Full opinion text
TORRUELLA, Chief Judge, CYR and LYNCH, Circuit Judges. LYNCH, Circuit Judge. Plaintiffs, purchasers of the securities of Digital Equipment Corp., appeal from the district court’s dismissal of two consolidated class actions alleging violations of the federal securities laws. Both complaints assert that there were misleading statements and non-disclosures in the registration statement and prospectus prepared in connection with a public offering of stock. That offering commenced on March 21,1994, just 11 days prior to the close of the quarter then in progress, and about three weeks prior to the company’s announcement of an unexpectedly negative earnings report for that quarter. One of the complaints further alleges that defendants made fraudulently optimistic statements to the public in the period leading up to the offering. The district court found that neither complaint identified any statements or omissions actionable under the securities laws and dismissed both for failure to state a claim. We agree that many of the alleged misstatements and omissions do not provide a legally cognizable basis for the plaintiffs’ claims, but we also conclude that a limited set of allegations in both complaints relating to the registration statement and prospectus for the March 1994 offering does state a claim. We further find that the surviving portions of the complaints satisfy the pleading requirements of Fed.R.Civ.P. 9(b). Accordingly, we affirm the district court’s decision in part, reverse in part, and remand for further proceedings. I. Background Digital Equipment Corporation (“DEC”) is one of the world’s largest suppliers of computer hardware, software and services. Founded in 1957, it first became a publicly held company in 1966. By the early 1990’s, the company’s success had burgeoned into $14 billion in yearly revenues. The company’s success story, however, would not last forever. By 1992, the company had fallen on hard times. In January 1992 it reported its first-ever quarterly operating loss of $138.3 million. Faced in the ensuing months with operating losses in the range of $30 million to $311 million per quarter, the company decided to engage in radical surgery, cutting loose some 35,000 employees over the course of 15 months in the process, including its founder and CEO. To cover the costs of these actions, the company accumulated “restructuring” charges totalling close to $3.2 billion in fiscal years 1990-1992 combined. In the midst of its financial woes, however, the company took some steps to restore its health. In February 1992, DÉC had introduced a new product, the “Alpha” chip. The Alpha chip was hailed as a technological advance that could potentially restore the company’s fortunes. In mid-1992, the company installed a new CEO, Robert B. Palmer. He took the helm in the fall of that year, as the company continued to implement strategies to help its Alpha technology gain acceptance in the marketplace and to bring the company back to financial vitality. At the time Palmer took over, the company had absorbed over $3 billion in losses for the prior three years and had been losing money at the rate of approximately $3 million per day. Under the new management, it appeared that the company’s financial hemorrhaging had finally begun to slow. On January 14, 1993, DEC reported a loss for the second quarter of fiscal year 1993 that was far smaller than had been anticipad ed by analysts. That promising result was followed by another quarter of losses, but within Wall Street’s expectations. Then, on July 28, 1993, the company announced its first profitable quarter since before the 1992 fiscal year, reporting a net profit of $113.2 million for the fourth quarter of fiscal year 1993. That result was slightly below analysts’ expectations, but a stark improvement over the operating loss of $188.1 million (and overall loss of $2 billion) reported for the comparable quarter in the prior year. Still, on October 20,1993, DEC announced a loss of $83.1 million for the first quarter of 1994, an improvement over the $260.5 million loss for the same quarter the prior year, but worse than analysts had been predicting. On January 19, 1994, the company announced another setback, reporting losses for the second quarter of fiscal year 1994, ending January 1, 1994, of $72 million. . The loss was worse than analysts had expected and was virtually identical to the losses for that period the prior year. It was against this backdrop that DEC, on January 21, 1994, filed with the SEC a “shelf’ registration statement giving the company the option to issue up to $1 billion in various classes of debt and equity securities. Two months later, DEC through its underwriters conducted an offering of $400 million in depositary shares of preferred stock, pursuant to the “shelf’ registration, a prospectus dated March 11, 1994, and a prospectus supplement dated March 21, 1994. The offering commenced on the date of the prospectus supplement and closed one week later on March 28,1994,. four days before the end of the third fiscal quarter. All 16 million depositary shares of preferred stock were sold, at an offering price of $25. DEC raised a badly needed $387.4 million. Less than three weeks later, on April 15, 1994, DEC announced an operating loss of over $183 million for the quarter that had ended on April 2, 1994. This third quarter loss was far greater than analysts had been expecting, and the largest that the company had reported since the first quarter of fiscal 1993. It bucked the positive trend of reduced losses under the company’s new management. The announcement sent the price of the newly distributed preferred stock tumbling from the offering price of $25 to $20.875 by the close of trading on April 15. The common stock fell from $28.875 to $23 during the same period, and to $21.125 by the close of the next trading day. In its April 15 announcement, the company also disclosed that it had decided to “accelerate [its] on-going restructuring efforts” and “also consider further restructuring.” This was despite a representation in the March 21 prospectus supplement that “[t]he Corporation believes that the remaining restructuring reserve of $443 million is adequate to cover presently planned restructuring actions.” Eventually, following the close of fiscal year 1994, DEC announced on July 14, 1994 that it would cut almost one-fourth of its remaining workforce and take an additional charge of $1.2 billion for fiscal year 1994 (beyond the $443 million remaining in reserve as of March 21) to cover the costs of additional restructuring activities. II. Description of the Actions These two lawsuits were filed on Tuesday, April 19, 1994, two business days after the company’s announcement of April 15, 1994. One, the Wilensky action, brought on behalf of all persons who purchased shares in the March 1994 public offering, asserts claims under Sections 11, 12(2), and 15 of the Securities Act of 1933 (“Securities Act”) against DEC, its Chief Executive Officer (Robert B. Palmer), its Chief Financial Officer (William Steul), and seven underwriting or investment banking firms, representing a purported defendant class of 65 underwriters who participated in the offering. The second, the Shaw action, advances claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5, and a pendent claim of common law negligent misrepresentation, on behalf of all purchasers of DEC common stock between