Full opinion text
OPINION DEBEVOISE, District Judge. TABLE OF CONTENTS PAGE I. INTRODUCTION 193 II. JURISDICTION AND VENUE 194 III. PROCEDURAL HISTORY 194 IV. THE PARTIES ' 195 A. THE PLAINTIFFS 195 B. THE DEFENDANTS 195 V. FACTUAL HISTORY 196 A. THE GDC SCHEME 196 1. Targeting Prospective Lot Purchasers 197 2. House Sales Schemes 198 3. Purchaser Defaults and GDC Recycling of Lots 199 B. THE ALLEGED PARTICIPANTS IN THE SCHEME 201 1. The City Defendants 201 2. The Inside Director Defendants and Director Defendants 205 3. The Financing Defendants 206 4. The Mortgagee Defendants 208 5. The Lot Contract Defendants 211 6. Cravath and Ormsby 211 VI. DISCUSSION 212 A. MOTION TO DISMISS UNDER RULE 12(b)(2) 213 B. MOTIONS TO DISMISS UNDER RULE 12(b)(6) 216 1. Standard of Review 216 2. Interstate Land Sales Full Disclosure Act (Count III) 217 a. Aider and Abettor Liability under the Land Sales Act 217 b. Disposition of Motions to Dismiss 220 c. Statute of Limitations 223 d. Summary of Count III Rulings 224 3. Civil RICO (Count I) 224 a. The Amended Complaint 225 b. The Revised RICO Allegations 226 i. Primary Liability under the Revised RICO Allegations 227 ii. Aider and Abettor Liability under the Revised RICO Allegations 230 c. Statute of Limitations 234 4. Securities Laws (Count II) 235 a. The Instruments are Not Securities 236 b. Statute of Limitations 248 5. Common Law Fraud (Count VII) 246 VII. CONCLUSION 247 I. INTRODUCTION Plaintiffs in this action are Jose and Rosa Rolo and Dr. William and Roseanne Tenerelli. They seek money damages and equitable relief on behalf of themselves and on behalf of others who purchased lots and/or houses in Florida from General Development Corporation (“GDC”) and GDV Financial Corporation (“GDV”) and who are members of the North Port Out-of-State Lot Owner Association (the “Association”). In general terms, the First Amended Complaint charges that GDC and its related corporations engaged in a nationwide fraudulent marketing scheme to induce plaintiffs and other members of the Association to purchase lots and houses in Florida at inflated prices. The defendants in this ease are various corporate entities and individuals who, plaintiffs allege, participated in the scheme. There are presently pending a variety of defense motions addressed to jurisdiction and to the complaint. City Trust, AmBase, Scharffenberger, Manley, Hatch and Pyne also move to dismiss under Rule 12(b)(2). Similarly defendants Askew, Brinckerhoff, Clark and Simons, who were outside directors, moved for dismissal pursuant to Rule 12(b)(2). There is also pending plaintiffs’ motion for class certification. This opinion addresses the defense motions. The class certification motion is rendered moot by the disposition of the defense motions. II. JURISDICTION AND VENUE This court has subject matter jurisdiction pursuant to the Racketeer Influenced and Corrupt Organizations Act (“RICO”), 18 U.S.C. § 1964; Section 1420 of the Interstate Land Sales Full Disclosure Act (the “Land Sales Act”), 15 U.S.C. § 1719; Section 27 of the Securities Exchange Act of 1934 (the “1934 Act”), 15 U.S.C. § 78aa; and the principles of pendent jurisdiction. Venue is proper pursuant to 28 U.S.C. § 1391, 15 U.S.C. § 1719 and 18 U.S.C. § 1965. III. PROCEDURAL HISTORY On August 9, 1989, the named plaintiffs filed a complaint commencing an action entitled Rolo v. General Dev. Corp., No. 89-3373 (D.N.J.1989) (“Rolo I”), alleging that GDC had engaged in a fraudulent marketing scheme during the period of 1956 to 1987. The complaint in Rolo I listed more than 3,000 named plaintiffs, each of whom alleged that he or she was deceived by GDC in connection with the purchase of Florida real estate. On September 7,1989, plaintiffs filed an amended complaint, in which they asserted the following causes of action: fraud and breach of contract; federal RICO violations; federal securities violations; violations of the Land Sales Act; breach of fiduciary duty; and violations of state RICO statutes of New Jersey, Connecticut, Florida, New York, Ohio and Pennsylvania. On October 31,1989, the Rolo I defendants filed three separate notices of motion: (1) for an order dismissing the complaint pursuant to Fed.R.Civ.P. 9(b) and 12(b)(6); (2) for an order transferring the action to the United States District Court for either the Southern or Middle District of Florida; and (3) for an order severing from this action all of the named plaintiffs except Mr. and Mrs. Rolo pursuant to Fed.R.Civ.P. 21. In an opinion dated January 8, 1990, the court ruled only on defendants’ Rule 9(b) motion to dismiss, and agreed with defendants that plaintiffs’ complaint had failed to plead fraud with sufficient particularity. On January 19,1990, the District Court ordered plaintiffs to submit a second amended complaint within 120 days. However, plaintiffs did not file their second amended complaint in Rolo I because on April 6, 1990, GDC filed a Chapter 11 bankruptcy petition. The court entered an order administratively terminating that action on April 16, 1990. See Rolo v. General Dev. Corp., et al., 949 F.2d 695, 698 (3d Cir.1992) (wherein plaintiffs appealed the district court’s decisions to stay both their damage suit pending defendants’ bankruptcy and criminal proceedings and their application for a preliminary injunction). On November 8, 1990, plaintiffs filed a complaint in the present action (“Rolo II ”). While plaintiffs allege the same fraudulent marketing scheme and assert substantially the same causes of action as set forth in their prior suit, Rolo II is different from Rolo I in three respects. First, unlike Rolo I, Rolo II is styled as a class action on behalf of members of the Association, a group comprised of more than 4,000 individuals who purchased property from GDC and its agents. Second, since all actions against GDC are currently stayed because of the Chapter 11 bankruptcy proceedings, the Rolo II Amended Complaint does not name GDC or GDV as defendants. See In re General Dev. Corp., et al., 124 B.R. 376 (Bankr.S.D.Fla.) (the “GDC/GDV Bankruptcy Action”); see also 11 U.S.C. § 362; Am.Compl. at ¶ 37. Third, Rolo II names a number of new defendants. In 1990, GDC and GDV, along with four corporate officers, including GDC directors David F. Brown and Robert F. Ehrling, were indicted for criminal violations for many of the acts complained of in the Amended Complaint. Criminal proceedings against GDC and GDV culminated in a plea agreement which led to GDC pleading guilty to one count of conspiracy to commit mail fraud in return for the dismissal of the remaining counts against them. As part of the GDC plea agreement the court dismissed all counts of the indictment against GDV. See United States v. General Dev. Corp., et at, No. 90-0175 (M.D.Fla.) (the “GDC/GDV Criminal Action”). After a trial GDC’s four officers were convicted and sentenced. Appeals from the convictions are pending. While GDC and GDV are no longer defendants in the instant case, the Amended Complaint still names directors Brown and Ehrling as defendants. IV. THE PARTIES A. THE PLAINTIFFS Plaintiffs Jose and Rosa Rolo are residents of the State of New Jersey, and purchased Lot 26, Block 2297 at GDC’s North Port location from GDC by contract dated February 27, 1974. (Am.Compl. at ¶ 16.) Plaintiffs Dr. William and Roseanne Tenerelli are also residents of the State of New Jersey, and purchased a total of 12 lots and a house in various GDC developments from GDC and GDV