except when you're buying land and building on it and you want to get the money you're not making any money you're sitting on a big asset house you've built land you've been improved we don't have any earnings to show for that if you're a public company you've got to show earnings so how did they get around transcript of the argument before judge man which is quite a few years ago now something one of defendants that caught my eye last night was going through the transcript it seems like in addition to having to pay the interest on the loan and being responsible for  dollars not as loan proceeds but the defendants seem to indicate that they took in as revenue would be even worse in essence they were willing to wait to sell the property and get the money to realize the profits they wanted to pretend they had earn more properties the company is growing second quarter of one thousand nine hundred eight and they said the u s mortgage transaction this time i thought a little bigger not three million dollars they said let's borrow eight and a half million dollars same thing same special purpose anthony the lenders he's giving them money they're taking the money and they have to pay the interest on the loan never really earn any income for that transaction items sold any properties yet third quarter of ninety eight once again they say let's go back to the the stock transaction they buy company called diamond t in arizona this company was much bigger fourteen properties under construction of that song and you get to the fourth quarter of ninety eight  saxton says well i don't want to put my own money into the company anymore like i did the last time as i said one thing to woodstock you can say it somebody loan me money i'll put my stock as collateral if i can't pay back you can take all my stock and get your money back that way so that only sell it on the open market course that only works if there's a market for the public stock and you have to keep the market up to make sure that your collateral still valuable otherwise you're back to let them work for iraqi opening up their own money in buying all these properties should be on your loan schedule where was it value as a set over thirty million dollars it wasn't worth anywhere near that the problem with this is that if they had to sell it they couldn't get thirty million dollars for they can only get fourteen million dollars ford now what they said in one thousand nine hundred eight when duration of leases we're going to get at some point thirty million dollars so we can sort of this is thirty million dollars asset and they also say in a footnote in that one thousand nine hundred ten k we can value this on the public market it's just impossible there's no which they said they were going to sell it somebody put a price on it and it was not the thirty one million dollars that they said it was worth it was fourteen million dollars all of a sudden overnight it was possible to value it and the relevant accounting principles require that it must be valued on your balance sheet and you say it's with x but if you have to sell it and you're only going to get a third of x certainly investor wants to know that this thing is really a worth a third of x if they have to get rid of it it's not really a great asset at all unless you buy a house in a blue market for a million dollars the market crashes as a result if you go back to the ninety's did you know you can only get a half million dollars for your house if you can't go around telling people i'm living in a million dollar house anymore that house is worth a half million dollars i'm really not an accountant obviously i'm a lawyer and a little about accounting one thing that the county experts have been able to drill is my head is a simple principle that when a company is a construction company like this is building a property and the incur interest costs when a building that property while the property still being built then your property then the interest that you're accruing is not an expense on your income statement just gets put into the cost basis of what you're building until the construction more than the original it was her quarter they say we are twenty cents where they really are seven cents interest expense was actually nine times what they said it was when they reported their next this is as i said one of the simplest accounting rules possible you can't mess them up by mistake especially a construction firm this is the bread and butter if they can get this right they don't know anything about accounting it's just impossible showing the brief we don't have to go to any great factual showing in the complaint and it's not appropriate in korea on this motion to dismiss we had asked for leave to a man that was denied by judge may and if necessary in this court feels that it's going to go beyond dow case the started by the circuit so most of it just needs to be some indication the drop was cautiously related to the financial misstatements and certainly we can play but here the press collapsed from the truth about sex and finances were revealed and that's what quote from the opinion is that you just have to give an indication of the last on the causal connection to seven mind and certainly we'll be able to do that i think we've already got it but if we need to clarify to me the most recent cases i think we can this case came to him shortly when he got to the federal bench he heard arguments in the case he reserve decision and state court judges sometimes do when he decided he was going to decide in defense favor yes names of the paranoid or so the defendant the transactions i understand the purchases by your clients occurred before the autumn report which is the subject of your client against allowing right that is regulated but you do not have to have somebody who purchased at each point in the class period honor that's your question directly so your alliance only is that if you get the class certified someone somewhere will have an action and you can rely on that that's what you're relying on right no you subset class if you're arguing against any particular defendant you have no traceable injury to your clients from the lights actions for the client on the complaint no you're right yeah it wasn't like this was one of a thousand properties and i kind of missed it in the sampling thing i mean that this one so that part of the company as i said the second largest asset and they should have taken a close look at that especially a lot of the other red flags  which mr pickett so i'm going to try to limit my comments to ten minutes and the way that mr pickett and i thought we would divide the argument is that in terms of talking about the specific resulted in the restatement and i also want to talk about last causation which i think is a very important issue and the issue of the dismissal with prejudice without leave to a man i should start with the last issue if you don't mind your honor i mean it seems to me that  case first of all i think it's important to describe the fact that case in look in the court of appeals emphasized that more than six months has elapsed between the filing of the original lawsuit and the fin consolidated amended complaint then there was three months between when the defendants filed a motion to dismiss and the oral argument on that during which the ninth circuit panel said they could have amended if they wanted too and there was a parent futility there was just no you know suggestions as to what they were going to do to a minute well those facts are almost identical to those that were before judge mann the original complaint was months later they filed the consolidated to many complaint i think it was going to cover ninety two thousand one then the motions to dismiss were filed in november two