh. D). On February 21, 1986 the Rights were listed for trading on the New York Stock Exchange, separately from the Union Carbide shares, and trading began on March 3, 1986 (Memorandum of Defendant Union Carbide at 5-6). The Rights were not registered under the Securities Exchange Act of 1933 (“1933 Act”), one of plaintiffs’ many issues tendered in this litigation (Count Two, Complaint para. 57). In a letter dated March 3, 1986, which accompanied the Rights Certificates, Union Carbide represented to its shareholders that a “competitive bidding process” was presently occurring with respect to the sale of the Consumer Products businesses. However, Union Carbide also represented that the Consumer Products businesses would be sold by means of a process which would “achieve the objective of realizing maximum value for our shareholders while acting in the best interests of employees, customers, and suppliers of these businesses and the communities where they operate” (January 2nd Letter to Shareholders at 3; January 3rd Supplement at 3). Defendant Morgan Stanley conducted the sale by what plaintiffs claim was not a competitive bidding process. Ultimately, defendant First Boston and divisional management through a corporate vehicle, First Brands Corporation, purchased the Home and Automotive business, with the highest bid of $800 million, which was announced on April 21,1986 (Fusaro Aff.Exh. F). Ral-ston Purina purchased the Battery Products business for $1.415 billion, announced on April 7, 1986 (Fusaro Aff.Exh. E). As of October 14, 1986, when the latest distribution of sale proceeds was made, the distribution per Right was $33.22 (see Memorandum of Defendant Union Carbide at 7). At that time, the price of Union Carbide stock was $20.875 per share. Taking into account an intervening triple stock split, the value of the package was $62.625 plus $33.22, totalling $95.85 per share/Right. Defendant Union Carbide emphasizes that this figure represents 30 percent more than the final GAF offer (which defendants claim was $74 per share, rather than the $78 value stated by plaintiffs). In connection with issue of the Rights, plaintiffs claim that Union Carbide and its directors made materially misleading representations to the purported class members and the investing public concerning the Rights, and agreed to sell the Consumer Products businesses for a grossly insufficient amount in breach of their fiduciary duty. Union Carbide sold these businesses on restrictive terms which included a covenant for the continued employment of certain Union Carbide executives and employees, and a required exclusive long term supply contract with Union Carbide. Defendants Dudley and Egler, Vice President and President of the Home and Automotive division during the relevant times, met “secretly”, it is said, with First Boston representatives before and during the bidding process, providing them with more information than was made available to other bidders. Ultimately these executives, using credit obtained for them by First Boston, turned out to be substantial shareholders of the acquisition vehicle. Dudley is currently the President and Chief Executive Officer, and Egler is Consultant and Vice Chairman of the Board, of the resultant company, First Brands. These arrangements and meetings, plaintiffs claim, decreased the sales value of the businesses and thereby breached the “duty” to maintain competitive bidding and to obtain the maximum sales proceeds for the Rights holders. Also it is alleged that the intention to impose these costly conditions of sale was material information omitted from disclosure to the Rights holders. Plaintiffs also contend that $100 million of the proceeds are being diverted in that Union Carbide is wrongfully deducting this amount as “liabilities and expenses”, and has also refused to pay Rights holders any interest for the time period Union Carbide will control those proceeds after sale and before distribution. Further, plaintiffs argue that these Rights should have been registered under the Securities Act of 1933 and thus Union Carbide engaged in the unlawful sale of unregistered securities. Apart from the claims against Union Carbide, its directors and the officer defendants, plaintiffs charge Morgan Stanley, as Union Carbide’s investment banker, and First Boston, as parent of the purchaser of the Consumer Products business, with conspiring and aiding and abetting or benefit-ting from the alleged unlawful acts and violations by Union Carbide and its officers and directors. The Complaint was dismissed as to Defendant Ralston Purina Company by Stipulation and Order filed November 12, 1986. The Consolidated Amended Complaint was filed on July 18,1986. More specifically, it sets forth the following claims: Count One: alleged, as against all of the defendants, that they, “directly and indirectly, singly or in concert, and aiding and abetting one another”, engaged in a conspiracy to defraud by certain alleged misstatements and omissions, in violation of Section 10(b) of the Securities Act of 1934 and Rule 10b-5 promulgated thereunder. Plaintiffs charge defendants Union Carbide, its directors and the officer defendants, and Morgan Stanley with the preparation of misleading documents; and defendant First Boston with knowing of such misrepresentations and participating in the sales nonetheless. Due to the above actions, the market price was allegedly artificially inflated, with the Rights now valued at $32 to $33 instead of over $42, the highest value for which these Rights were once traded (the Rights opened at $40 at time of issuance) (paragraphs 45 through 54). Count Two: alleged, originally against all defendants except First Boston, violations of Sections 5 and 12(1) of the Securities Act of 1933, 15 U.S.C. §§ 77e and 111, and conspiracy, and aiding and abetting thereof. Defendant Union Carbide and its directors failed to register these Rights, allegedly in violation of Section 5 of the 1933 Act. For the purposes of constituting “securities” within the meaning of the Act, plaintiffs here contend that Union Carbide “sold” the Rights to the people who originally received them, in that the Rights were issued for consideration, including the inducement of Union Carbide shareholders to act or refrain from acting so as to discourage GAF from continuing its takeover effort. This count had charged defendant Morgan Stanley and the officer defendants with aiding and abetting and/or conspiring in usurping the proceeds which should go to the Rights holders (paragraphs 55 through 60). Plaintiffs have withdrawn Count Two except with regard to Union Carbide and its directors (Plaintiff Mem. at 111, n. •). Count Three: pleaded, originally against all