Full opinion text
BLACK, Circuit Judge: This case comes to us as an appeal from the dismissal of appellant L. Alan Jacoby’s putative class action lawsuit. In his Second Amended Complaint, Jacoby alleged RelationServe Media, Inc. and eleven of its directors and employees violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by failing to disclose, before the company went public, that $2,000,000 in stock had been privately offered for sale by unregistered brokers in ten different states. In the district court, Jacoby joined co-plaintiff Richard Thompson, who had previously initiated this action. Thompson represented a subclass seeking recovery premised on state law claims in the Second Amended Complaint. After twice allowing the plaintiffs to amend their complaint, the district court dismissed with prejudice Jacoby’s § 10(b) and § 20(a) claims pursuant to Fed. R.Civ.P. 12(b)(6). The district court found the allegations of the Second Amended Complaint failed to satisfy the heightened pleading requirements of the Private Securities Litigation Reform Act (PSLRA) and Rule 9(b) of the Federal Rules of Civil Procedure. The court then dismissed Thompson’s state law claims without prejudice after concluding it no longer had supplemental jurisdiction over those claims. In separate orders, on three different occasions, the district court denied defendant Danielle Karp’s motions for attorneys’ fees and Rule 11 sanctions. Jacoby appeals the dismissal of his federal securities-law putative class action. Additionally, Karp cross-appeals the denial of her request for Rule 11 sanctions and attorneys’ fees. Because we conclude the Second Amended Complaint fails to satisfy the standard for pleading scienter, we affirm the district court’s dismissal of Jacoby’s § 10(b) and § 20(a) claims. With regard to sanctions, we remand to the district court to make findings in accordance with the PSLRA. I. FACTUAL ALLEGATIONS On May 24, 2005, RelationServe entered into an Independent Consulting Agreement with Summit Financial Partners, LLC (Summit). Under the agreement, Summit sold shares of RelationServe through a private offering to investors in exchange for 1,050,000 shares of stock and a 7% seller’s fee. On June 14, 2005, RelationServe filed a Form 10-QSB quarterly statement, its first Securities and Exchange Commission (SEC) filing, indicating Chubasco Resources Corporation (Chubasco) had completed a reverse acquisition of RelationServe. RelationServe Media Inc. Quarterly ReporNSmall Business (Form 10-QSB), at 5 (June 14, 2005). On June 16, 2005, RelationServe filed a Form 8-K and disclosed, for the first time, the Independent Consulting Agreement with Summit. RelationServe Media Inc., Current Report (Form 8-K), at 29 (June 16, 2005). On June 28, 2005, twelve days after RelationServe disclosed its relationship with Summit, Richard F. Thompson, an Indiana resident, purchased 50,000 shares at $2.00 per share. Tony Altavilla, a Summit employee, had advised Thompson about the private offering and helped facilitate Thompson’s purchase of the shares. On June 30, 2005, Relation-Serve became a publicly-traded company and reported to the SEC it had received $2,000,000 in subscriptions through a private offering. That same day, Relation-Serve listed its non-restricted shares on the Over the Counter Bulletin Board. On July 22, July 26, and August 12, 2005, L. Alan Jacoby purchased a total of 10,-000 shares of RelationServe on the open market. On March 3, 2006, Thompson filed a lawsuit in Indiana state court against RelationServe and several of the defendants named in this federal action. Unrelated to this litigation, RelationServe filed a registration statement with the SEC on March 20, 2006. This statement did not mention the Thompson litigation. On May 1, 2006, RelationServe amended the registration statement to provide the public with notice of the lawsuit, and indicated it believed the suit lacked merit. In response to an inquiry from the SEC requesting more details about the lawsuit, RelationServe updated its filings on May 23, 2006. On May 23, 2006, RelationServe stock was valued at $1.35 per share. Three weeks later, on June 15, 2006, the stock was valued at $0.63 per share. Jacoby attributes this decline in value to the public disclosure of Thompson’s lawsuit. II. PROCEEDINGS IN THE DISTRICT COURT On August 28, 2006, Thompson initiated this action by filing a class action in the United States District Court for the Southern District of Florida. RelationServe and the other defendants moved to dismiss the complaint; the district court then denied these motions and ordered that Thompson file an amended complaint. On November 13, 2006, Thompson filed the First Amended Complaint, which added Jacoby as a co-plaintiff. The defendants again moved to dismiss, and on March 6, 2007, the district court dismissed the amended complaint without prejudice. On March 19, 2007, Thompson and Jacoby filed the Second Amended Complaint, raising claims for two putative classes: one, led by Thompson, which included all purchasers of securities through unregistered broker/dealers of RelationServe, and another, led by Jacoby, which included all purchasers who bought RelationServe stock on the open market prior to May 23, 2006. Defendants then moved to dismiss the Second Amended Complaint for failure to state a claim, and this time the district court granted the motion with prejudice, concluding Jacoby had failed to state a claim for a violation of either § 10(b) or § 20(a) of the Securities Act. The district court also dismissed without prejudice Thompson’s state law claims for lack of subject matter jurisdiction. Once before and twice after the district court dismissed the Second Amended Complaint, defendant Karp moved for Rule 11 sanctions and attorneys’ fees, contending the claims against her were frivolous and demonstrated an utter lack of legal or factual investigation. The district court denied the motions in three separate orders. This appeal and cross-appeal ensued. III. DISCUSSION Our discussion is divided into three parts. First, we address whether the Second Amended Complaint satisfies the standard for pleading scienter. Second, we address whether the Second Amended Complaint states a claim of secondary liability under § 20(a). Third, we address the district court’s refusal to impose Rule 11 sanctions and award attorneys’ fees. A. Scienter Pleading Requirements We review the grant of a motion to dismiss for failure to state a claim under Fed.R.Civ.P. 12(b)(6) de novo. Fin. Sec. Assurance, Inc. v. Stephens, Inc., 500 F.3d 1276,1282 (11th Cir.2007). In Count I, Jacoby asserted a violation of § 10(b) of the Securities Act and SEC Rule 10b-5. Section 10(b) of the Securities Act makes it unlawful to “use or employ, in connection with the ... sale of any security ... any manipulative or deceptive device or contrivance.” 15 U.S.C. § 78j(b). Pursuant to § 10(b), the SEC promulgated Rule 10b-5, which makes it unlawful, among other things, “to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.” 