between the years 1972 and 1978. (Id. at ¶ 17.) All prospective class action plaintiffs are members of the Association, and all have purchased one or more lots and/or one or more houses in one or more GDC developments. (Id. at ¶ 15.) B. THE DEFENDANTS There are 35 named defendants. Plaintiffs divide defendants into several groups “for purposes of description only, and in order to more easily understand the events” as set forth in their Amended Complaint. (Am. Compl. at p. 7.) Some defendants are listed in more than one group because, as plaintiffs claim, “various defendants have played multiple roles in the conspiracy.” Id.; see also id. at ¶¶ 18-69. The Amended Complaint classifies defendants in the following groups: City Defendants: City Investing Company Liquidating Trust (“City Trust”) AmBase Corporation (“AmBase”) The Home Insurance Company (“Home”) Carteret Bancorp, Inc. (“Carteret Bancorp”)} referred to collectively as “Carteret” Carteret Savings Bank, FA (“CSB”)} George Scharffenberger (“Scharffenberger”) Marshall Manley (“Manley”) Edwin Hatch (“Hatch”) Eben Pyne (“Pyne”) Inside Director Defendants: Scharffenberger Manley Hatch Pyne Director Defendants: David F. Brown (“Brown”) Robert F. Ehrling (“Ehrling”) Reubin O’D. Askew (“Askew”) Howard J. Clark, Jr. (“Clark”) Charles J. Simons (“Simons”) Peter R. Brinckerhoff (“Brinckerhoff’) Scharffenberger Manley Hatch Pyne Financing Defendants: Southeast Bank, NA (“S.E. Bank”) PaineWebber, Inc. (“PaineWebber”) Merrill Lynch, Pierce, Fenner & Smith, Inc. (“Merrill Lynch”) Prudential Insurance Company of America (“Prudential”) National Bank of Canada (“NBC”) Citicorp Real Estate, Inc. (“Citicorp”) First National Bank of Boston (“Boston”) Mortgagee Defendants: Federal National Mortgage Association (“Fannie Mae”) Federal Home Loan Mortgage Corporation (“Freddie Mac”) Chase Federal Bank, FSB (“Chase”) Citizens and Southern Trust Company (Florida), N.A. (“C & S Trust”) Secor Bank, FSB (“Secor”) S.E. Bank Home Carteret Prudential Lot Contract Defendants: Oxford First Corp. and Oxford Finance Companies, Inc. (collectively “Oxford”) Greyhound Financial Corporation (“Greyhound”) StanChart Business Credit, Inc. (“StanChart”) Lloyds Bank, PLC (“Lloyds”) Harbor Federal Savings and Loan Association (“Harbor”) Merrill Lynch NBC Citicorp Boston John Doe Defendants: Defendants 1-10 are persons and/or companies unknown to plaintiffs but who are believed to have joined or aided and abetted the conspiracy alleged in the Amended Complaint. Plaintiffs do not include defendants Cravath Swaine & Moore (“Cravath”) or David G. Ormsby (“Ormsby”) in any of these group classifications. Y. FACTUAL HISTORY The following is an overview of the facts as presented in the Amended Complaint, and is not intended to be comprehensive. Specific facts pertinent to allegations against particular defendants or groups of defendants will be set forth in the appropriate portion of the Discussion section below. A. THE GDC SCHEME According to plaintiffs, in or about 1957 GDC, together with “others,” formulated a plan and scheme to defraud lot and house purchasers. (Am.Compl. at ¶ 70.) In or about 1977 City Investing Company (“City”) adopted a corporate plan to purchase, subdivide, market and finance the sale of raw acreage in Florida. Pursuant to such plan City acquired an ownership interest in GDC and at all times thereafter GDC was under the control of City and the City Defendants. (Am.Compl. at ¶ 5.) Thus, all allegations against GDC. and GDV, its wholly owned mortgage subsidiary, are asserted against the City Defendants. GDC purchased large tracts of raw, undeveloped, almost worthless rural land totalling more than 1,000 square miles at various locations in Florida, (id. at ¶ 73.), platted and subdivided the tracts, and made extensive improvements to only a small core of the tract to produce a “model area.” (Id. at ¶ 72.) These model areas were used to persuade prospective purchasers that GDC had an existing intent to develop the rest of the tract similarly. (Id. at ¶ 74.) Moreover, GDC even provided skeletal improvements such as cutting canals and roads outside the model areas to portray the picture of a planned development and burgeoning community. (Id. at ¶¶ 72(a), 74.) Plaintiffs allege that the City Defendants and GDC had no present intent to develop the tracts beyond the “model area” because GDC typically had not acquired the requisite building and municipal permits, (id. at 76), and because GDC was operating at a loss due to the construction and maintenance costs of the “model areas.” (Id. at 75.) In exchange for the lot, each purchaser executed a contract/non-recourse note pursuant to which he or she was required to make monthly payments. (Id. at ¶ 109.) Plaintiffs allege that these contract/notes were securities within the meaning of the 1934 Act. (Id.) GDC would then package its homesite contract receivables into pools that it could sell to others, and obligated itself to replace defaulted contracts with performing contracts. (Id. at ¶ 111.) GDC and the Lot Contract Defendants did not acquire the contracts/notes in a normal commercial transaction whereby the income would be derived from the interest payments. (Id. at ¶ 113.) Instead, the recycling of lots as described below was relied on to generate a profit. (Id.) Similarly, plaintiffs claim that mortgages issued by house purchasers were also securities within the meaning of the 1934 Act. (Id. at ¶ 139.) 1. Targeting Prospective Lot Purchasers GDC identified prospective purchasers nationwide and in foreign countries, (id. at ¶ 72(b)), by telephone, mailings and media advertising'. (Id. at ¶ 81.) According to plaintiffs, GDC mostly preyed upon individuals who would be particularly vulnerable to its scheme, including those who spoke English only as a second language. (Id. at ¶ 80.) To persuade these individuals to buy, GDC resorted to high-pressure sales tactics and false sales presentations. (Id. at ¶ 72(c).) Prospective purchasers were invited to attend local standardized sales presentations which were frequently labeled “investment seminars.” (Id. at ¶82.) These presentations were usually held in hotel ballrooms where the prospective purchasers were treated to meals, liquor and prizes. (Id.) Seating was carefully arranged so that prospective purchasers were always accompanied by a GDC salesperson. (Id. at ¶83) GDC provided its salespeople with sophisticated sales training, (id. at ¶ 86), which even specified a salesperson’s body movements. (Id. at ¶ 87.) According to plaintiffs, GDC salespeople represented (a) that the “model area” exemplified the quality of the plans for development of the entire tract; (b) that GDC lots and houses enjoyed a steady and- continuous price appreciation; (c) that lots could be bought now and developed later; (d) that the purchaser could buy a lot with no personal liability and with no credit approvals; (e) that there was a significant resale market for GDC lots and houses; and (f) that the purchase of GDC lots or houses was an excellent investment. (Id. at ¶ 85.) Additionally, plaintiffs allege that GDC sales representatives concealed a whole host of facts, such as (a) GDC lot sales prices were entirely artificial and arbitrary and devoid of any relationship to their fair market value; (b) the lots could only be resold in the open market at a material discount of up to 80% of GDC’s artificially assigned price; (c) over 50% of lot purchasers never completed their