defendants except First Boston, violations of Section 12(2) of the Securities Act of 1933, 15 U.S.C. § 111. The Complaint charged defendants Union Carbide, Morgan Stanley, and the director and officer defendants with use of instrumentalities of interstate commerce including the mails for prospectuses and oral statements set forth in publicly disseminated documents which were materially misleading, and alleged a conspiracy in that these defendants knew or should have known of such material omissions and misrepresentations (paragraphs 61 through 66). Plaintiffs have withdrawn this count except as against Union Carbide and its directors (Plaintiff Mem. at 111, n. *). Count Four: set forth, against all defendants, claims for breach of contract, conspiracy, and aiding and abetting. Plaintiffs contend that the Rights issued by Union Carbide constituted contracts pursuant to which, among other things, Union Carbide was obligated to seek to effect the sale of the Consumer Products businesses in a manner aimed at achieving maximum value for the holders of the Rights. Union Carbide allegedly breached this contract, resulting in a substantial reduction in the sales proceeds and damage to plaintiff Rights holders, and violated the implied covenant of good faith and fair dealing. The Complaint also alleged that defendants Morgan Stanley, First Boston, and the director and officer defendants knew that the above activities were inconsistent with Union Carbide’s contractual obligation to the Rights holders, and “encouraged, conspired in and/or aided and abetted the breach of contract by Union Carbide in that they participated in and approved the execution of the sales agreements ... ”, but this secondary conspiracy/aiding and abetting portion of the fourth claim has been withdrawn (paragraphs 67 through 71) (Plaintiff Mem. at 129, n. *). Count Five: stated, against all defendants, a breach of fiduciary duty, conspiracy, and aiding and abetting. Union Carbide and the “director and officer defendants”, it is urged, had a fiduciary duty to the shareholders who would and did receive the Rights initially, and to the Rights holders generally, to act in a manner that would be fair and loyal to those persons. In addition, Morgan Stanley had fiduciary duties to the Rights holders, as agent for and advisor to the Union Carbide Board in connection with the Rights and sales of the Consumer Products businesses. These defendants allegedly breached this duty by approving and participating in a tainted negotiating process which was not designed to serve the interests of the class members; by retaining the proceeds and using a portion to pay off large obligations of Union Carbide from the takeover fight; by making misrepresentations; by proposing to include dividend equivalents within the Rights distribution; by burdening the Consumer Products businesses with restrictive employment and supply contracts; and by deducting certain taxes and expenses from the sales proceeds prior to distribution. Plaintiffs further charge Morgan Stanley and First Boston with conspiring and/or aiding and abetting such breaches of fiduciary duty through their participation (paragraphs 72 through 79). Count Six: alleged, against all defendants fraud and deceit. The defendants conspired in making materially misleading statements, and in reliance on these statements and in ignorance of the truth, plaintiffs were induced to purchase or hold the Rights; plaintiffs would not have done so had they known the truth (paragraphs 80 through 83). Count Seven: charged, against all defendants except First Boston, that the alleged materially misleading statements were, at the least, negligent misrepresentations. Plaintiffs were injured in that they purchased Rights at artificially inflated prices and/or were induced to hold the Rights to their injury (paragraphs 84 through 86). Count Eight: alleged, against all defendants except Union Carbide and the “director defendants”, intentional interference with contractual relations and business advantage in that these defendants interfered with the contract between Union Carbide and the Rights holders, “by participating in and/or approving the secret negotiations for the sale of the Home and Automotive Products division, which negotiations resulted in an inadequate sales price for that division, and by receiving benefits from that sale” (paragraphs 87 through 89). The Complaint seeks compensatory damages, and punitive damages for Counts Five, Six and Eight; an order declaring this to be a proper class action; an award of reasonable attorneys’ fees; costs, including but not limited to reasonable experts’ fees; such other and further relief as the Court may deem necessary and appropriate. In this Memorandum and Order, the Court makes determinations and disposition only with respect to the motions of defendants Dudley and Egler. For the reasons discussed below, the motion of Dudley and Egler pursuant to Rule 56 is granted, and the case is dismissed as to them. As correctly noted by these defendants, Mr. Dudley is specifically referred to by name in connection with only one of these allegations: that various secret meetings between him and representatives of First Boston tainted the bidding process (Complaint para. 42(h)). In addition, he is simply identified in his capacity as Vice President of the Home and Automotive division (Complaint para. 15). Mr. Egler is not referred to by name anywhere in the Complaint, other than where he is identified in para. 15 as the President of the Home and Automotive division, and not claimed to have taken any specific action in furtherance of any “scheme” alleged in the Complaint. The Court attaches no significance to this peculiarity of the pleadings because it is sufficiently clear from the Complaint which counts are charged to involve Dudley and Egler, as a result of the global reference to them throughout the Complaint as the “officer defendants.” This is so notwithstanding the outrage expressed by these defendants in response to the use of this vague nomenclature (see Defendant Dudley and Egler Mem. at 8, n. *). Furthermore, defendants demonstrate their notice and understanding of the claims intended to be pleaded against them, by their detailed presentation to this Court, and by their thorough pursuit of the arguments for dismissal of each of the claims alleged. The Complaint specifically charges that Dudley and Egler: (1) assisted Union Carbide, the Union Carbide Board of Directors, and Morgan Stanley in conspiring to defeat the GAF takeover by allegedly advancing their own economic interest at the expense of plaintiff Rights holders (para. 44); (2) participated in preparing, reviewing, approving and issuing various