## F I L E D United States Court of Appeals Tenth Circuit 

### SEP 2 1998 

### PATRICK FISHER Clerk PUBLISH
UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

ROMAN STERLIN, on behalf of himself and all others similarly situated, Plaintiff-Appellant,

v. BIOMUNE SYSTEMS; DAVID DERRICK; AARON GOLD; CHARLES J. QUANTZ; JACK SOLOMON; THE INSTITUTE FOR SOCIAL AND SCIENTIFIC DEVELOPMENT; GENESIS INVESTMENT,

Defendants-Appellees. No. 97-4074

Appeal from the United States District Court

for the District of Utah (D.C. No. 95-CV-944)

Joel Seligman, Dean of The University of Arizona Co llege of Law, Tucson, Arizona, (Edward LaBaton, Lynda J. Grant, James M. Strauss of Goodkind, LaBaton, Rudoff & Sucharow, LLP, New York, New York , and Thomas R. Karrenberg and John T. Anderson of Anderson & Karre nberg, Salt Lake City, Utah, with him on the briefs) for Plaintiff-Appellant. J. Michael Bailey, of Parsons, Behle & Latimer, Sal t Lake City, Utah, and Helen L. Duncan, of LeBoeuf, Lamb, Greene & MacRae, LLP, Los Angeles, California,-2-

(J. Gordon Hansen, Parsons, Behle & Latimer, Salt L ake City, Utah, on the brief for Defendants-Appellees Genesis Investment Corporation and Jack Solomon; Peter N. Greenfeld, of LeBoeuf, Lamb, Greene & MacR ae, LLP, on the brief for Defendants-Appellees Biomune Systems, Inc., David D errick, Dr. Aaron Gold and Charles J. Quantz; and Blake T. Ostler of Burbidge, Carnahan, Ostler & White, Salt Lake City, Utah, on the brief for Defendant-Ap pellee The Institute for Social and Scientific Development) for Defendants-Appellee s.

Before ANDERSON, BALDOCK, and MURPHY, Circuit Judges.

MURPHY , Circuit Judge.

Appellant Roman Sterlin (“Plaintiff”) brought this securities fraud class action suit against Biomune Systems, Inc. (“Biomune ”), David Derrick, Aaron Gold, Charles J. Quantz, Jack Solomon, Genesis Inve stment Corporation (“Genesis”), and the Institute for Social and Scientific Development (“Institute”) (collectively, “Defendants”). The district court d ismissed the action, concluding that Plaintiff’s claims were barred by the statute of limitations. From this dismissal, Plaintiff appeals. This court reverses and remands.
I. BACKGROUND Biomune is a biotech company which, during the rele vant time period, was developing a protein called Immuno-C to be used in enhancing human immune systems. David Derrick was Biomune’s President, CE O, Chairman of the Board, and main spokesperson. Aaron Gold and Charles Quantz were directors of1 Because this case was dismissed under Rule 12(b), w e consider all facts in

the Amended Complaint to be true and construe them in the light most favorable to Plaintiff. See Edwards v. International Union, United Plant Gu ard Workers of Am. , 46 F.3d 1047, 1050 (10th Cir. 1995)

. -3- Biomune. Jack Solomon founded Biomune, the Institute, and Genesis, and was a member of Biomune’s Business Advisory Board. Genes is manages Genesis Trust, whose beneficiaries are Solomon’s family members. Genesis Trust was at one time Biomune’s largest shareholder. Both Derrick and Gold were directors of Genesis. The Institute, a Utah corporation, was al so a shareholder of Biomune. Gold served as a director of the Institute. Plaintiff asserts this “action arises from a fraudof massive proportions,” generally consisting of a “scheme to obtain Biomune ’s listing on NASDAQ, manipulate Biomune’s finances and inflate the price of Biomune stock in order to dump thousands of Biomune shares on the market and earn million[s] of dollars in profits.” Plaintiff’s specific allegations in the Amended Complaint fall into two general categories: those concerning Biomune’s NASD AQ listing and those concerning Biomune’s alleged misrepresentations reg arding the efficacy of
Immuno-C. 1 NASDAQ Listing. Plaintiff alleges that Biomune faced two obstacles in its attempt to obtain a NASDAQ listing. First, Bio mune had to convince the Securities and Exchange Commission (“SEC”) that Sol omon, who was subject to2 Regulation S provides generally that offers or sale s of securities that occur