payments and defaulted within the first two years, enabling GDC to cancel their contracts, retain all payments to date and to resell those lots time after time; (d) GDC did not intend to fully develop lots or the community outside the “model area” because of insufficient resources and/or the lack of necessary permits; (e) GDC had a consistent record of materially underestimating the lot improvement costs; and (f) the cost to improve a lot exceeded the lot’s sales price. (Id. at ¶ 87.) Most importantly, the prospective purchasers were unaware that each time the value of the lots and houses was referred to by GDC, the amount being quoted was really GDC’s arbitrarily assigned sales price and not the fair market value of the property. Beginning in 1985, and in order to give the impression that the “appreciation” was based on fair market value, GDC inflated and regularly increased the amount it collected from lot owners supposedly as property tax assessments when in fact the property taxes had not increased. (Id. at ¶ 161.) For example, GDC would collect $275 per year in “taxes” when the actual allotted tax was only $16. (Id. at ¶ 162.) If an owner defaulted, GDC simply kept all the “tax” money that had been paid. 2. House Sales Schemes Similar techniques were employed for house sales. GDC targeted almost exclusively lot owners in its efforts to sell houses. (Id. at ¶ 116.) When GDC believed that a lot owner was financially qualified to buy a GDC house, (id. at ¶ 121), GDC frequently sponsored promotional trips to Florida. (Id. at ¶ 119.) These trips were planned by GDC because it knew that most lot owners did not live in Florida and were not familiar with the area’s housing market. (Id. at ¶ 116.) While the prospective house purchasers were on these promotional trips, GDC carefully monitored their activities to prevent them from becoming aware of the true market value of houses in the contiguous geographic regions, even though GDC promoted these trips as an opportunity for a prospective purchaser to make an informed decision. (Id. at ¶ 122, 123.) GDC employed a group of hotels which would screen incoming telephone calls to these prospective house purchasers (to prevent independent realtors from speaking with the prospective purchasers), and would remove all newspapers and non-GDC advertising materials from the hotel. (Id. at ¶ 123.) GDC did not want it revealed that a comparable house in Florida was selling 50% to 75% below GDC’s selling price. (Id. at ¶ 126.) GDC promoted a “One-Stop Shopping” program, whereby GDV would provide the mortgage, Florida Home Finders, Inc. (“FHF”) (GDC’s rental agent subsidiary) would provide rental services and Community Title Agency (“CTA”) (a wholly owned subsidiary of GDC) would conduct all closings and title conveyances, eliminating the purchaser’s need to have his or her own attorney at the closing. (Id. at ¶¶ 123, 125, 127.) Prospective house purchasers were advised that if they did not obtain their mortgage from GDV, they would have to pay in cash. (Id. at ¶ 127(b).) If a prospective house purchaser attempted to secure independent financing, GDC denied independent appraisers access to the property, thus making independent mortgage financing almost impossible. (Id. at ¶ 127(d).) To “assist” prospective purchasers in obtaining mortgages, GDC prepared, executed and instructed house purchasers to execute a “vendor/purchaser” affidavit as required by Fannie Mae and Freddie Mac. (Id. at ¶ 137.) The affidavit falsely represented that the loan to value ratio of the mortgage was 75%, that the cash sum described in the purchase agreement as having been made by the purchaser was actually made, that the cash credit allowed for the purchaser’s equity and that “appreciation” in the lot was “cash equivalent.” (Id.) Plaintiffs allege that GDC concealed the following facts: its houses were substantially more expensive than comparable houses in the surrounding area; rental incomes were less than had been represented; no refinancing on similar terms was available from any independent mortgagees; the costs for mortgages available through GDV were higher than those available at other lending institutions; and appraisal methods which conflicted with generally accepted appraisal standards in the real estate industry were used by GDC to show falsely that the sales price equalled fair market value. (Id. at ¶ 138.) GDC also formulated other plans to further its efforts to sell houses. For example, GDC sponsored a “lot exchange” program which permitted a current GDC lot owner (who had not yet paid the full balance due on the lot) to acquire a new lot and house (a “package”) by giving him or her credit for both the money already paid toward the old lot and for a portion or all of any purported “appreciation” in the price of the old lot, as measured by GDC’s inflated sales price. (Id. at ¶ 133.) The leftover balance on the package’s price was to be paid by cash and a GDV mortgage. (Id.) The old lot was then placed into GDC’s inventory and resold. (Id.) Similarly, a “lot swap” program was available whereby GDC re-acquired the old lot when the balance had already been paid in full. (Id. at ¶ 134.) Like the “lot exchange” program, the purchaser got a credit equal to a portion or all of the original GDC sales price plus some part of the “appreciation” towards the purchase price of a package. (Id. at ¶ 134.) Again, the remainder of the balance was paid by cash and a GDV mortgage, and the old lot returned to GDC inventory for resale. (Id.) 3. Purchaser Defaults and GDC Recycling of Lots Since most of the lots were purchased primarily as investments, and most of the purchasers lacked the money to visit their lots, GDC anticipated that most of the prospective purchasers would never discover the fraud, that most of the loans would end in default, that GDC could then recycle the lot for resale at a higher price to another purchaser, and that this repeated recycling of lots would postpone the need to commence the improvement and development of the “communities” indefinitely. (Id. at ¶¶ 92-93, 95.) Lots were sold with 10}6- to 12)é-year payment schedules. (Id. at ¶ 88.) GDC typically retained title and possession of a lot unless the entire purchase price was paid or separate arrangements were made with the parties financing the lot contract receivables. (Id.) The average lot contract down payment was 8.4% and the balance bore interest at 4.9% to 9%, depending on the amount of the down payment. (Id.) To convince lot owners that their lots were increasing in value, GDC regularly announced publicly and via letters, brochures and appraisal cards, and at periodic status meetings, that lot prices had appreciated. (Id. at ¶¶ 100-101, 108.) For example, GDC suggested that a lot could be expected to lead to a 250% return on investment and that a purchase of a GDC lot was “an investment in an inflation proof growth.” (Id. at ¶ 104.) What GDC failed to reveal is that the quoted amounts were merely GDC’s sales prices which were arbitrarily set and not reflective of the fair market value, and that 50% of the purchasers defaulted on their payments within the first two years. (Id. at ¶ 102.) These practices led to an investigation of GDC by the Federal Trade Commission (the “FTC”) in the early 1980’s, which culminated in a 1982 consent decree (the “FTC Consent Decree”) in which GDC agreed to refrain from such practices. Pursuant to the FTC Consent Decree, GDC included disclaimer