materially misleading documents (para. 47, 51); and (3) “knowingly or recklessly disregarded the fact that certain public statements of Union Carbide were materially misleading” (para. 49, 50); and (4) that their participation in the sale in face of this knowledge constituted conspiring in and/or aiding and abetting all of Union Carbide’s allegedly deceptive acts, in violation of section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5 (para. 50), sections 5,12(1) and 12(2) of the Securities Act of 1933, 15 U.S.C. §§ 77e and 77l (para. 60, 63, 64) and various common law duties, including breach of contract, breach of fiduciary duty, fraud and deceit, and intentional interference with contractual relations (para. 71, 73, 81, 85, 88, respectively). Defendants Alfred E. Dudley and Alan C. Egler move first to dismiss the Complaint pursuant to Rules 12(b)(2), 12(b)(6) and 9(b) of the F.R.Civ.P.; or, in the alternative, for summary judgment pursuant to Rule 56, F.R.Civ.P., for the reasons set forth in the motions and supporting memo-randa submitted by Defendants Union Carbide and First Boston. In support of dismissal of the federal securities claims, defendants Dudley and Egler present four primary grounds: (1) that plaintiffs’ First, Third and Sixth Counts are not pled with the particularity required by Rule 9(b); (2) that the Complaint fails to allege a basis for imposing liability upon Dudley and Egler under section 10(b) of the 1934 Act for statements allegedly made by their employer Union Carbide because they were not officers of Union Carbide but only of a division thereof, and as such had no control or authority over the actions of their superiors; (3) that none of the allegations support a claim for fraud or liability under section 12 of the 1933 Act because these individual defendants were neither sellers of securities nor participants with a substantial role therein; and (4) that there is no foundation for the claim for breach of fiduciary duty to Union Carbide due to the knowledge of and ratification by their superior corporate officers; and even if this constituted a breach, such breach would not give rise to a federal securities claim but, rather, a shareholder derivative suit under state law. Lastly, these defendants contend that, absent the federal securities claims and the jurisdiction thereunder (§ 27 of the 1934 Act, § 22 of the 1933 Act), this Court cannot sustain personal jurisdiction under New York, CPLR § 302, with respect to the Fourth, Fifth, Sixth, Seventh and Eighth Counts alleging violations of state law, and thus the Complaint against Dudley and Egler must be dismissed in its entirety. Rule 9(b) Particularity Rule 9(b) of the F.R.Civ.P. provides: “In all averments of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with particularity. Malice, intent, knowledge, and other condition of mind of a person may be averred generally.” Allegations which fail to specify the time, place, speaker, and sometimes even the content of the alleged misrepresentations, lack the “particulars” required by Rule 9(b). See, e.g., Luce v. Edelstein, 802 F.2d 49, 54 (2d Cir.1986); Denny v. Barber, 576 F.2d 465, 469 (2d Cir.1978); Segal v. Gordon, 467 F.2d 602, 608 (2d Cir.1972). The complaint for securities fraud must identify the misrepresentations which were allegedly made, the manner in which they are considered false, and it must set forth facts from which an inference of fraud by a given defendant may be drawn. See, e.g., Jacobson v. Peat, Marwick, Mitchell & Co., 445 F.Supp. 518, 522 (S.D.N.Y.1977). The allegations of fraud cannot ordinarily be based “upon information and belief”, except as to “matters peculiarly within the opposing party’s knowledge.” See Luce at 54, n. 1; Schlick v. Penn-Dixie Cement Corp., 507 F.2d 374, 379 (2d Cir.1974), cert. denied, 421 U.S. 976, 95 S.Ct. 1976, 44 L.Ed.2d 467 (1975). If peculiarly within defendants’ knowledge, the particularity requirement may be satisfied if these allegations are accompanied by a statement of the facts upon which the belief is founded. Schlick, 507 F.2d at 379; Segal v. Gordon, 467 F.2d at 608. However, Rule 9(b) must be read together with Rule 8(a), F.R.Civ.P., which calls for “short and plain statement^)” of claims for relief. Divittorio v. Equidyne Extractive Industries, Inc., 822 F.2d 1242 (2d Cir.1987); 5 C. Wright & A. Miller, Federal Practice & Procedure § 1298 (1969). One is not required to plead evidence. Schlick v. Penn-Dixie Cement Corp., 507 F.2d at 379 (complaint sufficiently alleged, inter alia, that defendants caused the Continental pension fund to purchase common stock of Penn-Dixie, which higher price was utilized to obtain an exchange ratio more favorable to Penn-Dixie). We must bear in mind that the primary function of Rule 9(b) in these cases is to protect accountants and other professionals, as are not involved herein, from a barrage of baseless complaints alleging fraud which have serious potential to injure personal and professional reputations. Rich v. Touche Ross & Co., 68 F.R.D. 243 (S.D.N.Y.1975). See also Decker v. Massey-Ferguson, Ltd., 681 F.2d 111, 114 (2d Cir.1982); Felton v. Walston and Co., 508 F.2d 577, 581 (2d Cir.1974); Segal v. Gordon, 467 F.2d at 607; 5 C. Wright & A. Miller, Federal Practice & Procedure § 1296 (1969). Rule 9(b) is, after all, said to have been designed to further three goals: providing a defendant fair notice of the plaintiff’s claim, to enable preparation of a defense; protecting a defendant from harm to his reputation or goodwill as a result of loose charges of fraud and deceit; and reducing the number of strike suits. Divittorio v. Equidyne Extractive Industries, Inc., 822 F.2d 1242 (2d Cir.1987). The high cost of maintaining contingent fee litigation has largely eliminated this latter perceived peril. In Ross v. A.H. Robins Co., Inc., 607 F.2d 545, 557-8 (2d Cir.1979), cert. denied, 446 U.S. 946, 100 S.Ct. 2175, 64 L.Ed.2d 802 (1980), our Court of Appeals reviewed the cases in this area and concluded that: “a plaintiff alleging fraud in connection with a securities transaction must specifically allege the acts or omissions upon which his claim rests. It will not do merely to track meaningless phrases as ‘scheme and conspiracy’ or ‘plan and scheme and course of conduct to deceive.’ A defendant is entitled to a reasonable opportunity to answer the complaint and must be given adequate information to frame a response.” That court therein concluded on facts similar to those at bar, that plaintiffs had identified adequately the alleged misrepresentations by reference to the specific documents (prospectus, annual reports and press releases). In the instant case, plaintiffs do not base their allegations “upon information and belief.” The most detailed statement of facts in the Complaint as to defendants Dudley and Egler is set forth in paragraph 42(h), which alleges in part that: “Contrary to the representations in the above described documents, the actual process and negotiation of the sale of the Home and Automotive division, and the ultimate terms of sale, were not designed to maximize the sales proceeds. Rather, the competitive bidding process was fundamentally tainted in a number of respects which enabled the First Boston leveraged buyout group to purchase the Home and Automotive division at an unfairly low price. The competitive bidding process was tainted in respects which included the following: (i) Union Carbide and the officer defendants (including without limitation defendant Dudley) met secretly with representatives of First Boston (including without limitation Arthur Nagle, Denis Newman, and Daniel O'Connell) separate and apart from, and in contravention of, the bidding process which theoretically applied to all bidders. Such meetings were initiated as early as January 4, 1986, before the offering materials announcing a sale of the Home and Automotive division had been circulated to prospective purchasers, and continued until the sale to First Boston was announced. As a result of these meetings, and in contravention of the bidding process which supposedly applied to all bidders, the First Boston group obtained a special advantage over other bidders in evaluating the Home and Automotive division, in determining the amount of their bid, and in negotiating a resolution of certain issues involving raw material supply contracts which Union Carbide had insisted be a part of the purchase transaction. Among other things, First Boston received assistance and insight from defendant Dudley which enabled it to propose a revised raw materials contract which, if stated, would increase the value of the Home and Automotive division to First Boston by approximately $80 million. The First Boston group also had knowledge of the identities of competing prospective purchasers and of the range of their bids. No other competing purchaser possessed such knowledge or advantages. Such knowledge enabled First Boston to adjust its bid according to the bids of its competitors and was a factor which reduced the ultimate sales price. (ii) The aforementioned officer defendants and Home and Automotive division management employees had a personal stake in the success of the First Boston bid, because (a) First Boston had indicated a greater likelihood that it would keep on existing management than other bidders, and (b) First Boston’s proposal included equity ownership by management of the Home and Automotive division on a basis grossly disproportionate to the amount of capital those employees would be supplying toward the equity component of the purchase price. It was also understood that defendant Dudley would be the chairman of the board and president of the First Boston subsidiary purchasing the Home and Automotive division. As a result of their personal interest in the First Boston offer, Home and Automotive management who met with prospective purchasers in briefing sessions had a motive to, and did, fail to provide the same encouragement and assistance to competing purchasers that they provided to First Boston....” Further claims against these defendants are sufficiently contained in paragraphs 20, 44, 49, 50, and 51, the allegations of which have been summarized, supra. The Complaint adequately specifies the statements it claims were false or misleading, and the manner in which plaintiffs assert this to be so. The Complaint identifies the documents and announcements to the public in which these statements, and omissions, were contained; the meetings in which these individual defendants took the actions complained of; and the defendants charged, either directly or as conspirators or aiders and abettors, with those underlying actions or omissions. Despite the protestations of the defendants, this Court concludes that these allegations of fraud, treated in context, are not entirely conclusory or unsupported by assertions of fact; such statements do “allege with some specificity the acts constituting the fraud,” Rodman v. Grant Foundation, 608 F.2d 64, 73 (2d Cir.1979). Plaintiffs have stated “the content of and circumstances surrounding the allegedly fraudulent statements and material omissions and who made or failed to make which statements”, as in Mauriber v. Shearson/American Express, Inc., 567 F.Supp. 1231, 1235-36 (S.D.N.Y.1983) (Duffy, J.). Thus, the Complaint states with the requisite specificity the acts constituting the alleged fraud and avoids undue reliance on “conclusory allegations that defendant’s conduct was fraudulent.” Decker v. Massey-Ferguson, Ltd., 681 F.2d at 114; Rich v. Touche Ross & Co., 415 F.Supp. 95 (S.D.N.Y.1976). As for the additional elements of knowledge and scienter, Rule 9(b) requires only that such allegations be asserted in the most general fashion. See Goldman v. Belden, 754 F.2d 1059, 1070 (2d Cir.1985). Moreover, complaints dismissed under Rule 9(b) are “almost always” dismissed with leave to amend. 2A J. Moore & J. Lucas, Moore’s Federal Practice, para. 9.03 at 9-34 (2d ed. 1986); Luce, 802 F.2d at 56; Yoder v. Orthomolecular Nutrition Institute, Inc., 751 F.2d 555, 562 (2d Cir.1985). Therefore, even if we were to find the allegations in the Complaint to be insufficiently pleaded on their face, we would be compelled to grant plaintiffs’ request herein to replead. No meaningful purpose would be served by this exercise, because, as is apparent from the deposition testimony and documents submitted to the Court in connection with these motions, the mov-ants have been given quite adequate notice of the specific allegations the plaintiffs assert against them, see Ross, 607 F.2d at 557; Denny v. Barber, 576 F.2d at 469; Goldman v. Belden, 754 F.2d at 1070. Accordingly, the Court concludes that the Complaint as a whole alleges facts in sufficient detail to withstand the motion to dismiss on Rule 9(b) grounds. Liability Under Section 10(b) of the 193k Act Defendants Dudley and Egler have moved for summary judgment pursuant to Rule 56, F.R.Civ.P., in connection with plaintiffs’ allegation that Dudley and Egler are subject to liability under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, as promulgated thereunder, by “singly or in concert, and aiding and abetting one another, engagpng] in an unlawful combination and conspiracy ... to defraud; ... [making] untrue statements of material fact and omittpng] to state other material facts necessary in order to make the statements made not misleading_” (Complaint para. 