Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_06-cv-02674/USCOURTS-azd-2_06-cv-02674-3/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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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Teamsters Local 617 Pension )

and Welfare Funds, on behalf )

of itself and all others ) No. CIV 06-02674-PHX-RCB

similarly situated, )

)

Plaintiff ) O R D E R

)

 vs. )

)

Apollo Group, Inc., et al., )

)

 Defendants. )

Currently pending before the court in this securities fraud

action are motions to dismiss the second amended complaint (“SAC”)

for failure to state a claim pursuant to FED.R.CIV.P. 12(b)(6) by

defendant Apollo Group, Inc. (“Apollo”) (Doc. 122); and by the

individual defendants 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 (“the individuals” or “the individual

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1 The individual defendants explicitly “join in and . . . incorporate by

reference” Apollo’s motion to dismiss and supporting memorandum, as well as

“join[ing]” in Apollo’s reply. Defs’. Mot. (Doc. 120) at 1:28, n.1; Defs’. Reply

(Doc. 133) at 1:28, n.1. Likewise, Apollo specifically “adopts and incorporates

the Individual[s’] . . . motion to dismiss and to strike[,]” as well as their

reply. Apollo Mot. (Doc. 122) at 1:4-5 (footnote omitted); and Apollo Reply (Doc.

132) at 1:2-3 (footnote omitted). Thus, unless necessary to distinguish among

them, Apollo and the individual defendants will be collectively referred to

throughout as “the defendants.” 

2 In Teamsters Local 617 Pension and Welfare Fund v. Apollo Group, Inc.,

609 F.Supp.2d 959 (D.Ariz. 2010) (“Apollo II”), granted plaintiff’s motion for

reconsideration in part, and vacated in part the previously entered judgment. 

3 The court will briefly address the parties’ respective Requests for

Judicial Notice (“RJN”) (Docs. 121; 123; and 131). These Requests need not detain

the court for long because they are unopposed, and in securities litigation courts

routinely take judicial notice of the types of documents which these RJNs list.

The majority of the documents which are the subject of these RJNs pertain to

various Securities and Exchange Commission (“SEC”) filings. All three RJNs include

Form 10-Ks and Form 4 SEC filings. Such SEC filings are properly subject to

judicial notice. See Apollo I, 633 F.Supp.2d at 776-77; see also 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 defendant’s “SEC

filings[]”). The court reiterates that:

[I]t only is taking judicial notice of the content of these 

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

agency. . . . 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. at 776 (citations and internal quotation marks omitted).

Further, this court will take judicial notice of the complaint filed in Alaska

Electrical Pension Fund v. Sperling et al., No. 2:06-cv-02124-ROS (Doc. 125-5), as

it is a matter of public record. See Lauter v. Anoufrieva, 642 F.Supp.2d 1060, 1077

(C.D.Cal. 2009) (citing cases). 

Pursuant to the incorporation by reference principles outlined in Apollo I,

633 F.Supp.2d at 775, to the extent necessary to resolve these motions, the court

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 defendants”)1 (Doc. 120). If the court denies their motion to

dismiss, alternatively, pursuant to FED.R.CIV.P. 12(f), the

individual defendants are moving to strike allegations which this

court previously dismissed or found insufficient as a matter of law

in Teamsters Local 617 Pension & Welfare Funds v. Apollo Group,

Inc., 633 F.Supp.2d 763 (D.Ariz. 2009) (“Apollo I”).2 Oral

argument will not aid the court’s decisional process, hence the

court denies the parties’ requests in that regard.3 See

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will consider the SAC’s 40 attached exhibits. That doctrine also allows the court

to consider documents referenced in the SAC, but not attached thereto. See id.

Here, those documents include the September 19, 2006, letter by SEC’s Chief

Accountant; the Bloomberg Transcript of Apollo’s “Q1 2005 Earnings Call[;]” and the

historical trading prices for Apollo stock from January 1, 1998 through December 31,

2007, downloaded from Yahoo! Finance (http://finance.yahoo.com) (“Apollo stock

chart”). The Apollo I stock chart did not include trading dates between January 1,

2002 and December 31, 2005. The present chart closes that gap. In sum, the SAC

references the foregoing documents, and no party is questioning their authenticity.

The court will, therefore, take these documents into account to the extent necessary

to resolve these motions. 

In accordance with FED. R. Evid. 201, the court also takes judicial notice of

the “print out from Bloomberg Finance L.P., documenting the market price of Apollo’s

common stock from January 2, 2003 until August 31, 2004” (RJN (Doc. 121) at 1:7-8).

See id. at 776 (citing Metzler, 540 F.3d at 1064 n. 7) (“Rule 201 . . . provides an

alternative means by which the court can consider Apollo’s SEC filings, reported

stock price history, and . . . other publicly available financial documents[.]”)

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FED.R.CIV.P. 78(b). 

I. Overview of SAC

The SAC sets forth three separate securities fraud claims. 

The first is for an alleged violation of § 10(b) of the Securities

and Exchange Act of 1934 (“Exchange Act”), 15 U.S.C. § 78j(b), as

amended by the Private Securities Litigation Reform Act of 1995

(“the PSLRA”), and Rule 10b-5 promulgated thereunder, 17 C.F.R. 

§ 240.10b-5 (the “section 10(b) claims”). Whereas the FAC named

Apollo and all 11 individuals as defendants in that section 10(b)

claim, the SAC now limits those defendants to Apollo and four of

the previously named individuals. Those individuals are: (1) John

Blair, an Apollo director from September 2000 until his resignation

in May 2007, and “Chairman of the Audit Committee” and “a member of

the Compensation Committee[;]” (2) Kenda B. Gonzales, Apollo’s

“CFO, Secretary and Treasurer . . . from October 1998 until”

allegedly “she was forced to resign in November 2006 because of her

involvement in stock option backdating at Apollo[;]” (3) Todd S.

Nelson, who “was until 2006" variously Apollo’s “Chairman, CEO and

President[;]” and (4) John R. Norton III, an Apollo director during

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the relevant time frame, and “a member of the Audit Committee” and

“Chairman of the Compensation Committee[.]” SAC (Doc. 112) at 8:4

and 8:5-6, ¶ 21; 7:18-20, ¶ 19; 7:8, ¶ 18; and at 8:11 and 13, 

¶ 22.

 After first alleging “defendants’ duties with respect to

granting and approving stock options[,]” the SAC devotes its next

section to “backdated stock option grants at Apollo[.]” Id. at 13:6

(emphasis omitted). The court previously granted defendants’

motion “to dismiss as untimely any claims based upon backdating

itself with respect to the five option grants” alleged in the FAC. 

Apollo I, 633 F.Supp.2d at 781. Yet, the SAC includes precisely

those same five grant allegations and adds a sixth grant date --

October 20, 2003. The next section of the SAC enumerates

“defendant’s false and misleading statements issued during the

class period[.]” Id. at 20:3 (emphasis omitted) (footnote added). 

Compared to the FAC, the SAC more than doubles the number of those

statements, from 26 to 54. 

The SAC’s second and third claims for relief are not nearly as

expansive as its first. In the second, in contrast to the FAC

which alleged insider or contemporaneous trading in violation of

section 20A of the Exchange Act by all defendants, the SAC names

only defendant Blair in this claim. Just like the FAC though, the

SAC’s third claim for relief alleges “control person” liability

against all defendants pursuant to section 20(a) of the Exchange

Act. 

. . .

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4 Previously this court articulated the general Rule 12(b)(6) standards,

as well as the dual pleading standards of the PSLRA and Rule 9(b) which apply to

a section 10(b) claim. See Apollo I, 633 F.Supp.2d at 778-780; 783-784; and 787-

789. The court will apply those same standards in evaluating defendants’ current

motions to dismiss. Apart from form, there are a number of similarities between

the FAC and the SAC. Hence, the court incorporates by reference the “Overview of

Allegations” in Apollo I, 633 F.Supp.2d at 770-775. Other allegations will be

fully developed herein as necessary to resolve the pending motions. 

5 In a shortened form, this is sometimes referred to as the “falsity”

element. See N.Y. State Teachers’ Retirement Sys. v. Fremont Gen. Corp., 2009 WL

3112574, at *2 (C.D.Cal. Sept. 25, 2009). 

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II. Section 10(b) Claim4

“Section 10(b) of the Securities Exchange Act makes it unlawful

for any person to ‘use or employ, in connection with the purchase or

sale of any security . . . any manipulative or deceptive device or

contrivance in contravention of such rules and regulations as the

Commission may prescribe as necessary or appropriate in the public

interest or for the protection of investors.’” Matrixx Initiatives,

Inc. v. Siracusano, ___ S.Ct. ___, 2011 WL 977060, at *7 (U.S. March

22, 2011) (quoting 15 U.S.C. § 78j(b)). “SEC Rule 10b-5 implements

this provision by making it unlawful to, among other things, ‘make

any untrue statement of a material fact or to omit to state a

material fact necessary in order to make the statements made, in the

light of the circumstances under which they were made, not

misleading.’” Id. (quoting 17 CFR § 240.10b-5(b)). The Supreme

Court has “implied a private cause of action from the text and

purpose of § 10(b).” Id. (citing Tellabs, Inc. v. Makor Issues &

Rights, Ltd., 551 U.S. 308, 318, 127 S.Ct. 2499, 168 L.Ed.2d 179

(2007)). “‘In a typical § 10(b) private action a plaintiff must

prove (1) a material misrepresentation or omission by the

defendant5; (2) scienter; (3) a connection between the

misrepresentation or omission and the purchase or sale of a

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security; (4) reliance upon the misrepresentation or omission;

(5)economic loss; and (6) loss causation.’” In Re Oracle Corp. Sec.

Litig., 627 F.3d 376, 387 (9th Cir. 2010) (quoting Stoneridge Inv.

Partners, LLC v. Scientific-Atlanta, Inc., 552 U.S. 148, 156, 128

S.Ct. 761, 169 L.Ed.2d 627 (2008) (citation omitted)).

In arguing that the SAC fails to state a section 10(b) claim,

the defendants broadly assert that the SAC does not plead backdating

with particularity. Separately analyzing the newly added October

20, 2003 grants, defendants then turn to the sufficiency of all six

grants, include the five original grants which the SAC re-alleges. 

Next, defendants argue that the SAC’s “false and misleading

statements” do not satisfy the particularity requirements of Rule

9(b) and the PSLRA. Defendants further contend that the SAC does

not adequately plead scienter or loss causation. The court will

address these issues seriatim. 

A. October 20, 2003 Grants

Paragraph 44 of the SAC adds a new grant date – October 20,

2003. More specifically, the SAC alleges that “[d]efendants dated

certain of Apollo’s 2003 grants on” that date “at $60.90 per

share[.]” SAC (Doc. 112) at 19:2-3, ¶ 44. Allegedly that share

price was not only the low of the month but also the low for the

entire year.” Id. at 19:3, ¶ 44. Defendants John Sperling, Nelson,

Gonzales, and Noone allegedly received options at that price. The

SAC alleges that “Carroll” received 20,000 options dated October 20,

2003, and that he is a defendant. See id. at 19:5-6; and 25, ¶ 44. 

The record shows that Mr. Carroll filed a Form 4 on October 22, 2003

for 20,000 options at a price of $60.90 per share. Farrell Decl’n

(Doc. 124), exh. 8 thereto. Other than this paragraph, Carroll’s

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6 That is not the only inconsistency in the SAC’s allegations as to the

October 20, 2003 grants. The associated chart indicates that defendant Bachus,

among others, received such options, but, in contrast to John Sperling, Nelson,

Gonzales and Noone, there are no specific allegations preceding that chart as to

Bachus’ actual receipt of such options. 

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name does not appear anywhere else in the SAC. The caption does not

list him as a defendant; nor is he including the in SAC’s

enumeration of “parties.”6 In any event, of the six identified

grants, this is the only one alleging a “2 Day Return[.]” Id. at

19:21-22, ¶ 44.

Defendants argue that there are “insufficient” allegations in

the SAC as to that grant date “to raise any reasonable inference

that [it] was backdated.” Defs.’ Mot. (Doc. 120) at 4:20. 

Defendants offer two reasons as to why a reasonable inference of

backdating cannot be drawn as to those October 20th grants. First,

those grants were publicly disclosed by the timely filing of Form 4s

with the SEC. Second, despite what the SAC alleges, those grants

were not made at “the low for the entire year.” See SAC (Doc. 112)

at 16:3, ¶ 44. Disagreeing as to the impact of the timely reporting

to the SEC, plaintiff maintains that such reporting “simply

restricts [the] backdating to two days.” Resp. (Doc. 129) at 22:7-8

(citations omitted).

1. Form 4 SEC Filings

Pursuant to section 16(a) of the Exchange Act, “[i]nitial

statements of beneficial ownership of equity securities” must be

filed with the SEC on a Form 3, whereas “[s]tatements of changes in

beneficial ownership” must be filed on a Form 4. See 17 C.F.R. 

§ 240.16a-3(a); see also 15 U.S.C. § 78p(a). “On August 29, 2002,

Congress passed the Sarbanes-Oxley Act [(“SOX”)], which instituted

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new reporting requirements for stock option grants.” U.S. v.

Shanahan, 2008 WL 2225731, at *6 (E.D.Mo. 2008). That Act

significantly decreased the filing time for employees who received a

stock option grant, making “a company’s ability to fraudulently

backdate option grants . . . much more difficult.” Id. (citation

omitted). 

Prior to SOX, “an employee who received a stock option grant

had to file financial forms with the SEC within forty-five days

after the company’s fiscal year end.” Id. But after SOX, those

forms must be filed with the SEC “before the end of the second

business day” following the transaction. 15 U.S.C. § 78p(a)(2)(C). 

Therefore, “[b]ackdaters must now work with the two-day window plus

the one or more late days they think will be overlooked.” In re

Zoran Corp. Derivative Litig., 511 F.Supp.2d 986, 1006 (N.D.Cal.

2007). Or, as the Zoran court colloquially put it, “[t]he Form 4

requirement has cramped [management’s] style.” Id. “Management no

longer has the latitude to backdate as far back.” Id. 

There is no dispute here that the Form 4s were timely filed as

to the October 20, 2003 grant. See Farrell Decl’n (Doc. 124), exhs.

7-13 thereto. Rather, the dispute centers on the impact of those

filings upon plaintiff’s theory that those particular grants were

the product of intentional backdating. Defendants argue that due to

the timely filing of the Form 4s, plaintiff has failed to state a

section 10(b) claim based upon the October 20, 2003 grants. They

reason that any “inference of backdating is entirely undermined by”

the timely filing of those Form 4s. Defs’. Mot. (Doc. 120) at 4:21;

see also Apollo Mot. (Doc. 122) at 8:5-6 (emphasis omitted)

(“contemporaneously filed Form 4s prove that the October 20, 2003

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grant date was not retroactively selected”).

On the other hand, plaintiff counters that “a timely filed Form

4 does not eliminate the possibility of backdating, but simply

restricts such backdating to two days.” Resp. (Doc. 129) at 22:6-8

(citations omitted). Plaintiff reasons that “there is the potential

for substantial self-enrichment if a company’s stock price increases

sharply in [that] day or two” after the filing of the Form 4. Id.

at 22:15-17. To make this point, plaintiff notes that defendant

“Nelson’s stock options were $915,000 in the money by the time such

options were reported” to the SEC two days later on October 22,

2003. Id. at 22:17-18 (citing SAC (Doc. 112) at ¶ 44). Thus,

plaintiff asserts that the October 20, 2003, grant “further supports

an inference of scienter with respect to defendant’s backdating[.]” 

Id. at 23:8-10. Plaintiff’s argument is not convincing. 

The timely filing of a Form 4 has broader ramifications than

“simply restrict[ing] such backdating to two days[,]” as plaintiff

urges. See id. at 22:7-8 (citations omitted). In re Hansen Natural

Corp. Sec. Litig., 527 F.Supp.2d 1142 (C.D.Cal. 2007), to which

defendants cite, is illustrative. One way the plaintiff there

alleged scienter was by alleging a scheme to backdate stock option

grants. The court held that such allegations did not give rise to a

strong inference of scienter because, inter alia, Form 4s “were all

filed with the SEC within days” of the challenged grants. Id. at

1156 (emphasis added). The Hansen court soundly reasoned that the

timely filing of Form 4s “corroborates the grant dates, and makes

backdating of [stock] options highly unlikely[.]” Id. (emphasis

added). Significantly, the Hansen court found that to be so

“regardless of the change in the stock price.” Id. (emphasis added)

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(citation omitted). Thus, because the Hansen plaintiffs did not

otherwise adequately allege scienter, and because they did not

adequately plead materiality or loss causation, the court granted

defendants’ motion to dismiss.