January 19 and April 15,1994 (the “Class Period”). At the heart of both complaints are two sets of claims. First, plaintiffs assert that DEC management had knowledge of material facts concerning the large losses developing during the third fiscal quarter of 1994, and that the defendants were under a duty to disclose such material information to the market in connection with the public offering conducted on March 21, 1994. Second, both the Wilensky and Shaw plaintiffs contend that the representation made in the March 21 prospectus supplement concerning the “adequacy” of the then-remaining “restructuring reserve” was materially misleading. The Shaw plaintiffs allege, additionally, that throughout the Class Period, the defendants made fraudulently optimistic statements to the public concerning DEC’s future prospects in order artificially to inflate the market value of DEC shares, and that these statements were actionably false or misleading. The defendants filed motions to dismiss under Fed.R.Civ.P. 9(b) and 12(b)(6). The district court consolidated the cases, stayed all discovery, and then dismissed both actions. The district court ruled, inter alia, that defendants had violated no duty to disclose and that the defendants’ statements were not misleading, bespoke caution, or were otherwise not actionable as a matter of law. The court granted the defendants’ motions to dismiss under Rule 12(b)(6), without reaching whether the complaints satisfied the pleading requirements of Rule 9(b). These appeals followed. We affirm in part and reverse in part. For clarity, we discuss each of the two actions in turn. III. The Section 11 and 12(2) Claims (Wilensky Action) Sections 11 and 12(2) are enforcement mechanisms for the mandatory disclosure requirements of the Securities Act of 1933. Section 11 imposes liability on signers of a registration statement, and on underwriters, if the registration statement “contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading.” 15 U.S.C. § 77k. Section 12(2) provides that any person who “offers or sells” a security by means of a prospectus or oral communication containing a materially false statement or that “omits to state a material fact necessary to make the statements, in the light of the circumstances under which they were made, not misleading,” shall be liable to any “person purchasing such security from him.” 15 U.S.C. § 77Z (2). The Wilensky plaintiffs assert claims under Sections 11, 12(2), and 15, alleging that the registration statement and prospectus filed in connection with the March 1994 public offering contained materially false statements and omitted to state material information required to be provided therein. The thrust of the Wilensky complaint is that defendants knew, as of the March 21 date of the 1994 public offering, of material facts portending the unexpectedly large losses for the third quarter of fiscal 1994 that were announced later, and that failure to disclose these material facts in the registration statement and prospectus violated Section 11. Additionally, the Wilensky plaintiffs contend that the statement in the registration statement and prospectus characterizing as “adequate” the company's then-remaining “restructuring reserve” of $443 million was materially false and misleading, in violation of both Sections 11 and 12. The defendants parry by attempting to reduce plaintiffs’ claims to an argument that the company was required to disclose its internal forecasts about the outcome of the third quarter. They argue that the plaintiffs’ position is untenable because the securities laws impose no duty upon a company to disclose internal projections, estimates of quarterly results, or other forward-looking information. They also say that the statement concerning the adequacy of the company’s restructuring reserves is not actionably misleading when considered in context. Finally, defendants contend that the complaint fails to allege sufficient facts establishing that DEC and the underwriter defendants were statutory “sellers” subject to liability under Section 12(2). We evaluate each set of arguments separately. A Actionability of Alleged Nondisclosures Under Section 11 The proposition that silence, absent a duty to disclose, cannot be actionably misleading, is a fixture in federal securities law. See, e.g., Backman v. Polaroid Corp., 910 F.2d 10, 13 (1st Cir.1990) (en banc). Equally settled is that accurate reports of past successes do not themselves give rise to a duty to inform the market whenever present circumstances suggest that the future may bring a turn for the worse. See Serabian v. Amoskeag Bank Shares, Inc., 24 F.3d 357, 361 (1st Cir.1994); Capri Optics Profit Sharing v. Digital Equip. Corp., 950 F.2d 5, 7-8 (1st Cir.1991). In short, the mere possession of material nonpublic information does not create a duty to disclose it. See Roeder v. Alpha Indus., Inc., 814 F.2d 22, 26 (1st Cir.1987) (citing Chiarella v. United States, 445 U.S. 222, 235, 100 S.Ct. 1108, 1118, 63 L.Ed.2d 348 (1980)). To focus here on a duty to disclose in the abstract, however, would be to miss the obvious in favor of the obscure. This action arises out of an allegedly defective registration statement and prospectus filed in connection with a public stock offering. The obligations that attend the preparation of those filings embody nothing if not an affirmative duty to disclose a broad range of material information. Cf. Herman & MacLean v. Huddleston, 459 U.S. 375, 381-82, 103 S.Ct. 683, 686-87, 74 L.Ed.2d 548 (1983). Indeed, in the context of a public offering, there is a strong affirmative duty of disclosure. See Ernst & Ernst v. Hochfelder, 425 U.S. 185, 195, 96 S.Ct. 1375, 1382, 47 L.Ed.2d 668 (1976) (the Securities Act “was designed to provide investors with full disclosure of material information concerning public offerings”). The question here is not whether defendants were under an abstract duty to disclose information — clearly, they were. The issue, rather, is whether the defendants had a specific obligation to disclose information of the type that the plaintiffs complain was omitted from the registration statement and prospectus. The task of deciding whether particular information is subject to mandatory disclosure is not easily separable from normative judgments about the kinds of information that the securities laws should require to be disclosed, which depend, in essence, on con-eeptions of materiality. See generally Victor Brudney, A Note On Materiality and Soft Information Under the Federal Securities Laws, 75 Va.L.Rev. 723, 728 (1989). For our purposes, it suffices to say that the determination of whether the alleged nondisclosures in this case provide a legally sufficient basis for the plaintiffs’ claims cannot be severed from consideration of the basic policies underlying the disclosure obligations of the applicable statutes and regulations. We conclude that we cannot say that DEC was not required to disclose material information concerning its performance in the quarter in progress at the time of the March 21, 1994 public offering. Nor can we conclude, as a matter of law and on these pleadings, that DEC was not in possession of such material nonpublic information at the time of the offering. 