Th e C ler k o f t he Co urt is d ire cte d to am en d th e ca pti on as s et f ort h a bo ve . * Judge Jon O. Newm an, original ly a mem ber of the panel, r ecused himself from ** co ns ide rat ion

of thi s m att er a ft er o ral arg um en t to ok pla ce and

did no t parti cip ate in t

his de cis ion . T his ap pe al i s b ein g d eci de d b y th e re m ain ing m em be rs o f t he pane l, who are in agreement. Se e 2d Cir. R. 0.14. 08- 5442- cv A nd r ew Slayt on v. A m eri can E xp r ess UNITED STA TES COU RT OF AP PEALS F OR THE S EC OND C IR C U IT

_______________ August Term, 2009 (Argued: October19, 2009 Decided: May 18, 2010) Do ck et N o. 08 -54 42 -cv

_______________ AN D R E W KEI TH S LA YT ON , on behalf of himself and all others similarl y situate d, G LI CKE NHAUS & C OMP ANY , A DA M C RAI G S LA YT ON , on behalf of himself and all others similarl y situate d, A DA M C R A IG , Plain tif fs- Ap pe lla nts , A TLA S E QUI TI ES , L ORE TT O A RZU , C H A RLES H OVANE S I AN , S AM W I ETS XHN ER , S HI RAZ S I DI , W I L L I AM M. P A LESE , S COTT B ARR EN TI NE , Y VETTE Y EI DMAN , M AL KA R U B IN , J ULI E D RO SS , B ROWN F AMI LY T RU ST , Co ns oli da ted -P lai nti ffs , —v.— A MER I CAN E X PRESS C OMP ANY , KEN NE TH C HENAU LT , H ARVE Y G OL UB , D AVI D R. H UBERS , J A M ES M. C RACCHI OLO , De fen da nts -A

pp ellees . *

_______________ B e f o r e : C A L A B R E SI and K AT ZMANN , Ci rcu it J

ud ges . **2 _______________ Appeal from a judgm ent of the United Stat es Distri ct Court for the Southe rn Distri ct of New York (W illia m H . Pauley, Judge ) entere d October 9, 2008, dismissing the pl aintiffs’ second amended com

plaint. I n the second amended complaint, the plai ntiffs alleged viol ations of
sec tio ns 10 (b) an d 2 0(a ) of the Se curit ies Ex ch an ge Ac t of 19 34 , 1 5 U .S .C . § 78 a et seq. On ap pe al, the y li m it the ir c ase to o ne all eg ed ly m isl ead ing statem en t m ad e in the de fe nd an ts’ May 15, 2001 quarterl y report. We hold that the alleged misleading s tatement is a forward-l ooking statement that i s protect ed by the safe harborof the Private Secur ities Li tigati on Reform Act. W e ac co rdi ng ly a ff

irm the jud gm en t of

the dis tri ct c ourt.

_______________ KENT A. B RONS ON (Sanford P. Dum ain, Arthur R. Mil ler, of c ou ns el), Mil be rg L LP , N ewYo rk, NY ; C hri sto ph er L ov ell an d Im tia z A . S idd iqu i, Lo ve ll S tew art

Ha leb ian LL P, Ne w Y ork , N Y; Law O ff ice s o f L aw ren ce G. Soicher, New York, NY, for Plain tif fs- Ap pe lla nts . R OBERT E. Z I MET (Susan Saltzs tein, Christ opher P. Malloy, William F. Clarke, Jr., I rene M. Ten Cate, Danie l M. Gonen, of c ou ns el), Skadden, Arps, Slate, Mea gher & Flom LLP, New Y ork, NY, for De fen da nts
Ap pe lle es. M I CHAEL A. C ONLEY , De puty S oli cit or ( Mar k D . C ahn, De puty G en era l Counsel, Jacob H. Still man, Solicitor, Dominick V. Freda, Senior Counsel, of c ou ns el), Securit ies and Exchange Comm ission, Washington, DC, for amicus curi ae Securiti es and Exchange Commission.

_______________ K AT ZMANN , Circuit Judge : This case re quires us t o decide whetheran allegedl y misleading statement made in one of defendant American Express’s re gulatory di sclosure doc uments is protected by t he safe harbor provision of the Pri vate Securi ties Lit igation Reform Act (“PSLRA”). In the course of ourBe cau se t he pla int if

fs have narro we d th eir

cla im on ap pe al, the y s tat e th at i f t his cas e 1 were remanded, they would seek a cl ass period of May 15, 2001 t hrough July 18, 2001. 3 analysis, we i nterpret Congress’s provi sion that a defendant shall not be liable for a forwardlooking stat ement if it is “identi fied as a forward-looki ng statement, and . . . accompanied by
m ean ing fu l ca

uti on ary statem en ts i de nti fy ing im po rtant f act ors that co uld

cau se a ctu al r esu lts to differ m ateria lly from those in the forward-looki ng statement,” or if “the pl aintiff fails to prove that th e f orw ard -lo ok ing statem en t . . . w as . . . m ad e o r ap pro ve d b y [ anex ecutiv e] of fi cer wi th actual knowledge by that officer that the stat ement was false or misleading.” 15 U.S.C. § 78u5(c). Th e p lai nti ff

s ap pe al f rom the Oc tob er 9 , 2 00 8 ju dg m en t of the Un ite d S tat es D ist

ric t Court for the Southern Dis trict of New York (Pauley, J. ) di sm iss ing the ir S eco nd Am en de d Com plaint. We determine that the de fendants are not e ntitle d to safe harbor pr otection unde r the
m ean ing fu l ca

uti on ary lan gu ag e p ron g o f t

he saf e h arb or at th is s tag e o f t

he lit igatio n b eca

us e the ir c autio nary l an gu ag e is va gu e. W e co nc lud e, ho we ve r, t hat th e d ef

en dants ’ al leg ed ly misleading statement is prot ected by the a ctual knowledge pr ong of the safe harbor becaus e the pla int if fs did no t pl ead fa cts de m on str ati ng that th e st ate m ent w as m ad e “w ithact ua l kn ow led ge .

. . that th e st ate m en t w as f als e o r m isl ead ing ,” id . Accordingly, we affirm the judgment of the dis tri ct c ourt.

I The plainti ffs are investors who purc hased American Express stock be tween July 26, 19 99 an d July

17 , 2 00 1. Th e d ef

en dants are Am eri can

Expre ss C om

pany(“A m eri can

Expre ss” 1On a m oti on to d ism iss , w e m ayco ns ide r “s tat em en ts o r do cum en ts i nc orp orated int o 2 the complaint by reference , legally r equired publi c disclosur e documents filed with the SEC, and do cum en ts p os ses sed

byor k no wn to t he pla int if

f and up on wh ich it r eli ed in b rin gin g th e su it. ” ATSI Comm’ns. Inc. v. Shaar Fund, Ltd. , 4 93 F. 3d 87 , 9 8 (2 d C ir. 20 07 ). 4 or the “Company”); Harvey Golub, Chairman and CEO of A merican Express until late 2000; Kenneth Chenault, Pres ident, COO and successor t o Golub as Chairman and CEO at the Co m pany ; D av id H ub ers , P res ide nt and Ch ief Ex ecutiv e o f C om

panysu bs idi ary Am eri can Express Financi al Advisors ( “AEFA”); and James M. Cracchiolo, Chairman and CEO of AE FA. Ac co rdi ng to t

he pla int if

fs ’ S eco nd

Am en de d C om

pla int (“S AC ”), starti ng in t

he 19 90 s, Am eri can Expre ss b eg ananov er- inv estm en t in hig h-y iel d d eb t se curit ies . T he se i nv estm en ts inc lud ed junk b on ds an d c oll ate ral ize d d eb t ob lig ati on s (“ CD Os ”). Whil e p eer co m panie s limited high-yiel d debt invest ments to seven percent of thei r portfolios, t en to twelve per cent of AE FA ’s p ort fo lio wa s m ad e u p o f t he se i nv estm en ts. Ul tim ate ly, thi s o ve rinve stm en t re su lte d in Am erican Expre ss losing hundr eds of m illions of dollars in 2000 and 2001. Th is a pp eal reg ard s a s tat em en t th at A m eri can Expre ss m ad e in

a q uarte rlyrep ort

fi led with the Securi ties and Exchange Commission (“SEC”) in May 2001. In tha t filing, the Com pany stated, i n essence, tha t while it had lost $182 million from its high-yie ld debt investments in the firs t quarterof 2001, it expected furthe r losses from those invest ments to be
su bs tantia llylow er f

or t he rem ain de r of

20 01. Th e p lai nti ff

s al leg e th at the de fe nd an ts v iol ate d the Se curit ies Ex ch an ge Ac t of 19 34 wh enthe y m ad e th is s tat em en t be cau se at th e ti m e th ey made it, the defendants knew it was misleading. Th e so urc e o f t

he pla int if

fs ’ al leg ati on s is a Wall Str eet Journal Asi a articl e that the pla int if fs att ach ed

to t he ir S AC , and

the fo llo wi ng acc ount i s take n f rom that ar tic le. In e arl y 25

2001, after the Company reported loss es of $123 m illion i n 2000 from its high- yield debt investments, Chenault bel atedly orde red a “very ha rd look” at t he Com pany’s high-yi eld debt po rtf oli o. By lat e F eb ruary 2 00 1, de fe nd an t C he na ult an d G ary Cr itt en de n, the n A m eri can Expre ss’ s C FO , re cei ve d an e -m ail fr om AE FACF O S tuart S ed lac ek that “s et a

hu ge alarm rin gin g” co nc ern ing the rap id d ete rio rat ion of AE FA ’s h igh -yi eld

de bt p ort fo lio . J oint App en dix (“J .A .” ) at

16 71 . O n Apri l 2, 20 01 , th e C om panyanno un ced

anad dit ion al $ 18 2 m ill ion in f irs t quarter 2001 hi gh-yield wri te-downs. “The Company was quick to add, though, thatthe worst of the pro ble m

wa s b eh ind

it and that no fu

rth er s urp ris es w ere expe cte d. ” Id
. A p res s re lea se stated t hat “[t]otal loss es on these i nvestments for the remainder of 2001 are expect ed to be substanti ally lower t han in the first quarter.” J.A. at 142-43. Ac co rdi ng to t