language in various written documents to lot purchasers — language which plaintiffs allege to be false. (Id. at 107.) According to plaintiffs, the disclaimer language was substantially as follows: The future value of land is very uncertain and dependent upon many factors. Do not expect all land to increase in value. ****** Resale of your lot may be difficult or impossible, since you may face the competition of our own sales program and local real estate brokers may not be interested in listing your lot. * * * ' * * * HOMESITES ARE BEING OFFERED BY GENERAL DEVELOPMENT FOR FUTURE USE IN BUILDING A HOME AND NOT AS A BUSINESS INVESTMENT. PROFIT ON A RESALE CANNOT BE GUARANTEED AND SHOULD NOT BE ASSUMED. ****** Homesite prices are based on the cost of doing business, the fact that the offering is for extended terms over a period of years, and other factors. Such prices may not necessarily reflect the level of market prices of similar property sold by others on different terms. * * * * * * THE PURCHASER SHOULD ASCERTAIN FOR HIMSELF THAT THE PROPERTY OFFERED MEETS HIS PERSONAL REQUIREMENTS AND EXPECTATIONS. MISUNDERSTANDINGS AS TO THE DESIRABILITY OF THE PROPERTY MAY ARISE WHEN THE PURCHASER FAILS TO UNDERSTAND THE NATURE OF THE PROPERTY OFFERED OR THE TERMS OF THE CONTRACT. DO NOT SIGN UNLESS YOU HAVE READ THE OFFERING STATEMENT ****** (Am.Compl. at ¶ 106) (citing GDC Florida Public Offering Statement (North Port) Rev. Nov. 21, 1986, at pp. 3, 8-9 (emphasis in original)). Plaintiffs contend that this disclaimer language is false primarily because GDC knew that the market and resale prices of GDC lots were materially lower than GDC sales prices and that the GDC sales prices were artificial and arbitrary. (Id. at ¶ 107.) GDC cancelled lot contracts which were in default for six months and retained the amount paid towards the purchase of the lot. (Id. at ¶ 89.) GDC expected to make money from defaults by lot purchasers by keeping the lots as well as all monies (including surplus “tax” charges) paid to date less commissions paid prior to the default, and ultimately reselling the lots to new purchasers at higher prices. (Id. at ¶ 95.) By not requiring the purchasers to be personally obligated on their GDV mortgage loan, GDC gambled that purchasers would discontinue their payments once they realized that the value of the lot was decreasing or worth less than they had paid. (Id. at ¶ 98.) When there were tens of thousands of lots offered for resale by defrauded lot purchasers, GDC entered into agreements appointing various undisclosed agents to repurchase the lots at an average of $2,500 each, plus commissions for the agents. (Id. at ¶ 114.) After acquiring the repurchased lots, GDC placed them into their inventory and resold the lots overseas to purchasers in Taiwan and Korea for $20,-000 each. (Id.) By recycling the lots in this manner, GDC postponed incurring improvement expenses. (Id. at ¶¶ 95, 114.) When potential plaintiffs attempted to organize to become more informed, GDC and its agents engaged in practices specifically designed to keep them from ascertaining the truth. (Id. at ¶ 158.) GDC directed lot and house owners’ complaints to its Housing Customer Service Office (“HCS”). HCS had a standardized response procedure to deal with complaints. (Id. at ¶ 146.) Wflien owners complained that other comparable GDC houses were being offered at higher prices or that non-GDC houses were being sold for less than GDC sales prices, HCS told them that the GDC prices were higher because a greater range of services had been provided. (Id. at ¶ 148.) HCS explained that any decline in value was due to a slump in the real estate market. (Id. at ¶ 147.) If house or lot purchasers were dissatisfied with these explanations, HCS offered them a small cash settlement with the understanding that the complaint and settlement would remain confidential. (Id. at ¶ 149.) If the purchaser persisted, then HCS simply increased the settlement amount. (Id.) B. THE ALLEGED PARTICIPANTS IN THE SCHEME 1. The City Defendants According to plaintiffs, Seharffenberger, City Investing Company (“City”) and City Trust, through the Inside Director Defendants, controlled the operations of the City Defendants in aid of extracting from GDC the proceeds obtained from the defrauded lot and house purchasers. This occurred after Fannie Mae discovered the fraud in 1985 and refused to purchase any additional GDV mortgages. This led to City’s attempt to disassociate itself from GDC by transferring itself into the liquidating trust — City Trust. (Id. at ¶ 241.) From 1977 to 1981, City was a majority shareholder of GDC, and treated Home’s 21% holding of GDC as its own. (Id. at ¶ 242.) From 1981 to 1985 City was the sole owner of GDC. (Id.) From its inception in 1985 to June 1986, City Trust was the record holder of 38% of the shares of GDC when it distributed those shares to holders of beneficial interests in City Trust, including Seharffenberger. (Id.) From 1977 to 1985 City was the sole owner of AmBase (then named The Home Group, Inc.), which in turn was the sole owner of Home. (Id. at ¶ 243.) From 1988 to the present, AmBase has been the sole owner of Carteret Bancorp, which is the sole owner of CSB. (Id.) As GDC, AmBase, Home and Carteret were acquired within the City network, they became part of one entity controlled by the Inside Director Defendants under the control of Scharffenberger. (Id. at ¶ 244.) Plaintiffs allege that the Inside Director Defendants dominated the City Defendants because of their positions during the time period relevant to the present action. (Id. at ¶ 245.) Specifically, they, along with the Director Defendants, constituted a majority on the Board of Directors of GDC from 1985 to 1990. (Id. at ¶249.) The following charts illustrate the positions held by the Inside Director Defendants and Director Defendants Brown and Ehrling in the various City-related companies: Seharffenberger Company Position Term City Trust Trustee 1985 — present City CEO 1966 — 5/85 Chairman of the Board 1974 — 9/85 AmBase President & CEO 3/90 — present Director 1975 — present Chairman of the Board 1984 — present Home Director 1969 — 1991 GDC Director 1977 — 3/90 Chairman of the Board 1977 — 9/85 Member of Personnel Committee 9/85 — 3/90 Manley Company Position Term City President & Director 3/85 — 9/85 CEO 5/85 — 9/85 AmBase President 3/85 — 3/90 Chief Operating Officer 9/85 — 12/86 CEO 12/86 — 3/90 Director 1985 — present Home Director & Chairman of Board 1985 — 1991 GDC Director & Chairman of Personnel Committee 1985 — 1990 Hatch Company Position Term City Director 1968 — 9/85 AmBase Director 1980 — 1991 Home Director 1962 — 1991 GDC Director, Chairman of Audit Committee, Member of Finance and Personnel Committees 9/85 — 3/90 Pyne Company Position Term City Trust Trustee 1985 — present City Director 1964 — 9/85 AmBase Director 1975 — present Home Director 1978 — 1991 GDC Director, Member of Personnel Committee 9/85 — 3/90 (Id. at ¶ 245.) The City Defendants appointed Brown and Ehrling to supervise the day-to-day operations of GDC, and they held various positions ■ there, as follows: Brown Company Position Term City V.P. and General Counsel 1972 — 1985 GDC V.P. and General Counsel 1977 — 1985 Director & Chairman of the Board 1985 — 1990 Ehrling Company Position Term GDC President 1980 — 1990 Director 1983 — 1990 (Id. at ¶ 246.) Seharffenberger and his agents and nominees controlled the GDC board of directors from 1977 