1. The Insider Trading Analogy In understanding the nature of the disclosure requirements attending a public offering of stock, it is helpful to conceptualize DEC (the corporate issuer) as an individual insider transacting in the company’s securities, and to examine the disclosure obligations that would then arise. There is no doubt that an individual corporate insider in possession of material nonpublic information is prohibited by the federal securities laws from trading on that information unless he makes public disclosure. He must disclose or abstain from trading. See SEC v. Texas Gulf Sulphur Co., 401 F.2d 833, 848 (2d Cir.1968) (en banc), cert. denied, 394 U.S. 976, 89 S.Ct. 1454, 22 L.Ed.2d 756 (1969); see also SEC v. MacDonald, 699 F.2d 47, 50 (1st Cir.1983) (en banc). A central justification for the “disclose or abstain” rule is to deny corporate insiders the opportunity to profit from the inherent trading advantage they have over the rest of the contemporaneously trading market by reason of their superior access to information. See Shapiro v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 495 F.2d 228, 235 (2d Cir.1974); SEC v. Texas Gulf Sulphur Co., 401 F.2d 833, 848 (2d Cir.1968) (en banc). The rule eliminates both the incentives that insiders would otherwise have to delay the disclosure of material information, and minimizes any efficiency losses associated with the diversion of resources by insiders to “beating the market.” See Robert C. Clark, Corporate Law § 8.2, at 273-75 (1986); Frank H. Easterbrook & Daniel R. Fischel, The Economic Structure of Corporate Law 288 (1991) (“The lure of trading profits may induce people to spend a lot of effort and other resources ‘beating the market’; ... [T]he prompt disclosure of information by the affected firm will extinguish the trading opportunity. When everyone knows the truth, no one can speculate on it.”). The policy rationale for the “disclose or abstain” rule carries over to contexts where a corporate issuer, as opposed to an individual, is the party contemplating a stock transaction. Courts, including this one, have treated a corporation trading in its own securities as an “insider” for purposes of the “disclose or abstain” rule. See, e.g., McCormick v. Fund American Cos., Inc., 26 F.3d 869, 876 (9th Cir.1994) (collecting eases) (“[T]he corporate issuer in possession of material nonpublic information, must, like other insiders in the same situation, disclose that information to its shareholders or refrain from trading with them.”); Rogen v. Ilikon Corp., 361 F.2d 260, 268 (1st Cir.1966); Kohler v. Kohler Co., 319 F.2d 634, 638 (7th Cir.1963); Green v. Hamilton Int’l Corp., 437 F.Supp. 723, 728-29 (S.D.N.Y.1977); VII Louis Loss & Joel Seligman, Securities Regulation 1505 (3d ed. 1991) (“When the issuer itself wants to buy or sell its own securities, it has a choice: desist or disclose.”); 18 Donald C. Langevoort, Insider Trading: Regulation, Enforcement & Prevention § 3.02[l][d], at 5 (3d rel. 1994) (“Issuers themselves may buy or sell their own securities, and have long been held to an obligation of full disclosure.... Conceptually, extending the insider trading prohibition to instances of issuer insider trading makes perfect sense.”). Just as an individual insider with material nonpublic information about pending merger or license negotiations could not purchase his company’s securities without making disclosure, the company itself may not engage in such a purchase of its own stock, if it is in possession of such undisclosed information. See, e.g., Rogen, 361 F.2d at 268. By extension, a comparable rule should apply to issuers engaged in a stock offering. Otherwise, a corporate issuer selling its own securities would be left free to exploit its informational trading advantage, at the expense of investors, by delaying disclosure of material nonpublic negative news until after completion of the offering. Cf. Ian Ayres, Back to Basics: Regulating How Corporations Speak to the Market, 77 Va.L.Rev. 945, 959-60 (1991) (describing the argument that securities laws impose needed discipline, because companies do not always internalize the costs of failing to provide the market with accurate information that would lower stock prices). 2. The Statutory and Regulatory Scheme Analogizing a corporate issuer to an individual insider subject to the “disclose or abstain” rule of insider trading law illustrates the policy reasons supporting a comparably strong disclosure mechanism in the context of a public offering. We look to the explicit statutory and regulatory framework to determine whether the Securities Act provides such a mechanism, and whether the Wilen-sky complaint states a legally cognizable claim for nondisclosure under Section 11. Section 11 by its terms provides for the imposition of liability if a registration statement, as of its effective date: (1) “contained an untrue statement of material fact”; (2) “omitted to state a material fact required to be stated therein”; or (3) omitted to state a material fact “necessary to make the statements therein not misleading.” 15 U.S.C. § 77k(a). The plaintiffs’ claim of nondisclosure relies on the second of these three bases of liability. That predicate is unique to Section 11; neither Section 12(2) of the Securities Act nor Section 10(b) or Rule 10b-5 under the Exchange Act contains comparable language. It is intended to ensure that issuers, under pain of civil liability, not cut corners in preparing registration statements and that they disclose all material information required by the applicable statutes and regulations. See Huddleston, 459 U.S. at 381-82, 103 S.Ct. at 686-87; Harold S. Bloomenthal et al., Securities Law Handbook § 14.08, at 663 (1996 ed.) (“Congress ... devised Section 11 of the Securities Act as an in terrorem remedy that would ... encourage careful preparation of the registration statement and prospectus.”). The information “required to be stated” in a registration statement is spelled out both in Schedule A to Section 7(a) of the Securities Act, 15 U.S.C. §§ 77g(a), 77aa, and in various regulations promulgated by the SEC pursuant to its statutory authority. Those rules and regulations are no less essential to the statutory scheme than the general outlines of the statute itself. Cf. Touche Ross & Co. v. SEC, 609 F.2d 570, 580 (2d Cir.1979). In this case, DEC conducted its March 1994 public offering pursuant to a registration statement on SEC Form S-3. Item 11(a) of the instructions to Form S-3 requires that the issuer (registrant) describe in the portion of the registration statement comprising the prospectus: any and all material changes in the registrant’s affairs which have occurred since the end of the latest fiscal year for which certified financial statements were included in the latest annual report to security holders and which have not been described in a report on Form 10-Q or Form 8-K filed under the Exchange Act. Instructions to Form S-3, Item 11(a) (emphasis added). To understand the scope of the “material changes” disclosure requirement, it is helpful to understand the nature of Form S-3. Form S-3 is a streamlined registration form available only to certain well-capitalized and widely followed issuers about which a significant amount of public information is already available. A registrant on Form S-3 accomplishes disclosure in part by incorporating in the prospectus by reference its most recent Form 10-K and Forms 10-Q filed pursuant to the Exchange Act. See Instructions to Form S-3, Item 12(a). Unlike registrants on more broadly available forms (such as S-l), a Form S-3 registrant is not required separately to furnish in the prospectus the information required by Item 303(a) of Regulation S-K, 17 C.F.R. § 229.303(a) (“Management’s discussion and analysis of financial condition and results of operations”), because that information is presumed to be contained in the Exchange Act filings that Form S-3 incorporates by reference, which are themselves subject to the requirements of Regulation SK. The primary purpose of the “material changes” disclosure requirement of Item 11(a), then, is to ensure that the prospectus provides investors with an update of the information required to be disclosed in the incorporated Exchange Act filings, including the information provided in those filings concerning “known trends and uncertainties” with respect to “net sales or revenues or income from continuing operations.” 