outside the United States are exempt from the regis tration requirements of § 5 of the Securities Act of 1933. See 17 C.F.R. §§ 230.901-.904. -4- a consent decree for previous securities violations , did not maintain control over the company. Second, Biomune had to sufficiently i ncrease its capital and surplus so that it could qualify for listing. On March 7, 1994, NASDAQ notified Biomune that it w as deferring consideration of its application pending a review b y the NASDAQ Listing Qualifications Committee. NASDAQ was concerned with disciplinary actions taken against “a principal shareholder,” which Plai ntiff alleges was Solomon. According to Plaintiff, Derrick drafted numerous af fidavits, executed by himself and Gold, falsely attesting that Solomon did not ma intain a control relationship with Biomune. With respect to the manipulation of Biomune’s capit al and surplus, Plaintiff alleges that a “fraud network,” consisting of relat ives and friends of Solomon and Derrick, effectuated a “cleanup” of Biomune’s balan ce sheet. Plaintiff alleges this plan took place in three parts during mid to l ate 1993. The first part involved an illegal Regulation S 2 offering of securities to increase Biomune’s capit al and surplus. The second part of the plan consisted of Biomune’s purchase of Furtek Technologies from Brian Furtek, a long-time friend of Derrick, at an inflated price in an attempt to increase Biomune’s asset bas e. The third and final part was3 Plaintiff specifically alleges that Defendants diss eminated false

information concerning the Upton Study in the follo wing disclosures during 1994: March 21 press release; April 12 package to investo rs; April 12 Dow Jones financial newswire; May “dear shareholder” letters; May 23 press release; June 7 research report; June 15 press release; Form 8-KSB filed June 27; July 18 press release; August “dear shareholder” letters; August 11 press release; Form 10-QSB (continued...) -5- intended to eliminate Biomune’s long-term debt by e ntering into a phony settlement agreement with Genesis Trust. Plaintiff alleges that all of these transactions were entered into for the purpose of m anipulating Biomune’s finances so that Biomune could obtain a NASDAQ list ing. Plaintiff further alleges that during 1993 and 1994, Defendants made false and misleading statements regarding the financial stability and co mmercial success of Biomune. Immuno-C Misrepresentations . Plaintiff alleges that in late 1993, Biomune retained Dr. Stephen Upton from the Univers ity of Kansas to perform Immuno-C testing on mice (the “Upton Study”). Plai ntiff further alleges that Dr. Upton’s work was preliminary and contained a numberof biases. Although several tests were unsuccessful, in one preliminarytest Dr. Upton found that Immuno-C seemed to reduce the parasite level in mic e, indicating that Immuno-C may be effective in the treatment of intestinal dis orders. Plaintiff alleges that beginning with a press release on March 21, 1994, D efendants “launched their series of false and misleading announcements about the efficacy of Immuno-C based upon Dr. Upton’s results.” 33 (...continued)

filed August 15; September 21 and 22 press releases ; October 12 press release; and November 3 “dear shareholder” letter. -6- Plaintiff further alleges that in late June or earl y July 1994, Defendants retained Dr. Mark Healey to perform additional test ing of Immuno-C on mice. Dr. Healey completed his testing, which included bo th in vitro and in vivo tests, in early September 1994. The in vivo tests indicat ed that Immuno-C “did not demonstrate therapeutic efficacy,” though Dr. Heale y suggested that further in vivo tests be performed. Dr. Healey’s in vitro tes ts, however, confirmed that Immuno-C may be effective, though once again he rec ommended that further testing be done. Despite Dr. Healey’s recommendations, Defendants de cided not to proceed with additional in vivo testing nor did they immedi ately disclose the results of the in vivo studies. Instead, Plaintiff alleges, Defen dants disseminated several press releases emphasizing and exaggerating the importanc e of Dr. Upton’s preliminary study results and Dr. Healey’s in vitro test result s. Plaintiff further alleges that as a consequence of Defendants’ misleading statements, Biomune’s stock consistently traded at over $12.00 per share (pre-s plit). On January 13, 1995, Biomune filed its Form 10-KSB for the fiscal year ending September 30, 1994. In the Form 10-K, Biomu ne disclosed the results of4 Plaintiff filed his initial Complaint on October 12 , 1995, and, after a

limited merits discovery, filed his Amended Complai nt on August 5, 1996. Unless otherwise noted, all references to Plaintiff’s “Complaint” refer to his Amended Complaint. -7- the Healey in vivo study. Plaintiff alleges that a s a result of this disclosure, Biomune’s stock fell to $7.50 per share (pre-split) and has never recovered. On October 12, 1995, Plaintiff brought this class a ction Complaint 4 on behalf of two classes: all persons who purchased Bi omune common stock during the period September 15, 1993 through January 12, 1 995 (“fraud class”); and all persons who purchased Biomune common stock contempo raneously with the sales of Biomune stock by Defendants Derrick, Genesis, an d the Institute (“insider trading class”). In Count I, against all defendant s, Plaintiff alleges a violation of § 10(b) of the Securities Exchange Act of 1934 (“19 34 Act”) and Rule 10b-5 promulgated thereunder. In Count II, against Derri ck, Gold, Quantz, and Solomon, Plaintiff alleges that each individual def endant is a control person of Biomune and is therefore liable under § 20(a) of th e 1934 Act for the allegedly fraudulent conduct of Biomune. Count III, against Derrick, Genesis, and the Institute, alleges a violation of § 10(b) and Rule 10b-5 based on the defendants’ conduct in their positions as officers, advisors, and/or major stockholders. Finally, Count IV, also against Derrick, Genesis, and the Institute, alleges a-8-