until the criminal indictment in 1990, while Manley served as his personal attorney. (Id. at ¶ 247-48.) The Inside Director Defendants, Brown, Ehrling and later the other Director Defendants used GDC, GDV, AmBase, Home and Carteret to further the scheme. (Id. at ¶ 251.) For example, in or about 1973, they required Home to act as sales agent for GDC, and to offer GDC lots for sale to Home’s employees. (Id.) The Inside Director Defendants, the Director Defendants, City and City Trust forced GDC and GDV to do business with Carteret and Home without competitive bidding and required them to grant preferred terms on various business matters. (Id. at ¶252.) According to plaintiffs, City controlled GDC, GDV, AmBase, Home and Carteret within the meaning of the 1934 Act. (Id. at ¶ 253.) Because City Trust owned an interest in GDC, was the successor in interest to City and was directed by the Inside Director Defendants, City Trust also controlled the same companies within the meaning of the 1934 Act. (Id. at ¶¶ 254-55.) Plaintiffs allege that City and then City Trust controlled these companies under the principles of respondeat superior. (Id. at ¶ 256.) City operated as a holding company and its sole sources of revenue were dividends and payments it extracted from its subsidiaries under mandated tax sharing agreements. (Id. at ¶ 257.) From 1980 through 1983, the City Defendants required GDC to change its policy of recognizing revenue from lot sales on an installment basis to recognizing revenue for the full sales price at the time of sale, even though the sales price was payable over a ten-year period. (Id. at ¶ 258.) The advantage of using the installment method is that income is recognized over the life of the ten year pay-out permitting income recognition to match with cash flow. (Id.) Therefore, recognizing revenue without cash receipts for the full sales price at the time of sale forced GDC to pay income taxes on revenues it had not yet collected. (Id. at ¶ 259.) City, however, benefited from this income method because it created fictitious profits and retained earnings on GDC’s books, thereby allowing the City Defendants to continuously make upstream cash payments to City in the form of dividends. (Id.) Moreover, GDC’s higher reported earnings and profits were reported on City’s consolidated financial statements, thereby supporting City’s stock prices. (Id.) While City benefited from this accounting practice, GDC suffered. GDC lacked the cash to pay the taxes because, due to upfront sales expenses and commissions payments, GDC could not retain any monies earned from lot sales during at least the first year of payments. (Id.) In some instances when GDC did not have sufficient cash to pay the dividends to City, GDC had to borrow the money, which further aggravated its negative cash flow. (Id.) In 1985, City disclosed that under the tax sharing agreement, GDC was indebted to City in excess of $90 million. (Id. at ¶ 260.) This agreement provided that GDC was to pay City the amount of taxes GDC would have had to pay (at an effective rate of approximately 46%) if GDC had separately filed a federal income tax return — regardless of whether City ever had to pay that amount or at that rate. (Id. at ¶261.) Moreover, as GDC, City and the Inside Director Defendants knew, both GDC’s and City’s financial statements for the period 1980 to 1983 failed to disclose the change in treatment of GDC’s income, and in fact stated that the installment method was still in use. (Id.) As a member of the advisory board of Freddie Mac, Manley knew that GDC’s and GDVs methodology was .a departure from Fannie Mae and Freddie Mac market standards for purchasing of mortgages. (Id. at ¶ 265.) He knew that if Fannie Mae’s and Freddie Mae’s reasoning for refusing to pm-chase GDC’s and GDV’s mortgages was disclosed, GDC would be closed off completely from the secondary mortgage market. (Id.) Lastly, he was aware that such mortgages could be sold thereafter only if GDC and/or GDV also provided side guarantees and credit enhancements. (Id.) The City Defendants, including the Inside Director Defendants, knew that if the fraud was exposed they, along with GDC and GDV, would be subject to huge claims without funds to pay them. (Id. at ¶ 266.) The City Defendants learned no later than early 1985 that Fannie Mae refused to purchase GDC/GDV mortgages, (id. at ¶ 262), and consequently decided to separate themselves from GDC. (Id. at ¶ 267.) According to plaintiffs, the City Defendants, with the assistance of Cravath, conceived a plan to extract over $100 million from GDC and simultaneously appear to separate themselves from GDC, while still retaining control over GDC and ensuring concealment of their participation in the fraudulent scheme. (Id. at ¶ 268.) The City Defendants and Cravath arranged for City to sell 62% of GDC stock to the public and retain 38% in City Trust for later distribution. (Id.) Simultaneously, they required GDC to borrow in excess of $100 million and remit it to City as a dividend (the “City Dividend”). Not only was this a fraudulent conveyance, but it rendered GDC insolvent. (Id. at ¶¶ 268,273.) The City Defendants knew that in order to satisfy the increased debt caused by the payment of the City Dividend, lot and house sales would have to increase 62% and 31% respectively. (Id. at ¶ 279.) In addition, the Inside Director Defendants, City and City Trust had the GDC Certificate of Incorporation amended so as to assure themselves that even with a minority ownership and representation in GDC, they would continue to control GDC. (Id. at ¶269.) In order to create the semblance of sufficient capital concurrently with payment of the City Dividend, the City Defendants had City “contribute” to GDC’s capital account the $90 million GDC “debt” due City under the tax sharing agreement in order to dress the GDC balance sheet to show strength after payment of the dividend. (Id. at ¶ 271.) Thus, City donated to GDC the cancellation of GDC’s liability to City, which City itself had forced GDC to incur by the early recognition of revenue used to enable GDC to pay dividends to City in prior years. (Id.) City further required that GDC pay City, until City sold its holdings in GDC, monthly dividends in an amount up to 50% of GDC’s after-tax net income. (Id. at ¶272.) Plaintiffs allege that the City Defendants, GDC, the Director Defendants and Cravath knew that the City Dividend was a fraudulent conveyance and illegal, that the fair sale-able market value of GDC’s assets was less than the amount required to pay its existing debts and that the dividend caused GDC to have further debts it could not pay. (Id. at ¶281.) Moreover, plaintiffs claim that the dividend was paid without fair consideration and with little to no stated capital. (Id.) According to plaintiffs, the City Defendants, GDC, the Director Defendants and Cravath knew the City Dividend Prospectus contained misrepresentations. (Id. at ¶ 283.) The Prospectus claimed that Fannie Mae’s decision to cease purchasing GDC mortgages was due to a periodic change of purchase criteria — rather than admitting that the GDC’s non-conforming appraisal methods never met Fannie Mae’s standard. (Id. at ¶ 284(a).) The Prospectus failed to disclose that since it had not changed its non-conforming appraisal method, the company was forced to sell its mortgages only through fraudulent practices or be excluded from the secondary mortgage market altogether. (Id. at ¶ 