17 C.F.R. § 229.303(a)(3)(ii). In this case, the date of the final prospectus for the March 1994 offering and the effective date of the registration statement was March 21,1994. Prior to that date, the end of DEC’s latest fiscal year was July 3, 1993 (fiscal year 1993), and the last Form 10-Q filed by the company was for the quarter that had ended on January 1, 1994 (DEC’s second fiscal quarter). The question, then, is whether the complaint contains sufficient allegations that defendants failed to disclose in the registration statement any information regarding “material changes” in DEC’s “affairs” as of March 21, 1994, that had occurred since July 3, 1993 and had not been reported in the Form 10-Q filed for the second quarter of fiscal year 1994. If the Wilensky complaint adequately so alleges, then the complaint sets forth a cognizable claim of nondisclosure under Section 11, namely, that defendants faded to include in the registration statement information “required to be stated therein.” 3. The Alleged Nondisclosures Plaintiffs argue that defendants faded to comply with Item 11(a) by omitting three categories of information from the registration statement and prospectus. First, plaintiffs contend that defendants faded to disclose that DEC had embarked on a risky marketing strategy that involved slashing prices and sacrificing profit margins in the hopes of increasing “market penetration” of the company’s Alpha chip products. Second, plaintiffs assert that defendants faded to disclose that under the company’s compensation scheme, its sales representatives were being paid “double commissions,” again to the detriment of the company’s profit margins. Third, and most centrady, plaintiffs adege that, by the date of the March 21 offering, defendants were in possession of, yet faded to disclose, material knowledge of facts indicating that the third fiscal quarter would be an unexpectedly disastrous one. We dispose of the first two claims of nondisclosure, and then focus our discussion on the third. a. Marketing Strategy The defendants provide a decisive rejoinder to the plaintiffs’ claim of nondisclosure concerning the “marketing strategy”: the relevant aspects and consequences of the strategy were in fact prominently disclosed, both in the text of the prospectus and in documents incorporated by reference. For example, in its Form 10-Q filing for the quarter ending October 2, 1993 (the first quarter of fiscal year 1994), the company explained its reported decline in gross profit margins as follows: The decline in product gross margin resulted from the decrease in product sales, a continued shift in the mix of product sales toward low-end systems which typically carry lower margins, competitive pricing pressures and unfavorable currency fluctuations, partially offset by manufacturing cost efficiencies. The Corporation has adopted an aggressive, competitive price structure for its Alpha AXP systems. Given this pricing, as well as the factors described in the preceding paragraph, the Corporation expects to experience continued downward pressure on product gross margins. This statement, in conjunction with related disclosures found elsewhere in the prospectus and incorporated filings relating to “competitive pricing pressures,” declining gross profit margins, “competitive pricing actions taken by the Corporation,” an “industry trend toward lower product gross margins,” and “persistent intense pricing competition,” together obviate the plaintiffs’ claim that defendants failed to disclose the company’s adoption of a price-cutting strategy to boost the “market penetration” of its Alpha-based systems. b. “Double Commissions” The plaintiffs’ claim of a failure to disclose “double commissions” also fails to make out a Section 11 violation. To the extent that the claim comprises allegations of mismanagement, it is not cognizable under the' securities laws. See Santa Fe Indus., Inc. v. Green, 430 U.S. 462, 477-80, 97 S.Ct. 1292, 1302-05, 51 L.Ed.2d 480 (1977); In re Craftmatic Sec. Litig., 890 F.2d 628, 638-39 (3d Cir.1989) (stating that plaintiffs cannot circumvent Santa Fe by simply pleading a mismanagement claim as a failure to disclose management practices); see also Hayes v. Gross, 982 F.2d 104, 106 (3d Cir.1992). Otherwise, the claim fails for lack of any allegations establishing a plausible theory of materiality. The complaint does not allege that “double commissions” have some intrinsic significance to investors. Plaintiffs complain, rather, that DEC failed to tell the market that the commission-based compensation scheme, instead of boosting sales as it was supposed to do, was contributing to the company’s losses. This argument is problematic. As the complaint itself acknowledges, DEC publicly announced the switch from a salary-based compensation scheme to the incentive-based model that produced the double commissions. Furthermore, according to the complaint, the switch was made not during the third fiscal quarter of 1994, but some two years earlier, in 1992. The plaintiffs do not allege that any material changes to the compensation scheme were implemented after that time. Whatever the bearing of DEC’s incentive-based compensation scheme on the company’s expenses in relation to its revenues, the investing public had at least a year’s worth of hard financial data (through the second quarter of fiscal 1994) to evaluate whether the commission system was working to increase gross margins, or instead, as plaintiffs allege, to shrink them. Plaintiffs do not allege that there were any material changes in the payment of commissions between the time of the March public offering and the last prior Form 10-Q filed by the company (for the second fiscal quarter of 1994), and so on their own theory the claim that DEC failed to disclose the payment of “double commissions” amounts to naught. c. Operating Results Prior to End of Quarter We turn to the complaint’s central, overarching claim that defendants failed, in connection with the March public offering, to disclose material factual developments foreboding disastrous quarter-end results. In evaluating this claim, we accept arguendo the complaint’s allegations that DEC had in its possession as of the March 21 offering date nonpublic information concerning the company’s ongoing quarter-to-date performance, indicating that the company would suffer unexpectedly large losses for that quarter. We ask, then, whether there was a duty to disclose such information in the registration statement and prospectus under the rubric of “material changes” under Item 11(a)* of Form S-3. We focus upon the defendants’ primary legal