17 C.F.R. § 240.10b-5'(b). To state a claim for a violation of § 10(b), a plaintiff must allege: (1) the existence of a material misrepresentation (or omission), (2) made with scienter (i.e., “a wrongful state of mind”), (3) in connection with the purchase or sale of any security, (4) on which the plaintiff relied, and (5) which was causally connected to (6) the plaintiffs economic loss. Dura Pharm. Inc. v. Broudo, 544 U.S. 336, 341-42, 125 S.Ct. 1627, 1631, 161 L.Ed.2d 577 (2005); see also Bryant v. Avado Brands, Inc., 187 F.3d 1271, 1281 (11th Cir.1999) (elaborating on the scienter requirement). Because Rule 10b-5 sounds in fraud, the plaintiff must plead the elements of its violation with particularity. See Mizzaro v. Home Depot, Inc., 544 F.3d 1230, 1237 (11th Cir.2008) (stating Rule 9(b) requires securities fraud complaints “to state with particularity the circumstances constituting fraud”). When a § 10(b) claim is brought by a private litigant, it is subject to the PSLRA, under which a plaintiff must “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.” 15 U.S.C. § 78u-4(b)(2). In this context, a “strong inference” of scienter is one that is “more than merely plausible or reasonable — it must be cogent and at least as compelling as any opposing inference of nonfraudulent intent.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 314, 127 S.Ct. 2499, 2504-05, 168 L.Ed.2d 179 (2007). Three guidelines govern our review: courts must (1) “accept all factual allegations in the complaint as true,” (2) “consider the complaint in its entirety” and determine “whether all of the facts alleged, taken collectively, give rise to a strong inference of scienter,” and (3) “take into account plausible opposing inferences.” Tellabs, 551 U.S. at 322-23, 127 S.Ct. at 2509; see also Rosenberg v. Gould, 554 F.3d 962, 965 (11th Cir.2009). Moreover, “scienter must be found with respect to each defendant and with respect to each alleged violation of the statute.” Phillips v. Scientific-Atlanta, Inc., 374 F.3d 1015, 1017-18 (11th Cir.2004). Although the PSLRA imposes a heightened standard for pleading scienter, it does not alter the substantive intent requirements necessary to establish a § 10(b) and Rule 10b-5 violation. Mizzaro, 544 F.3d at 1238. In this Circuit, § 10(b) and Rule 10b-5 require a showing of either an “intent to deceive, manipulate, or defraud,” or “severe recklessness.” Id. (quoting Bryant, 187 F.3d at 1282). An allegation of “severe recklessness” must satisfy a demanding standard: Severe recklessness is limited to those highly unreasonable omissions or misrepresentations that involve not merely simple or even inexcusable negligence, but an extreme departure from the standards of ordinary care, and that present a danger of misleading buyers or sellers which is either known to the defendant or so obvious that the defendant must have been aware of it. Bryant, 187 F.3d at 1282 n. 18. Accordingly, to survive a motion to dismiss, Jacoby “must (in addition to pleading all of the other elements of a § 10(b) claim) plead ‘with particularity facts giving rise to a strong inference’ that the defendants either intended to defraud investors or were severely reckless when they made the allegedly materially false or incomplete statements.” Mizzaro, 544 F.3d at 1238. The Second Amended Complaint alleges RelationServe did not disclose a broker was involved in the securities sale to hide the fact that RelationServe sold securities through unregistered brokers. Further, the Second Amended Complaint asserts this act of hiding RelationServe’s use of a broker “could not have been perpetrated over a substantial period of time ... without the knowledge and complicity of the ... individual Defendants.” Viewed holistically, the Second Amended Complaint alleges the following facts as supporting a reasonable inference of scienter: (1) ten of the individual defendants “signed [or authorized] one or more certification[s] pursuant to the Sarbanes-Oxley Act that impermissibly omitted material facts;” (2) each individual defendant held a management position at RelationServe; (3) each individual defendant was “involved in the drafting, producing, reviewing, and/or dissemination of misleading statements and [was] aware [of] — or recklessly disregarded — the fact that misleading statements were being issued and approved or ratified these statements;” (4) each individual defendant, “by virtue of [his or her] receipt of information ..., control over or receipt of RelationServe[’s] materially misleading statements and/or [his or her] associations with RelationServe ... [was an] active and culpable participant ];” (5) several individual defendants signed SEC forms “that failed to indicate Relation-Serve had contracted with Summit;” and (6) there were “accounting irregularities” in RelationServe’s financial statements. These conclusory allegations are insufficient to establish a “strong inference that the defendants acted with the required state of mind.” See Tellabs, 551 U.S. at 314, 127 S.Ct. at 2504. The inference that the individual defendants purposely failed to disclose the use of unregistered brokers to mislead the public regarding the company’s worth is not' as compelling as the competing inference that the defendants did not disclose its use of unregistered brokers because the brokers were exempt from registration. Without an allegation that any of the named defendants knew the Summit employees (1) were not registered brokers and (2) were required to be registered brokers, we cannot conclude the inference of nefarious wrongdoing is “at least as compelling as any opposing inference of nonfraudulent intent.” See id. Even if the Second Amended Complaint alleged the sales were not exempt transactions, it would still not be a “cogent” possibility that the defendants failed to disclose the use of unregistered brokers for the purpose of misleading the public. The Second Amended Complaint does not allege facts tending to show that any of the individual defendants were even aware of RelationServe’s relationship with Summit. This is particularly so with respect to defendants Soltoff, Obeck, and Gould — who, according to the Second Amended Complaint, were not employed by Relation-Serve until after the events relied on by plaintiffs occurred — and with respect to defendant Young — who, according to the Second Amended Complaint, was not employed by RelationServe. Simply put, the allegations in the Second Amended Complaint are insufficient to create a “strong inference” of scienter. Accordingly, the district court did not err by dismissing Jacoby’s § 10(b) and Rule 10b-5 claims against the individual defendants under the heightened pleading standards imposed by the PSLRA. Although the Second Amended Complaint failed to adequately plead scienter for any of the individual defendants, theoretically, the Second Amended Complaint could create a strong inference that the corporate defendant, RelationServe, acted with the requisite state of mind. Mizzaro, 544 F.3d at 1254. Corporations have no state of mind of their own; rather, the scienter of their agents must be imputed to them. Id. Here, the Second Amended Complaint fails to sufficiently plead scienter as to any of the individuals who served as corporate directors or officers of RelationServe, and there are no other allegations that give rise to an inference of scienter. Thus, we affirm the district court’s dismissal of Count I for failure to state a cause of action under § 10(b) and Rule 10b-5 of the Securities Exchange Act. B. Secondary Liability Under Section 20(a) In Count II, Jacoby asserted a violation of § 20(a) of the Securities Exchange Act. Section 20(a) provides: Every person who, directly or indirectly, controls any person liable under any provision of this chapter or of any rule or regulation thereunder shall also be liable jointly and severally with and to the same extent as such controlled person to any person to whom such controlled person is liable, unless the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action. 