he art icl e, in e arl y M ay20 01 , C rac ch iol o re cei ve d a fax f rom Se dla cek “advising hi m that Am erican Expre ss was facing additi onal losses on its high- yield debt investments beyond those al ready booked.” J.A. at 1671. Chenault was advise d of the situati on the next day, dur ing a visit to AEFA’s Minneapolis headquarter s. There, he was tol d that the deterior ation of the high- yield debt por tfolio was so bad that “even the inve stment-grade CDOs held by American Express showed potent ial dete riorat ion” because de faults on the under lying bonds had risen s o sharply. Id . C he na ult ask ed , “ What ar e w e ta lki ng ab out he re?” Id
. Cr acc hio lo r ep lie d, “W e re all y d on ’t k no w e no ug h to ev engiv e y ou a rang e. ” Id
. “Didn’t we loo k a t th is i n th e f

irs t qu art er?” Ch en au lt q

ue rie d, “What ha

pp en ed ?” Id
. Ho pin g to fi nd an answer, American Express brought i n W alter Ber man, a f ormer Am erican Expre ss treas urer who had rejoine d the firm at the start of that year. “H e an d D av id Y ow an , th e C om pany ’s s en ior

vic e pre sid ent of

ris k m an ag em en t in

Ne w Y ork , b eg ancru

nc hin g num

be rs. ” Id
.6

In t he m eantim e, on

May 15 , 2 00 1, Am eri can

Expre ss f

ile d it s q uarte rlyrep ort

(F orm 10 -Q ) f or t he fi rst qu art er o f 2 00 1. In i t, t

he Co m panyrep ort ed

the $1 82 m ill ion

in f irs t qu art er los ses fr om

AE FA ’s h igh -yi eld

de bt p ort fo lio . T he Co m panyexpla ine d, “[ t] he hig h y iel d lo sse s reflect the continued det eriorat ion of the high-yie ld portfolio and l osses associ ated with sel ling certai n bonds.” J.A. at 1616. Importantly, it adde d that “[t]otal l osses on these investments for the rem ain de r of

20 01 are expe cte d to be su bs tantia llylow er than in

the fi rst qu art er. ” Id
. Ac co rdi ng to t

he SA C, Am eri can

Expre ss m ad e th is s tat em en t (“ the May 15 statem en t”) de sp ite the fact that “Defendant[] Chenault . . . had been expressl y informed in early May 2001 thatthe $182 million first quart er write- down did not reflect t he true magnitude of the deter iorati on of AE FA ’s h igh -yi eld

de bt p ort fo lio .” J. A. at 2 24 . T he pla int if fs all eg e th at the “[ d] ef

en dants we re
aw are that th eyha d n o re aso na ble ba sis up on

wh ich to c on tin ue to m ak e th is r ep res en tat ion .” J.A. at 220. The Form 10-Q also contained a caut ion. Several pa ges after the s tatement that los ses for the rem ain de r of

20 01 we re e xp ect ed

to b e su bs tantia llylow er, the Fo rm 10 -Q warne d th at i t “contain[ed] forward-looking s tatements, which are subj ect to ri sks and uncert ainties .” It a dd ed that “[f]actors that could cause ac tual res ults to di ffer m ateria lly from these forward-looking statem en ts i nc lud e . . . po tentia l de ter ior ati on in t he hig h-y iel d s ect or, wh ich co uld res ult in further losse s in AEFA’s investment portfolio.” J.A. at1624. Th e Wall Str eet Journal Asi a art icl e re po rte d th at i n e arl y July 20 01 , B erm anan d Y ow an
co m ple ted the ir r ev iewof

AE FA ’s h igh -yi eld

de bt p ort fo lio . A m eri can Expre ss h ad

pre vio us ly rel ied in l arg e p art

“o n th e re po rts ge ne rat ed byoutsi de CD O m an ag ers to e va luate the he alth
an d p erf orm an ce o f t

he inv estm en t-g rad e [ CD Os ], ” an d it wa s n ot u

nti l B erm anan d Y ow an ’s7

rev iewthat “the co m

panybe gan to draw i ts o wn co nc lus ion s ab out al l [ of the ] b on ds that underpinned the securit ies.” J.A. at 1671- 72. When Chenault sat down in the conference r oom to hear the results , he had no idea what t o expect and hoped t hat the si tuation would be
m an ag eab le. He was “stunned” by Berman and Yowan’s estimate of $400 m illion i n losses, and “began firing quest ions at his team.” J.A. at 1672. The $400 million figure result ed from the fact that “[i]nstead of adopti ng the optimistic vi ew . . . that defaults a lready were pe aking, the company decided to use the cur rent default r ate of 8% to 9%, and a ssumed it would stay constant for the next 18 months”—a very conser vative ass umption. J.A. at 1672. On July 18, 2001, Am erican Expre ss issued a pr ess rele ase announcing t hat it would be tak ing an$8 26 m ill ion

los s d ue to “ ad dit ion al writ e-d ow ns in t he hig h-y iel d d eb t po rtf

oli o a t [AEFA ] and losses associ ated with re balancing t he portfolio towar ds lower-ri sk securit ies.” J.A. at 225. This amount included the $403 million los s relat ed to the inve stment-grade CDOs reported by Ber man and Yow an, as well as ot her losses from planned sale s of high-yield bonds
an d lo we r-g rad e C DO s. On July 17, 2002, the plai ntiffs filed this act ion, bringing c laims under sections 10(b) and 20(a) of the Securi ties Exchange Actof 1934. The defendants moved to dism iss the complaint. Th e d istric t co urt

grante d th e m oti on

on Mar ch31 , 2 00 4, ho ldi ng that tw o o f t he pla int if

fs ’ cla im s w ere tim e-b arr ed

an d th e re m ain ing cla im s f ail ed to s tat e a c lai m

up on wh ich rel ief co uld be granted. In re Am. Express Co. Secs. Lit ig. , No. 02 Civ. 5533, 2004 W L 632750 (S.D.N.Y. 2004). We vacated the decisi on, holding thatthe clai ms w ere not ti me-barred, and remanded for further conside ration by t he distri ct court, e xpressing no vi ew on the merits of any of the claims. Se e Slayton v. Am. Express Co. , 460 F.3d 215, 230-31 (2d Cir. 2006).8

On Jan uary 1 1, 20 07 , th e p lai nti ff s f ile d th e S AC , a lle gin g, am on g o the r th ing s, that wh enthe de fe nd an ts m ad e th e May 1 5 s tat em en t th at l os ses fo r th e re m ain de r of 20 01 we re
expe cte d to be su

bs tantia llylow er, the y k

ne w that th eyha d n o re aso na ble ba sis up on

wh ich to make it. The defendants again moved to dismiss, and the distr ict court granted the motion by
mem orandum and order dated September 26, 2008. In re Am. Express Co. Secs. Lit ig. , No. 02 Civ. 5533, 2008 W L 4501928 (S.D.N.Y. Septem ber 26, 2008). With regard to t he May 15 statem en t at

iss ue in t his ap pe al, the dis tri ct c ourt f ound that: Th e in fo rm ati on

[C rac ch iol o] an d C he na

ult rec eiv ed in M ay20 01 co uld

su pp ort an inference of scient er because i t suggests t hat they had ac cess to information ind icatin g th at the May

15 , 2 00 1 s tat em en t w as n o lo ng er a ccu rat e. Ho we ve r, i n light of the fact t hat Defendants imm ediatel y put togethera team to analyze all of AE FA ’s H igh

Yi eld De bt and the n ann ounc ed

the res ult s o f t

he an aly sis in July 20 01 , th e m ore co m

pe lli ng inf

ere nc e is that D ef

en dants we re n ot a cti ng wi th an int en t to de cei ve , b ut r ath er atte m pti ng to q ua nti fy the ex tent of

the pro ble m before disclosi ng it to the market. Id . a t *8 . T he dis tri ct c ourt the ref ore he ld t hat th e p lai nti ff

s f ail ed to s tat e a c lai m

wi th r esp ect

to the May 15 statem en t. T he pla int if fs ap pe al o nly

thi s p art of the dis tri ct c ourt’ s de cis ion —c on ten din g th at the de fe nd an ts’ May 15 statem en t th at “ [t ]o tal los ses on the se inv estm en ts f

or t he rem ain de r of

20 01 are expe cte d to be su bs tantia llylow er than in

the fi rst qu art er [ of

20 01 ]” vio lat ed

the Se curit ies Ex ch an ge Ac t.

II Th e p lai nti ff

s b rin g th eir

cla im s und er s ect ion s 1 0(b ) an d 2 0(a ) of the Se curit ies Ex ch an ge Ac t of

19 34 , 1 5 U .S .C . § 78 a et seq. Section 10(b) makes it unlawful to “use or employ, in connection with the purchase or s ale of any securi ty . . . any manipulative or deceptive de vice or cont rivance i n contravent ion of such rules and r egulations as the Commission m ay prescri be.” 15 U.S.C. § 78j(b). SEC Rule 10b-5 state s that it “shall be9

un law fu l f

or anype rso n . . . [t ]o m ak e any untr ue statem en t of

a m ate ria l f

act or t o o m it t o s tat e
a m ate ria l f

act ne ces sar y in ord er t o m ak e th e st ate m en ts m ad e, in t he lig ht o f t

he cir cum stanc es
un de r w hic h th eywe re m ad e, no t m isl ead ing .” 17 C. F. R. § 2 40 .1 0b -5( b). Un de r th e law o f t his Circuit, t o state a c laim under Rule 10b-5, a plai ntiff m ust alle ge that, in c onnection with t he purchase or s ale of securit ies, the defendant made m ateria l misstatements or omissions of
m ate ria l f act , w ithsci en ter , and

that th e p lai nti ff

’s r eli an ce o n th e d ef

en dant’ s ac tio ns cau sed injury to t he plainti ff. Ganino v. Citizens Uti ls. Co. , 228 F.3d 154, 161 (2d Cir. 2000). Secti on 20 (a) of the Ac t es tab lis he s jo int

an d s ev era l li ab ili ty s ub

jec t to a g oo d f

aith e xc ep tio n f

or e ve ry person who, direct ly or indir ectly, cont rols any per son liable under any provis ion of the Act. 15 U.S.C. § 78t(a). The Securiti es Exchange Act of 1934 was amended by the PSLRA in 1995. Pub. L. N o. 104-67, 109 Stat. 737 (Dec. 22, 1995) . The PSLRA established a sta tutory safe-ha rbor for fo rw ard -lo ok ing statem en ts. W ithcer tai n e xc ep tio ns dis cu sse d f urt he r be low , w he re a