arguments on this point: that DEC was under no duty to disclose “intra-quarterly” results or any other information concerning its third quarter performance until after the quarter ended; and that defendants had no duty as of March 21, 1994 to disclose any internal projections or predictions concerning the expected outcome of the quarter. A central goal underlying the disclosure provisions of the securities laws is to promote fairness and efficiency in the securities markets. See Central Bank of Denver, N.A., v. First Interstate Bank of Denver, N.A., — U.S. —, —, 114 S.Ct. 1439, 1445, 128 L.Ed.2d 119 (1994) (“Together, the Acts embrace a fundamental purpose ... to substitute a philosophy of full disclosure for the philosophy of caveat emptor.” (internal quotation omitted)); In re LTV Sec. Litig., 88 F.R.D. 134, 145 (N.D.Tex.1980). The disclosure of accurate firm-specific information enables investors to compare the prospects of investing in one firm versus another, and enables capital to flow to its most valuable uses. LHLC Corp. v. Cluett, Peabody & Co., 842 F.2d 928, 931 (7th Cir.), cert. denied, 488 U.S. 926, 109 S.Ct. 311, 102 L.Ed.2d 329 (1988); cf. Acme Propane, Inc. v. Tenexco, Inc., 844 F.2d 1317, 1323 (7th Cir.1988) (securities laws aim at ensuring the availability to the investing public of information not otherwise in the public domain). The availability of reliable firm-specific information is also essential to the market’s ability to align stock price with a security’s “fundamental value.” See Marcel Kahan, Securities Laws and the Social Costs of “Inaccurate” Stock Prices, 41 Duke L.J. 977, 988-89 (1992). The need for issuers to disclose material information is crucial in the context of a public offering, where investors typically must rely (unless the offering is “at the market”) on an offering price determined by the issuer and/or the underwriters of the offering. See Kahan, supra, at 1014-15 (explaining the heightened need to target disclosure requirements to companies engaged in public offerings). Accordingly, the disclosure requirements associated with a stock offering are more stringent than, for example, the regular periodic disclosures called for in the company’s annual Form 10-K or quarterly Form 10-Q filings under the Exchange Act. See id. at 1014-15 & n. 168. The need for complete and prompt disclosure is particularly keen when a corporation issues ■ stock pursuant to a “shelf registration” under SEC Rule 415(a), as DEC did in its public offering of March 1994. See 17 C.F.R. § 230.415(a) (permitting registration of securities to be issued on a “continuous” or “delayed” basis). The shelf registration rule permits á company to file a single registration statement covering a certain quantity of securities (register securities “for the shelf’), and then over a period of up to two years, with the appropriate updates of information, issue installments of securities under that registration statement (take the securities “down from the shelf’) almost instantly, in amounts and at times the company and its underwriters deem most propitious. See Clark, supra, at 751 (explaining that the shelf registration process enables firms to pinpoint the timing of offerings to the issuer’s advantage); see generally Jeffrey N. Gordon & Lewis A. Kornhauser, Efficient Markets, Costly Information, and Securities Research, 60 N.Y.U.L.Rev. 761, 819-20 (1985). The social benefit of the shelf registration rule is that it can enable an issuer to decrease its costs of raising capital. See Clark, supra, at 751. The concomitant risk is that, by permitting securities to be offered on a “delayed” basis, the rule may adversely affect the quality and timeliness of the disclosures made in connection with the actual issuance of securities. See Shelf Registration, SEC Release Nos. 33-6499, 34-20384, 35-23122, 1983 WL 35832 (SEC), *2 (“Shelf Reg.Rel.”); see also I Loss & Seligman, supra, at 355 (“The rationale for limiting the time during which registered securities may be sold is that investors need current information when considering an offering. To permit ‘registration for the shelf runs the risk that investors subsequently will be offered securities on the basis of outdated or stale information.”). In response to these concerns, the SEC, in adopting Rule 415 in its current form, assured that “[p]ost-effec-tive amendments [to the initial registration statement] and prospectus supplements [would] serve to ensure that investors are provided with complete, accurate and current information at the time of the offering or sale of securities.” Shelf Reg.Rel., supra, 1983 WL 35832 (SEC), *9. The SEC explained that registrants would not be permitted “to use the shelf registration rule as a basis for omitting required information from their registration statements when they become effective.” Id., 1983 WL 35832 (SEC), *10. Based on concerns about Rule 415’s effect on the adequacy and timeliness of disclosure, the SEC chose to limit the availability of the rule, in the context of primary stock offerings, to the widely-followed companies (like DEC) that are eligible to register securities on SEC Form S-3. See 17 C.F.R. § 230.415(a)(1)(x); Shelf Reg.Rel., supra, 1983 WL 35832 (SEC) at *5; I Loss & Seligman, supra, at 361 & n. 90. The theory was that the concerns about adequacy of disclosure were less prominent in the case of “S-3” registrants, because those companies are precisely the ones that in the ordinary course of their businesses “provide a steady stream of high quality corporate information to the marketplace and whose corporate information is broadly disseminated[ ] ... and is constantly digested and synthesized by financial analysts.” Shelf Reg.Rel., supra, 1983 WL 35832 (SEC), *5. Defendants assert here that the disclosure requirements of the Securities Act and regulations, including Item 11(a) of Form S-3, should be interpreted so that they would never mandate the provision of current information about a company’s performance in the quarter in progress at the time of a public offering, so long as the company satisfies its quarterly and annual periodic disclosure obligations under the Exchange Act. That argument cuts severely against the very reason the shelf registration rule was made available to issuers like DEC: that “S-3” companies would provide the market with a continuous stream of high quality corporate information. The rule permits offerings to be made on a “continuous” or “delayed” basis because it envisions “continuous” disclosure. It would be inconsistent with this rationale to permit an issuer to take refuge in its periodically-filed Forms 10-Q or 10-K to avoid the obligation to disclose current material facts in its shelf offering prospectus. Absent some mechanism requiring a registrant to disclose internally known, material nonpublie information pertaining to a quarter in progress, the shelf registration procedure, by enabling the issuer to pinpoint the timing of its offering, would give a company anticipating a negative earnings announcement the ability to time its offerings of securities from the shelf to be completed prior to the public release of the known negative news. This would allow companies to exploit what amounts to a naked informational trading advantage. Cf. Gordon & Kornhauser, supra, at 819-20. Item 11(a) of Form S-3, by requiring the issuer to disclose current information concerning “material changes” from previously reported