violation of § 20A of the 1934 Act based on the def endants’ alleged insider trading. After Plaintiff filed his Complaint, Defendants mov ed to dismiss, arguing, inter alia , the suit was barred by the applicable one-year st atute of limitations. The district court agreed and dismissed the action. See Sterlin v. Biomune Sys.,
Inc. , 960 F. Supp. 1531 (D. Utah 1997). The district c ourt concluded that an article published in Barron’s on August 1, 1994, which was generally critical of Biomune and its founders, put Plaintiff on “inquirynotice,” thus commencing the one-year limitations period. See id. at 1537. Because he did not file within one year from the date the article was published, the d istrict court concluded that5 The district court dismissed all of Plaintiff’s cla ims against all the

defendants, concluding the claims were barred by th e one-year limitations period applicable for § 10(b) claims. See Sterlin v. Biomune Sys., Inc. , 960 F. Supp. 1531, 1537 (D. Utah 1997). As discussed, in additi on to Plaintiff’s § 10(b) claims against Defendants, Plaintiff also brought an insid er trading claim under § 20A of the 1934 Act against Derrick, Genesis, and the Inst itute. Section 20A provides: Any person who violates any provision of this chapt er or the rules or regulations thereunder by purchasing or selling a s ecurity while in possession of material, nonpublic information shall be liable in an action . . . to any person who, contemporaneously w ith the purchase or sale of securities that is the subject of such v iolation, has purchased . . . or sold . . . securities of the sam e class. 15 U.S.C. § 78t-1(a). Section 20A further provides that “[n]o action may be brought under this section more than 5 years after the date of the last transaction that is the subject of the violation.” Id. § 78t-1(b)(4). Courts have interpreted § 20A as requiring the plaintiff to plead a predicate violation of the 1934 Act or its rules and regulations. See, e.g. , Jackson Nat’l Life Ins. Co. v. Merrill Lynch & Co. , 32 F.3d 697, 703 (2d Cir. 1994); Halkin v. Verifone Inc. (In re Verifone Sec. Litig.) , 11 F.3d 865, 872 (9th Cir. 1993). The district court apparently dismissed Plaintiff’s § 20A claim because the predicate offenses under the 1934 Act, namely the § 10(b) claims, were dismissed as time barred. Plaintiff has not argued on appeal that his § 20A claim should survive even if the § 10(b) claims are ultimately d ismissed. In light of our conclusion that this case must be remanded for the district court to determine whether Plaintiff’s § 10(b) claims were timely file d under the standard announced herein, we need not discuss whether his § 20A claimshould survive the dismissal of his § 10(b) claims. -9- Plaintiff’s claims were time barred. 5 See id. Plaintiff appeals, arguing his Complaint was timely filed.
II. DISCUSSION This court reviews de novo the district court’s det ermination that Plaintiff’s claims are barred by the statute of limitations. See Industrial Constructors Corp. v. United States Bureau of Reclamation , 15 F.3d 963, 967 (10th Cir. 1994). In6 Prior to the Supreme Court’s decision in Lampf , numerous circuits, including this circuit, applied a state limitations period to § 10(b) claims. See Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson , 501 U.S. 350, 354 & n.1 (1991) (discussing split among circuits). Federal law, however, including federal equitable tolling principles, determined when the s tate statute of limitations period accrued. See Ohio v. Peterson, Lowry, Rall, Barber & Ross , 651 F.2d 687, 691 (10th Cir. 1981).

7 The Court specifically cited § 9(e) and § 18(c) of the 1934 Act and § 13 of the 1933 Act. See Lampf , 501 U.S. at 360 nn.6-7, 362. Section 9(e) provid es: “No action shall be maintained to enforce any liabi lity created under this section, (continued...) -10- conducting our review, we accept all well-pleaded a llegations in the Complaint as true and construe them in the light most favorable to Plaintiff. See Edwards v. International Union, United Plant Guard Workers ofAm. , 46 F.3d 1047, 1050 (10th Cir. 1995)