46). Furthermore, the plaintiffs allege that Dudley and Egler partid-pated in “preparing, reviewing, approving and issuing various materially misleading documents_” (Complaint para. 47). The issue before this Court is whether the plaintiffs have presented facts which form a basis for their allegations that the defendants, Dudley and Egler, have committed a primary or secondary violation of Rule 10b-5, as promulgated under Section 10(b) of the Securities Exchange Act of 1934, thus warranting denial of the defendants’ motion for summary judgment. For the reasons which follow, this Court concludes that the plaintiffs have failed to support their allegations of violations of Rule 10b-5 by these defendants. First, the Court finds no factual basis presented for the plaintiffs’ broad, conclusory allegations that the defendant Dudley, former Vice President-Operations of Union Carbide’s Home and Automotive division, or the defendant Egler, former President of the H & A division (Complaint para. 15), engaged in any scheme to defraud, made any misleading statements, or engaged in frauds or deceits with respect to the issuance or sale of the Rights (Complaint paras. 42(a)-(g), 46). Furthermore, the facts alleged do not support the plaintiffs’ more specific allegations that these defendants participated in the preparation, dissemination, or issuance of materially misleading documents allegedly issued by Union Carbide (Complaint paras. 42(a)-(g), 47). The facts alleged with respect to Dudley’s and Egler’s conduct during the relevant period refer only to a series of meetings between Dudley and representatives of First Boston which began in January of 1986, during which Dudley discussed the prospective sale of the H & A division to First Boston (Complaint para. 42(h)(i)). Plaintiffs further allege and the Court assumes that the understanding of the parties to these meetings was that if First Boston were the successful bidder in the “competitive bidding process” under which the H & A division was to have been sold (Complaint paras. 42(h)(i) — (ii)), there would be a “greater likelihood” that: (1) Dudley and Egler would be retained in their jobs along with the rest of the H & A division management; (2) Dudley and Egler and the rest of the H & A division management would acquire equity ownership of the H & A division on a favorable basis; and (3) Dudley would become chairman of the board and president of First Brands Corporation, the First Boston subsidiary purchasing the H & A division (Complaint para. 42(h)(ii)). Assuming, for purposes of this analysis only, that the documents issued by Union Carbide contained misstatements of material fact or omitted any material facts with respect to these meetings, there is no support for the allegation that Dudley’s and Egler’s activities extended beyond the meetings with First Boston, so as to include participation in the preparation, dissemination, or issuance of the shareholder documents, even if those documents misrepresented, or omitted mention of, the meetings themselves. Furthermore, this Court finds no sensible basis for any inference that Dudley and Egler, whose responsibilities were in the area of the manufacture and distribution of products, would have any responsibility for the preparation of documents or public statements by Union Carbide relating to issuance of the Rights. Finding no allegation of participation or direct involvement by Dudley or Egler in the drafting, editing or issuance of the relevant documents, this Court concludes that the facts alleged are insufficient to support an allegation of a primary violation of Rule 10b-5 by either Dudley or Egler. This Court now examines whether the facts alleged support the plaintiffs’ allegations that Dudley and Egler are liable for a secondary violation of Rule 10b-5 by either aiding and abetting a primary violation or conspiring to commit a securities law violation. To support an allegation that a defendant is liable for aiding and abetting a securities law violation requires three elements: “(1) the existence of a securities law violation by the primary (as opposed to the aiding and abetting) party, (2) ‘knowledge’ of this violation on the part of the aider and abettor; and (3) ‘substantial assistance’ by the aider and abettor in the achievement of the primary violation.” Bloor v. Carro, Spanbock, Londin, Rodman & Fass, 754 F.2d 57, 62 (2d Cir.1985); IIT, An International Investment Trust v. Cornfeld, 619 F.2d 909, 922 (2d Cir.1980). For purposes of this analysis only, the Court assumes that the plaintiffs have supported adequately their claim of a primary violation of a securities law by Union Carbide, thus satisfying the first element of aider and abettor liability. Therefore, it remains for this Court to determine whether the plaintiffs have alleged facts sufficient to support a finding that: (1) Dudley and/or Egler had “knowledge” of a scheme to defraud, engagement in frauds or deceits, or preparation and issuance by Union Carbide of documents containing misleading statements or omissions of material fact; and (2) either or both of these defendants rendered “substantial assistance” to Union Carbide in its primary violation of Rule 10b-5. If either of these requisites is not satisfied, the plaintiffs’ claims of aider and abettor liability against Dudley and Egler must fail. The applicable scienter standard depends on the facts. If the aiding and abetting of the primary violation is in the form of an affirmative act, the scienter requirement is satisfied by either a conscious intent to aid and to abet a primary violation or by reckless disregard of the effect of the assistance being rendered to the primary violation. See IIT, An International Investment Trust, 619 F.2d at 923; Lanza v. Drexel & Co., 479 F.2d 1277, 1300-02 (2d Cir.1973) (en banc). As this Court has already noted in its discussion of the allegations of primary violations by these defendants, supra, the facts alleged do not indicate that Dudley or Egler engaged in any affirmative act in furtherance of a Rule 10b-5 violation, and do not provide a logical basis for an inference that any such affirmative act by Dudley or Egler took place. Therefore, if Dudley and/or Egler did aid and abet a securities law violation, the aiding and abetting would have to have been in the form of a failure to act. The first consideration in arriving at the appropriate scienter standard in cases where aiding and abetting due to inaction is alleged, is to determine whether a defendant owes a duty to plaintiff to disclose knowledge of the primary violation. If no such duty exists, then reckless disregard of the primary violation is not sufficient to satisfy the scienter requirement. See Quintel