data, provides a mechanism — comparable in effect to the “disclose or abstain” rule governing insider trading— to prevent such strategic behavior. In the face of these concerns, DEC argues that the plaintiffs’ claims of nondisclosure are without merit, because they seek to impose liability upon DEC for a failure to disclose its internal projections about the outcome of the third quarter of fiscal 1994. The federal securities laws impose no obligation upon an issuer to disclose forward-looking information such as internal projections, estimates of future performance, forecasts, budgets, and similar data. See, e.g., In re VeriFone Sec. Litig., 11 F.3d 865, 869 (9th Cir.1993); In re Convergent Technologies Sec. Litig., 948 F.2d 507, 516 (9th Cir.1991). Plaintiffs, however, insist that their Section 11 claim is concerned not with the nondisclosure of projections, but of current information that DEC allegedly had in its possession as of March 21, 1994 about “losses” the company was incurring in the ongoing quarter. Defendants respond, in turn, that under a system of quarterly reporting, “losses” cannot be realized until a quarter has ended, and that because the quarter in question did not end until April 2, 1994, whatever information DEC had as of March 21 concerning that quarter necessarily must have been forward-looking, in the nature of a projection or forecast, which it had no obligation to disclose. DEC’S argument elevates form over substance. DEC’s assertion that companies do not realize “losses” as such until a quarter has ended is, of course, largely unexceptionable. But it does not follow that DEC’s only information concerning the ongoing quarter as of March 21 must have been forward-looking. That contention relies on two faulty components. First, it assumes that plaintiffs could not adduce adequate evidence that defendants were actually in possession of material information about the ongoing quarter at the relevant time. Second, it assumes that the potential unreliability of inferences that could be drawn from current information about operating results as of eleven days before the end of a quarter absolutely protects that information from mandatory disclosure. The first premise is inconsistent with the standards governing a Rule 12(b)(6) motion to dismiss. The second confuses the issue of materiality with the duty to disclose. Defendants posit, in essence, that there can never be a duty to disclose internally known, pre-end-of-quarter financial information, because any inferences about the quarter that might be drawn from such information could be rendered unreliable by later developments in the same quarter, such as a sudden surge of profitable sales. This position does not withstand scrutiny. Present, known information that strongly implies an important future outcome is not immune from mandatory disclosure merely because it does not foreordain any particular outcome. The question whether such present information must be disclosed (assuming the existence of a duty), poses a classic materiality issue: given that at any point in a quarter, the remainder of the period may not mirror the quarter-to-date, is there a sufficient probability that unexpectedly disastrous quarter-to-date performance will carry forward to the end of the quarter, such that a reasonable investor would likely consider the interim performance important to the overall mix of information available? As desirable as bright-line rules may be, this question cannot be answered by reference to such a rule. To try to do so would be contrary to Basic, Inc. v. Levinson, 485 U.S. 224, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988). The Supreme Court there refused to adopt a bright-line approach to determine at what stage preliminary merger discussions create a sufficient probability of actual consummation to become material. See id. at 237-39, 108 S.Ct. at 986-88 (rejecting “agreement-in-principle” test). So here. We decline to adopt, as defendants would have us do, a hard and fast rule that current information concerning a company’s operating experience is never subject to disclosure until after the end of the quarter to which the information pertains. Rather, the question is whether the nondisclosure of interim facts rendered the prospectus materially incomplete. An issuer’s compliance with the periodic disclosure requirements of the Exchange Act does not per se preclude such undisclosed facts from being material. By the same token, we reject any bright-line rule that an issuer engaging in a public offering is obligated to disclose interim operating results for the quarter in progress whenever it perceives a possibility that the quarter’s results may disappoint the market. Far from it. Reasonable investors understand that businesses fluctuate, and that past success is not a guarantee of more of the same. There is always some risk that the quarter in progress at the time of an investment will turn out for the issuer to be worse than anticipated. The market takes this risk of variability into account in evaluating the company’s prospects based on the available facts concerning the issuer’s past historical performance, its current financial condition, present trends and future uncertainties. But, strong-form efficient market theories aside, the ability of market observers to evaluate a company depends upon the information publicly available to them. If, as plaintiffs allege here, the issuer is in possession of nonpublic information indicating that the quarter in progress at the time of the public offering will be an extreme departure from the range of results which could be anticipated based on currently available information, it is consistent with the basic statutory policies favoring disclosure to require inclusion of that information in the registration statement. We do not mean to imply, however, that nondisclosure claims similar to those asserted by plaintiffs here can never be disposed of as a matter of law. In many circumstances, the relationship between the nonpublic information that plaintiffs claim should have been disclosed and the actual results or events that the undisclosed information supposedly would have presaged will be so attenuated that the undisclosed information may be deemed immaterial as a matter of law. Cf. VeriFone, 11 F.3d at 867-70 (affirming dismissal of claim that registration statement allegedly failed to disclose information concerning development that came to light six months later); Krim v. BancTexas Group, Inc., 989 F.2d 1435, 1439, 1449-50 (5th Cir.1993) (affirming summary judgment disallowing claim that prospectus failed to disclose information of developments that matured four months later); Convergent, 948 F.2d at 509-11, 515-16 (same, where prospectuses in March and August 1983 allegedly failed to disclose negative developments announced in February 1984); Zucker v. Quasha, 891 F.Supp. 1010, 1012, 1018 (D.N.J.1995) (dismissing complaint based on alleged nondisclosure in March 31 registration statement of information relating to results of period ending July 2), aff'd, 82 F.3d 408 (3d Cir.1996) (table, No. 95-5428). In such circumstances, where the allegedly undisclosed information is sufficiently remote in time or causation from the ultimate events of which it purportedly forewarned, the plaintiffs claim of nondisclosure may be indistinguishable from a claim that the issuer should have divulged its internal predictions about what would