. In Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson , 501 U.S. 350 (1991), the Supreme Court addressed the proper limi tations period for § 10(b) and Rule 10b-5 claims. The Court first noted that beca use private causes of action under § 10(b) are of judicial creation, there is no statutory period of limitation. See id. at 358-59. The Court then concluded that a unifor m federal statute of limitations should apply to § 10(b) claims. 6 See id. at 362. In determining the proper length of the limitations period, the Court rejected the SEC’s contention that the five-year period under § 20A of the 1934 A ct should apply. See id. at 361. The Court opted instead for the one-year/thre e-year structure contained in the Securities Act of 1933 (“1933 Act”) and the 193 4 Act. 7 See id. at 362. The7 (...continued)

unless brought within one year after the discovery of the facts constituting the violation and within three years after such violati on.” 15 U.S.C. § 78i(e). Section 18(c) is virtually identical to § 9(e). See id. § 78r(c). Section 13 provides, in relevant part: No action shall be maintained to enforce any liabil ity created under section 77k or 77 l(2) of this title unless brought within one year af ter the discovery of the untrue statement or the omissi on, or after such discovery should have been made by the exercise of reasonable diligence . . . . In no event shall any such actio n be brought to enforce a liability created under section 77k or 77 l(1) of this title more than three years after the security was bona f ide offered to the public, or under section 77 l(2) of this title more than three years after the sale. Id. § 77m. The Court noted that to the extent the sli ght distinctions in terminology of the various periods might in the future prove significant, it selected the language of § 9(e) of the 1934 Act as the governing standard for an action under § 10(b). See Lampf , 501 U.S. at 364 n.9. The one-year/three-year structure adopted by the Lampf Court thus incorporates a statute of limitations (one year fro m date of discovery) framed by a statute of repose (three years from date of violati on). See Anixter v. Home-Stake Prod. Co. [Anixter I] , 939 F.2d 1420, 1434 (10th Cir.), amended on reh’g , 947 F.2d 897 (10th Cir. 1991), vacated sub nom. Dennler v. Trippet , 503 U.S. 978 (1992). -11- Court therefore concluded that actions under § 10(b ) “must be commenced within one year after the discovery of the facts constitut ing the violation and within three years after such violation.” Id. at 364. The Court rejected the plaintiffs’ argument that th e applicable limitations8 We note that the term “tolling” means “‘to suspend or stop temporarily,’”

whereas the phrase “a cause of action accrues” refe rs to “‘when a suit may be maintained thereon.’” Ebrahimi v. E.F. Hutton & Co., Inc. , 852 F.2d 516, 520 n.6 (10th Cir. 1988) (quoting Black’s Law Dictionary 1334, 19 (5th ed. 1979)). The federal equitable tolling doctrine, however, “i s at times misnamed because it often provides a rule for determining when the limi tation period accrues.” Id. -12- period must be subject to the doctrine of equitable tolling. 8 See id. at 363. Under that doctrine, “where the party injured by the fraud remains in ig norance of it without any fault or want of diligence or care on h is part, the bar of the statute does not begin to run until the fraud i s discovered, though there be no special circumstances or efforts on the part of the party committing the fraud to conceal it from the knowled ge of the other party.” Id. (quoting Bailey v. Glover , 21 Wall. 342, 348 (1875)). Although the Court recognized that “[t]ime requirements in lawsuits . . . are customarily subject to ‘equitable tolling,’” the Court determined that the doctrine is “fundamentally inconsistent” with the one-year/three-year structur e. Id. (alteration and ellipses in original) (quoting Irwin v. Department of Veterans Affairs , 498 U.S. 89, 95 (1990) (internal quotations omitted)). Because the one-year period, “by its terms, begins after discovery of the facts constituting th e violation,” the Court reasoned that tolling is “unnecessary.” Id. Further, because the three-year period is a9 A statute of repose “runs from a fixed date readilydeterminable by the

defendant,” thus serving the need for finality. Caviness v. Derand Resources Corp. , 983 F.2d 1295, 1300 n.7 (4th Cir. 1993). -13- statute of repose, 9 the purpose of which is to “serve as a cutoff,” eq uitable tolling may not be applied to extend that period. Id. Shortly after the Supreme Court’s decision in Lampf , this court stated that the one-year discovery period set forth in Lampf commences when the plaintiff is put on “inquiry notice” of possible misrepresentati ons. Anixter v. Home-Stake Prod. Co. [Anixter I] , 939 F.2d 1420, 1437 (10th Cir.), amended on reh’g , 947 F.2d 897 (10th Cir. 1991), vacated sub nom. Dennler v. Trippet , 503 U.S. 978 (1992). The court noted that those facts triggerin g inquiry notice have been characterized as “‘sufficient storm warnings to ale rt a reasonable person to the possibility that there were either misleading state ments or significant omissions involved in the sale.’” Id. (quoting Cook v. Avien, Inc. , 573 F.2d 685, 697 (1st Cir. 1978)). A. Proceedings Below The district court concluded that an article publis hed in Barron’s on August 1, 1994, put Plaintiff on inquiry notice, thus comm encing the one-year statute of limitations period. See Sterlin , 960 F. Supp. at 1537. The Barron’s article expressed doubt about the veracity of Biomune’s cla ims regarding Immuno-C and-14-