Corp., N.V. v. Citibank, N.A., 589 F.Supp. 1235, 1244 (S.D.N.Y.1984); Armstrong v. McAlpin, 699 F.2d 79, 91 (2d Cir.1983); IIT, An International Investment Trust, 619 F.2d at 923. While some courts have stated that reckless disregard of a primary violation meets the scienter requirement in those cases in which the defendant has no duty to disclose and can reasonably foresee reliance by a plaintiff or plaintiffs upon false or misleading information, see, e.g., Quintel Corp., N.V., 589 F.Supp. at 1244; Competitive Assocs., Inc. v. Laventhol Krekstein Horwath & Horwath, 478 F.Supp. 1328, 1341 (S.D.N.Y.1979), our Circuit has not yet accepted this proposition. See Quintel Corp., N. V., 589 F.Supp. at 1244; Oleck v. Fisher, 623 F.2d 791, 795 (2d Cir.1980). As the plaintiffs do not allege or argue that the Rights holders reliance on misstatements or omissions in the Union Carbide documents or other fraudulent activity in which the other defendants allegedly engaged was reasonably foreseeable by Dudley and/or Egler, this Court will not address this issue. Here, the plaintiffs’ only allegations with respect to Dudley’s and Egler’s knowledge are that they knew of or recklessly disregarded the materially misleading nature of the Union Carbide documents (Complaint paras. 48-50). Furthermore, the plaintiffs appear to allege that Dudley and Egler had a continuing duty to issue a corrective public statement with respect to an alleged projection of $2.5 billion in pretax proceeds resulting from the sale by Union Carbide of its Consumer Products Businesses (Complaint para. 48). This Court finds no basis in the alleged facts for the plaintiffs’ conclusory allegations of knowledge or reckless disregard of the misleading nature of the documents by Dudley and/or Egler. There is no factual support for the notion that either of these defendants had any knowledge of the contents of these documents or participated in their creation. Indeed, it is difficult for this Court to imagine a corporate structure in which officers such as these whose responsibilities are the manufacture of home and automotive products, are charged also with the task of preparing disclosure documents or public statements disseminated by the corporation to the public investors. Even assuming, however, that the alleged facts do provide support for the allegations that Dudley and Egler knew of or recklessly disregarded the misleading nature of the documents, these allegations would be insufficient to meet the heightened scienter requirement applied to those situations in which the alleged aiding and abetting of a securities law violation takes the form of a failure to speak or to act. The allegations would be supportable only if the plaintiffs were to allege facts providing a basis for the existence of a duty to disclose. See Reingold v. Deloitte Haskins & Sells, 599 F.Supp. 1241, 1270 (S.D.N.Y.1984). While this Court agrees with the defendants’ assertion that the facts do not support the allegation that Dudley and Egler owed to the Rights holders a duty to disclose, it does not concur completely with the defendants’ reasoning in support of this assertion. In part, Dudley and Egler base their contention that a duty to disclose does not exist, upon the theory that they were not officers of Union Carbide, but, as officers of its H & A division, were “mid-level management,” and as such had no duty to disclose misrepresentations to the shareholders or to the investing public (Dudley and Egler Mem. at 17). This argument is not supported by New York law, which makes no such distinctions among corporate officers either in statutes or in decisions. The authority of all officers of Union Carbide, a New York corporation, is conferred by § 715(g) of the New York Business Corporation Law, which provides: “(g) All officers as between themselves and the corporation shall have such authority and perform such duties in the management of the corporation as may be provided in the by-laws or, to the extent not so provided, by the board.” New York Business Corporation Law, § 715(g). Although § 715(g) grants each New York business corporation discretion over the scope of actual authority and duties assigned to each officer of a corporation, the same statutory conditions as to actual authority and duties apply to all officers of a given corporation. Any differentiation of such conditions among the officers of a corporation is made by the corporation itself, through its by-laws or its board of directors. See New York Business Corporation Law, § 715(g). New York case law states that a corporate officer’s apparent authority, i.e., the authority an officer is permitted by the corporation to represent that he or she possesses, may be relied upon by a third party, provided that the third party has no notice or knowledge of any limitations on that authority. Goldenberg v. Bartell Broadcasting Corp., 47 Misc.2d 105, 262 N.Y.S.2d 274, 282 (N.Y.Co.1965). With respect to third parties, knowledge of statutory conditions upon the authority of a corporate officer is presumed. Goldenberg, 262 N.Y.S.2d at 282-83. Third parties who have a greater degree of business experience and sophistication may be presumed to have knowledge of limitations imposed upon the authority of an officer both by statute and by the corporation itself. See Goldenberg, 262 N.Y.S.2d at 283. Therefore, to third parties other than those possessing a higher degree of business experience and sophistication, all corporate officers have the same scope of apparent authority and the same duties as other officers of the same corporation. Under the New York Business Corporation Law and New York case law governing the scope of apparent authority of corporate officers, an officer is an officer. But see contra Rossini v. Ogilvy & Mather, Inc., 798 F.2d 590 (2d Cir.1986). Here, the defendants Dudley and Egler seek to avoid liability on the ground that they are not officers of Union Carbide (Dudley and Egler Mem. at 17). This Court finds that Dudley and Egler cannot deny their roles as officers and agents of Union Carbide simply by disclaiming any true power as such. That the defendants’ authority to act on behalf of the corporation may be limited in some respects does not alter their status as corporate officers. If this Court were to accept, which it does not, the plaintiffs’ implicit assumption that all officers of Union Carbide owe a duty to disclose or to correct known false or misleading statements contained within Union Carbide’s securities documents, the defendants’ disclaimer of the powers generally associated with their positions as officers of Union Carbide would not relieve them from the duty to disclose. This Court finds more merit in the defendants’ second