15 U.S.C. § 78t(a). Section 20(a) is not a freestanding claim but rather a means of imposing liability “not only on the person who actually commits a securities law violation, but also on an entity or individual that controls the violator.” Laperriere v. Vesta Ins. Group, Inc., 526 F.3d 715, 721 (11th Cir.2008). Because a primary violation of the securities law is an essential element of a § 20(a) derivative claim, a plaintiff who pleads a § 20(a) claim can withstand a motion to dismiss only if the primary violation is pleaded with legal sufficiency. Garfield v. NDC Health Corp., 466 F.3d 1255, 1261 (11th Cir.2006). As the Second Amended Complaint failed to allege primary liability under § 10(b), there can be no secondary liability under § 20(a). Thus, we affirm the district court’s dismissal of Count II for failure to state a cause of action under § 20(a) of the Securities Exchange Act. C. Rule 11(b) Sanctions We review the denial of sanctions under Federal Rule of Civil Procedure 11 for abuse of discretion. BankAtlantic v. Blythe Eastman Paine Webber, Inc., 955 F.2d 1467, 1478 (11th Cir.1992). A district court’s denial of sanctions under the PSLRA is reviewed under the same standard. See Morris v. Wachovia Sec., Inc., 448 F.3d 268, 277 (4th Cir.2006) (noting review of “all aspects” of a district court’s Rule 11 determination is for abuse of discretion, and “[n]othing in the Reform Act’s sanctions provision changes this standard of review”); Hartmarx Corp. v. Abboud, 326 F.3d 862, 866-67 (7th Cir.2003) (reviewing the district court’s imposition of sanctions under the PSLRA for abuse of discretion); Gurary v. Nur-Tech Bio-Med, Inc., 303 F.3d 212, 219 (2d Cir.2002) (same). Congress passed the PSLRA in 1995, “motivated in large part by a perceived need to deter strike suits by opportunistic private plaintiffs that filed securities fraud claims of dubious merit in order to exact large settlement recoveries.” Laperriere, 526 F.3d at 719 (quoting Novak v. Kasaks, 216 F.3d 300, 306 (2d Cir.2000)). Through the PSLRA, Congress hoped to put an end to “the abuse of the discovery process to impose costs so burdensome that it is often economical for the victimized party to settle.” Id. In addition to raising the standard for pleading scienter, the PSLRA “mandate[s] imposition of sanctions for frivolous litigation.” Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit, 547 U.S. 71, 81, 126 S.Ct. 1503, 1511, 164 L.Ed.2d 179 (2006). The PSLRA provides: In any private action arising under this chapter, upon final adjudication of the action, the court shall include in the record specific findings regarding compliance by each party and each attorney representing any party with each requirement of Rule 11(b) of the Federal Rules of Civil Procedure as to any complaint, responsive pleading, or dispositive motion. 15 U.S.C. § 78u-4(c)(l) (emphasis added). If the court finds a party or attorney violated any requirement of Rule 11(b), the court “shall” impose sanctions in accordance with Rule 11. 15 U.S.C. § 78u-4(c)(3). If a complaint substantially fails to comply with Rule 11(b), the presumptive sanction is attorneys’ fees and expenses. 15 U.S.C. § 78u-4(c)(2). Accordingly, the PSLRA’s provisions eliminate a district court’s discretion on two fronts: (1) in choosing whether to conduct the Rule 11(b) inquiry and (2) in determining whether to impose sanctions following a finding of a Rule 11(b) violation. See Morris, 448 F.3d at 276 (“Because the sanctions instruction comes in terms of the mandatory ‘shall,’ which normally creates an obligation impervious to judicial discretion, the district court must impose sanctions for each violation found.” (internal citation and quotation marks omitted)); Simon DeBartolo Group, L.P. v. The Richard E. Jacobs Group, Inc., 186 F.3d 157, 167 (2d Cir.1999) (noting the PSLRA circumscribes a district court’s discretion “in choosing whether to conduct the Rule 11 inquiry at all and whether and how to sanction a party once a violation is found”). Although the PSLRA alters the consequences of a Rule 11(b) violation in a private securities fraud action, the substantive analysis under Rule 11 remains the same. See 15 U.S.C. § 78u-4(c); see also Citibank Global Mkts., Inc. v. Santana, 573 F.3d 17, 32 (1st Cir.2009) (noting the PSLRA “does not alter the standards used to judge compliance with Rule 11”); Morris, 448 F.3d at 276 (“[F]or private securities fraud suits Congress altered the consequences of a Rule 11(b) violation but did not rewrite the conventional standards for evaluating Rule 11(b) compliance.”); Simon DeBartolo Group, L.P., 186 F.3d at 167 (“The PSLRA does not in any way purport to alter the substantive standards for finding a violation of Rule 11....”). Moreover, nothing in the PSLRA changes our abuse of discretion standard of review of the district court’s Rule 11(b) findings. This position is supported by the reasoning in Cooter & Gell v. Hartmarx Corp., 496 U.S. 384, 110 S.Ct. 2447, 110 L.Ed.2d 359 (1990), in which the Supreme Court held an abuse-of-diseretion standard applies “in reviewing all aspects of a district court’s Rule 11 determination,” including the legal aspects. Id. at 405, 110 S.Ct. at 2461. The Cooter & Gell Court noted “[l]egal issues are raised in considering whether a pleading is “warranted by existing law or a good faith argument’ for changing the law and whether the attorney’s conduct violated Rule 11.” Id. at 399, 110 S.Ct. at 2457. It then explained even purely legal issues in the Rule 11 context require a district court “to consider issues rooted in factual determinations.” Id. at 401, 110 S.Ct. at 2459. In this regard, “the district court is better situated than the court of appeals to marshal the pertinent facts and apply the fact-dependent legal standard mandated by Rule 11.” Id. at 402, 110 S.Ct. at 2459. In this case, however, the district court’s eonclusory Rule 11 analysis is not sufficient to permit meaningful appellate review. Although the district court explicitly denied Karp’s motion for sanctions, its one paragraph order provides no explanation of the basis for its ruling and does not include the specific findings the PSLRA requires. Specifically, the district court’s order does not discuss “compliance by each party and each attorney representing any party with each requirement of Rule 11(b) of the Federal Rules of Civil Procedure as to any complaint, responsive pleading, or dispositive motion.” 