was generally critical of Biomune’s founders. See id. (citing Kathryn M. Welling, A Question of Immunity , Barron’s , Aug. 1, 1994, at 5, 5-6). Plaintiff argues the district court erred in concl uding the Barron’s article put him on inquiry notice of his claims. Among oth er things, Plaintiff argues that because he could not have discovered the results of the Healey study, and thus Defendants’ misrepresentations concerning the effic acy of Immuno-C, until Defendants publicly disclosed the Healey study resu lts in January 1995, he could not have been on notice of his claims as of August 1, 1994, the date the article was published. In other words, Plaintiff essential ly argues that inquiry notice cannot exist until the facts underlying the cause o f action are discoverable. Defendants, on the other hand, contend that the one -year statute of limitations period commences upon inquiry notice, without regar d to when a plaintiff could reasonably have discovered the facts underlying his claims. Both arguments find support in circuit case law and, more specifically, in Tenth Circuit case law.
B. Tenth Circuit Case Law On its face, the Anixter I opinion seems to support Defendants’ argument that the one-year limitations period begins to run when the plaintiff is placed on inquiry notice, regardless of whether an inquiry wo uld have borne fruit. A closer reading of the opinion, however, coupled with subse quent opinions in the Anixter line of cases, suggests that inquiry notice alone m ay not be the determinative-15-

factor, at least when a reasonable investor could n ot reasonably have discovered the facts underlying the alleged fraud until some t ime after being placed on inquiry notice. Moreover, Schwartz v. Celestial Seasonings, Inc. , 124 F.3d 1246 (10th Cir. 1997), a 1997 decision by this court, supports the rationale behind Plaintiff’s argument. The plaintiffs in Anixter I had invested in various oil and gas production programs, known as Program Operating Corporations ( “POCs”), with the expectation of receiving not only a return on theirinvestment but also tax benefits through individual deductions of intangible drillin g costs. See Anixter I, 939 F.2d at 1430. The POCs were formed annually and were se parately registered with the
SEC. See id. The plaintiffs alleged that contrary to the defend ants’ representations, their investments were not directe d at developing oil property but were instead distributed to subsequent investors inthe form of Ponzi payments. See id. The plaintiffs alleged various violations of the federal securities laws based on the defendants’ conduct. See id. at 1429. The district court certified nine separate plaintiff classes, representing inves tors in the 1964-1972 POCs. See id. at 1430, 1436-37. A jury found in favor of the pl aintiffs and awarded damages of approximately $130 million. See id. at 1430. On appeal, the Anixter I court first held that the claims of the 1964-1969 classes were barred by the three-year statute of re pose. See id. at 1436. The court10 The Anixter I court initially discussed whether the plaintiffs’ § 11 and

§ 12 claims were timely filed under the one-year/th ree-year limitations period of § 13 of the 1933 Act. See Anixter I, 939 F.2d at 1433-40. After concluding those claims were untimely under § 13, the court then dis cussed whether the plaintiffs’ § 10(b) claims were similarly barred. The court he ld the claims were barred “based on [its] prior discussion of section 13 to p laintiffs’ express causes of action.” Id. at 1441-42. In its opinion partially granting the plaintiffs’ petition for rehearing, the court clarified that, in accorda nce with the Supreme Court’s decision in Lampf

, the plaintiffs’ § 10(b) claims were subject to th e oneyear/three-year limitations period of § 9(e) of the 1934 Act rather than § 13 of the 1933 Act. See Anixter v. Home-Stake Prod. Co. [Anixter II] , 947 F.2d 897, 899 (10th Cir. 1991), vacated sub nom. Dennler v. Trippet , 503 U.S. 978 (1992). The court held, however, that the analysis of when the limitations period accrues is the same under § 9(e) as under § 13. See id. at 899. In reaching this conclusion, the court rejected the plaintiffs’ argument that § 9(e) requires actual rather than inquiry notice. See id. The Anixter I court’s analysis discussing the accrual of § 11 and § 12 claims under the limitations period of § 13 therefore applies to claims brought under § 10(b). -16- then considered whether the one-year statute of lim itations barred the claims of the 1970-1972 classes. See id. at 1440. In determining when the one-year discovery period accrued for purposes of the 1970-1972 classes, the court stated that “[n]ot ice is the key to our analysis, and merely ‘inquiry notice’ will do.” 10 Id. at 1437. Accordingly, the one-year period “does not ‘commence only when a plaintiff ha s full knowledge of the existence of a claim. On the contrary, the one-yea r limitations period begins to run even when a plaintiff is placed on “inquiry not ice” of possible misrepresentations.’” Id. (quoting DeBruyne v. Equitable Life Assurance Soc’y of the United States , 920 F.2d 457, 466 (7th Cir. 1990)).-17-