thousand and one and not heard until the end of march of two thousand and two so there was a again a long period of time between when the planes were on notice of what the alleged deficiencies were and when the hearing was during which time they could have done further investigation they could have at least come up with something to say to judge me and when he asked them what are you guys going to do if i give you leave to  avoiding clichs they said they only got one bite at the apple in this case as i said that wasn't true they actually they and then did it multiple times and had plenty of other opportunities to amend and just think what they're further amendments would be if they could do  so here not only were punished unable to tell judge me and what their amendment would be they've been unable to provide any specificity in their opening brief in their reply brief and as far as i could tell at oral argument as to exactly they're going to allege that will meet the pleading requirements of the reform act that was established science or in this case i think the only conclusion that can be drawn from the plaintiff's silence on the subject is that they have nothing further to say that was the finding by judge me as you kill it that's the basis on which he made this decision and the i think i just well supported by precedent in the circuit over and over graphics and you could look at one of the three s s q nine ninety one verify on where you could look at eleven thirty eight seventy two and the vantage where i would suggest looking at two eighty three after third at ten ninety eight so under the abuse of discretion standard under the under the clear and settled authorities in the circuit and million shares of stock while the price went from eight dollars to zero they went down with the ship losing thirty million dollars in paper wealth while this happened each of his children held more than half a million shares this allegation about the diamond he could key home sale which i think we've dealt with effectively in our papers but if the court has any questions about that i'll be happy to address that like to spend at least the remaining two minutes i have on unlock causation supreme court found to be insufficient in the direct case any attempt to plead last causation in this case would clearly be futile based upon the record before this court the restatement was disclosed on may fifteen goes up slightly it doesn't go down there will be no possible way that players can argue or allege that the stock price fell significant lipan the disclosure of that finally as to the other two remaining tagalong claims the alleged secret loan in the court of madeira transaction the alleged crematoria revenue on the south alley project there was never any disclosure of those alleged errors the public never any opportunity for the stam held that allegations of quote a seriously botched audit in which quote the auditor agree just me failed to see the obvious stated a compelling case of negligence perhaps even gross negligence but did not give rise to the required strong inference that the auditor acted with an intent to defraud the requirements of alleging specific practices that amount to no audit at all is grounded in the fact that absent special circumstances auditors have no incentives to participate in the fraud and here there are absolutely no allegations whatsoever that begin to splaying why i don't know it would have been motivated to put its individual accountants reputations and sta in connection with this alleged fraud the section of the complaint about motive of defendants never even mentions deloitte and plaintiffs never addressed this fundamental gap in their allegations moreover the allegations in this case virtually unique among reform act precedents and that they are based on a theory that plainest were defrauded by two audited financial statements the second of which disclosed the company lost over thirty million dollars was the reporting dire financial news issuing a going concern qualification is not the sort of fraud and completely cuts against the inferences that plaintiff would have you take let's look at the very second that's the second audit report right that is the second correct the first one there are there is a least one purchase on there and now let's look at the three tag along transactions these are the only issues addressed to the line it's important to know the outset that none of these transactions was ever restated materials those allegations are entirely consistent with the completion of the completion method of revenue recognition disclosed by sas and in its ten k and plaintiffs never allege any specific facts from which are contrary project paying all expenses including loan payments as passed through payments it's nothing sinister about these arrangements and council this afternoon speaks of them as enron type transactions but there's no specific allegation that that's true there's not nothing on the record that would support that that's the kind of broad based challenge that the reform act was designed to eliminate now most importantly with respect to court i mean there are plaintiff's allegations are perfectly consistent with the design bill practiced paragraph twenty three of the complaint specifically alleges that alone was made to court immature l l c not to accident think once again the allegations support the financial statements us mortgage loan as the other documentation never gets any of the specifics required by the reform act never talks about what happened to the money where it went how it was related to the construction and any of that these specific facts must be looked at in terms of the balance of inferences and given saxton's conceded hamann practice of design build projects it is at least equally plausible if not more plausible that this was another design goal project just like the court of the euro project the far more reasonable inch inference is taken in this case where the deloitte did its audit considered all the evidence and came up with many negative facts in connection with the company but came up with a reasonable on it there is absolutely no evidence of the the issue with respect to whether judge man properly dismissed with prejudice first plaintiffs have never argued in the in any of the briefs below oral argument or in the briefs here that they had they needed some more opportunity to come up with allegations here argument is a hollow always has been that the current allegations of this complaint are sufficient not that they have something more and second the allegations themselves demonstrate the futility of additional allegations even if they could come up with something they show that the financial statements were not restated they show that serious financial difficulties including the ability appropriate to ninety eight and thirty eight ninety eight and finally the only answer when your honour's posed the question to plaintiff as to what new allegations do you have we get the same sort of  nonspecific not compliant with reform act requirement about some kind of allusion to off balance sheet reporting that is not sufficient under the reform act this is a clear cut case where the dismissal was appropriate then he also added on paper and that's exactly right you can go down with any ship of the people that went out the ship for the poor unfortunate class members who get paid tens of millions of dollars for sex and stock their own money real money and wind up with nothing at the end of the class period saxton was sitting on a family business the talk was only worth of people would pay he kept this going i mean it is only hope was to keep this company going long enough so that stock would actually be worth something in the end he ran out of time the company went under