Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_06-cv-02674/USCOURTS-azd-2_06-cv-02674-1/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 15:78m(a) Securities Exchange Act

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IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Teamsters Local 617 Pension

and Welfare Funds, on behalf

of itself and all other

similarly situated, 

Plaintiff, 

vs.

Apollo Group, Inc.; John G.

Sperling; Todd S. Nelson;

Kenda B. Gonzales; Daniel E.

Bachus; John Blair; John R.

Norton III; Hedy Govenar;

Brian E. Mueller; Dino J.

DeConcini; Peter Sperling; and 

Laura Palmer Noone,

Defendants. 

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No. 2:06-CV-2674-PHX-RCB

 O R D E R

Introduction 

 Since the publication of a series of Wall Street Journal

articles in March 2006, “reporting academic research suggesting

that various companies were suspiciously lucky in selecting their

option grant dates[,]” In re MIPS Technologies, Inc., 2008 WL

3823726, at *2 (N.D.Cal. Aug. 13, 2008), countless lawsuits have

been filed across the country alleging backdating of stock options.

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This is one such lawsuit. 

 Lead plaintiff, Pension Trust Fund for Operating Engineers

(“plaintiff”), “a $3.17 billion pension fund[,]” First Amended

Complaint (“FAC”) (doc. 71) at ¶ 16, brings this lawsuit against

Apollo Group, Inc. (“Apollo”), “the largest accredited post

secondary education institution in the United States[.]” Farrell

Decl’n (doc. 80), exh. 2 thereto at 9. Also named as defendants

are various individuals who were Apollo officers and directors

between November 28, 2001, and October 18, 2006 (“the Class

Period”). 

Background

I. Overview of Claims

 Basically, plaintiff alleges that defendants “intentionally

manipulated stock option grants to [Apollo’s] officers, directors

and employees . . . to provide the[m] . . . with a more profitable

exercise price and to under-report [Apollo’s] expenses and thereby

overstate [Apollo’s] earnings.” FAC (doc. 71) at ¶ 2. That 

allegedly fraudulent backdating occurred in three ways. First,

defendants “violate[d] the terms of [Apollo’s] stock option

plan[.]” Id. at ¶ 5(a). Second, they “misrepresent[ed] how the

options [we]re priced[.]” Id. at ¶ 5(b). Third, defendants

“fail[ed] to properly record expenses associated with these option

grants under GAAP [Generally Accepted Accounting Principles].” Id.

at ¶ 5(c). 

 As a result of this alleged backdating “scheme, Apollo [was]

forced to restate its previously filed financial statements for

fiscal years 2001 through the second quarter of 2006 by over $59

million[.]” Id. at ¶ 2. That “scheme” likewise purportedly

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1 Apollo and the individual defendants will be referred to collectively

throughout as “the defendants,” unless necessary to distinguish among them.

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“caused” Apollo to issue “materially false and misleading”

financial statements during the Class Period, “resulting in an

artificial inflation of [Apollo’s] stock price, the disclosure of

which caused investors to lose hundreds of millions of dollars.” 

Id. Through this “scheme,” defendants also supposedly “concealed

that Apollo was not recording material compensation expenses and

was materially overstating its net income and earnings per share,

in violation of . . . [GAAP].” Id. During the Class Period

plaintiff purchased Apollo stock which, in light of the foregoing,

it alleges was purchased at artificially inflated prices.

 Plaintiff alleges violations of §§ 10(b) and Rule 10b-5, 

20(A)(a), and 20(a) of the Securities and Exchange Act of 1934

(“Exchange Act”), as amended by the Private Securities Litigation

Reform Act of 1995 (“the PSLRA”), against all defendants. It

further alleges that all defendants violated a host of fiduciary

duties under Arizona state common law “and/or aided and abetted” in

the violation of those duties. Id. at 94. Lastly, plaintiff

alleges that defendants Nelson, Blair, Norton, Gonzales, Bachus and

Mueller engaged in a “civil conspiracy to commit fraud[.]” Id. at

95. 

 Currently pending before the court is Apollo’s motion to

dismiss pursuant to Fed. R. Civ. P. 12(b)(6) (doc. 81), and the

individual defendants’1

 motions to dismiss on that same basis (doc.

82). Additionally, Apollo and the individual defendants have each

filed a “Request for Judicial Notice” (“RJN”)(docs. 79 and 83),

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2 Given the parties’ comprehensive memoranda of law, including

supplemental memoranda ordered by the court, and other submissions, the court

denies the parties’ respective requests for oral argument, finding that it will not

aid the court in its decisional process. See Mahon v. Credit Bureau of Placer

County, Inc., 171 F.3d 1197, 1200 (9th Cir. 1999). 

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which plaintiff does not oppose.2

II. Overview of Allegations

 As the court in In re New Century, 2008 WL 5147991 (C.D.Cal.

2008), astutely observed, “in the securities class action context,

the stringent pleading requirements appear to invite both parties

to throw everything and the kitchen sink into their respective

pleadings and motions to dismiss.” Id. at *9. This case is no

different. In an effort to separate the wheat from the chaff, at

the outset the court will summarize plaintiff’s allegations. It

will then go on to consider each of defendants’ numerous dismissal

arguments.

 The following facts, which the court must “accept[] as true” on

these motions to dismiss, are derived from the FAC. See South

Ferry LP, No. 2 v. Killinger, 542 F.3d 776, 782 (9th Cir. 2008)

(citation omitted). Additionally, as explained below, these facts

are also derived from various documents which the FAC either

incorporates by reference or of which the court may properly take

judicial notice. From these documents, the following general

picture emerges of Apollo’s stock option grant process during the

Class Period. More details will be provided herein as necessary to

resolve these motions to dismiss. 

 Defendants vigorously deny that they engaged in fraudulent

backdating of stock options. Rather, as Apollo depicts it, the

Company merely “failed . . . to dot all ‘i’s and cross all ‘t’s

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when completing the paperwork necessary to grant stock options.” 

Mot. (doc. 81) at 7. The individual defendants similarly maintain

that at most “innocent accounting errors[]” were made. Mot. (doc.

82) at 13. Given these widely divergent views of Apollo’s stock

option grant practices, before turning to the specific allegations

in the FAC, an overview of stock option grants in general is

warranted.

 A. The Rudiments of Stock Option Backdating

 In re CNET Networks, Inc., 483 F.Supp.2d 947 (N.D.Cal. 2007),

provides a succinct description of “the mechanics of stock-options

backdating[,]” from which this court will heavily borrow. See id.

at 949. When a company grants a stock option to an employee, that

employee has “the right to purchase the stock at the exercise price

at a later date after the option vests.” Id. at 949. The

“exercise price” is simply a pre-determined or designated price at

which the underlying security may be purchased. See FAC (doc. 71)

at 1, ¶ 3. Due to that later vesting date, “[i]f the stock price

rises, the employee stands to make a profit.” CNET Networks, 483

F.Supp.2d at 949. Conversely, “[i]f the stock price falls below

the exercise price, the option is worthless to the employee.” Id. 

 So-called “at-the-money” options are those “where the exercise

price is at the market price as of the date of the grant[.]” Id.

On the other hand, “in-the-money” options, which the FAC alleges

were the type granted here, are those “where the exercise price is

lower than the market prices as of the grant date[.]” Id. The

distinction between these two types of options is significant for

financial reporting purposes. Companies must “record compensation

costs for granting in-the-money options because the company

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effectively receives a lower price than it could get for the shares

on the open market[.]” Id. Not recording such options, as the FAC

alleges, results in overstating a company’s net income. See FAC

(doc. 71) at 4, ¶ 8. On the other hand, there is no need to record

compensation costs “for at-the-money options because the exercise

price is the same as the market price.” CNET Networks, 483

F.Supp.2d at 949. Consequently, “[t]he company is not foregoing

any revenue.” Id. “Backdating occurs when the option’s grant date

is altered to an earlier date with a lower, more favorable price to

the recipient.” Id. at 950. This “[b]ackdating is done to avoid

compensation expenses.” Id. at 956. 

 B. Apollo Stock Option Grants

 Like many publicly held companies, as part of its compensation

plan, Apollo granted stock options to its executives and employees. 

Plaintiff alleges that Apollo engaged in impermissible stock option

backdating under two separate compensation plans whereby it awarded

“Management Grants” – the Long Term Incentive Plan (“LTIP”) and the

2000 Stock Incentive Plan. See FAC (doc. 71) at ¶ 41. Under the

LTIP, between June 1994 to March 24, 2000, “Apollo issued stock

option grants to Section 16 officers[.]” Id. at ¶ 42. The LTIP

expressly required that the exercise price of “Incentive Stock

Option[s] [(“ISO)]” thereunder could “not be less than the Fair

Market Value of a share of [s]tock on the date of [the] grant[.]”

Id. at ¶ 42 (internal quotation marks and citation omitted). That

limitation on the exercise price pertained only to ISOs, however. 

As to other stock options, the LTIP allowed the Compensation

Committee to determine the exercise price, with no mention of fair

market value. Id., exh. B thereto at ¶ 7.1(a). The LTIP also

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required that both members of that Committee, defendants Norton and

Blair, approve all grants made thereunder. Id. at ¶¶ 42; 22 and

23. 

 “After March 24, 2000, . . . Management Grants” were awarded

pursuant to the 2000 Plan. Id. at ¶ 43. That Plan required grant

approval by the two member Compensation Committee, i.e. defendants

Blair and Norton, “or by both the President and CEO[,]” which

during the relevant time frame was the same person, defendant

Nelson. Id. The FAC further alleges that “both Nelson and the

Compensation Committee” approved backdated grants “during the

relevant period.” Id. (emphasis added). Defendant Nelson had the

“authority to approve” option grants under the 2000 Plan for not

only other employees, but also for himself. Id.

 The 2000 Plan differed somewhat from the LTIP in terms of the

exercise price. Like the LTIP, the exercise price for any ISO

could “not be less than the Fair market Value as of the date of the

grant.” Id., exh. C thereto at ¶ 7.2(a). As for certain other

options, however, the Compensation Committee could grant options

“with an exercise price of less than Fair Market Value on the date

of grant.” Id., exh. C thereto at ¶ 7.1(a). 

 Quoting directly from the Restatement, the FAC alleges that the

process of granting stock options at Apollo “followed a similar

pattern each year[,]” with the initial development of a “list of

grantees.” Id. at 63, ¶ 106. In the ensuing weeks, adjustments

would be made as to names, shares and “underlying vesting goals 

. . . developed.” Id. at 64, ¶ 106. At times during this process

there was insufficient documentation as to when, for example,

certain grants were actually finalized. See generally id. at 63-

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67, ¶ 106. As defendants characterize it, these “documentation

errors led Apollo to recognize additional compensation expenses of

$52.9 million before tax for the years 1994 to 2005.” Mot. (Doc.

82) at 9 (citing FAC at 63). 

 Despite defendants’ depiction of the grant process at Apollo,

plaintiff alleges that on June 28, 2006, “the truth beg[a]n to

emerge” regarding Apollo’s alleged backdating scheme. FAC (doc.

71) at 56, VII. On that date, a Lehman Brothers analyst “published

a report titled, ‘Did Apollo Backdate Options?’[.]” Id. at ¶ 89. 

Based upon an indication in that Report that “Apollo[‘s] . . .

option grant history looks highly questionable[,]” the FAC alleges,

“Apollo’s stock price fell 2.7%” from the preceding day. Id. at 

¶ 89 (internal quotation marks omitted) (emphasis added in FAC).

 Apollo responded by issuing a news release stating, among other

things, that after an internal review of its stock option practices

“Management believes that it has complied with all applicable laws,

. . . in granting options to officers and it has not backdated

options.” Farrell Decl’n (doc. 80), exh. 3 thereto at 3; see also

FAC (doc. 71) at ¶ 91. Apollo further signaled its intent “to hire

an outside firm to review and confirm [Apollo’s] conclusions.” Id.

 Several weeks later, on June 19, 2006, Apollo “disclosed that

it had received a subpoena from the U.S. Attorney for the Southern

District of New York requesting documents relating to [its] stock

option grants.” FAC (doc. 71) at 58, ¶ 92. Shortly thereafter, on

June 28, 2006, defendant John Sperling, at the time Apollo’s Acting

Executive Chairman, and defendant Peter Sperling, Apollo’s Senior

Vice President, “appointed a [S]pecial [C]ommittee . . . of the

Board to oversee a review of” Apollo’s stock option grant

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practices. Id. at ¶ 93. Defendant Hedy Govenar was one of two

Apollo Board members appointed to that Special Committee. Id. The

Special Committee “retain[ed] independent legal counsel, who in

turn, retained forensic accountants, to assist them in conducting

an independent review of [Apollo’s] historical practices related to

stock option grants[.]” Morrison Decl’n (doc. 83), exh. 1 thereto

at 5. Soon after the formation of the Special Committee, Apollo

“received a letter from the SEC [Securities Exchange Commission]

announcing an informal investigation and requesting documents.” 

FAC (doc. 71) at ¶ 94 (footnote omitted).

 Due to that “ongoing investigation[,]” on July 13, 2006,

“Apollo announced that . . . it was unable to timely file with the

SEC its [fourth quarter] Form 10-Q[.]” Id. at ¶ 95 (internal

quotation marks omitted). Plaintiff alleges that Apollo’s stock

dropped “23.5% from a close of $55.47 on June 8, 2006, to a close

of $43.51 on August 8, 2006, in significant part due to the[se]

disclosures of backdating.” Id. at ¶ 96.

 On October 18, 2006, Apollo “issued a news release and

disappointing earnings announcement[.]” Id. at ¶ 98. The alleged

import of those statements is that “for the first time, and in

contrast to Apollo’s previous denials, . . . ‘various deficiencies

in the process of granting and documenting stock options have been

identified to date. The accounting impact of these matters has not

been quantified. There can be no assurances that the results of

the investigation will not require a possible restatement of the

Company’s financial statements when the potential errors are

quantified and assessed.’” Id. (emphasis added in FAC). Following

that announcement, Apollo’s stock price fell “22.0% in one day to a

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4-year low of $37.55[.]” Id.

 C. Special Committee Results

 On November 3, 2006, Apollo “announced the [Special

Committee’s] interim factual findings[.]” Id. at ¶ 99. Those 

findings “identified various deficiencies” in terms of “the process

of granting and documenting stock options.” Id. Among those

deficiencies were Apollo’s failure to “correctly apply the

requirements of Accounting Principles Board . . . Opinion No. 25

[(“APB 25")][;]” its misapplication of the Internal Revenue Service

(“IRS”) Code “with respect to the contemporaneous tax treatment of

certain stock options[;]” and “inaccurate documentation concerning

the date that grant award lists were completed and approved.” Id.

Despite those deficiencies, at that juncture the Special Committee

“found no direct evidence that the grant date for any of the large

management grants was selected with the benefit of hindsight.” 

Morrison Decl’n (doc. 83), exh. 3 thereto at 3. Acknowledging the

“possibility” in “two instances” that “the grant date was

retroactively selected,” nonetheless, Apollo stated that there was

“insufficient evidence at th[at] time to reach such a conclusion.” 

Id. On that same date, Apollo announced that its Chief Financial

Officer and Treasurer, defendant Gonzales, had resigned two days

earlier, on November 1, 2006. FAC (doc. 71) at ¶ 99. Following

the Special Committee’s announcement, the FAC alleges that

“Apollo’s stock price dropped another 2.72%[.]” FAC (doc. 71) at 

¶ 100. 

 A few days later, on November 9, 2006, Apollo announced another

resignation -- the November 5, 2006 resignation of defendant

Bachus, Apollo’s Chief Accounting Officer and Controller. Id. at 

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¶ 102. Allegedly, “Bachus resigned as a result of his involvement

in the backdating at Apollo[.]” Id. (citation omitted). During this

roughly one week period in early November 2006, plaintiff claims

that Apollo’s “stock price declined 6.2%” – a decline which it

specifically alleges was “not due to market or industry-specific

events.” Id. at ¶ 103. 

 On December 8, 2006, the Special Committee “presented their

final factual findings” to Apollo’s Board, findings which “were

largely consistent” with the interim findings outlined above. 

Morrison Decl’n (doc. 83), exh. 4 thereto at 3. Additionally, the

Special Committee “reported . . . that certain former officers took

steps that may have been intended to mask failures in the grant

approval process with respect to [Apollo’s] financial reporting and

payment of taxes.” Id. The Special Committee further advised the

Board that it had “recently discovered additional evidence that

raise[d] questions whether another grant date” besides the two

mentioned earlier, “may have been retroactively selected by a

day[,]” but the Committee stated that there was “insufficient

evidence to reach such a conclusion.” Id. Nonetheless, at that

time Apollo determined that it had “understated its allowance for

doubtful accounts” and had an “associated bad debt expense of

approximately $34 million.” Id., exh. 4 thereto at 4. The next

trading day, after this information was filed with the SEC, the FAC

alleges that Apollo’s stock price “declined by 3.59%[.]” FAC (doc.

71) at ¶ 105. 

D. Restatement

 Roughly six months after the Special Committee released its

final findings, on May 22, 2007, Apollo filed with the SEC “its

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belated Form 10-K containing restated financial results [(“the

Restatement”)]. Id. at ¶ 106. The FAC contains large block quotes

from the Restatement making it difficult to ascertain exactly what

parts thereof plaintiff deems pertinent to its claims. Suffice it

to say for now that the Restatement indicates that Apollo “used

incorrect measurement dates for accounting purposes[]” for 57 of

the 100 total grants made during this time period[,]” Id. at 62, 

¶ 106. “As a result, revised measurement dates were selected for

many grants and resulted in exercise prices that were less than the

fair market value of the stock on the most likely measurement

dates[,]” and Apollo “restated [its] financial results] to record

additional share based compensation expense.” Id. at 63, ¶ 106;

and at 69, ¶ 106. Overall, the “Impact of the Restatement[,]” was

that Apollo’s “retained earnings as of September 1, 2003,” were

“adjusted” downward from $765.2 million to $702.7 million. 

Morrison Decl’n (doc. 83), exh. 1 thereto at 15.

 On July 3, 2007, Apollo announced that the SEC had “completed

its investigation and . . . [it] d[id] not intend to recommend any

enforcement action[.]” Farrell Decl’n (doc. 802), exh. 1 thereto at

2; see also FAC (doc. 71) at ¶ 94 n. 4. Several months after the

filing of the Restatement, but prior to the completion of that SEC

investigation, on November 2, 2006, this action was commenced. 

Approximately one year later, following the appointment of lead

plaintiff and lead counsel, on November 23, 2007, the complaint

which is the subject of these dismissal motions was filed. 

. . .

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 Discussion

I. Scope of Documents Considered

 A. Defendants’ Requests

 Preliminarily, the court will address defendants’ requests for

consideration of documents beyond the complaint. The court will

proceed in this way because “as a general rule, a district court

may not consider materials not originally included in the pleadings

in deciding a Rule 12 motion.” U.S. v. 14.02 Acres of Land More or

Less, 530 F.3d 883, 894 (9th Cir. 2008) (internal quotation marks

and citation omitted). “When ruling on a Rule 12(b)(6) motion to

dismiss, if a district court considers evidence outside the

pleadings, it must normally convert the 12(b)(6) motion into a Rule

56 motion for summary judgment, and it must give the nonmoving

party an opportunity to respond.” U.S. v. Ritchie, 342 F.3d 903,

907 (9th Cir. 2003) (citations omitted). There are two exceptions

to these general rules. The first is the incorporation by

reference doctrine; and the second is the doctrine of judicial

notice. Under either of those doctrines, a court may consider

certain matters beyond the complaint, without converting a motion

to dismiss into a summary judgment motion. See id. at 908

(citations omitted). Here, the defendants are relying upon both

doctrines, which the court will address in turn. 

1. Incorporation by Reference

 It is well settled that, “a court may consider material which

is properly submitted as part of the complaint on a motion to

dismiss without converting th[at] motion . . . into a motion for

summary judgment.” Lee v. City of Los Angeles, 250 F.3d 668, 688-

89 (9th Cir. 2001) (internal quotation marks and citation omitted);

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see also Fed. R. Civ. P. 10(c) (“A copy of a written instrument

that is an exhibit to a pleading is a part of the pleading for all

purposes.”) The incorporation by reference doctrine allows a court

to also “take into account documents whose contents are alleged in

a complaint and whose authenticity no party questions, but which

are not physically attached to the [plaintiff’s] pleading.” 

Knievel v. ESPN, 393 F.3d 1068, 1076 (9th Cir. 2005) (internal

quotation marks and citations omitted). Taking a relatively

expansive view of that doctrine, the Ninth Circuit has recognized

that “[e]ven if a document is not attached to a complaint, it may

be incorporated by reference into a complaint if the plaintiff

refers extensively to the document or the document forms the basis

of the plaintiff’s claim.” Ritchie, 342 F.3d at 908 (citations

omitted). Under those circumstances, “the district court may treat

such a document as part of the complaint, and thus may assume that

its contents are true for purposes of a motion to dismiss under

Rule 12(b)(6).” Marder v. Lopez, 450 F.3d 445, 448 (9th Cir. 2006)

(internal quotation marks and citation omitted). 

 Significantly, in In re Silicon Graphics Secs. Litig., 183 F.3d

970 (9th Cir. 1999), the Ninth Circuit held that on a motion to

dismiss the district court properly invoked the incorporation by

reference doctrine to consider a company’s SEC filings where the

plaintiff alleged the contents of those filings in her complaint

and relied on them as a basis for her allegations. Id. at 986; see

also Fecht v. Price Co., 70 F.3d 1078, 1080 n.1 (9th Cir. 1078)

(affirming district court’s consideration on motion to dismiss of

“full text of the Company’s corporate disclosure documents and 

. . . securities analysts’ reports quoted in the Complaint[]”). 

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 In this action, the FAC is 103 pages, with attached exhibits

totaling 79 pages. It references 11 of the 13 documents which

Apollo requests the court to consider, and 8 of the 12 documents

which the individual defendants request the court to consider. 

Defendants’ requests overlap somewhat.

 Given that plaintiff is not opposing these defense requests,

obviously, there are no authenticity challenges. Thus, under the

incorporation by reference doctrine, the court will consider the

following documents, as necessary, to resolve these motions to

dismiss: 

(1) the July 3, 2007, news release entitled “Apollo

Group, Inc. Announces Completion of SEC Investigation[;]” 

(2) a June 8, 2006, Lehman Brothers Equity Research

Company Update (“the Lehman Report”); 

(3) Apollo’s Form 8-Ks filed with the SEC on October 18,

2006; November 6, 2006; and December 15, 2006; 

(4) excerpts from Apollo’s Form 8-Ks filed with the SEC on

June 12, 2006, and June 20, 2006; 

(5) excerpts from Apollo’s Form 10-K filed with the SEC on

May 22, 2007; 

(6) a Yahoo! Finance print out, documenting the market

price of Apollo’s common stock from December 1998, April

1999, and May 14, 2007 until present; 

(7) excerpts from the November 17, 2006, deposition

transcript of John Sperling in In re Apollo Group, Inc.

Securities Litigation, CV 04-2147-PHX-JAT; 

(8) a September 19, 2006, letter from the SEC’s Chief

Accountant; and 

(9) Apollo “stock trading price information for the

periods January 1, 1998 through December 31, 2001 and

January 1, 2006 through December 31, 2007 downloaded from

Google Finance . . . [.]”

RJN (doc. 79) at ¶¶ 1-10; and RJN (doc. 83).

. . .

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2. Judicial Notice

 Pursuant to Fed. R. Evid. 201, a court may “take judicial

notice of matters of public record and consider them without

converting a Rule 12 motion into one for summary judgment.” 14.02

Acres of Land, 530 F.3d at 894 (internal quotation marks and

citation omitted). That Rule “governs only judicial notice of

adjudicative facts.” Fed. R. Evid. 201(a). The notes following

that Rule define “adjudicative facts” as “simply the facts of the

particular case.” Fed. R. Evid. 201 advisory committee’s note. 

The court may take judicial notice of such facts “as long as the

facts noticed are not subject to reasonable dispute.” Intri-Plex

Technologies, Inc. v. Crest Group, Inc., 499 F.3d 1048, 1052 (9th

Cir. 2007) (internal quotation marks and citation omitted). 

Rule 201 therefore provides an alternative means by which the court

can consider Apollo’s SEC filings, reported stock price history,

and the other publicly available financial documents listed above. 

See Metzler Inv. GmbH v. Corinthian Colleges, Inc., 540 F.3d 1049,

1064, n.7 (9th Cir. 2008) (citation omitted) (“proper” for district

court to take judicial notice of “reported stock price history and

other publicly available financial documents, including . . . SEC

filings[]” on motion to dismiss). 

 The complaint does not reference the remaining four documents

of which the individual defendants request the court to take

judicial notice. Three of those documents also are SEC filings:

(1) Apollo’s Form 8-Ks filed on March 15, 2007, and on May 4,

2007; (2) Apollo’s Articles of Incorporation, filed on August 1,

2000; and (3) the Articles of Amendment thereto, filed in Apollo’s

Form 8-K filed on July 27, 2007. As just explained, the court may

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properly take judicial notice of these various SEC filings. That

is because such filings “are ‘capable of accurate and ready

determination by resort to sources whose accuracy cannot be

reasonably questioned.’” In re White Electronic Designs Corp. Secs.

Litig., 416 F.Supp.2d 754, 760 (D.Ariz. 2006) (quoting In re

Network Assoc., Inc. II Secs. Litig., 2003 WL 24051280, at *1 n. 3

(N.D.Cal. Mar. 25, 2003)) (other citations omitted). The court

stresses that it only is taking judicial notice of “the content” of

these various SEC filings, “and the fact that they were filed with

the agency.” See Patel v. Parnes, 2008 WL 2803076, at *14

(C.D.Cal. May 19, 2008). “The truth of the content, and the

inferences properly drawn from them, however, is not a proper

subject of judicial notice under Rule 201.” Id. (citations

omitted). Accordingly, as in Patel, the court will take judicial

notice of these SEC filings, but only to the extent the individual

defendants are seeking judicial notice of the content of those

documents and the fact of their filing. See id. 

 The last document of which the individual defendants seek to

have this court take judicial notice is a December 4, 2006, court

order in Alaska Electrical Pension Fund, Derivatively on Behalf of

Apollo Group, Inc. v. Sperling, CV-06-2124-PHX-ROS. Curiously,

despite this explicit request, these defendants do not mention that

order either in their motion or in their reply. Nor does their RJN

offer any insight as to why judicial notice of that order is

necessary. The individual defendants merely state that the court

may take judicial notice of the Alaska Electrical order “because it

is an order of another court.” RJN (doc. 83) at 4 (citing U.S. ex

rel. Robinson Rancheria Citizens Council v. Borneo, Inc., 971 F.2d

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244, 248 (9th Cir. 1992)). The court declines to speculate as to

the supposed import of the Alaska Electrical order on this action. 

Accordingly, it denies the individual defendants’ request to take

judicial notice of that order. See White Electronic, 416 F.Supp.2d

at 761 (refusing to take judicial notice where defendants did “not

explain[] why they . . . requested judicial notice”). 

 Like the individual defendants, Apollo also is requesting that

the court take judicial notice of documents which the FAC does not

reference. The first is a news article. On the theory that it is

a “matter of public record and not subject to dispute[,]” RJN (doc.

79) at ¶ 7, Apollo is seeking to have the court judicially notice

“an October 18, 2006 news article entitled ‘Apollo Group Says

Fourth-Quarter Net Income Declines 12 Percent.’” Farrell Decl’n

(doc. 80) at ¶ 8; and exh. 7 thereto. The second document is “[a]

March 8, 2007 NERA Economic Consulting report entitled ‘Options

Backdating: The Statistics of Luck,’ available at

http://www.nera.com/image/PUB Backdating_Part _ III_ Sep2007-

FINAL.pdf[.]” Id. at 3; and exh. 12 thereto. As part of the

“Background” for their motion, the individual defendants included a

section entitled “Stock Options and ‘Backdating’” A Primer[.]” 