come of the undisclosed information. Cf. VeriFone, 11 F.3d at 869 (characterizing plaintiffs’ claims of nondisclosure of “adverse material facts and trends” as of March 13 as claims that defendants failed to disclose forecasts of news actually released to public on September 17). Here, however, the prospectus in question was filed 11 days prior to the end of the quarter in progress. The results for that quarter turned out to be, by all accounts, the product of more than a minor business fluctuation. Accepting, as we must, the plaintiffs’ allegation that DEC, by March 21, 1994, was in possession of information about the company’s quarter-to-date performance (e.g., operating results) indicating some substantial likelihood that the quarter would turn out to be an extreme departure from publicly known trends and uncertainties, we cannot conclude as a matter of law and at this early stage of the litigation that such information was not subject to mandatory disclosure under the rubric of “material changes” in Item 11(a) of Form S-3. We conclude, accordingly, that the Wilensky plaintiffs’ complaint as to this theory states a legally cognizable claim under Section 11 of the Securities Act. B. Actionability of Statement Concerning Restructuring Reserves The Wilensky plaintiffs also allege that the registration statement and prospectus for the March 21 offering contained a materially false and misleading statement actionable under both Sections 11 and 12(2). They contend that the statement of DEC’s “belie[f]” as to the “adequacy” of the then-remaining $443 million restructuring reserve “to cover presently planned restructuring actions” was false and misleading, in light of information contemporaneously known to the company. 1. Background The “restructuring reserve” referred to in the prospectus supplement originated as a $1.5 billion charge taken by DEC at the close of its fiscal year 1992 (ended June 27, 1992) as part of the company’s ongoing efforts to streamline the company “to achieve a competitive cost structure.” The reserve was intended to cover the anticipated costs of employee separations, facilities consolidations, asset retirements, relocations, and related expenses. The company had absorbed similar restructuring charges of $1.1 billion and $550 million in fiscal years 1991 and 1990, respectively. During fiscal year 1993, DEC took a number of actions consistent with the $1.5 billion dollar reserve recorded at the end of fiscal year 1992. By the end of the fiscal year (July 3, 1993), the remaining reserve was reported to be approximately $739 million. During the first two quarters of the next fiscal year, the company continued to draw from the reserve, so that by the end of the second quarter (January 1,1994), the reserve stood at approximately $443 million. In its Form 10-Q for that quarter, dated February 4, 1994 (and incorporated by reference into the registration statement and prospectus at issue here), DEC stated its belief that the $443 million reserve was “adequate” to cover restructuring activities planned at that time. This statement was repeated in the prospectus supplement dated March 21, 1994. The full statement, with its immediately surrounding context, was as follows: While spending for R & E [research & engineering] and SG & A [selling, general & administrative] is declining, the Corporation believes its cost and expense levels are still too high for the level and mix of total operating revenues. The Corporation is reducing expenses by streamlining its product offerings and selling and administrative practices, resulting in reductions in employee population, closing and consolidation of facilities and reductions in discretionary spending. The Corporation believes that the remaining restructuring reserve of $443 million is adequate to cover presently planned restructuring actions. The Corporation will continue to take actions necessary to achieve a level of costs appropriate for its revenues and competitive for its business. As events turned out, additional restructuring charges were in fact taken later in fiscal year 1994. At the time of the company’s announcement on April 15, 1994 of the $183 million loss for the third fiscal quarter of 1994, defendant Palmer stated that he had already instructed management to “accelerate [the company’s] on-going restructuring efforts” and that the company would “consider further restructuring to achieve [its] goals.” In line with these statements, the company announced on July 20, 1994 (just after the close of fiscal year 1994) that it had decided to take an additional restructuring charge of $1.2 billion in fiscal year 1994 (ended June 30,1994). 2. Whether the Statement Was Misleading Although defendants were required to disclose the size of the remaining restructuring reserve in the registration statement and prospectus as affecting the company’s liquidity and capital resources, the characterization of the reserve as adequate was arguably voluntary. But whether voluntary or not, DEC’s description of its belief as of March 21, 1994 that the remaining $443 million reserve was “adequate” carried with it an obligation to ensure that the representation was not misleading. See Roeder, 814 F.2d at 26; cf. Serabian v. Amoskeag Bank Shares, Inc., 24 F.3d 357, 365 (1st Cir.1994) (“[I]f a defendant characterizes ... reserves as ‘adequate’ or ‘solid’ even though it knows they are inadequate or unstable, it exposes itself to possible liability [under the securities laws].” (quoting Shapiro v. UJB Financial Corp., 964 F.2d 272, 282 (3d Cir.), cert. denied, 506 U.S. 934, 113 S.Ct. 365, 121 L.Ed.2d 278 (1992))); cf. also In re Wells Fargo Sec. Litig., 12 F.3d 922, 930 (9th Cir.1993), cert. denied, — U.S. —, 115 S.Ct. 295, 130 L.Ed.2d 209 (1994). Plaintiffs assert that defendants failed to meet that obligation. The undeniable purport of the “adequacy" statement is that DEC had no plans as of the date of the prospectus supplement to engage in actions that would require the taking of a restructuring charge beyond the $443 million then remaining in “reserve.” This was false or misleading, plaintiffs say, because DEC knew as of March 21, 1994 that further restructuring actions would be necessary to put the company back on the right track after its impending third quarter setback, and that these actions would deplete the remaining reserve and require further restructuring charges to be taken. Defendants reply, as the district court noted, that whatever the natural implication of the “adequacy” statement, its context sufficiently “bespeaks caution” to render any misleading inference from the statement immaterial as a matter of law. We do not agree. The “bespeaks caution” doctrine “is essentially shorthand for the well-established principle that a statement or omission must be considered in context.” In re Donald J. Trump Casino Sec. Litig., 7 F.3d 357, 364 (3d Cir.1993), cert. denied, — U.S. —, 114 S.Ct. 1219, 127 L.Ed.2d 565 (1994); see also Rubinstein v. Collins, 20 F.3d 160, 167 (5th Cir.1994). It embodies the principle that when statements of “soft” information such as forecasts, estimates, opinions, or projections are accompanied by cautionary disclosures that adequately warn of the possibility that actual results or events may turn out differently, the “soft” statements may not be materially misleading under the securities laws. See Romani v. Shearson Lehman Hutton, 929 F.2d 875, 879 (1st Cir.1991); see