“p riv ate act ion
. . . is ba sed

on an un tru e st ate m en t of

a m ate ria l f

act or o m iss ion

of a m ate ria l f

act
ne ces sar y to m ak e th e st ate m en t no t m isl ead ing ,” a d ef en da nt “ sh all no t be lia

ble wi th r esp ect

to
any f orw ard -lo ok ing statem en t . . . if an d to the ex tent th at— (A ) th e f orw ard -lo ok ing statem en t is

— (i) ide ntified as a forward- looking stat ement, and is accompanied by m ean ing fu l ca

uti on ary statem en ts i de nti fy ing im po rtant f act ors that co uld cause actua l result s to differ materially from those in the forward- looking statem en t; o r (ii) i mm ateria l; or (B) the plai ntiff fails to prove tha t the forward-l ooking state ment— . . . (ii ) if m ad e b y a

bu sin ess en tity; w as— (I) m ad e b y o r w iththe ap pro va l of anex ecutiv e o ff

ice r of that entity; and10 (II) made or approved by s uch officer with actual knowledge by that officer that the stat ement was false or misleading. 15 U.S.C. § 78u-5(c). The safe harbor i s written i n the disjunc tive; t hat is, a defendantis not lia ble if the fo rw ard -lo ok ing statem en t is ide nti fi ed an d a cco m

panie d b y m ean ing fu l ca

uti on ary lan gu ag e or

is i mm ate ria l or

the plaint iff fails to prove that it was made with actual knowledge that it was false or misleading. Se e S ou thl an d S ecs . C or p. v. IN Sp ire Ins . S

olu tio ns , In c. , 365 F. 3d 35 3, 37 1-7 2 (5 th C ir. 20 04 ).

III W e re vie w a

dis tri ct c ourt’ s ru lin g o n a m oti on to d ism iss a co m

pla int pursu an t to Fe de ral Ru le o f C ivi l P roc ed ure 12 (b) (6) de no vo . Teamsters Local 445 Frei ght Div. Pension Fu nd v. Dy ne x C ap ita l In c. , 5 31 F. 3d

19 0, 19 4 (2 d C ir. 20 08 ). I n c on sid eri ng a m oti on to dis m iss a 1 0(b ) ac tio n, we m us t ac cep t al l f

act ua l al leg ati on s in

the co m pla int as t rue an d m us t consider t he complaint in its e ntiret y. Tellabs, Inc. v . Makor Issue s & Rights, Ltd. , 551 U.S. 308, 322 (2007). A complaint allegi ng securit ies fraud must satisfy the hei ghtened pleadi ng req uir em en ts o f t

he PS LR A and Fe de ral Ru le o f C ivi l P roc ed ure 9(b ) by

statin g w ith particul arity t he circumstances const ituting fraud. Se e 15 U. S. C. § 7 8u -4( b)( 1); seeals o ECA &Local 134 IBEW Joi nt Pension Trust of Chicago v. JP Morgan Chase Co. , 553 F.3d 187, 196 (2d Cir. 2009). Under t he PSLRA, where proof of scienter is a re quired ele ment, as it is in the act ua l kn ow led ge pro ng of

the statut ory

saf e h arb or, a co m

pla int m us t “s tat e w ithparti cu lar ity fa cts giv ing ris e to a st

ron g in fe ren ce t

hat th e d ef

en dant a cte d w iththe req uir ed state o f m ind .” 15 U.S.C. § 78u-4(b)(2).The defendants do not asse rt that the May 15 sta tement is entitl ed to safe harbor 3 pro tec tio n b eca

us e it is i mm ate ria l. 11 Un de r th is h eig hte ne d p lea din g s tan dard f or s cie nte r, a

“co m pla int wi ll s urv ive
. . . o nly if a re aso na

ble pe rso n w ou ld d eem

the inf ere nc e o f s cie nte r co ge nt and at l eas t as co m

pe lli ng as
any o pp os ing inf

ere nc e o ne co uld

draw f rom the fa cts all eg ed .” Te lla bs , In c. , 551 U.S. at 324. In d ete rm ini ng wh eth er a str on g in fe ren ce e xis ts, the all eg ati on s ar e n ot t o b e re vie we d ind ep en de ntl y o r in

iso lat ion , b ut t

he fa cts all eg ed

m us t be “take n c oll ect ive ly. ” Id. at 323. The “strong infere nce” standar d is met when the inference of fraud is at l east as l ikely as any non-culpable explanati ons offered. Id . at 324. Th e p art ies dis pute whe the r th e st atutor y s af e h arb or a pp lie s in thi s ca se. Th e d ef

en dants
ass ert that th eyare en tit led

to s af e h arb or p rot ect ion

be cau se t he May 15 statem en t w as a forward-looking st atement that was accompanied by meaningful cautionary l anguage and be cau se t he pla int if

fs have no t al leg ed

fa cts su pp ort ing a st

ron g in fe ren ce t

hat th e d ef

en dants act ua llykn ewthat th e May 1 5 s tat em en t w as m isl ead ing
. Th e p lai nti ff s re sp on d th at the May 3 15 statem en t is statut ori ly e xc lud ed fr om the saf e h arb or, an d th at e ve n if

it i s n ot, the statut ory saf e h arb or d oe s n ot p rot ect

it. W e f irs t ad dres s w he the r th e May 1 5 s tat em en t is statut ori ly
ex clu de d f

rom the saf e h arb or, an d a ft er c on clu din g th at i t is no t, w e turn t o w he the r it is protecte d under eithe r the meaningful cautionar y language or t he actual knowle dge prong of the saf e h arb or. As an initia l matter, we conclude tha t the sta tement at issue in t his case i s a forwardlooking stat ement as defined by the PSLRA. The PSLR A includes sever al definiti ons of a for wa rd -l oo ki ng st at eme nt , i nc lu di ng “a st at eme ntco nt ai ni ng a p ro je ct io n o f . . . i nc ome12

(in clu din g in co m e lo ss) , e arn ing s (i nc lud ing ear nin gs los s) p er s hare, . . . o r ot he r f inanc ial ite m s” and

“a s tat em en t of

futur e ec on om ic p erf

orm an ce, inc lud ing any s uc h s tat em en t co nta ine d in a discuss ion and analysi s of financial condit ion by the management . . . .” 15 U.S.C . § 78u5(i)(1) (A) & (C). The defendants ’ state ment, that “[t]otal losses on t hese invest ments for the remainder of 2001 are expected t o be substanti ally lower t han in the first quarter,” in the Man ag ers ’ D isc us sio n and An aly sis (“M D& A” ) po rti on of its Fo rm 10 -Q , f its co m fo rta

bly wi thi n b oth

of the se d ef ini tio ns . A. Th e Ma

y 1 5 S tat eme nt Wa s N ot I nc lu de d in a F

in an cia l S

tat eme nt an d T he ref ore Is No t S tat ut orily Ex clu de d F

ro m th e S

afe Har bo r. The parties first disput e whether the M ay 15 statement is excl uded from the statutory safe harbo r, whic h e xc lud es f

orw ard -lo ok ing statem en ts “ inc lud ed in a fi nanc ial statem en t pr ep are d in accordanc e with general ly accepte d accounting pr inciples [“GAAP ”].” 15 U.S.C. § 78u5(b)(2)( A). The statement at iss ue here was conta ined in American Express’s May 15, 2001 Fo rm 10 -Q fi led

wi th t he SE C. Th e F orm

10 -Q co nta ine d s ev era l parts , in clu din g “ Co ns oli da ted St ate m en ts o f I nc om e, ” “C on so lid ate d B alanc e S he ets ,” “C on so lid ate d S tat em en ts o f C ash Flows,” “Notes to Consoli dated Financi al Statements,” and “Ma nagement’s Discussion and Analysis of Financial Condition and Result s of Operations [“MD&A”].” J.A. at 1569-1607. Th e st ate m en t w as i nc lud ed in t he MD &Apart i n a

su bs ect ion tit led “A m eri can

Expre ss Fi nanc ial Ad

vis ors .” Id . at 1616. W e conclude tha t the May 15 st atement, contained in t he MD&A, was not included i n a fi nanc ial statem en t pr ep are d in acc ord an ce w ithGA AP . T hat C on gre ss u nd ers too d f

inanc ial statem en ts and

MD &A s to be dis tin ct i s ap parent f rom the tex t of

the PS LR

A. Co ng res s explicit ly included “ a statement of future economic performance . . . contained in a dis cussion13

and analysis of financial conditi on by the managem ent” in it s definition of a forward-l ooking statem en t, 1 5 U .S .C . § 78 u-5 (i) (1) (C ), and the n e xc lud ed

“a f orw ard -lo ok ing statem en t . . . th at is .
. . inc lud ed

in a fi nanc ial statem en t pr ep are d in acc ord an ce w ith[G AA P] .” Id . § 78u5(b )(2 )(A ). T he pla int if

fs ass ert that th e ex clu sio n lo gic all y h igh lig hts the rea so na ble
expe ctatio n th at r ep res en tat ion s m ad e in SE C f ili ng s w ill be m ore clo sel y s crutin ize d and m ore heavily re lied upon by inves tors, and tha t it would be i rrati onal to all ow issuers to ga in safe harbor prot ection merely by placi ng a statement in the M D&A portion of a filing. But the legisla tive hist ory of this provis ion makes plain that a s tatement may receive safe harbor protecti on even where it i s in an MD&A that i s part of a requi red discl osure to the SEC. Se e H.R. Conf