Like here, in In re CNET Networks, Inc. Shareholder Derivative

Litig., 483 F.Supp.2d 947 (N.D.Cal. 2007), to which Apollo cites,

the directors timely filed Form 4s, and there were no allegations

that those Forms were false. Consequently, the court held that

plaintiffs “failed to plead facts that th[e] grant [at issue] and

the accompanying returns could not have merely been the product of

chance.” Id. at 961. In reaching that conclusion, the CNET court

astutely explained:

It is highly unlikely that defendants could have

gone back in time to change the date for this grant 

if it was on record with the SEC two days after the 

fact. Defendants would not have had time to see what 

the stock did in the next few days in order to find 

the most advantageous grant date. This does cast doubt 

on plaintiffs' allegations.

Id. at 961. The CNET court did recognize the “possibl[ity] that as

part of the scheme, CNET had adopted a ‘wait-and-see’ approach

toward the timing of options trying to spot periodic low points.” 

Id. Nonetheless, the court soundly reasoned, “the executives and

directors simply could not have known precisely what the stock would

do in the coming days. The ability to go back and change the date

to a more fortuitous time is essentially the guts of any backdating

scheme.” Id. 

That reasoning applies with equal force here. As in CNET, the

defendants which the SAC alleges received grants dated October 20,

2003 at a price of $60.90 per share, John Sperling, Nelson, Gonzales

and Noone, all timely filed their Form 4s as to those grants. See

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7 The SAC repeatedly refers to the “restatement of May 22, 2007[.]” See,

e.g., SAC (Doc. 112) at 20:25, ¶ 48. For clarification, that Restatement was

accomplished by and published in Apollo’s May 22, 2007 Form 10-K. See RJN (Doc.

126), exh. 19. So although this decision will continue to refer to the

Restatement, as does the SAC, it actually means that 2007 Form 10-K. 

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Farrell Decl’n (Doc. 124), exhs. 9 -12. Also as in CNET, the SAC

does not allege that those Form 4s were false. Moreover, quoting

verbatim from the Restatement,7 the SAC alleges that based upon the

timely filed Forms 4 for Section 16 officers, such as Ms. Gonzales,

Apollo “generally determined the original stated grant date is the

most likely measurement date for Section 16 Officer grants after

August 2002.” SAC (Doc. 112) at ¶ 96, 47:12-13 (emphasis added). 

Also quoting from the Restatement, the SAC further alleges that as

to the post-SOX grants to former CEO and a section 10(b) defendant,

Todd Nelson, the Restatement “generally concluded the original

stated grant date is the most likely measurement date after August

2002, based on the history of the filing process for Forms 4 after a

grant.” Id. at ¶ 96, 47:26-27 (emphasis added). These allegations,

especially when coupled with the timely filed Form 4s, severely

erode a strong inference of scienter to engage in intentional

backdating as to the October 20, 2003 grants. 

Edward J. Goodman Life Income Trust v. Jabil Circuit, Inc., 595

F.Supp.2d 1253 (M.D.Fl. 2009), aff’d on other grounds, 594 F.3d 783

(11th Cir. 2010), bolsters that conclusion. There, the complaint

merely alleged that “Jabil’s Section 16 officers usually[,]” filed

Forms 4 within two days of the option grant.” Id. at 1275 (citation

and internal quotation marks omitted) (emphasis added). In sharp

contrast to the present case, there was nothing before the Jabil

court showing that those officers actually timely filed the Form 4s. 

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Nonetheless, the court found that because those officers “usually”

timely filed Form 4s such filings “completely undermine[d] any

suspicion otherwise attending any grant after 2001.” Id. (emphasis

added). Therefore, the court held that “plaintiffs’ allegations of

receipt of stock options fail[ed] to support an inference of

scienter as to any defendant.” Id. 

The allegations and proof here, as discussed, are even more

compelling than in Jabil. Certainly, if allegations that section 16

officers usually filed Form 4s “fail[]s to support an inference of

scienter,” then allegations and proof that defendants Nelson and

Gonzales actually timely filed Form 4s for the October 20, 2003

grants, likewise negates any such inference. 

Courts have recognized that theoretically it is possible to

backdate within the two day window for filing Form 4s, as plaintiff

suggests. Plaintiff overlooks the fact, however, that ultimately

those same courts held that backdating was not sufficiently pled as

to such grants. For example, in In re Openwave Systems, Inc.

Shareholder Derivative Litigation, 503 F.Supp.2d 1341 (N.D.Cal.

2007) (“Openwave I”), the court did remark that “[b]ackdating stock

options by two days is still backdating.” Id. at 1350. The court

thus found that the timely filed Form 4s “somewhat diminished the

ability to infer backdating from the allegations [in the]

Complaint[.]” Id. at 1349. Consequently, the court did recognize

that where “the stock price increased in the two days following the

grants[,]” those three grants “may . . . still support plaintiffs’

claims, despite the filing of Forms 4 within two days of the

grants.” Id. (emphasis added). Nevertheless, because the

“allegations and statistical analyses [we]re simply insufficient, at

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th[at] point, to allow a reasonable inference of backdating[,]” the

court granted nominal defendants’ motion to dismiss, albeit with

leave to amend. Id. at 1351. 

 Given the rise in Apollo’s stock in the two days after the

October 20, 2003, grants plaintiff asserts that Openwave I supports

its backdating claim as to those grants. Plaintiff overlooks that

even after amendment, the court in In re Openwave Systems, Inc.,

2008 WL 410259 (N.D.Cal. Feb. 12, 2008) (citation omitted)

(“Openwave II”), was “not convinced that a one- or two-day window

could give defendants enough perspective on the market to

intentionally choose the lowest closing prices of the quarter.” Id.

at *3 (citation omitted). For that reason, among others, the court

held that “the specific dates . . . in [the] Amended Complaint and

Opposition d[id] not suggest backdating.” Id. at *4. Thus the

Openwave II court again granted nominal defendants’ motion to

dismiss, but it did again allow amendment. Id. at *7. 

The same is true here. The narrow two day window between the

October 20, 2003 grants and the timely filed Form 4s would not have

“given defendants enough perspective on the market to intentionally

choose the lowest closing price” for fiscal year 2004. See id. at

*3 (citation omitted). This is especially so, as the individual

defendants emphasize, because the bulk of that time frame (e.g.,

October 22, 2003 through August 31, 2004) took place after the

filing of the Form 4s. Thus, despite what the SAC implies, in

picking the October 20, 2003 grant date, for most of the relevant

time frame, defendants would not have had the advantage of

hindsight. 

With no analysis, plaintiff also relies upon selective quotes

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by the courts in Zoran, 511 F.Supp.2d 986, and Finisar Corp.

Derivative Litig., 542 F.Supp.2d 980 (N.D.Cal. 2008) (“Finisar I”). 

Close examination of those cases reveals that rather than supporting

plaintiff’s argument, they actually support defendants’ position. 

The Zoran court, too, acknowledged, that “backdating is [not]

completely impossible within a two-day window[.]” Zoran, 511

F.Supp.2d at 1006. But at the same time, that court indicated that

“on any given business day, the range of phony dates is restricted

to only two for those who file [their Form 4s] on time.” Id. at

1066. Of the six post-SOX grants discussed in Zoran, the court held

that plaintiff had not sufficiently pled backdating as to three of

those grants solely because, as here, the directors who received

those grants timely filed their Form 4s. Id. at 1007 - 1008. 

Indeed, the only one of the six grants to survive defendants’ motion

to dismiss in Zoran was the grant where, inter alia, the Form 4s

were filed three business days late. Id. at 1008. Clearly, Zoran

does nothing to advance plaintiff’s argument herein that it has

sufficiently pled backdating as to the October 20, 2003 grants,

despite the timely filing with the SEC of the Form 4s. 

Plaintiff’s reliance upon Finisar I, 542 F.Supp.2d 980, is

similarly unavailing. As plaintiff mentions, the Finisar I court

did observe: “The delay in filing a Form 4 with the SEC reporting

option grants may support an indication of backdating in that it is

theoretically possible to manipulate the grant date during the

window between the grant date and the public reporting of the option

grant to the SEC.” Id. at 994 (citations omitted) (emphasis added). 

Plaintiff is ignoring both the plain language of that observation

and the broader context in which it was made. 

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First, the Finisar I plaintiffs alleged that “of the 12

purportedly backdated stock options, the Form 4s related to 9 of

them were filed late.” Id. (citation omitted) (emphasis added). It

is in the context of those allegedly late filed Form 4s that the

court made the above observation which the plaintiff herein quotes. 

Here, there was no delay in the filing of the Form 4s as to the

October 20, 2003 grants. Thus, the Finisar I court’s recognition

that it is “theoretically possible” to backdate where Form 4s are

late, has no bearing on the October 20, 2003 grants at issue where,

undisputably, the Form 4s were timely filed. 

Second, even as to the one grant date in Finisar I where the

Form 4s were timely filed, the court found that the totality of

plaintiffs’ allegations as to those grants did “not support a

finding that th[ose] . . . option grants were backdated.” Finisar

I, 542 F.Supp.2d at 990. Moreover, even as to the untimely filed

Form 4s, the Finisar I court found that plaintiffs’ complaint

“otherwise fail[ed] to support a clear showing that th[o]se grants

were backdated” because “the allegations d[id] not support a

conclusion that the Form 4s were late because the late-reported

grants were backdated.” Id. at 994. The court thus “conclude[d]

that, without more, plaintiffs’ allegations do not support” a

finding “that the 12 grants to directors and officers identified in

the complaint were backdated or indicate[d] a pattern of backdating

of grants to directors and officers.” Id. Thus, plaintiff’s single

quote from Finisar I regarding the “theoretical possib[ility]” of

backdating within the two day window for filing with the SEC does

not, without more, mandate a finding that backdating occurred as to

the October 20, 2003 grants. Nor does such a possibility warrant a

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strong inference of scienter to engage in intentional backdating. 

To salvage the October 20, 2003 grant allegations, plaintiff

contends that in its motion “Apollo admits that for one grant date,

there was in fact a possibility that such grant was backdated by a

single day.” Resp. (Doc. 129) at 22:22-23 (emphasis added)

(citation omitted). Based upon that purported “admission,”

plaintiff surmises that “[i]t is entirely plausible, and consistent

with Apollo’s admissions, that on October 21, 2003, [defendant and

former CEO] Nelson retroactively selected the October 20 grant date,

giving himself almost $1 million of unvested and undisclosed gains,

and then reported such grants to the SEC on October 22, 2003.” Id.

at 23:5-8. Notably, the SAC is void of any such allegations. 

Nonetheless, plaintiff argues that “the 2003 grant only further

supports an inference of scienter with respect to defendants’

backdating[.]” Id. at 23:8-9. 

Apollo’s supposed admission that for one grant date there is a

possibility of backdating by a single day is important for two

reasons, plaintiff suggests. First, it “directly contradicts

[defendants’] . . . assertions that backdating within a two-day

window would be impossible.” Id. at 23:3-4 (footnote omitted). 

Second, this purported admission renders “inapplicable” the case law

upon which Apollo is relying “for the proposition that backdating by

two days would by unlikely[.] Id. at 23:21-22, n. 8. Plaintiff’s

reasoning is based upon the faulty premise that in its motion Apollo

admitted backdating; it did not.

As plaintiff construes Apollo’s motion, it “states ‘a grant

date may have been retroactively selected for three grants (one, by

a day).’” Id. at 22:23 - 23:1 (quoting Mot. (Doc. 122) at 3)

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(emphasis added by plaintiff). Quoting from the SAC, which in turn

quotes from Apollo’s Form 10-K for the period ending August 31,

2006, Apollo’s motion actually states:

The Special Committee . . . reported that, after

analyzing all 100 grants between 1994 and 2006, 

 it ‘found no direct evidence that the grant dates 

for any of the large Management Grants were selected 

with the benefit of hindsight,’ and that of the 100 

grants, at most, there was a ‘possibility’ that a grant 

date may have been retroactively selected for three 

grants (one, by a day), but there ‘was insufficient 

evidence to reach such a conclusion.’” 

Defs’. Mot. (Doc. 122) at 3:22-24 (quoting SAC at ¶ 96 and citing

Farrell Decl’n (Doc. 126), exh. 19 thereto at 50) (emphases added). 

By omitting the phrases in italics and bold font, and disregarding

the equivocal nature of that statement as a whole, plaintiff

mischaracterizes Apollo’s motion as containing an “admission” of

backdating when it does not. 

Additionally, the same SEC filing which forms the basis for the

SAC’s allegation that “another grant . . . may have been

retroactively selected by a day,” also alleges that for grants such

as the October 20, 2003 grant, where Form 4s were timely filed, “the

original stated grant date is the most likely measurement date[.]” 

SAC (Doc. 112) at ¶ 96, 47:12-13; and 47:26-27 (emphasis added). 

Therefore, the SEC filing “that raises questions whether another

grant (in addition to the two grants referenced in a previous Form

8-K dated November 6, 2006), may have been retroactively selected by

a day,” cannot be referring to the October 20, 2003 grants. See id.

at ¶ 96, 44:18-20. For these reasons, the court finds no merit to

plaintiff’s argument that in its motion Apollo admitted backdating. 

That contrived admission therefore does not cure the SAC’s pleading

deficiencies as to the October 20, 2003 grants. 

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It is clear to this court, as it has been to others, that it is

“theoretically possible” to backdate even within the narrow two day

window between the grant date and the filing of the Form 4 with the

SEC. See Finisar I, 542 F.Supp.2d at 994 (citing cases). 

Undoubtedly, it takes more than the “theoretical possibility” of

backdating to survive a motion to dismiss. The allegations in the

SAC pertaining to the October 20, 2003 grants do not support a

strong inference of scienter to backdate those grants, especially as

discussed, taking into account the timely filing of the Form 4s as

to those grants. The timely filing of those Forms is not the only

factor undermining plaintiff’s reliance upon that grant date, as

discussed next. 

2. Time Frame

The SAC alleges in relevant part that:

 Defendants dated certain of Apollo’s 2003 option 

grants on October 20, 2003 at $60.90 per share – 

not only the low of the month but also the low for the 

entire year. The stock traded as high as $68.51 per 

share in October and as high as $97.93 per share in the 

[sic] 2003. 

SAC (Doc. 112) at 19:2-5, ¶ 44 (underline emphasis added). 

Defendants assert that the allegation that the October 20th

“grant[s] w[ere] made at ‘the low of the entire year’ is

contrived[,]” further undermining any inference of backdating as to

those grants. See Defs’. Mot. (Doc. 120) at 5:12-13. Reconciling

paragraph 44 with Apollo’s stock chart, defendants explain that the

alleged $60.90 price per share “purportedly” would be “the low for

fiscal year 2004, which ran from September 1, 2003 until August 31,

2004.” Mot. (Doc. 120) at 5: 16-17 (citations omitted) (emphasis in

original). Defendants stress that they “could not have used

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8 On its face, the SAC does not indicate whether the allegations as to

the other five grant dates are referring to calendar or fiscal years. Apollo’s

assumption that the SAC is referring to calendar years is reasonable though because

those other five grant date allegations comport with Apollo’s stock chart only if

they are read as referring to calendar years - not fiscal years. 

For example, the SAC alleges that the grants dated December 15, 2000, “at

$14.84 per share (split adjusted)” were, inter alia, “the low for the fourth

quarter of 2000.” SAC (Doc. 112) at 16:23-24, ¶ 42. The SAC further alleges that

Apollo’s stock “hit its high for the year at $22.14 per share . . . on December 28,

2000[.]” Id. at 16:28-17:1, ¶ 42 (emphasis added). Only if those allegations are

read as referring to calendar year 2000 do they correspond to Apollo’s stock chart.

The same is true of the January 12, 2000 grant allegations. The allegations

of $8.39 per share as the “low of the year[,]” and $22.14 per share as the “high

. . . during the year[,]” only correlate to Apollo’s stock chart if “year” refers

to calendar year 2000. See id. at 15:20-22, ¶ 41. 

With respect to the September 21, 2001 grants, the SAC alleges that “at

$23.33 per share” those grants were “the low for the second half of 2001.” Id. at

17:26-27 - 18:1, ¶ 43. Again, that allegation correlates to Apollo’s stock chart

only if it is referring to the 2001 calendar year. However, if the SAC is

referring to fiscal year 2001, the alleged “low for the second half of 2001" would

be inaccurate because Apollo’s stock traded at less than $23.33 per share numerous

times during that time frame. See Farrell Decl’n (Doc. 125), exh. 20 thereto at

15-20. Regardless, $23.33 could not be the low for fiscal year 2001 because

September 21, 2001 does not fall within that fiscal year. Thus, the SAC’s

allegations as to the September 21, 2001 grants also comport with Apollo’s stock

chart only if “the second half of 2001[]” means calendar year 2001. Neither the

court nor the defendants should have to go through this exacting exercise to

ascertain whether the SAC’s grant allegations are based upon a calendar or a fiscal

year, however. 