Apollo Mot. (doc. 81) at 4 and 15. (Emphasis omitted) Based

generally upon that NERA report, Apollo notes in passing that “one

might reasonably expect companies lawfully to grant options at

times when their stock prices are relatively low, without any

‘backdating.’” Id. at 6, n. 5 (citation omitted). 

 “It is appropriate for the court to take judicial notice of news

articles regarding defendants’ stock or corporate activities[,]”

such as the October 18, 2006, news article identified above, and it

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will. See Patel, 2008 WL 2803076, at 817 (citations omitted). 

This is so even though the complaint does not mention this 

particular article. See Helitrope General, Inc. v. Ford Motor Co.,

189 F.3d at 981 and n.18. The court will therefore take judicial

notice of the October 18, 2006 news article. On the other hand, it

will not take judicial notice of the NERA report because although

Apollo is referenced generally in a table thereto, neither the

report itself nor that table include adjudicative facts properly

subject to judicial notice under Rule 201. 

 B. Plaintiff’s Exhibits

 In opposing these motions, plaintiff also is relying upon

documents not attached to the complaint. Those documents are

exhibits to the declaration of attorney Wood who is associated with

the law firm appointed as lead counsel. In contrast to the

defendants, though, plaintiff did not specifically request that the

court take judicial notice of any of those exhibits. Nonetheless,

the court could, sua sponte, take judicial notice of those

exhibits. See Fed. R. Evid. 201(c). For that reason, and because

those exhibits are part of plaintiff’s opposition, the court must

decide whether to consider any of those exhibits on these Rule 12

motions. 

1. CFRA Educational Report

 In its factual recitation, plaintiff includes a relatively

lengthy quote by an analyst at the Center for Financial Research

and Analysis (“CFRA”). That quote is taken from an “Educational

Report” entitled “Options Backdating - Which Companies are at

Risk[:] A Survey of the Top 100 Users of Stock Options 1997 -

2002[.]” Wood Decl’n (doc. 95), exh. A thereto at 1. Plaintiff

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relies upon an excerpt from that report to summarize “the risks for

companies found to have backdated stock options[.]” Resp. (doc. 94)

at 15. 

 Pursuant to Fed. R. Evid. 201(c), the court in its discretion

may sua sponte take judicial notice of an ajudicative fact. The

court declines to do so with respect to this CFRA report however. 

The primary reason for not taking judicial notice is that, as

Apollo accurately points out, “although th[at] report identifies 32

companies as having the highest risk of having backdated options,

the report does not mention Apollo at all.” Reply (doc. 97) at 15. 

Clearly then this CFRA report does not contain an adjudicative

fact, i.e. “the facts of the particular case[,]” of which this

court may properly take judicial notice. See Fed. R. Evid. 201

advisory committee’s note. The court observes that while it is not

refusing to take judicial notice on this basis, somewhat tellingly,

every page of that report includes the qualifying language that it

is “[f]or the exclusive use [of] Lerach Coughlin Stoia & Robbins,

LLP.” Wood Decl’n (doc. 95), exh. A thereto at 10-26. The

inclusion of that qualifying language calls into question the

objectivity of this CFRA report. 

2. “The Arizona Republic” Article

 Exhibit B to the Wood declaration is a January 17, 2008,

article from “The Arizona Republic” entitled “Apollo Guilty of

Securities Fraud[.]” Wood Decl’n (doc. 95), exh. B thereto at 1. 

If for no other reason, the court will not take judicial notice of

this article because the jury verdict discussed therein was

subsequently set aside by Judge Teilborg. See In re Apollo Group,

Inc. Sec. Litig., 2008 WL 3072731 (D. Ariz. Aug. 4, 2008). Thus,

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even if this “Arizona Republic” article was relevant to the present

case at some point, it no longer is.

3. Verdict Form

 Likewise, the court also will not take judicial notice of, or

otherwise consider exhibit C to the Wood declaration, the jury

verdict form in the Apollo Group case – the same verdict which

Judge Teilborg set aside.

4. Apollo Stock Chart

 The fourth exhibit to the Wood declaration is an untitled one

page document. Neither the source of that document nor its

significance appear on the face thereof. Attorney Wood describes

the columns of numbers contained thereon as an “Apollo

stock chart showing the 50 dates when the highest volume of Apollo

Group, Inc. Stock was traded from February 2, 1995 to March 20,

2008, retrieved from Yahoo! Finance (http;//finance.yahoo.com) and

sorted by volume with Microsoft Excel.” Wood Decl’n (doc. 95) at

2, ¶ 2. Plaintiff is relying upon that chart to show that “[m]ore

shares of Apollo stock changed hands on October 18, 2006 than ever

before in Apollo’s history.” Resp. (doc. 94) at 28. 

 Largely because the source of that chart is not apparent from

its face, and because the method of its creation uncertain, the

court will not take judicial notice of it. See White Electronics,

416 F.Supp.2d at 761 (refusing to take judicial notice, in

securities fraud case, of exhibit “purport[ing] to be a chart

showing [defendant’s] stock prices” where “source not apparent from

the document itself and not all of the share prices on th[e] chart

compared with share prices for specific dates listed in the

Complaint[]”). 

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II. Motions to Dismiss

 A. Rule 12(b)(6) Standards 

 It is axiomatic that Rule 12(b)(6) motions “test[] the legal

sufficiency of the claims asserted in the complaint[.]” Ileto v.

Glock, Inc., 349 F.3d 1191, 1199-1200 (9th Cir. 2003). “A Rule

12(b)(6) dismissal may be based on either a lack of a cognizable

legal theory or the absence of sufficient facts alleged under a

cognizable legal theory.” Johnson v. Riverside Healthcare System,

LP, 534 F.3d 1116, 1121-1122 (9th Cir. 2008) (internal quotation

marks and citation omitted). It is the latter theory of dismissal

which forms the basis for defendants’ attacks on the FAC in this

case. 

 When considering a motion to dismiss for failure to state a

claim under Rule 12(b)(6), the court must “accept the plaintiffs’

allegations as true and construe them in the light most favorable

to plaintiffs.” In re Gilead Sciences Sec. Litig., 536 F.3d 1049,

1055 (9th Cir. 2008) (internal quotation marks and citation

omitted), petition for cert filed, ( _____ U.S. Feb. 6,

2009)(no. 08-1121). At the same time though, the court is not

“required to accept as true allegations that are merely conclusory,

unwarranted deductions of fact, or unreasonable inferences.’” Id.

(internal quotation marks and citations omitted). As the Supreme

Court explained in Bell Atlantic Corp. v. Twombly, 550 U.S. 544,

127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), “While a complaint attacked

by a Rule 12(b)(6) motion to dismiss does not need detailed factual

allegations, . . . , a plaintiff’s obligation to provide the

grounds of his entitle[ment] to relief requires more than labels

and conclusions, and a formulaic recitation of the elements of a

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cause of action will not do[.]” Id. at ___, 127 S.Ct. 1964-1965

(internal quotation marks and citations omitted). “Factual

allegations must be enough to raise a right to relief above the

speculative level, . . . , on the assumption that all the

allegations in the complaint are true (even if doubtful in

fact)[.]” Id. at 1965 (citations and footnote omitted). Similarly,

“[l]egal conclusions need not be taken as true merely because they

are cast in the form of factual allegations.” Lee Myles Associates

Corp. v. Paul Rubke Enterprises, Inc., 557 F.Supp.2d 1134, 1137

(S.D.Cal. 2008) (citations omitted). 

 At the end of the day, “[t]he complaint is properly dismissed

if it fails to plead enough facts to state a claim to relief that

is plausible on its face.” Gilead, 536 F.3d at 1055 (internal

quotation marks and citations omitted). On the other hand, as the

Supreme Court stressed in Twombly, “a well-pleaded complaint may

proceed even if it strikes a savvy judge that actual proof of those

facts is improbable, and that recovery is very remote and

unlikely.” Twombly, 550 U.S. at , 127 S.Ct. at 1965 (internal

quotation marks and citation omitted). “Indeed, it may appear on

the face of the pleading that recovery is very remote and unlikely

but that is not the test.” Johnson, 534 F.3d at 1123-24 (internal

quotation marks and citations omitted). 

 B. Statute of Limitations

 Although not the first dismissal argument which Apollo raises,

because it can potentially narrow the scope of plaintiff’s claims,

the court will address Apollo’s statute of limitations argument

first. 

 Preliminarily, there is no merit to plaintiff’s suggestion that 

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this statute of limitations argument is not properly before the

court on this Rule 12 dismissal motion. “If the expiration of the

applicable statute of limitations is apparent from the face of the

complaint,” it is well settled that “the defendant may raise [that]

defense in a Rule 12(b)(6) motion to dismiss.” See In re Juniper

Networks, Inc. Sec. Litig., 542 F.Supp.2d 1037, 1050 (N.D.Cal.

2008) (citing Jablon v. Dean Witter & Co., 614 F.2d 677, 682 (9th

Cir. 1980)). Despite plaintiff’s contrary suggestion, “[t]his is

true even though expiration of the limitations period is an

affirmative defense because Federal Rule of Civil Procedure Rule

9(f) makes averments of time and place material for the purpose of 

testing the sufficiency of a complaint.” Id. (internal quotation

marks and citation omitted). Consistent with the foregoing, “[i]f

a claim is barred by [the] applicable statute of limitations,

dismissal pursuant to Rule 12(b)(6) is appropriate.” GuerreroMelchor v. Arulaid, 2008 WL 539054, at *2 (W.D.Wash. Feb. 22, 2008)

(citation omitted). 

 At the same time, though, the court is keenly aware that a

complaint cannot be dismissed as untimely under Rule 12(b)(6)

“unless it appears beyond doubt that the plaintiff can prove no set

of facts that would establish the timeliness of the claim.” Pesnell

v. Arsenault, 531 F.3d 993, 997 (9th Cir. 2008) (internal quotation

marks and citation omitted). In making this inquiry, the court

must “[a]ccept[] as true the allegations in the complaint,” and it

“must determine whether the running of the statute is apparent on

the face of the complaint.” Huynh v. Chase Manhattan Bank, 465

F.3d 992, 979 (9th Cir. 2006) (internal quotation marks and

citations omitted). “[I]f the factual and legal issues are not

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sufficiently clear to permit a determination with certainty whether

the action was timely[,]” then the court “must” deny a motion to

dismiss based on the running of the statute of limitations. Lee

Myles, 557 F.Supp.2d at 1137 (citing Supermail Cargo, Inc. v.

United States, 68 F.3d 1204, 1207 (9th Cir. 1995)).

 Finding no merit to plaintiff’s procedural argument, the court

is free to turn to the merits of Apollo’s statute of limitations

argument. As Apollo construes the FAC, plaintiff is proceeding

under two related fraud theories. The first is an alleged

“fraudulent scheme” of “backdating . . . stock option grants[.]”

FAC (doc. 71) at ¶¶ 2 and 6. The second theory, which Apollo terms

“an accounting fraud claim[,]” is that due to that alleged

“backdating,” Apollo issued financial statements which were

purportedly “materially false and misleading, resulting in an

artificial inflation of [Apollo’s] stock price[.]” Id. at ¶ 2. 

 As to the first theory, Apollo contends that those backdating

claims are barred under 28 U.S.C. § 1658(b). That statute reads as

follows:

 [A] private right of action that involves 

a claim of fraud, deceit, manipulation, or 

contrivance in contravention of a regulatory 

requirement concerning the securities laws, . . . 

may be brought not later than the earlier of –

 (1) 2 years after the discovery of the facts 

 constituting the violation; or

 (2) 5 years after such violation.

28 U.S.C. § 1658(b) (West 2006). Apollo argues that to the extent

the FAC alleges a fraudulent option backdating scheme, it is barred

under section 1658(b)’s five year statute of repose. A statute of

repose, as distinguished from a statute of limitations, is “not

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3 Plaintiff challenges Apollo’s reliance upon three backdating cases

because they were derivative, where “the actual granting of a stock option, not the

resulting false financial statements,” was at issue. Resp. (doc. 94) at 51

(footnote and citations omitted). Regardless of that asserted factual distinction,

this court will not consider any of those cases because in each the court

unequivocally stated: “This disposition is not designated for publication and may

not be cited.” In re Apple Computer Inc., Derivative Litig., 2007 WL 4170566, at

*1 n.1 (N.D.Cal. Nov. 19, 2007) (emphasis added); In re Atmel Corp. Derivative

Litig., 2007 WL 2070299, at *1, n.1 (N.D.Cal. July 16, 2007) (emphasis added); and

In re Ditech Networks, Inc. Derivative Litig., 2007 WL 2070300, at *1, n. 1

(N.D.Cal. July 16, 2007) (emphasis added). United States District Court Judge

Fogel could not have been more clear. This court will abide by the court’s express

intention in those cases; none of them will factor into the court’s analysis

herein.

Apollo was not alone in improperly relying upon cases such as the foregoing.

All of the parties had a distressing penchant for relying upon cases where courts,

in one way or another, had severely limited the precedential value of their

decisions. 

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subject to equitable tolling.” Munoz v. Ashcroft, 339 F.3d 950,

957 (9th Cir. 2003) (citations omitted). Rather, “[a] statute of

repose is a fixed, statutory cutoff date, usually independent of

any variable, such as claimant’s awareness of a violation.” Id.

(citations omitted). 

 “A claim under § 10(b) that is based on the backdating itself

accrues on the date the option grant was made.”3 In re Affiliated

Computer Servs. Deri. Litig., 540 F.Supp.2d 695, 701 (N.D.Tex.

2007) (citation omitted); see also In re Comverse Tech., Inc. Sec.

Litig., 543 F.Supp.2d 134, 155 (E.D.N.Y. 2008) (citation omitted)

(“[T]o the extent that [plaintiffs’] claims are based directly on a

backdated grant of options, the 5-year period begins to run on the

date the options were granted.”) The five option grants which the

FAC identifies, i.e., December 18, 1998; April 19, 1999; January

12, 2000; December 15, 2000; and September 21, 2001, all occurred

more than five years prior to the filing of this action. 

Therefore, the court agrees with Apollo that dismissal of those

claims is mandated because this lawsuit was not filed until

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November 2, 2006 -- “five years and forty-six days after the last

of the five grant dates (September 21, 2001)[.]” Mot. (doc. 81) at

11. 

 Plaintiff buries its response to this argument in a footnote,

indicating that the general rule that a backdating claim accrues on

the date the option was granted “is not directly at issue in this

case[.]” Resp. (doc. 94) at 52, n.26. Even assuming the

applicability of that rule, plaintiff reasons that a backdating

claim based upon “[t]he last grant that [it] specifically alleges

was backdated[,]” i.e. September 21, 2001, would survive this

dismissal motion in any event. Id. That particular backdating

claim is not time-barred, plaintiff hypothesizes, if the September

21, 2001, grants were “backdated by over forty-six days[.]” Id.

Countering that Apollo has not met its burden of proof on such a

claim because it has not shown that that “grant was actually

granted before November 2, 2006,” plaintiff contends that this

particular backdating claim is timely. See id.

 Plaintiff misconceives the parties’ respective burdens at this

juncture. Absent any allegations in the complaint, the court

declines to speculate, as plaintiff urges, as to whether the

September 21st grants were “backdated by over forty-six days,” so

as to bring them within the five year statute of repose. See id.

As part of the alleged fraudulent scheme to backdate stock options,

the FAC alleges that “[w]hile some of these grants were not

publicly reported, several grants reported in Apollo’s Forms 10-K

had purported grant dates so improbable that backdating is the only

plausible explanation.” Id. at 17, ¶ 48. Among those are grants

made “on September 21, 2001[.]” Id. at 21, ¶ 52. To the extent

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plaintiff is asserting a claim for the backdating itself in

conjunction with those September 21st grants, as set forth above,

such a claim accrues the date those option grants were made. See

Affiliated Computer, 540 F.Supp.2d at 701 (citation omitted); see

also Comverse Technology, 543 F.Supp.2d at 155 (citation omitted). 

Because the present action was not commenced until November 2,

2006, any claims based directly on backdating allegedly occurring

on September 21, 2001, are time barred. Accordingly, the court

grants Apollo’s motion to dismiss as untimely any claims based upon

backdating itself with respect to the five option grants set forth

earlier.

 Turning to what it concedes is the “[t]he gravamen of” the FAC,

“the reporting of false and misleading financial results[,]” 

plaintiff contends that because it is alleging a “series of

fraudulent misrepresentations[,]” the five year repose period began

to run “no earlier than 2006[.]” Resp. (doc. 94) at 50 and 51. In

essence, plaintiff is urging this court to adopt a theory of

continuing wrong so that it can circumvent the five year repose

period. Based upon that theory, plaintiff contends that all of its

false misrepresentation claims are timely. 

 Primarily because it would run afoul of the general proposition

that “the five-year statute of limitations period begins to run on

the date of the false representation[,]” the court declines to

adopt a continuing wrong or continuing violation theory here. See

Juniper Networks, 542 F.Supp.2d at 1051 (citations omitted). As in

In re Zoran Corp. Deriv. Litig., 511 F.Supp.2d 986 (N.D.Cal. 2007),

the court finds that the statute of limitations accrues for these

false representation claims “when the violation itself occurs, not

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4 Having found that the five specifically alleged backdated stock option

grants are time-barred, there is no need to address Apollo’s alternate argument

that those claims also fail because the FAC does not include a “legitimate

statistical analysis” to support backdating as to those grants. Mot. (doc. 81) at

18. Similarly, there is no need to delve into Apollo’s argument that the FAC is

deficient because it “does not plead any of the mandatory specifics” as to the

roughly 100 unidentified grants therein. See id. No analysis of this issue is

necessary because the court assumes by plaintiff’s silence that it is abandoning

any claims as to fraud based on alleged backdating of grants other than the five

which the FAC specifically identifies. 

 

5 Hereinafter section 10(b) shall be read to include Rule 10b-5 as well.

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when the last violation in a series of alleged violations occur.” 

Id. at 1014. Accordingly, plaintiff’s false representation claims

are timely to the extent such misstatements were made during the

five-year period of repose. Claims based on misrepresentation

statements outside the statute of repose (i.e., prior to November

2, 2001) are not timely, however, and the court grants Apollo’s

motion to dismiss in that regard.4 See Juniper Networks, 542

F.Supp.2d at 1051 (citation omitted) (“any part of Plaintiffs’ 

§ 10(b) claim based on pre-repose period representations is barred

even if the injury did not occur until after period began[]”). 

 C. Section 10(b) & Rule 10b-5 Claims5

 The court will next turn to the core issue of these dismissal

motions --“whether plaintiff[] [has] adequately pled a claim of

securities fraud - something that is much harder now than in days

gone by.” Berson v. Applied Signal Technology, Inc., 527 F.3d 982,

983 (9th Cir. 2008). Indeed, fairly recently the Ninth Circuit

observed that “[d]ue in large part to the enactment of the . . .

PSLRA, . . plaintiffs in private securities fraud class actions

face formidable pleading requirements to properly state a claim and

avoid dismissal under Fed.R.Civ.P. 12(b)(6).” Metzler Inv., 540

F.3d at 1055 (citation omitted). Although “formidable,” those

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6 Originally failure to adequately plead loss causation was not a basis

for the individual defendants’ dismissal motion. In their Supplemental Brief,

however, those defendants specifically “incorporate by reference . . .the loss

causation aspect of the recent Ninth Circuit decisions . . . addressed in Apollo’s

[supplemental] brief[.]” Supp. Br. (doc. 100) at 5, n.1. Thus, the court deems the

individual defendants to be seeking dismissal for failure to adequately plead loss

causation as well.

7 “The Ninth Circuit has rejected the concept of collective scienter in

attributing scienter to a corporation.” In re International Rectifier Corp. Sec.

Litig., 2008 WL 4555794, at *21 (C.D.Cal. May 23, 2008) (internal quotation marks

and citation omitted). Accordingly, “‘[a] defendant corporation is deemed to have

the requisite scienter for fraud only if the individual corporate officer making

the statement has the requisite level of scienter, i.e., knows that the statement

is false, or is at least deliberately reckless as to its falsity, at the time that

he or she makes the statement.’” Id. (quoting Nordstrom, Inc. v. Chubb & Son,

Inc., 54 F.3d 1424, 1435-36 (9th Cir. 1995)) (emphasis added). In light of the

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standards are not insurmountable. 

 “In a typical § 10(b) private action a plaintiff must prove

(1) a material misrepresentation or omission by the defendant; 

(2) scienter; (3) a connection between the misrepresentation or

omission and the purchase or sale of a security (4) reliance upon

the misrepresentation or omission; (5) economic loss; and (6) loss

causation.” Stoneridge Inv. Partners, LLC v. Scientific-Atlanta,

___ U.S. ___, 128 S.Ct. 761, 768, 169 L.Ed.2d 627 (2008). 

Defendants contend that they are entitled to dismissal of

plaintiff’s 10b-5 claims because plaintiff has not adequately pled

three of those elements. More specifically, Apollo maintains that

“plaintiff has failed to adequately plead that any grants were

‘backdated[.]’” Mot. (doc. 81) at 12 (emphasis in original). In a

similar vein, all defendants argue that plaintiff’s misstatement

and omissions claims are not pled with the requisite particularity. 

Next, Apollo challenges the sufficiency of plaintiff’s loss

causation allegations,6 whereas the primary thrust of the

individual defendants’ motion is that the FAC does not adequately

plead scienter.7

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foregoing, it is understandable that Apollo did not focus heavily upon this element

of securities fraud and instead basically adopts the individual defendants’

arguments on the issue of scienter. See Mot. (doc. 81) at 25; and Supp. Memo.

(doc. 102) at 10. 

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 1. Particularity

 a. Pleading Standards

 i. Rule 9

 Rule 9(b) requires that “[i]n all averments of fraud or

mistake, the circumstances constituting fraud or mistake shall be

stated with particularity.” Fed. R. Civ. P. 9(b). “In order to

allege fraud with particularity, the complaint must both identify

the allegedly fraudulent statement and explain why it was false

when made.” In re Metropolitan Sec. Litig., 532 F.Supp.2d 1260,

1279 (E.D.Wash. 200) (citation omitted). A complaint which

“specif[ies] such facts as the times, dates, places, and benefits

received, and other benefits of the alleged fraudulent activity[]”

provides the notice which Rule 9(b) requires. See id. at 672

(citations omitted). “Further, a pleader must identify the

individual who made the alleged representation and the content of

the alleged representation.” In re Hansen Natural Corp. Sec.

Litig., 527 F.Supp.2d 1142, 1151 (C.D.Cal. 2007) (internal

quotation marks and citation omitted). The purpose of Rule 9(b)’s

heightened pleading requirements is “to give defendants notice of

the particular misconduct which is alleged to constitute the fraud

charged so that they can defend against the charge and not just

deny that they have done anything wrong.” Neubronner v. Milken, 6

F.3d 666, 671 (9th Cir. 1991) (internal quotations and citation

omitted). 

 A complaint which “relies on ‘shotgun’ or ‘puzzle’ pleading[]”

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8 Chan v. Orthologic Corp., 1998 WL 1018624, at *4 n.11 (D.Ariz. Feb. 5,

1998) (“This tactic not only makes it difficult to ascertain whether any of the

allegations have more merit than others, it also makes the complaint dreadfully

oversized . . . [and] make[s] a mockery of Rule 9(b).”)

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does not meet Rule 9(b)’s particularity requirement. Metropolitan

Sec., 532 F.Supp.2d at 1279 (citation omitted). “Shotgun pleadings

are those that incorporate every antecedent allegation by reference

to each subsequent claim for relief or affirmative defense.” Id.

(internal quotation marks and citation omitted). Puzzle pleadings,

which “[c]ourts in this [C]ircuit have repeatedly lamented[,]”

Defazio v. Hollister, Inc., 2008 WL 958185, at *3 n.3 (E.D.Cal.

April 8, 2008) (citing cases), including this one,8 “are those that

require the defendant and the court to match the statements up with

the reasons they are false or misleading.” Metropolitan Sec., 532

F.Supp.2d at 1279 (internal quotation marks and citations omitted).

 ii. PSLRA

 In addition to satisfying Rule 9(b), a securities fraud

plaintiff must meet the PSLRA’s “exacting pleading requirements.” 

Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 127

S.Ct. 2499, 2054, 168 L.Ed.2d 179 (2007). “The PSLRA requires a

heightened pleading standard for allegations regarding misleading

statements and omissions that is similar to the heightened pleading

standard required by Rule 9(b).” Hansen, 527 F.Supp.2d at 1151. 

More specifically, that Act requires plaintiffs alleging securities

fraud “to specify each statement alleged to have been misleading,

the reason or reasons why the statement is misleading, and if an

allegation regarding the statement or omission is made on

information and belief, the complaint shall state with

particularity all facts on which that belief is formed.” 15 U.S.C.

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§ 78u-4(b)(1) (West 1997). “The purpose of this heightened

pleading requirement was generally to eliminate abusive securities

litigation and particularly to put an end to the practice of

pleading fraud by hindsight.” In re Vantive Corp. Sec. Litig., 283

F.3d 1079, 1084-85 (9th Cir. 2002) (internal quotation marks and

citation omitted). Indeed, the detail which § 78u-4(b)(1) demands

“is the PSLRA’s single most important weapon against pleading fraud

by hindsight because it forces plaintiffs to reveal whether they

base their allegations on an inference of earlier knowledge drawn

from later disclosures or from contemporaneous documents or other

facts.” Hansen, 527 F.Supp.2d at 1152 (citation omitted). “By

requiring specificity, § 78u-4(b)(1) prevents a plaintiff from

skirting dismissal by filing a complaint laden with vague

allegations of deception unaccompanied by a particularized

explanation stating why the defendant’s alleged statements or

omissions are deceitful.” Metzler Inv., 540 F.3d at 1061 (citation

omitted). 

 By Apollo’s count, the FAC identifies 26 allegedly false and

misleading statements which defendants issued during the class

period. See FAC (doc. 71) at ¶¶ 53-87. Plaintiff alleges that

those statements were false and misleading as they pertained to:

(1) Apollo’s “financial results;” (2) “the terms and value of the

options granted to [Apollo] officers, directors, and employees;”

(3) “the internal controls relating to stock option grants and

related financial reporting;” and (4) Apollo’s “application” of

certain accounting principles and standards pertaining to

“accounting for stock option grants.” Id. at ¶ 53. The FAC goes

on to allege, broadly stated, that in each of the years 2002-2006

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Apollo issued a series of press releases providing quarterly fiscal

results. Although the FAC does not allege that those press

releases contained “false financial results[,]” given plaintiff’s

manner of pleading, that is the obvious inference. See, e.g., id.

at ¶ 54 (“On March 26, 2002, Apollo issued a press release entitled

‘Apollo Group Inc. Reports Fiscal 2002 Second Quarter Results.’ 

These false financial results were reported in Apollo’s Form 10-Q,

which was filed with the SEC on April 12, 2002.”) The FAC also

alleges that those purportedly false results were in turn

“repeated” in Apollo’s Form 10-Qs and 10-Ks, which it filed with

the SEC. See, e.g., id. at ¶¶ 54; 57; 72; and 76. 

 After enumerating the supposedly false and misleading

statements for each of the years from 2002-2006, plaintiff sets

forth what it deems to be ‘[t]he true facts known at the time[.]” 