15 U.S.C. § 78u-4(c)(l). In fact, nowhere in the June 12, 2007, order did the district court even mention the PSLRA or any of its requirements. As a result, we remand the case to the district court to permit it to make the PSLRA-mandated findings in the first instance. This approach is consistent with the procedure we use when a district court fails to make the PSLRA sanctions findings altogether. See Ehlert v. Singer, 245 F.3d 1313, 1320-21 (11th Cir.2001) (remanding for compliance with the PSLRA where the district court made no Rule 11 findings). It may be tempting to engage in sanctions determinations ourselves, given the apparent frivolity of the plaintiffs’ claims. In fact, the extensive record on appeal may actually make such determinations possible. But, even assuming we have the ability to conduct a thorough Rule 11 analysis, doing so in this case would be ill-advised. Remand is the better route. First, as is almost always the case, the district court is “better situated” than this Court “to marshal the pertinent facts and apply the fact-dependent legal standard mandated by Rule 11.” See Cooter & Gell, 496 U.S. at 402, 110 S.Ct. at 2459. Given the district court’s familiarity with the case and the parties, the district court is in a better position “to make these determinations in the first instance, explicitly and on the record.” See Sprint/United Mgmt. Co. v. Mendelsohn, 552 U.S. 379, 387, 128 S.Ct. 1140, 1146, 170 L.Ed.2d 1 (2008). Moreover, our analysis of the sanctions issue would likely further develop the record by, for example, expounding upon the relevant SEC filings or drawing inferences from undisputed facts. Consequently, if we elect to make such sanctions findings at the appellate level, the parties would necessarily be less involved in the process and would be unable to object if and when appropriate. Further, our decision to remand recognizes that when the district court engaged in its sanctions analysis in 2007 our Circuit had not yet explicitly addressed the level of specificity required by the PSLRA. To be sure, the PSLRA, by its own terms, clearly requires findings as to each claim, each party, and each attorney, such that the district court’s perfunctory analysis was insufficient even without clear precedent from this Court. It is not until this case, however, that we emphasize just how extensive the district court’s sanctions findings must be in the PSLRA context. Thus, in light of our reiteration and accentuation of the PSLRA’s requirements, it is appropriate to permit the district court to engage in a PSLRA-compliant sanctions analysis prior to appellate review. Additionally, we recognize the practical reality that this appeal arises from complex factual circumstances that have not been organized in such a manner to facilitate efficient sanctions review. As a result, prior to engaging in a Rule 11(b) analysis, we would first have to unravel the dense record and examine it in a way that no other issue in this case requires us to do. This task would require us to obtain a level of familiarity with the parties and the evidence that the district court already has; as a result, we would end up replicating much of the work that the district court has already completed. This is not a wise use of judicial resources. The better solution, from a practical standpoint, is for us to carefully and promptly decide the issues on appeal, and then to remand to the district court to address any outstanding fact-finding tasks. Expeditiousness is every bit as important to a well-functioning judiciary as is thoroughness. Finally, even if we were to engage in a full PSLRA sanctions analysis, it would still be necessary to remand to the district court to determine a number of outstanding issues. For instance, we would be unable to determine whether either Thompson or Jacoby himself (as distinct from their lawyers) violated Rule 11 (the record is silent on this point), whether the lawyers violated Rule 11(b)(1) by filing the complaints for improper purposes (a subjective analysis that will likely require testimony), or whether the plaintiffs can rebut the PSLRA’s presumptive award of attorneys’ fees. These issues require the kind of record development in which appellate courts cannot engage. As a result, even if we did expend the enormous judicial resources necessary to parse through the record in the first instance, the district court would still have to reexamine and further develop the record to address these outstanding issues. Such a process would introduce even more inevitable duplication of effort and would result in further depletion of limited judicial resources. Accordingly, even if we could in some cases engage in a PSLRA sanctions analysis ourselves, we decline to do so in this case. Careful examination of the relevant considerations counsels against such a use of judicial resources. IV. CONCLUSION With respect to Jacoby’s appeal, we AFFIRM the district court’s dismissal of Counts I and II of the Second Amended Complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. With respect to Karp’s cross-appeal, the district court’s order entered June 12, 2007, is VACATED and REMANDED for further proceedings consistent with this opinion. TJOFLAT, Circuit Judge, concurring in the appeal, No. 07-13225, and dissenting in the cross-appeal, No. 07-13477: In the appeal, I concur in the court’s judgment affirming the district court’s dismissal of the second amended complaint. I dissent from the court’s decision in the cross-appeal, vacating in full the district court’s decision denying Private Securities Litigation Reform Act (“PSLRA”) sanctions, and remanding the sanctions issues to the district court for reconsideration ab initio. I would reverse the sanctions decision and remand the case with the instruction that the district court sanction plaintiffs’ counsel for prosecuting the federal securities law claims in the three complaints they presented to the district court — the initial, first, and second amended complaints — because, in presenting those claims, counsel violated Federal Rule of Civil Procedure 11(b)(2) as a matter of law. They also violated Rule 11(b)(3) with respect to some of these claims because the claims lacked an evidentiary foundation. In remanding the matter of sanctions to the district court, I would instruct the court to hear from counsel for the parties on the questions of (1) whether the remaining claims lacked the evidentiary support required by Rule 11(b)(3), and (2) whether plaintiffs’ counsel brought any of the claims for an improper purpose in violation of Rule 11(b)(1). The court is faced with two options in disposing of the cross-appeal. One is to vacate the sanctions decision and remand the case for further proceedings on the sanctions issues. The court has chosen this option. The court believes that it is incapable of meaningfully reviewing the district court’s denial of Rule 11 sanctions because the denial is framed in conclusory language, without findings of fact or conclusions of law. The other option is to decide whether plaintiffs’ attorneys failed to comply with Rule ll(b)’s requirements, and, if so, whether sanctions are in order. I choose this option because, in the PSLRA context, Congress explicitly requires a district court to impose sanctions whenever Rule 11 is violated. When, as here, the record so clearly indicates a Rule II violation, it is both within our capacity and in the broader interest of justice that we direct the district court to impose sanctions that it will have to impose on remand. An objective examination of plaintiffs’ three complaints reveals that plaintiffs’ federal securities law claims are frivolous, and, under these facts, a district court would necessarily abuse its discretion to conclude otherwise. Moreover, plaintiffs sued some individual defendants who had no involvement whatsoever in the management of Relationserve Media, Inc., or its predecessor, Relationserve, Inc. The court’s disposition will require those uninvolved defendants to participate in the further proceedings on remand. The disposition I