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hindsight for most of th[at] time period[]” though “because most of

[it] (e.g., from October 22, 2003 until August 31, 2004), took place

after the grant was reported to the SEC.” Id. at 5:18-20 (emphasis

in original). Defendants thus claim that plaintiff is

“manipulat[ing] the time period to make the [October 20, 2003]

grant[s] appear more improbable.” Id. at 5:20-21. 

Assuming that paragraph 44 is referring to calendar year 2003,8

Apollo similarly argues that that paragraph contains two “false”

allegations. Apollo’s Mot. (Doc. 122) at 7:24. First, Apollo

points out that because its “stock closed lower on 116 of the 252

trading days in 2003 (46% of the time)[,]” id. at 7:24-25 (citation

omitted), and because its “average closing price in 2003 was

$58.26[,]” id. at 8:1, the allegation that the October 20, 2003

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grant was the “‘low for the entire year’” is “false.” Id. at 7:24. 

Next, Apollo argues that because “[t]he highest closing price [in

the 2003 calendar] year was $72.72 on December 2, 2003, $25 lower

than what Plaintiff alleges[,]” id. at 8:2-3 (citation omitted), the

SAC falsely alleges that its “‘stock traded . . . as high as $97.93

per share in the [sic] 2003.’” Id. at 7:22-23 (quoting SAC (Doc.

112) at ¶ 44) (sic added by Apollo). 

Based upon the foregoing, Apollo contends that the SAC’s

“description of the October 20, 2003 grant is replete with

errors[.]” Id. at 7:17 (emphasis omitted). The court agrees, and

finds that those errors, taken together with the timely filing of

the Form 4s, “undermin[e] any claim of intentional ‘backdating’” as

to the October 20, 2003 grants. See id. at 7:17-18 (emphasis

omitted).

Attempting to clarify matters, plaintiff acknowledges an

unspecified “inadvertent omission of the word ‘fiscal’ in the

[SAC][.]” Resp. (Doc. 129) at 21, n. 6. Significantly, inserting

“fiscal” into paragraph 44 does not rectify the ambiguity

surrounding the phrases “entire year” or “the [sic] 2003.” See SAC

(Doc. 112) at 19:3 and 5, ¶ 44. Based upon Apollo’s stock chart,

the allegation of “$60.90 per share" as “the low [price] for the

entire year[]” is only accurate if paragraph 44 is referring to

fiscal year 2004, as earlier noted. See Farrell Decl’n (Doc. 125),

exh. 20 thereto at 29-34. Further, paragraph 44 pertains strictly

to “2003 Stock Options[;]” it does not mention 2004 - either as a

calendar or a fiscal year. SAC (Doc. 112) at 19:1. So, despite

plaintiff’s urging, paragraph 44 cannot be made consistent with

Apollo’s stock chart by merely inserting the word “fiscal.”

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Plaintiff compounds the confusion as to the exact meaning of

the time frames paragraph 44 alleges by stating that “the

individual[s] . . . correctly recognized [] the strike price on

October 20, 2003, $60.90, was the lowest price that Apollo’s stock

traded during the entire 2003 fiscal year.” Resp. (Doc. 129) at

21:25, n. 6 (underlined emphasis added). That misstates the

individual defendants’ position; they did not recognize that $60.90

was the lowest trading price of fiscal year 2003. Indeed, Apollo’s

stock chart shows that during fiscal year 2003 the trading price for

its stock fell well below $60.90 to a low of $40.10 on December 13,

2002. See Farrell Decl’n (Doc. 125), exh. 20 thereto at 26. 

Instead, as defendants already clarified, and as Apollo’s stock

chart reflects, that $60.90 was “purportedly . . . the low for

fiscal year 2004[.]” Defs’. Mot. (Doc. 120) at 5:16 (bold emphasis

added). 

Paragraph 44's allegation that Apollo stock traded “as high as

$97.93 per share in the [sic] 2003[]” adds yet another layer of

confusion. See SAC (Doc. 112) at 19:4-5, ¶ 44 (emphasis added). 

Regardless of whether that allegation is referring to the 2003

fiscal or calendar year, still, it does not comport with Apollo’s

stock chart. Scrutinizing that chart reveals that $97.93 per share

was the high for fiscal year 2004. See Farrell Decl’n (Doc. 125),

exh. 20 thereto at 33. As already mentioned though, paragraph 44

does not refer to the year 2004 in any form. Indeed, the SAC limits

its specific allegations of backdating stock options to the years

from 1998 - 2001, inclusive, and the October 20, 2003 grants. The

foregoing makes the SAC’s references to $97.93 per share all the

more perplexing. Defendants strongly insinuate that plaintiff had

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9 It is possible to construe the SAC as alleging an independent claim of

backdating based upon the October 20, 2003 grants. Plaintiff disavows that

construction though, as indicated above. Presumably this allays Apollo’s concern

that “Plaintiff is attempting to resuscitate a claim of fraud based on alleged

backdating of the five time-barred grants[.]” See Apollo Mot. (Doc. 122) at 7:27

n. 12. 

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some nefarious motive in making the allegations in paragraph 44; but

it strikes the court that those allegations are nothing more than

the product of inexact pleading.

In sum, the Apollo stock chart confirms that contrary to the

SAC’s allegations: (1) $60.90 per share was not the “low for the

entire year[]” of 2003 - whether read as a fiscal or calendar year;

and (2) Apollo’s stock price did not trade “as high as $97.93 per

share in . . . 2003[]” – again, whether for that calendar or fiscal

year. See SAC (Doc. 112) at 19:3-4 (emphasis omitted). Thus, due

to the timely filing of Form 4s for each of the alleged October 20,

2003 grants, and the factual inaccuracies in paragraph 24 detailed

above, the court disagrees with plaintiff; the 2003 grant

allegations do not “further support an inference of scienter with

respect to defendants’ backdating[]” - either from a legal or a

factual standpoint. See Resp. (Doc. 129) at 23:8-9. Accordingly,

plaintiff cannot, as it is seeking to do, rely upon the October 20,

2003 grants “as a circumstance contributing to a strong inference of

scienter[.]”9 See id. at 20:13.

B. Backdating Allegations

Reasoning that because “‘backdated’ stock option grants[]” are

“a necessary predicate to all of Plaintiff’s claims,” and because

the SAC does not allege “particular facts to support its conclusion

that Apollo ‘backdated’ stock option grants[,]” defendants argue

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that dismissal is mandated. Apollo Mot. (Doc. 122) at 13:18-20

(emphasis added); see also Defs’. Mot. (Doc. 120) at 7:26-27

(dismissal is proper because the SAC does not “plead necessary facts

. . . to establish that the six grants were suspicious[]”). In

making this argument, defendants claim that the SAC’s backdating

allegations are “rife with errors[.]” Apollo Reply (Doc. 132) at

3:6. 

Plaintiff’s first response to these defense arguments is to

distance itself from the backdating aspect of this action. 

Plaintiff stresses that “[a]s [it] [has] made clear[,] this case is

based on defendants’ knowingly false and misleading statements about

Apollo’s financial results and stock option granting practices.” 

Resp. (Doc. 129) at 2010-12 (citations omitted). Plaintiff thus

maintains that in Apollo I, this court “correctly analyzed

backdating as contributing to a strong inference of scienter, not an

independent claim[,]” and that [n]othing in the [SAC] changes th[at]

analysis.” Id. at 20:12-14(citation omitted); and at 20:26. In

light of the foregoing, by challenging the sufficiency of the SAC’s

backdating allegations, plaintiff asserts that defendants “appear

intent on repeatedly advancing rejected theories.” Id. at 19:22

(emphasis added). Plaintiff thus objects to what it views as

“renewed attacks on issues this Court has already decided, and . . .

issues that were previously raised[.]” Id. at 19:15-16; and 19:18

(emphasis added). 

As plaintiff strongly implies, with a few exceptions not

applicable here, the law of the case doctrine precludes

consideration of previously resolved issues. That doctrine “posits

that ‘when a court decides upon a rule of law, that decision should

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continue to govern the same issues in subsequent stages in the same

case[.]’” United States v. Park Place Assoc., Ltd., 563 F.3d 907,

918 (9th Cir. 2009) (quoting Arizona v. California, 460 U.S. 605,

618, 103 S.Ct. 1382, 75 L.Ed.2d 318 (1983)); see also United States

v. Phillips, 367 F.3d 846, 856 (9th Cir. 2004) (footnotes omitted)

(emphasis added) (“The law of the case doctrine precludes a court

from reconsidering an issue that it has already resolved. Issues

that a district court determines during pretrial motions become law

of the case.”) 

The law of the case doctrine is not as all encompassing as

plaintiff urges, however. It does not preclude a court from

subsequently addressing issues that were merely raised before, but

not resolved. “For a prior ruling to become law of the case as to a

particular issue, that issue must have been decided explicitly or by

necessary implication in the previous disposition.” Park Place, 563

F.3d at 925 (citations and quotation marks and alteration omitted). 

Likewise, the “‘law of the case’ does not apply to issues or claims

that were not actually decided.” Mortimer v. Baca, 594 F.3d 714,

720 (9th Cir. 2010) (citations and internal quotation marks omitted)

(emphasis added).

 This court held in Apollo I that the five specifically pled

grants in the FAC were time-barred. Apollo I, 633 F.Supp.2d at 782

n. 4. Therefore, the court did not address various defense

arguments such as the lack of specificity as to the FAC’s “roughly

100 unidentified grants[,]” or issues as to the measurement

standards for the five grants identified therein. See Apollo I, 633

F.Supp.2d at 782 n.4. Thus, the law of the case doctrine does not

preclude the court from now resolving those previously raised but

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10 The “crux of the fraudulent scheme” in the FAC “was a practice whereby

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

directors and employees in order to provide the recipients with a more profitable

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

[Apollo’s] earnings.” FAC (Doc. 71) at 1:10-13, ¶ 2. Slightly shifting the

emphasis, the SAC now alleges that “the crux of the fraudulent scheme was a

practice whereby defendants overstated Apollo’s earnings and income by failing to

report compensation expenses associated with granting in-the-money stock options,

which had been intentionally manipulated in order to provide the recipient with a

more profitable exercise price.” SAC (Doc. 112) at 1:9-12, ¶ 2 (emphasis added).

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unresolved defense arguments. 

Bolstering that conclusion is the fact that the operative

complaint now is the SAC, the filing of which this court expressly

permitted in Apollo I. See Apollo I, 633 F.Supp.2d at 834. 

Although they are similar, there are important differences between

the Apollo I complaint and the SAC. One, as already discussed, is

the addition of the October 20, 2003 grant date. In Apollo I, the

court accepted at face value the accuracy of the FAC’s allegations

pertaining to the five grant dates therein. The ambiguous,

inconsistent and sometimes erroneous allegations of the October 20,

2003 grants, however, has magnified the court’s concern, inter alia,

regarding the factual accuracy of allegations as to those same five

grant dates. 

Moreover, despite the slight shift in focus from the FAC, the

allegations in the SAC show that a critical part of the alleged

fraudulent scheme is backdating.10 The SAC explicitly alleges three

“circumstances” where “stock option manipulation,” i.e., backdating,

is “fraudulent[,]” and that “[a]ll three . . . circumstances existed

here.” SAC (Doc. 121) at 2:18-19; and 2:22-23. Indeed, the SAC

goes so far as to specifically allege that “defendants’ manipulation

of Apollo’s stock option grants was the linchpin of a broader

fraudulent scheme[.]” Id. at 2:26-27, ¶ 6 (emphasis added). As the

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SAC makes abundantly clear, there are several aspects to the alleged

fraudulent scheme and backdating is an integral part of that scheme. 

Thus, “[b]ecause a § 10(b) claim alleges fraud, Plaintiff[] must

plead with particularity the circumstances constituting the

fraud[,]’” including, in this case, backdating which is a critical

part of the alleged fraudulent scheme. See In re Washington Mutual

Securities Litig., 649 F.Supp.2d 1192, 1207 (W.D.Wash. 2009)

(quoting FED.R.CIV.P. 9(b)). Accordingly, the court will examine

the sufficiency of the SAC’s backdating allegations because: (1) the

operative complaint here differs from that in Apollo I; (2) the

issues which these motions now raise were not actually decided in

Apollo I; (3) backdating is a critical component of the SAC’s 

alleged fraudulent scheme; (4) and the factual inaccuracies in the

October 20, 2003 grant allegations mandate closer examination of the

other five grant date allegations.

Defendants offer several reasons as to why the specific grant

allegations are insufficient. Some of those reasons pertain to a

lack of facts and others pertain to purported errors in the facts as

alleged. Significantly, plaintiff offers very little substantively

to refute any of defendants’ arguments, as will quickly become

evident.

1. Measuring Standards

Defendants contend that the SAC uses inconsistent measuring

standards “because use of consistent [ones] would undercut

Plaintiff’s case by showing that not all of the [alleged] grants had

positive returns[.]” Apollo Reply (Doc. 132) at 3:10-11 (citation

omitted).

 The SAC, in calculating the return for the six identified

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11 Use of a two day return date for those 2003 grants is fully consistent

with the fact, as explained herein, that by that time SOX had been enacted, almost,

but not completely eliminating the possibility of backdating. 

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grants, does employ three different return dates. For the 1998

grants, it uses a ten day return; for the 2003 grants, it uses a two

day return;11 and for the other four grants, it uses a five day

return. SAC (Doc. 112) at ¶¶ 39-44. This lack of internal

consistency is troubling. If the SAC had used the same five day

return for the December 18, 1998 grants as it did for the other preSOX grants, the result would have been a “5 day return” of nothing 

- $0.00. That is because, as Apollo’s stock price reflects, its

stock price closed at the exact same price – $11.39 - on December

18, 1998 and five trading days later, on December 28, 1998. See

Farrell Decl’n (Doc. 125), exh. 20 thereto at 6. Similarly, given

that the October 20, 2003 grants were post-SOX, plaintiff’s choice

of a two day return does not seem coincidental; but use of a ten or

two day return would also undercut plaintiff’s backdating theory

because it would provide returns after the filing of the Form 4s. 

The court thus finds that plaintiff’s “choice of comparison dates

and prices is inconsistent and therefore arbitrary.” See Nach v.

Baldwin, 2008 WL 410261, at *6 (N.D.Cal. Feb. 12, 2008) (variously

comparing grants with stock prices ten days later; six and five

months later and one month later). 

Even if the SAC had used the same five day return for all six

grants, without any explanatory allegations, it would be

problematic. Cf. Hansen, 527 F.Supp.2d at 1156 (citation omitted)

(“Plaintiff does not explain why a higher stock price on the tenth

day after a stock option grant date is significant, or how it gives

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12 The FAC had alleged that “some” of those grants had not been “publicly

reported[.]” FAC (Doc. 71) at 17:25, ¶ 48.

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rise to a strong inference of scienter.”) The use of two, five or

10 day returns is all the more questionable given the SAC’s

allegation that “Apollo’s stock options typically vested over a four

year period.” SAC (Doc. 112) at 20:9, ¶ 46; see In re Finisar

Deriv. Litig., 2009 WL 3072882, at *12 (N.D.Cal. Sept. 22, 2009)

(“Finisar II”) (use of a 20 day return was “uninformative” in part

because it was “untethered to any realistic scenario of exercising

the options[]”). The seeming arbitrariness or selective nature of

those dates is heightened because the SAC’s representative sampling

of grants is so small. 

Plaintiff’s silence on the issue of inconsistent measurements

is deafening. “By failing to at least meaningfully summarize and

combat” this sound defense argument, plaintiff has “essentially

abdicated [its] responsibility to rebut defendants’ dismissal

arguments, and conceded th[is] point.” See In re Bare Escentuals,

Inc. Sec. Litig., 2010 WL 3893622 (N.D.Cal. Sept. 30, 2010).

2. Lack of Other Grant Date Allegations

Quoting from the Restatement, the SAC alleges that “‘57 of the

100 total grants made [between FY94 and September 2006] used

incorrect measurement dates for accounting purposes.’” SAC (Doc.

112) at 13:8-9, ¶ 37. The SAC further alleges that “[w]hile many of

these grants were not publicly reported, several12 grants reported

in Apollo’s Forms 10-K had purported grants dates so improbable that

backdating is the only plausible explanation.” Id. at 13:10-12, 

¶ 38. Defendants challenge the fact that, aside from the six grants

discussed herein, the SAC does not include any allegations as to the

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94 other grants which are the subject of the Restatement. Instead

the SAC relies upon only six grants (one of which the court has now

found was not backdated). Defendants thus claim that plaintiff

engaged in “cherry-pick[ing],” relying upon only a few selected

grants to allege backdating. See Apollo Mot. (Doc. 122) at 9:6. 