284(b).) Similarly, the prospectus did not reveal the deceptive practices GDC used to lure prospective purchasers to buy lots and houses and to entice owners to “upgrade” to another lot or house, that 50% of purchasers defaulted within 2 years or that their lots were recycled. (Id. at ¶ 284(e).) Plaintiffs allege that the Inside Director Defendants, with the assistance of Cravath and Ormsby, caused GDC’s subsequent financial statements to be issued with materially false and misleading statements. (Id. at ¶¶285, 295.) GDC’s 1985, 1986 and 1987 Form 10-Ks failed to provide the information that also had been previously concealed in the City Dividend Prospectus. (Id. at ¶¶ 286-93.) According to plaintiffs, each of the City Defendants materially aided GDC’s fraud by allowing GDC to use its name in connection with sales presentations and documentations, thereby enhancing GDC’s reputation in the public eye. (Id. at ¶ 294.) When City sold GDC, City and the Inside Director Defendants earned almost $200 million — $100 million from the sale of 62% of GDC to the public (netting City $62 million and allowing City to place a value of $38 million on the GDC stock it retained for further distribution in 1986), plus $100 million from the City Dividend. (Id. at ¶ 296A.) At the same time, the Inside Director Defendants retained control of the GDC board pursuant to the Amended Certificate of Incorporation. According to plaintiffs, they continued to control and conceal the fraudulent scheme until GDC’s indictment in April 1990. (Id.) 2. The Inside Director Defendants and Director Defendants The Inside Director Defendants are also categorized by plaintiffs as City Defendants and Director Defendants. According to plaintiffs, each of the Inside Director Defendants is a “controlling person” within the meaning of the 1934 Act because of his position as an officer and/or director. (Id. at ¶ 319; see generally chart of inside directors and their positions, swpra pp. 23-24.) Each of the Director Defendants is also a “controlling person” of GDC within the meaning of the 1934 Act for the period from September 1985 to March 1990, (id. at ¶ 320), and each gained additional knowledge by serving as members on various GDC committees. (Id. at ¶ 331.) ' The Audit Committee included Hatch (Chairman), Askew, Clark and Simons, and its principal function was to advise the Board on internal and external audit matters including the recommending of appointments of independent auditors. (Id. at ¶ 331(a).) The committee also reviewed with these auditors the financial statements, investigations and surveys prepared by the auditors, and it reviewed reports of GDC’s Internal Audit Department. (Id.) The Finance Committee included Simons (Chairman), Brown, Brinckerhoff, Clark, Ehrling and Hatch. The Finance Committee’s principal purpose was to convene when it was impossible or inconvenient for the Board to meet. (Id at ¶ 331(b).) Under Delaware law, this committee was authorized to declare dividends and to authorize the issuance of stock. (Id) The Personnel Committee included Manley (Chairman), Clark, Hatch, Pyne, Scharffenberger and Simons. (Id. at ¶ 331(c).) The Personnel Committee reviewed GDC’s management resources, the executive officer selection, and development processes, as well as the salary and bonus levels for all the executive officers of GDC and its subsidiaries. (Id.) It also administered employee benefits and compensation plans. (Id.) As senior operating and executive officers of GDC, Brown and Ehrling had day-to-day responsibility for supervising the operations of GDC and its subsidiaries. (Id. at ¶ 322.) Plaintiffs allege that Brown and Ehrling took specific actions to further the GDC scheme which included (a) meeting with GDC’s and GDV’s appraisers to reassure them of the viability of GDC’s appraisal practices, (b) approving settlements with lot and house purchasers in order to fend off adverse publicity, (c) directing GDC salespersons to engage in fraudulent sales practices and (d) directing attempts to hide the scheme. (Id.) 3. The Financing Defendants S.E. Bank S.E. Bank, a federally chartered banking association with its principal place of business in Florida, (id. at ¶ 41), is also categorized by plaintiffs as a Mortgagee Defendant. Director Defendant Simons served as a director of both S.E. Bank and GDC at relevant times, and acquired or had a duty to acquire knowledge and understanding of GDC’s business, operations and plans, including knowledge of the GDC lot and house sales scheme. (Id. at ¶ 336.) According to plaintiffs, Simons’ knowledge of the GDC scheme is imputable to S.E. Bank as a matter of law. (Id.) Under an agreement with GDC and/or GDV, S.E. Bank “warehoused” newly originated GDV mortgages for up to 120 days prior to the pooling and sale of the mortgages. (Id. at ¶ 337.) This bridge financing was essential to GDC’s financial stability, as was known by S.E. Bank, because GDC and GDV could not afford to carry construction costs while holding these mortgages until they were pooled and sold. .(Id. at ¶ 338.) Plaintiffs contend that S.E. Bank also knew that these GDV mortgages exceeded the actual value of the houses themselves, that they were based on non-conforming appraisals, and that they could not be resold in the secondary mortgage market. (Id. at ¶ 339.) Additionally, in or about March 1988, S.E. Bank, acting as Trustee, issued $10,000,000 in Variable Rate Mortgage-Backed Pass-Through Certificates, Series 1988-1, (the “1988 S.E. Bank Certificates”), which were supported by the GDV mortgages and sold in a private placement. (Id.) As of November 30, 1990, these mortgages had an approximate aggregate principal balance of $8,800,-000. (Id.) Plaintiffs claim that S.E. Bank should have been alerted to the GDC house sales fraud when due diligence was performed during the private placement process, (id. at ¶ 216), and that S.E. Bank’s failure to require the full and accurate disclosure of material facts constituted a knowing concealment of and active participation in the scheme. (Id.) PaineWebber PaineWebber is a Delaware corporation, and is engaged in the investment banking business. (Id. at ¶ 42.) Director Defendant Brinekerhoff served as a managing director of PaineWebber and Merrill Lynch and as a director of GDC at relevant times, and acquired or had a duty to acquire knowledge and understanding of GDC’s business, operations and plans, including knowledge of the GDC lot and house sales scheme. (Id. at ¶ 348.) According to plaintiffs, Brincker- . hoffs knowledge of the GDC scheme is imputable to PaineWebber as a matter of law. (Id.) PaineWebber was the co-lead underwriter for the issuance of $125,000,000 of 12%% senior subordinated notes by GDC in a public offering (the “1988 PW/ML $125 Million Financing”) and was also the underwriter for the Adjustable Rate General Development Residential Mortgage Pass-Through Certificates, Senes 1989-A (the “1989 C & S/PW Public Issue Certificates”), and performed extensive due diligence investigations in connection therewith. (Id. at ¶¶ 42, 346). Plain- ' tiffs allege that in its due diligence investigations, PaineWebber acquired actual knowledge as to GDC’s lot and house sales scheme, and if it did not do so, such failure was a result of a reckless disregard for the truth. (Id. at ¶ 347.) Additionally, because PaineWebber and Merrill Lynch shared due diligence responsibilities in connection with the 1988 PW/ML $125 Million Financing, any knowledge