. Rep. 104-369, at 45-46 (1995) , as reprinte d in 1995 U.S.C.C.A .N. 730, 744-45 (hereina fter “Conference Report”) (includi ng in the definit ion of a forward-looking st atement “certai n statements made in SEC required discl osures, incl uding managem ent’s dis cussion and
an aly sis ”). Mo reo ve r, d

raw ing a d ist inc tio n b etw een the fi nanc ial statem en t po rti on of the Fo rm 10 -Q an d th e MD &Asec tio n is no t ir rat ion al, as t

he pla int if

fs su gg est . Whil e th e f

inanc ial statem en t lays out th e f

irm ’s i nc om e, ba lan ce s he ets an d c ash fl ow s, the purpo se o f t

he MD &A is t o p res en t th e co m

pany ’s b us ine ss “ as s een

thr ou ghthe ey es o f t

ho se who m an ag e [ it] .” Co mm iss ion

Gu idanc e R eg ard ing Man ag em en t’s Di scu ssi on an d A na lys is o f F inanc ial Condition and Result s of Operations, 68 Fed. Reg. 75,056, 75,056 (Dec. 29, 2003). Our conclusion finds suppor t in the SEC’s different t reatment of financial stat ements and MD&A sections. SEC Regulati on S-X sets forth “the form and content of and requi rements for fi nanc ial statem en ts, ” 1 7 C .F .R . § 21 0. 1-0 1, an d re qu ire s inter im fi nanc ial statem en ts i n F orm 10-Qs to include interi m balance sheets, stat ements of incom e, and state ments of cash flow, seeOur co nc lus ion is a lso in l ine wi th b oth

the SE C’ s ar gum en t in

its am icu s cu

ria e b rie f 4 in t his cas e an d it s st ate d v iewthat “[ w] hil e th e st atutor y s af e h arb ors bythe ir t erm s d o n ot a pp ly to forward-looking s tatements included i n financial st atements prepared i n accordance wit h U.S. GAAP, they do cover MD&A disclosure s.” Disclosur e in Management’s Discuss ion and Analysis About Off-Balance Sheet Arra ngements and Aggregate Contract ual Obligati ons, 68 Fed. Reg. 5,982, 5,993 n.146 (Feb. 5, 2003). This sta tement was contained in t he preamble to a 2003 rule promulgated in r esponse to the Sarbanes-Oxley Act , which included an i dentical safe harbor provi sion for the disc losure of forward-looki ng information required by tha t Act. 68 Fed. Reg. at 5,992-93. The defendants ur ge us to defer to t he SEC’s view pursuant t o Chevron U. S. A. , In c. v. Na tural R es. De f. C ou nc il, Inc

. , 4 67 U. S. 83 7 (1 98 4), as t his vie w h as b een art icu lat ed

bythe SE C i n a

fo rm al r ele ase —th e p ream ble to t he 20 03 rul e. Ho we ve r, w e n eed not determine whether t he SEC’s view should be grant ed Chevron de fe ren ce, be cau se w e w ou ld rea chthe sam e co nc lus ion reg ard les s o f whe the r w e af fo rde d d ef

ere nc e. 14 id. § 210.10-01. SEC Regulation S-K sets fort h “the requi rements applicable to the conte nt of the no n-f ina nc ial sta tem en t portions” of cer tain filings , including MD&As. Id . § 229.10 (em ph asi s ad de d). Th at r eg ulatio n re qu ire s th e MD &Asec tio n o f a Fo rm 10 -Q to “ [d ]i scu ss reg istrant’s fi nanc ial co nd iti on , c hang es i n f inanc ial co nd iti on

an d re su lts of

op eratio ns .” Id . § 22 9. 30 3. Th ese reg ulatio ns su gg est that th e S EC vie ws the fi nanc ial statem en t an d th e MD &A
as who llydif

fe rent; the re i s n o s ug ge sti on that th e MD &Ais v iew ed as a su bs et o f a fi nanc ial statem en t. T his vie w a lso draws su pp ort fr om the Fo rm 10 -Q its elf

, w hic h li sts “F inanc ial St ate m en ts” an d “ Man ag em en t’s Di scu ssi on an d A na lys is o f F inanc ial Co nd iti on an d R esu lts and Operations” as separat e require d items, seeSEC Form 10-Q, available at htt p:/ /w ww .s ec. go v/a

bo ut/ fo rm s/f

orm 10 -q. pd f, be lyi ng anass ert ion that th e MD &Ais “ inc lud ed in [the] financial sta tement,” and so excluded from the safe harbor, see15 U.S.C. § 78 u-5 (b) (2) (A ). 4 Ac co rdi ng ly, we co nc lud e th at f orw ard -lo ok ing statem en ts c on tai ne d in a se parat e MD &Adis cu ssi on

in a Fo rm 10 -Q , s uc h a s th e Ma

y 1 5 s tat em en t at

iss ue he re, are no t ex clu de d from the stat utory safe harborunder 15 U.S.C. § 78u-5(b)(2)( A). W e next turn t o whether the15

May 15 statem en t is pro tec ted un de r ei the r th e m ean ing fu l ca uti on ary lan gu ag e p ron g o r ac tua l kn ow led ge pro ng of

the saf e h arb or. B. Th e Ma

y 1 5 S tat eme nt Wa s N ot A cco mpa nied

by Mea ni ng fu l C au tio na ry L an

gu age. Under the PSLRA, the defendants are notliable i f the allegedl y false or misleading statement is “ide ntified as a forward- looking stat ement, and is accompanied by m eaningful
cautio na ry s tat em en ts i de nti fy ing im po rtant f act ors that co uld

cau se a ctu al r esu lts to d if fe r materially from those in the forward-l ooking state ment . . . .” 15 U.S.C . § 78u-5(c)( 1)(A)(i)
. The parties dispute both whet her the May 15 s tatement was adequatel y identified as a forwardloo kin g s tat em en t an d w he the r it wa s ac co m

panie d b y m ean ing fu l ca

uti on ary lan gu ag e. The May 15 state ment indicated that following AEFA’s first quarterloss of $182 million, “[t]otal losses on [AEFA’s high-yie ld] investments for the remainder of 2001 are expect ed to be substanti ally lower t han in the first quarter.” J.A. at 1616. Se ve ral pa ge s later , th e F orm 10 -Q warned that i t “contai n[ed] forward-looking statements, which are subject t o risks and
un cer tai nti es. ” J. A. at 1 62 4. Th e C om panywr ote , “ [t ]h e w ord s ‘b eli ev e’, ‘expe ct’ , ‘anti cip ate ’, ‘op tim ist ic’ , ‘i nte nd ’, ‘ aim ’, ‘ wi ll’ , ‘s ho uld ’ an d s im ilar expre ssi on s ar e inten de d to ide nti fy su ch fo rw ard -lo ok ing statem en ts. ” Id . It ad de d th at “ [f

]a cto rs that co uld

cau se a ctu al r esu lts to d if fe r materially from these forward-looking st atements include . . . pote ntial det eriorat ion in the hi ghyie ld s ect or, wh ich

co uld res ult in f urt he r lo sse s in

AE FA ’s i nv estm en t po rtf oli o. ” Id
. The plainti ffs first contend that t he defendants failed t o adequately i dentify the May 15 statement as forward-looki ng. They argue that in order t o be adequatel y identified as forwardloo kin g, fo rw ard -lo ok ing statem en ts m us t ei the r be inc lud ed

in a dis cre te s ect ion

cle arl y m ark ed “Forward-Looking Stat ements” or specificall y labeled as “forward-looking.” The SEC16

dis ag ree s, ass ert ing that th e f act s an d c irc um stanc es o f t he lan gu ag e u sed

in a parti cu lar

rep ort wi ll d ete rm ine wh eth er a

statem en t is ad eq

uatel y id en tif

ied . It op ine s th at “ [t ]h e u se o f l ing uis tic cues like ‘ we expect’ or ‘ we believe,’ when combined with an expl anatory desc ription of the company’s intention to t hereby designa te a stat ement as forward-looking, genera lly should be
su ff ici en t to put th e re ad er o n n oti ce t hat th e co m

panyis m ak ing a f

orw ard -lo ok ing statem en t.” The defendants join t he SEC’s argument on this point. We agree with the SEC. Nothing in the st atute indi cates tha t to be adequat ely identi fied, a forward-looking statem en t m

us t be co nta ine d in

a se parat e se cti on

or s pe cif ica llylab ele d, an d w e d ecl ine to writ e in such a requi rement. W e agree with t he SEC that the facts and c ircumstances of the language
us ed in a parti cu lar

rep ort wi ll d ete rm ine wh eth er a statem en t is ad eq

uatel y id en tif

ied as forward-looking. The May 15 s tatement is plai nly forward-looking—i t project s result s in the futur e. It i s al so acc om

panie d b y a

statem en t of

the co mm on -se ns e p rop os iti on that w ord s su ch as “expect” identify forward-looki ng statements. See Harris v. Iv ax Corp. , 182 F.3d 799, 804- 80 6 (1 1th Ci r. 1 99 9) ( ho ldi ng that th e st ate m en t “w e expe ct r ese rve s f or r eturns an d inve nto ry writeoffs to be well above t ypical quar ters,” was a forward- looking stat ement protected by the cautionar y language prong of the st atutory sa fe harbor). Under the se circumstances, we
co nc lud e th at the May

15 statem en t w as a de qu ate ly “ ide nti fi ed as a fo rw ard -lo ok ing statem en t.” Se e 15 U. S. C. § 7 8u -5( c)( 1)( A) (i)
. To be protecte d under the first prong of the safe harbor, however , a forward-looking statem en t m

us t be bo th i de nti fi ed

as s uc h and

“ac co m panie d b y m ean ing fu l ca

uti on ary statements identi fying important factors that could cause ac tual res ults to di ffer m ateria lly from tho se i n th e f

orw ard -lo ok ingstatem en t . .
. . ” Id . The SEC asserts that the May 15 sta tementSu cha p rop os iti on is s up po rte d b y o ur c ase law . In ap ply ing the jud ici all y-c reated 5 be sp eak s ca

uti on do ctr ine , o n w hic h th e ca uti on ary lan gu ag e p ron g o f t

he PS LR A i s b ase d in part, seeCo nf

ere nc e R ep ort

at 4 3, 19 95 U. S. C. C. A. N. at 7 42 , w e h av e h eld that ca uti on ary language that is misleading in li ght of historic al fact cannot be meaningful. Se e R om ba ch v. Chang , 3 55 F. 3d