Id. at ¶¶ 59(a)-(f); 65(a)-(f); 74(a)-(g); 81(a)-(f); and 87(a)-

(g). With a few minor exceptions, those “true facts” are identical

for each of the class period years and are set forth in full below:

 (a) Apollo’s 2000, 2001, and 2002 financial 

results, including its net income, earnings per share, 

and profit and gross margins, were all materially

overstated due to contrivances and manipulations in 

the administration of Apollo’s stock options, including

backdating and failing to properly record or account for

the actual amount and tax consequences of compensation

expenses of its executives;

 (b) Apollo’s financial and operating results 

reported during the Class Period were not entirely due 

to the skill and business acumen of its top executives,

their successful management of its business or the

outstanding performance of its business units, as

represented; in fact, a significant part was due to

falsification of Apollo’s financial statements by not

properly accounting for (and thus understating) the true

compensation expenses of its executive and management 

team;

 (c) Apollo’s top executives and directors were

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manipulating the Company’s stock option plans to provide

themselves with millions of dollars in undisclosed income

by backdating stock option grants to a much lower exercise

price thus giving them an instant, riskless profit, while

exposing the Company to the risk of regulatory

investigations, tax penalties and even criminal

proceedings;

 (d) Apollo’s internal financial and accounting 

controls were materially deficient and not effective 

in providing the necessary and required degrees of

assurance that Apollo’s financial results and reports 

were fairly and accurately presented and free from

fraud;

 (e) Senior management’s salaries and option grants 

had not been determined as a result of arm’s-length

negotiation with Apollo’s Compensation Committee,

but rather were the product of cronyism and undisclosed

conflicts of interest; and

 (f) Because Apollo’s historical and current financial

results were overstated, defendants’ forecasts of Apollo’s

future financial performance were false and could not be

achieved.

Id. at ¶¶ 59(a)-(f) (emphasis added); see also FAC at ¶¶65(a)-(f);

¶¶ 74(a)-(d) and ¶¶ 74(f)-(g); ¶¶ 81(a)-(f); and ¶¶ 87(a)-(f). 

 An additional “true fact” in 2004 was that purportedly “Apollo

had not taken the required compensation expenses for its conversion

of University of Phoenix Online common stock.” Id. at ¶74(e). 

Likewise, in 2006 the FAC alleges two other “true facts[:]” (1)

“Apollo’s June 9, 2006 denial of stock option backdating was false

and misleading as discussed infra[;]” and (2) Apollo’s January 11,

2006 press release regarding the resignation of Nelson omitted

material facts regarding the circumstances of [his] resignation.” 

Id. at ¶¶ 87(g)-(h). 

 To illustrate its view that plaintiff has not pled fraud with

the requisite degree of particularity, Apollo points out that the

FAC alleges that an April 12, 2002, SEC filing contained “false

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financial results[.]” Id. at ¶54. Yet, when the FAC later alleges

that such financial results were “due to contrivances and

manipulations in the administration of Apollo’s stock options,” id.

At ¶59(a), it fails to “connect-the-dots” in terms of explaining

what is meant by “contrivances and manipulations[,]” and how such

actions relate to the earlier allegations of false financials. See

In re PetSmart, Inc. Sec. Litig., 61 F.Supp.2d 982, 991 (D.Ariz.

1999) (footnote omitted) (“The court should not have to play

connect-the-dots in order to identify the facts and trends upon

which plaintiffs base their claim.”) Apollo further challenges the

sufficiency of plaintiff’s fraud allegations for failing to specify

the supposedly backdated stock options as they relate to particular

“false financial results.” Apollo adds that given the overly broad

and vague nature of the FAC, it is impossible to ascertain, among

other things, whether plaintiff is relying upon time-barred

backdated stock options. 

 The individual defendants, as does Apollo, take plaintiff to

task for essentially cutting and pasting and “simply parrot[ing]

lengthy . . . quotes from Apollo’s public filings” without

identifying the specific statement therein which supposedly is

false. Mot. (doc. 82) at 23. The individual defendants also

challenge the sufficiency of plaintiff’s fraud allegations because

of the lack of detail as to “why the unidentified misleading

statements are purportedly false.” Id. 

 Essentially plaintiff counters that it has complied with the

heightened pleading requirements for fraud in that it is alleged

“where and when” each false and misleading statement was made; “who

made” it; “and a fraudulent course of conduct demonstrating why

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each statement was false and misleading.” Resp. (doc. 94) at 29

(emphasis in original). Apollo’s May 22, 2007, Restatement is the

primary basis for plaintiff’s claims that the 26 identified

statements were all false and misleading. 

 The court agrees with defendants that the FAC does not satisfy

the heightened pleading standards for fraud under either Rule 9(b)

or the PSLRA. In its current form the FAC is a puzzle-like

pleading which the court cannot countenance. The cut and paste

nature of the FAC is troubling. Perhaps the most troubling aspect

of the FAC as currently pled is that the “vague allegations of

deception” are “unaccompanied by a particularized explanation

stating why the defendant’s alleged statements or omissions are

deceitful.” See Metzler Inv., 540 F.3d at 1061 (citation omitted). 

Further, as in Metropolitan Sec., “it is difficult and laborious to

determine which portions” of the quoted press releases and SEC

filings “are allegedly false and which false statements are

attributed to any particular defendant.” See Metropolitan Sec.,

532 F.Supp.2d at 1279. The FAC “‘often rambles through long

stretches of material quoted from defendants’ public statements 

. . . unpunctuated by any specific reasons for falsity.’” See id.

(quoting In re GlenFed, Inc. Sec. Litig., 42 F.3d 1541, 1547-48 (9th

Cir. 1994)) (other citation omitted). 

 The court will not take the “drastic step of dismissal based on

the form of the pleading[,]” however. See In re Cornerstone

Propane Partners, L.P., Sec. Litig., 355 F.Supp.2d 1069, 1081

(N.D.Cal. 2005) (citation omitted). Rather, in accordance with

“the Ninth Circuit[’s] recommend[ation][,]” the court will

“require[] . . . plaintiff to ‘streamline and reorganize the

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complaint before allowing it to serve as the document controlling

discovery.’” See Metropolitan Sec., 532 F.Supp.2d at 1280 (quoting

GlenFed, 42 F.3d at 1554) (other citation omitted); see also

Eminence Capital, LLC v. Aspeon, Inc., 316 F.3d 1048, 1053 (9th Cir.

2003) (abuse of discretion to dismiss FAC with prejudice for

failure to provide the detail which PSLRA requires where, inter

alia, plaintiff alleged with requisite detail who, what, when and

by whom false statements were made, but did not “‘plead

sufficiently how and why the financial statements were false’”). 

In so doing, plaintiff must be “clear and concise in identifying

the false statements and articulating the factual allegations

supporting an inference that the statement is false or misleading.” 

See Patel v. Parnes, 253 F.R.D. 531, 554 (C.D.Cal. 2008) (internal

quotation marks and citation omitted). The FAC in its current form

makes it difficult, if not impossible, to evaluate and determine

whether the PSLRA’s particularity requirements are met. This task

may be both “challenging and burdensome,” but as the court astutely

observed in Metropolitan Sec., 532 F.Supp.2d at 1278, “the American

legal system places this [pleading] burden on the party seeking

relief, rather than the party responding to a claim.” See id.

“Nor is it appropriate for a trial court to effectively involve

itself in the drafting process by puzzling out the details of a

plaintiff’s claims.” Id.

 Assuming that plaintiff can successfully amend its complaint to

comply with the dictates of the PSLRA in terms of pleading false

and misleading statements or omissions, the court will next address

defendants’ scienter and loss causation allegations. 

. . .

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 2. Scienter

 a. Pleading Standards

 The PSLRA also has a heightened pleading standard for scienter. 

“[P]laintiffs proceeding under the PSLRA can no longer aver intent

in general terms of mere motive and opportunity or recklessness,

but rather, must state specific facts indicating no less than a

degree of recklessness that strongly suggests actual intent.” 

Metzler Inv., 540 F.3d at 1066 (internal quotation marks and

citation omitted). “The requisite recklessness must be an extreme

departure from the standards of ordinary care, and . . . present []

a danger of misleading buyers that is either known to the defendant

or so obvious that the actor must have been aware of it.” Patel,

253 F.R.D. at 555 (internal quotation marks and citations omitted). 

In other words, “reckless conduct” can meet the PSRLA, but only “to

the extent that it reflects some degree of intentional or conscious

misconduct, or what [the Ninth Circuit] has called deliberate

recklessness.” South Ferry, supra, 542 F.3d at 782 (internal

quotation marks and citation omitted). This pleading requirement

is met when the complaint “contain[s] allegations of specific

contemporaneous statements or conditions that demonstrate the

intentional or the deliberately reckless false or misleading nature

of the statement when made.” Metzler Inv., 540 F.3d at 1066

(internal quotation marks and citation omitted). 

 The PSLRA “place[s] an additional gloss on the scienter

requirement[.]” Id. Pursuant to the PSLRA, 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. § 78u4(b)(2) (West 1997). Congress did not define “strong inference,”

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resulting in divergent views as to what constitutes a “strong

inference.” Setting out “to prescribe a workable construction” of

the “strong inference standard,” the Supreme Court in Tellabs

adopted a holistic approach, i.e. “whether all of the facts

alleged, taken collectively, give rise to a strong inference of

scienter, not whether any individual allegation, scrutinized in

isolation, meets that standard.” 551 U.S. at ___, 127 S.Ct. at

2509 (citations omitted). “[A]ssess[ing] all [of] the allegations

holistically[]” is necessary, the Tellabs Court explained, because

“[t]he strength of an inference cannot be decided in a vacuum.” 

Id. at ___, 127 S.Ct. at 2511 and 2510. While acknowledging that

the PSLRA “unequivocally raised the bar for pleading scienter[,]”

the Tellabs Court held that pleading facts suggesting a “plausible”

inference of scienter does not satisfy that statute. Id. at ___,

127 S.Ct. at 2509 (internal quotation marks and citation omitted). 

Instead, a “strong inference” of scienter can only be shown by

“plead[ing] with particularity facts that give rise to a . . .

powerful or cogent. . . inference” of scienter. Id. at ___, 127

S.Ct. at 2510 (citations omitted). 

 In determining the strength of any given inference, “[t]he

inquiry is inherently comparative: How likely is it that one

conclusion, as compared to others, follows from the underlying

facts?” Id. When undertaking such a comparison, “a court must

consider plausible nonculpable explanations for the defendant’s

conduct, as well as inferences favoring the plaintiff.” Id.

Clarifying, the Tellabs Court stated that “the inference that the

defendant acted with scienter need not be irrefutable, i.e., of the

smoking gun genre, or even the most plausible of competing

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inferences[.]” Id. (internal quotation marks and citation omitted). 

Likewise, although defendants herein suggest to the contrary, “to

carry their burden on scienter, Plaintiffs . . . do not need to

invalidate the inferences which Defendants raise.” See McGuire v.

Dendreon Corp., 2008 WL 5130042, at *7 (W.D.Wash. Dec. 5, 2008). 

 “Yet the inference of scienter must be more than merely

‘reasonable’ or ‘permissible’ – it must be cogent and compelling,

thus strong in light of other explanations.” Tellabs, 551 U.S. at

___, 127 S.Ct. at 2510. As the Ninth Circuit recently put it, “[a]

court must compare the malicious and innocent inferences cognizable

from the facts pled in the complaint, and only allow the complaint

to survive a motion to dismiss if the malicious inference is at

least as compelling as any opposing innocent inference.” Zucco

Partners, LLC v. Digimarc Corp., 552 F.3d 981, 991 (9th Cir. 2009`)

(citing Tellabs, 551 U.S. at ___, 127 S.Ct. at 2510; and Metzler

Inv., 540 F.3d at 1066). Thus, after Tellabs “[a] complaint will

survive [a motion to dismiss]. . . only if a reasonable person

would deem the inference of scienter cogent and at least as

compelling as an opposing inference one could draw from the facts

alleged.” Tellabs, 551 U.S. at ___, 127 S.Ct. at 2510 (footnote

omitted). 

 In the present case, arguing that plaintiff has not adequately

pled scienter, Apollo stresses that the standard for pleading

scienter in the Ninth Circuit is “more stringent” than in other

Circuits, Mot. (doc. 81) at 26 (citing No. 84 Employer-Teamster v.

America West Holding, 320 F.3d 920, 931 n. 8 (9th Cir. 2003)) - a

point which is implicit in the individual defendants’ argument. 

Until fairly recently, that was an accurate description of the

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scienter pleading standards in this Circuit. 

 The Ninth Circuit in South Ferry, however, revisited the issue

of the “level of detail required under the PSLRA[]” when pleading

scienter. South Ferry, 542 F.3d at 784. As one commentator

describes it, South Ferry “represents a seismic shift in the

[Ninth] Circuit’s analysis of securities fraud complaints and

significantly lowers the bar for pleading scienter[.]” 14 No. 11

Andrews Sec. Litig. & Reg. Rep. 2 (Oct. 7, 2008) (footnote

omitted). That commentator further described South Ferry as a ‘sea

change in scienter pleading standard by the [Ninth] Circuit[.]” Id.

That “seismic shift” or “sea change” is due to the Ninth Circuit’s

explicit repudiation in South Ferry of its prior securities fraud

pleading standards as set forth in In re Read-Rite Corp. Sec.

Litig., 335 F.3d 843 (9th Cir. 2003); Vantive, supra, 283 F.3d 1079;

and Silicon Graphics, supra, 183 F.3d 970. Cognizant that

“perhaps” it had been “too demanding and focused too narrowly in

dismissing vague, ambiguous, or general allegations [of scienter]

outright” in that trilogy of pre-Tellabs cases, the Ninth Circuit

found that “Tellabs permits a series of less precise allegations to

be read together to meet the PSLRA requirements, th[os]e prior

holdings . . . notwithstanding.” South Ferry, 542 F.3d at 784. In

conformity with Tellabs, and retreating from its prior holdings,

the Ninth Circuit further found that “[v]ague or ambiguous

allegations are now properly considered as part of a holistic

review when considering whether the complaint raises a strong

inference of scienter.” Id. (citation omitted). 

 Recognizing that while “Tellabs suggests that . . . a high

level of detail is required under the PSLRA,” the South Ferry Court

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stressed that “a court should look to the complaint as a whole, not

to each individual scienter allegation as Silicon Graphics

suggests.” Id. (emphasis added). Thus, the Ninth Circuit

explicitly instructed courts “to consider the totality of the

circumstances, rather than to develop separately rules of thumb for

each type of scienter allegation.” Id. Taking the “holistic[]”

approach which Tellabs mandates, the South Ferry Court opined that

“federal courts certainly need not close their eyes to

circumstances that are probative of scienter viewed with a

practical and common-sense perspective.” Id.

 b. Argument Summary

 Plaintiff points to a number of allegations which from its

standpoint give rise to “a strong inference of scienter with

respect to [Apollo’s] false financial reporting resulting from

undisclosed stock option backdating, and its failure to properly

account for such backdating.” Pl. Supp. Br. (doc. 101) at 2. 

First, plaintiff relies upon allegations of backdating stock

options to show “that it is ‘at least as likely’ that defendants

possessed the requisite scienter” as to “their statements regarding

stock options granting and accounting[.]” Resp. (doc. 94) at 23-24. 

Another way plaintiff believes it has sufficiently alleged scienter

is based upon circumstances which when taken together show

deliberate recklessness “with respect to Apollo’s stock option

granting practices.” Id. at 25. Basically those circumstances

are: (1) the Restatement (2) “false SOX [Sarbanes-Oxley]

certifications”[;]” (3) resignations of Apollo executives and

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9 Plaintiff is also attempting to rely upon the jury verdict in In re

Apollo Group, Ins. Sec. Litig., CV 04-2147 (D.Ariz.), finding Apollo, and

defendants Nelson and Gonzales liable for securities fraud. As noted earlier,

however, Judge Teilborg set aside that verdict. See In re Apollo Group, Inc. Sec.

Litig., 2008 WL 3072731 (D.Ariz. Aug. 4, 2008). Thus, assuming that verdict

otherwise had any bearing on the present action, plainly it no longer does.

Consequently, the court will not take into account that verdict in evaluating the

sufficiency of plaintiff’s scienter allegations herein.

10 Apollo’s tack is understandable given that ordinarily as a corporation,

Apollo can be “‘deemed to have the requisite scienter for fraud only if the

individual corporate officer making the statement has the requisite level of

scienter.’” Mot. (doc. 81) at 25 (quoting In re Apple Computer, Inc., Sec. Litig.,

243 F.Supp.2d 1012, 1023 (N.D.Cal. 2002) (citing, in turn, Nordstrom, Inc. v. Chubb

& Son, Inc., 54 F.3d 1424, 1435-36 (9th Cir. 1995)). As the Ninth Circuit recently

made clear though, it has not completely foreclosed the possibility of “collective

scienter,” Glazer Capital Management, LP v. Magistri, 549 F.3d 736, 744 (9th Cir.

2008), i.e. where “[t]he knowledge necessary to adversely affect the corporation

does not have to be possessed by a single corporate agent; the cumulative knowledge

of several agents can be imputed to the corporation.” Nordstrom, 54 F.3d at 1435

(internal quotation marks and citation omitted). 

In the present case, to the extent plaintiff may be urging application of the

collective scienter doctrine, the court declines to do so. That doctrine does not

come into play here because the FAC’s scienter allegations are not akin to

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directors; and (4) defendants’ financial gain.9 Id. at 36; and 39. 

Invoking Tellabs’ competing inferences analytical framework,

plaintiff maintains that not only has it raised a cogent and

compelling inference of scienter, but defendants have not “raise[d]

a single reasonable competing inference that could counter [these]

allegations.” Id. at 58. 

 As the individual defendants construe the FAC, in addition to

the foregoing, plaintiff is endeavoring to allege scienter by

relying upon defendant Mueller’s assurance of no backdating. As

more fully explained below, the individual defendants strongly

contend that each of plaintiff’s allegations “fall woefully

short[]” of the standard necessary to adequately plead scienter. 

Mot. (doc. 82) at 13. 

 Similarly, Apollo maintains that plaintiff has “utterly failed”

to adequately plead scienter. Mot. (doc. 81) at 26. Essentially

adopting the individual defendants’ scienter arguments,10 Apollo 

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“circumstances in which a company’s public statements were so important and so

dramatically false,” such as the hypothetical example mentioned in Glazer Capital

where “General Motors announced that it had sold one million SUVs in 2006, and the

actual number was zero[,]” so as to justify allowing this method of pleading

scienter. See id. at 743 (citation omitted). 

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highlights that the Restatement alone is an insufficient basis for

inferring scienter. Apollo adds that plaintiff cannot rely upon

the corporate titles and responsibilities of the individual

defendants to plead scienter because that is tantamount to

impermissible “group pleading.” Id. Lastly, Apollo notes that the

individual defendants’ stock sales during the Class Period also do

not provide a sufficient basis for pleading scienter. 

 The dominant theme of defendants’ scienter argument is that

each of the actions complained of, standing alone, is insufficient

to create a strong inference of such. Hence, the court should

dismiss the FAC for failure to adequately plead scienter. 

Painstakingly deconstructing each of the FAC’s scienter allegations

and the competing inferences which can be drawn therefrom, and

insisting on viewing each such allegation in isolation, was

problematic even after Tellabs. See Metzler Inv., 540 F.3d at 1069

(observing, based upon Tellabs, that “a defendant cannot gain

dismissal by de-contextualizing every statement in a complaint that

goes to scienter[]”). That approach is even more problematic now

given evolving Ninth Circuit standards for pleading scienter. In

Zucco, the Ninth Circuit recently acknowledged that it had “yet to

fully explain how the [Supreme] Court’s Tellabs decision relates to

much of [its] [prior] analysis” of scienter pleading standards

under the PSLRA. Zucco, 552 F.3d at 987. Clarifying, the Ninth

Circuit now views “‘Tellabs [as] permit[ting] a series of less

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precise allegations to be read together to meet the PSLRA

requirement.’” Zucco, 552 F.3d at 1006 (quoting South Ferry, 542

F.3d at 784). It also recognizes that “‘[v]ague or ambiguous

allegations are now properly considered as part of a holistic

review when considering whether the complaint raises a strong

inference of scienter.’” Id. (quoting South Ferry, 542 F.3d at

782). 

 “[R]ecognizing that Tellabs calls into question a methodology 

that relies exclusively on a segmented analysis of scienter[,]” the 

 Zucco Court further explained that it now “read[s] Tellabs to mean

that [its] prior, segmented approach is not sufficient to dismiss

an allegation of scienter.” Id. at 991. Indeed, in Rubke v.

Capitol Bancorp LTD, 551 F.3d 1156 (9th Cir. 2009), the Ninth

Circuit explicitly recognized that it “can no longer summarily

dismiss a complaint whose individual allegations are insufficient

under the PSLRA.” Id. at 1165. Instead, a court must “conduct a

dual inquiry.” Zucco, 552 F.3d at 992. “First, [it] will

determine whether any of . . . plaintiff’s allegations, standing

alone, are sufficient to create a strong inference of scienter[.]”

Id. “Second, if no individual allegations are sufficient, [the

court] will conduct a ‘holistic’ review of the same allegations to

determine whether the insufficient allegations combine to create a

strong inference of intentional conduct or deliberate

recklessness.” Id. So, while holding that “Tellabs does not

materially alter the particularity requirements for scienter claims

established in [its] previous decisions[,]” at the same time the

Zucco Court held that Tellabs “adds an additional ‘holistic’

approach to those requirements[.]” Id. at 987. 

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 Consistent with that recently espoused view, a court must

“determine whether the complaint contains an inference of scienter

that is greater than the sum of its parts.” Rubke, 551 F.3d at

1165 (citations omitted); see also Glazer Capital, 549 F.3d at 745

(internal quotation marks and citation omitted) (“To determine

whether [plaintiff] has met the PSLRA pleading requirements, [the

Court] must determine whether these five events [which plaintiff

claimed supported an inference of scienter], even though

individually lacking, are sufficient to create a strong inference

of scienter.”). In accordance with the dual inquiry approach

adopted by the Ninth Circuit in Zucco, first the court will

individually examine each of plaintiff’s scienter allegations,

standing alone, to determine whether they are sufficient to create

a strong inference of scienter. If necessary, i.e., “if no

individual allegations are sufficient,” the court will then conduct

a holistic review of those same allegations. See Zucco, 552 F.3d

at 992. 

 c. Individual Scienter Allegations

 i. Stock Option Backdating

 The principle means by which plaintiff is attempting to show

scienter is through allegations of stock option backdating. 

Defendants construe the FAC as alleging that Apollo has “‘admitted’

to backdating[]’” - an admission and an allegation which they

vehemently deny. Mot. (doc. 82) at 13 (citing FAC at ¶ 2.) Thus,

defendants reason, plaintiff cannot rely upon that supposed

admission to establish that they had the requisite scienter. The

parties spill much ink over whether defendants have admitted

backdating, which is the underpinning of plaintiff’s accounting

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fraud claims. At this juncture, there is no need to become mired

down in whether defendants have “admitted” to backdating because

the FAC sufficiently alleges that they engaged in such conduct

regardless of any purported “admission.” At this pleading stage,

nothing more is required. See Edmonds v. Getty, 524 F.Supp.2d

1267, 1274 (W.D.Wash. 2007) (citation omitted) (“[A]t the pleading

stage, the plaintiff need not prove that backdating occurred but

rather must only allege circumstances from which it may be

reasonably inferred that backdating as opposed to an innocent

bookkeeping error occurred.”)

 The FAC alleges that “several grants . . . had purported

grant dates so improbable that backdating is the only plausible

explanation.” FAC (doc. 71) at ¶48. From defendants’ viewpoint,

this is nothing more than a “self-serving conclusion” which does

not plead scienter. Mot. (doc. 82) at 15. Rather than alleging a

scheme to fraudulently backdate stock options, the individual

defendants construe the FAC as alleging nothing more than “simple

accounting errors and sloppy recordkeeping” – allegations which

cannot support a finding of scienter. See Supp. Br. (doc. 100) at

3. Similarly, Apollo charges plaintiff with improperly “lump[ing]

Apollo’s innocuous accounting mistakes with nefarious retroactive

pricing[,]” in an effort to plead scienter. Reply (doc. 97) at 7. 

 Although it is a close call, when read together, a number of

allegations support a finding that the inference of backdating is

“at least as compelling as any opposing inference” of innocent

bookkeeping error. See Tellabs, 551 U.S. at ___, 127 S.Ct. at 2510

(footnote omitted). Tellabs and its progeny require nothing more. 

In fact, as one court within this district has astutely observed,

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“[t]he Supreme Court [in Tellabs] has now made clear, . . . that a

tie goes to the Plaintiff[]” in terms of competing inferences as to

scienter. Communications Workers of America Plan for Employees’

Pensions and Death Benefits v. CKS Auto Corp., 525 F.Supp.2d 1116,

1120 (D.Ariz. 2007). At this relatively early stage in the

litigation, the court endorses this tie-breaking approach. 

 In the present action, the FAC alleges that in conducting their

own “investigation” Apollo explicitly acknowledged that it

“prepared and maintained inaccurate documentation concerning the

date that grant award lists were completed and approved.” FAC

(doc. 71) at ¶ 115(a) (internal quotation marks omitted). This

allegation is akin to the “admission” in Middlesex which the court

found, along with other allegations, “lean[ed] heavily toward a

finding of scienter.” Middlesex, 527 F.Supp.2d at 1181. The 

Middlesex complaint alleged that defendant “admitted that

accounting measurement dates for most of the stock option grants to

employees from July 1998 and May 2002 differed from the recorded

grant dates.” Id. (internal quotation marks and citation omitted). 

In a similar vein, here the FAC alleges that “‘Apollo has admitted

in its Form 10-K for the year ending August 31, 2006 that 57 of the

100 total grants made during this time period used incorrect

measurement dates for accounting purposes.’” FAC (doc. 71) at ¶ 47. 

 Further, other allegations detailed below, much like those in

Middlesex, amount to “extremely fortunate [grant] dates [which]

give rise to a strong inference that backdating has occurred and

that it was done intentionally.” See Middlesex, 527 F.Supp.2d at

1182. More specifically, the FAC alleges that on December 18,

1998, “[d]efendants dated certain of Apollo’s 1998 option grants 

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. . . at $11.39 per share[,]” which “was nearly the low for the

month of December when Apollo’s stock traded between $10.22 and

$15.06 per share.” FAC (doc. 71) at ¶ 49. On that date the

Sperling defendants, as well as defendants Nelson, Gonzales, and

Noone, allegedly made a 10 day return on those options totaling

$2,396,520.00. Id. 

 The FAC further alleges that on April 19, 1999, Apollo dated

option grants at “the low of the month[,]” with defendant Gonzales

receiving 20,000 options at that price. Id. at ¶ 50. Allegedly,

that particular option grant resulted in a five day return to Ms.

Gonzales of $35,000.00. Id. The FAC also alleges that

“[d]efendants dated many of Apollo’s 2000 grants as of January 12,

2000 at $8.39 per share (split adjusted)- not only the low of the

month but also the low of the year.” Id. at ¶ 51 (emphasis in

original). The FAC continues, alleging that during 2000 Apollo’s

“stock traded as high as $11.33 per share in January and as high as

$22.14 per share[.]” Id. 

 Later in 2000, the FAC alleges that Apollo dated “many of [its]

grants as of December 15, 2000 at $14.84 per share (split

adjusted)[.]” Id. (emphasis in original). Allegedly that share

price was “not only the low of the month but also the low for the

fourth quarter of 2000.” Id. (emphasis in original) Plaintiff

asserts that this particular stock grant “involved suspicious

timing” in that “two days later Apollo issued better than expected

results which caused a dramatic and immediate climb in the

Company’s stock.” Id. According to the FAC, “[b]y December 20,

2000 - a day after the earnings release - Apollo’s stock closed at

$20.89 per share.” Id. Then, the stock purportedly “hit its high

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for the year of $22.14 per share a few days later on December 28,

2000 - a 49% increase in eight trading days.” Id. (emphasis in

original). The Sperling defendants and defendants Nelson, Gonzales

and Noone allegedly were granted a total of 270,000 options on

December 15, 2000, with a total five day return of $3,877,200.00

Id.

 Finally, the FAC alleges that on September 21, 2001,

“[d]efendants dated Apollo’s . . . option grants . . . at $23.22

per share - not only the low of the month but also the low for the

second half of 2001.” Id. at ¶ 52 (emphasis in original). To

support that assertion, the FAC further alleges that Apollo’s

“stock traded as high as $28.02 per share in September [2001] and

as high as $32.03 per share in the second half of th[a]t year.” 