acquired by Merrill Lynch regarding the GDC fraud would be imputed to PaineWebber as well, and vice versa. (Id.) Plaintiffs further allege that as co-underwriter and co-issuer of the Prospectus for the 1988 PW/ML $125 Million Financing, and underwriter and issuer of the Prospectus for the 1989 C & S/PW Public Issue Certificates, PaineWebber had an obligation to completely and truthfully disclose the material facts included therein, that it knowingly omitted from disclosure material facts regarding the GDC scheme, (id. at ¶ 350), and that by failing to disclose matters within its knowledge, PaineWebber knowingly enabled GDC to acquire additional financial resources for perpetuation of the scheme and/or aided and abetted the fraud. (Id. at ¶ 351.) Merrill Lynch Merrill Lynch is a Delaware Corporation, is engaged in the investment banking business, (id. at ¶ 43), and is also categorized by plaintiffs as a Lot Contract Defendant. Along with PaineWebber, Merrill Lynch was co-lead underwriter for the 1988 PW/ML $125 Million Financing through its Merrill Lynch Capital Markets Division. (Id.) Additionally, Merrill Lynch was the lead underwriter for the issuance of $175 million in 12% % subordinated debentures by GDC and ancillary transactions (the “1985 ML City Dividend Financing”) used primarily to finance the City Dividend. (Id.) As underwriter in these financings, Merrill Lynch had an obligation to completely and truthfully disclose the material facts included therein; yet it knowingly omitted from disclosure material facts regarding the GDC scheme, (id. at ¶355), and by failing to disclose matters within its knowledge, Merrill Lynch knowingly enabled GDC to acquire additional financial resources for perpetuation of the scheme and/or aided and abetted the fraud. (Id. at ¶ 356.) Prudential Prudential is a mutual insurance company incorporated in the State of New Jersey, (id. at ¶ 44), and is also categorized by plaintiffs as a Mortgagee Defendant. In 1972, Prudential and GDC entered into an agreement by which Prudential lent GDC $30,000,000 subject to certain conditions, including the retaining of control over the manner in which GDV conducted its mortgage operations and its permanent placement of mortgages with third parties (the “1972 Prudential Control Agreement”). (Id. at ¶44.) Additionally, in or about January 1988, Prudential invested $100 million in GDC pursuant to a note and stock purchase agreement whereby it lent $75,000,000 to GDC and received in return $75,000,000 of 12.75% debentures with warrants to purchase 500,000 shares of GDC common stock at $25 per share (the “1988 Prudential $100 Million Financing”). (Id.) Prudential also purchased $25,000,000 of GDC preferred stock, likewise convertible into GDC common stock, and purchased and/or financed GDV-originated mortgages on houses purchased by plaintiffs and others. (Id.) Plaintiffs allege that Prudential had actual knowledge of the GDC scheme no later than 1987, (id. at ¶ 358), and that it nonetheless proceeded with the 1988 Prudential $100 Million Financing, thus assisting GDC in the execution and perpetuation of the scheme. (Id. at ¶ 360.) NBC NBC is a Canadian banking corporation doing business in New York, (id. at ¶ 45), and is also categorized by plaintiffs as a Lot Contract Defendant. NBC issued letters of credit on behalf of GDC and/or GDV, and, as alleged by plaintiffs, for the benefit of Mortgagee Defendants, including Carteret and S.E. Bank. (Id. at ¶ 364.) These letters of credit, provided as additional security for the sale of mortgage pools, allegedly enabled GDV to continue its packaging and sale of mortgages. (Id.) Citicorp Citicorp is a New York corporation, (id. at ¶ 46), and is also categorized by plaintiffs as a Lot Contract Defendant. Citicorp participated in the issuance of an extension of credit to GDC and GDV by a consortium of banks (the “1985 Revolving Credit Agreement”), which included the extension of a sinking credit fund to GDC which enabled it to continue its operations. (Id. at ¶ 365.) Boston Boston is a federally chartered commercial bank, (id. at ¶ 47), and is also categorized by plaintiffs as a Lot Contract Defendant. Boston, along with defendant Citicorp, participated in the 1985 Revolving Credit Agreement. (Id. at ¶ 366.) 4. The Mortgagee Defendants Allegations as to all Mortgagee Defendants Since 1982 or earlier, GDV sold pools of mortgages on GDC houses to various lenders, including the Mortgagee Defendants. (Id. at ¶ 173.) First, GDV transferred the mortgages to S.E. Bank under a “warehousing” agreement whereby GDV could borrow up to $25,000,000 as “bridge financing” against the mortgages pledged as collateral; then, GDV had 120 days to permanently place the mortgage with a lender (including the Mortgagee Defendants) and pay off the bridge financing from the proceeds. (Id. at ¶ 174.) On a regular basis, mortgages held by S.E. Bank were packaged by GDV into “mortgage pools” for sale to various lenders (including the Mortgagee Defendants). (Id. at ¶ 175.) This practice of pooling the mortgages gave GDV ready access to large lump sums of cash without it having to wait for the monthly mortgage payments to be made. (Id.) The Mortgagee Defendants obtained additional protection on the mortgage pools by requiring GDC and/or GDV to: (i) repurchase mortgages in default or substitute therefor another mortgage not in default; (ii) guarantee to pay the monthly amounts due on non-performing mortgages, regardless of the amounts received and/or defenses raised (i.e. unconditionally); and (iii) establish letters of credit or deposit accounts for the benefit of the Mortgagee Defendants. (Id. at ¶ 184.) The Mortgagee Defendants made GDV their authorized agent and gave it a power of attorney to deal with the respective mortgagors. (Id. at ¶ 176.) GDV acted as the collecting and distributing agent for the Mortgagee Defendants and instituted foreclosure proceedings on their behalf. (Id.) According to plaintiffs, the fact that Fannie Mae and Freddie Mac refused to accept GDV originated mortgages (which is evidenced in GDC’s financial statements beginning in 1985) put the Mortgagee Defendants on notice that a fraud was being perpetrated by GDC and GDV. (Id. at ¶ 177.) In essence, the service the Mortgagee Defendants were providing was a secondary market for GDVs notes and mortgages. (Id. at ¶ 188.) Plaintiffs further allege that each time a Mortgagee Defendant purchased a mortgage pool it knew or recklessly disregarded knowledge that, inter alia, non-conforming appraisals were being used, innocent purchasers were being harmed and concealment allowed the GDC scheme to continue. (Id. at ¶ 178.) Fannie Mae Fannie Mae is the largest secondary mortgage purchaser in the United States. (Id. at ¶ 164.) Around 1985, Fannie Mae refused to purchase any more GDV mortgages because the appraisal values of the GDV homes were based solely on GDV properties and not on the comparable properties in the open market for that geographic region. (Id. at ¶ 165.) Fannie Mae found GDC’s practices to be contrary to Fannie Mae’s standards. (Id.) Among other findings, Fannie Mae found that GDC buyers would not be considered to be well informed of the competitive market and that any financing was on terms generally not available in the community to a typical buyer. (Id. at ¶ 165(b).) Fannie Mae discovered that the GDC sales price for lots averaged $2.00 per square foot compared to $.80 per square foot for similar