16 4, 17 3 (2 d C ir. 20 04 ) (h old ing that “[ c] autio nary w ord s ab out f utu re r isk canno t in su lat e f

rom lia bil itythe fa ilure t o d isc los e th at the ris k h as t ran sp ire d” ). I t is als o supported by the Conference Committee’s report
. Se e Conference Report at 44, 1995 17 wa s n ot a cco m

panie d b y m ean ing fu l ca

uti on ary lan gu ag e b eca

us e th e ca uti on ary lan gu ag e it sel f
wa s m isl ead ing in l ight of his tor ica l f

act . B y h ist ori cal fa ct, the SE C m ean s th e f act s th at w ere establi shed at the t ime the statement was made. Looking to the facts allege d by the plaint iffs, the SEC concludes that at the same time the defendants warned of potential deterior ation in t he high-yiel d sector, t hey knew of ac tua l deterior ation in t hat sector . The plainti ffs agree, and fu rth er p oint out th at d esp ite the ad dit ion al k no wl ed ge ga ine d b y th e d ef en dants in e arl y M ay 2001, the cauti onary language c ontained in t he May 15, 2001 Form 10-Q did not differ from the cautionar y language the Company had used from at least January 2001 onwar ds. The defendants respond t hat while the y agree that misleading cautionar y language is not meaningful, their cautiona ry language was not misleading. The defendants contend t hat the pla int if fs have no t pl ead ed

wi th t he ne ces sar

y p art icu lar ityfa cts giv ing ris e to a st ron g in fe ren ce that they kne w that the high- yield market would deter iorate furt her in the s econd quarterof 2001. Ins tea d, po int ing to t

he Wall Str eet Journal Asi a art icl e’s statem en ts t hat “m ore los ses co uld

sti ll be lurking,” a nd that the “ investment grade CDOs . . . showed potential deterior ation,” the defendants contend t hat the pla intiffs have only shown that the defendants were a ware of potential deterior ation—the pr ecise ri sk of which they cautione d. W e ag ree wi th t

he SE C and

the parti es t

hat ca uti on ary lan gu ag e th at i s m isl ead ing in lig ht o f h ist ori cal fa ct c anno t be m ean ing fu l, but w e d o n ot t hink th at p rop os iti on

ap pli es i n th is 5U.S.C.C.A .N. at 743.

Th is c ase is q

uit e d if fe rent f rom the lev el o f c ert ainty t

hat ha s b een

pre sent in

cas es i n 6 which courts have concluded that a cautionar y statement misstated hist orical fact
. See Lormand , 56 5 F .3 d a t 24 7 (“ Th ese warni ng s d id n ot d isc los e th at the de fe nd an ts k ne w f rom pa st expe rie nc e th at the su

b-p rim e su

bs cri be r pr og ram s an d U S Unw ire d’s los s o f c on tro l of cu sto m er ca re , b il li ng s a ndse rv ic e p os edan immin en t t hr ea t o f bu si ne ss an d fi na nc ia l rui n a ndth atso me dam ag e f rom the se r isk s h ad

alr ead y m ate ria liz ed .” ); Dolphin & Bradbury, Inc . v. SEC , 512 F.3d 63 4, 64 0 (D .C . C ir. 20 08 ) (“ Br ad bury’ s ca uti on ary lan gu ag e o nly

dis clo sed a ris k that te nants might leave Forum Place—not his knowledge that PennDOT ac tua llypla nn ed to do so in the ne ar f utu re. ”). 18 case. As the defendants correct ly assert , the facts all eged by the plai ntiffs and supported by the Wall Str eet Journal Asi a art icl e d o n ot d em on str ate that th e d ef en dants m iss tat ed

a h ist ori cal fa ct— that th e ri sk

of wh ich the y w arn ed , d ete rio rat ion in t he hig h-y iel d m ark et that co uld cau se fu rth er l os ses in A EF A’ s p ort fo lio be yo nd tho se p roj ect ed , h ad

alr ead y tr an sp ire d. Ins tea d th ey de m on str ate that th e d ef

en dants kn ewthat A EF A’ s p ort fo lio wo uld ve ry l ike ly d ete rio rat e d

ue to ris ing de fa

ult s o n th e b on ds un de rly ing the inv est m en t-g rad e C DO s, a f

utu re p roj ect ion

that w as
no t a h ist ori cal fa ct. 6 Ins tea d, we thi nk

thi s ca se p res en ts a

dif fe rent ch all en ge . What strik es u s as the pro ble m here is not that the de fendants misstated a hist orical fact , but that t hey knew of the major and sp eci fi c ri sk

that ri sin g d ef

au lts on the bo nd s und erl yin g A EF A’ s inve stm en t-g rad e C DO s w ou ld cause deter iorati on in AEFA’s portfolio at t he time of the May 15 statement, and yet did not
warn o f i t. B y d ire cti ng us no t to inq uir e into a

de fe nd an ts’ state o f m ind , h ow ev er, Co ng res s may have foreclosed any inquiry i nto this pr oblem. The safe harbor prot ects forward-l ooking state ments that are “acc ompanied by
m ean ing fu l ca

uti on ary statem en ts i de nti fy ing im po rtant f act ors that co uld

cau se a ctu al r esu lts to differ m ateria lly from those in the forward-looki ng statement.” 15 U.S.C. § 78u-5(c)(1) (A)(i).19

The question we face here is what Congress meant by “important.” The st atute it self does not de fi ne the ter

m , and we fi nd it am big uo us . T hu s, wh ile our an aly sis be gin s w iththe statut ory text it self, where we find ambiguity we m ay delve int o other sourc es, includi ng the legis lative history, t o discern Congres s’s meaning. SE C v . D or oz hk o , 574 F.3d 42, 46 (2d Cir. 2009). The
co nf ere nc e re po rt “ is g en era llythe m os t re lia ble ev ide nc e in

leg isl ati ve his tor

y o f c on gre ssi on al int en t be cau se i t re pre sents the fi na l st ate m en t of the ter m s ag ree d to bybo th h ou ses .” Au bu rn Ho us . A uth . v . Ma rti ne

z , 2 77 F. 3d

13 8, 14 7 (2 d C ir. 20 02 ). The Conference Report accompanying the PSLRA explains that “[u]nder this first pr ong of the saf e h arb or, bo ile rpl ate warni ng s w ill no t su ff ice
. . . . Th e ca

uti on ary statem en ts m

us t
co nv eysu bs tantiv e in fo rm ati on

ab out f act ors that re ali sti cal ly c ou ld c au se r esu lts to d if fe r
m ate ria llyfr om

tho se p roj ect ed

in t he fo rw ard -lo ok ing statem en t, s uc h a s, fo r ex am ple , information about the issue r’s busine ss.” Conference Report at 43, 1995 U.S.C.C.A .N. at 742. Whil e th e C on fe ren ce C om m itt ee e xp ect ed

that “c autio nary s tat em en ts i de nti fy im po rtant f act ors that could c ause resul ts to differ materiall y,” it did not expect them to identi fy all factors. Id . a t 44 , 1 99 5 U .S .C .C .A .N . at 74 3. Im po rtantl y, the Co nf

ere nc e C om

m itt ee d ire cte d th at “ [t ]h e u se of the words ‘meaningful’ and ‘important factors’ are [sic] intended t o provide a st andard for the typ es o f c autio nary s tat em en ts u po n w hic h a

co urt m ay , w he re a

pp rop riate, de cid e a m oti on to dis m iss , w ith out ex am ini ng the state o f m ind of the de fe nd an t.” Id . T he Co nf ere nc e C om

m itt ee
expli cit ly a dv ise d th at i ts r eq uir em en t th at the cautio nary s tat em en t id en tif y im po rtant f act s is
no t in ten de d to pro vid e “an o pp ort un ityfo r pl aintif

f c ouns el t o c on du ct d isc ov ery on wh at factors were known to the issuer” a t the ti me the statement was m ade. Id . It str ess ed that “[ c] ourts sh ou ld n ot e xam ine the state o f m ind of the pe rso n m ak ing the statem en t.” Id
.The Eleventh and Sixt h Circuits ha ve held that courts may not inquire i nto a 7 defendant’s sta te of mind. See Edward J. Goodman Life Income Trust v. Jabi l Circuit, I nc ., 594 F. 3d 78 3, 79 5 (1 1th

Ci r. 2 01 0) ( “S o lo ng as t he lan gu ag e ac co m

pany ing the pro

jec tio ns is meaningfully cautionary, the law require s us to be unconcer ned with the spea ker’s st ate of mind at t he tim e h e m ak es t

he pro jec tio ns .” ); Mil ler

v. Ch am pio n E nte rs. , In c. , 3 46 F. 3d

66 0, 67 8 (6 th Cir. 2003) (“No inves tigati on of defendants’ state of m ind is requi red.”). This view is suppor ted by the Sevent h Circuit’ s rule tha t in orderto be protec ted by the 8 cautionar y language prong of the sa fe harbor, an issue r must have disclosed t he “major risks [the iss ue r] ob jec tiv ely fa ced wh enit m ad e it s f

ore cas ts. ” As he r v. Ba

xte r In ter na tio na l In c. , 377 F. 3d 72 7, 73 4 (7 th C ir. 20 04 ). S uc h a rul e is ne ces sar

y, acc ord ing to t

hat co urt , b eca

us e otherwise “a ny issuer coul d list i ts lines of business, say ‘we coul d have problems in any of these,’ and a void liabi lity for sta tements implying that no such proble ms w ere on the hor izon ev enif a p rec ipi ce w as i n s ight.” Id . at 733. And that is our fear here as well. Accepting t he fa cts in t he SA C a s tr

ue , p rio r to m ak ing the May 15 statem en t, t

he de fe nd an ts w ere pre sented with the major and specific r isk that due to risi ng defaults in the underlying bonds, AEFA’s own hig h-y iel d p ort fo lio —in clu din g th e inve stm en t-g rad e sl ice s th at, up to t hat po int , A m eri can Expre ss h ad