Id. Again the FAC alleges that the Sperling defendants, as well as

defendants Nelson, Gonzales, and Noone and, this time, defendant

Bachus, received stock options with high returns. More

specifically, allegedly those defendants received a total of

385,000 options on September 21, 2001, with a five day return

totaling $2,705,550.00. Id.

 These dates, with one exception, appear to reflect at a

minimum the lowest price of the month, and in one instance the

lowest price for the year. Additionally, as to the December 15,

2000 date, allegedly the grant price immediately preceded a 49%

increase in the price of Apollo’s stock – a significant price

increase by any measure. See id. at ¶ 51. Not only that, like the

Middlesex court, this court cannot ignore “[t]he fact that none of

the option grant dates resulted in less-than-favorable results for

Defendants[,]” which “also gives rise to a strong suggestion that

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the improper dating of options was intentional.” See Middlesex,

527 F.Supp.2d at 1182. Bolstering the inference of intentional

backdating here are the charts in the FAC showing Apollo’s stock

price history. Also as in Middlesex, those charts, when “overlaid

with demarcations reflecting the date of the option grants at issue

(as has been done in Plaintiff’s FAC),” strengthen the inference of

backdating. See id.

 The FAC does not include a statistical analysis as part of its

backdating allegations. Initially the court found this omission

somewhat troubling given defendants’ position that such an analysis

is a necessary predicate to pleading backdating. A careful reading

of the cases to which defendants cite, however, reveals that while

a statistical analysis may be preferable, and certainly would

strengthen the backdating allegations herein, at this point the

lack of such an analysis is not fatal. 

 To illustrate, In re Computer Sciences Corp. Deriv. Litig.,

2007 WL 1321715 (C.D.Cal. 2007), the court recognized that “the

detailed statistical that the plaintiffs employed in” another case

was “not necessary to making particularized allegations of

backdating.” Id. at *14. Likewise, in CNET Networks, supra, 483

F.Supp.2d 947, the court did fault plaintiffs for alleging that

they had “employ[ed] a widely accepted analytical model for

detecting backdated options,” when all they had done was to “merely

look[] at the stock price movement.” Id. at 957. Significantly,

however, the court was quick to point out that it “would not

necessarily require plaintiffs to perform a complex financial

analysis at the pleading stage.” Id. at 958-957. In fact, the

court expressly stated that “[s]ound analytical methods are one way

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that plaintiffs could have eliminated the possibility that the

returns from the grants were the product of dumb luck.” Id. at

958 (emphasis added). Although the court in CNET reasoned that

“[w]ithout such models, that inference is more difficult to

support[,]” it did not require such models. Id. In fact, even

without a “sound analytical method,” after scrutinizing the eight

alleged grants at issue therein, the CNET court found that

plaintiff had sufficiently pled facts supporting an inference that

three of the eight grants at issue therein were backdated. 

 That is not to say that at some point in this litigation

plaintiff’s backdating allegations cannot be defeated due to the

lack of a sound financial analysis, but not now. The court is all

the more reluctant to require a complex, detailed statistical

analysis at this particular juncture given the Ninth Circuit’s

explicit recognition even “vague or ambiguous” scienter allegations

may survive a motion to dismiss, as well as a “series of less

precise allegations[,] [when] read together[.]” South Ferry, 542

F.3d at 784 (citation omitted). 

ii. Deliberately Reckless

 Having found plaintiff sufficiently pled backdating, “the

question . . . becomes whether Plaintiff has adequately pled that

Defendants either knew of the backdating, or were deliberately

reckless in not knowing of the backdating.” See Middlesex, 527

F.Supp.2d at 1182. Plaintiff relies upon a series of

circumstances, the totality of which it believes show deliberate

recklessness in terms of Apollo’s stock option granting practices. 

As noted earlier, those circumstances are: (1) the Restatement 

(2) “false SOX certifications”[;]” (3) the “mass exodus” of Apollo

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executives and directors; and (4) defendants’ financial gain. 

Resp. (doc. 94) at 36 and 39. 

 (a) Restatement/GAAP Violation

 The parties offer diametrically opposing views as to the impact

of the Restatement on the court’s scienter analysis. Plaintiff

contends it “supports a strong inference of scienter[,]” Resp.

(doc. 94) at 30, whereas defendants retort that the Restatement

actually “shows the absence of scienter[.]” Mot. (doc. 82) at 13. 

Although not without its weaknesses, plaintiff’s argument is the

stronger one, at least at this juncture.

 A strong inference of scienter can be drawn from the

Restatement, according to plaintiff because it confirms that “[i]n

the accounting of certain stock option grants, [Apollo] did not

correctly apply the requirements of APB 25[,] [i]n certain

instances” using an improper measurement date for option awards. 

FAC (doc. 71) at 62, ¶ 106 (internal quotation marks omitted). 

Additionally, plaintiff stresses that the Restatement also confirms

that Apollo “prepared and maintained inaccurate documentation

concerning the date that grant award lists were completed and

approved.” Id. Lastly, plaintiff hones in on the Special

Committee’s “report[] to [Apollo’s] Board that certain former

officers took steps that may have been intended to mask failures in

the grant approval process with respect to [Apollo’s] financial

reporting and payment of taxes[,]” as the Restatement recites. Id.

(internal quotation marks omitted).

 The court is well aware that “mere publication of a restatement

is not enough to create a strong inference of scienter.” Zucco,

552 F.3d at 1000; see also In re Marvell Technology Group Ltd. Sec.

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Litig., 2008 WL 4544439, at *6 (N.D.Cal. Sept. 29, 2008) (citation

omitted) (“To the extent . . . Plaintiffs seek to rely solely on

the restatement of financials, plaintiffs cannot show scienter

solely by pointing to the fact that Marvell restated its financial

statements.”). The court is equally well aware that “‘[t]he mere

publication of inaccurate accounting figures, or a failure to

follow GAAP, without more, does not establish scienter.’” Rudolph

v. UTStarcom, 2008 WL 4002855, at *5 (N.D.Cal. Aug. 21, 2008)

(“UTStarcom II”) (quoting, inter alia, DSAM Global Value Fund v.

Altris Software, Inc., 288 F.3d 385, 390 (9th Cir. 2002) (other

quotation marks and citations omitted) (emphasis added); see also

Cornerstone, supra, 355 F.Supp.2d at 1091 (“The majority of

circuits have clearly held that standing alone, allegation of GAAP

or SEC regulations do not establish scienter.”) This is so even if

the GAAP violations are “significant” or “requir[e] large or

multiple restatements[.]” Rectifier, supra, 2008 WL 4555794, at *13

(footnote and citations omitted); but see Batwin v. Occam Networks,

Inc., 2008 WL 2676364, at *13 (C.D.Cal. July 1, 2008) (footnote

omitted) (“[S]ignificant violations of GAAP [alleged overstatement

of revenues by over 30 and 40%], taking place over an extended

period of time [nearly every quarter for roughly three years],

g[a]ve rise to a strong inference of scienter.”) 

 Rather, to create a strong inference of scienter based upon a

restatement or alleged GAAP violations, those allegations “must be

augmented by other specific allegations that defendants possessed

the requisite mental state.” Rectifier, 2008 WL 4555794, at *13

(collecting cases). Courts have variously described these

additional allegations, requiring “specific allegations that the

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defendant had actual knowledge of relevant facts from which

scienter could be inferred[,]” In re U.S. Aggregates, Inc. Sec.

Litig., 235 F.Supp.2d 1063, 1073 (N.D.Cal. 2002), or similarly

requiring that allegations of GAAP violations “be underpinned by

other particularized allegations that defendants possessed the

requisite mental state.” Cornerstone, 355 F.Supp.2d at 1091. 

 Apart from defendants Nelson, Norton and Blair, missing from

the FAC are any “specific or particularized” allegations that the

other individual defendants had the requisite mental state vis-avis the Restatement. Therefore, the Restatement standing alone

does not support a strong inference of scienter as to those

defendants. Plaintiff’s bald assertion that “failure to adhere to

APB 25 and properly record compensation expense for millions of

dollars worth of stock options[]” was “part and parcel” of

defendants’ alleged fraudulent scheme, Resp. (doc. 94) at 31, is

not the type of specific or particularized allegation which can

form the basis for a strong inference of scienter. See Wojtunik v.

Kealy, 394 F.Supp.2d 1149, 1167 (D.Ariz. 2005) (in considering GAAP

violations, allegations of scienter insufficient as to defendants

“given the lack of specific allegations about those defendants’

personal involvement[]”). Similarly unavailing is plaintiff’s

contention that scienter can be shown due to the “nature” of the

Restatement in that “the earlier false financial results were only

achieved by violating Apollo’s own stated accounting polices and

stock option plans.” Id. (citing FAC at ¶ 46). Plainly this

allegation also lacks the necessary detail from which an inference

can be drawn that unspecified defendants had the requisite state of

mind. 

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 On the other hand, based directly on the Restatement, the FAC

“details the[] extensive involvement” of defendant Nelson, Apollo’s

former CEO, and defendant Norton, the Chairman of the Compensation

Committee, and defendant Blair, a member of that Committee, “in the

options granting process[,]” and hence their access to information

as to that process. See Resp. (doc. 94) at 35. Plaintiff

highlights a number of allegations, including the following, in

that regard:

* Apollo’s Board or Compensation Committee [i.e.

 Messrs. Blair and Norton] was primarily responsible 

 for selecting the grant dates. See FAC (doc. 71) at 

 ¶ 115(b).

* “Management Grants . . . required approval 

 by both members of the Compensation 

 Committee.” Id. at ¶ 115(c).

* Apollo’s internal investigation revealed

 “Approval Memoranda signed by the Compensation

 Committee for grants to [Nelson].” Id. at ¶ 115(d). 

* “In many instances, the [Grant] Approval

 Memorandum was signed by only the Chairman

 of the Compensation Committee [Norton] and 

 we lack evidence as to whether all of the grants 

 issued, were, in fact, approved by a majority of

 the members of th[at] . . . Committee.” 

 Id. at ¶ 115(e). 

* Nelson typically attended Compensation 

 Committee meetings where option grants 

 were discussed and approved. See id. at ¶ 117(e). 

* Beginning in August, 2001 either Nelson or the 

 Compensation Committee signed the memoranda

 approving grants to all employees. See id. at 

 ¶ 117(c). 

 Undertaking the “comparative” inquiry which Tellabs elucidates,

there is a strong inference of scienter as to defendants Norton,

Nelson and Blair in light of their extensive involvement with the

grant process as the Restatement indicates. These allegations

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permit a strong inference of scienter to be drawn as to defendants

Nelson, Norton and Blair with respect to the falsity of their

statements regarding Apollo’s stock option granting practices,

especially when read in conjunction with other scienter

allegations.

 Despite the foregoing, defendants insist that the Restatement

actually “shows the absence of scienter[,]” partly because it

states that “‘[t]he Special Committee has found no direct evidence

that the grant date for any of the large Management Grants was

selected with the benefit of hindsight.’” Mot. (doc. 82) at 13

(quoting FAC at 62, ¶ 106). They also point to the fact that

following its investigation, the SEC did not recommend any

enforcement action. Morris Decl’n. (doc. 83), exh. 10 thereto. 

Thus, from defendants’ perspective the Restatement is nothing more

than a “simple statement that Apollo misapplied certain complicated

accounting rules.” Id. at 14 (footnote omitted). Hence, it does

not support a strong inference of scienter as to any of the

defendants. 

 Neither of these arguments are persuasive. The Special

Committee’s “no direct evidence” finding does not alter the court’s

conclusion that at least as to defendants Nelson, Norton and Blair,

the Restatement squarely contributes to a finding of scienter.

Moreover, despite what defendants imply, the SEC’s decision not to

take any enforcement action does not undercut a finding of

scienter. The SEC’s determination is irrelevant to this court’s

scienter analysis because, in the first instance, as the FAC

accurately states, “the SEC’s decision not to take action can ‘in

no way be construed as indicating that the party has been

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exonerated’ and any ‘attempted use . . . as a purported defense in

any action . . . would be clearly inappropriate and improper[.]’”

FAC (doc. 71) at 58, n. 4 (quoting SEC Procedures Relating to the

Commencement of Enforcement Proceedings and Termination of Staff

Investigations. 1082 SEC LEXIS 238 at *7). Secondly, like the

Batwin defendants, defendants herein do not cite to any authority

for the proposition that the SEC’s discretionary decision not to

institute enforcement proceedings should be taken into

consideration in determining whether a plaintiff’s allegations as

to scienter pass muster under the PSLRA.” Batwin, 2008 WL 2676364,

at *13 n.7. Therefore, the court abides by its ruling that the

Restatement provides at least some basis for finding that

defendants Nelson, Norton and Blair had the requisite scienter,

especially when considering the FAC as a whole. 

 (b) SOX Certifications

 The FAC further specifically alleges that defendant Nelson

“signed false and misleading SOX certifications which falsely

attested to the adequacy of [Apollo’s] internal controls, and the

accuracy of [Apollo’s] reported financial statements.” FAC (doc.

71) at ¶ 120. The FAC does not expressly allege that defendant

Gonzales also signed false and misleading SOX certifications. 

However, it does allege that she was “at least deliberately

reckless with respect to her administration of [Apollo’s] option

granting process and her oversight of [Apollo’s] accounting.” Id.

at ¶ 122. That is so, the FAC alleges because “contrary to the SOX

certifications [which Gonzales signed] which each year affirmed the

adequacy of [Apollo’s] internal controls and the accuracy of

[Apollo’s] financial results, Gonzales wholly failed to monitor the

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granting of stock options, or account for the backdated stock

options at Apollo.” Id. at ¶ 125. These purportedly false SOX

certifications, from plaintiff’s viewpoint, “support a strong

inference of scienter.” Resp. (doc. 94) at 36. Two recent Ninth

Circuit decisions substantially erode this argument, however. 

 Fairly recently, for the first time the Ninth Circuit addressed

“the precise interplay between the reporting requirements of [SOX]

and the scienter pleading requirements of the PSLRA.” Glazer

Capitol, 549 F.3d at 747. Agreeing “with the reasoning of the

Eleventh and Fifth Circuits[,]” the Court held that “[b]ecause

Congress expressed no intent to alter the pleading requirement of

the PSRLA, [SOX] certification is only probative of scienter if the

person signing the certification is severely reckless in certifying

the accuracy of the financial statements.” Id. (internal quotation

marks and citation omitted). In Glazer Capitol, the plaintiff

relied upon standard SOX certification language as to disclosure

controls and procedures – the precise language upon which the

plaintiff in this action also relies. However, because the

plaintiff in Glazer Capitol did not plead any “facts to th[e]

effect” that defendants were “severely reckless,” the Court held

that “without more,” the SOX certifications “[we]re not sufficient

. . . to raise a strong inference of scienter[.]” Id.

 As in Glazer Capitol, plaintiff does not allege any facts

showing that either Nelson or Gonzales was “severely reckless in

certifying the accuracy of the financial statements.” See id.

Moreover, as in Zucco, plaintiff is relying upon nothing more than

“boilerplate language” in Apollo’s 10-K forms and statutorily

required SOX certifications to establish scienter. Zucco, 552

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F.3d, at 1003. In fact, in all significant respects, the SOX

certification allegations herein are identical to those under

scrutiny in Zucco – allegations which the Ninth Circuit found

“add[ed] nothing substantial to the scienter calculus.” Id. at

1004. In light of the foregoing, standing alone the purported

false SOX certification allegations do not support a strong

inference of scienter as to defendants Nelson and Gonzales, and

certainly not to any of the other defendants.

 (c) Resignations

 Plaintiff believes that “[t]he mass exodus of Apollo executives

and directors around the time that the allegations of backdating

were revealed also supports an inference of scienter.” Resp. (doc.

94) at 39. Plaintiff recognizes that such allegations are “not

dispositive alone[]” of scienter. Id. Plaintiff reasons though

that the “large number of resignations and firings,” which it

attributes to “Apollo’s stock option misconduct and subsequent

investigation,” along with the “connections” of the departing

individuals to “wrongdoing at Apollo,” “collectively[] support a

strong inference of scienter.” Id. at 43. 

 Consistent with their prior proposition, Defendants assert that

standing alone such allegations do not raise a strong inference of

scienter, adding that resignations are an expected byproduct of a

restatement. To further undercut plaintiff’s scienter argument on

this point, defendants explain that the circumstances under which

certain defendants left Apollo militate against a finding of

scienter. 

 In Zucco, the Ninth Circuit also recently considered how

resignations impact the scienter equation, indicating that “in some

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circumstances” they “may be indicative of scienter[.]” Zucco, 552

F.3d at 1002. However, “[w]here a resignation occurs slightly

before or after the defendant corporation issues a restatement, a

plaintiff must plead facts refuting the reasonable assumption that

the resignation occurred as a result of restatement’s issuance

itself in order for a resignation to be strongly indicative of

scienter.” Id. (citation omitted). The mere allegation that the

company’s independent accounting firm resigned one month after

issuance of the restatement did not satisfy that pleading burden,

the Court held in Zucco. That resignation was “not surprising[,]”

in the Ninth Circuit’s estimation, because that firm “had just been

partially responsible for the corporation’s failure to adequately

control its accounting procedures.” Id. That, the Ninth Circuit

held, “is not enough to support a strong inference of scienter.” 

Id.

 “For other resignations occurring during the relevant period,”

but not necessarily in close proximity to the restatement, the

Court in Zucco explained that “a plaintiff must allege sufficient

information to differentiate between a suspicious change in

personnel and a benign one.” Id. “Mere conclusory allegations that

a financial manager resigns or retires during the class period or

shortly before the corporation issues its restatement, without

more, cannot support a strong inference of scienter.” Id.

(citations omitted). In that context, additional allegations that

“the resignation at issue was uncharacteristic when compared with

defendant’s typical hiring and termination patterns or was

accompanied by suspicious circumstances[]” are necessary. Id.

Without such allegations, the Ninth Circuit held that “the

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inference that the defendant corporation forced certain employees

to resign because of its knowledge of the employee’s role in the

fraudulent representations will never be as cogent or as compelling

as the inference that the employees resigned or were terminated for

unrelated personal or business reasons.” Id. (emphasis added). 

 Applying those principles to the record before it, the Zucco

Court held that “the bare fact” that the defendant’s chief

financial officer (“CFO”) retired “just prior to the disclosure of

[defendant’s] improper accounting and lack of financial controls

during his tenure[]” did not support plaintiff’s allegations of

scienter where the complaint did not “indicate whether [that CFO]

was nearing retirement age, whether he left to pursue other

opportunities, or even the length of his tenure.” Id. Likewise,

allegations that two controllers resigned during the class period

were insufficient “absent particular facts about [defendant’s]

hiring and firing of controllers during the class period, to create

a compelling inference of scienter.” Id. Plaintiff’s claim that

the controllers “left because they believed management was

unethical[]” were “based on vague hearsay allegations[,]” the Ninth

Circuit found, and hence were “not specific enough to extract a

strong inference of scienter from otherwise mundane turnover in the

corporation’s financial department.” Id.

 Here, plaintiff alleges that two of the individual defendants,

Mr. Blair, who wore several Apollo hats, serving as an Apollo

director, a Compensation Committee member, and Chairman of the

Audit Committee, as well as Ms. Govenar, another Apollo director,

resigned in close proximity to the issuance of the Restatement. On

May 2, 2007, they advised Apollo of their resignations, Morrison

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Decl’n (doc. 83), exh. 6 thereto at 3, and the Restatement was

issued on May 22, 2007. As Zucco makes clear though, a strong

inference of scienter requires more than close proximity between a

restatement and a resignation. 

 As to defendant Blair, in its opposition plaintiff points to

the allegation that he, along with defendant Norton “had the

closest working relationship with Nelson at Apollo.” Resp. (doc.

94) at 42 (internal quotation marks and citation omitted). That 

“working relationship” purportedly “consisted of massive systemic

stock option misconduct at Apollo.” Id. (internal quotation marks

and citation omitted). These resignation allegations alone do not

suffice to raise a strong inference of scienter as to Blair though

because, as in Zucco, these facts are insufficient to “refut[e] the

reasonable assumption that [his] resignation occurred as a result

of [the] restatement’s issuance itself[.]” See Zucco, 552 F.3d at

1002. 

 Further, because the resignations of Blair and Govenar “were

not accompanied by any public statement by [Apollo] that [they]

participated in or were involved in the fraud[,]” their

resignations are “minimal evidence of scienter[.]” See Rectifier,

2008 WL 4555794, at *16. Not only that, but after resigning,

defendant Blair continued to serve on the Board of Western

International University, a wholly-owned subsidiary of Apollo, 

Morrison Decl’n (doc. 83), exh. 6 thereto at 3. That continued

service further undermines a strong inference of scienter as to

him. See In re Cyberonics Inc. Sec. Litig., 523 F.Supp.2d 547,

553-54 (S.D.Tex. 2007) (retention of CFO by company after

supposedly “forced resignation,” among other reasons, did not

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support strong inference of scienter), aff’d on other grounds

without pub’d opinion, 292 Fed.Appx. 311 (5th Cir. 2008). By the

same token though, as discussed herein, because the FAC contains

additional allegations of Blair’s “wrongdoing[,]” his resignation

lends credence to a finding of scienter here. See Rectifier, 2008

WL 4555794, at *16 (citations omitted) (“A resignation or

termination provides evidence of scienter only when it is

accompanied by additional evidence of the defendant’s wrongdoing.”) 

 The FAC also does not include additional allegations as to

defendant Govenar so as to support a strong inference of scienter

based upon her resignation. Besides the fact of her resignation,

plaintiff alleges only that Ms. Govenar was “removed from the

Special Committee due to” an unspecified “conflict[] of

interest[.]” Resp. (doc. 94) at 43 (citing FAC at ¶ 93). That

generic allegation, simply is not enough to create a strong

inference of scienter based upon Ms. Govenar’s resignation. The

FAC does not include allegations which would transform Ms.

Govenar’s resignation from a “benign” to a “suspicious” one.

 Plaintiff also relies upon the resignations of four other

defendants, Messrs. Nelson, Norton and Bachus, and Ms. Gonazles, to

raise a strong inference of scienter. In contrast to defendants

Blair and Govenar, none of these resignations were in close

proximity to the Restatement - a fact plaintiff overlooks. “Apollo

announced that [defendant] Nelson[,]” its Chairman, CEO and

President, “unexpectedly ‘resigned’” in January 2006 – nearly a

year and a half prior to issuance of the Restatement. FAC (doc.

71) at ¶ 19. The court will not turn a blind eye to the fact,

however, that the Special Committee was formed that same month, on

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January 28, 2006. Nonetheless, without more, that timing does not

raise a strong inference of scienter in terms of Nelson’s

resignation. 

 Plaintiff believes that the following allegation is “powerful

evidence” of Nelson’s scienter as it relates to his resignation:

John Sperling, . . . , stated that he personally

recommended that the Board terminate Nelson because 

‘he was preoccupied primarily with the stock price 

and not with the function of the company.’

 

FAC (doc. 71) at ¶ 19. Nowhere in the FAC, however, are there

allegations as to Apollo’s “typical hiring and termination

patterns[,]” as Zucco demands. See Zucco, 552 F.3d at 1002. Nor

does this allegation amount to a “suspicious circumstance[ ]” so as

to support a strong inference of scienter. See id. Rather John

Sperling’s purported statement falls into the category of a “vague

hearsay” allegation which, as in Zucco is “not specific enough to

extract a strong inference of scienter[.]” See id. Clearly then,

Nelson’s resignation standing alone is insufficient to create a

strong inference of scienter. Taking the mandatory holistic

approach, however, as will soon become evident, the totality of the

allegations as to defendant Nelson shows that plaintiff has

sufficiently plead scienter as to him. 

 The FAC alleges that defendant Gonzales, Apollo’s CFO,

Secretary and Treasurer, was “forced to resign in November 2006

because of her involvement in the stock option backdating at

Apollo.” FAC (doc. 71) at ¶ 20. The FAC further alleges that as

part of its “[c]ontinuing . . . attempts to conceal . . .

backdating[,]” defendant Mueller “stated . . . that Gonzales

resigned to spend more time with her family.” Id. at ¶ 99

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(internal quotation marks omitted). Again, because her resignation

was not in close proximity to the Restatement, and because there

are no allegations as to Apollo’s typical hiring and termination

patterns or allegations of “suspicious circumstances[,]” in

accordance with Zucco, the lone inference that Apollo “forced”

Gonzales “to resign because of its knowledge of [her] role in the

fraudulent representations will never be as cogent or as compelling

as the inference that [she] resigned . . . for unrelated personal

or business reasons.” See Zucco, 552 F.3d at 1002 (emphasis

added). 

 Plaintiff attempts to show that Gonzales’ resignation is

highly probative of her state of mind based on allegations that the

Special Committee “determined that [she] was unaware of APB 25, and

therefore, administered an option plan that did not meet [certain

IRS standards[,]” and she thus “[h]elped to cause” the financials

to be restated, and necessitated IRS refunds because the options

were not in compliance with APB 25. See FAC (doc. 71) at ¶ 125

(internal quotation marks and citation omitted). Plaintiff’s

reliance upon those determinations is misplaced because it is just

as plausible to infer from Ms. Gonzales’ supposed “unaware[ness] of

APB 25" that she was “either negligent or grossly negligent -

neither of which are sufficient under the PSLRA and Ninth Circuit

precedent.” See Middlesex, 527 F.Supp.2d at 1187. Consequently,

like defendant Nelson, Gonzales’ resignation without more does not

establish the requisite strong inference of scienter. Also as with

defendant Nelson, however, as will be more fully explained below,

collectively viewing the allegations against Ms. Gonzales creates a

strong inference of scienter so as to defeat dismissal. 

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 Plaintiff barely mentions Bachus in its discussion of

resignations, noting simply that he left at the same time as

Gonzales - in November 2006. See Resp. (doc. 94) at 41 (citing FAC

at ¶¶ 20-21). Such a conclusory allegation falls woefully short of

the allegations necessary to support a strong inference of scienter

based upon a resignation, especially given that Bachus’ resignation

preceded the Restatement by almost a year and a half. An

independent perusal of the FAC reveals additional allegations as to

Bachus’ resignation, however. Allegedly “he was forced to resign

because of his involvement in the stock option backdating at

Apollo.” FAC (doc. 71) at ¶ 21. Furthermore, Bachus purportedly

resigned before John “Sperling had a chance to ask for [his]

resignation.” Id. at ¶ 102. At the risk of repetition, the FAC

does not include any allegations as to Apollo’s typical hiring and

termination practices. Although Bachus did resign during the

Special Committee’s investigation, that does not rise to the level

of a “suspicious” circumstance. Absent such allegations, “the

inference that [Apollo] forced certain employees[,]” such as

Bachus, its former CAO and Controller, “to resign because of [its]

knowledge of [his] role in the fraudulent representations will

never be as cogent or compelling as the inference that [he]

resigned . . . for unrelated personal or business reasons.” See

Zucco, 552 F.3d at 1002. Thus, Bachus’ resignation on its own is

insufficient to establish a strong inference of scienter as to him. 

 The FAC is similarly flawed with respect to the allegations

surrounding defendant Norton’s resignation. The only allegation in

the prolix FAC directly pertaining to his resignation alleges that

he along with other defendants “‘retired’ during or shortly after

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the Special Committee’s investigation regarding options backdating

and the issuance of [Apollo’s] Restatement.” FAC (doc. 71) at 

¶ 137. The press release announcing his resignation as

Compensation Committee Chair, effective December 8, 2006 (well

before the Restatement), indicates that Mr. Norton’s “intention

[was] not to stand for reelection at [Apollo’s] Annual Meeting[,]”

which “generally occurs in January, 2007.” Morrison Decl’n (doc.