houses. (Id. at ¶ 165(c).) Moreover, independent appraisers found that the sales prices of GDC houses were 58% to 74% above fair market value. (Id. at ¶ 165(d).) Fannie Mae knew that despite GDC’s representations to house purchasers to the contrary, there was in fact no noticeable appreciation of real estate prices in the local market. (Id. at ¶ 165(f).) In January 1985, rather than seeking rescission or retendering the mortgages to GDC or GDV, Fannie Mae decided to allow GDV to repurchase any mortgage in default and to guarantee GDV’s obligation to pay losses. (Id. at ¶ 194.) Fannie Mae agreed to accept mortgages still being processed by it but not yet rejected because “ ‘of the financial stress to GDV which could be caused by [Fannie Mae’s] not purchasing’ ” them. (Id. at ¶ 195) (citation omitted in original). In or about June 1989, Fannie Mae required further protection with respect to previously purchased GDV-originated mortgages by requiring the repurchase of any foreclosed mortgages up to 50% of the aggregate principal balance of the mortgage pool Fannie Mae had purchased, and a letter of credit for $5,100,000. (Id. at ¶ 198.) Fannie Mae and GDC conditioned the agreement on the fact that it remain confidential. (Id. at ¶ 199.) By remaining silent while knowing GDC and GDV continued to issue mortgages based on non-conforming real estate appraisals, Fannie Mae participated in the fraudulent scheme. (Id. at 197.) Freddie Mac Plaintiffs’ allegations against Freddie Mae closely resemble those against Fannie Mae. Plaintiffs allege that Freddie Mac knew that GDC’s mortgages were overvalued and based on non-conforming appraisals. (Id. at ¶ 203). Even though Freddie Mac had the right to require GDV to repurchase the mortgages, suspend GDV from further eligibility to sell mortgages under the Federal Home Loan Mortgage Act (“FHLMA”) and suspend GDV as a “seller/servicer” under FHLMA, it agreed not to strip GDV of its privilege to sell mortgages under FHLMA on the condition that GDV agree to repurchase any mortgage in default. (Id. at ¶ 204.) In addition, Freddie Mac required GDV to guarantee unconditionally the monthly payments due on the mortgages in the pool. (Id.) Plaintiffs allege that Freddie Mac’s concealment of GDC’s and GDV’s practices along with its failure to withdraw GDV as a recognized mortgage seller perpetuated the fraudulent lot and house sales scheme. (Id. at ¶¶ 205-06.) Plaintiffs also claim that Freddie Mac, a quasi-public organization chartered by Congress, violated a duty to disclose the scheme to the appropriate governmental and regulatory agencies. (Id. at ¶205.) Chase Federal Bank, FSB Chase is a federally chartered savings institution located in Florida which entered into agreements with GDC and/or GDV to purchase GDV mortgages in about December 1985. (Id. at ¶ 54.) As of November 30, 1990, these mortgages had an approximate aggregate principal balance of $35,000,000. (Id.) Plaintiffs claim that when Chase entered into agreements with GDC and/or GDV, Chase required that GDC and/or GDV (1) unconditionally guarantee monthly payments, (2) repurchase foreclosed mortgages up to a ceiling percentage, and (3) deposit $610,000 with Chase to support GDV’s obligations. (Id. at ¶214.) C & S Trust C & S Trust is a federally chartered trust company located in Florida which acted as trustee for the 1989 C & S/PW Public Issue Certificates, approximately $65,475,248 worth of which were sold by GDV through a public offering in 1989. (Id. at ¶ 56.) These Certificates were supported by GDV mortgages on GDC houses. (Id.) As of November 30, 1990, these mortgages had an approximate aggregate principal balance of $59,700,000. According to plaintiffs, C & S Trust confirmed its knowledge of GDV’s and GDC’s fraudulent scheme in the course of the due diligence required in connection with the public offering. (Id. at ¶207.) Plaintiffs claim that C & S Trust’s failure as a fiduciary to require full and accurate disclosure of material facts constituted a knowing concealment of and active participation in the scheme. (Id.) Instead of refusing to act as trustee, C & S Trust required GDC and/or GDV to (1) unconditionally guarantee to make the monthly payments due on the mortgages; (2) repurchase defaulted mortgages up to a maximum dollar amount; (3) issue a letter of credit for $21.8 million for the benefit of C & S Trust and Certificate holders; and (4) obtain an insurance policy to guarantee monthly payments. (Id. at ¶ 208.) Secor Secor, a federally chartered savings institution, entered into agreements with GDC and/or GDV to purchase GDV mortgages beginning in or about December 1985. (Id. at ¶ 57.) As of November 30, 1990, these mortgages had an approximate aggregate principal balance of $3,300,000. (Id.) Plaintiffs allege that when Secor entered into agreements with GDC and/or GDV, Secor required that GDC and/or GDV (1) unconditionally guarantee monthly payments and (2) repurchase all foreclosed mortgages. (Id. at ¶ 215.) S.E. Bank Plaintiffs claim that as a condition of holding GDV mortgages as trustee in connection with the 1988 S.E. Bank Private Placement Certificates, S.E. Bank required that GDC and/or GDV (a) unconditionally guarantee to make the monthly payments due on the mortgages supporting the Certificates; (b) fund losses on foreclosed properties up to 24% of the aggregate principal balance of its mortgage pools; and (c) obtain letters of credit for the benefit of S.E. Bank and holders of the Certificates. (Id. at ¶217.) Home Home is a New Hampshire corporation and is a wholly owned subsidiary of AmBase. (Id. at ¶ 20.) Home is also categorized by plaintiffs as a City Defendant. Commencing in 1986, Home purchased mortgage pools from GDV with full knowledge of the fraudulent lot and house sales scheme. (Id. at ¶ 209.) According to plaintiffs, Home would accept refinanced mortgages based on nonconforming appraisals, whereas independent lenders would not. (Id. at ¶ 210.) Mortgagee Defendants that accepted such refinanced mortgages often granted preferred terms such as lower interest rates to further induce the house purchaser to refrain from seeking independent financing and from disclosing the fraudulent practices to the public. (Id.) The City Defendants required, as to Home’s mortgage pools, that GDC and/or GDV (a) repurchase foreclosed mortgages or substitute them with non-defaulting mortgages and (b) unconditionally guarantee to make the monthly payments due on the mortgages. (Id. at ¶ 211.) Carteret Plaintiffs refer to Carteret Bancorp, Inc. (“Carteret Bancorp”) and Carteret Savings Bank, FA (“CSB”) collectively as “Carteret.” (Id. at ¶23.) Both Carteret Bancorp and CSB are also categorized by plaintiffs as City Defendants. CSB became a wholly owned subsidiary of Carteret Bancorp in or about 1988. (Id. at ¶ 22.) CSB conducted its mortgage operations through Carteret Mortgage Company, a division of CSB. (Id. at ¶23.) Plaintiffs allege that Carteret purchased mortgage pools in the fashion generally described above, and that as a result, Carteret knew of the fraud and forestalled its discovery. (Id. at ¶ 212.) After Carteret Bancorp became a wholly owned subsidiary of Am-Base in 1988, (id. at ¶ 22), Carteret continued to purchase mortgage pools under the condition that GDC and/or GDV: (a) unconditionally make the monthly payments due on the mortgages; (b) repurchase certain foreclosed mortgages, up to a ceiling percentage; (c) deposit $140,000 with Carteret to sup