ass um ed we re s oli d—

wa s v ery lik ely de ter ior ati ng , b ut t

he y d id n ot w arn

of it.
20 W e find Congress’s dir ections di fficult to apply in t his case. On the one hand, the Co nf ere nc e R ep ort

m ak es q uit e p lai n th at i t do es n ot w an t co urt s to inq uir e into a

de fe nd an t’s state of mind, i.e., a defendant’s knowledge of the risks at the time he made the statements. At 7 the sam e ti m e, ho we ve r, t he Co nf ere nc e R ep ort

req uir es c autio nary s tat em en ts t o c onve y
su bs tantiv e in fo rm ati on

ab out f act ors that re ali sti cal ly c ou ld c au se r esu lts to d if fe r m ate ria lly fr om pro jec tio ns . In

ord er t o a sse ss whe the r an iss ue r ha s id en tif

ied the fa cto rs that re ali sti cal ly
co uld cau se r esu lts to d if

fe r, w e m us t have so m e re fe ren ce b y w hic h to jud ge wh at the rea lis tic factors were atthe time the stat ement was m ade. We think that the most sensible reference is the
m ajo r f act ors that th e d ef

en dants fa ced

at the tim e th e st ate m en t w as m ad e. But th is r eq uir es an inq uir y into what th e d ef

en dants kn ewbe cau se i n o rde r to de ter m ine wh at r isk s th e d ef

en dants fa ced , w e m

us t as k o f what ri sk s w ere the y aware. 8 Co ng res s m aywi shto g ive fu rth er d ire cti on

on ho w t o re so lve thi s te ns ion , and in21

particul ar, the re ference point by which we shoul d judge whether an i ssuer has i dentified the factors that realis ticall y could cause r esults t o differ from projecti ons. May an issue r be pro tec ted bythe m ean ing fu l ca

uti on ary lan gu ag e p ron g o f t

he saf e h arb or e ve n w he re h is
c au ti o n a ry

s tate m e n t o m itte d

am a jo r r is k th a t h e kn e wab o u t at t

h e ti m e h e m a d e th e s tate m e n t? In t his cas e, ho we ve r, w e n eed no t de cid e th at tho rny

iss ue be cau se w e co nc lud e th at at any rate the cauti onary stat ement the defendants point to he re was vague. To avail themselves of safe harbor pr otection unde r the meaningful cautionar y language prong, defendants must demonstrate that t heir caut ionary langua ge was not boilerplate and conveyed substant ive information. Se e Conference Report at 43, 1995 U.S.C.C.A.N. at 742. Th e T hir d C irc uit

ha s inter pre ted thi s d ire cti on

to m ean that: Ca uti on ary lan gu ag e m

us t be ex ten siv e an d s pe cif ic. A v ag ue or b lanke t (bo ile rpl ate ) di scl aim er whic h m ere ly w arn s th e re ad er that th e inve stm en t ha s risks will ordinari ly be inadequat e to prevent misinform ation. To suffice, the cautio nary s tat em en ts m

us t be su bs tantiv e an d ta ilo red

to t he sp eci fi c f

utu re pro jec tio ns , e sti m ate s o r op ini on s in the pro sp ect

us wh ich the pla int if

fs ch all en ge . Ins t. I nv estor s G ro up v. Av ay a, Inc

. , 5 64 F. 3d 24 2, 25 6 (3 d C ir. 20 09 ) (q uo tat ion m ark s, citati ons, and alter ations omitted). Similarl y, the Fifth Circuit has held that “[t]he requirement fo r ‘m ean ing fu l’ c autio ns cal ls f or ‘ su bs tantiv e’ c om

pany -sp eci fi c w arn ing s b ase d o n a rea lis tic descript ion of the risks a pplicable to the part icular c ircumstances, not merely a boil erplate litany of ge ne ral ly a

pp lic ab le r isk

fa cto rs. ” Southland Secs. Corp. , 3 65 F. 3d at 3 72 ; see also Lormand
v. US Un wi red , In c. , 565 F.3d 228, 246-47 (5th Cir. 2009) (concluding t hat cauti onary language was not meaningful where the warning was “ver y vague and general ” and did not “di sclose the specific ri sks and theirmagnitude”). He re, all that th e d ef

en dants po int

to i n s up po rt o f t

he ir argum en t th at the y are p rot ect ed22

bythe cautio nary m ean ing fu l lang ua ge pro ng is the statem en t in the Fo rm 10 -Q that “p ote nti al de ter ior ati on

in t he hig h-y iel d s ect or . . . co uld res ult in f urt he r lo sse s in

AE FA ’s p ort fo lio .” Se e J.A. at 1624. Th e d ef

en dants arg ue that by

inc lud ing thi s la

ng ua ge , th eywarne d o f t

he ex act ris k that cause d their pr ojection t o miss the m ark. But they did not . The defendants’ caut ion, referencing t he deteri oration i n the high-yi eld sectorgenerall y, is vague, and the pleaded facts do not support t he defendants’ ass ertion t hat this i s the exact risk that materialized. I nstead, the pleaded facts suppor t a conclusi on that the r isk that materia lized was tha t risi ng defaults on the bo nd s und erl yin g A EF A’ s o wn inv estm en t-g rad e C DO s w ou ld c au se d ete rio rat ion in A EF A’ s po rtf oli o. Mo reo ve r, e ve n if

we rea d th e d ef

en dants ’ ca

uti on to w arn of po tentia l de ter ior ati on

in AEFA’s own portfolio, it verges on the mere boilerpla te, essent ially warni ng that “if our portfolio dete riorat es, then ther e will be los ses in our por tfolio.” Our conclusion i s bolster ed by the fact that the defendants’ c autionary l anguage
rem ain ed the sam e ev enwh ile the pro ble m ch an ge d. Th e sam e ca

uti on ary lan gu ag e th at ap pe are d in

the May 15 , 2 00 1 F orm

10 -Q wa s in clu de d b y th e d ef en dants in n

um ero us rep ort s as early as J anuary 2001, and appear ed both before and after t he defendants repor ted the $182 million loss and rec eived the ea rly May 2001 comm unications . The consistenc y of the defendants’ langua ge over time despite t he new information they receive d in early M ay 2001 be lie s any c on tentio n th at the cautio nary l an gu ag e w as “ tai lor ed to t he sp eci fi c f

utu re pro jec tio n, ” Avaya, Inc ., 564 F.3d at 256. Se e A sh er , 377 F.3d at 734 (“More over, the
cautio na ry l an gu ag e re m ain ed

fi xe d e ve n a s th e ri sk s ch an ge d. ”); He lw ig v . V en co r, Inc

. , 251 F. 3d 54 0, 55 9 (6 th C ir. 20 01 ) (e n b an c) ( no tingthat “a s th e B ud ge t A ct n ear ed en actm en t an d a s the warni ng sig ns fl are d, Ve nc or’ s p rec autio ns gre w m ore curso ry and ab str act ” an d th at23

“[ s] ub stanti all y s im ilar lang ua ge ” ap pe are d in de fe nd an t’s fi lin gs ov er the co urs e o f s ev era l years), ab ro ga ted

on oth er g

ro un ds byTe lla bs , In c. , 551 U.S. 308. Of co urs e, the cautio nary s tat em en t w e f oc us on he re w as o nly

on e o f m any c autio nary statem en ts i n th e F orm

10 -Q . W e re co gn ize that th e C on fe ren ce C om m itt ee s pe cif

ica llystated that a d ef en dant n eed

no t in clu de the parti cu lar fa cto r th at u lti m ate ly c au ses its pro jec tio n n ot t o come true in order to be protecte d by the meaningful cautionary l anguage prong of the safe harbor, Conference Reportat 44, 1995 U.S.C.C.A.N. at 743, and we do not hold to the contr ary. The defendants, however, car ry the burden of demonstrating t hat they ar e protect ed by the
m ean ing fu l ca

uti on ary lan gu ag e p ron g o f t

he saf e h arb or, an d th eyhave no t ar gu ed that th e o the r fa cto rs t he y id en tif

ied we re i m po rtant f act ors that co uld

rea lis tic all y c au se r esu lts to d if fe r materially. Absent suc h argument, we have no way of knowing if they were. Accordingly, we
co nc lud e th at the de fe nd an ts h av e f ail ed to d em on str ate that th e May 1 5 s tat em en t is pro tec ted bythe cautio nary m ean ing fu l lang ua ge pro ng of the statut ory

saf e h arb or. C. The Plaintiff

s Have Not Shown that the May 15 Stat ement Was Made with Actual Knowledge that It Was M isleading. The safe harbor provi sion also r equires di smissal if the plaint iffs do not “prove that t he forward-looking st atement . . . was . . . m ade or approved by [an exec utive officer] with actual knowledge by that officer that the stat ement was false or misleading.” 15 U.S.C. § 78u5(c )(1 )(B ) (e m

ph asi s ad de d). To do so , th e p lai nti ff s m us t “s tat e w ithparti cu lar itybo th t he fa cts constitut ing the all eged violat ion, and the facts e videncing sci enter, i.e ., the defendant’s i ntention ‘to de cei ve , m an ipu lat e, or d ef rau d. ’” Te lla bs , In c. , 551 U.S. at 313 (quoting Er ns t & E rn st v
. Ho ch fel de r , 425 U.S. 185, 194 & n.12 (1976)). Under thi s heightened pl eading standa rd, a pla int if f m us t pl ead fa cts to s up po rt a strong

inf ere nc e o f s cie nte r, 1 5 U .S .C . § 78 u-4 (b) (2) , th at24

is, the “i nference of scientermust be m ore than merely plausi ble or rea sonable—it must be
co ge nt and

at l eas t as co m

pe lli ng as anyop po sin g in fe ren ce o f n on fr au du lent in tent.” Te lla bs , Inc

. , 5 51 U. S. at 3 14 . M ore ov er, be cau se t he saf e h arb or s pe cif

ies an“ac tua l kn ow led ge ” standard for forward-l ooking state ments, “the scienterrequirement for forward-looking statem en ts i s st

ric ter than f or s tat em en ts o f c urr en t f act . Whe rea s li ab ili ty f

or t he latter req uir es a showing of either knowing falsi ty or reckl essness, li abilit y for the former attaches only upon pro of of kn ow ing fa lsi ty. ” Av ay a, Inc