83), exh. 4 thereto. But, “[i]n light of the fact that the meeting

has not been scheduled, Mr. Norton preferred not to continue his

term into 2007.” Id. Based upon the foregoing, undoubtedly, the

FAC does not include sufficient additional information so as to

render defendant Norton’s resignation suspicious as opposed to

benign. Accordingly, without more, his resignation does not

support a finding of scienter. As with several of the other

defendants, however, as will be seen, viewing the totality of the

scienter allegations as to Mr. Norton shows that the FAC does

adequately allege scienter as to him. 

 (d) Financial Gain

 Next, plaintiff claims that the individual defendants’

“personal enrichment through lucrative stock option grants and

insider trading” is another possible means of establishing

scienter. FAC (doc. 71) at 79(C); see also id. at ¶ 113(c)

(“Additional facts provide actual and strong circumstantial

evidence of defendants’ scienter including . . . [their] desire to

personally obtain greater compensation without public

scrutiny[.]”). Essentially defendants assert that the FAC does not

include any of the details which are necessary to support an

inference of scienter predicated upon financial gain. 

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 In this Circuit “unusual or suspicious stock sales by corporate

insiders may constitute circumstantial evidence of scienter[.]”

Zucco, 552 F.3d at 1005 (internal quotation marks and citations

omitted) (emphasis added). “[I]nsider trading is suspicious[,]”

however, “only when it is dramatically out of line with prior

trading practices at times calculated to maximize the personal

benefit from undisclosed inside information.” Id. (internal

quotation marks and citations omitted). There are three factors

that a court “must . . . consider[] to determine whether stock

sales raise a strong inference of deliberate recklessness[.]” Id.

Those factors are: “(1) the amount and percentage of shares sold by

insiders; (2) the timing of the sales; and (3) whether the sales

were consistent with the insider’s prior trading history.” Id.

(internal quotation marks and citation omitted). An examination of

the FAC in light of these factors shows that due to the inadequacy

of plaintiff’s allegations of insider trading, even in combination,

these three sub-factors are insufficient, standing alone, to

establish an inference of scienter. 

 (i) Amount and Percentage

 “Typically, courts consider the percentage of shares sold to

determine whether insiders are taking advantage of insider

knowledge regarding a scheme that will artificially inflate the

company’s price.” Middlesex, 527 F.Supp.2d at 1185 (citation

omitted). In the context of an alleged scheme to improperly

backdate stock options, however, the court in Middlesex found that

plaintiff’s failure to plead what percentage of each defendant’s

stock was sold to be “without consequence.” Id. at 1186. In

contrast to the “prototypical” insider trading scenario, the

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alleged backdating scheme in Middlesex “took place over several

years[.]” Id. at 1185. Thus the court explained that “there was no

reason for Defendants to quickly sell large percentages of their

shares.” Id. The court further contrasted “insiders . . . who

know that the then-inside information will eventually be disclosed

to the public, resulting in a drop in the stock price, . . . thus,

requiring them to sell large portions of stock to maximize their

profit,” with backdating where it is “not inevitable that the

improperly-dated stock options w[ill] be revealed.” Id. Given

that distinction, the Middlesex court found that “the requirement

that percentages be pled is only relevant when the insider is aware

of the time that the inside information will be disclosed and there

will be a resulting effect on the stock price.” Id. Accordingly,

“[b]ecause Plaintiff . . . pled the amount of stock sales with the

appropriate degree of specificity, and the amount [wa]s substantial

enough to justify an inference of motive,” the Middlesex court held

that this sub-factor “lean[ed] in favor of finding ths stock sales

‘suspicious.’” Id. at 1186. 

 Here, the FAC, and especially exhibit G thereto, provide the

dates, number of shares, price and proceeds for each of defendants’

stock sales, but no allegations as to what percentage of each

defendant’s shares were sold. Nonetheless, in the context of the

backdating scheme alleged herein, this court finds convincing the

Middlesex rationale set forth above. Hence, it agrees that

plaintiff’s failure to plead percentages of stock sold is

inconsequential at this time. That is so because the FAC includes

the necessary specificity as to defendants’ stock sales, and the

amount of those sales is substantial, viewed strictly in terms of

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amounts, in that allegedly proceeds ranged from $1,715,237 to

$472,463,500. See FAC (doc. 71), exh. G thereto.

 Unlike the court in Middlesex, however, this court is unwilling

to take the next step and find that the foregoing “is substantial

enough to justify an inference of motive[,]” and in turn a finding

that defendants’ stock sales were “suspicious.” See Middlesex, 527

F.Supp.2d at 1186. The court is unwilling to find that the stock

sales at issue herein are suspicious based only on the proceeds

because plaintiff has “selected an unusually long class period of

over [250] weeks.” See Brodsky v. Yahoo! Inc., 2008 WL 4531815, at

*11 (N.D.Cal. Oct. 7, 2008) (citing Vantive, 283 F.3d at 1092

(“plaintiffs have selected an unusually long class period of [63]

weeks”)). “Just as in Vantive, ‘lengthening the class period has

allowed plaintiff[] to sweep as many stock sales into their totals

as possible, thereby making the stock sales appear more suspicious

than they would be with a shorter class period.’” Id. (quoting

Vantive, 283 F.3d at 1092). “Thus, ‘by themselves, large numbers do

not necessarily create a strong inference of fraud.’” Id. (quoting

Vantive, 283 F.3d at 1093). In sum, although the lack of percentage

allegations is not critical, the court cannot ignore the “unusually

long class period” here in terms of the amounts sold and the

proceeds. Thus, the court finds that the first sub-factor regarding

insider trading does not weigh in favor of a finding that

defendants’ stock sales were suspicious. 

 (ii) Timing

 The FAC includes details as to when certain defendants received

allegedly backdated Apollo stock options. See FAC (doc. 71) at 

¶¶ 49-52. However, as the individual defendants stress, the FAC

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does not allege, nor have plaintiffs “attempt[ed] to demonstrate

that the timing of any Defendant’s sales was suspicious.” Supp. Br.

(doc. 100) at 5 (emphasis in original). This omission is readily

explainable from defendants’ standpoint because the alleged stock

sales, even the most recent one of December 30, 2005, occurred

“before backdating was even an issue in corporate America[,]” and

“before Apollo disclosed that it may have to restate its financial

results.” Mot. (doc. 82) at 21. Given the lack of temporal

proximity both in terms of the timing of the stock sales themselves

and in relation to the alleged misconduct, the individual defendants

maintain that these sales were “not suspicious at all.” Id. at 20. 

 “Traditionally,” the timing factor “is not only concerned with

the date on which the insider’s shares were sold, but rather when

the shares were sold in relation to the revelation of the insideinformation.” Middlesex, 527 F.Supp.2d at 1186 (citation omitted). 

In a backdating situation though, where there is “no preordained

date on which the allegations of [such] w[ill] be revealed with [a]

resulting drop in stock price[,]” the court again concurs with the

Middlesex court – “[t]he facts . . . do not lend themselves to

analysis under this factor[.]” See id. In the first place, unlike

the prototypical insider scenario, “here defendants were not aware

of the date on which [Apollo’s] backdating practice would be

revealed.” See id. Plainly then, their “stock sales will not

[necessarily] reflect large sales prior to disclosure.” See id.

Second, a backdating scheme, in contrast to the prototypical insider

scenario, “does not depend on timing; regardless of when the stock

is sold, the fact that the stock was granted at such a relatively

low price virtually guarantees Defendants will reap significant

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profits.” Id.

 Further, reasoned the Middlesex court, the nature of backdating

places defendants in a classic “catch-22[]” in that selling shortly

after reports of backdating “cause[s] a strong appearance of

impropriety[,]” whereas waiting to sell until after disclosure

forces defendant to sell after the decline in stock prices. Id. 

For these reasons, in Middlesex the court found that plaintiff’s

failure to plead facts as to the timing of defendants’ stock sales

was “of little significance[.]” Id. Consistent with that view, the

court further held that that timing sub-factor “neither weigh[ed]

for nor against a finding of suspicious stock sales.” Id.

 The Middlesex rationale applies with equal force to the alleged

backdating scheme at Apollo. Accordingly, this court, too, finds

that although the FAC does not include allegations as to the timing

of defendants’ stock sales, that sub-factor does not figure in the

court’s final determination as to whether plaintiff’s insider

trading allegations are sufficient to support a finding of scienter.

 (iii) Prior Trading History

 In Zucco, the Ninth Circuit repeated that “[f]or individual

defendants’ stock sales to raise an inference of scienter, plaintiff

must provide a meaningful trading history for purposes of comparison

to the stock sales within the class period.” Zucco, 552 F.3d at

1005 (internal quotation marks and citation omitted). The Court in

Zucco did not equivocate as to the necessity of such a comparison,

stating that “[e]ven if the defendants’ trading history is simply

not available, for reasons beyond a plaintiff’s control, the

plaintiff is not excused from pleading the relevant history.” Id.

(citations omitted). Thus, in Zucco the Ninth Circuit held that

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11 There are no allegations that the eleventh individual defendant, Brian

Mueller, engaged in insider trading.

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although the stock sales of two defendant officers were

“significant,” because the complaint did not include any allegations

that their stock sales were “inconsistent” with their “usual trading

patterns, no inference of scienter c[ould] be gleaned from

[plaintiff’s] stock sale assertions.” Id. At 1006.

 The same is true here. Missing from the FAC are any allegations

as to the trading history of the ten individual defendants whom

allegedly engaged in insider trading.11 Plaintiff seeks to

circumvent this requirement by noting, as the FAC alleges, that

“‘[s]ince this fraudulent scheme had commenced by at least 1998, no

meaningful comparison of prior trading patterns can be performed.’” 

Resp. (doc. 94) at 46 (quoting FAC at ¶ 134). Therefore,

allegations of defendants’ trading history are not necessary. 

 To support that argument, plaintiff relies upon Middlesex, where

the court found “persuasive” plaintiff’s argument “that because

Defendants were backdating options during the entire pre-Class

Period, the fact that Plaintiff ha[d] not demonstrated that the

sales were consistent with Defendants’ prior trading history [wa]s

effectively meaningless as there [wa]s no trading period without the

influence of backdated options with which to compare the sales.” 

Middlesex, 527 F.Supp.2d at 1187 (emphasis in original). What

plaintiff overlooks, however, is that in the end, given the lack of

trading history, the Middlesex court found that factor “neither

weighs for nor against a finding of suspicious stock sales.” See

id. Moreover, this court is not at liberty to disregard the Ninth

Circuit’s clear-cut directive in Zucco quoted earlier: “Even if the

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defendants’ trading history is simply not available, for reasons

beyond a plaintiff’s control, the plaintiff is not excused from

pleading the relevant history.” Zucco, 552 F.3d at 1005 (citation

omitted) (emphasis added). Thus, as with the amount of shares sold,

the lack of allegations as to defendants’ trading history weighs

against finding that their stock sales were suspicious. In sum,

because two of the three stock sales sub-factors weigh against a

finding that those sales were suspicious, and the third, timing,

does not come into play here, the court finds that even in

combination, these three factors are insufficient, standing alone,

to create a strong inference of scienter based upon alleged insider

trading. 

 (e) Motive

 Closely related to plaintiff’s insider trader allegations are

its allegations that defendants had financial motives to backdate

stock options, which plaintiff also believes is indicative of

scienter. Succinctly put, the FAC alleges that “[d]efendants were

motivated to commit the fraudulent scheme [of backdating] to reap

significant personal profits.” FAC (doc. 71) at ¶¶ 133 and 

¶ 113(c). That motivation allegedly derived from “the fact that the

vast majority of [defendants’] overall compensation was through

stock option grants.” Id. at ¶ 134. Additionally, supposedly

defendants were motivated “to falsify [Apollo’s] financial statement

by failing to record the additional compensation expenses in order

to meet their projected earnings goals and receive lucrative

bonus[es][.]” Id. 

 Interestingly, plaintiff did not directly respond to defendants’

valid argument that “motive and opportunity” alone, and likewise

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“the desire to maintain profitability”12 alone, do not show

scienter. See, e.g., Cornerstone, 355 F.Supp.2d at 1091 (and cases

cited therein) (“The Ninth Circuit has clearly held that incentives

to enhance business prospects and executive compensation incentives

are insufficient allegations of scienter.”) In accordance with this

well-settled precedent, the court easily finds that the scant motive 

allegations are insufficient alone to carry plaintiff’s burden of

alleging scienter. 

 As should be evident by now, when viewed individually,

plaintiff’s scienter allegations are lacking. Therefore, in

accordance with Zucco, the court “will conduct a ‘holistic’ review

of the[se] same allegations to determine whether the[y] combine to

create a strong inference of intentional conduct or deliberate

recklessness.” See Zucco, 552 F.3d at 992. 

 d. Holistic View of Scienter Allegations

 Defendants took the first step in the Zucco dual inquiry by

viewing each scienter allegation in isolation, and then concluding

those allegations do not sufficiently allege scienter. Defendants

did not take the second and, as it turns out, critical step under

Zucco - a holistic consideration of those individual allegations. 

When the court does that, although it finds that even when read

together the allegations in the FAC do not create a strong inference

of scienter as to some of the defendants, the FAC does sufficiently

allege scienter as to others. 

 Even collectively, the allegations do not create a strong

inference of scienter as to defendants Bachus and or Govenar. The

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allegations as to defendant Bachus are relatively minimal. He was

Apollo’s Chief Accounting Officer and Controller from August 2000

until his resignation in November 2006, which allegedly was “forced”

due to his “involvement in . . . backdating[.]” FAC (doc. 71) at 

¶¶ 11; 21; and 102. The FAC further alleges a one-time receipt of

stock option grants as to Mr. Bachus. Id. at ¶ 52. In contrast to

some of the other defendants whom the court will discuss below, the

FAC does not include any particularized facts outlining Bachus’

alleged involvement in backdating stock options. There is just the

bald and factually unsubstantiated allegation that he was involved

in backdating. Bachus’ resignation, even when coupled with his

stock sales and receipt of stock option grants does not create a

“malicious inference” which ‘is at least as compelling as any

opposing innocent inference.” See Zucco, 552 F.3d at 991 (citations

omitted). Thus, the court finds that plaintiff has not sufficiently

alleged scienter as to Mr. Bachus. Accordingly, it grants his

motion to dismiss the § 10(b) & Rule 10b-5 claims as against him.

 The FAC is similarly bereft of allegations that Ms. Govenar

acted with the requisite intent. The FAC merely alleges that she

served on the Special Committee; later resigned; and sold Apollo

stock. FAC (doc. 71) at ¶¶ 11; 24; and 93. The FAC does not allege

that Ms. Govenar herself ever received stock options; and perhaps

more importantly, it does not allege that she had any role at all in

the stock option granting or accounting process. Without such

allegations it is readily apparent that plaintiff has not “plead

with particularity facts that give rise to a . . . powerful or

cogent . . . inference” of scienter. See Tellabs, 551 U.S. at ___,

127 S.Ct. at 2510 (citations omitted). Hence, the court grants

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defendant Govenar’s motion to dismiss the § 10(b) and Rule 10b-5

claims against her.

 On the other hand, holistically viewing the allegations of

scienter as to defendants Nelson, Blair, Norton, and Gonzales

persuades the court that plaintiff has sufficiently alleged scienter

as to each of them. The primary although not only difference

between these four defendants and Mr. Bachus and Ms. Govenar is that

the FAC contains allegations as to their responsibility for, and

rather extensive involvement with, the stock option granting and

accounting processes. As set forth below, “[each of these

defendants is alleged to have participated in several different

activities[,]” pertaining to option granting and the accounting

thereof, which taken together “evidenc[e] scienter.” See In re

Asyst Technologies, Inc. Deriv. Litig., 2009 WL 4891220, at *11

(N.D.Cal. 2008) (citing cases).

 To be sure, “[i]n the options backdating context, allegations

that a defendant holds a high executive position,” such as Nelson,

former Apollo CEO, and Gonzales, Apollo’s former CFO, Secretary and

Treasurer, “without more do not support a strong inference of

scienter.” See id. (internal quotation marks and citations

omitted). But, “allegations that the defendant signed false

financial documents, approved options grants, oversaw the options

granting process, or was intimately involved in deciding when and to

whom options would be granted may support a strong inference of

scienter.” Id. (internal quotation marks and citations omitted);

see also Juniper, 542 F.Supp.2d at 1047-48 (allegations that CEO and

CFO received sizeable backdated stock options; issued and signed

false securities filings; knew of or recklessly disregarded

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backdating; signed false financial documents knowing they were false

or recklessly not knowing they were false; and who were in positions

to oversee stock options such that they were in a position to know

or were reckless in not knowing that options were inconsistent with

financial statements supported strong inference of scienter). 

 The FAC alleges that defendant Nelson engaged in not just one of

the activities listed above, but in all of them and more. In

particular, allegedly he: (1) received backdated stock options; 

(2) signed “false and misleading” Forms 10-K and 10-Q; signed false

SOX certifications “attest[ing] to the adequacy of [Apollo’s]

internal controls, and the accuracy of [Apollo’]s reported financial

statements[;]” falsely certified 10-K forms; and was an integral

part of the option granting process, including “generally

select[ing] the grant date[,]” hence acquiring knowledge of the

option granting process. See, e.g., FAC (doc. 71) at ¶¶ 19, 58, 64,

117(a)-(e), 119, 120, and 199, and exh. G thereto. The FAC further

alleges that Nelson profited from insider trading by selling shares

of Apollo stocks resulting in proceeds of $82,789,312. Id. Exh. 6

thereto. It further alleges that Nelson resigned as Apollo’s CEO in

January 2006, less than a month after the Apollo’s 8-K indicated

that the “Special Committee . . . reported that certain former

officers took steps that may have been intended to mask failures in

the grant approval process with respect to [Apollo’s] financial

reporting and payment of taxes.” Id. at ¶¶ 19 and 104; and exh. G

thereto. Additionally, the FAC alleges that backdating violated

Apollo’s own stock option plans. Id. at ¶ 6. Lastly, the FAC

alleges that ultimately Apollo was forced to issue a Restatement,

the overall impact which was that a downward adjustment of its

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“retained earnings as of September 1, 2003” by approximately $62.5

million dollars. Morrison Decl’n (doc. 83), exh. 1 thereto at 15. 

 Viewing plaintiff’s allegations together, although the inference

of scienter as to defendant Nelson may not be of the “smoking gun

genre,” it does not need to be. See Tellabs, 551 U.S. at ___, 127

S.Ct. at 2510 (internal quotation marks and citation omitted). The

inference is certainly enough, however, to defeat these motions to

dismiss in that “the malicious inference is at least as compelling

as any opposing innocent inference[,]” such as an innocent

bookkeeping error. See Zucco, 552 F.3d at 991 (citations omitted). 

Put differently, the totality of these allegations supports a

finding that plaintiff has adequately pled that defendant Nelson

“either knew of the backdating, or w[as] deliberately reckless in

not knowing of the backdating.” See Middlesex, 527 F.Supp.2d at

1182. Thus, the court denies defendant Nelson’s motion to dismiss

to the extent it is based upon failure to adequately plead scienter.

 For similar although not identical reasons, the court denies

defendant Gonzales’ motion to dismiss on scienter grounds. Gonzales

attempts to minimize her alleged responsibility for backdating by

selectively noting only the allegations of her “accounting

position[]” and her resignation in November 2006. Mot. (doc. 82) at

11 (citations omitted). The FAC alleges much more than that though.

It alleges that like defendant Nelson, Gonzales, Apollo’s former

CFO, received stock options; profited from the sale of Apollo stock

in the amount of $5,257,858; knowingly signed false SOX

certifications, attesting to the adequacy of Apollo’s internal

controls and the accuracy of its financial results; and also signed

“false and misleading” Form 10-Ks. FAC (doc. 71) at ¶¶ 11, 20, 49-

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52, 58, 64, 99, 124. Furthermore, the FAC alleges that Ms. Gonzales

“was at least deliberately reckless with respect to the options

granting process at Apollo because, contrary to the SOX

certifications . . . , [she] wholly failed to monitor the granting

of stock options, or account for the backdated stock options at

Apollo.” Id. at ¶¶ 125. These allegations, along with Ms.

Gonzales’ supposed unawareness of APB 25, taken together meet the

threshold pleading requirements for scienter. This is all the more

so in light of recent Ninth Circuit pronouncements, set forth

earlier, that “[v]ague or ambiguous allegations are now properly

considered as part of a holistic review when considering whether the

complaint raises a strong inference of scienter.” Zucco 552 F.3d at

1006, South Ferry, 542 F.3d at 784. 

 Defendants Norton and Blair are not current or former Apollo

officers. Norton did, however, serve as Chair of the Compensation

Committee and he was a member of the Audit Committee. Defendant

Blair served as Chair of the Audit Committee and also was a member

of the Compensation Committee. Given their membership on the

Compensation Committee, both of these defendants allegedly were an

integral part of Apollo’s grant process, as the Special Committee’s

investigation demonstrates. “[M]ost grant dates were selected at

Board or Compensation Committee meetings[] . . . prior to August

2001[.]” FAC (doc. 71) at ¶ 115(b) (internal quotation marks

omitted). “Under the LTIP and the [2000 Plan], only the

Compensation Committee could approve grants to the Former CEO[,]”

defendant Nelson. Id. at ¶ 115(f) (internal quotation marks

omitted). “In many instances, the Approval Memorandum” for the

option grants “was signed by only the Chairman of the Compensation

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Committee [Norton][;] and there was a “lack [of] evidence as to

whether all of the grants were, in fact, approved by a majority of

the members of [that] Committee.” Id. at ¶ 115(e) (internal

quotation marks omitted). There were also Approval Memorandum

signed by the Compensation Committee as a whole. See id. at 

¶ 117(c). The Compensation Committee minutes reflect that

“typically . . . option grants were discussed and approved[]” at

meetings of that Committee. Id. at ¶ 117(e). 

 In light of the foregoing, it is apparent that defendant

Norton’s and Blair’s respective positions on the Compensation

Committee gave them detailed knowledge as to the option grant dates. 

The other allegations against them such as Blair’s profits of

slightly more than $3.5 million from insider trading, and Norton’s

profits of nearly $8.0 million, along with the allegations discussed

in preceding sections, such as their resignations, individually

might not suffice to plead scienter. Mindful of the Court’s

acknowledgment in South Ferry, that “federal courts certainly need

not close their eyes to circumstances that are probative of scienter

viewed with a practical and common-sense perspective[,]” the court

finds that the allegations against defendants Norton and Blair give

rise to the inference that at the very least they were deliberately

reckless in not knowing of the backdating.

 Based upon In re Nash Finch Co. Sec. Litig., 323 F.Supp.2d 956

(D.Minn. 2004), defendants strongly urge this court to find that

“[j]ust as two plus two will never equal five, the[] allegations [in

the FAC] – whether considered apart or together – do not add up to a

strong inference of scienter.” See id. at 964 (footnote omitted). 

While that is true with respect to defendants Bachus and Govenar, it

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is not true to defendants Nelson, Gonzales, Norton and Blair. The

allegations against those four defendants, in sharp contrast to

Nash, are neither “trivial [n]or irrelevant[.]” See id.

Collectively the FAC’s allegations as to defendants Nelson,

Gonzales, Norton and Blair go far beyond the “collective minutia

offered” in Nash. In short, the allegations as to these four

defendants “create an inference greater than the sum of [their]

parts,” that they acted with knowledge or at least were deliberately

indifferent as to th falsity of their statements regarding

accounting for stock-based compensation expenses and the existence

of internal controls in that regard. See Zucco, 552 F.3d at 1006.

That inference is “still . . . at least as compelling as an

alternative innocent explanation[,]” of innocent bookkeeping error

or a simple failure to cross every “t” and dot every “i”. See

id. Consequently, the court denies the motion to dismiss for

failure to adequately plead scienter by these four defendants. 

Likewise, it denies Apollo’s motion to dismiss on that same basis

because “[t]he scienter of the[se] individual defendants, as

directors and officers of [Apollo] is imputed to [Apollo].” See

Batwin, 2008 WL 2676364, at *15 n. 8 (citation omitted). 

 e. Remaining Individual Defendants

 As did the parties, to this point the court has deliberately not

addressed the remaining defendants – John and Peter Sperling, Brian

Mueller, Dino DeConcini, and Laura Noone. As Apollo reads the FAC,

plaintiff is asking the court to infer scienter based “merely” on

the individual defendant’s “corporate titles and responsibilities.” 

Mot. (doc. 81) at 26. This amounts to impermissible “group

pleading,” according to Apollo. Id. “[T]he group pleading

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13 Of course, “the group pleading doctrine is not fatal to allegedly

misleading statements in SEC filings signed by the Officer Defendants[.]” New

Century, 2008 WL 5147991, at *14 (citing Howard v. Everex Systems, Inc., 228 F.3d

1057, 1061-62 (9th Cir. 2000)). Those defendants cannot, however, “be liable for the

press releases, except to the extent that there are specific statements attributed

to them, or the press releases are otherwise connected to them[.]” Id. (citation

omitted). 

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doctrine establishes a presumption, for purposes of drafting a

complaint, that statements in group-published information such as

prospectuses, registration statements, annual reports, or press

releases are the collective work of those individuals with direct

involvement in the day-to-day affairs of the company.” New Century,

supra, 2008 WL 5147991, at *13 (internal quotation marks and

citations omitted). It is possible to interpret the FAC as relying

upon the group pleading doctrine, but plaintiff does not mention

that doctrine anywhere in its response or supplemental memorandum. 

Presumably, then, plaintiff is not invoking that doctrine. To the

extent that plaintiff may be relying upon group pleading, however,

the court adopts the thorough and well-reasoned analysis in New

Century, id. at *13-*14, and “[j]oin[s] the majority of other courts

in this Circuit, . . . hold[ing] that group pleading is no longer

viable under the PSLRA.” Id. at *14.13 

 Much like Apollo, the five defendants identified above, contend

that plaintiff has not sufficiently pled scienter as to each of them

because it “does no more than identify their positions at [Apollo]

and allege that, based on their . . . positions, they had access to

information concerning [Apollo’s] stock option plans.” Mot. (Doc.

82) at 23 (citing FAC at ¶ 112). Such “tactics” are “never,” these

defendants broadly assert, “sufficient to plead knowledge of fraud.” 

Id. (footnote omitted). Defendant Mueller seeks dismissal on that

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same ground. In addition, he asserts that plaintiff has not

sufficiently pled scienter based solely upon two allegedly false

statements which he made, and which will be discussed more fully

below. 

 Retorting that it has “plead far more than fraud by job

title[,]” plaintiff emphasizes “the essential roles that Nelson,

Blair and Norton played in the granting and approval of backdated

stock options at [Apollo].” Supp. Br. (doc. 101) at 4 (citation

omitted). Significantly though, plaintiff does not mention any of

the defendants discussed above. By its silence, the court assumes

that plaintiff concedes that it has not adequately pled scienter as

to those defendants. The court thus grants the motion to dismiss as

to John and Peter Sperling, Brian Mueller, Dino DeConcini and Laura

Noone. 

 Even without plaintiff’s implicit concession that it has not

adequately pled scienter as to the just named defendants,

nonetheless, they are entitled to dismissal of the 10(b) claims.

Dismissal is mandated because, as discussed below, the FAC is

glaringly deficient in terms of scienter allegations as to any of

these defendants.

 Ordinarily, “corporate management’s general awareness of the

day-to-day workings of the company’s business does not establish

scienter-at least absent some additional allegations of specific

information conveyed to management and related to the fraud or other

allegations supporting scienter.” South Ferry, 542 F.3d at 784-85

(internal quotation marks and citation omitted). In South Ferry,

the Ninth Circuit did “recognize two exceptions to th[at] general

rule[.]” Zucco, 552 F.3d at 1000 (citing South Ferry, 542 F.3d at

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785). “The first permits general allegations about ‘management’s

role in a corporate structure and the importance of the corporate

information about which management made false or misleading

statements’ to create a strong inference of scienter when these

allegations are buttressed with ‘detailed and specific allegations

about management’s exposure to factual information within the

company.’” Id. (quoting South Ferry, 542 F.3d at 785). “To satisfy

this standard,” the Ninth Circuit has explained, “plaintiffs might

include in their complaint specific admissions from top executives

that they are involved in every detail of the company and that they

monitored portions of the company’s database, . . . a specific

admission from a top executive that [w]e know exactly how much we

have sold in the last hour around the world, . . . , or other

particular details about the defendants’ access to information

within the company.” Id. (internal quotation marks and citations

omitted). 