The court determined the 1970 and 1971 plaintiff cl asses were put on inquiry notice in early 1971 and that their claims filed March 30, 1973, were therefore barred. See id. at 1440. In February 1971, the SEC filed a compla int against the defendants with respect to the 1970 POC , alleging violations of the registration and antifraud provisions of the federa l securities laws. See id. at 1430-31. Shortly thereafter, the Wall Street Journalpublished an article detailing the SEC’s allegations. See id. at 1431. The district court ultimately ordered th e defendants to make a rescission offer to all partic ipants in the 1970 POC. See id. On April 30, 1971, each participant in the 1970 POC was mailed a copy of the final judgment and a rescission offer prospectus. See id. Participants in the 1971 POC were also informed of the rescission offer by m eans of the 1971 prospectus. See id. at 1438 n.36. In 1973, the IRS and SEC again unde rtook investigations of the defendants. See id. at 1431. In March 1973, the IRS informed the participants in the 1970 and 1971 POCs that it inte nded to disallow their claimed deductions for intangible drilling costs arising fr om the POCs based on its discovery that the defendants had not expended fund s on drilling wells. See id. at 1438. In September 1973, the defendants filed a pe tition for reorganization under Chapter X of the Bankruptcy Act. See id. at 1431. In holding that the claims of the 1970 and 1971 pla intiff classes were barred by the one-year limitations period, the Anixter I court rejected the-18-

plaintiffs’ arguments that they could not have disc overed the fraud until March 1973 when the IRS informed them that the defendants had not expended funds on intangible drilling, but rather had converted the f unds to its own uses. See id. at 1437. Instead, the court concluded the Wall Street Journalarticle, court order, and the rescission offer were sufficient to put pla intiffs on inquiry notice of their claims by April 30, 1971, thereby commencing the on e-year limitations period. See id. at 1438, 1440. Because their complaint was not fi led until March 30, 1973, almost two years later, the claims of the 197 0 and 1971 plaintiff classes were barred. See id. at 1440. The 1972 plaintiff class was added to the action byamendment on May 24,
1974. See id. The court concluded the filing of the original ac tion on March 30, 1973 put the 1972 plaintiff class on inquiry notice , triggering the one-year statute of limitations period. See id. Consequently, the claims of the 1972 class were barred as well. See id. The Anixter I

court stated that the one-year statute of limitati ons period commenced when plaintiffs were put on inquiry notic e, which the court described as sufficient facts to put a reasonable investor onnotice of the possibility of fraud. See id. at 1437. Under a strict application of this stand ard, the one-year limitations period may begin to run before a reason ably diligent investor should11 The Anixter I court did not focus on when the plaintiffs should have reasonably discovered the facts underlying the alle ged fraud. In the background section of the opinion the court noted in passing that the Anixterjury had returned interrogatories on the question of equitable tollin g and further noted that the district court held as a matter of law that the “pl aintiffs did not discover nor should have discovered by the exercise of reasonabl e diligence the violations until September 1973, presumably when [the defendant comp any] filed for bankruptcy reorganization.” Anixter I, 939 F.2d at 1432-33. In the section of the opini on discussing when the one-year limitations period acc rued, however, the court did not discuss the interrogatories or the district cou rt’s finding. The court seemed to view the plaintiffs’ decision to “postpone” filing suit until March 1973 as a tactical decision. See id. at 1439 (“Against these representations, individua l investors made their own decisions based as much ontax considerations as investment concerns.”); id. at 1440 (“Although [the 1970 and 1971 class representatives] knew about the 1971 SEC investigat ion and settlement, both chose neither to investigate further nor to rescindbased on personal investment decisions.”). Not until the Anixter IV decision, discussed infra , did the court discuss the effect of the tolling interrogatories o n the statute of limitations analysis. -19- have discovered the facts underlying the alleged fr audulent activity. 11 In its opinion partially granting the plaintiffs’ petition for rehearing (“Anixter II ”), however, the court seemed to equate inquiry notice with the time when the plaintiffs reasonably should have discovered the fa cts underlying the alleged fraud. See Anixter v. Home-Stake Prod. Co. [Anixter II] , 947 F.2d 897, 899 (10th Cir. 1991), vacated sub nom. Dennler v. Trippet , 503 U.S. 978 (1992). The
Anixter II

court stated that the “plaintiffs were required to show their complaint was timely filed within one year of their notice of the violation, when they knew or should have known.” Id. In a footnote, the court stated that the general rule for when a cause of action accrues under federal law “is an objective test, knows-20-