 Plaintiff dismissively replies:

Far from cherry-picking grants, the [SAC] alleges 

that, between 1998 and 2003, all but one (six out 

of seven) of Apollo’s stock options reported in 

Apollo’s Forms 10-K were backdated. . . This is 

systematic and considered fraudulent conduct by and 

for the benefit of Apollo’s most senior executives, 

not ‘cherry-picking.’ 

Resp. (Doc. 129) 25:13-17 (citation and footnote omitted). 

Plaintiff then resorts to claiming that “most” of the 100 grants at

issue for purposes of the Restatement “were never publicly

disclosed[.]” Id. at 24:20. Plaintiff asserts that “even under the

PSLRA, [it] is not required to provide details of improper

transactions known only to the defendants.” See id. at 25:6-7. 

The supposed lack of publicly available grant details would

carry far more weight if plaintiff had not ignored at least two

other publicly reported grants, which undermine rather than support

its backdating theory. To illustrate, as the publicly filed Form 4s

indicate, Apollo made grants to defendants Govenar, Norton, Blair

and DeConcini on September 10, 2005. See Farrell Decl’n (Doc. 125),

exhs. 14-17 thereto. Apollo’s stock chart shows that whether using

a two, five or ten day “return,” as in the SAC, Apollo’s stock

closed lower, not higher, than that September 10th grant date. See

id., exh. 20 thereto at 39. In fact, the “10 day return” there was

a negative 14%. The same is true of the October 22, 2002 grants to

defendants Noone, Bachus, Peter Sperling, John Sperling, Nelson and

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Gonzales. See id., exhs. 1-6 thereto. Under a two, five, or ten

day “return” scenario, those stocks closed lower not higher. “The

‘2 day return’ was -2.34%; the ‘5 day return’ was -.14% and the ‘10

day return’ was -2.62%.” Apollo Mot. (Doc. 122) at 12:5-6. 

Defendants surmise, and it certainly appears, that plaintiff

deliberately chose to ignore these publicly reported grants because

they do not conform to its backdating theory. 

Remarkably, once again plaintiff’s response is silent as to

this argument. Plaintiff concedes in its response that it was aware

of one such grant, however. Plaintiff declares that “the [SAC]

alleges that, between 1998 and 2003, all but one (six out of seven)

of Apollo’s stock options reported in Apollo’s Forms 10-K were

backdated, but the SAC does not include any such allegation. See

Resp. (Doc. 129) at 25:13-15 (citing SAC (Doc. 121) at ¶¶ 37-44). 

Moreover, the SAC is also void of any allegations regarding how many

publicly reported stocks there were between 1994 to September 2006. 

Cf. City of Westland Police and Fire Ret. Sys. v. Sonic Solutions,

2009 WL 942182, at *7 (N.D.Cal. April 6, 2009) (“In the absence of

further information as to why these fourteen grants are

distinguishable from thousands of other grants made by [defendant],

these fourteen grants must be viewed as a small unrepresentative

sample of all stock option grants.”) “Plaintiff thus appears to

focus on a subset of [six] option grants, and . . . fails to explain

why this subset is analytically important, and why he has not

included data on all grants[,]” including the two other known

publicly disclosed grants, “during the relevant time period.” See

Nach, 2008 WL 410261, at *5. In any event, because plaintiff’s

response wholly disregards the two publicly reported grants which,

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defendants have shown, undercut plaintiff’s backdating theory,

plaintiff has “failed to discharge [its] burden to successfully

rebut” defendants’ arguments and thus “conceded the point.” See

Bare Escentuals, 2010 WL 3893622, at *21 and *22. 

Returning briefly to the claimed lack of publicly disclosed

grant data, plaintiff’s cited cases bear no resemblance to the

present situation. Hence they do not provide a means to circumvent

plaintiff’s pleading obligations under either the PSLRA or Rule

9(b). In Pirraglia v. Novell, Inc., 339 F.3d 1181 (10th Cir. 2003),

the Tenth Circuit merely held that plaintiff did not have “to

describe in detail documents and paperwork that would presumably be

kept, if at all, in [defendant’s] private files.” Id. at 1193 n.

14. That is far different than the present case where the SAC lacks

the necessary specificity to support its backdating allegations, and

in fact, disregards available information which detracts that

theory. The manufacturer’s complaint in United Technologies Corp.

v. Mazer, 556 F.3d 1260 (11th Cir. 2009), contained far more detail

than the SAC, to support its claim that the president of the company

was acting within the scope of his employment regarding the theft

and sale of aircraft blueprints. The Eleventh Circuit also relied

upon the fact that plaintiff was “at a clear informational

disadvantage.” Id. at 1273 (emphasis added). The same cannot be

said of the plaintiff herein. 

Finally, “Rule 9(b) does not permit a party to make conclusory

allegations and then,” as plaintiff herein strongly implies,

“through the discovery process, gain more specific information and

amend its pleadings to satisfy the particularity requirement.” See

Periguerra v. Meridas Capital, Inc., 2010 WL 395932, at *5 (N.D.Cal.

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13 Under the PSLRA, “all discovery and other proceedings shall be stayed

during the pendency of any motion to dismiss, unless the court finds upon the

motion of any party that particularized discovery is necessary to preserve evidence

or to prevent undue prejudice to that party.” 15 U.S.C. § 78u-4(b)(3)(B). 

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Feb. 1, 2010) (citation omitted). “Allowing Plaintiff[] to conduct

discovery in order to comport with heightened pleading

requirement[s] applicable to fraud-based claims is directly contrary

to the purpose of Rule 9(b); namely, that plaintiff[] show[s] that

there is some substance to [its] claim of fraud before subjecting a

defendant to the rigors of the discovery process.” Id. (citation

omitted). 

Furthermore, allowing discovery under these circumstances also

would contradict the PSLRA’s “Stay of Discovery” provision,13 and

contravene Congressional intent. That stay provision was “intended

to prevent unnecessary imposition of discovery costs on defendants.” 

SG Cowen Sec. Corp. v. U.S. Dist. Court, 189 F.3d 909, 911 (citing

H.R. Conf. Rep. No. 104-369, 104th Cong. 1st Sess. at 32 (1995),

reprinted in 1995 U.S.C.C.A.N. Sess. 731)). The Ninth Circuit has

held that the PSLRA’s stay of discovery provision “clearly

contemplated that ‘discovery should be permitted in securities class

actions only after the court has sustained the legal sufficiency of

the complaint.’” Id. at 913 (quoting S.Rep. No. 104-98, at 14 (1995)

reprinted in U.S.C.C.A.N. 693 (emphasis added by Ninth Circuit)). 

By suggesting that it should have access to Apollo grants which were

not publicly disclosed to enhance the SAC’s allegations, plaintiff

is putting the proverbial cart before the horse, at least when it

comes to the PSLRA’s clear pleading requirements and stay of

discovery provision. 

3. “Lows”

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Accepting at face value the truth of allegations in the FAC as

to the “lows” for the five grants specified therein, this court

found that the alleged 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.” Apollo I, 633 F.Supp.2d at 793

(emphasis added). Especially in light of the factual inaccuracies

pertaining to the October 20, 2003 grants, the court has scrutinized

Apollo’s stock chart in terms of both the backdating and false

statement allegations. Apparently plaintiff took some liberties in

construing Apollo’s historical trading history.

The SAC alleges that the December 18, 1998 grants at “$11.39

per share” were “nearly the low for the month of December[.]” SAC

(Doc. 112) at 13:15-16, ¶ 39. As defendants emphasize, however, the

stock price was lower the day before, December 17, 1998 at $11.17. 

Farrell Decl’n (Doc. 125), exh. 20 thereto at 6. The price was also

lower on the four trading days after: $10.22 on December 21, 1998;

$10.42 on December 22, 1998; $11.28 on December 23, 1998 and $10.89

on December 24, 1998. Id. Apollo’s stock was also at $11.39 per

share on December 28, 1998 - the fifth trading date after the

alleged December 18, 1998 grants. Id. So, as alleged, the December

18, 1998 grant was actually the sixth lowest price of the month. 

That seems inconsistent with plaintiff’s backdating theory. See

Finisar I, 542 F.Supp.2d at 989 (an option “dated at the fifth

lowest price seem[s] at least equally plausible the result of

chance[]”).

The SAC’s allegation that defendants dated the April 19, 1999

grant to defendant Gonzales at $10.22 per share, “the low of the

month,” SAC (Doc. 112) at 14:23-24, ¶ 40 (emphasis added), creates

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the inaccurate impression that April 19th was the only day that

month where Apollo stock traded at that price. It was not. 

Apollo’s stock chart shows that its stock actually traded at that

price two other times that month – on April 13th and April 20th. 

Farrell Decl’n (Doc. 125), exh. 20 thereto at 8. To be sure, a

stock “need not be priced at the lowest price of the month . . . to

support an inference of backdating[.]” Finisar I, 542 F.Supp.2d at

992 (citation omitted) (emphasis added). But the allegation that

the April 19, 1999 grants were made at “the low of the month,” SAC

(Doc. 112) at 14:23-24, ¶ 40, “may be misleading because,” on two

other “instances, the stock traded at the same price” in April,

1999. See City of Westland, 2009 WL 942182, at *7. However,

because the SAC relies upon so few specific grants, and some contain

factual inaccuracies, this allegation further demonstrates the need

for particularity.

4. Stock Price Charts

The stock price charts in the SAC have differing y-axes

representing the “Dollars Per Share” price. Compare SAC (Doc. 112)

at 14:2-13 with SAC (Doc. 112) at 18:6-17. Based upon the court’s

observation in Goodman, 595 F.Supp.2d 1253, supra, defendants argue

that because of those differing axes, plaintiff is “apparent[ly]

‘attempt[ing] to ‘magnify’ the depth of the ‘suspicious’ fall and

subsequent rise in the share price coinciding with option grants to

the defendants.” Defs’. Mot. (Doc. 120) at 7:22-23 (quoting

Goodman, 595 F.Supp.2d at 1274 n. 10). The plaintiff herein

offhandedly remarks “that Apollo’s stock option granting history

speaks for itself, and is ‘suspicious’ enough on its own.” Resp.

(Doc. 129) at 23:12-14. Plaintiff does not even bother to address

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14 For the sake of brevity, hereinafter these claims shall be referred to

as “false statements.” 

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defendants’ substantive challenge to the SAC’s charts. Especially

under these circumstances, this court agrees with the Goodman

court’s astute observation that “[t]his convenient (but obvious)

manipulation of scale - disguising the weakness of the

plaintiff[’s] claims of suspicious timing – taints the plaintiff[’s]

allegations.” See Goodman, 595 F.Supp.2d at 1275 n.10. 

The court continues to adhere to the view that “lack of a sound

financial analysis” is not critical or necessarily dispositive at

the pleading stage when backdating is a part of an alleged section

10(b) fraudulent scheme. See Apollo I, 633 F.Supp.2d at 793-794. 

From closely examining the SAC’s six specifically identified grants,

however, it is not readily apparent that the backdating allegations

therein are not lacking merely due to the “lack of a sound financial

analysis[.]” See id. Rather, it is a culmination of pleading

deficiencies which compels the conclusion that the SAC’s backdating

allegations are not plead with the requisite particularity. This is

evidenced by internal inconsistencies, ambiguities, and erroneous

and misleading factual allegations which do not comport with

Apollo’s own stock chart. Even if the SAC had adequately plead

backdating, nonetheless, as discussed next, it fails to plead

falsity with the requisite particularity. Thus, in any event, the

SAC cannot withstand these motions to dismiss. 

C. “Material Misrepresentations or Omissions”14

1. Pleading Standards

A securities fraud plaintiff, as Apollo I discusses, must

satisfy Rule 9(b)’s particularity requirements, as well as the

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PSLRA’s “exacting requirements for pleading falsity.” Metzler , 

540 F.3d at 1070. The court incorporates by reference that prior

discussion of particularity pleading standards. See Apollo I, 

633 F.Supp.2d at 783-784. Several principles bear repeating and

expansion though. 

Under the PSLRA’s “heightened pleading standard[s][,] . . .

‘the complaint shall 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.” In re Cutera Secs.

Litig., 610 F.3d 1103, 1107 (9th Cir. 2010) (quoting 15 U.S.C. 

§ 78u-4(b)(1)(B)). “Thus, a plaintiff must plead falsity with

particularity[.]” Rubke v. Capitol Bancorp Ltd., 551 F.3d 1156, 1164

(9th Cir. 2009) (citation omitted). Similarly, 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). 

 The PSLRA could not be more clear: “If a plaintiff fails to

plead the alleged misleading statements or omissions or the

defendant’s scienter with particularity, the complaint must be

dismissed.” Nursing Home Pension v. Oracle Corp., 380 F.3d 1226,

1231 (9th Cir. 2004) (citing 15 U.S.C. § 78u-4(b)(3)(A)). The

purpose of those “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.’”

Apollo I, 633 F.Supp.2d at 783 (quoting Neubronner v. Milken, 

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6 F.3d 666, 671 (9th Cir. 1993) (internal quotations and citation

omitted)). 

Agreeing with defendants, in Apollo I this court found that

plaintiff’s false statements were not pled with the requisite

particularity in accordance with the principles just outlined. Not

only was the FAC “a puzzle-like pleading which the court [could] not

countenance[,]” but the FAC’s “cut and paste nature” was also

“troubling.” Apollo I, 633 F.Supp.2d at 786. To this court

though, “[p]erhaps the most troubling aspect of the FAC” was “that

the ‘vague allegations of deception’ [we]re ‘unaccompanied by a

particularized explanation stating why the defendant’s alleged

statements or omissions are deceitful.” Id. (quoting Metzler, 540

F.3d at 1061 (citation omitted) (emphasis added by Metzler Court). 

Despite those glaring deficiencies, the court declined to dismiss

the FAC based upon its form. Following the Ninth Circuit’s

“recommend[ation][,]” this court instead “require[d] . . . plaintiff

to streamline and reorganize the [FAC][.]” Id. (citations and

internal quotation marks omitted). More specifically, the court

directed plaintiff to “be clear and concise in identifying the false

statements and articulating the factual allegations supporting an

inference that the statement is false or misleading.” Id. at 786-

787 (citation and internal quotation marks omitted)). The SAC’s

changes in form only highlight the substantive deficiencies of the

SAC, though, revealing that it does not plead falsity with the

requisite degree of particularity. 

. . .

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15 The SAC itself is 25 pages less than the FAC, but with attached

exhibits, it is approximately 500 pages – almost 100 pages longer than the FAC and

its exhibits.

16 “The primary difference between a form 10-K and a form 10-Q is the time

it is filed; a 10-K is filed yearly and a 10-Q is filed quarterly. However, both

the 10-K and the 10-Q require the company to disclose information about its

financial condition, operations, and the owners of its securities.” U.S. v.

Jenkins, 2011 WL 208357, at *11 (9th Cir. Jan. 25, 2011) (citations omitted).

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2. Overview of SAC

Plaintiff did reorganize and arguably streamline15 the FAC. 

The SAC separately numbers each allegedly false and misleading

statement, whereas the FAC did not; but the SAC more than doubles

the number of such statements, from 26 to 54. Before enumerating

each of those 54 statements, the SAC generally alleges: 

Apollo’s stock options typically vested over a 

four year period. Because Apollo was required to 

take a compensation charge for in-the-money options 

during each quarter in which such stock options vested, 

each of Apollo’s financial statements detailed herein 

were false and misleading because of defendants’ 

failure to recognize compensation associated with 

in-the-money stock options which vested during a given 

quarter, and which were granted in the four years 

preceding the quarter of the financial statement. 

SAC (Doc. 112) at 20:9-14, ¶ 46. The SAC goes on to group the

allegedly false statements into four categories pertaining to: 

(1) Apollo’s “earnings and financial results;” (2) Apollo’s

“compliance with Accounting Principles Board (APB) 25 and IRS Code 

§ 162(m);” (3) Apollo’s “internal controls relating to stock option

grants and related financial reporting;” and (4) “denials of

backdating[.]” Id. at 20:18-23, at ¶ 47. Apart from the denials of

backdating, the other three types of alleged false statements were

in Apollo’s earnings announcements, Form 10-Ks, Form 10-Qs16 and SOX

certifications. 

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17 The Form 10-Qs were signed by two section 10(b) defendants, Gonzales

and Nelson, and defendant Bachus. Those 10-Ks were signed by nine of the 11

individuals, four of whom are section 10(b) defendants.

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With the exception of the fiscal year 2001 Form 10-K, for the

35 false statements pertaining to Apollo’s “earnings and financial

results,” the SAC follows a distinct pleading pattern. Each such

allegedly false statement consists of three subparagraphs. 