propose would limit their involvement to the simple task of presenting the court with a list of their expenses, including the attorneys’ fees they incurred. The court’s disposition is also likely to result in a second appeal, which would put this court in the same position it now occupies. The disposition I would reach would avoid a second appeal and thus would reduce the time, effort, and expenses the district court, the parties, and this court will have to endure as a result of today’s decision. To make this clear, I must take the reader through this case as it evolved — from the filing of the initial complaint through the filing and prosecution of the second amended complaint. I shall do so in accordance with the following outline. I. The Facts A. Relationserve Media, Ine.’s and Relationserve, Ine.’s Corporate Histories and the Alleged Fraud B. Richard F. Thompson Sues Relationserve, Media Inc. in Indiana State Court II. The Federal Procedural History A. The Initial Complaint 1. Thompson Files the Initial Complaint 2. The Defendants Warn Thompson’s Attorneys that the Suit is Frivolous 3. The Defendants Move to Dismiss, Request the Court to Retain Jurisdiction to Impose Sanctions 4. Thompson’s Attorneys Move the Court for Leave to Amend and for Limited Discovery to Add Individual Defendants 5. The Court Grants the Attorneys Leave to Amend and Limited Discovery and Warns the Attorneys About Rule 11 B. The First Amended Complaint 1. Thompson & Jacoby File the First Amended Complaint, Each Purporting to Represent All Class Members on All Claims 2. The Defendants Move to Dismiss, Request the Court to Retain Jurisdiction to Impose Sanctions 3. The Court Dismisses the First Amended Complaint C. The Second Amended Complaint 1. Thompson & Jacoby File the Second Amended Complaint with Jacoby Leading an Open-Market Purchaser Subclass Bringing Federal Securities Claims and with Thompson Leading a Private Offering Purchaser Subclass Bringing State Law Claims 2. The Defendants Move to Dismiss, and Defendant Karp Moves for Sanctions 3. The Court Dismisses the Complaint with Prejudice but Denies Sanctions 4. Jacoby’s Appeal, Karp’s Cross-Appeal, and this Court’s Decision III. This Court Errs by Summarily Remanding Karp’s Cross-Appeal for Sanctions Under the PSLRA A. The PSLRA Rule 11 Analytical Framework & Requirements B. A Court of Appeals Should Not Remand for Rule 11 Findings When it Can Determine Conclusively that the District Court Abused its Discretion in Denying Sanctions IV. With Respect to Plaintiffs’ Federal Securities Law Claims, the District Court Abused its Discretion in Denying Sanctions A. Rule 11(b)(2) Compliance 1. The Section 11 Claims a. The Initial Complaint’s Section 11 Claim b. The First Amended Complaint’s Section 11 Claim 2. The Section 12 Claims 3. The Section 10(b), Rule 10b-5 Claims a. Thompson’s ■ Rule 10b-5 Claims b. Jacoby’s Rule 10b-5 Claims i. Jacoby Failed to Identify an Actionable Omission ii. Jacoby Made Only Frivolous Scienter Allegations iii. Jacoby Advanced a Frivolous Loss Causation Argument 4. The Section 20(a) Claims B. Rule 11(b)(3) Compliance C. Rule 11(b)(1) Compliance D. The Plaintiffs’ Attorneys’ Rule 11 Violations Trigger the PSLRA’s Presumptive Sanction of Attorney’s Fees and Other Expenses E. Summary V. The Court Errs by Ignoring Karp’s Cross-Appeal for Rule 11 Sanctions on the State Law Claims Advanced in the Second Amended Complaint VI. Conclusion I. The Facts A. Relationserve Media, Inc.’s and Relationserve, Inc.’s Corporate Histories and the Alleged Fraud The principal defendant in this case, Relationserve Media, Inc., is an Internet marketing firm that maintains its principal place of business in Fort Lauderdale, Florida. The other defendants, with three exceptions, are (or were) officers and/or directors of the company (“Officers”). Relationserve Media, Inc. was formed when privately held Relationserve, Inc. merged with a wholly owned subsidiary of publicly held Chubasco Resources Corp. For the sake of clarity, I refer to the predecessor corporation as “Relationserve” and the merged entities as “Relationserve Media” or simply “Media.” Relationserve was incorporated in Delaware on March 29, 2005. Shortly thereafter, on April 20, 2005, Relationserve commenced a private offering of common stock to “accredited investors” (the “April private offering”). Throughout April and May 2005, Relationserve received and accepted $1,125,000 of subscriptions in exchange for Relationserve shares. The shares were issued in reliance on a Regulation D exemption from registration under the Securities Act of 1933 (the “1933 Act”), and were “restricted shares” as defined by the Act. See 17 C.F.R. §§ 230.501 et seq. While the April private offering was going on, on May 16, 2005, Relationserve acquired two Internet marketing companies, Omni Point Marketing LLC and Friendsand LLC. In exchange for the ownership interest in those companies, Relationserve paid $500,000 cash, 8,000,000 shares of its common stock, and a two-year promissory note for $700,000. Relation-serve also issued 4,001,000 shares to its founders as compensation for bridge loan advances and negotiating the acquisitions. Relationserve’s chief operating officer at the time, Scott Hirseh, was also the indirect majority owner and president of Omni Point. Relationserve’s then president, Danielle Karp, is Scott Hirsh’s sister. After completing the April private offering and the acquisition of Omni Point and Friendsand, on May 24, 2005, Relation-serve entered an Independent Consulting Agreement (the “consulting agreement”) with Summit Financial Partners, LLC (“Summit”). Under the consulting agreement, Summit and its president, Tony Altavilla, agreed to “[introduce [Relation-serve] to the financial community” and “[p]erform the functions generally assigned to stockholder relations and public relations departments in major corporations.” Relationserve Media, Inc., Current Report (Form 8-K), Ex. 2.6, at 1-2 (June 16, 2005). Summit also agreed to act as a “finder” of financing sources or acquisition candidates for Relationserve. In exchange, Relationserve paid Summit 1,050,-000 shares of its common stock and promised to pay a cash finder’s fee. Id. at 3, 5. The consulting agreement noted that “IT IS SPECIFICALLY UNDERSTOOD THAT [Summit] IS NOT AND DOES NOT HOLD ITSELF OUT BE [sic] A BROKER/DEALER, BUT IS MERELY A ‘FINDER’ IN REFERENCE TO [Media] PROCURING FINANCING SOURCES AND ACQUISITION/MERGER CANDIDATES.” Id. at 6. From inception, Relationserve’s strategy was to become a publicly traded company by means of a “reverse merger.” Accordingly, the April Offering’s private placement memorandum explained the company’s intent to find [a] publicly-traded company ... which will acquire, by merger of Relationserve ... all of the issued and outstanding capital stock of Relationserve (and any acquired businesses at the time of merger). Thereafter, the present stockholders of Relationserve and purchasers in the offering will, by virtue of the merger, become the controlling stockholders of the publicly-traded company. Relationserve, Inc., Private Purchase Offering Document, at 1 (Apr. 20, 2005). Consistent with this representation, Relationserve explored and ultimately entered a merger agreement with Chubasco. Prior to the merger, Chubasco, a Nevada corporation with its principal place of business in Canada, was an exploration-stage mining company