or should have known; discovers or in the exercise of reasonable diligence should discover, the facts giving rise to the claim.” Id. at 899 n.5; see also Olcott v. Delaware Flood Co. , 76 F.3d 1538, 1549 (10th Cir. 1996) (applying Thi rd Circuit law and stating: “Inquiry notice of the underlying facts giving rise to a potential Rule 10b-5 cause of action is sufficient. The stat ute of limitations period accrued when [the plaintiff] knew or should have known of the Rule 10b-5 violation.” (citation omitted)). The court concluded, however, that its “previous analysis of when plaintiffs were on notice of the violation rem ain[ed] applicable to their § 10(b) claims.” Anixter II, 947 F.2d at 899. After the Anixter I court dismissed the plaintiffs’ § 10(b) claims as t ime barred under the one-year/three-year limitations pe riod, Congress passed legislation effectively overruling the retroactive application of the Supreme Court’s decision in Lampf

. See FDIC Improvement Act of 1991, Pub. L. No. 102- 242, § 476, 105 Stat. 2236, 2387 (codified as Secur ities Exchange Act of 1934 § 27A, 15 U.S.C. § 78aa-1). Under § 27A, courts we re required to apply to preLampf § 10(b) claims the limitations period applicable i n the appropriate jurisdiction prior to Lampf

. See id. Following passage of § 27A, the Anixter plaintiffs sought reinstatement of their § 10(b) cl aims, arguing that under Oklahoma’s two-year limitations period, their claim s were timely filed. See Anixter v. Home-Stake Prod. Co. [Anixter III] , 977 F.2d 1533, 1542 (10th Cir.),12 See Anixter I, 939 F.2d at 1431 n.6. -21- reh’g granted in part , 977 F.2d 1549 (10th Cir. 1992). After concluding that § 27A was constitutional, the Anixter III court granted the plaintiffs’ motion and reinstated their § 10(b) claims. See id. at 1547-48. On petition for rehearing, however, the court deter mined that a remand to the district court was necessary to determine wheth er the 1971 plaintiff class’s § 10(b) claims against the defendant law firm, whic h was added by amendment on May 24, 1974, 12 were timely filed in light of the court’s previous determination that the plaintiffs were on inquiry notice as of Ap ril 30, 1971. See Anixter v. Home-Stake Prod. Co. [Anixter IV] , 977 F.2d 1549, 1551-52 (10th Cir. 1992). The Anixter IV

court first noted that although state law determin es the length of the statutory period, federal law governs when the statute begins to run. See id. at 1551. The court then stated that “‘[t]he crucial i ssue of fact with respect to the commencement of the running of the applicable two-y ear statute of limitations is when the plaintiff actually knew, or in the exercis e of reasonable diligence should have known, of the existence of the alleged fraudul ent . . . activity on the part of the defendants.’” Id. (ellipses in original) (quoting Dzenits v. Merrill Lynch, Pierce, Fenner & Smith, Inc. , 494 F.2d 168, 171 (10th Cir. 1974)). The court recognized that in the Anixter trial, the jury had answered a special interrogatory finding that the 1971 plaintiff class, in the exerc ise of reasonable diligence, could13 In determining when the federal one-year limitation s period accrued in

this case, this court may look to the Anixter IV court’s analysis of when the Oklahoma two-year statute of limitations period acc rued. Although the Anixter IV court applied federal equitable tolling principles to determine when the state limitations period accrued, the Supreme Court notedin Lampf that these same principles are embodied in the federal one-year lim itations period. See Lampf , 501 U.S. at 363 (“The 1-year period, by its terms, begins after discovery of the facts constituting the violation, making tolling un necessary.”). -22- not have discovered the defendant law firm’s involv ement in the alleged fraud until September 1973, presumably when the defendantcompany filed for bankruptcy. See id. The court determined, however, that “[g]iven the many theories of fraudulent concealment presented to the jury and the court’s instructing the jury on equitable estoppel, [it cou ld not] say with certainty whether the jury’s factual finding . . . implicitly incorpo rated a finding that the statute [of limitations] was equitably tolled.” Id. The court therefore remanded to the district court to determine whether the § 10(b) cla ims against the law firm were timely filed. See id . at 1552. Thus, although the Anixter I opinion on its face states that the one-year limitations period commences upon inquiry notice, o r the point when a reasonable investor is put on notice of the possibility of fraud, the subsequent Anixter opinions 13 recognize that when the plaintiffs could not have reasonably discovered the facts underlying the alleged fraud until some p eriod after they were put on inquiry notice, the limitations period should not b egin to run upon inquiry notice.-23-