. , 564 F.3d at 274. The Supreme Court has laid out a t hree-par t prescr iption for carrying out thi s inquiry. First, as wit h any motion to dismiss, we m ust accept all factual allegat ions in the SAC as true. Te lla bs , In c. , 5 51 U. S. at 3 22 . S eco nd , w e m us t co ns ide r th e S AC , a lon g w ithdo cum en ts incorporat ed into the SAC, in thei r entir ety. Id . “ Th e in qu iry
. . . is wh eth er all of the fa cts all eg ed , take n c oll ect ive ly, giv e ri se t o a str on g in fe ren ce o f s cie nte r, n ot whe the r any in div idu al all eg ati on , s crutin ize d in

iso lat ion , m eet s th at s tan dard. ” Id . at 322-23. Third, “ in determining wh eth er the ple ad ed

fa cts giv e ri se t o a

‘stron g’ i nf

ere nc e o f s cie nte r, [ we ] m us t take int o
acc ount p lau sib le o pp os ing inf ere nc es. ” Id . at 32 3. Th is i s b eca us e “[ t] he str en gth

of an inf ere nc e cann ot b e d eci de d in a v acu um [; ]” it “ is i nh ere ntl y c om parat ive : H owlik ely

is i t th at
on e co nc lus ion , a s co m

pared to o the rs, fo llo ws fr om

the un de rly ing fa cts ?” Id . “A complaint wi ll s urv ive
. . . o nly

if a re aso na

ble pe rso n w ou ld d eem

the inf ere nc e o f s cie nte r co ge nt and at lea st a s co m

pe lli ng as anyop po sin g in fe ren ce o ne co uld draw f rom the fa cts all eg ed .” Id . at 324. Th e S EC expla ins that th e May 1 5 s tat em en t co nta ine d three im pli cit fa ctu al asserti ons—“(i) t hat the st atement is genuinely be lieved; ( ii) tha t there i s a reasonabl e basis for that be lie f; an d (i ii) that th e sp eak er i s n ot aware o f anyun dis clo sed fa cts ten din g to ser iou sly25

undermine the accuracy of the s tatement.” Brief for SEC as Am icus Curiae a t 11. It a sse rts that “a forward looking st atement is misleading if the speake r actual ly knows that one or more of the se i m pli cit fa ctu al r ep res en tat ion s is no t tr ue .” Id . at 12; seeIn r e A pp le C om pu ter Se cs. Litig. , 886 F.2d 1109, 1113 (9th Cir. 1989). The par ties agr ee with this statement of the standard. Po int ing to t

he Se dla cek

fa x w arn ing of

los ses , th e Mi nn eap oli s b rie fi ng , at w hic h AE FA ’s C FO sai d h e co uld no t ev engiv e a r an ge of

po tentia l lo sse s, an d th e im m ed iat e form ation of an invest igative t eam to ascertain t he extent of losse s, the plai ntiffs contend that t he defendants had no reas onable basis upon which to issue t he May 15 stat ement. The plaintiffs emphasize that while Crac chiolo tol d Chenault that“[w]e really don’t even know enough t o give you a range,” the May 15 state ment projected that very range—t hat future loss es would be “su bs tantia llylow er. ” T he de fe nd an ts d isa gre e. Th eyarg ue that th e f act s co nta ine d in

the Wal l Street Jour nal Asia art icl e su gg est that th e d ef

en dants fi rst

learne d th at a dd iti on al l os ses wo uld lik ely be hig he r in

Ju ly 2 00 1, sev era l w eek s af ter the May 15 statem en t w as m ad e, wh en Chenault was “stunne d” by Berman and Yowan’s estimate. This new estimate was the resul t of
co ns erv ati ve ass um

pti on s, an d th ere is n oth ing in t he SA C t o in dic ate that th ese m ore conservati ve assumptions had been adopted pr ior to the May 15 state ment, according to the de fe nd an ts. Mo reo ve r, t

he de fe nd an ts c on ten d th at A m eri can Expre ss’ s h ist ory

of dis clo sures about its hi gh-yield por tfolio, and comm encement of an investigati on and prompt disclosure of its fi nd ing s m

us t be co un ted

ag ain st anyinf

ere nc e o f f

rau du lent in tent. Th e d ef en dants urg e th at the pla int if

fs do no t pr ov ide any re aso n w hythe de fe nd an ts w ou ld k no wi ng ly m ak e a f

als e pre dic tio n, in d ev iat ion

fr om the ir u su al p rac tic e o f p rom pt d isc los ure , e ve n th ou ghthe truth26

would inevitabl y come to light within a few weeks. The defendants have not cont ested that the plaint iffs adequately sp eci fie d each stat ement alleged t o have been misleading, see15 U. S. C. § 7 8u -4( b)( 1); Te lla bs , In c. , 551 U.S. at 321, and we conclude thatthey have been ade quately spec ified. The question be fore us is whether t he pla int if fs have stated

wi th p art icu lar ityfa cts giv ing ris e to a st ron g in fe ren ce t

hat th e d ef

en dants made the May 15 statement with actual knowledge that i t was false or misleading. Se e 15 U.S.C. § 7 8u -4( b)( 2); Te lla bs , In c. , 5 51 U. S. at 3 21 . In oth er w ord s, we m

us t de ter m ine wh eth er a
rea so na ble pe rso n w ou ld, ba sed

on the fa cts all eg ed

in t he SA C and

co nta ine d in

the Wal l St

ree t Journal Asia articl e upon which the SAC exclusivel y relies , deem an inference that the de fe nd an ts ( 1) d id n ot g enuin ely be lie ve the May

15 statem en t, ( 2) a ctu all y k ne w that th eyha d
no rea so na

ble ba sis fo r m ak ing the statem en t, o r (3 ) w ere aw are of un dis clo sed

fa cts ten din g to seriousl y undermine the accuracy of the s tatement, “coge nt and at le ast as compelling as a ny op po sin g in fe ren ce. ” Te lla bs, In c. , 5 51 U. S. at 3 23 ; see Apple Computer Secs. Li tig. , 8 86 F. 2d at 1113. While we find this que stion clos e, we conclude that a reasonabl e person would not. Our analysis i s case-spe cific. Se e A va ya , In c. , 5 64 F. 3d

at 2 69 . O ur “

job is n ot t o
scr uti niz e ea chall eg ati on

in i so lat ion

but to ass ess all of

the all eg ati on s h oli sti cal ly. ” Te lla bs , Inc

. , 551 U.S. at 326. W e rest ourconclusion “not on the presenc e or absence of cer tain types of all eg ati on s, but on

a p rac tic al j ud gm en t ab out w he the r, a cce pti ng the wh ole fa ctu al p ict ure pa int ed bythe Co m

pla int , it is at le ast as l ike ly a s n ot t

hat de fe nd an ts a cte d w ithsci en ter .” Av ay a, Inc

. , 564 F.3d at 269. “Just as facts innocent i n themselves may appear m ore suspici ous in the company of other facts, so too can a fact that see ms dam ning when presente d alone
so m eti m es b e expla ine d away b y re fe ren ce t o o the r ci rcum stanc es. ” Id . at 273 n.46.27

W e first consi der the facts i n the SAC that support a n inference of scient er. See S. Cherry St., LLC v. Hennessee Group LLC , 573 F.3d 98, 111 (2d Cir. 2009). As we have alr eady
expla ine d, the fa cts su

pp ort a co nc lus ion

that th e d ef

en dants we re p res en ted

wi th t he hig hly likely r isk that AEFA’s high- yield port folio would deteri orate due t o rising default s in the
un de rly ing de bts in e arl y M ay . T he pla int if fs ’ f act s al so su

pp ort aninf ere nc e th at the de fe nd an ts did no t kn owthe ex tent of

the lik ely

de ter ior ati on . S pe cif

ica lly , at th e earlyMay

m eet ing , a ft er being told t hat even the i nvestment-grade CDO’s, which had been wrongly t hought to be soli d, sh ow ed po tentia l f

or d ete rio rat ion , d ef

en dant C he na

ult ask ed , “ What ar e w e ta lki ng ab out he re?” De fe nd an t C rac ch iol o re sp on de d, “W e re all y d on ’t k no w e no ug h to giv e y ou

a rang e. ” Th ere af ter , th e d ef

en dants bro ug ht i n B erm anan d Y ow anto f ind anan sw er t o C he na

ult ’s qu est ion . T he se a lle ge d f act s su pp ort aninf ere nc e th at the de fe nd an ts a ctu all y k ne w that th ey did not know the exte nt of the deteri oration and t herefore had no rea sonable basi s for predicti ng that ve ry r an ge bystatin g th at “ [t ]o tal los ses on the se i nv estm en ts f

or t he rem ain de r of

20 01 are expected to be substanti ally lower t han in the first quarter.” The many w arnings and “r ed flags,”
su chas t he “hug e al arm

rin gin g, ” J. A. at 1 67 1, de scr ibe d in the Wall Str eet Journal Asi a art icl e further supportthis inferenc e, seeMat rixCa pit al M gm t. F un d, LP v. Be ar ing