 The Zucco complaint did not allege the necessary particularized

details, although it did “include allegations that senior management

. . . closely reviewed the accounting numbers generated [by the

defendant company] each quarter . . . , and that top executives had

several meetings in which they discussed quarterly inventory

numbers[.]” Id. Those allegations, according to the Ninth Circuit,

did “not support the inference that management was in a position to

know that such data was being manipulated[]” because “[n]othing in

the complaint suggest[ed] that [one of the company’s officers] had

access to the underlying information from which the accounting

numbers were derived.” Id.

 “The second exception . . . permits an inference of scienter

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where the information misrepresented is readily apparent to the

defendant corporation’s senior management.” Id. at 1001. Thus,

“[w]here the defendants ‘must have known’ about the falsity of the

information they were providing to the public because the falsity of

the information was obvious from the operations of the company, the

defendants’ awareness of the information’s falsity can be assumed.” 

Id. (quoting Berson, 527 F.3d at 987-89). By the same token, in

quite strong language, the Ninth Circuit has held that “reporting

false information will only be indicative of scienter where the

falsity is patently obvious - where the facts [are] prominent enough

that it would be absurd to suggest that top management was unaware

of them.” Id. (internal quotation marks and citations omitted). 

 Berson is an example of a case with such “prominent” facts. 

Berson fell “into the exceedingly rare category of cases in which

the core operations inference, without more, [wa]s sufficient under

the PSLRA.” South Ferry, 542 F.3d at 785 n.3. The “unusual

circumstances” which led the Berson Court to find “that the

defendant company’s misrepresentation of the status of stop-work

orders was enough to infer scienter” were the issuance of “four

stop-work orders [which] . . . respectively halted between $10 and

$15 million of work on the company’s largest contract with one of

its most important customers, halted $8 million of work, caused the

company to reassign 50-75 employees, and required [Defendant] to

complete massive volumes of paperwork.” Zucco, 552 F.3d at 1001

(internal quotation marks and citation omitted). 

 Here, the allegations in the FAC are, in many respects, even

weaker than those in Zucco, and nothing on the magnitude of those in

Berson. The court thus has little difficulty finding that plaintiff

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cannot rely upon the core-operations inference to create a strong

inference of scienter with respect to John and Peter Sperling, Laura

Noone, and Brian Mueller. 

 Before separately considering the allegations as to these

defendants, it should be noted that the FAC includes two paragraphs

of what can best be described as “catch-all” scienter allegations

against all defendants. See FAC (doc. 71) at ¶¶ 112-113.

Particularly noteworthy at this point is the allegation that

“defendants acted with scienter in that they . . . had access to all

internal data concerning [Apollo’s] stock option plans[.]” Id. at 

¶ 112. The FAC does not indicate exactly how each of the defendants

achieved that access and, perhaps more importantly, it does not

allege the exact nature of that “internal data.” In similarly broad

language, the FAC further alleges that “[a]dditional facts provide

actual and strong circumstantial evidence of defendants’ scienter

including[,]” among other things, “defendants’ roles,

responsibilities, and specifically articulated duties for granting

and administering grants[.]” Id. at ¶ 113. As will be more fully

explained below, while this is an accurate allegation as to some of

the defendants, it is not as to all of them. 

 As to Peter Sperling, the allegations in the FAC are few. He is

Apollo’s Senior Vice President and a director, and allegedly

received backdated stock option grants. FAC (doc. 71) at ¶¶ 27; 49;

and 51-52. Further, he, along with John Sperling, appointed the

Special Committee. Id. at ¶ 93. Finally, Peter Sperling

purportedly indicated that Ms. Gonzales resigned due to backdating,

and that she was “‘unaware of APB 25.’” Id. at ¶¶ 99 and 127. Such

allegations do not come close to meeting the standards recently

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explicated by the Ninth Circuit. There are no specific admissions

of the type described in South Ferry. Nor does the FAC include any

“details about [Peter Sperling’s] access to information within

[Apollo][.]” See Zucco, 552 F.3d at 1001 (internal quotation marks

and citation omitted). 

 Moreover, this is not an “exceedingly rare” case such as Berson

where the “falsity is patently obvious - where the facts [are]

prominent enough that it would be absurd to suggest that top

management[,]” such as Peter Sperling, “was unaware of them.” See

Berson, 527 F.3d at 989 (internal quotation marks and citation

omitted). The allegedly false statements pertain, inter alia, to

Apollo’s misapplication of certain accounting principles, such as

how it did or did not account for stock-based compensation expenses,

and the existence of internal controls in that regard. Lastly, the

FAC is devoid of any allegations that Peter Sperling had any role in

granting stock options, accounting for them, or that he had any

information as to the approval process for those grants. For all of

these reasons, the court grants his motion to dismiss the § 10(b)

and Rule 10b-5 claims.

 The FAC includes more detailed allegations as to John Sperling,

but in the end those additional allegations are not enough to defeat

dismissal of the § 10(b) and Rule 10b-5 claims. As with Peter

Sperling, there are no allegations in the FAC as to John Sperling’s

role, if any, in the granting of or accounting for Apollo stock

options. Further, there are no details as to his access to any

Apollo information, much less his access to grant process or

accounting information. Nor, as just explained in connection with

Peter Sperling, does the FAC include allegations bringing it within

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either of the two exceptions to the “general rule that falsity alone

cannot create a strong inference of scienter.” See Zucco, 552 F.3d

at 1001. Consequently, plaintiff cannot rely upon the coreoperation inference to salvage its section 10(b) claims against John

Sperling. 

 Defendant Laura Noone did not hold a management position at

Apollo per se, but since September 2000, she has been President of

the University of Phoenix, purportedly “Apollo’s most important and

well known subsidiary.” See FAC (doc. 71) at ¶ 24. Arguably,

therefore, assuming the allegations are otherwise sufficient, the

core-operations inference may apply to create a strong inference of

scienter as to her. However, the FAC does not contain the necessary

allegations as to Ms. Noone. What the FAC does allege is that:

 Because of [her] position, [Noone] knew 

the adverse non-public information about the 

business of Apollo, as well as its finances, markets 

and present and future business prospects, via access 

to internal corporate documents, conversations and

connections with other corporate officers and employees,

attendance at management meetings and via reports 

and other information provided to her in connection

therewith. 

Id. at ¶ 28. 

 This sweeping allegation is nothing more than a statement of Ms.

Noone’s “general awareness of the day-to-day workings of [Apollo’s]

business[,]” which the Ninth Circuit has repeatedly held cannot

support a strong inference of scienter “absent some additional

allegations of specific information conveyed to management and

related to the fraud or other allegations supporting scienter.” 

See, e.g., South Ferry, 542 F.3d at 784-85 (internal quotation marks

and citation omitted) (emphasis added). Conspicuously absent from

the FAC are any such particularized allegations. Besides the

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paragraph quoted above, the only other allegations in the FAC as to

Ms. Noone are that she received stock option grants on three

occasions. See FAC (doc. 71) at ¶¶ 49; and ¶¶ 51-52. Clearly these

allegations do not create the requisite strong inference of

scienter. 

 The expansive scienter allegations in paragraphs 112 and 113, 

quoted earlier, do not convince the court otherwise. See, supra at

88-89. The inference that Ms. Noone, University of Phoenix’s

President – not an Apollo director or manager -- “would not have

responsibility or control over the grant of employee stock options

is significant[.]” See Juniper, 542 F.Supp.2d at 1048. In light of

the foregoing, the court finds that plaintiff has not sufficiently

alleged scienter as to defendant Noone. 

 Next the court turns to the allegations pertaining to defendant

Mueller, Apollo’s President since 2006, who served “in a variety of

executive positions” with Apollo prior to that. FAC (doc. 71) at 

¶ 128. In addition to relying upon his “executive” status at

Apollo, the FAC alleges that “[f]rom at least June 2006, Muller

issued a series of knowingly false statements regarding the

backdating at Apollo[.]” Id. at ¶ 129 (emphasis added). Purportedly

those statements are “specifically designed to mislead Apollo’s

investors.” Id. Close scrutiny of the FAC reveals, however, that

it contains only two allegations that defendant Mueller made

“knowingly false statements.” The first is that Mueller allegedly

stated that defendant Gonzales “resigned to ‘spend more time with

her family.’” Id. at ¶¶ 99 and 130. Plaintiff alleges that “[it]

is simply inconceivable that Mueller, as President of Apollo, would

not know why his CFO resigned.” Id. at ¶ 130. The second is

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Mueller’s purported statement on November 3, 2006, “that ‘to date

there has been no indication that there has been any backdating.’”

Id. at ¶ 131. 

 Defendant Mueller’s status as an Apollo executive of

longstanding in a variety of capacities clearly is insufficient to

support a strong inference of scienter as to him. Nor do his

allegedly false statements just quoted support such an inference,

especially given the complete absence of “particular details about

[Mueller’s] access to information within [Apollo].” See Zucco, 552

F.3d at 1000 (internal quotation marks and citations omitted). 

Thus, the court also finds the defendant Mueller is entitled to

dismissal of the section 10-b claims as against him. 

 Defendant DeConcini stands in a slightly different position

than the defendants just discussed in that he was not an Apollo

officer; nor did he hold a management position there. It is thus

questionable, in the first instance, whether the core-operation

inference would apply to him.

 Regardless, given the relatively de minimis nature of the

allegations against them, it is readily apparent that plaintiff has

not adequately pled scienter as to Mr. DeConcini. Mr. DeConcini’s

name appears in only two of the FAC’s 200 paragraphs. At one point

the FAC alleges that he has been an Apollo director since 1981, and

an Audit Committee member. Id. at ¶ 26. Later in the FAC it

generally alleges his “responsib[ilities]” as a member of that

Committee:

 (I) reviewing and discussing the audited financial

statements of [Apollo] with management; (ii) discussing

with [Apollo’s] independent accountants the matters 

required to be discussed by the Statement of Accounting

Standards . . . ; (iii) receiving and reviewing the 

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written disclosures and letters from its independent

accountants . . . ; (iv) discussing with its independent

accountants, the independent accountants’ independence; 

and (v) recommending to the Board . . . that the 

audited financial statement be incorporated by reference

into [Apollo’s] Annual Reports.

Id. at ¶ 40. Reciting a laundry list of defendant DeConcini’s

alleged Audit Committee responsibilities does not create a strong

inference of scienter, primarily because without more the inference

that he “had knowledge of the relevant facts will not be much

stronger, if at all, than the inference that [he] remained unaware.” 

See South Ferry, 542 F.3d at 784. Hence, this generic allegation

cannot save this otherwise deficient FAC in terms of Mr. DeConcini’s

scienter. There is nothing linking him to any aspect of stock

option granting or the associated accounting. Accordingly, these

meager allegations, even when viewed collectively under the rubric

of Tellabs and its progeny, do not create a strong inference of

scienter as to Mr. DeConcini. Thus, the court grants his motion to

dismiss the section 10(b) claims.

 Having found that the FAC sufficiently alleges scienter as to at

least some of the defendants, the court will next turn to the

adequacy of the loss causation allegations. 

 3. Loss Causation

 a. Pleading Standards

 I. Rule 8 v. Rule 9

 Preliminarily, the court must address the parties’ disagreement 

as to the pleading standard for loss causation. Rule 8(a)(2)

requires “a short and plain statement of the claim showing that the

pleader is entitled to relief[.]” Fed. R. Civ. P. 8(a)(2). “In

alleging “fraud or mistake,” however, Rule 9(b) requires a party to

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“state with particularity the circumstances constituting [that]

fraud or mistake.” Fed. R. Civ. P. 9(b) (emphasis added). 

Plaintiff contends that Rule 8(a)(2)’s “short and plain statement”

supplies the relevant pleading standard, whereas Apollo “suggests

that the heightened pleading requirements of Fed. R. Civ. P. 9(b)”

apply. Reply (doc. 97) at 17 (citations omitted). 

 Logically, loss causation is one of the “‘circumstances

constituting fraud for which Rule 9(b) demands particularity[]’” 

because without loss causation, there is no securities fraud claim. 

See Teachers’ Ret. Sys. of La. v. Hunter, 477 F.3d 162, 186 (4th

Cir. 2007) (citing, inter alia, Dura Pharmaceuticals, Inc. v.

Broudo, 544 U.S. 336, 343-44, 125 S.Ct. 1627, 161 L.Ed.2d 577

(2005)) (other citations omitted). Following that reasoning would

require that loss causation be pled in conformity with Rule 9(b)’s

particularity requirement. 

 Neither the Supreme Court nor the Ninth Circuit has definitively

held that Rule 9(b) applies when pleading loss causation, however. 

Instead, the Supreme Court in Dura “assum[ed] at least for

argument’s sake, that neither the [Federal] Rules [of Civil

Procedure] nor the securities statutes impose any special further”

pleading requirement, apart from Rule 8(a)(2), when pleading loss

causation. Dura Pharms., 544 U.S. at 346, 125 S.Ct. 1627. The Dura

Court was able to sidestep that issue because the complaint there

did not “provide the defendant with ‘fair notice of what the

plaintiff’s claim is and the grounds upon which it rests.’” Id.

(quoting Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 2 L.Ed.2d

80 (1957)). Thus, the Dura complaint “fail[ed]” the “simple test[]”

of Rule 8(a)(2), which requires a “‘short and plain statement’”

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showing entitlement to relief. Id. 

 The Ninth Circuit in Berson purported “not to decide the

question” of whether loss causation allegations are subject to Rule

8(a)(2) or Rule 9(b) pleading standards. Berson, 527 F.3d at 989. 

At the same time, though, the Berson Court made the opposite

assumption from the Supreme Court in Dura. Berson, 527 F.3d at 989. 

Rather than assuming the applicability of Rule 8, the Ninth Circuit

“[a]ssum[ed]-without deciding-that Rule 9(b) governs[.]” Id. Based

upon that assumption, the Berson Court opined “that plaintiffs

bringing a 10b-5 securities fraud claim must plead . . . loss

causation with particularity[.]” Id. The Berson plaintiffs met

that standard “by alleging particular facts indicating that but for

the circumstances that the fraud concealed . . . [plaintiffs’]

investment . . . would not have lost its value.” Id. (internal

quotation marks and citations omitted). The Berson Court further

reasoned that because the complaint there gave “defendants ample

notice of plaintiffs’ loss causation theory,” as well as “giv[ing]

some assurance” to the Court “that the theory has a basis in fact[,]

. . . Rule 9(b) require[d] no more.” Id. at 989-990 (citations

omitted). 

 More recently, in Gilead, the Ninth Circuit once again declined

to decide whether Rule 8(a)(2) or Rule 9(b) controls loss causation

pleading, holding that “under either Rule 8 or Rule 9, the Investors

ha[d] sufficiently ple[d] loss causation.” See Gilead, 536 F.3d at

1056. Plaintiffs alleged that Gilead, a biopharmaceutical company,

misled investors by claiming that there was a high demand for one of

its drugs without disclosing that unlawful off-label marketing

caused that demand. In assessing the strength of the loss causation

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allegations in Gilead, the Court once again focused on Rule 9(b)’s

heightened pleading requirement.

 The Gilead complaint met that standard because it was

“meaningfully different” from the Dura complaint. See id. The Dura

plaintiffs merely alleged that they “paid artificially inflated

prices for Dura securities” and that they “suffered damage[s]

thereby.” Dura Pharms., 544 U.S. at ___, 125 S.Ct. at 1630

(emphasis, quotation marks and citation omitted). In contrast, the

Gilead complaint alleged a specific economic loss caused by Gilead’s

misrepresentations. Additionally, the Gilead plaintiffs “provide[d]

abundant details of Gilead’s off-label marketing, . . . assert[ing]

that th[at] lead to higher demand [for the drug], which in turn

inflated Gilead’s stock price.” Gilead, 536 F.3d at 1056 (footnote

omitted). These allegations allowed “the fraud-action defendant” to

prepare an adequate answer[,]” in accordance with Rule 9(b). See

id. (internal quotation marks and citation omitted). 

 Although Berson and Gilead left open the issue of whether Rule 8

or Rule 9 governs loss causation pleading, the Ninth Circuit was

clear on one point. A securities fraud complaint must, as the

foregoing discussion shows, “offer sufficient detail to give

defendants ample notice of [their] loss causation theory, and to

give [the court] some assurance that the theory has a basis in

fact.” Id. (internal quotation marks and citation omitted). In

other words, ample notice is the cornerstone of loss causation

pleading. Here, as explained below, the FAC provides the requisite

ample notice, but only as to one of the three alleged disclosures. 

 ii. Dura and its Progeny

 As the Ninth Circuit recently stressed, “[a] plaintiff does not,

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of course, need to prove loss causation in order to avoid dismissal;

but the plaintiff must properly allege it.” Metzler Inv., 540 F.3d

at 1062 (citation omitted). Loss causation is simply the proximate

cause element of a securities fraud claim. Johnson v. Aljian, 490

F.3d 778, 782 (9th Cir. 2007). This loss causation requirement

furthers the objectives of federal securities laws, which are

designed “not to provide investors with broad insurance against

market losses, but to protect them against those economic losses

that misrepresentations actually cause.” Dura Pharms., 544 U.S. at

345, 125 U.S. at 1633.

 In the seminal case of Dura Pharmaceuticals, the Supreme Court

held that a plaintiff invoking the fraud-on-the-market theory must

do more than simply plead an artificial inflation of a company’s

stock to satisfy the loss causation element of a securities fraud

action. Such allegations do not suffice to plead loss causation

because the link between an inflated share price and a subsequent

economic loss “is not invariably strong.” Dura, 544 U.S. at 342,

125 S.Ct. at 1632. To illustrate, the Court pointed out that if a

share with an allegedly inflated price is later sold at a lower

price, that lower price is not necessarily reflective of an alleged

misrepresentation. That lower price could be due to “changed

economic circumstances, changed investor expectations, new industryspecific or firm-specific facts, conditions, or other events[,]”

none of which may have any relation to the earlier

misrepresentation. See id. at 343, 125 S.Ct. at 1632. Because the

Dura plaintiffs did not attempt to link their damages to any defense

conduct, the Supreme Court held that they did not sufficiently plead

loss causation. 

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 Recognizing that that requirement is “not meant to impose a

great burden upon a plaintiff,” nonetheless, the Dura Court requires

a plaintiff to “provide [a] defendant with notice of what the

relevant economic loss might be or of what the causal connection

might be between that loss and the misrepresentation[.]” Id. at

347, 125 S.Ct. at 1634. Allegations short of that “would bring

about harm of the very sort the statues seek to avoid[,]” and

“transform a private securities action into a partial downside

insurance policy.” Id. (citation omitted). 

 Shortly after Dura, in In re Daou Sys., Inc., 411 F.3d 1006

(9th Cir. 2005), the Ninth Circuit reversed the dismissal of

plaintiff’s complaint finding that they had sufficiently alleged

loss causation. The Daou Court held that “[t]o establish loss

causation, ‘the plaintiff must demonstrate a causal connection

between the deceptive acts that form the basis for the claim of

securities fraud and the injury suffered by the plaintiff.’” Gilead,

536 F.3d at 1055 (quoting Daou, 411 F.3d at 1025). In so holding,

the Daou Court set forth two important principles. First, it

explained that “[a] plaintiff is not required to show that a

misrepresentation was the sole reason for the investment’s decline

in value in order to establish loss causation.” Daou, 411 F.3d at

1025 (internal quotation marks and citation omitted) (emphasis in

original). However, the misrepresentation “must be a substantial

cause. . . for the decline in the value of the securities[.]” 

Gilead, 536 F.3d at 1055-56 (internal quotation marks and citation

omitted). Other causes of decline are factored into any subsequent

damages analysis. Therefore, so “long as the misrepresentation is

one substantial cause of the investment’s decline in value, other

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14 As ordered by this court, the parties provided “limited supplemental

briefing . . . on the issues of loss causation and scienter” as discussed in this

trilogy. Doc. 99 at 1-2.

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contributing forces will not bar recovery under the loss causation

requirement but will play a role in determining damages.” Daou, 411

F.3d at 1025 (internal quotation marks and citation omitted). 

 Second, there is a temporal component to loss causation, which

Daou illustrates. “[C]areful[ly] delineati[ng] between losses

caused after the company’s conduct was revealed, and losses suffered

before the revelation[,]” the Daou Court “confirm[ed] that the

complaint must allege that the practices that the plaintiff contends

are fraudulent were revealed to the market and caused the resulting

losses.” Metzler Inv., 540 F.3d at 1063 (emphasis added). 

Plaintiffs’ theory of fraud in Daou “was that the defendant was

systematically recognizing revenue on contracts that had not been

completed.” Id. (citation omitted). The Daou Court held that

plaintiffs adequately pled loss causation “because their complaint

alleged that the market learned of and reacted to this fraud, as

opposed to merely reacting to reports of the defendant’s poor

financial health generally.” Id. (citations omitted). 

 The Ninth Circuit revisited the loss causation pleading

requirements in a recent trilogy of cases, Berson, 527 F.3d 982;

Gilead, 536 F.3d 1049; and Metzler Inv., 540 F.3d 1049.14 Gilead

provides another example of the temporal component of loss

causation. Allegedly Gilead illegally marketed one of its drugs,

Viread, for off-label purposes. As a result of those aggressive

off-label marketing tactics, plaintiffs further alleged that sales

of Viread improperly increased, in turn driving Gilead’s stock

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prices higher. 

 The Food and Drug Administration (“FDA”) issued two warning

letters informing Gilead that it was violating FDA regulations

pertaining to off-label marketing. When one of the FDA letters

became public on August 7, 2003, the market did not react

negatively. Gilead challenged the sufficiency of plaintiffs’ loss

causation allegations given the absence of a market decline at that

point. 

 Three months later though, on October 29, 2003, one day

following Gilead’s issuance of a press release explaining that

Viread’s sales volume was below expectations, Gilead’s stock fell

12%. The district court declined to “make the unreasonable

inference that a public revelation on August 8 caused a price drop

three months later on October 28.” Id. at 1057 (internal quotation

marks and citation omitted). In reversing, the Ninth Circuit held

that the allegations of a “specific economic loss[]” -- the October

29th stock price – coupled with allegations that that loss was

caused by Gilead’s misrepresentations, was sufficient to allege loss

causation, despite the three month gap. Id. at 1056. 

Finding that “what truly motivated the dismissal was the district

court’s incredulity[,]” the Ninth Circuit admonished that such

“skepticism is best reserved for later stages of the proceedings

when the plaintiff’s case can be rejected on evidentiary grounds.” 

Id. 

 Quoting from Twombly, the Ninth Circuit emphasized: “‘[A] wellpleaded complaint may proceed even if it strikes a savvy judge that

actual proof of those facts is improbable, and that a recovery is

very remote and unlikely.’” Id. at 1057 (quoting Twombly, 550 U.S.

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15 Metzler was originally decided on July 25, 2008, before Gilead. See

Metzler Inv. GmbH v. Corinthian Colleges, Inc., 534 F.3d 1068 (9th Cir. 2008). On

August 26, 2008, however, the Ninth Circuit withdrew that earlier decision because

it was superseded and amended by Metzler Inv., 540 F.3d 1049.

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at ___, 127 S.Ct. at 1965) (internal quotation marks omitted). The

loss causation element is “no exception to this rule[.]” Id.

Indeed, the Gilead Court expressly “agree[d]” with the Third

Circuit’s view “that loss causation becomes most critical at the

proof stage[;]” and noted that Circuit’s “cit[ation] [to] scholarly

authority stating that it is normally inappropriate to rule on loss

causation at the pleading stage.” Id. (internal quotation marks and

citation omitted). Likewise, the Gilead Court expressly “agree[d]”

with the Second Circuit “that loss causation is a matter of proof at

trial and not to be decided on a Rule 12(b)(6) motion to dismiss.” 

Id. (internal quotation marks and citations omitted).

Accordingly,“[s]o long as the complaint alleges facts that, if taken

as true, plausibly establish loss causation,” the Ninth Circuit

opined that “a Rule 12(b)(6) dismissal is inappropriate.” Id.

Again quoting from Twombly, the Ninth Circuit pointed out that

“[t]his is not ‘a probability requirement . . . it simply calls for

enough fact to raise a reasonable expectation that discovery will

reveal evidence of’ loss causation.” Id. (quoting Twombly, 550 U.S.

at ___, 127 S.Ct. at 1965). Thus, in Gilead a three month gap

between the revelation of a misrepresentation and a drop in stock

price did not necessarily foreclose the possibility that that

earlier misrepresentation caused that later loss.

 The temporal aspect of loss causation was not an issue in

Metzler Inv., decided just a few weeks after Gilead.15 Rather, the

Metzler Inv. Court held that simply alleging a risk of loss or

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misrepresentation without more does not satisfy the loss causation

element of a securities fraud claim. There, the plaintiffs alleged

that Corinthian Colleges artificially inflated its stock prices by

(1) manipulating student enrollment figures, which it then used to

fraudulently obtain federal funding; and (2) by improperly

recognizing federal funding as income in violation of GAAP. Two

public disclosures allegedly caused the company’s stock to drop. 

The first was a June 24, 2004 “Financial Times” article disclosing a

Department of Education investigation of enrollment irregularities

at one of Corinthian’s campuses. The second disclosure was an

August 2, 2004, company press release announcing reduced earnings

and an adjusted revenue forecast. 

 The Ninth Circuit found, however, that neither of those

disclosures “disclosed – or even suggested to the market that

Corinthian was manipulating student enrollment figures. . . which is

the fraudulent activity that Metzlers contend[ed] forced down the

stock that caused its losses.” Id. at 1063. The Ninth Circuit

reasoned that a plaintiff cannot be “allow[ed] . . . to plead loss

causation through ‘euphemism[,]’ . . . thereby avoid[ing] alleging

the necessary connection between defendant’s fraud and the actual

loss.” Id. at 1064. The Court explained:

So long as there is a drop in a stock’s price,

a plaintiff will always be able to contend that 

the market ‘understood’ a defendant’s statement

precipitating a loss as a coded message revealing 

the fraud. Enabling a plaintiff to proceed on such 

a theory would effectively resurrect what Dura

discredited - that loss causation is established 

through an allegation that a stock was purchased at 

an inflated price. 

Id. (citation omitted). Instead, “[s]tated in the affirmative, the

complaint must allege that the defendant’s share price fell

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significantly after the truth became known.” Id. at 1063 (internal

quotation marks and citation omitted) (emphasis added). At a

minimum, “[a] plaintiff’s complaint must, . . . , set forth

allegations that if assumed true, are sufficient to provide [the

defendant] with some indication that the drop in [defendant’s] stock

price was causally related to [the defendant’s] financial

misstatement[s].” Id. at 1062 (internal quotation marks and

citations omitted) (emphasis added). It is against this legal

backdrop which the court will examine the three allegedly corrective

disclosures at issue herein.

 b. Corrective Disclosures? 

 The FAC alleges that throughout the Class Period defendants

“issued a series of false and misleading” statements regarding

Apollo’s “financial results[]” and its stock option practices. FAC

(doc. 71) at ¶ 53. Due to those alleged misstatements, the FAC

further alleges Apollo’s stock price was artificially inflated.

Plaintiff’s theory is that when the “truth” about those alleged

misstatements became known to the market in three separate

disclosures, it resulted in a decline in the price of Apollo’s

stock. 