In the first, the SAC alleges that approximately one month

before Apollo filed its Form 10-Qs and Form 10-Ks, it would make

“Earnings Announcement[s]” in the form of press releases. See,

e.g., SAC (Doc. 112) at ¶¶ 50(a); 61(a); exh. 2 at 686; and exh. 24

at 3-4. Thereafter, the SAC alleges that either a Form 10-Q or a

Form 10-K, or both, were filed with the SEC. Those forms

“reaffirmed the previously announced financial results[.]” See,

e.g., id. at 22:21, ¶ 51(b). The SAC identifies by name the

individuals who signed the Form 10-Qs and Form 10-Ks,17 but only

generically alleges that Apollo issued the earnings announcements. 

The third part of each “earnings and financial results” allegation

is a separate paragraph entitled “Reasons Why the Statement Was

False and Misleading[.]” See, e.g., id. at ¶¶ 49(b) (emphasis in

original). For 17 of these 35 statements, the SAC relies

exclusively upon the Restatement to support its allegations as to

why those statements are false. For the other 18 statements, the

SAC does not refer to any source in alleging why a given statement

was false. 

Apollo’s 10-Ks are the source of the second group of alleged

false statements – those pertaining to compliance with IRS Code 

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18 Very basically, that section of the Internal Revenue Code “prohibits

a federal income tax deduction to publicly held companies for compensation paid to

certain executive officers, to the extent that compensation exceeds $1.0 million

per covered officer in any fiscal year.” Middlesex, 527 F.Supp.2d at 1174; see

also SAC (Doc. 112) at 49:11-13, ¶ 96

19 “Accounting for employee stock options is governed by prescribed

methodology and measurement standards.” S.E.C. v. Pattison, 2011 WL 723588, at

*5 (N.D.Cal. Feb. 22, 2011). The SAC alleges:

Pursuant to [APB] Opinion No. 25, Accounting for Stock Issued to

Employees (“APB 25"), which was in effect through June 2005,

[Apollo] was obligated to recognize this gain [from “options 

. . . priced below a stock’s fair market value when they are

awarded[]”] as compensation expense over the vesting period of

the option. 

SAC (Doc. 112) at 3:6-10, ¶ 6(a).

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§ 162(m)18 and APB 25.19 Insofar as compliance with section 162(m)

is concerned, the SAC alleges that in Apollo’s Form 10-Ks for fiscal

years 2002 - 2005:

Apollo stated that ‘The company’s policy is to 

comply with the requirements of Section 162(m) 

and maintain deductibility for all executive 

compensation, except in circumstances where we

conclude on an informed basis that it is in the 

best interest of the Company and the shareholders 

to take actions with regard to the payment of 

executive compensation which do not qualify for 

tax deductibility.’

Id. at 32:17-21, ¶ 67(a) (quoting exh. 9 thereto at 27). Likewise,

in Apollo’s Form 10-Ks for fiscal years 2002-2005, as to compliance

with APB 25, the SAC alleges:

‘The Company applies the recognition and 

measurement principles of [APB] Opinion No. 

25, Accounting for Stock Issued to Employees, 

and related interpretations in accounting 

for those plans. Stock-based employee 

compensation expense is not reflected in the 

Consolidated Statement of Operation as all options 

granted under those plans had an exercise price 

equal to the market value of the underlying common 

stock on the date of grant.’

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20 The statement regarding compliance with APB 25 differed slightly in the

fiscal year 2001 Form 10-K:

‘The Company applies APB No. 25 and related 

interpretations in accounting for its stock-based 

compensation, and has adopted the disclosure-only 

provisions of SFAS No. 12. Accordingly, no compensation

cost has been recognized for these plans.’

SAC (Doc. 112) at 34:7-10, ¶ 68(a) (quoting exh. 1 thereto at 107).

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Id. at 34:14-19, ¶ 68(b) (quoting exh. 9 thereto at 18).20 The

Restatement is the SAC’s primary basis for alleging why the

statements as to compliance with section 162(m) and APB 25 were

false. 

The third category of false statements pertaining to “internal

controls relating to stock option grants and related financial

reporting” are in the SOX certifications for fiscal years 2002-2005,

signed by section 10(b) defendants Nelson and Gonzales. Again, the

SAC relies upon the Restatement in alleging why those certifications

were false. The fourth category of allegedly false statements

comprises a relatively small part of the SAC. The SAC alleges six

statements wherein certain defendants denied any wrongdoing as to

Apollo’s stock option practices. The Restatement is not a basis for

alleging why these six statements are false, but the SAC continues

the pattern of separately pleading “why” such statements were false. 

For analytical purposes, Apollo divides the 54 allegedly false

statements into two groups – “accounting statements” (Nos. 1-48) and

backdating denials (Nos. 49-54); so, too, will this court. 

3. “Accounting Statements”

Together, Apollo and the individual defendants offer a host of

reasons as to why the accounting statements are not plead with the

necessary degree of particularity. The Restatement is an integral

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part of most of these defense arguments. Likewise, the Restatement

is at the heart of plaintiff’s response. This is so even though, as

mentioned at the outset of this section, not all of the accounting

statements rely upon the Restatement as the source for alleging

falsity. Overlooking that fact, viewing the Restatement as “an

admission that [Apollo’s] reported financial results . . . were

false and misleading when made[,]” plaintiff maintains that the SAC

“alleges falsity with particularity.” Resp. (Doc. 129) at 11:3-5

(citation omitted); and at 10:10 (emphasis omitted). The defendants

did not directly address the issue of whether the Restatement is an

admission of falsity. Instead, essentially they argue, among other

things, that the SAC does not allege falsity with the requisite

particularity due to a lack of allegations showing a sufficient

nexus between the Restatement and the purportedly false accounting

statements. 

The court will address these Restatement arguments momentarily,

but first it will examine the SAC’s allegedly false statements which

undermine rather than advance plaintiff’s fraud theory herein. 

a. Fiscal Year 2004 Understatement

The “crux of the fraudulent scheme[,]” according to the SAC, is

that “defendants overstated Apollo’s earnings and income by failing

to report compensation expenses associated with granting in-themoney stock options,” which in turn led to “an artificial inflation

of [Apollo’s] stock[.]” SAC (Doc. 112) at 1:9-11; and 16, ¶ 2

(emphasis added). Nonetheless, as to Apollo’s fiscal year 2004 Form

10-K and its related “Earnings Announcement,” the SAC alleges that

Apollo “misstated” rather than overstated its net income and

earnings per share and compensation expenses. Id. at 28:13-28 -

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21 The other 34 accounting statements include this exact same allegation.

See, e.g., SAC (Doc. 112) at ¶¶ 49(b); and 54(c). 

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29:1-3, ¶¶ 61(a)-(c). Allegedly, that misstatement was “as a result

of Apollo’s failure to account for compensation and tax expenses

associated with stock options priced below the fair market value of

Apollo’s common stock on the date of the grant.”21 Id. at 29:16-19,

¶ 61(c). 

To be compatible with the SAC’s theory of fraud quoted above,

however, the “misstatement” would necessarily have to be an

overstatement. The SAC explicitly refers to overstatements,

understatements and misstatements, so presumably plaintiff knew the

difference and intended to distinguish among them. 

Moreover, the SAC also alleges that the Restatement “admits”

that Apollo’s net income was “understated . . . during FY04 due to

Apollo’s failure to properly account for in-the-money stock option

grants.” Id. (emphasis added). This understatement allegation

makes no sense if, as the SAC explicitly alleges, a critical aspect

of the purported “fraudulent scheme” was overstating earnings. See

id. at ¶ 2. Thus the court agrees with Apollo that an

understatement of net income is “incompatible” with the plaintiff’s

fraud theory as the SAC defines it. See Apollo Mot. (Doc. 122) at

16:3. 

Plaintiff ignores the argument that the allegations outlined

above do not comport with plaintiff’s theory of fraud set forth in

the SAC. As to the alleged understatement of net income, plaintiff

weakly counters that such an understatement “could merely have been

caused by the cancellation of previously issued backdated stock

options.” Resp. (Doc. 129) at 16:4-5. This is pure, unpled

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22 Because there is no correlation between the SAC’s paragraphs and the

number of a given alleged false statement, for clarity’s sake this decision will

cite to both. 

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conjecture. The SAC does not allege how understating net income

could have been part of an alleged “fraudulent scheme” to

“overstate[] Apollo’s earnings and income by failing to report

compensation expenses associated with granting in-the-money stock

options[.]” Id. at 1:9-11, ¶ 2; cf. McCasland v. Formfactor Inc.,

2009 WL 2086168, at *8 (N.D.Cal. 2009) (SAC did not plead scienter

where it did not “advance any persuasive theory of how understating

gross margins and earnings could have been part of defendants’

fraudulent scheme[]” to “deliberate[ly] understate[] . . . the costs

of revenue and overstate[] . . . gross margins[]”). It defies logic

that Apollo would intentionally understate its net income as part of

a scheme to artificially inflate its stock price. That, combined

with the fact that the SAC does not allege how a misstatement of net

income supports a fraudulent theory to overstate net income warrants

granting defendants’ motion to dismiss insofar as it is premised

upon false statements No. 24 (¶ 61(a)) and No. 25 (¶ 61(b)).22

False statements 24 and 25 can be dismissed for the additional

reason that although they rely upon the Restatement as the sole

basis for alleging falsity, as discussed herein, the SAC does not

adequately correlate the Restatement to these allegations, among

others. 

b. Overstatement of Compensation Expenses

The false statements discussed in the preceding section are not

the only allegedly false statements directly contradicting

plaintiff’s theory of securities fraud as pled in the SAC. The SAC

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23 More specifically, paragraph 65(c) alleges that the preceding

statements were:

false and misleading because they overstated Apollo’s 

net income and earnings per share and Apollo’s 

compensation expenses as a result of Apollo’s failure 

to account for the compensation and tax expenses associated 

with stock options granted at a price below the fair

market value of Apollo’s common stock on the date of the 

grant.

SAC (Doc. 112) at 31:17-20, ¶ 65(c) (emphasis added); at 22:9-12, ¶ 50(c) (same).

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alleges that Apollo’s Form 10-K for fiscal year 2005, its Form 10-Q

for the first quarter of fiscal year 2002, and their corresponding

earnings announcements, overstated both Apollo’s net income and its

compensation expenses. See id. at ¶ 65(c).23 Supposedly the

Restatement “admits” that “Apollo’s net income was overstated by

$6.4 million, or 1.5%, during FYO5 due to Apollo’s failure to

properly account for in-the-money stock option grants.” Id. The

SAC does not allege, however, the amount of the overstatement in

this particular Form 10-Q.

Much like the alleged 2004 understatement of net income, there

is nothing in the SAC alleging how an overstatement of a

compensation expense could result in an increase in net income, and

the court is at a loss as to how this could be so. “Logically, such

[an] overstatement [of compensation expenses] would mean that the

price of [Apollo] stock purchased by Plaintiff[] was deflated rather 

than inflated.” See Kelly v. Rambus, Inc., 2008 WL 5170598, at *5

(N.D.Cal. Dec. 9, 2008). What is more, plaintiff’s response is

conspicuously silent on this issue as well. The PSLRA’s stringent

standard for pleading falsity is not met absent “specific facts

indicating why those statements were false[.]” See Metzler, 540

F.3d at 1070 (citation omitted) (emphasis added). These bare

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24 Plaintiff’s reliance upon the Restatement, especially the method by

which it calculated the amounts of the alleged overstatement, as explained herein,

provides another reason for dismissing false statements 32 and 33.

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allegations as to misstatements of net income, an understatement of

net income in 2004, and an overstatement of compensation expenses

which are facially inconsistent with the SAC’s fraud theory, 

vividly show the need for “‘articulating the factual allegations

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

See Apollo I, 633 F.Supp.2d at 786- 787 (quoting Patel v. Parnes,

253 F.R.D. 531, 554 (C.D.Cal. 2008) (internal quotation marks and

citation omitted)). 

Statement number three pertaining to the 10-Q for the first

quarter of fiscal year 2002 is lacking in particularity for the

additional reason that it does not allege the amount of the

purported overstatement. See Hansen, 527 F.Supp.2d at 1153

(citations omitted) (plaintiff insufficiently plead financial

statements were false and misleading where, inter alia, the

complaint did not allege “the amount by which th[ose] . . .

statements were misstated[]”). Accordingly, the court grants

defendants’ motion to dismiss to the extent it is premised upon a

failure to plead falsity with particularity as to false statements

Nos. 2-3 (¶¶ 50(a)(b); and Nos. 32-33, (¶¶ 65(a)(b)).24 

c. Misstatements

The SAC also alleges that four 10-Qs, and their corresponding

earnings announcements, were false and misleading because they

“misstated Apollo’s net income and earnings per share and Apollo’s

compensation expenses as a result of Apollo’s failure to account for

compensation and tax expenses associated with stock options granted

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25 The FAC did not include any allegations as to the purported import of

the Restatement, but the SAC does. The SAC generally alleges:

Apollo’s May 22, 2007 restatement is an admission

that the Company’s previously filed and announced 

financial statements alleged herein were materially 

false and misleading. A restatement admits that 

previously filed financial statements were materially 

false when they were issued. The restatement means

that facts existed and were known to [Apollo] at the 

time the financial statements were issued that rendered them false.

SAC (Doc. 112) at 20-21, ¶ 48 (emphasis added). Additionally, as discussed herein,

the Restatement is the sole basis for alleging falsity as to a number of the SAC’s

false statements (i.e., 28). 

Whether the Restatement is an admission is a legal conclusion, as discussed

above. Legal conclusions couched as factual allegations “are not entitled to the

assumption of truth,” Ashcroft v. Iqbal, 556 U.S. ___, 129 S.Ct. 1937, 1950, 173

L.Ed.2d 868 (2009), and therefore are “‘insufficient to defeat a motion to dismiss

for failure to state a claim,’” In re Cutera Sec. Litig., 610 F.3d 1103, 1108 (9th

Cir. 2010) (citation omitted). As such, this court is “‘not bound to accept as

true’” those “‘legal conclusion[s] couched as . . . factual allegation[s][.]’”

Iqbal, 129 S.Ct. at 1950 (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544,

555, 127 S.Ct. 1955, 1965 (2007)); see also Freedman v. Louisiana-Pac. Corp., 922

F.Supp. 377, 392 (D.Or. 1996) (internal quotation marks omitted) (striking

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at a price below the fair market value of Apollo’s common stock on

the date of the grant.” See SAC (Doc. 112), at ¶¶ 58(a)-(c); 

¶¶ 59(a)-(c); ¶¶ 60(a)-(c); and ¶¶ 66(a)-(c) (emphasis added). 

Once again, because plaintiff’s fraud theory is premised upon

Apollo’s overstatement of earnings and income, on the face of it,

these misstatement allegations do not support that theory. See id.

at ¶ 2. What is more, the SAC also does not include the amount of

those purported misstatements. As set forth above, that omission is

legally significant. See Hansen, 527 F.Supp.2d at 1153. 

For both of these reasons, the court grants defendants’ motions to

dismiss to the extent that it is premised upon false and misleading

statements Nos. 18-23 (¶¶ 58(a)(b); ¶¶ 59(a)(b); ¶¶ 60(a)(b); and

Nos. 34-35 (¶¶ 66(a)(b)). 

d. Restatement

Paragraph 48 aside,25 the SAC expressly relies upon the

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paragraph alleging “a legal conclusion regarding the existence and scope of

defendants’ duty to disclose” information “that would materially affect the present

and true financial operating results”). Indeed, “merely alleg[ing] [those] legal

conclusion[s]” only “confuses the issues.” See Freedman, 922 F.Supp. at 396.

Thus, in resolving these motions, the court will disregard paragraph 48 to the

extent it contains legal conclusions as to the import of restatements generally or

Apollo’s Restatement in particular.

The court hastens to add that given the broad nature of paragraph 48, and the

lack of “further factual enhancement[s][,]” Iqbal, 129 S.Ct. at 1949 (citation and

internal quotation marks omitted), even if the court were to consider that

paragraph, the result would not change here. That is because, as explained herein,

the SAC still does not allege falsity with sufficient particularity. 

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Restatement to plead why slightly more than half (or 28 of 48) of

the accounting statements were false. For example, the SAC alleges

that in Apollo’s 10-Ks for fiscal years 2001-2005, and in its 10-Qs

for fiscal year 2005, the “restatement admits” overstating or, in

one instance, understating Apollo’s net income. See, e.g., SAC

(Doc. 112) at ¶ 49(b). Some courts have found, as plaintiff urges,

“that the mere fact that financial results are restated is

sufficient at the pleading stage to establish that the results were

false when originally made.” Beaver County Retirement Bd. v. LCAVision Inc., 2009 WL 806714, at *16 (S.D.Ohio March 25, 2009)

(citations omitted); see also In re Enron Corp. Sec. Litig., 2010 

WL 5100809, at *25, n. 25 (W.D.Tex. Dec. 8, 2010) (citing, inter

alia, In re Atlas Air Worldwide Holdings, Inc. Sec. Litig., 324

F.Supp.2d 474, 486-87 (S.D.N.Y. 2004) (“[a]lthough a restatement is

not an admission of wrongdoing, the mere fact that financial results

were restated is sufficient basis for pleading that those statements

were false when made.”), citing In re Cylink Sec. Litig., 178

F.Supp.2d 1077, 1084 (N.D.Cal. 2001) (“existence of restated

financial results is sufficient to support plaintiff’s belief that

the statements were misstated[]”); but see In re Atlas Mining Co.