yet to commence operations. In total, Chubasco had 51 shareholders and about $100,000 in assets. The largest shareholder, Scott Young, owned 6.8 million shares and also served as Chubasco’s president, chief financial officer, and sole director. The remaining fifty shareholders purchased Chubasco shares in at least one of two exempt Regulation S offerings. Collectively, the fifty shareholders owned 3,216,500 shares. Chubasco became a public reporting company by filing a registration statement for these 3,216,500 shares on October 8, 2004. Once effective, the registration statement would allow the fifty holders to trade that stock publicly. Chubasco Res. Corp., Registration Statement Under the Securities Act of 1933 (SB-2) (Oct. 8, 2004). After a series of amendments, the Registration Statement became effective on February 24, 2005. Chubasco Res. Corp., Quarterly Report (Form 10-QSB), at 10 (Mar. 17, 2005). Sometime between March and June 2005, Relationserve’s management approached Chubasco and suggested a reverse acquisition of Relationserve. After determining that the reverse acquisition would be “less speculative and contain[] greater benefits,” Chubasco terminated its mining exploration activities and negotiated a plan of merger and reorganization with Relationserve. Chubasco Res. Corp., Quarterly Report (Form 10-QSB), at 5 (June 14, 2005). The terms of the merger included the following. Chubasco would form a wholly-owned subsidiary, Reland Acquisition. Reland would then merge into Relation-serve, with Relationserve surviving. Upon consummation of the merger, each share of Reland would automatically convert into the right to receive one share of Relation-serve; thus Chubasco would own all of the issued and outstanding shares of Relation-serve. Relationserve Media Inc., Current Report (Form 8-K), Ex. 2.1 (Plan of Merger) ¶ 1.5(a) (June 16, 2005). In exchange, Relationserve’s stock would automatically convert into the right to receive Chubasco stock on a 1:1 basis. Id. Additionally, Scott Young agreed to cancel his 6.8 million shares of Chubasco and resign from his position as its sole director, president, and chief financial officer. Danielle Karp, Relationserve’s president, would become the new president and sole director of Chubasco. Finally, Chubasco would change its name to Relationserve Media, Inc. Id. ¶ 6.4. The merger took place on June 13, 2005. As a result of the merger, Relationserve Media, Inc., f/k/a Chubasco Resources Corp., held Relationserve as a wholly owned subsidiary. As planned, Scott Young resigned from all positions with Media and Danielle Karp became its sole director and president. Media now had two groups of shareholders. The first group consisted of the former Chubasco shareholders who held 3,216,500 shares; these shares could be traded and constituted Media’s “public float.” Id. ¶ 2.01. The second group consisted of former Relation-serve shareholders who owned 13,326,000 shares of Relationserve stock, now convertible into Media stock. Id. Because the second group acquired the shares in unregistered offerings and no subsequent registration statement had been filed, the shares continued to be restricted and could not be traded. The merger did not, of course, alter the duty of Media fik/a Chubasco to make routine filings with the SEC. Accordingly, just three days after the merger, on June 16, 2005, the newly formed Media filed an SEC current report (Form 8-K). Among other disclosures, this report explained the merger and the resultant change in business — from mining exploration to Internet marketing. This report also disclosed, for the first time, that Media’s predecessor, Relationserve, had “entered into an Independent Consulting Agreement with Summit Financial Partners, LLC.” Id. at 29. A full copy of the consulting agreement was attached to the SEC filing as an exhibit; this attachment included, of course, Summit’s express representation that it would not be acting as a broker/dealer, but rather would serve merely as a finder. As a consequence of the merger, Summit performed the same services for Media as it had for Relation-serve. Shortly after the merger, Media commenced a Regulation D, Rule 506 private offering pursuant to a private placement memorandum dated June 22, 2005 (the “June private offering”). It was in this offering that plaintiff Richard F. Thompson, an Indiana resident, purchased 50,000 Media shares at two dollars per share and three-year warrants with an exercise price of $3.50, for a total investment of $100,000. Thompson bought the shares on June 28, 2005, twelve days after Media had disclosed the consulting agreement with Summit. Gary Altavilla, Summit’s president, advised Thompson about the private offering and helped facilitate Thompson’s purchase. At the time of his purchase, Thompson signed a subscription agreement wherein he attested to his knowledge of the consulting agreement and that Summit was not licensed and did not hold itself out as a broker/dealer. Indeed, in the subscription agreement that he signed, Thompson acknowledged that ... [he] has read and evaluated, or has employed the services of an investment advisor, attorney or accountant to read and evaluate, all of the documents furnished or made available by the Company to [Thompson] ... including ... the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (“SEC”) on June 16, 2005 (“Current Report”) and subsequent SEC filings and reports.... Relationserve Media, Inc., Current Report (Form 8-K), Ex. 4.1 (Subscription Agreement), at 1-2 (June 30, 2005). As indicated above, this June 16, 2005 Current Report included the agreement between Media and Summit in its entirety. On June 30, 2005, Media completed the June private offering. In a report filed with the SEC, it disclosed: On June 30, 2005 we completed a private offering of Units to “accredited investors” as that term is defined in Regulation D of the Securities Act, with each Unit consisting of 50,000 shares of our common stock, $0.0001 par value per share (“Common Stock”), and a three-year warrant to purchase 25,000 shares of Common Stock at $3.50 per share (the “Offering”). We received and accepted $2,000,000 of subscriptions in the Offering. The Units were issued in reliance on an exemption from registration provided under Regulation D of the Securities Act and are restricted securities as defined by the Securities Act. Relationserve Media, Inc., Current Report (Form 8-K), at 2 (June 30, 2005). Attached to this filing was a copy of the “Private Offering Subscription Agreement” the purchasers signed (the “subscription agreement”). As in Relation-serve’s April offering, all of the shares sold in Media’s June private offering were restricted and therefore could not be resold until registered under the 1933 Act. In addition to this current report, on July 14, 2005, Media filed a Form D with the SEC to give further notice of and basic details about the June private offering. Relationserve Media, Inc., Notice of Sale of Securities Pursuant to Regulation D (Form D), at 1 (July 14, 2005). At the time, Form D required the issuer to disclose information about “each person who has been or will be paid or given, directly or indirectly, any commission or similar remuneration for solicitation of purchasers in connection with the sales of securities in the offering.” Id. at 3. Media did not disclose Summit’s involvement in the June private offering. Media