 From Apollo’s perspective, the “truth” was not revealed to the

market, however, until May 22, 2007. On that date Apollo issued a

Restatement correcting its prior misstatements regarding its stock

option practices, and, for the first time, quantifying the financial

impact of its accounting errors resulting therefrom. Apollo

stresses that after that Restatement its stock value actually rose. 

Based upon this scenario, framed in terms of the standard applied in

Gilead, Apollo contends the loss causation allegations are “facially

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implausible[,]” thus mandating dismissal. See Gilead, 536 F.3d at

1057. Plaintiff retorts that the FAC contains “extensive factual

detail far beyond the required ‘plausible’ standard[,]” and thus it

can withstand these dismissal motions. See Supp. Br. (doc. 101) at

6 (citations omitted). 

 “One way in which [a] plaintiff can prove [loss causation] is

by showing that a corrective disclosure caused the stock price to

decline.” In re Apollo Group, Inc. Sec. Litig., 2008 WL 3072731, at

*2 (D.Ariz. Aug. 4, 2008) (citations and footnote omitted). 

Succinctly put, “[a] ‘corrective disclosure’ is a disclosure that

reveals the fraud, or at least some aspect of the fraud, to the

market.” Id. (citing Lentell v. Merrill Lynch & Co., Inc., 396 F.3d

161, 175 n.4 (2nd Cir. 2005) (holding that, to be corrective, a

disclosure must “reveal to the market the falsity of the prior

[representations]). It stands to reason then that “[a] disclosure

that does not reveal anything new to the market is, by definition,

not corrective.” Id. (citing Omnicom Group, Inc. Sec. Litig., 541

F.Supp.2d 546, 551 (S.D.N.Y. 2008)).

 As just shown, revelation of the fraud, or at some aspect of it,

is critical in terms of assessing whether a given disclosure is

corrective. Consequently, before examining the claimed corrective

disclosures here, it is necessary to determine the fraudulent

activity which the FAC alleges. The FAC alleges that Apollo engaged

in three types of fraudulent activity. First, allegedly Apollo’s

“financial statements were false and misleading because they failed

to account for stock option expenses[.]” Supp. Br. (doc. 101) at 10

(citing FAC, e.g., ¶¶ 53 and 135). Second, the FAC alleges that

Apollo falsely represented that it “account[ed] for its stock-based

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awards in accordance with [APB 25][.]” Id. (citing FAC, e.g., ¶¶ 46

and 53). The third alleged fraudulent activity is that “defendants

signed false [SOX] . . . certifications . . . attest[ing] to the

adequacy of Apollo’s internal controls” pertaining to stock option

grants. Id. (citing FAC, e.g., ¶¶ 53 and 124).

 As Apollo reads the FAC, plaintiff is attempting to plead loss

causation based upon three supposed “corrective disclosures,” which

purportedly revealed the claimed fraudulent activities listed above. 

The first such disclosure is a June 8, 2006, report by Lehman

Brothers (the “Lehman Report” or “the Report”) questioning Apollo’s

stock option history. The second is a June 19, 2006, announcement

that the U.S. Attorney for the Southern District of New York had

issued a subpoena to Apollo requesting documents pertaining to its

stock option grants. Third, plaintiff is relying upon an October

18, 2006, news release by Apollo regarding the identification of

“various deficiencies in the process of granting and documenting

stock options[.]” FAC (doc. 71) at ¶ 98 (emphasis omitted). 

 From Apollo’s perspective, none of these disclosures are

corrective. Taking the opposite view, believing that each of the

three “either disclosed - or . . . suggested that Apollo’s prior

statements were false[,]” plaintiff asserts that those disclosures

are corrective. See Supp. Br. (doc. 101) at 15 (citation omitted). 

The court will separately examine each of these three disclosures to

ascertain whether they are corrective in the first place.

 i. Lehman Report

 The FAC alleges that “[o]n June 8, 2006, . . . an analyst at

Lehman Brothers[] published a report titled, ‘Did Apollo Backdate

Options?’[.]” FAC (doc. 71) at ¶ 89. The FAC selectively quotes

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from one sentence in that nine page Report: “‘While it is impossible

to tell definitively from a company’s proxy and other SEC filing

whether or not it is guilty of backdating, Apollo[‘s] . . . option

grant history looks highly questionable. . . .’” Id. (emphasis added

in FAC). The FAC also relies upon tables in that Report “showing

that Apollo’s option grant prices occurred” at what the FAC

characterizes “almost miraculously at the lowest price of the year

in 2000, 2001, 2002 and 2004.” Id. The FAC goes on to allege that

the same day as the Lehman Report, Apollo’s stock price “fell 2.7%”

from the previous day’s closing price. Id.. 

 Apollo strenuously contends that the Lehman Report “did not

‘correct’ Apollo’s historical financial statements[,]” or “indicate”

a need for their correction. Mot. (doc. 81) at 18. Hence, that

Report is not a corrective disclosure which can form the basis for

pleading loss causation. 

 Basically plaintiff responds that the Lehman Report “revealed,

at least in part, the ‘fraudulent activity’” which it is alleging,

and that is all that Dura and its progeny require. Supp. Br. (doc.

101) at 14 (citation omitted). Although the FAC does not make this

allegation, in its supplemental brief, plaintiff baldly asserts that

the Lehman Report “explicitly alerted the market that Apollo had

very likely engaged in backdating, and thereby revealed that its

prior statements which failed to disclose or account for such

backdating may well have been false.” Supp. Br. (doc. 101) at 10

(emphasis added). This characterization, even if included in the

FAC, does not comport with even the relatively minimal loss

causation pleading standards of Dura. Moreover, plaintiff is

overstating what the Lehman Report actually states.

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 Certainly the snippet which the FAC quotes does not substantiate

the view that the Lehman Report “explicitly alerted [the market]

that Apollo had very likely engaged in backdating[.]” See id.

Indeed, a careful review of that entire Report demonstrates the

fallacy in this assertion. Nowhere in the Lehman Report does it

reveal any of the three types of fraudulent activity of which

plaintiff complains, or even reveal some aspect of those allegedly

fraudulent activities. Instead, much like one of the disclosures at

issue in Metzler Inv., at most, the Lehman Report “reveals a ‘risk’

or ‘potential’ for widespread fraudulent conduct.” See Metzler

Inv., 540 F.3d at 1063 (emphases omitted). As the FAC itself

highlights, the Lehman report stated that “Apollo[’s] . . . option

grant history looks highly questionable. . . .’” FAC (doc. 71) at 

¶ 89 (emphasis added in FAC). Having a “questionable” grant

history, even a “highly questionable grant history” is not

equivalent to revealing a fraud, or at least some aspect of a fraud,

however. 

 Again quoting from the Lehman Report, the FAC candidly

acknowledges that “it is impossible to tell definitively from a

company’s proxy and other SEC filings whether or not it is guilty of

backdating[.]” Id. The Lehman Report goes on to explain that it

has “taken a look at the history of the option grant prices . . . as

an attempt to determine if any questionable activity exists.” 

Farrell Decl’n (doc. 80), exh. B thereto at 2 (bold emphasis in

original) (italicized emphasis added). The Report itself expressly

“reiterated[d][,]” not once but twice “that it is impossible to tell

definitively if a company has backdated options from the disclosure 

in its SEC finings [sic].” Id. at 2 and 4 (emphasis added). 

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“[B]eliev[ing] the probability” to be “very small” that Apollo’s

option grant timing could be due to “either luck or excellent

timing[,]” the Report twice opined that Apollo “is highly

susceptible to future scrutiny by either the press or the two

government agencies who have been investigating and prosecuting

other option backdating cases (the SEC and U.S. Attorney’s Office).” 

Id. at 4 (bold emphasis in original) (italicized emphasis added). 

The Lehman Report, therefore, cautioned “investors to tread lightly

with [Apollo] shares at current levels.” Id. None of these

speculative observations, even had they all been included in the

FAC, comport with the loss causation pleading requirements of Dura

as recently elucidated by the Ninth Circuit, however. See Metzler

Inv., 540 F.3d at 1064 (“[Neither Daou nor Dura support the notion

that loss causation is pled where a defendant’s disclosure reveals a

‘risk’ or ‘potential’ for widespread fraudulent conduct.”) 

 As the foregoing demonstrates, the FAC’s allegations do not, as

they must, “confirm that the practices . . . plaintiff contends are

fraudulent were revealed to the market” through the Lehman report. 

See Metzler Inv., 540 F.3d at 1063. All that the Lehman Report

“revealed to the market” on June 8, 2006, was a “highly

questionable” option grant history by Apollo. Despite how plaintiff

depicts it, that Report did not “explicitly alert[] the market that

Apollo had very likely engaged in backdating and thereby reveal that

its prior statements which failed to disclose or account for such

backdating may well have been false.” Supp. Br. (doc. 101) at 10. 

 There is nothing in the Lehman Report even hinting that Apollo

engaged in any of the three fraudulent activities which the FAC

alleges. Indeed, there is no mention in the Lehman Report of

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Apollo’s prior financial statements, let alone that they “were false

and misleading because they failed to account for stock option

expenses[.]” See id. (citations omitted). That Report is similarly

silent regarding the allegedly false SOX certifications, and

Apollo’s purported false representations as to how it accounted for

its stock-based awards. While the court is well aware that “a

disclosure need not reflect every detail of the alleged fraud,”

nonetheless, it “must reveal some aspect of it.” See Omnicom, 541

F.Supp.2d at 551. The Lehman Report does not make any such

revelations. Succinctly put, no “truth of a misrepresentation about

[Apollo’s] stock was revealed[]” in the Lehman Report. See Amkor,

527 F.Supp.2d at 946 (citations omitted). 

 The weakness in plaintiff’s reliance upon the Lehman Report to

support loss causation becomes even more evident considering the

relatively insignificant drop in the price of Apollo stock which

followed that Report. As noted earlier, the FAC alleges a 2.7

percent drop in Apollo’s stock price on June 8, 2006, the date the

Lehman Report was issued. This allegation does not meet Dura’s

requirement of an allegation “that the defendant’s ‘share price fell

significantly after the truth became known.” See Metzler Inv., 540

F.3d at 1062 (quoting Dura, 544 U.S. at 347) (emphasis added). 

Certainly if, as in Metzler Inv. “stock recover[y] very shortly

after the modest 10% drop that accompanied” the alleged corrective

disclosure does not suffice to allege loss causation, the modest 2.7

percent drop alleged herein is not sufficient either. See id. at

1064 (footnote omitted). In sum, the Lehman Report is not a

corrective disclosure which can, in turn, support a finding that

plaintiff’s loss causation allegations are sufficient. 

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 ii. Subpoena Disclosure

 The next alleged “corrective disclosure” occurred on June 19,

2006. On that date, the FAC alleges, Apollo “disclosed that it

received a subpoena from the U.S. Attorney for the Southern District

of New York requesting documents relating to [its] stock option

grants.” FAC (doc. 71) at ¶ 92. The FAC further alleges that at

that point, “Apollo again denied any impropriety, stating that

‘[its] board of directors has hired an outside firm to review and

confirm the company’s initial conclusions that the Company acted

appropriately regarding its stock option practices.’” Id.

Allegedly this “disclosure caused Apollo’s stock price to drop 5.3%

on the next trading day[.]” Id.

 Apollo contends that these allegations do not constitute a

corrective disclosure because, as with the Lehman Report, they do

not correct prior financial statements, or state a need for such a

correction. Moreover, Apollo contends, the fact that a public

company is subject to a “regulatory investigation[,]” or conducts

its own internal review, does not amount to a corrective disclosure. 

Mot. (doc. 81) at 19. From plaintiff’s standpoint, however, the

significance of the allegations quoted above is that they “began to

reveal the falsity of Apollo’s prior statements or omissions, which

is all that Daou and Metzler Inv. require.” Supp. Br. (doc. 101) at

11 (internal quotation marks and citations omitted). 

 For several reasons, Apollo has the stronger argument. First,

neither of these announcements disclose any wrongdoing by

defendants. As in Amkor, Apollo’s June 19th news release did “not

signal, much less state, that any prior option grants were

incorrect, that [the company’s] internal controls were weak, that

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there was evidence supporting a finding [of] intentional[]

manipulat[ion] [of] stock option pricing or that prior financial

statements were incorrect in any way.” Amkor, 527 F.Supp.2d at 947. 

 Second, the court agrees with those courts finding that

standing alone the announcement of an internal investigation does

not give rise to a viable loss causation allegation. See, e.g.,

Hansen, supra, 527 F.Supp.2d at 1162 (internal quotation marks and

citations omitted) (“[T]he mere existence of [an] investigation

cannot support any inferences of wrongdoing . . .on the part of [a]

company or its senior management.”). Plaintiff does not attempt to

distinguish that line of cases, but instead directs the court’s

attention to UTStarcom II, supra, 2008 WL 4002855. As plaintiff

reads that case, it stands for the proposition that “merely

announc[ing] . . . an internal investigation [is] sufficient to

allege loss causation.” Supp. Br. (doc. 101) at 12 (citation

omitted). That is too broad a reading of UTStarcom II, however. As

will be discussed more fully below, it was not the “mere”

announcement of an internal investigation upon which the court there

based its finding that plaintiff had adequately pled loss causation. 

Rather, it was the content of that announcement and the message it

sent to the market - content which is missing from Apollo’s June

19th announcement.

 In Rudolph v. UTStarcom, 560 F.Supp.2d 880 (N.D.Cal. 2008)

(“UTStarcom I”), the court held that a press release announcing an

internal investigation into the company’s historical equity award

grant practices did not sufficiently allege loss causation. Among

other reasons, the court in UTStarcom I held that that announcement

did not sufficiently plead loss causation because “prior to any

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revelation by defendants of actual backdating, the ‘true nature of

[the company’s] financial condition had not yet been disclosed.’” 

Id. at 888 (quoting Daou, 411 F.3d at 1027). Upon reconsideration,

however, applying Gilead’s plausibility standard, the court held

that the announcement of an internal investigation “could plausibly

establish loss causation.” UTStarcom II, 2008 WL 4002855, at *4. 

 At first glance UTStar II might appear to compel the conclusion

that Apollo’s June 19th announcement sufficiently pleads loss

causation. What plaintiff fails to consider though is the critical

distinction between the language of the UTStar press release and

that of Apollo’s news release. Like Apollo’s June 19th news

release, the UTStar press release, “did not definitively state that

backdating had occurred or that UTStarcom would adjust its prior

financial statements as they related to equity grants[.]” UTStarcom

II, 2008 WL 4002855, at *4. What the press release in UTStarcom II

did accomplish, however, was, “for the first time, [to] put the

market on notice that such disclosures might be forthcoming.” Id.

(emphasis added). The UTStarcom press release foreshadowed the

possibility that the Company would be correcting its prior financial

statements, although that release “specifically stated that no

conclusions have been reached about whether the Company would need

to record any non-cash adjustments to its financial statements

related to prior equity grants.” UTStarcom I, 560 F.Supp.2d at 888

(internal quotation marks and citation omitted). 

 Apollo’s June 19th news release does not contain any similar

language. As will be discussed in detail momentarily, here, such a

revelation did not occur until October 18, 2006. Given this

significant distinction between the UTStarcom press release and

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Apollo’s June 19th news release, plaintiff’s reliance upon UTStarcom

II is unavailing. 

 Further undermining plaintiff’s reliance upon the June 19th news

release to plead loss causation is the fact that that release

explicitly states, “[a]s previously announced, Apollo . . . has

hired an outside firm” to review its stock option practices. 

Farrell Decl’n (doc. 80), exh. 4 thereto at 6 (emphasis added). 

Therefore, even if the court agreed that that release revealed a

fraud, it would not be a new fraud to which the market was

purportedly reacting. It could not be a new fraud because that

information had already been revealed to the public in a prior

announcement. Cf. Apollo Group, supra, 2008 WL 3072731, at *3

(emphasis added) (“evidence . . . insufficient to show . . . any 

. . . aspect[]” of analyst’s reports were corrective where they “did

not provide any new, fraud-revealing analysis[]”). 

 Having found that the June 19, 2006, news release is not a

corrective disclosure which can form the basis for pleading loss

causation, there is no need to address the parties’ arguments as to

whether the alleged 5.3% drop in the price of Apollo stock on June

20, 2006 is sufficient to support a loss causation allegation. In

any event, it is highly doubtful that a 5.3 percent price drop,

assuming it was sufficiently tethered to the June 19th disclosure,

would satisfy Dura’s requirement that the “share price f[a]ll

significantly after truth bec[o]me[s] known.” See Dura, 544 U.S. at

347. Thus, as with the Lehman Report, the June 19th press release

cannot form the basis for pleading loss causation here.

 iii. News Release & Earnings Announcement

 The third purported corrective disclosure is a “news release and

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disappointing earnings announcement” issued by Apollo on October 18,

2006. FAC (doc. 71) at ¶ 98. Plaintiff alleges that in those items 

Apollo “stated, for the first time, and in contrast to Apollo’s

previous denials, . . . ‘various deficiencies in the process of

granting and documenting stock options have been identified to date. 

The accounting impact of these matters has not been quantified. 

There can be no assurances that the results of the investigation

will not require a possible restatement of the Company’s financial

statements when the potential errors are quantified and assessed.’”

Id. at ¶ 98 (emphasis added in FAC). Although the FAC does not

allege it, the news release itself (of which the court has taken

judicial notice), continues: “The attached unaudited financial

statements do not include the impact of any unrecorded non-cash

equity-based compensation charges that may be required at the

conclusion of the review.” Farrell Decl’n (doc. 80), exh. 6 thereto

at 7. “Following this announcement,” the FAC alleges that “Apollo’s

stock price dropped dramatically, falling 22.9% in one day to a 4-

year low[.]” FAC (doc. 71) at ¶ 98. 

 Stressing that that news release merely indicates that “a

restatement might be ‘possible,’” Apollo asserts that this

announcement is not a corrective disclosure which can form the basis

for pleading loss causation. Mot. (doc. 81) at 19. Apollo further

reasons that this disclosure is not corrective because it gives no

indication of the number of stock option grants potentially affected

by the identified deficiencies. As Apollo depicts it, this

disclosure simply “identified options process ‘deficiencies’ with

unknown accounting impact that may possibly necessitate an as-yetunquantified restatement.” Supp. Memo. (doc. 102) at 3. 

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 Apollo’s attempts to minimize the significance of the October

18th news release is not persuasive. Surely if the press release

in UTStarcom was sufficient to put the market on notice of the

possibility of forthcoming restatements, the October 18th press

release did the same. As discussed earlier, the press release in

UTStarcom “specifically stated that no conclusions have been reached

about whether the Company would need to record any non-cash

adjustments to its financial statements related to prior equity

grants.” UTStarcom I, 560 F.Supp.2d at ___ (internal quotation

marks and citation omitted). Yet, the court was willing to find

that loss causation was sufficiently pled there because that

disclosure “for the first time, put the market on notice that such

disclosures might be forthcoming.” UTStarcom II, 2008 WL 4002855,

at *4. 

 Here, as the highlighted language quoted above shows, the

October 18th release is cast in far more definite terms when it

comes to suggesting the possibility of future restatements. What is

more, that release explicitly “identified . . . various

deficiencies” in Apollo’s stock option grant processes. Farrell

Decl’n (doc. 80), exh. 6 thereto at 7. Thus, plaintiff’s theory

that Apollo’s stock price dropped in response to the October 18th

announcement is “not facially implausible[.]” See Gilead, 536 F.3d

at 1057. After Gilead, that is all the Ninth Circuit demands. 

 In addition, “[l]oss causation may be premised on partial

revelations that do not uncover the complete extent of the falsity

of specific prior statements.” In re Take-Two Interactive Sec.

Lit., 551 F.Supp.2d 247, 283 (S.D.N.Y. 2008) (citation omitted). 

This significantly undercut’s Apollo’s assertion that the October

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18th news release is not a corrective disclosure because,

essentially, it is too vague in terms of what it is revealing. 

 Apollo further argues that the October 18th news release cannot

form the basis for allegations of loss causation because

contemporaneously therewith Apollo made a “disappointing earnings

announcement[.]” FAC (doc. 71) at ¶ 98. Apollo announced “fourthquarter earnings fell 12 percent” because of enrollment issues. 

Farrell Decl’n (doc. 80), exh. 7 thereto at 2. Apollo also stated

that it missed analysts’ earnings expectations by 12 cents per

share, or 18%. Id. Based upon the foregoing, Apollo contends that

the stock drop is attributable to factors other than the announced

identified deficiencies in its option grant process. Therefore,

Apollo contends that the causal link between the announcement of a

possible restatement and the stock price drop was effectively

severed. 

 If the only announcement on October 18th had been a weak

earnings statement, then perhaps Apollo would prevail on this

argument. See, e.g., In re Initial Public Offering Sec. Litig., 399

F.Supp.2d 261, 265-267 (S.D.N.Y. 2005) (disclosures of failure to

meet revenue forecasts and downward revisions of forecasts did not

allege loss causation); and In re First Union Corp. Sec. Litig.,

2006 WL 163616 (W.D.N.C. Jan. 20, 2006) (allegations that stock

price decline was caused by two public revised earnings statements

did not allege loss causation where no fraud revealed). In the

present case, plaintiff alleges more than that, however. The

allegations here of a “disappointing earnings announcement” coupled

with the announcement of identified deficiencies in Apollo’s option

grant processes, along with raising the possibility of a

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restatement, are sufficient at the pleading stage. Whether the

October 18th stock drop is attributable to some other cause, as

Apollo maintains, is best left for another day. See In re Openwave

Systems Sec. Litig., 528 F.Supp.2d 236, 253 (S.D.N.Y. 2007)(citation

omitted). 

 Based upon the foregoing, the court finds plaintiff’s

allegations of loss causation are, as the Ninth Circuit requires,

“not facially implausible” with respect to the October 18th

announcement. See Gilead, 536 F.3d at 1057. For the reasons set

forth above, however, the other two claimed corrective disclosures

cannot form the basis for pleading loss causation. 

 Having ruled on defendants’ motions insofar as they are directed

at plaintiff’s section 10(b) claims, the court will turn to

plaintiff’s remaining four causes of action.

 D. Insider Trading

 Section 20A(a) of the Exchange Act creates a private cause of

action for “contemporaneous” insider trading. See 15 U.S.C. § 78t1(a) (West 1997). Pursuant to that statute, plaintiff is seeking to

hold those “defendants that sold Apollo stock during the Class

Period[,]” FAC at ¶ 184, meaning all of the defendants except Apollo

and Mr. Mueller, liable for insider trading. The FAC alleges, “for

example,” that “Lead Plaintiff and members of the Class traded

contemporaneously with defendants Blair, Bachus and Govenar by

purchasing Apollo securities at artificially inflated prices on

January 6-7, 2005 and suffered damages.” FAC (doc. 71) at ¶ 186(a). 

As another “example,” the FAC alleges that “Lead Plaintiff . . . and

members of the class” also “traded contemporaneously with defendants

Bachus and Govenar . . . on January 10-12, 2005[.]” Id. at ¶ 186(b). 

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 Apart from the individuals just named, the insider trading claim

does not specifically mention any of the other individual

defendants. Exhibit G to the FAC is a detailed list, however, of

purported “insider sales” during the Class Period, listing every

individual defendant except Brian Mueller, the dates of sale, shares

sold, price and proceeds. 

 To state a cause of action under § 20A(a), “a plaintiff must

plead . . . a predicate violation of the securities laws,” and

“facts showing that the trading activity of plaintiffs and

defendants occur[ed] ‘contemporaneously[.]’” In re Countrywide

Financial Corp. Deriv. Litig., 554 F.Supp.2d 1044, 1074 (C.D.Cal.

2008) (quoting Neubronner, supra 6 F.3d at 670). The individual

defendants assert that plaintiff has not plead either of those two

elements; and hence the court should dismiss the §20A(a) insider

trading claim in its entirety. 

 Plaintiff has not, as the court previously found, adequately

pled a violation of § 10(b) as to the following defendants - Bachus, 

DeConcini, Govenar, Noone, and John and Peter Sperling. Therefore,

its § 20A(a) insider trading claim against those six defendants

necessarily fails and the court grants their motion to dismiss in

that regard. See Johnson v. Aljian, 490 F.3d 778, 781 (9th Cir.

2007) (§ 20A claims require an independent violation of the Exchange

Act). 

 Defendants Nelson, Gonzales, Blair and Norton stand on different

footing that the defendants listed above, however, given the court’s

finding that the FAC adequately alleges § 10(b) claims as to them. 

Thus, the court must consider whether, nonetheless, these particular

defendants are entitled to dismissal of the § 20A(a) claim for

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failure to plead contemporaneous trading. Contemporaneous trading

is a “judicially-created standing requirement, specifying that to

bring an insider trading claim, the plaintiff must have traded in a

company’s stock at about the same time as the alleged insider.” 

Brody v. Transitional Hosps. Corp., 280 F.3d 997, 1001 (9th Cir.

2002). The underlying purpose of that requirement is to ensure

that “only parties who have traded with someone who had an unfair

advantage will be able to maintain insider trading claims; those who

did not trade contemporaneously could not have suffered a

disadvantage from the insider’s failure to disclose.” In re Silicon

Graphics, Inc. Sec. Litig., 970 F.Supp. 746, 761 (N.D.Cal. 1997). 

 Based upon Neubronner, Nelson, Norton and Gonzales contend that

because the FAC does not “identify stock purchases [plaintiff] made

contemporaneously with stock sales” by them, the court should

dismiss the insider trading claim as against them. Plaintiff

counters, in essence, that it is excused from that pleading

requirement because “contemporaneous trading can encompass

defendants’ entire scheme.” Resp. (doc. 94) at 53 (citation

omitted). Defendants retort that this argument runs afoul of the

Ninth Circuit’s holding in Neubronner.

 These arguments can easily be laid to rest. The “ultimate

conclusion” in Neubronner was “that contemporaneous trading must be

plead with particularity.” Brody, 280 F.3d at 1001 (citing

Neubronner, at 673). That particularity requirement encompasses

allegations, at a minimum, of the dates upon which defendants sold

their stock compared with the dates upon which plaintiff purchased

stock. See, e.g., In re Connetics Corp. Sec. Litig., 2008 WL

3842938, at *12 (N.D.Cal. Aug. 14, 2008) (granting motion to dismiss

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§ 20A claims where plaintiff did not allege the dates upon which

certain defendants traded on insider information, and declining to

find that allegations that one defendant’s contemporaneous trading

sufficed to show that other defendants also did); Silicon Graphics,

970 F.Supp. at 761 (dismissing with prejudice plaintiffs’ insider

trading claims against three defendants where plaintiffs did not

allege that they traded contemporaneously with plaintiffs); and

Chan, supra, 1998 WL 1018624, at *12, n. 10 (citations omitted)

(“little basis” for insider trading claims where plaintiffs did not

allege “sufficient facts to establish that any of the Plaintiffs

traded contemporaneously with the Defendants[]”). No such

comparison can be made here. While exhibit G lists stock sales by

ten of the 11 individual defendants, with the exception of the two

allegations quoted at the beginning of this section, the FAC does

not include similar details as to plaintiff. The lack of

particularity as to plaintiff’s trading history renders it

impossible for the court to perform any meaningful analysis of the

contemporaneous trading requirement, which at its core is a temporal

requirement. 

 To illustrate, In re Petco Animal Supplies Inc. Sec. Litig.,

2005 WL 5957816 (S.D.Cal. Aug. 1, 2005), by comparing that

plaintiff’s “certification of [its] stock trades,” listing purchases

with specific settlement dates, which was included as an exhibit to

the complaint, with the SEC forms defendants provided listing their

transaction dates, the court found that contemporaneous trading had

been sufficiently alleged so as to state a claim for insider

trading. Id. at *36-*37; see also In re Countrywide Financial Corp.

Sec. Litig., 588 F.Supp.2d 1132, 1205 (C.D.Cal. 2008) (§20A claim

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sufficiently alleged based on “common stock transactions” as

evidenced in exhibit to complaint “listing § 20A Defendants’ sales

next to contemporaneous [lead plaintiff’s] purchases”). 