argument that they lacked the authority to disclose or to correct such documents or statements, and rejects the notion, implicit in the plaintiffs’ allegations that Dudley and Egler, whose responsibilities to Union Carbide were in the area of manufacture of home and automotive products, had a corporate duty, ex officio, to disclose or to correct any misleading statements contained in Union Carbide documents prepared for the corporation by others, or to disclose or to correct any misrepresentations or omissions with respect to the purchase or sale of Union Carbide securities made by others, although they may have had apparent or statutory authority to do so, if so advised. Our Circuit has held that, in the absence of direct participation in a securities violation, an outside director of a corporation has no duty to disclose adverse material facts or information to those prospective purchasers. Lanza v. Drexel & Co., 479 F.2d 1277, 1289 (2d Cir.1973) (en banc); Decker v. Massey-Ferguson, Ltd., 681 F.2d 111, 119 (2d Cir.1982). Cf. Divittorio v. Equidyne Extractive Industries, Inc., 822 F.2d 1242 (2d Cir.1987) (officers and directors of the general partner of a limited partnership were held not liable for misrepresentations allegedly made in an Offering Memorandum issued by the partnership, which the defendant officers played no part in preparing); IIT, An International Investment Trust, 619 F.2d at 927 (outside accountant was held to have no duty to correct an allegedly false and misleading prospectus issued by the corporate defendants). Dudley’s and Egler’s positions with respect to the preparation and dissemination of the Union Carbide documents are analogous to those of the individual defendants in our Circuit’s cases just mentioned. As noted in our discussion of the allegations of primary violations of Rule 10b-5, supra, there is no factual basis alleged to support a finding that either Dudley or Egler directly participated in the preparation or issuance of the allegedly tainted documents or in any other alleged violation of Rule 10b-5. For either of the defendants to have done so would have been outside the scope of the duties imposed upon them by their corporate employer, Union Carbide. In the absence of direct participation in preparation or issuance of the documents, and in the absence of any actual authority to do so, Dudley and Egler had no duty to disclose or to correct any misstatements or omissions of material fact by others contained within the Union Carbide documents or elsewhere. Our Circuit has adopted, in IIT, An International Investment Trust, 619 F.2d at 926-27, the principle that in the absence of a duty to disclose, the scienter requirement is elevated to that of a “high conscious intent” to aid and abet a securities law violation. Id.; Brennan v. Midwestern United Life Insurance Co., 417 F.2d 147, 154 (7th Cir.1969); Edwards & Hanly v. Wells Fargo Securities Clearance Corp., 602 F.2d 478, 484-85 (2d Cir.1979); Woodward v. Metro Bank of Dallas, 522 F.2d 84, 97 (5th Cir.1975); Quintel Corp., N. V., 589 F.Supp. at 1244. Here, the plaintiffs fail to show facts to support an inference that either Dudley or Egler possessed a high conscious intent to aid and to abet the perpetration of a securities law violation. Nor does this Court find merit in the argument advanced in the plaintiffs’ briefs that the potential for financial gain by an alleged aider and abettor is indicative of high conscious intent to aid and to abet a securities law violation. (Cf. Plaintiff Mem. at 95-97). Furthermore, the facts alleged do not support a finding that Dudley and Egler have rendered substantial assistance to a primary violation of the securities laws. Substantial assistance is rendered when a defendant’s action or inaction constitutes a substantial causal factor in the perpetration of a primary securities violation. See Rolf v. Blyth, Eastman, Dillon & Co., 570 F.2d 38, 48 (2d Cir.1978); Bloor, 754 F.2d at 62; Armstrong, 699 F.2d at 92; Edwards & Hanly, 602 F.2d at 484. The causation necessary to satisfy the substantial assistance requirement must exceed traditional “but-for” causation. For example, in Armstrong, 699 F.2d at 92, our Circuit rejected a claim that an investment advisor’s awareness and approval of the churning of funds was a “but-for” cause of the primary defendant’s churning, because the churning could have taken place upon the advice of others or without any outside advice. The Armstrong court found that, because the investment advisor’s approval, which did not even satisfy a “but-for” concept of causation, it did not constitute “substantial assistance,” and, therefore, the investment advisor was not liable as an aider and abettor. Id.; accord, Edwards & Hanly, 602 F.2d at 484. Our Circuit has also set forth the principle that to establish causation with respect to a 10b-5 violation, a plaintiff must show “ ‘both loss causation —that the misrepresentation or omissions caused the economic harm — and transaction causation —that the violations in question caused the [plaintiff] to engage in the transaction in question.’ ” Bennett v. United States Trust Co., 770 F.2d 308, 313 (2d Cir.1985), cert. denied, 474 U.S. 1058, 106 S.Ct. 800, 88 L.Ed.2d 776 (1986), quoting Schlick v. Penn-Dixie Cement Corp., 507 F.2d 374, 380 (2d Cir.1974), cert. denied, 421 U.S. 976, 95 S.Ct. 1976, 44 L.Ed.2d 467 (1975). The concepts of loss causation and transaction causation in the 10b-5 context are illustrated in Rich v. Touche Ross & Co., 415 F.Supp. at 97-98. In Rich, a complaint alleged that the plaintiffs, trustees of a stock brokerage firm, made four purchases of securities in reliance on allegedly misleading statements contained in financial statements certified for the brokerage firm by the defendant, which was its independent certified public accountant. This Court held that the complaint did not, nor could it, claim that the misrepresentations or omissions allegedly contained within these statements caused the plaintiffs to enter into the purchase transactions in question or caused the loss in question, as other possible factors could account for either event. Rich, 415 F.Supp. at 98. In addition, it has been held that in order for substantial assistance to be rendered with respect to a misstatement contained in a document for purposes of determining aider and abettor liability, the assistance must relate to the preparation or dissemination of the document itself. Terrydale Liquidating Trust v. Gramlich, 549 F.Supp. 529, 531 (S.D.N.Y.1982). In this case, there is no basis for an inference that the allegedly misleading statements or documents would not have been issued “but for” Dudley’s or Egler’s approval or failure to issue a