also filed a notice of the sale of unregistered securities with the Indiana Secretary of State in compliance with Indiana’s securities act. See Ind.Code §§ 23-2-1-1 et seq. (2005) (repealed 2008). This notice, received and filed by the Secretary of State’s office on July 14, 2005, disclosed that Media’s June private offering had attracted twenty-two accredited investors to purchase an aggregate total of $2 million of Media’s common stock. In particular, Media attested to its sale of $340,000 of Media shares to five accredited investors in Indiana. While the June private offering was going on, Media expanded its management team. Recall that immediately after the merger, Danielle Karp was Media’s sole president, chief executive officer, and director; Media’s subsidiary, Relationserve, continued to be served by Scott Hirsch as its chief operating officer. On June 21, Media hired Mandee Heller Adler to serve as its chief executive officer and as a director; and on June 22, Media hired Warren “Pete” Musser to serve as a director. As discussed above, after the merger, the 3,216,500 shares that had been registered by Chubasco could be traded in the open market. Media’s shares began to trade on the Over the Counter Bulletin Board (the “OTCBB”) in late June 2005. It was from this pool of stock that plaintiff L. Alan Jacoby purchased a total of 10,000 shares of Media stock in three separate transactions. These purchases occurred on July 22, July 26, and August 12, 2005, and Jacoby claimed to have paid an average of six dollars per share. By March 2006, almost nine months later, Media’s shares had lost 75% of their value in the open market. Curiously, the plaintiffs alleged that Media’s shares traded on the NASDAQ stock exchange. There is no evidence in Media’s SEC filings, however, that Media’s stock traded anywhere except the OTCBB. Media did apply for a NASDAQ listing on or about July 18, 2005, but there is no evidence that the application succeeded. To the contrary, Media’s Annual Report filed on March 20, 2006 disclosed: “Our Common Stock has been quoted on the OTC Bulletin Board since June 30, 2005 under the symbol RSVM.OB. Prior to that date, there was no active market for our Common Stock.” Relationserve Media, Inc., Annual Report (Form 10-KSB), at 7 (Mar. 20, 2006). Around the same time that Jacoby purchased his stake in Media, Media’s SEC filings indicate that it entered into two key transactions. First, on August 9, 2005, Media entered an asset purchase agreement to buy the business and substantially all of the assets of theglobe.com’s wholly owned subsidiary, SendTec, for $37.5 million. Relationserve Media, Inc., Current Report (Form 8-K) (Aug. 12, 2005). The acquisition was subject to certain terms and conditions and did not close until October .31, 2005. Second, on August 29, 2005, Media merged with its wholly-owned subsidiary, Relationserve, with Media surviving. Relationserve Media, Inc., Current Report (Form 8-K), at 2 (Sept. 2, 2005). For the purposes of this case, two facts are crucial about the SendTec asset acquisition. First, as part of the terms and conditions mentioned, Media agreed to terminate its contract with Summit. Relationserve Media, Inc., Current Report (Form 8-K), Ex. 10.1 at 10 (Nov. 4, 2005). Second, Media agreed that it would replace certain members of its current management with SendTec-approved managers. Relationserve Media, Inc., Current Report (Form 8-K) (Aug. 12, 2005). Accordingly, on October 6, 2005, Media terminated its agreement with Summit. The exodus of Media’s senior management team began in late October 2005: director Musser resigned on October 31; chief executive officer and director Adler resigned on November 11. With one exception, the exodus was complete by the first week of February 2006 with the departure of president and director Karp and chief operating officer Hirsch on February 3 and February 2, respectively. The lone exception was chief financial officer Adam Wasserman who was hired on a part-time basis as chief financial officer on August 9, 2005, and ultimately served Media in some capacity until June 15, 2006. Media’s original management team was replaced by Sendtek-approved replacements: Michael Brauser joined as director and chairman of the board on October 31, 2005; Shawn McNamara joined as interim chief executive officer, senior vice president, and assistant secretary on November 30, 2005; and Paul Soltoff, as chief executive officer and director, Erick Obeck, as president, and Donald Gould, as chief financial officer, all joined on February 3, 2006. For a complete listing of the terms of Media’s officers’ service, see the Table attached to this opinion at 142. B. Richard F. Thompson Sues Relationserve, Media Inc. in Indiana State Court On March 3, 2006, in the Circuit Court of Hamilton County Indiana, Thompson sued Summit, Altavilla, Media, and several other entities who used Summit’s services, seeking rescission of his shares. Thompson was represented by Cohen & Malad, LLP, an Indiana law firm. Thompson directed three of his fourteen counts against Media: Count 4 claimed that Media sold unregistered, non-exempt securities in Indiana; Count 7 alleged that Media had violated the Indiana Securities Act’s anti-fraud provisions by failing to disclose the shares’ restricted status; and Count 13 claimed Media deceived Thompson by failing to disclose the shares’ restricted status. The other counts of the complaint were brought against Summit, Altavilla, and other named defendants. Unrelated to this litigation, on March 20, 2006, Media filed a registration statement and its annual report. Media filed the registration statement to register the shares it sold in its private offerings— approximately 85 million shares of common stock — to allow the private offering stockholders to sell their shares. In the annual report, inter alia, Media disclosed that, “[i]n August 2005, the Company paid a $28,500 success fee to Summit for services rendered in connection with a private placement of its common stock.” Relation-serve Media, Inc., Annual Report (Form 10-KSB), at F-26 (Mar. 20, 2006). Neither the registration statement nor the annual report disclosed the Thompson litigation. On May 1, 2006, Media amended this registration statement to give the public notice of Thompson’s lawsuit. Relation-serve Media, Inc., Amendment No. 1 to Form SB-2 Registration Statement (Form SB-2/A), at 53 (May 1, 2006). Media also related that Thompson sought rescission because the shares were not registered as required under Indiana Law and because Media failed to disclose a commission to Altavilla. Media also asserted its belief that the suit lacked merit but noted that it could not predict the range of any loss. This disclosure prompted the SEC to send a letter to Media requesting more information about the Thompson litigation. Responding to the SEC’s letter, on May 23, 2006, Media augmented the amendment it had made to its registration statement. Answering the SEC’s questions, Media added that: (1) Thompson sought rescission of 50,000 shares of stock, (2) Media did not register the shares in Indiana because they qualified for an exemption, and (3) Altavilla did not sell shares on the company’s behalf but did receive a seven percent finder’s fee for introducing investors to Media. Media reiterated its belief that the action lacked merit. Relationserve Media, Inc., Amendment No. 2 to Form