also Harden v. Raffensperger, Hughes & Co., 65 F.3d 1392, 1404 (7th Cir.1995); In re Worlds of Wonder Sec. Litig., 35 F.3d 1407, 1413-14 (9th Cir.1994) (collecting cases), cert. denied, — U.S. —, 116 S.Ct. 185, 133 L.Ed.2d 123 (1995); Rubinstein, 20 F.3d at 166-68; In re Trump, 7 F.3d at 371-72; I. Meyer Pincus & Assocs. v. Oppenheimer & Co., 936 F.2d 759, 763 (2d Cir.1991). In short, if a statement is couched in or accompanied by prominent cautionary language that clearly disclaims or discounts' the drawing of a particular inference, any claim that the statement was materially misleading because it gave rise to that very inference may fail as a matter of law. In re Trump, 7 F.3d at 364. Here, however, the bespeaks caution doctrine does not preclude a claim that the reserve “adequacy” statement was materially misleading. The “adequacy” statement has both a forward-looking aspect and an aspect that encompasses a representation of present fact. In its forward-looking aspect, the statement suggests that DEC would take no further restructuring charges in the near-term future. In its present-oriented aspect, it represents that as of March 21, 1994, DEC had no current intent to undertake activities that would require any such further restructuring charges to be taken. To the extent that plaintiffs allege that the reserve “adequacy” statement encompasses the latter representation of present fact, and that such a representation was false or misleading when made, the surrounding cautionary language could not have rendered the statement immaterial as a matter of law. See Harden, 65 F.3d at 1405-06 (explaining that the bespeaks caution doctrine cannot render misrepresentations of “hard” fact nonaetionable). Furthermore, to the extent that plaintiffs allege that the “adequacy” statement implies a hiatus on new restructuring charges for the near future, we do not think that the surrounding context warns against such an implication with sufficient clarity to be thought to bespeak caution. See Fecht v. Price Co., 70 F.3d 1078, 1082 (9th Cir.1995), cert. denied, — U.S. —, 116 S.Ct. 1422, 134 L.Ed.2d 547 (1996). The prospectus supplement does state that DEC will “continue to take actions,” but it is at best ambiguous whether those “actions” refer to any restructuring activities other than those “presently planned.” Thus, one might easily interpret the purportedly cautionary statement, especially in light of the “adequacy” characterization, to mean that the company’s ongoing “actions” will continue to be covered by the existing restructuring reserve. If it was true, as plaintiffs allege, that defendants knew as of March 21, 1994 that DEC’s performance in the third quarter would precipitate actions on a scale and schedule that would necessitate the taking of additional restructuring charges, the “adequacy” statement may well have been materially misleading. We cannot conclude, as a matter of law and on these pleadings, that the actionability of the “reserve adequacy” statement is precluded by a context that bespeaks caution. The cautionary statements to which defendants point did not provide an unambiguous warning of the possibility that DEC might take additional restructuring charges in the near future — as it turned out, a charge of $1.2 billion in the fiscal year then in progress. See id. at 1082 (bespeaks caution doctrine provides basis for dismissal as matter of law “only when reasonable minds could not disagree as to whether the mix of information in the [allegedly actionable] document is misleading” (emphasis in original)); Rubinstein, 20 F.3d at 167-68 (stating that questions of whether disclosures were sufficiently cautionary may not always be resolved as a matter of law). Accordingly, we hold that the district court erred in concluding that the plaintiffs’ allegations pertaining to the prospectus supplement’s description of the restructuring reserve as “adequate” fail to state a claim under Sections 11 and 12(2). C. Whether Defendants Are Statutory “Sellers” As an alternative basis for affirming the district court’s dismissal of the Section 12(2) claim, defendants argue that the Wilensky plaintiffs have failed adequately to allege their status as statutory “sellers.” We conclude that the complaint adequately alleges “seller” status only as to the underwriter defendants. The dismissal of the Section 12(2) claim as to the other defendants will accordingly be affirmed. In Pinter v. Dahl, 486 U.S. 622, 108 S.Ct. 2063, 100 L.Ed.2d 658 (1988), the Supreme Court described in detail the class of defendants who may be sued as “sellers” under Section 12(1) of the Securities Act. See id. at 641—44, 108 S.Ct. at 2075-77. Section 12(2) defines the persons who may sue and be sued thereunder in language identical to the language used in Section 12(1). Thus, Pinter’s analysis of “seller” for purposes of Section 12(1) applies with equal force to the interpretation of “seller” under Section 12(2). See, e.g., Ackerman v. Schwartz, 947 F.2d 841, 844-45 (7th Cir.1991); In re Craftmatic Sec. Litig., 890 F.2d 628, 635 (3d Cir.1989); Moore v. Kayport Package Express, Inc., 885 F.2d 531, 536 (9th Cir.1989); Wilson v. Saintine Exploration & Drilling Corp., 872 F.2d 1124, 1125-26 (2d Cir.1989); Dawe v. Main St. Management Co., 738 F.Supp. 36, 37 (D.Mass.1990). A person who “offers or sells” a security may be liable -under Section 12 to any person “purchasing such security from him.” 15 U.S.C. § 771 (2) (emphasis added). Although the “purchasing from” language in the statute literally appears to contemplate a relationship between defendant and plaintiff “not unlike traditional contractual privity,” Pinter, 486 U.S. at 642, 108 S.Ct. at 2076, the Pinter Court held that Section 12 liability is not limited to those who actually pass title to the suing purchaser. See id. at 645, 108 S.Ct. at 2077-78. This is so because even “[i]n common parlance,” a person may “offer or sell” property without actually passing title. Id. at 642, 108 S.Ct. at 2076. For example, a broker or agent who solicits a purchase “would commonly be said ... to be among those ‘from’ whom the buyer ‘purchased,’ even though the agent himself did not pass title.” Id. at 644, 108 S.Ct. at 2077. Furthermore, because “solicitation is the stage at which an investor is most likely to be injured,” id. at 646, 108 S.Ct. at 2078, the Court found it consistent with the policies of the statute to permit imposition of liability on a non-owner of securities who “successfully solicits” the plaintiffs purchase of the securities, provided that the solicitor is “motivated at least in part by a desire to serve his own financial interests or those of the securities owner.” Id. at 647, 108 S.Ct. at 2078. The Pinter Court limited its holding in ways that govern the result here. The Court held that the “purchasing ... from” requirement of Section 12 limits the imposition of liability to “the buyer’s immediate seller,” and thus, “a buyer cannot recover against his seller’s seller.” Pinter, 486 U.S. at 644 n. 21, 108 S.Ct. at 2077 n. 21 (citations omitted). Second, the Court stated that proof the defendant caused a plaintiffs purchase of a security is not enough to establish that the defendant “solicited” the sale for Section 12 purposes. See id. at 651, 108 S.Ct. at 2080-81 (explaining that “[t]he ‘purchase from’ requirement of § 12 focuses on the defendant’s relationship with the plaintiff-purchaser” and rejecting use of a test under which