correction. This Court concludes that the plaintiffs have not alleged facts sufficient to support their claims that Dudley and Egler are secondarily liable as aiders and abettors of a violation of Rule 10b-5. In addition, the plaintiffs allege that Dudley and Egler “engaged in an unlawful combination and conspiracy” to violate Rulé 10b-5 (Complaint para. 47) and that their participation in the sales of the Consumer Products Businesses constituted, inter alia, “a conspiracy in ... the deceptive acts alleged in this cause of action” (Complaint para. 50). In addition to the existence of a primary violation, liability for conspiracy requires “knowledge [of the primary violation] plus an agreement with the [primary violator].” Troyer v. Karcagi, 476 F.Supp. 1142, 1153 (1979), quoting Ruder, “Multiple Defendants in Security Law Fraud Cases: Aiding and Abetting, Conspiracy, In Pari Delicto, Indemnification and Contribution,” 120 U.Pa.L.Rev. 597, 630 (April 1972). Plaintiffs do not specifically allege that Dudley and Egler made an agreement with a primary violator of Rule 10b-5, nor do they present facts which would justify an inference of such an agreement. See Troyer v. Karcagi, 476 F.Supp. 1142, 1153 (S.D.N.Y.1979); Bresson v. Thomson McKinnon Securities, Inc., [Current Binder] Fed.Sec.L.Rep. (CCH), para. 92,855 at 94, 158 (S.D.N.Y. July 22, 1986). Therefore, this Court concludes that the plaintiffs have failed to provide a basis sufficient to support their broad conclusory allegations that Dudley and Egler were part of any conspiracy to violate Rule 10b-5. Because the plaintiffs have failed to substantiate their allegations of primary and secondary violations by the defendants Dudley and Egler of Rule 10b-5, as promulgated under Section 10(b) of the 1934 Act, these defendants’ motion for summary judgment with respect to these claims made against them are granted. Claims under Sections 5, 12(1) and 12(2) of the 1933 Act Apparently plaintiffs have withdrawn Counts Two and Three, which allege violations of sections 5, 12(1), and 12(2) of the Securities Act of 1933, as to Dudley and Egler in addition to Morgan Stanley. The Court refers to a statement relegated to a footnote in plaintiffs’ responsive papers: “In an effort to streamline the case, plaintiffs are -willing to withdraw their claims against defendants other than Carbide and its directors under the Securities Act of 1933” (Plaintiff Mem. at 111, n. *). Presumably by this statement plaintiffs intend to exclude Dudley and Egler from these claims, as these two individuals are generally referenced throughout the Complaint as the “officer defendants” and not treated together with the Union Carbide “director defendants.” Plaintiffs certainly have not offered any support of these claims in response to the cogent arguments made by defendants Dudley and Egler with respect thereto, and the Court deems such claims to be abandoned if not withdrawn by the plaintiffs. However, the parties proceeded at oral argument to continue to address these issues (Conference of April 28, 1987, Tr. at 75). The Court will briefly touch upon the 1933 Act claims, in the unlikely event that it misconstrues the plain meaning of plaintiffs’ footnote. The entirety of plaintiffs’ allegations in connection with their claim against these defendants for liability under section 12(1) on the basis of Union Carbide’s alleged violation of section 5 of the 1933 Act is stated in the Complaint as follows: “Morgan Stanley and the officer defendants have aided and abetted and/or conspired in Union Carbide’s wrongful effort to usurp for itself proceeds which should go to the Rights holders, through offering and selling securities in violation of Section 5.” Complaint para. 60. Even if Union Carbide’s failure to file a registration statement violated § 5 of the 1933 Act, an issue which this Court does not now reach, plaintiffs have not stated a claim against Dudley and Egler for conspiring in support of and/or aiding and abetting such a violation. Plaintiffs fail to allege that either Dudley or Egler was involved in selling or issuing a single Right to a putative class member, or that either was involved in any way with Union Carbide’s decision not to file a registration statement. This Circuit requires some allegation that a defendant was a participant in the sale of a security to the plaintiff, or was a party to a solicitation to purchase. In the leading case in this area, Katz v. Amos Treat & Co., 411 F.2d 1046 (2d Cir.1969), our Court of Appeals concluded that two officers of the defendant stock brokerage firm, one who had neither known of nor participated in the sale and the other who had merely signed the stock certificates, could not be held liable under section 12(1) for the sale of unregistered securities by the firm because that section was not “intended to embrace a corporate officer or director merely because he has knowledge of a sale of unregistered stock and plays such a minor role in facilitating it.” Id. at 1053. See also Klein v. Computer Devices, Inc., 591 F.Supp. 270, 275 (S.D.N.Y.1984), clarified, 602 F.Supp. 837 (S.D.N.Y.1985); Katz v. David W. Katz & Co., [1984 Transfer Binder] Fed.Sec.L.Rep. (CCH) para. 99,669 at 97, 687 (S.D.N.Y. February 14, 1984) (“plaintiff, at minimum, must show some meaningful participation in an ‘offer or sale’ on the part of those charged with Section 12 liability”). Here, aside from a mere conclusory allegation in para. 47 of the Complaint, plaintiffs have not contended, in oral argument or motion papers, nor do they present any evidence of even the most minimal role of defendants Dudley and Egler in facilitating the sale or issuance of the Rights to individuals, as distinct from participation in the sale of the Home and Automotive business to First Boston. In the Third Count, plaintiffs allege in connection with their claim under § 12(2) of the 1933 Act, that: “Union Carbide, Morgan Stanley, the director defendants and the officer defendants were substantial, necessary participants and factors in the sale of the Rights to Union Carbide shareholders and the investing public, and they conspired and aided and abetted one another in connection with the preparation and/or dissemination of the materially misleading prospectuses and statements used in conjunction with the sale of the Rights.” Complaint para. 63. Here again the pleading fails to satisfy the requisite elements for liability. Section 12(2) requires that plaintiffs establish privity or scienter on the part of the individual defendant. Lanza v. Drexel & Co., 479 F.2d 1277, 1298 (2d Cir.1973). “Officers and directors may be directly liable under section 12(2) as ‘participants’ in the sale, but such liability depends upon proof of