 Plaintiff cites to In re Am. Bus. Computers Corp. Sec. Litig.,

1994 WL 848690 (S.D.N.Y. Feb. 24, 1994) (Brieant, J.), as a basis

for circumventing this contemporaneous trading requirement. The

court there did adopt the “rule that a class action may be

maintained on behalf of all persons who purchased stock on an

exchange during the period that defendants were selling that stock

on the basis of insider information.” 1994 WL 848690, at *4. That

rule does not obviate the need, however, for plaintiff to allege in

the first instance “the precise days when it purchased and sold

[defendant’s] stock,” as is evidenced in Middlesex, 527 F.Supp. at

1196. 

 After weighing different approaches to the contemporaneous

trading requirement, including a strict same day time frame, the

Middlesex court decided to follow Judge Brieant’s approach. 

Nevertheless, it granted plaintiff leave to amend its complaint “to

add allegations related to its purchase of [defendant’s] stock.” 

Id. In particular, it directed plaintiff to “specif[y] the precise

days when it purchased and sold [defendant’s] stock” because neither

the FAC nor the exhibits thereto included such information, although

“another filing” before the court did. Id. That other filing

showed that “Plaintiff traded on the same day as [one defendant],

within eight days of [another], and within three days of [yet

another].” Id. 

 Without deciding whether it will ultimately adopt Judge

Brieant’s rule, the court will follow the approach of the Middlesex

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16 Exhibit G actually shows that defendant Blair sold Apollo stock on,

among other days, January 3, 2005, but not on January 6-7, 2005. The court assumes

by his silence, and his failure to move for dismissal on the grounds that the

January 3, 2005, sale date is not sufficiently close to plaintiff’s alleged sale

dates, that he concedes that the temporal proximity aspect of contemporaneous

trading is met by these allegations. 

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court and allow plaintiff to amend its complaint so as to allege

contemporaneous trading in the manner specified therein. Thus, the

motion to dismiss the second claim as to defendants Nelson, Norton

and Gonzales is denied on the condition that plaintiff amends its

complaint to sufficiently allege contemporaneous trading as to these

defendants. In the absence of such an amendment, the court will

grant the motion by these three defendants to dismiss the §20A(a)

insider trading claim. 

 Defendant Blair’s position differs from the three defendants

just discussed because the FAC does allege that he traded

contemporaneously with Lead Plaintiff on January 6-7, 2005. FAC

(doc. 71) at ¶ 186(a).16 Nevertheless, the court agrees with 

defendant Blair that this insider trading claim is lacking as

against him because plaintiff did not “plead facts to show that

[Blair’s] trading was out of proportion with [his] usual trading.” 

See Chan, 1998 WL 1018624, at *12, n.10 (citation omitted). 

Plaintiff makes the wholly unsupported assertion that because it has

adequately alleged scienter, “there is no requirement in § 20 that

an insider’s sales . . . be out of line with prior trading history

to allege a violation[]” of that statute. Resp. (doc. 94) at 53. 

The court adheres to its view previously expressed in Chan though,

and on that basis finds that plaintiff has not sufficiently pled

insider trading against defendant Blair. 

 The court will, however, allow plaintiff to amend its complaint 

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insofar as it is attempting to allege insider trading against

defendant Blair. Thus, as with defendants Nelson, Norton and

Gonzales, Blair’s motion to dismiss this insider trading claim is

denied on the condition that plaintiff amends its complaint to

sufficiently allege insider trading as to defendant Blair. 

 E. Control Person Liability

 In its third claim, plaintiff alleges “control person” liability

against all defendants pursuant to section 20(a) of the Exchange

Act. In the Ninth Circuit, to “prove a prima facie case under

Section 20(a), a plaintiff must prove: (1) a primary violation of

federal securities law and (2) that the defendant exercised actual

power or control over the primary violator.” America West, supra,

320 F.3d at 945 (internal quotation marks and citation omitted). 

However, “to make out a prima facie case, it is not necessary to

show actual participation or the exercise of power[,]” but “a

defendant is entitled to a good faith defense if he can show no

scienter and an effective lack of participation.” Id. (internal

quotation marks and citation omitted). 

 The individual defendants offer two alternative bases for

dismissal of this section 20(a) claim. First, they state that

because plaintiff has not pled an underlying violation of section

10(b), the control person claim necessarily fails as well. Second,

the individual defendants contend that the FAC is deficient in that

it does not sufficiently “plead facts showing that each [of them]

controlled Apollo[.]” Mot. (doc. 82) at 25. These arguments are

meritorious as to some, but not all of the defendants.

 “There is no concrete test for establishing whether a defendant

is a control person.” Howard v. Hui, 2001 WL 1159780, at *3

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(N.D.Cal. Sept. 24, 2001) (citing Wool v. Tandem Computers, Inc.,

818 F.2d 1433, 1441 (9th Cir. 1987) (“[T]he concept of control, in

the context of securities law, is an elusive notion for which no

clear-cut rule or standard can be devised.”). Accordingly,

“[w]hether [the defendant] is a controlling person is an intensely

factual question, involving scrutiny of the defendant’s

participation in the day-to-day affairs of the corporation and the

defendant’s power to control corporate actions.” America West, 320

F.3d at 945. The SEC defines “control” as “the possession, direct

or indirect, of the power to direct or cause the direction of the

management and policies of a person, whether through the ownership

of voting securities, by contract, or otherwise.” 17 C.F.R. §

230.405. Thus, among “the traditional indicia of control[]” are

“owning stock in the target company, or having a seat on the

board[.]” America West, 320 F.3d at 945 (internal quotation marks

and citation omitted). By the same token, “an individual’s status

as an officer or director of the issuing corporation is

insufficient, standing alone, to demonstrate the exercise of

control.” In re Amgen Inc. Sec. Litig., 544 F.Supp.2d 1009, 1037

(C.D.Cal. 2008) (citing Howard v. Everex Systems, Inc., 228 F.3d

1057, 1065 (9th Cir. 2000)). Nevertheless, there is “persuasive

authority indicat[ing] that an officer or director who has signed

false financial statements containing materially false and

misleading statements qualifies as a control person.” Id.

(collecting cases). 

 As previously discussed, plaintiff has not adequately pled a

primary violation of section 10(b) as to defendants Bachus,

DeConcini, Govenar, Mueller, Noone, and the Sperlings. Therefore,

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17 Indeed perhaps these defendants concede as much in that individual

defendants’ motion focuses only upon the insufficiency of the control person

allegations as to defendants DeConcini, Govenar, Mueller and Noone. See Mot. (doc.

82) at 25. 

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the court grants the motion by these defendants to dismiss the

section 20(a) claims as against them. See Zucco, 552 F.3d at 990

(citations omitted) (“Section 20(a) claims may be dismissed

summarily, . . . , if a plaintiff fails to adequately plead a

primary violation of section 10(b).”)

 However, assuming arguendo that upon amendment plaintiff can

adequately allege a violation of § 10(b) against defendants Nelson,

Norton, Gonzales and Blair, the court must address the second prong

of § 20(a) liability – whether any of these individuals is a

controlling person within the meaning of that statute. Examining

the FAC in light of the principles set forth above readily shows

that the control person allegations are sufficient as to defendants

Nelson and Gonzales.17 The FAC alleges not just their respective

positions with Apollo -- Nelson as former Chair, CEO and President

and Gonzales as former CFO, Secretary and Treasurer -– but it also

describes their roles in Apollo’s day-to-day operations, and more

specifically their involvement in the option grant and accounting

processes. The FAC further alleges as to defendants Nelson and

Gonzales that they signed false SOX certifications. The court thus

concludes that the FAC adequately alleges control person liability

under § 20(a) insofar as defendants Nelson and Gonzales are

concerned. Accordingly it denies their motion to dismiss the 

§ 20(a) claim as against them.

 Although he was not an Apollo officer, the FAC sufficiently

alleges control person liability as to defendant Blair, former

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Chairman of the Audit Committee and Compensation Committee member,

and defendant Norton, Audit Committee member and Chairman of the

Compensation Committee. The FAC delineates their duties and

responsibilities in the respective Committee capacities. More 

specifically, the FAC alleges that as a member of the Audit

Committee, Norton “was responsible for Apollo’s public financial

statements[,]” and as Compensation Committee Chairman, allegedly he

“controlled the other defendants’ backdated stock option awards.” 

FAC at ¶ 23; see also id. at ¶¶ 39-40; and 115. Thus, the court

denies defendant Nelson’s motion to dismiss the § 20(a) claim as

against him. See Batwin, 2008 WL 2676364, at *25 (denying motion to

dismiss § 20(a) claim by two defendants who “controlled the Audit

Committee” and as such “direct[ed] [the defendant Company’s policies

relating to accounting and auditing during the Class Period[]”).

 The FAC includes similar allegations with respect to defendant

Blair, thus warranting the same result – denying his motion to

dismiss the section 20(a) claim. In particular, the FAC alleges

that as Chairman of the Audit Committee, he “caused or allowed the

dissemination of improper public statements[.]” FAC (doc. 71) at 

¶ 22. Moreover, “[a]s a member of the Compensation Committee,

defendant Blair controlled the other defendants’ backdated stock

option awards.” Id. As the FAC describes it, while serving on the

Compensation Committee defendants Blair and Norton “were responsible

for review[ing] all aspects of compensation of executive officers

and determin[ing] or mak[ing] recommendations on such matters to the

full [Apollo] Board. . .[.]” Id. at ¶ 39 (internal quotation marks

omitted); see also id. at ¶ 115 (enumerating “the role of the

Compensation Committee . . . in the backdating at Apollo, as well as

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the deficiencies in the conduct of th[at] . . . Committee with

respect to the options granting process[]”). 

 To summarize, the court grants the motion to dismiss the section

20(a) control person liability claims as against defendants Bachus,

DeConcini, Govenar, Mueller, Noone, and John and Peter Sperling. 

However, the court denies this aspect of the motion to dismiss by

defendants Blair, Norton, Nelson, Gonzales and Apollo. 

 F. State Law Claims

 State law is the basis for plaintiff’s remaining two claims. 

Plaintiff’s fourth claim is for “breach of fiduciary duty and/or

aiding and abetting” against all defendants. FAC at 94. 

Plaintiff’s fifth and final claim is for “civil conspiracy to commit

fraud[,]” but it is only against defendants Nelson, Blair, Norton,

Bachus, Mueller, and Gonzales. Id. at 95. 

 As an initial matter, the individual defendants argue that the

court should decline to exercise its supplemental jurisdiction over

these remaining state law claims on the theory that plaintiff has

failed to state a claim under federal law. The court’s rulings

herein undermine that argument however. Therefore, at this point in

the litigation, the court will continue to exercise its supplemental

jurisdiction over these state law claims. 

 1. Securities Litigation Uniform Standards Act of 1998 

 Apollo’s penultimate argument is that the Securities Litigation

Uniform Standards Act of 1998 (“SLUSA”) mandates dismissal of 

plaintiff’s state law claims because they include “allegations of

material misrepresentation and omission . . . and incorporate the

fraud claims asserted throughout the [FAC].” Mot. (doc. 81) at 29.

Reasoning that “[b]ecause Apollo is an Arizona corporation . . . ,

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and plaintiff’s state law claims are based on Arizona state law,”

plaintiff counters that those claims come within the purview of

SLUSA’s so-called Delaware carve-out. Resp. (doc. 94) at 55. In

rejoinder, Apollo convincingly argues that plaintiff has not shown

that its state law claims fit within either prong of that carve-out.

 After the enactment of the PSLRA which, inter alia, heightened

the pleading standards in federal securities cases, there was a

“pilgrimage of securities claims to state courts, thus circumventing

congressional reforms to restrict federal securities claims.” 

Falkowski v. Imation Corp., 309 F.3d 1123, 1128 (9th Cir. 2002)

(citations omitted). To stem this tide, Congress enacted the SLUSA. 

See Merrill Lynch v. Dabit, 547 U.S. 71, 82, 126 S.Ct. 1503, 164

L.Ed.2d 179 (2006). “With few exceptions, SLUSA limits the

maintenance of certain class-action suits in either state or federal

court[.]” Huang v. Reyes, 2008 WL 648519, at *2 (N.D.Cal. March 6,

2008) (citing 15 U.S.C. § § 77p(c), 78 bb(f)(2)). If a court

determines that SLUSA precludes an action or claim, dismissal is

required. See Kircher v. Putnam Funds Trust, 547 U.S. 633, 644, 126

S.Ct. 2145, 2155, 165 L.Ed.2d 92 (2006) (“If the action is

precluded [under SLUSA], neither the District Court nor the state

court may entertain it, and the proper course is to dismiss.”) 

 Under SLUSA, no “covered class action” based on state law and

alleging “a misrepresentation or omission of a material fact in

connection with the purchase or sale of a covered security” may be

“maintained in any State or Federal Court by any private party.” 15

U.S.C. § 78bb(f)(1)(A). Because plaintiff is invoking the Delaware

carve-out, presumably it concedes at the outset that its state law

claims meet those criteria, and thus are governed by SLUSA in the

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first instance. In any event, as set forth below, undoubtedly that

is the case. 

 “A ‘covered class action’ is a lawsuit in which damages are

sought on behalf of more than 50 people[,]” such as the present

action. See Dabit, 547 U.S. at 83, 126 S.Ct. at 1512 (footnote

omitted). Further, “[t]he grant of an employee stock option on a

covered security[,]” of the kind at issue herein, “is a ‘sale’ of

that covered security for purposes of SLUSA preemption.” Falkowski,

309 F.3d at 1129-30. Finally, in alleging state common law breach

of fiduciary duty, plaintiff expressly alleges “material

misrepresentations . . . regarding defendants’ option backdating

scheme.” FAC (doc. 71) at ¶ 194. Plaintiff similarly alleges that

certain defendants engaged in a civil conspiracy to commit fraud by,

inter alia, making false or misleading statements and/or omitting

material facts regarding stock option grants at Apollo. As the

foregoing shows, these state law claims fall within the category of

claims which SLUSA precludes. The issue thus becomes whether, as

plaintiff urges, it can avail itself of the Delaware carve-out

exception to SLUSA’s broad reach. 

 That carve-out “exempts class actions based on the statutory or

common law of the security issuer’s state of incorporation.” Huang,

2008 WL 648519, at *2 (citations omitted). This exception

“preserves class actions based on the law of the security issuer’s

state of incorporation when certain criteria are met.” Crimi v.

Barnholt, 2008 WL 4287566, at *2 (N.D.Cal. Sept. 17, 2008) (citation

omitted). The action must involve either:

 (I) the purchase or sale of securities by the

 issuer or an affiliate of the issuer exclusively 

 from or to holders of equity securities of the 

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 issuer; or 

 (ii) any recommendation, position, or other 

 communication with respect to the sale of 

 securities of the issuer that–

 (I) is made by or on behalf of the issuer or an 

 affiliate of the issuer to holders of equity 

 securities of the issuer; and 

 (II) concerns decisions of those equity holders 

 with respect to voting their securities, acting 

 in response to a tender or exchange offer, or 

 exercising dissenters’ or appraisal rights.

15 U.S.C. §§ 77p(d)(1), 78bb(f)(3)(A)(West Supp. 2008). A case

falling into either prong of this carve-out “may be maintained in a

State or Federal court[.]” 15 U.S.C. §§ 77p(d)(1)(A), 78

bb(f)(3)(A)(i)(West Supp. 2008). 

 As Apollo correctly points out, plaintiff made no attempt

to satisfy either of those two prongs. It is readily apparent that

plaintiff’s state law claims do not meet the criteria of the first

prong. Apparently plaintiff is attempting to rely upon the second

prong because it cites to Indiana Elec. Workers Pension Trust Fund

v. Millard, 2007 WL 2141697 (S.D.N.Y. July 25, 2007), where the

court did hold that that prong precluded removal. Millard is

readily distinguishable, though, in that it included allegations

“that the defendants misrepresented the way the strike prices for L3's stock options were calculated in proxy statements sent to

shareholders . . . and that th[o]se misstatements led the

shareholders to authorize the Board to dedicate 6.5 million

additional shares to the stock option plan.” Id. at *4. The

Millard court found that those allegations “relate[d] to

communications concerning a shareholder vote[,]” thus satisfying the 

“‘voting their security’ element of prong (II).” Id. at *8. 

 Here, the FAC does not include any such similar allegations

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pertaining to Apollo’s proxy statements. Accordingly, because

plaintiff’s fourth and fifth claims based upon state law fall within

the ambit of SLUSA, and because these claims are not exempt under

the Delaware carve-out to that Act, the court grants defendants’

motion to dismiss these state law claims as precluded by SLUSA. 

Having found that SLUSA clearly bars plaintiff’s state law claims,

there is no need to address defendants’ other proffered reasons for

dismissing these state law claims. 

III. Leave to Amend

 If the court grants all or, as it has, any part of defendants’

motions to dismiss, plaintiff specifically requests leave to amend

its FAC to “address any concerns” which the court “identifie[s][.]” 

Resp. (doc. 94) at 56. In seeking leave to amend, plaintiff

stresses that where, as here, a responsive pleading has not yet been

filed, a plaintiff “may amend its pleading once as a matter of

course[.]” Fed. R. Civ. P. 15(a)(1). 

 Apollo alone is taking the position that the court should not

allow plaintiff to amend because this is the second amended

complaint and “Lead Counsel had more than one year from the end of

the proposed class period until the [FAC] was filed to conduct an

investigation[.]” Reply (doc. 97) at 14. “More importantly,” from

Apollo’s standpoint, is that granting leave to amend would not alter

the statute of repose; the preclusive effects of the SLUSA and

plaintiff’s failure to adequately plead loss causation. Id.

Apollo’s position is well taken as to the first two issues, but not

as to the third - loss causation -- given the court’s finding that

plaintiff has sufficiently pled that element. 

 It is beyond cavil that leave to amend “should [be] freely

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give[n] when justice so requires.” Fed. R. Civ. P. 15(a)(2). 

According to the Ninth Circuit, “[t]his policy is to be applied with

extreme liberality.” Eminence Capital, supra, 316 F.3d at

1052(internal quotation marks and citations omitted). In the

seminal case of Foman v. Davis, 371 U.S. 178, 83 S.Ct. 227, 

9 L.Ed.2d 222 (1962), the Supreme Court specified the following

factors which a district court should consider in deciding whether

to grant leave to amend:

 In the absence of any apparent or declared

 reason – such as undue delay, bad faith or dilatory 

 motive on the part of the movant, repeated failure 

 to cure deficiencies by amendments previously 

 allowed, undue prejudice to the opposing party by 

 virtue of allowance of the amendment, futility of 

 amendment, etc. – the leave should, as the rules 

 require, be ‘freely given.’ 

Id. at 182, 83 S.Ct. 227. 

 “Not all of these factors merit equal weight[]” in a court’s

analysis, however. Eminence Capital, 316 F.3d at 1052. 

“[C]onsideration of prejudice to the opposing party . . . carries

the greatest weight.” Id. (citation omitted). Moreover, “[a]bsent

prejudice, or a strong showing of any of the remaining Foman

factors, there exists a presumption under Rule 15(a) in favor of

granting leave to amend.” Id. (emphasis in original) (citation

omitted). In a similar vein, the Ninth Circuit has stated that

“[a]dherence to these” relatively liberal amendment “principles is

especially important in the context of the PSLRA.” Id. The Ninth

Circuit further cautioned that “we are not operating the world of

notice pleadings.” Id. Rather, “[i]n this technical and demanding

corner of the law, the drafting of a cognizable complaint can be a

matter of trial and error.” Id.

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 Preliminarily, the court notes that defendants are not

claiming any prejudice here, and the court can conceive of none. 

There also has been no suggestion of bad faith and, again, the court 

conceives of none. Likewise, defendants do not contend that

amendment would be futile. As in Cornerstone, supra, the court

finds that “[a]mendment may not be futile in this case, as

plaintiff’s [FAC] contains many of the factual allegations required

to plead securities liability against [Apollo] and [some of] the

individual defendants.” Cornerstone, 355 F.Supp.2d at 1094. 

 The pleading deficiencies here do not lay “in the raw content

of” the FAC, “but in the absence of rigorously particularized

allegations in accordance with the PSLRA.” See id. “While this

court regrets the accordingly painstaking effort that was required

by this court and [to some extent] by defendants to interpret [the

FAC], leave to amend will be granted[]” in accordance with the

court’s rulings herein and as set forth below. See id. Plaintiff

is advised, however, that failure to cure the pleading deficiencies

identified herein, and failure to comply with the relevant case law

in that regard, may well lead to dismissal of these claims in the

future. 

IV. Rule 54(b) Certification

 Pursuant to Fed. R. Civ. P. 54(b), a district court may direct

entry of final judgment, inter alia, “[w]hen an action presents more

than one claim for relief . . . or when multiple parties are

involved.” Fed. R. Civ. P. 54(b). In deciding whether entry of

final judgment under that Rule is appropriate, the court 

“must first determine that it has rendered a ‘final judgment[.]’”

Wood v. GCC Ben, LLC, 422 F.3d 873, 878 (9th Cir. 2005). That means

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a decision that is “an ultimate disposition of an individual claim

entered in the course of a multiple claims action.” Curtiss-Wright

Corp. v. General Elec. Co., 446 U.S. 1, 7, 100 S.Ct. 1460, 64

L.Ed.2d 1 (1980) (internal quotation marks and citation omitted).

Here, the court has rendered a final disposition as to plaintiff’s

claims against Messrs. Bachus, Mueller and DeConcini, and Ms.

Govenar and Ms. Noone by granting their respective motions to

dismiss all claims against them.

 Next, as Rule 54(b) requires, the court must “expressly

determine[] that there is no just reason for delay.” Fed. R. Civ.

P. 54(b). “It is left to the sound judicial discretion of the

district court to determine the ‘appropriate’ time when each final

decision in a multiple claim action is ready for appeal.” Id. at 8,

100 S.Ct. 1460. “This discretion is to be exercised in the interest

of sound judicial administration.” Id. (internal quotation marks

and citation omitted). 

 Whether there is “no just reason for delay” involves a two-step

inquiry – “judicial concerns and “equitable concerns. See Gregorian

v. Izvestia, 871 F.2d 1515, 1519 (9th Cir. 1989). Succinctly put,

“judicial concerns” involve evaluating “the interrelationship of

claims so as to prevent piecemeal appeals in cases which should be

reviewed only as single units.” Curtiss-Wright, 446 U.S. at 10, 100

S.Ct. 1460. “A judgment should not be certified . . . under Rule

54(b) when ‘the facts on all claims and issues entirely overlap and

successive appeals are essentially inevitable.’” Robinson v. De la

Vega, 2008 WL 4748171, at *2 (S.D.Cal. Oct. 24, 2008) (quoting Wood,

422 F.3d at 883) (emphasis added). “Thus, the trial court must

consider whether: 1) certification would result in unnecessary

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appellate review; 2) the claims finally adjudicated were separate,

distinct, and independent of any other claims; 3) review of the

adjudicated claims would be mooted by any future developments in the

case; and 4) an appellate court would have to decide the same issue

more than once even if there were subsequent appeals.” Id. (citing

Wood, 422 F.3d at 879). 

 There is some commonality among the claims against the remaining

defendants and the adjudicated claims of the defendants listed

above. On balance, however, and focusing upon “severability and

efficient judicial administration[,]” Wood, 422 F.3d at 880, the

court finds that the dismissed claims are “sufficiently separate and

distinct” from plaintiff’s remaining claims so as to warrant entry

of final judgment as to defendants Bachus; Govenar; Mueller;

DeConcini; and Noone. See Ahmadi v. Chertoff, 2008 WL 1886001, at

*6 (N.D.Cal. April 25, 2008). Moreover, the facts on all claims and

issues certainly do not “entirely overlap.” Given that the claims

of the just listed defendants are easily severable from those of the

remaining defendants, the court finds that in the interest of

efficient judicial administration, judgment under Rule 54(b) is

appropriate here.

 Assessing the equities, the court sees no just reason for

delaying an appeal as to the defendants listed in the preceding

paragraph. Given the already protracted nature of this action, 

prejudice would result to those defendants if they were forced to

await the final resolution of this action. Moreover, the court

cannot ignore the fact that litigation of this kind is costly, both

from a monetary and an emotional standpoint. Given those costs and

the resultant prejudice, the equities weigh heavily in favor of

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allowing defendants Bachus, Govenar, Mueller, DeConcini, and Noone,

to have finality sooner rather than later. Thus, the court finds

that judgment should be entered as to the above named defendants as

Rule 54(b) allows. 

Conclusion

 For the reasons set forth above, IT IS ORDERED that the motion

to dismiss by defendant Apollo Group, Inc. (doc. 81) and the

individual defendants (doc. 82) is GRANTED in part and DENIED in

part:

(1) defendants’ motions are GRANTED to the extent

plaintiff’s claims are based on statements outside the

statute of repose (i.e., prior to November 2, 2001);

(2) defendants motions are GRANTED on statute of

limitations grounds to the extent plaintiff is alleging

stock option backdating for grants on December 18, 1998;

April 19, 1999; January 12, 2000; December 15, 2000; and

September 21, 2001;

(3) GRANTS with prejudice the motion to dismiss the §10(b)

and Rule 10b-5 claim against defendants Daniel E. Bachus;

Dino J. DeConcini; Hedy Govenar; Brian E. Mueller; and

Laura Noone;

(4) GRANTS without prejudice the motion to dismiss the §

10(b) and Rule 10b-5 claim against defendants John G.

Sperling and Peter Sperling;

 (5) DENIES the motion to dismiss the § 10(b) and Rule 10b5 claims against defendants Todd S. Nelson; Kenda B.

Gonzales; John R. Norton III; John Blair; and the Apollo

Group, Inc.;

(6) GRANTS with prejudice the motion to dismiss the

§20A(a)insider trading claim against defendants Daniel E.

Bachus; Dino J. DeConcini; Hedy Govenar; and Laura Noone;

(7) GRANTS without prejudice the motion to dismiss the §

20A(a) insider trading claim against defendants John G.

Sperling and Peter Sperling;

(8) DENIES the motion to dismiss the § 20A(a) insider

trading claim against defendant Todd S. Nelson; Kenda B.

Gonzales; John R. Norton III; and John Blair;

(9) GRANTS with prejudice the motion to dismiss the §20a

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control person liability claims against defendants Daniel

E. Bachus; Dino J. DeConcini; Hedy Govenar; Brian E.

Mueller; and Laura Noone; 

(10) GRANTS without prejudice the motion to dismiss the §

20a control person liability claim against defendants John

G. Sperling and Peter Sperling;

(11) DENIES the motion to dismiss the § 20a control person

liability claim against defendants Todd S. Nelson, Kenda B.

Gonzales; John R. Norton III; John Blair; and the Apollo

Group, Inc.;

(12) GRANTS with prejudice defendants’ motion to dismiss

the state law claim “For Breach of Fiduciary Duty and/or

Aiding and Abetting[;]” 

(13) GRANTS with prejudice the motion to dismiss the state

law claims for “Civil Conspiracy to Commit Fraud” by

defendants Todd S. Nelson; John Blair; John R. Norton III;

Kenda B. Gonzales; Daniel E. Bachus; and Brian E. Mueller; 

(14) GRANTS plaintiff’s “request” for leave, if it so

desires, to further amend its complaint and to file a

second amended complaint within thirty (30) days of the

entry of this order as to defendants Apollo Group, Inc.;

John G. Sperling; Todd S. Nelson; Kenda B. Gonzales; John

Blair; John R. Norton III; and Peter Sperling; and

 IT IS FURTHER ORDERED that pursuant to Fed. R. Civ. P. 54(b),

the Clerk of the Court is hereby directed to enter judgment in favor

of defendants Daniel E. Bachus; Hedy Govenar; Brian E. Mueller; Dino

J. DeConcini; and Laura Noone.

 DATED this 27th day of March, 2009.

Copies to all counsel of record 

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