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Sec. Litig., 670 F.Supp.2d 1128, 1133-1134 (D.Idaho 2009) (rejecting

plaintiffs’ theory that “a restatement of audited financial

statements constitutes an admission of falsity and materiality[,]”)

(citing In re Metawave Communications Corp. Sec. Litig., 298

F.Supp.2d 1056, 1079 (W.D.Wash. 2003) (“Plaintiff’s contention that

Metawave’s restatement is an admission that Defendants issued false

and misleading financial reports is without merit.”))

 Even assuming arguendo that Apollo’s Restatement is an

admission that certain accounting statements were false when made,

that assumption cannot cure the SAC’s failure to plead falsity with

particularity. The lack of particularity primarily arises from the

manner in which the SAC relies upon the Restatement. It is not

enough to simply allege that a given statement is false and

misleading and then baldly rely upon a restatement. Rule 9(b) and

the PSLRA demand more. That is especially so here where the

Restatement does not always support the SAC’s allegations and, on

its face, the correlation between the Restatement and the false

statements is fairly attenuated.

The SAC includes a nine page, single spaced, block quote from

the Restatement. Only a few aspects of the Restatement factor into

the court’s analysis at this juncture. Quoting directly from the

Restatement, the SAC alleges that Apollo “determined that 57 of

the 100 total grants made during this time period [i.e., “fiscal

year 1994 through September 2006"] used incorrect measurement dates

for accounting purposes.” SAC (Doc. 112) at 44; see also Farrell

Decl’n (Doc. 126), exh. 19 thereto at 3 (same). Continuing to quote

directly from the Restatement, the SAC alleges that “revised

measurement dates were selected for many grants and resulted in

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exercise prices that were less than the fair market value of the

stock on the most likely measurement dates.” Id. Consequently, as

the Restatement indicates and the SAC alleges, Apollo “recorded pretax compensation expense of $52.9 million ($59.9 million after-tax)

in the aggregate over the fiscal years 1994 through 2005.” Id.

In arguing that the SAC does not plead falsity with

particularity, Apollo contends that it “does not allege which

portion of the restatement relates to allegedly backdated grants.” 

Apollo Mot. (Doc. 122) at 14:14-15. Or, as the individual

defendants put it, the SAC does not “draw a nexus between the option

grants [it] [is] challenging in this action’ and the additional

compensation expenses recognized in the Restatement.” Defs’. Mot.

(Doc. 120) at 10:5-8 (citation and internal quotation marks

omitted). Nor, Apollo argues, does the SAC allege “which part [of

the restatement] pertained to accounting errors and conduct during

the class period.” Apollo Mot. (Doc. 122) at 14:20-21 (emphasis

omitted). In sum, “[p]laintiff makes no effort to plead properly

(because it cannot) that the alleged falsehood actually arose from

the wrongdoing alleged in the SAC.” Defs’. Mot. (Doc. 120) at 2:18-

19. Defendants thus argue that they lack “notice of the particular

misconduct which is alleged to constitute the fraud charged.” See

Apollo I, 633 F.Supp.2d at 783 (citation and internal quotation

marks omitted). 

Emphasizing that it “has never claimed that the entirety of

Apollo’s restatement was caused by” the six options which the SAC

identifies, plaintiff retorts that “the fact that the [SAC] only

identifies [those] six specific backdated grants does not make

defendants’ statements any less false.” Resp. (Doc. 129) at 14:14-

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15; and at 14:12-13 (citation omitted). This is not responsive to

defendants’ lack of particularity and lack of notice arguments.

As Apollo points out, and plaintiff disregards, the SAC is void

of any allegations regarding “how much of the $52.9 million

restatement resulted from allegedly backdated grants – much less the

six grants at issue” herein. Apollo Mot. (Doc. 122) at 14:26-28. 

Exacerbating that omission is, as the SAC alleges, the fact that the 

Restatement spanned 12 years, yet plaintiff did not plead how much

of that “12-year adjustment pertained to accounting errors that

occurred during the class period[,]” i.e., between November 28, 2001

and October 18, 2006. Id. at 15:2-3 (emphasis in original). That

is a significant pleading omission because the Restatement indicates

that $31.8 million of the $52.9 million pre-tax adjustment – or

about 60% - pertained to fiscal years 1995 through 2001, which ended

on August 31, 2001 – nearly three months prior to the commencement

of the class period. See Farrell Decl’n (Doc. 126), exh. 19 thereto 

at 56. Necessarily then, by Apollo’s estimation, 60% of the

Restatement “applies to pre-class period financials, and . . .

relates to options granted well before the beginning of the class

period.” See Apollo Mot. (Doc. 122) at 15:6-8. 

Of course, because allegedly “Apollo’s stock options typically

vested over a four year period[,]” SAC (Doc. 112) at 20:9, ¶ 46,

conceivably there could have been accounting and tax consequences

during the class period although the grants were made prior thereto. 

Rather than undermining Apollo’s argument, this only highlights the

SAC’s lack of particularity in failing to correlate any backdated

stock options – much less the grants which the SAC identifies – to

Apollo’s purported failure to properly account for compensation

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expenses. See In re PMC-Sierra, Inc., 2007 WL 2427890, at *5

(N.D.Cal. Aug. 22, 2007) (“the fact that PMC . . . admitted to

erroneously record[ing] some option grant dates d[id] not create an

inference that the challenged options were intentionally and

fraudulently backdated[]” where plaintiffs did not “draw[] [any]

nexus between the option grants they [we]re challenging . . . and

PMC’s ‘admission’”). 

Further, due to the four year vesting period, the largest

adjustment of slightly more than 28 million dollars for fiscal year

2001, apparently resulted from options granted prior to the class

period. See RJN (Doc. 126), exh. 19 thereto at 56. The same is

true, but to a much lesser extent, of the nearly 22.8 million dollar

adjustment for fiscal year 2002. While the bulk of that adjustment

was within the class period (i.e., approximately 10 months), not all

of it was.

Without regard to the foregoing, plaintiff contends that the

SAC “clearly identifies why [Apollo’s] financial statements were

false and misleading[]” in that they “overstated Apollo’s net income

and understated Apollo’s compensation expenses as a result of

Apollo’s failure to account for compensation and tax expenses

associated with stock options priced below the fair market value of

Apollo’s common stock on the date of the grant.” Resp. (Doc. 129)

at 11:9-13 (citations omitted). With a few slight variations, the

SAC alleges that the just quoted statement is the reason “why” every

one of the 35 alleged earnings releases and financial filings is

purportedly false. Rote repetition of that conclusory allegation

does not satisfy the PSLRA’s particularity requirement. See In re

Ferro Corp., 2007 WL 1691358, at *20 (N.D. Ohio June 11, 2007)

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(“because the ‘substance of why’ amount[ed] to little more than a

repetitive series of vague, redundant, and conclusory

allegations[,]” plaintiff “did not me[e]t its burden under the PSLRA

of establishing that the challenged statements were false or

misleading because the SAC lacks the requisite particularity as a

matter of law[]”). Although the form has changed, plaintiff did not

cure what this court previously found to be “[p]erhaps the most

troubling aspect of the fact” – “the ‘vague allegations of

deception’ [were] “unaccompanied by a particularized explanation

stating why the defendant's alleged statements or omissions [we]re

deceitful.” Apollo I, 633 F.Supp.2d at 786 (quoting Metzler, 540

F.3d at 1061 (citation omitted)). 

The fact, as plaintiff mentions, that the SAC “details,

wherever possible, the exact amount of net income overstated[]” does

not rectify the SAC’s lack of particularity. Resp. (Doc. 129) at

11:14. The difficulty arises because close scrutiny of the alleged

“details” and the Restatement, which is the basis for those

“details,” shows several discrepancies and inconsistencies. 

To show that the SAC provides details, plaintiff refers to

paragraph 49(b) wherein it alleges that Apollo’s fiscal year 2001

Form 10-K was false because as the “restatement admits, Apollo’s net

income was overstated by $20.5 million, or 23.6%, during FY01 due to

Apollo’s failure to properly account for in-the-money stock option

grants.” SAC (Doc. 112) at 21:18-19, ¶ 49(b). The SAC includes

three nearly identical allegations pertaining to the 10-Ks for

fiscal years 2002, 2003 and 2005, but with differing amounts. The

SAC claims that “[a]s Apollo’s [R]estatement admits . . . Apollo’s

net income was overstated” by the following amounts: (1) $17.2

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million or 12% in fiscal year 2002; (2) $11.1 million or 4.7% in

fiscal year 2003; and (3) $6.4 million or 1.5% in fiscal year 2005. 

Id. at 24:7-9, ¶ 53(c); at 26:20-22, ¶ 57(c); and at 31:20-22, 

¶ 65(c).

Although the SAC includes numbers, as Apollo convincingly

argues, plaintiff’s method of calculating those dollar amounts and

percentages “demonstrates a failure to plead fraud with

particularity[.]” Apollo Mot. (Doc. 122) at 17:18. This is yet

another defense argument which, for the most part, plaintiff chose

to ignore. 

Alleging that the “[R]estatement admits” that Apollo’s net

income was overstated by the dollar amounts just enumerated, leaves

the impression that those amounts are actually in the Restatement. 

Tellingly, though, the SAC does not cite to any specific part of the

roughly 500 page Restatement as the basis for those amounts. 

“[T]he only possible source” for those amounts, as Apollo points out

and plaintiff does not dispute, is a chart in the Restatement

entitled “Summary of Impact Restatement Adjustments[.]” See Apollo

Mot. (Doc. 122) at 17:27, n. 24. Comparing that chart to the SAC’s

allegations of net income overstatements, as Apollo did,

demonstrates that plaintiff inconsistently calculated those amounts,

resulting in a lack of particularity. 

For fiscal years 2001, 2002 and 2005, plaintiff arrived at the

net income overstatement amounts by adding three line items – “Share

Based Compensation Expense[s,]” “Income Tax Provision (Benefit) -

Related to Share Based Compensation Expense” and “Tax Effect of

162(m) Limitation[.]” See id. at 17:1-3; see also RJN (Doc. 126),

exh. 19 thereto at 56. In calculating the net income overstatement

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for 2003 and the understatement for 2004, however, besides those

three categories, plaintiff included “Bad Debt Expense[s,]” “Other

Adjustments[,]” and “Penalty and Interest on Exercises[.]” Id. 

Plainly, the adjustments for bad debt expenses and the unspecified

“Other Adjustments” are irrelevant here. 

Additionally, if plaintiff had used the same three factors for

its 2003 and 2004 calculations as it used for fiscal years 2001,

2002 and 2005, as Apollo asserts, it would have “yield[ed] a much

smaller overstatement of net income in 2003 (2.1% versus 4.7%

claimed in the SAC) and a much larger understatement of net income

in 2004 (2.8% versus 0.8% claimed in the SAC).” Id. at 17:20-22

(emphasis in original). Thus, Apollo argues, the SAC “uses

inconsistent measuring standards, which exaggerate the impact of the

Restatement[,]” hence “demonstrat[ing] a failure to plead fraud with

particularity[.]” Id. at 16:7-8 (emphasis omitted); and at 17:18. 

Plaintiff does not deny using the method Apollo suggests to

calculate these dollar amounts. Included in a footnote, plaintiff

even “agrees that . . . bad debt expenses do not appear to be the

result of Apollo granting options below fair market value.” Resp.

(Doc. 129) at 16:26, n. 5. Presumably then, plaintiff also agrees

that the SAC improperly relies upon such expenses in alleging the

amount by which the Restatement purportedly “admitted” to

understating net income in fiscal year 2004 and overstating net

income in 2005. Regardless, plaintiff further remarks in passing

that “the inclusion of th[o]se [bad debt expense] numbers does not

provide a basis for dismissal.” Id. at 16:26-27, n. 5 (citing

Maniscalco v. Brother Int’l Corp., 627 F.Supp.2d 494, 497 n. 1

(D.N.J. 2009)). 

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The court cannot overlook the SAC’s inclusion of those bad debt

expenses as a means of finding particularity where none exists. 

First, even if the court were inclined to disregard those bad debt

expenses, the SAC still relies upon “other adjustments” in the

Restatement which on the face of it are unrelated to the alleged

fraudulent accounting scheme. Second, neither the court nor the

defendants should be expected to recalculate (or second-guess) the

amounts which the SAC alleges to bring those amounts into conformity

with the Restatement. That would entirely defeat the “notice

pleading . . . theory of Rule 8(a) and of the federal rules in

general[.]” See Starr v. Baca, 2011 WL 477094, at *10 (9th Cir.

Feb. 11, 2011). 

Third, although plaintiff attempts to liken this case to

Maniscalco, there are fundamental differences between that case and

the present one rendering Maniscalco wholly inapposite. There,

purchasers brought a putative class action against a printer 

manufacturer alleging violations of the New Jersey Consumer Fraud

Act and unjust enrichment. The Maniscalco complaint alleged one

purchase date, which “[p]laintiff’s counsel represent[ed] . . . was

a “typographical error[.]” Maniscalco, 627 F.Supp.2d at 497 n. 1. 

Nonetheless, in moving to dismiss and refusing to consent to correct

the date, the defendant manufacturer insisted that the court use the

purchase date alleged in the complaint. The court refused,

explaining that it would “adjudicate[] the claims on the merits

rather than on . . . mere technicalities[]” where the defendant had

become aware of the correct date during discovery. Id. (citation

omitted). 

Unlike Maniscalco, there has been no suggestion here (and the

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court fails to see how there could be) that the amounts alleged in

the SAC were due to typographical errors. Nor is this a situation

where the numbers in the SAC are a “mere technicality.” Plaintiff’s

allegations as to the amounts by which the Restatement purportedly

overstated (and in 2004 understated) Apollo’s net income go to the

very crux of the SAC’s alleged fraudulent scheme, in sharp contrast

to Maniscalco. Further, the heightened pleading standards of a

federal securities fraud action were not invoked in Maniscalco,

alleging violations of a state consumer fraud statute. Plaintiff,

therefore, cannot rely upon Maniscalco to circumvent the clear

mandate of both the PSLRA and Rule 9(b) that falsity be pled with

particularity. 

The SAC’s broad, conclusory allegations that Apollo overstated

its net income and understated its compensation expenses as a result

of granting stock options below the fair market value of Apollo’s

common stock on the date of the grant do not satisfy the exacting

pleading standards of the PSLRA and Rule 9(b). The SAC’s reliance

on the Restatement does not provide the necessary particularity

because it does not “draw a specific nexus between the allegedly

fraudulent statement and the facts upon which the allegation of

fraud is dependent[,]” i.e. the Restatement, “or, at least, a clear

statement of why and how the plaintiff has reached the conclusion

that a particular statement is fraudulent.” See Ferro, 2007 WL

1691358, at *19 (citation, internal quotation marks and emphasis

omitted). Even if the SAC provided that missing link, it still

could not withstand these dismissal motions because in relying upon

the Restatement as a basis for falsity, the SAC does not always

comport with the Restatement. Consequently, the court grants

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defendants’ motions to dismiss insofar as it is predicated upon

those false and misleading statements where the Restatement is the

sole basis for pleading falsity (No. 1, ¶ 49; Nos. 8-9, ¶¶ 53(a)(b);

Nos. 16-17, ¶¶ 57(a)(b); Nos. 24-33, ¶¶ 61(a)(b); ¶¶ 62(a)(b); 

¶¶ 63(a)(b); ¶¶ 64(a)(b); ¶¶ 65(a)(b); and ¶¶ 66(a)(b)). That

includes the allegations pertaining to compliance with IRS Code 

§ 162(m) and APB No. 25, and the SOX certifications (Nos. 36-48, 

¶¶ 67(a)-(d); ¶¶ 68(a)-(e); and ¶¶ 69(a)-(d)). 

e. Non-Restatement Based Allegations

In addition to the Form 10-Qs relying upon the Restatement

discussed above, the SAC alleges that five others and their related

press releases contained false statements. The SAC alleges the

exact same reason as to why those Forms and press releases were

false and misleading:

because they overstated Apollo’s net income 

and earnings per share and understated Apollo’s 

compensation expenses as a result of Apollo’s 

failure to account for the compensation and tax 

expenses associated with stock options granted

at a price below the fair market value of Apollo’s 

common stock on the date of the grant.