SB-2 Registration Statement (Form SB-2/A), at 64-65 (May 23, 2006). The last amendment to this registration statement took place on July 13, 2006, and the SEC declared it effective on July 14, 2006. On May 9, 2006, Relationserve Media moved the Hamilton County Circuit Court to dismiss it from Thompson’s lawsuit. It argued that the forum selection clause in the subscription agreement required that all litigation be conducted in Broward County, Florida. Thompson responded to this motion by filing an affidavit in which he averred that he had no direct communication with Media and in fact did not read the private offering memorandum or any other materials concerning Media; rather, his son, Greg Thompson, read the materials. The court agreed with Media’s position and, on July 19, 2006, dismissed Media from the case. Just before the Indiana circuit court dismissed the case, on July 17, 2006, Thompson sold 10,000 shares at $0.40 a share, and another 10,000 shares at $0.35 a share. These sales obviously limited his ability to seek a full rescission of his 50,000-share initial purchase. Thompson’s investment strategy took a turn later in the day, though, as he bought another 10,000 shares of Media at $0.42 a share on July 17, only to sell 10,000 shares the next day at $0.39 a share. One month later, on August 16, 2006, Thompson dumped the rest of his shares in three sales at $0.37, $0.36, and $0.35 a share. II. The Federal Procedural History A. The Initial Complaint 1. Thompson Files the Initial Complaint On August 28, 2006, Thompson brought the present lawsuit against Media, three of its former officers and one of its former directors in the United States District Court for the Southern District of Florida. The former officers were Danielle Karp, Mandee Heller Adler, and Ohad Jehassi; the former director was Warren Musser. Thompson was again represented by Cohen & Malad, LLP, and now also by a Florida law firm, Friedman, Rosenwasser & Goldbaum, P.A. Eight days after filing the complaint, on September 5, Cohen & Malad issued a press release publicizing the lawsuit and inviting Media shareholders to contact the firm. Thompson sued on behalf of a class consisting of “[a]ll persons [including himself] who purchased Relationserve [Media] shares during the period beginning May 24, 2005 and ending on the date of the commencement of this litigation,” on August 28, 2006. While not explicit, the complaint’s proposed class consisted of two subclasses: (1) those who bought shares in the private offerings; and (2) those who bought shares in the public market. The complaint contained nine counts. Counts I through III alleged violations of federal securities law and, for remedies, prayed for rescission or damages. Counts IV through IX alleged violations of Florida and Indiana statutes. Count I, “Filing of False Registration Statement,” alleged a violation of “Section 11 of the Securities Act of 1933, 15 U.S.C. § 771(a).” Section 11 is actually codified at 15 U.S.C. § 77k, not § 771(a). Section 77k provides relief for persons who purchase securities in reliance on a false or misleading registration statement, Section 77i(a), which is a codification of § 12 of the 1933 Act, provides rehef for purchasers of securities who rely on a false or misleading statement in a prospectus or oral communication, To solve this inaccurate citation problem, I read Count I to seek rehef under both sections 11 and 12 of the 1933 Act. This squares with Count I’s allegation that [Media’s] filings with the Securities Exchange Commission, including the registration statements, prospectus, and amendments thereto omitted to state material facts necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading in at least the following particulars: a. RelationServe [Media] was selling its securities through unregistered agents and broker/dealers and paying commissions to these unregistered agents and broker/dealers; b. The sale of RelationServe [Media] stock through unregistered agents and broker/dealers was in violation of state and federal securities laws, which caused a substantial contingent liability for claims of rescission by investors and exposed RelationServe to substantial legal fees; and c. The potential civil liability of RelationServe [Media] for selling shares of its stock in violation of state and federal law, which would have an adverse impact on the RelationServe [Media] financial condition. (Compl: ¶ 52 (emphasis added).) Count I thus alleged that Media had violated the 1933 Act by selling securities under a false or misleading registration statement(s), prospectus, or oral communication, by failing to disclose its use of unregistered brokers and the contingent liability arising therefrom (the “unregistered-broker theory”). Count II, “Violation of Securities Act of 1933,” incorporated all of the preceding allegations of the complaint, including Count I. Count II alleged that Media and the Officers, who were “controlling persons, offered and sold the shares of RelationServe [Media] in violation of 15 U.S.C.A. § 111” (CompU 56.) Because I construe Count I to seek relief under § 12, codified at 15 U.S.C. § 111, Count II added nothing to Count I. Count III, ‘Violation of Securities Exchange Act of 1934, Rule 10b-5,” incorporated all of Counts I and II and further asserted that Media and the Officers “offered and sold the shares of RelationServe [Media] in violation of’ the Securities Exchange Act of 1934 (the “1934 Act”), 15 U.S.C. § 77q, and Rule 10b-5. (CompU 60.) Section 10(b) of the 1934 Act, and Rule 10b-5, provide relief for any person who relies on a false or misleading statement in connection with the purchase or sale of a security. More specifically, Count III alleged that “[t]he Defendants ... offered and sold the shares ... in violation of ... Rule 10b-5.” (Comply 60.) Because Media and the Officers only “offered and sold” shares to the private offering purchasers, the § 10(b), Rule 10b-5 claim was limited to the private offering subclass. The complaint did not directly identify any false or misleading statement made by any defendant in connection with Media’s sale of shares to Thompson or any other private offering purchaser; nor did the complaint allege any device or scheme to defraud. Thompson did, however, refer to the omissions in Count I’s section 11 and 12 claims. (Compl. ¶ 58 (“As stated herein, the registration statement and prospectus contained untrue statements of material facts.... ”).) Therefore, Thompson claimed the private offering purchasers could recover based on Media’s failure to disclose its use of unregistered brokers in its public offering documents. Thompson invoked the district court’s supplemental jurisdiction for the state law claims asserted in Counts IV through IX. See 28 U.S.C. § 1367. Count IV alleged that Media, aided and abetted by the Officers, sold Media shares through brokers, dealers, and agents who were not registered in Florida, in violation of Florida Statutes §§ 517.12 and 517.061. Count V alleged that sales were made in Indiana via unregistered brokers, dealers, and agents, in violation of Indiana Code § 23-2-1-8. Count VI alleged that Media, aided and abetted by the Officers, sold Media shares that were unregistered in violation of Indiana Code §§ 23-2-1-2 and 23-2-1-3. Count VII alleged that Media, aided and abetted by the Officers, sold Media shares in violation of the anti-fraud provisions