Po int , In c. , 576 F. 3d 17 2, 18 8 (4 th C ir. 20 09 ), whic h w e f ind pla us ibl e. W e next conside r “whether [the] inference of scienter i s at leas t as compelling as any opposing inference of nonfraudulent . . . intent,” S. Ch err y S t. , 573 F.3d at 111, bearing i n mind that we cannot “ scrutini ze each all egation in i solation but [m ust] assess al l the all egations ho lis tic all y. ” Te lla bs , In c. , 5 51 U. S. at 3 26 . T he op po sin g n on fr au du lent in fe ren ce i s th at whil e the defendants knew that their hi gh-yield por tfolio was likel y deterior ating, and tha t they did notW e em ph asi ze t hat un de r th is p ron g o f t

he statut ory

saf e h arb or, the pla int if

fs m us t 9 show m ore than re cklessness —an objecti ve inquiry—t hey must show actual subject ive kn ow led ge . T he ref

ore , e ve n if

we we re t o c on clu de , b ase d o n th e al leg ed fa cts , th at the ris k th at los ses wo uld

ex cee d $ 18 2 m ill ion

wa s “s o o bv iou s th at .
. . de fe nd an t[ s] m us t have be enaw are of it, ” see Rolf v. Bly th, Eastman Dillon & Co. , 570 F.2d 38, 47 (2d Cir. 1978) (quot ing Sa nd ers v. John Nuveen & Co. , 554 F.2d 790, 793 (7th Cir. 1977)) , this would not ava il the pl aintiffs. Se e A va ya , In c. , 5 64 F. 3d

at 2 74 (“I n th e ca se o f t

he fo rw ard -lo ok ing statem en ts, ho we ve r, an inf ere nc e o f r eck les sn ess do es n ot ava il p lai nti ff s— that is , it m us t be pla ced

on the no nc ulp ab leexplana tio n s ide of

the ba lan ce whe n w e w eig h c om pe tin g in fe ren ces .” ). 28 know the extent of the det eriorat ion, they subje ctively be lieved tha t the exte nt of the de ter ior ati on

wo uld lea d to los ses that w ou ld b e su bs tantia llyles s th an$1 82 m ill ion . T he fa ct that Chenault was “stunned” by the $400 million figure in July suppor ts such an infere nce. Whil e th e d ef

en dants ’ pr ed ict ion

that lo sse s w ou ld b e su bs tan tia llylow er d oe s g ive us pa us e,
no thi ng in t

he Wall Str eet Journal Asi a art icl e, on wh ich the pla int if

fs ex clu siv ely

rel y, dir ect ly supports the plainti ffs’ contention that the defendants had r eason to beli eve that t he scope of the expected los ses would be comparably large , i.e. t hat they had no bas is to beli eve that t he extent of the los ses wo uld

be su bs tantia llylow er than $ 18 2 m ill ion . S uc h “ om iss ion s an d am big uit ies
co un t ag ain st i nf

err ing sci en ter .” Id . T hat th e lo sse s ev en tua llyrep ort ed in July gre atl y exceeded $182 million li kewise does not under mine the nonfraudulent inference be cause the plainti ffs m ay not plead fraud by hi ndsight. Se e S hie lds v. Ci tyt

ru st B an co rp , In c. , 25 F.3d 1124, 11 29 (2d . C ir. 19 94 ). 9 Im po rtantl y, the pla int if

fs have no t al leg ed

any th eo ry a s to why th e d ef en dants wo uld kn ow ing ly m isl ead

inv est ors . T he pla int if

fs have no t pl ead ed

any f act s su pp ort ing a m oti ve to de cei ve . Whil e “t

he ab sen ce o f a

m oti ve all eg ati on

is n ot f ata l,” m oti ve can

be a re lev an t f

act or,
an d “ pe rso na l f

inanc ial ga in m aywe igh

he av ilyin f

av or o f a sci en ter inf ere nc e. ” Te lla bs , In c. , 55 1 U .S . a t 32 5. “[ T] he sig nif icanc e th at c anbe asc rib ed to an a lle gatio n o f m oti ve , o r la ck29

the reo f, de pe nd s o n th e entir ety of the co m pla int .” Id .; see Teamsters Local 445 , 531 F.3d at 197 (noting tha t because t he plainti ffs “failed to allege t hat anyone at Dynex orMerit ha d a
co m pe lli ng m oti ve to m isl ead inv est ors . . . a

num be r of co m pe tin g in fe ren ces reg ard ing sci en ter arise”) . In evaluat ing scient er under a r ecklessnes s standard out side the cont ext of the safe harbor, where t he plainti ffs need only demonstrate that the defendants acted r ecklessl y, we have stated t hat where the pl aintiffs cannot make a motive showing, to raise a strong inferenc e of scienter , their ci rcumstantial evi dence of fraud must be correspondingly gr eater. ECA & Local 134 IBEW Joint Pensi on Trust of Chicago , 553 F.3d at 198-99. While here we do not apply t he same test that we apply wher e the requi site sci enter is reckless ness, seeid . at 19 8; seege ne ra lly No va k v. Ka sa ks , 216 F.3d 300, 308-09 (2d Cir. 2000), we li kewise conclude t hat where the pla int if fs do no t al leg e f

act s su pp ort ing a m oti ve , und er o ur h oli sti c re vie w, the ir c irc um stanti al evidence of actual knowledge must be correspondingl y greater . Here, the plai ntiffs cir cum stanti al e vid en ce o f a ctu al k no wl ed ge is n ot a de qu ate
. Ins tea d, wh enthe fa cts co nta ine d in the W all Stree t Jo urn al A sia art icl e ar e ex am ine d in the ir e nti rety, the cir cum stanti al e vid en ce s up po rti ng aninf ere nc e o f n on -f

rau du lent in tent is
more com

pelling. Se e T

ell ab s, Inc

. , 552 U.S. at 326. Rather than sugge sting an int ent to decei ve inv est ors , th e f

act s co nta ine d in

that ar tic le e xh ibi t th e d ef

en dants en ga gin g in

a g oo d-f aith process to i nform

themselves and the publi c of the risks. Accor ding to the ar ticle, foll owing a dis clo sure that A m eri can

Expre ss l os t $1 82 m ill ion in i ts h igh -yi eld

de bt i nv estm en ts i n th e f irs t quarter, a nd after lear ning that t here was potent ial dete riorat ion in even the investment-grade CDOs, Chenault asked Berman and Yowan to crunch the numbers using a conserva tive set of
ass um pti on s. W orking with in- house analyst s, Am erican Expre ss was able to dr aw its own30

conclusions a bout the bonds under lying thei r securi ties ins tead of relying on r eports gener ated by outside CDO managers as they had previ ously. Shortly a fter Berman and Yowan reported the results , Am erican Expre ss formally announced an $826 million write- down. These facts do not suppor t an inference t hat American Express was tryi ng to hide
anyth ing fr om

its inv est ors . R ath er, the y s ug ge st t hat A m eri can

Expre ss h ad

dis clo sed its los ses in 2000 and in the fir st quarte r of 2001, and that it was endeavoring i n good faith to ascer tain and disclose futur e losses. Se e B ea ringP oin t, I nc . , 5 76 F. 3d

at 1 87 (“L ate r di scl os ure s th at t im ely rai sed qu est ion s ab out th e re lia bil ityof fi nanc ial inf

orm ati on . . . le nd we igh t to aninf

ere nc e th at
co nte m po ran eo us fi nanc ial statem en ts w ere m ad e in go od fa ith .” ); AC

A F in. Gu ar . C

or p. v. Ad ves t, I nc . , 5 12 F. 3d

46 , 6 6 (1 st C ir. 20 08 ) (c on clu din g th at the pla int if fs ’ in fe ren ce o f s cie nte r
wa s n ot a s st

ron g a s th e n on fr au du lent in fe ren ce b eca us e th e d ef

en dants ’ st ate m en ts “ can did ly lai d o ut t he so rry fi nanc ial his tor

y o f t he co lle ge ”). Or de rin g an inve sti gatio n a s so on as t he y learned t hat the inve stment-grade CDOs m ight be dete riorat ing, and direc ting Berman and Yo wan to us e co ns erv ati ve ass um pti on s, wa s “a

pru de nt c ourse of

act ion that w eak en s rathe r than s tre ng the ns aninf

ere nc e o f s cie nte r.” Ho riz on As set Mgm t. I nc . v . H &R Bloc k, Inc

. , 580 F. 3d 75 5, 76 3 (8 th C ir. 20 09 ); seeHi gg inb otha m v . B ax ter

Int ’l I nc . , 4 95 F. 3d

75 3, 76 1 (7 th C ir. 20 07 ) (“ Takin g th e ti m e n ece ssary t o g et thin gs rig ht i s b oth pro pe r an d lawf

ul. Man ag ers
canno t te ll l ies but ar e entit led to i nv est igate f

or a rea so na ble tim e, un til the y h av e a f ull sto ry t o reveal.”)
. Mo reo ve r, t

he los ses rep ort ed

in July we re the pro du ct o f u sin g d if fe rent as sum

pti on s, represent ing the first time Am erican Expre ss drew its own concl usions rat her than re lying on rep ort s g en erated

byoutsi de CD O m an ag ers , and als o o f t he Co m pany ’s s ub seq

ue nt b us ine ss31

decision t o reduce the l evel of its high- yield port folio. These new assumptions and decisi ons
un de rm ine any in fe ren ce t hat th e d ef

en dants su sp ect ed

the m ag nit

ud e o f l os ses rep ort ed

in July when they made the May 15 statement. Se e A dv est , In c. , 5 12 F. 3d

at 6 6 (c on clu din g th at f

act that th e “d ef

en dants m ayhave be enop eratin g und er a dif fe rent se t of

ass um pti on s” s up po rte d an inf ere nc e th at the y d id n ot s et a tar ge t th at the y k

ne w the y c ou ld n ot a ch iev e). Whil e w e f

ind the inf ere nc e o f f

rau du lent in tent pl au sib le, an d c on sid er this to b e a c los e case, when we examine the record a s a whole, we conclude t hat the infere nce of fraudulent inte nt is n ot “ at l eas t as co m

pe lli ng as anyop po sin g in fe ren ce o ne co uld draw f rom the fa cts all eg ed .” Se e T ellab s, Inc

. , 551 U.S. at 324. Accordingly, the May 15 state ment is protected underthe statutor y safe harbor and the distri ct court c orrectl y dismissed the plaint iffs’ claim under section 10(b) of the Securi ties Exchange Actof 1934. Because “[i]n order to es tablish a prima facie case of liabil ity under § 20( a), a plai ntiff
m us t sh ow. . . a

pri m ary vio lat ion bya co ntr oll ed

pe rso n, ” Boguslavsky v. Kaplan , 159 F.3d 71 5, 72 0 (2 d C ir. 19 98 ), t he dis tri ct c ourt a lso co rre ctl y d ism iss ed the pla int if

fs ’ cl aim un de r section 20( a) of the Securit ies Exchange Act of 1934. IV Fo r th e f ore go ing rea so ns , w e AFFIRM the dis tri ct c ourt’ s ju dg m en t.