SAC (Doc. 112) at ¶¶ 51(c); 52(c); 54(c); 55(c); and 56(c). The SAC

further alleges that section 10(b) defendants Gonzales and Nelson,

and defendant Bachus signed the Form 10-Qs. The “financial results”

were simply “announced” by Apollo though. See, e.g., id. at 

¶¶ 51(a); and (b). That is the total of the allegations as to these

particular Form 10-Qs and related earnings announcements. 

 Even in the face of those rote and conclusory allegations,

without any analysis, plaintiff baldly declares that “[t]hese

allegations of falsity are as detailed, if not far more detailed,

than allegations that have been upheld in comparable stock option

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backdating cases, and cases involving restatements.” Resp. (Doc.

129) at 11:17-19 (citations omitted). Careful review of plaintiff’s

cited authority belies this assertion, and conveniently disregards

case law supporting the contrary point of view, i.e., the foregoing

falsity allegations do not satisfy the PSLRA.

Indeed, the allegation quoted is strikingly similar to the

complaint in Hansen which alleged: 

[A]ll of the . . . financial statements

and press releases issued by Hansen were 

false and misleading when issued because 

the Company did not reveal that it had 

engaged in the practice of backdating option 

grants, had understated its compensation expenses 

and potential tax liabilities and overstated 

its net income.

Hansen, 527 F.Supp.2d at 1152 (citation omitted). The Hansen court

held that the complaint “violat[ed] . . . the [PSLRA]’s requirement

that a complaint must specify the reasons why each statement is

alleged to have been misleading[]” because, inter alia, “nowhere”

therein did plaintiff “explain in which of th[ose] . . . ways . . .

each of the 17 pages of allegedly false statements [we]re false.” 

Id. 

 To be sure, in contrast to Hansen, here the SAC does number

each false statement and alleges that “misleading statements were

false individually or by category[.]” See id. Those stylistic

differences do not render the reasoning of Hansen any less

applicable here though because the fundamental pleading shortfall is

the same – lack of particularity as to falsity. The allegations as

to these Form 10-Qs and their related press releases lack a

foundation in particular facts. Cf. In re Daou Systems, Inc., 411

F.3d 1006, 1017 (9th Cir. 2005) (citation and internal quotation

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marks omitted) (in pleading irregularities in revenue recognition,

“[a] general allegation that the practices at issue resulted in a

false report of company earnings is not a sufficiently particular

claim of misrepresentation to satisfy Rule 9(b)[]”). The SAC does

not include details such as the amounts of the alleged

overstatements or understatements, or what compensation expenses

were associated with the backdating. 

Plaintiff’s cited authority does nothing to dispel this court

of its view that the SAC does not plead falsity with the necessary

particularity as to the Form 10-Qs and press releases discussed in

this section. For example, in Middlesex Retirement System v. Quest

Software Inc., 527 F.Supp.2d 1164 (C.D.Cal. 2007), the court found,

albeit in the context of scienter, that investors did not state with

sufficient particularity the allegation that the company’s financial

statements failed to report $150 million as a result of backdated

stock option grants where the complaint did not “state what the

unreported expense was for each individual year that improperly

granted options were given.” Id. at 1189. Therefore, rather than

supporting plaintiff’s position herein, Middlesex actually supports

the defense argument as to lack of particularity. 

Plaintiff fares no better with its reliance upon In re Cylink

Sec. Litig., 178 F.Supp.2d 1077 (N.D.Cal. 2001). The Cylink court

was considering the issue of what satisfies the PSLRA’s requirement

that “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.” See 15

U.S.C. § 17u-4(b)(1). In addressing that narrow issue, the court

held that “the existence of restated financial results [wa]s

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sufficient to support plaintiffs’ belief that the statements were

false.” Id. at 1084. Significantly, however, none of the

allegations in the SAC are based upon information and belief. 

 This is yet another instance where the SAC contains merely

“[a] litany of alleged false statements “unaccompanied by the

pleading of specific facts indicating why those statements were

false[.]” See Metzler, 540 F.3d at 1070 (emphasis added) (citing

Falkowski v. Imation Corp., 309 F.3d 1123, 1133 (9th Cir. 2002)

(“Although the allegations here are voluminous, they do not rise to

the level of specificity required under the PSLRA. The allegations

consist of vague claims about what statements were false or

misleading, how they were false, and why we can infer intent to

mislead. We have dismissed much more specific and compelling

allegations.”)). The blanket assertion of falsity as to overstating

Apollo’s net income and earnings per share and understating Apollo’s

compensation and tax expenses associated with backdated stock

options, quite simply, does not meet the PSLRA’s “exacting

requirements for pleading ‘falsity.’” See id. Thus, to the extent

defendants are seeking dismissal of false and misleading statements

Nos. 4-7, ¶¶ 51(a)(b); and ¶¶ 52(a)(b); Nos. 10-15, ¶¶ 54(a)(b); 

¶¶ 55(a)(b); and ¶¶ 56(a)(b), they are entitled to such relief.

f. Earnings Announcements

The individual defendants are entitled to dismissal of the 17

earnings announcement allegations because, critically, they are not

specifically identified therein, much less that they made, prepared

or disseminated those earnings announcements. 

This is a significant omission for two reasons. First,

“[g]enerally, only those defendants who actually make a false or

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misleading statement can be held liable under section 10(b) or Rule

10b-5.” Downey, 2009 WL 736802, at *5 (citation omitted). Second,

as the individual defendants are quick to point out, to satisfy the

particularity requirements for pleading falsity, among other things,

“‘a pleader must identify the individual who made the alleged

representation[.]” Apollo I, 633 F.Supp.2d at 783 (quoting Hansen,

527 F.Supp.2d at 1151). Defendants argue that the SAC’s press

release allegations do not meet that standard because they do not

“identify any particular [individual] Defendant[s] responsible for

the preparation and dissemination of th[os]e statements[.]” Mot.

(Doc. 120) at 8:23-24. Instead, the SAC generally alleges that

“Apollo announced financial results.” Id. at 9:1 (citation and

internal quotation marks omitted) (emphasis added). 

Plaintiff retorts that the SAC alleges “who made . . . false

and misleading earnings release[s][.]” Resp. (Doc. 129) at 11:6-7 

(citing [SAC (Doc. 112) at] ¶¶ 49-66; [SAC], Exh. 1-35) (emphasis

added). Citing to those same 17 paragraphs, earlier in its

response, plaintiff similarly declares that the SAC complies with

Rule 9(b) and the PSLRA in that, inter alia, it “alleges . . . who

made [“false and misleading . . . financial statements][.]” Id. at

1:20-22 (citations omitted) (emphasis added). Plaintiff does not

specify where in any of the SAC’s cited paragraphs, or in the 17

earnings announcement exhibits, totaling 177 pages, the name of a

single individual defendant can be found. After closely reviewing

each of the paragraphs to which plaintiff cites and the

corresponding press releases, it is obvious why plaintiff resorted

to such vague declarations in its response. The SAC is void of any

allegations as to exactly who made, prepared or disseminated the

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26 Apollo I, 633 F.Supp.2d at 809 (citation and internal quotation marks

omitted) (“This court [j]oin[s] the majority of other courts in this Circuit, 

. . . hold[ing] that group pleading is no longer viable under the PSLRA.”)

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purportedly misleading press releases. Merely because plaintiff

claims that the SAC contains such allegations does not make it so. 

Moreover, as this court previously noted, individual defendants

such as corporate officers like Nelson and Gonzales, “cannot . . .

be liable for . . . press releases, except to the extent that there

are specific statements attributed to them, or the press releases

are otherwise connected to them[.]” Apollo I, 633 F.Supp.2d at 808,

n. 13 (citation and internal quotation marks omitted). The SAC

likewise is void of any allegations that the 17 press releases or

earnings announcements at issue contain “specific statements” which

may be “attributed” to any of the individual defendants. Nor does

the SAC contain any other allegations “connecting” the press

releases to those defendants. Finally, the general allegations that

“Apollo announced financial results[,]” see, e.g., SAC (Doc. 112) at

¶ 50(a), “cannot be attributed to the Individual Defendants under

the group pleading doctrine because, as this Court . . . previously

held,”26 that “doctrine did not survive the PSLRA.” See Downey,

2009 WL 736802, at *7 (footnote and citation omitted). For these

reasons, the court grants the individual defendants’ motion to

dismiss insofar as it is directed to allegedly false and misleading

earnings announcements, i.e., the even numbered (two through thirtyfour inclusive) alleged false and misleading statements.

Finally, because the court has found that the SAC does not

sufficiently plead falsity with respect to any statements which were

preceded by an earnings announcement, the SAC’s allegations as to

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Apollo making those announcements is not a form of actionable

conduct under section 10(b). Apollo is thus entitled to dismissal

of these 17 earnings announcement statements referenced above. 

4. Backdating Denials

Lastly, the SAC includes six allegedly false statements wherein

plaintiff claims that certain defendants denied any wrongdoing as to

Apollo’s stock option practices. More specifically, the SAC alleges

that a section 10(b) defendant Norton, then Chairmen of Apollo’s

Compensation Committee, denied backdating stock options. See SAC

(Doc. 112) at ¶ 72 (No. 49). Further, the SAC alleges that after a

June 8, 2006 report of a Lehman Brothers’ analyst, “Apollo continued

to issue false statements and half-truths about the backdating at

the Company[]” on five different occasions. Id. at ¶ 70; and at 

¶¶ 73-91 (Nos. 50-54).

The individual defendants offer several reasons why the court

should dismiss these six statements pertaining to backdating

denials. First, they argue that four of these denial allegations

are inadequately pled because they are not attributable to any of

the individual section 10(b) defendants. Second, there are no

allegations that any particular section 10(b) defendant was

instrumental in preparing or disseminating these statements. Third,

the individual defendants contend that the two statements which the

SAC directly attributes to section 10(b) defendants are,

nonetheless, deficient. One statement, “fails to plead falsity

adequately[,]” while the other “fails to plead the requisite

particulars” in that it “pleads only the date, nothing more.” 

Defs’. Mot. (Doc. 120) at 13:15 (citation omitted); and at 14:4-5. 

Apollo makes a single, temporal argument, noting that two of

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27 Plaintiff cites to Institutional Investors Group v. Avaya, Inc., 564

F.3d 242, 270 (3rd Cir. 2009), which obviously is of limited precedential value

given that it is outside the Ninth Circuit. Moreover, without the benefit of any

legal analysis whatsoever from plaintiff, the relevance of the cited page is not

apparent. 

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the six denial statements, i.e., Nos. 53 (¶ 86) and 54 (¶ 54) were

made after the class period. Apollo thus baldly asserts that

“[p]laintiff cannot predicate claims of fraud on [either of those]

statements[.]” Apollo Mot. (Doc. 122) at 18:23. 

At the risk of repetition, plaintiff did not directly respond

to any of these defense arguments. It merely offers this one

sentence declaration: “[T]he [SAC] alleges that certain of Apollo’s

denials of misconduct throughout the Class Period were materially

false and misleading because defendants knew or were deliberately

reckless in not knowing that Apollo had in fact engaged in the very

conduct that they were denying.” Resp. (Doc. 129) at 13:15-19

(citations omitted) (emphasis added). That sweeping declaration,

void of any legal analysis,27 and failing to identify any particular

defendant, or the six statements at issue, is hardly a meaningful

response to defendants’ arguments. Moreover, this retort does not

in any way elucidate plaintiff’s conclusory assertion that the SAC

“explains why the denials of misconduct were false when made.” Id.

at 13:14-15 (emphasis omitted). Thus, “because plaintiff d[id] not

bother to address any of th[ese] other” allegedly false statements

addressed by defendants, plaintiff has “failed to discharge [its]

burden to successfully rebut defendants’ . . . arguments.” See Bare

Escentuals, 2010 WL 3893622, at *22. While that is a sufficient

reason in and of itself to grant defendants’ motions to dismiss to

the extent they are directed at the six backdating denial false

statements, as outlined below, there are additional substantive

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reasons also warranting dismissal. 

a. Post-Class Period Statements

 Here, as the SAC alleges, the class period is between

November 28, 2001 and October 18, 2006. SAC (Doc. 112) at 1, ¶ 1. 

Among other things, the SAC premises section 10(b) liability

expressly upon “defendants’ false and misleading statements issued

during the class period[.]” Id. at 20:3-4 (bold and capitalized

emphasis omitted) (italicized emphasis added). Despite that, the

SAC includes two allegedly false statements made on November 3, 2006

– roughly two and a half weeks after the class period. See id. at 

¶ 86 (No. 53); and ¶ 90 (No. 54). 

In a securities fraud action, “[t]he class period defines the

time during which defendants’ fraud was allegedly alive in the

market[.]” In re Clearly Canadian Sec. Litig., 875 F.Supp. 1410,

1420 (N.D.Cal. 1995). Thus, “a defendant may be held liable, . . .

only for the statements made during the class period.” In re REMEC

Inc. Sec. Litig., 702 F.Supp. 1201, 1223 (S.D.Cal. 2010) (citations

omitted) (emphasis added); see also Hodges v. Akeena Solar, Inc.,

2010 WL 3705345, at *2 (N.D.Cal. 2010) (striking “allegedly false

and misleading statements . . . made prior to the start of the Class

Period” because they could “not serve as a basis for liability as a

matter of law”; Clearly Canadian, 875 F.Supp. at 1420 (striking as

“irrelevant to plaintiffs’ fraud claims . . . statements made . . .

before or after the purported class period”). Consequently, because

the class period here, November 28, 2001 through October 18, 2006,

dictates the period of liability, defendants cannot be liable for

the two allegedly false statements, i.e., Nos. 53 and 54, made after

the class period. Perhaps plaintiff realizes this because nowhere

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in its response does it even cite to these statements, let alone

argue that they can form the basis for a section 10(b) misleading

statement claim. Accordingly, the court grants defendants’ motion

to dismiss to the extent it is based upon false statements No. 53 

(¶ 86); and No. 54 (¶ 90). 

b. Lack of Attribution

Of the four remaining backdating denial statements, the SAC

attributes two of them strictly to Apollo. See id. at ¶¶ 74 (No.

50); and 76 (No. 51). The SAC alleges that on June 9, 2006, “the

Company issued a news release denying that it had backdated stock

options.” Id. at 38:24-25, ¶ 74. Further, the SAC alleges:

Apollo claimed that it had reviewed its 

stock option practices ‘including reviewing 

documents and interviewing employees,’ and 

that Apollo’s management believed that Apollo 

had ‘complied with all applicable laws . . . 

in granting options to officers and it has not 

backdated options.’ 

Id. at 38:25-28, ¶ 74. Likewise, the SAC alleges:

[Apollo] issued a press release disclosing 

that it had received a subpoena from the U.S. 

Attorney for the Southern District of New 

York requesting documents relating to Apollo’s 

stock option grants. Apollo again denied 

impropriety, stating that ‘Apollo’s board of 

directors had hired an outside firm to review 

and confirm [the company’s] initial conclusions 

that [the Company] acted appropriately regarding 

its stock option practices.’ 

Id. at 39:6-11, ¶ 76. As to these denial allegations, the SAC does

not include even the most basic details the identity, i.e., the

“who” of any of the individual defendants, Blair, Gonzales, Nelson

or Norton. Thus, the SAC does not adequately allege that any of

them made a false statement on the basis of those two press releases

attributable solely to Apollo. 

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Not only does the SAC fail to name any of the section 10(b)

individual defendants in those allegations, it also does not allege

that they “played any role whatsoever in the preparation or

dissemination of” those two press releases. See Hansen, 527

F.Supp.2d at 1153. Finally, to the extent plaintiff is attempting

to rely upon the group pleading doctrine, it cannot. “[T]he general

allegations against [Apollo] cannot be attributed to the Individual

Defendants under th[at] . . . doctrine, because, as this Court . . .

previously held, the group pleading doctrine did not survive the

PSLRA.” See In re Downey Sec. Litig., 2009 WL 736802, at *7

(C.D.Cal. 2009) (citation and footnote omitted); Apollo I, 633

F.Supp.2d at 809; see also Hansen, 527 F.Supp.2d at 1153-54 (“A

defendant must actually make a false or misleading statement in

order to be held liable under Section 10(b).”). In light of the

foregoing, the court grants the individual defendants’ motion to

dismiss insofar as it is based upon false statement No. 50 

(¶ 74) and No. 51 (¶ 76). 

c. Form 8-K

The SAC does specifically identify one of the section 10(b)

defendants, Ms. Gonzales, as having made an allegedly false

statement in a Form 8-K. “[A] Form 8-K filing is required from an

issuer of securities when substantial events occur[.]” S.E.C. v.

Gemstar-TVGuide Intern., Inc., 401 F.3d 1031, 1059 (9th Cir. 2005)

(citation and internal quotation marks omitted). The SAC alleges

that “[o]n June 20, 2006, Apollo filed a Form 8-K signed by

Gonzales[]” and two other non-section 10(b) defendants, Bachus and

Mueller. SAC (Doc. 112) at 39, ¶ 77 (No. 52). That Form repeated

Apollo’s prior statement that its “board of directors has hired an

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outside firm to review and confirm [Apollo’s] initial conclusions

that [Apollo] acted appropriately regarding its stock option

practices.’” Id. at 39, ¶ 76 (No. 51). That statement was allegedly

“false and misleading” because “Apollo had not ‘acted appropriately

regarding its stock option practices[.]’” Id. at 39, 

¶ 78. 

That allegation ignores the broader context of the 

Form 8, however. It is self-evident that the purpose of that Form

was to announce that Apollo had hired an outside firm. Moreover,

the outside firm was tasked with “‘review[ing] and confirm[ing]

[Apollo’s ] initial conclusions that [Apollo] had acted

appropriately regarding its stock option practices.’” Id. at 39, 

¶ 76 (emphasis added). As worded, this Form left open the

possibility that those “initial conclusions” could be changed at a

later date, depending upon the outcome of the outside review. Thus,

on the face of it there is nothing false or misleading about

statement 52, and the SAC does not suggest otherwise. This

allegation also lacks specific facts indicating why that Form 8 was

false at the time it was signed. See In re Vantive Corp. Sec.

Litig., 283 F.3d 1079, 1086 (9th Cir. 2002) (falsity not established

due to lack of particularity where “much of the complaint fail[ed]

to allege any facts indicat[ing] why th[e] statement would have been

misleading at the several points at which it was alleged to have

been made[]”). The foregoing provides an alternative basis for

granting defendants’ motion to dismiss to the extent it is premised

upon false statement No. 52 (¶ 77).

d. Norton’s Denial of Backdating

The SAC alleges that “[o]n June 7, 2006, in response to [the

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Lehman Brothers’] report . . . question[ing] the timing of Apollo’s

stock option grants, Norton, the Chairman of Apollo’s Compensation

Committee[,]’ and a section 10(b) defendant, “stated that ‘Our

option policies are clean and straightforward. We never backdated

options. Never once.’” SAC (Doc. 112) at 38, ¶ 72 (No. 49). 

Defendant Norton argues that these allegations are “insufficient[]”

because they do not include “the requisite particulars[.]” Defs’.

Mot. (Doc. 120) at 14:7 and 14:4. It is impossible to discern from

the SAC whether Mr. Norton’s alleged remark was publicly made and,

if so, under what circumstances. Without factual allegations such

as the “time[], . . . , place[], . . . benefits received, and other

benefits of the alleged fraudulent activity[,]” this allegation does

not comport with either the PSLRA or Rule 9(b). Hence, defendant

Norton does not have notice of the “particular misconduct . . . so

that []he[] can defend against the charge and not just deny that

[]he[] has done anything wrong.” See Apollo I, 633 F.Supp.2d at 783

(citations and internal quotation marks omitted). For these

reasons, coupled with plaintiff’s failure to counter defendant

Norton’s argument, the court grants his motion to the extent it is

based upon false statement No. 49 (¶ 72)). 

As with the SAC’s backdating allegations, it is a culmination

of factors – not the omission of a single factor – which leaves the

court with the firm conviction that the SAC does not plead falsity

in accordance with the requisite degree of particularity. The

hallmark of the SAC continues to be what was “[p]erhaps the most

troubling aspect of the FAC[.]” See Apollo I, 633 F.Supp.2d at 786. 

That is, even with amendment, the SAC’s false and misleading

statements remain nothing more than “‘vague allegations of

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deception’ . . . ‘unaccompanied by a particularized explanation

stating why the defendant’s alleged statements or omissions are

deceitful.” Id. (quoting Metzler, 540 F.3d at 1061 (citation

omitted) (emphasis added by Metzler Court). Additionally, plaintiff 

disregarded Apollo I because the SAC, like the FAC, is not “clear

and concise in identifying the false statements and articulating the

factual allegations supporting an inference that the statement is

false or misleading.” Id. at 786-787 (citation and internal

quotation marks omitted)) (emphasis added). 

Seemingly, plaintiff has mistaken quantity for quality. Here,

quantity did not cure the deficits in the FAC. In fact, especially

with respect to the addition of the October 20, 2003 grants, if

anything, quantity made the weaknesses all the more appreciable. In

short, this prolix and discursive complaint does not satisfy the

PSLRA’s stringent pleading standards. As the Fifth Circuit has

pointedly observed, a “long-winded, even prolix” style of pleading

“is not an uncommon mask for an absence of detail.” Williams v. WMX

Techologies, Inc., 112 F.3d 175, 178 (5th Cir. 1997). Here, as in

Williams, the SAC, “although long, states little with

particularity.” See id. Likewise, the Ninth Circuit’s comment in

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

albeit in the scienter context, is an apt description of the SAC. 

“The plaintiff[] . . . assume[s] that compiling a large quantity of

otherwise questionable allegations” will satisfy the particularity

pleading requirements. See id., at 1008. It does not. Succinctly

put, the SAC falls far short of satisfying the stringent pleading

standards of the PSLRA and Rule 9(b). 

Because the court has expressly found that at least one of the

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elements of plaintiff’s section 10(b) claim is missing, i.e.,

falsity, that claim fails, and there is no need for the court to

consider defendants’ loss causation and scienter arguments. See

Cutera, 610 F.3d at 1108 n. 1; accord In re 2007 Novastar Fin., Inc.

Sec. Litig., 579 F.3d 878, 884 n. 5 (8th Cir. 2009) (“Because we

conclude that the district court properly dismissed the complaint

for failing to comply with the PSLRA’s pleading requirements

concerning falsity under § 78u-4(b)(1), we need not address . . .

additional arguments concerning . . . compliance with the PSLRA’s

pleading requirements concerning scienter under § 78u-4(b)(2).”) 

III. Section 20A Claim

 The FAC alleged that all defendants violated section 20(A)’s

proscription against “contemporaneous” insider trading, 15 U.S.C. 

§ 78t-1(a), but now the SAC names only one defendant, John Blair, in

this claim. In Apollo I, this court found that the insider trading

claim against defendant Blair was “lacking” because the FAC did not

plead such facts. Id. 

Defendant Blair continues to argue that the SAC “fail[s] to

describe [his] prior history[,]” and hence it does not state a

section 20A(a) claim against him. Defs’. Mot. (Doc. 120) at 

14:15-16. Plaintiff disagrees that allegations of Blair’s prior

trading history are necessary to state a section 20A(a) claim

against him. Plaintiff readily concedes, though, that one can be

liable under section 20A “only where an independent violation of

another provisions of securities law has occurred[.]” Resp. (Doc.

129) at 18:22-23 (citation and internal quotation marks omitted)

(emphasis added). 

That is an accurate statement of the law in this Circuit.

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“Claims under Section 20A are derivative and therefore require an

independent violation of the Exchange Act.” In re Oracle Sec.

Litig., 627 F.3d 376, 394 (9th Cir. 2010) (citation and internal

quotation marks omitted). Consequently, regardless of whether the

SAC includes allegations of defendant Blair’s trading history,

because the court has found that plaintiff’s section 10(b) claim

must be dismissed, that finding requires dismissal of the section

20A claim against defendant Blair. See id. (plaintiffs’

contemporaneous trading claims “end[ed]” because they could not

establish a triable issue on loss causation as to their other

Exchange Act claims). 

IV. Section 20(a) Claim

After reciting section 20(a) of the Exchange Act, the Ninth

Circuit in Zucco Partners, reiterated that “a defendant employee of

a corporation who has violated the securities law will be jointly

and severally liable to the plaintiff, as long as the plaintiff

demonstrates ‘a primary violation of federal securities law’ and

that ‘the defendant exercised actual power or control over the

primary violator.’” Zucco Partners, 552 F.3d at 990 (citing America

West, 320 F.3d at 945) (quoting Howard v. Everex Sys., Inc., 228

F.3d 1057, 1065 (9th Cir. 2000) (quotation marks omitted)) (other

citations omitted)) (emphasis added). Put differently, “[c]ontrol

person liability is secondary only and cannot exist in the absence

of a primary violation.” In re Silicon Storage Technology, Inc.

Deriv. Litig., 2009 WL 1974535, at *11 (N.D.Cal. July 7, 2009)

(citations and internal quotation marks omitted). So where, as

here, the section 10(b) claims have been dismissed, “the § 20(a)

claims [a]re also properly dismissed.” See Cutera, 610 F.3d at 1113

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n. 6. 

V. Motion to Strike

Having granted defendants’ motion to dismiss, there is no need

to consider their request for alternative relief pursuant to

FED.R.CIV.P. 12 (f). Indeed, dismissal renders moot that

alternative motion to strike. 

VI. Amendment

 Lastly, plaintiff perfunctorily “requests leave to amend . . .

[s]hould the Court grant any portion of defendants’ motions to

dismiss[.]” Resp. (Doc. 129) at 32:20-22. Defendants did not

address this one sentence “request.” 

In granting plaintiff’s “‘request’ for leave [to amend][,]” in

Apollo I, this court explained that “[t]he pleading deficiencies” in

the FAC did not lie “in the raw content of the FAC, but in the

absence of rigorously particularized allegations in accordance with

the PSLRA.” Apollo I, 633 F.Supp.2d at 832 (citation and internal

quotation marks omitted). In allowing amendment, the court

expressly “advised” plaintiff “that failure to cure the pleading

deficiencies identified therein, and failure to comply with the

relevant case law in that regard, may well lead to dismissal of

these claims in the future.” Id. (emphasis added). Thereafter,

plaintiff acknowledged “that it [was] ‘[m]indful that [Apollo I]

required [it] to amend [its] Complaint to more particularly allege[]

the falsity of the alleged misstatements[.]’” Apollo II, 

690 F.Supp.2d at 981 (quoting Mot. (Doc. 107) at 3). Nonetheless

even after amendment, as thoroughly discussed herein, the hallmark

of the SAC is, still, the “absence of rigorously particularized

allegations in accordance with the PSLRA[]” and Rule 9(b). See

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Apollo I, 633 F.Supp.2d at 832 (citation and internal quotation

marks omitted). 

Denial of leave to amend is subject to an abuse of discretion

standard of review. See Telesaursus VPC, LLC v. Power, 623 F.3d

998, 1003 (9th Cir. 2010). “[W]here the plaintiff has previously

been granted leave to amend and has subsequently failed to add the

requisite particularity to its claims, [t]he district court’s

discretion to deny leave to amend is particularly broad.’” Zucco

Partners, 552 F.3d at 1007 (citations and internal quotation marks

omitted). Moreover, as the Ninth Circuit has repeatedly recognized,

“[t]he fact that [plaintiff] failed to correct the deficiencies in

its [FAC] is ‘a strong indication that the plaintiffs have no

additional facts to plead’.” See id., (quoting Vantive Corp., 283

F.3d at 1098). For that reason, the Zucco Partners Court held that

the “district court did not err when it dismissed the SAC with

prejudice, since it was clear that the plaintiffs had made their

best case and had been found wanting.” Id. (citing Metzler, 540

F.3d at 1072 (“upholding a dismissal with prejudice where, inter

alia, the deficiencies at issue ‘persisted in every prior iteration

of the [complaint]’”). Likewise, “[w]here the plaintiff fails to

set forth any additional facts that could save the complaint, 

. . . , dismissal with prejudice is appropriate.” Finisar II, 2009

WL 3072882, at *15 (citing, inter alia, In re Silicon Graphics Inc.

Sec. Litig., 183 F.3d 970, 991 (9th Cir. 1999), abrogated on other

grounds, Tellabs, 551 U.S. at 322-24, 127 S.Ct. 2499, 168 L.Ed.2d

179)).

Application of those rules to the present case mandates that

the SAC be dismissed without prejudice to renew. Plaintiff has been

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28 Plaintiff did not move to amend under FED.R.CIV.P. 15. Instead, it

simply “request[ed] leave to amend.” Resp. (Doc. 129) at 32:22. This is a

somewhat telling, although not entirely dispositive, distinction. Because

plaintiff sought leave to amend in the form of a request, arguably it was not

required to attach a proposed amended complaint or otherwise comply with the

dictates of LRCiv 15.1. Among other things, that Rule requires that if “[a] party

moves for leave to amend,” it “must attach a copy of the proposed amended

pleading[,]” and it “must indicate in what respect it differs from the pleading

which it amends, by bracketing or striking through the text to be deleted and

underlining the text to be added.” LRCiv 15.1 (emphasis added). Perhaps plaintiff

made this “request” as a means of circumventing that Local Rule and because it does

not have any additional facts. Otherwise, surely plaintiff would have brought them

to the attention of the court and defendants. 

29 See Salcido Decl’n (Doc. 33), exh. D thereto.

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given the opportunity to amend once, following a fairly

comprehensive analysis of the FAC’s deficiencies and overall

weaknesses. The SAC did not correct those deficiencies; nor has

plaintiff offered any additional facts in its response that could 

be alleged in a third amended complaint, and that would save the SAC

from dismissal with prejudice.28 See In re MIPS Techs., Inc.

Deriv. Litig., 2008 WL 3823726, at *8 (N.D.Cal. Aug. 13, 2008)

(dismissing without leave to amend derivative shareholder suit where

plaintiff did not “set forth additional facts he could plead in

either his briefing or at argument[]). Further, in contrast to

“many securities fraud cases,” plaintiff’s allegations herein are

not based upon “the statements of confidential witnesses and/or

employees and former employees[.]” See Hansen, 527 F.Supp.2d at

1163. Therefore, as in Hansen, “it is difficult to imagine what

additional facts Plaintiff could allege to satisfy the strict

pleading requirements of the PSLRA and Rule 9(b).” Id. Plaintiff,

represented by experienced counsel who routinely practice in the

area of securities class action litigation,29 were given an adequate

opportunity to file an amended complaint addressing this court’s

concerns in Apollo I, and satisfying the governing pleading

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30 On March 29, 2011, plaintiff filed a Notice of Supplemental Authority

(Doc. 141), “appris[ing]” this court of the recent Supreme Court decision, Matrixx,

supra, 2011 WL 977060. Not. (Doc. 141) at 1:1. Plaintiff asserts that Matrixx

“holdings regarding [the] materiality” element of a section 10(b) claims lend

“further support” for its opposition arguments herein. Id. at 1:13. In their

Reply of that same date, the individual defendants contend, and the court agrees,

that Matrixx has “no bearing” on the primary issue herein – plaintiff’s alleged

“failure to meet the pleading standard for falsity under the PSLRA[.]” See Reply

(Doc. 142) at 1:14-16. The court thus finds that no supplemental briefing of

Matrixx is necessary. 

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standards as developed in the applicable case law. Plaintiff did

not avail itself of that opportunity. Accordingly, the court denies

plaintiff’s “request” for leave to amend and grants defendants’

motions to dismiss in their entirety with prejudice and without

leave to amend. 

Conclusion30

“To be successful, a securities class-action plaintiff must

thread the eye of a needle made smaller and smaller over the years

by judicial decree and congressional action.” Alaska Elec. Pension

Fund v. Flowserve Corp., 572 F.3d 221, 235 (5th Cir. 2009) (per

curiam) (Hon. Sandra Day O’Connor, Associate Justice of the U.S.

Supreme Court (Ret.), sitting by designation pursuant to 28 U.S.C. 

§ 294(a)). In the present case, even with the opportunity for

amendment, plaintiff was unable to thread that needle.

For all of the reasons set forth herein, IT IS ORDERED that:

(1) the “Motion to Dismiss . . . Lead Plaintiff’s Second

Amended Complaint for Violations of the Federal Securities Laws” by

individual defendants 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 (Doc. 120) is GRANTED;

(2) the “Alternative[] [Motion] to Strike Portions of Lead

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Plaintiff’s Second Amended Complaint for Violations of the Federal

Securities Laws[]” (Doc. 120) by the defendants listed in paragraph

(1) above is DENIED as MOOT; 

(3) the “Motion to Dismiss by Defendant Apollo Group, Inc.

(Doc. 122) is GRANTED; and

(4) the “Motion for Judicial Notice in Support of Lead

Plaintiff’s Omnibus Opposition to Defendants’ Motion to Dismiss the

Second Amended Complaint for Violations of the Federal Securities

Laws by Plaintiff Pension Trust Fund for Operating Engineers” (Doc.

131) is GRANTED.

IT IS FURTHER ORDERED that the Second Amended Complaint (Doc.

112) is DISMISSED WITH PREJUDICE. The Clerk of the Court is

directed to enter JUDGMENT in favor of defendants and terminate the

case.

DATED this 31st day of March, 2011. 

Copies to counsel of record

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