This reading of the Anixterline of cases is supported by this court’s recent opinion in Schwartz v. Celestial Seasonings, Inc. , 124 F.3d 1246 (10th Cir. 1997). The plaintiff in Schwartzfiled his class action complaint on May 5, 1995, alleging violations of the federal securities laws. See id. at 1255. The plaintiff alleged that during 1993 and 1994 the defendants mi srepresented the circumstances surrounding a potential marketing agr eement with another
company. See id. at 1249. In May 1994, the defendant company annou nced it had entered into discussions to amend or terminate the agreement; after the announcement, the defendant company’s stock prices declined. See id. In considering whether the federal one-year statute of limitations barred the plaintiffs’ claims, this court rejected the defenda nts’ argument that company reports of limited success in 1993 and predictions of limited success in 1994 put the plaintiff on inquiry notice. See id. at 1255. Instead, the court held the action was timely filed because “[n]ot until the May 9, 19 94 Form 10-Q [which first announced the defendant company was considering terminating the agreement] could plaintiff reasonably have discovered the viol ations.” Id.
C. Other Circuits’ Case Law14Not all circuits have addressed whether, under the Supreme Court’s

analysis in Lampf

, an inquiry notice standard, as opposed to an actu al notice standard, should apply to § 10(b) claims. As discu ssed above, this circuit has determined that the one-year discovery period set f orth in Lampf

is subject to an inquiry notice standard. See Anixter II, 947 F.2d at 899. The cases discussed in this section apply an inquiry notice standard and a ddress various securities claims under both state and federal statute of limitations periods (i.e., both pre- and postLampf ). Because the cases discuss when, applying an inq uiry notice standard, the applicable statute should accrue under federal law, the cases are helpful in determining when the one-year limitations period sh ould accrue in this case.

15 This inconsistency may be largely attributable to t he fact that in many cases the court need not decide exactly when the on e-year limitations period began to run, i.e., upon inquiry notice or only whe n the plaintiff reasonably should have discovered the facts underlying the all eged fraud. See, e.g. , Cooperativa de Ahorro y Credito Aguada v. Kidder, P eabody & Co. , 129 F.3d 222, 225 (1st Cir. 1997) (recognizing First Circuitprecedent supported two different accrual dates but concluding court need n ot decide between dates because even assuming later accrual date, plaintiff still filed too late); Law v. Medco Research, Inc. , 113 F.3d 781, 785 (7th Cir. 1997) (citing SeventhCircuit cases applying inconsistent standards and noting th at “none of the cases treats the difference between the two formulas as an issue,” p erhaps because “it made no difference in those cases or the parties had chosennot to make it an issue”). Thus, although there appears to be different standards for determining when the one-year limitations period should accrue, these di fferences may be more semantic than substantive. -24- Cases from other circuits generally apply an inquiry notice standard 14 coupled with some form of reasonable diligence requ irement in determining whether a plaintiff’s securities claims are timely filed. The circuits are not consistent, however, in their determination of exac tly when the one-year limitations period accrues. Moreover, this inconsi stency exists not only among circuits but also within circuits. 1516 Courts generally have not specified under this stan dard within what time

frame the plaintiff must be able to discover the fa cts.

17 The opinion in Great Rivers could also be read as holding that the oneyear limitations period does not begin to run until the plaintiff reasonably should have discovered the facts underlying the alleged fr audulent activity. The court first noted that a reasonable investor would have b een suspicious of possible misrepresentations upon reading an article in a new sletter about a class action suit against the defendant. See Great Rivers Coop. v. Farmland Indus., Inc. , 120 F.3d 893, 898 (8th Cir. 1997). The court further determ ined that a reasonable investor, exercising due diligence, would have acquired actua l notice of the alleged misrepresentations by contacting the representative s and attorneys of that suit. See id. at 898. The court thus concluded that the plainti ff “had inquiry notice shortly after reading the article,” id. at 899, implying that the plaintiff must be given some opportunity to actually discover the fac ts underlying the fraud before the statute of limitations begins to run. See also id. at 896 (“[T]he one-year limitation period begins to run when the victim sho uld have discovered the misrepresentation through the exercise of reasonabl e diligence. This objective standard is commonly referred to as the doctrine of ‘inquiry notice.’”). -25- Some courts have indicated the one-year limitations period begins to run once the plaintiff is put on inquiry notice, so lon g as the plaintiff could acquire actual knowledge of the facts underlying the fraudu lent activity with the exercise of reasonable diligence. 16 For example, in Great Rivers Cooperative v. Farmland Industries, Inc. , 120 F.3d 893 (8th Cir. 1997), the Eighth Circuit stated that “[i]nquiry notice exists when the victim is aware o f facts that would lead a reasonable person to investigate and consequently a cquire actual knowledge of the defendant’s misrepresentations.” 17 Id. at 896. Similarly, in Caviness v. Derand Resources Corp. , 983 F.2d 1295 (4th Cir. 1993), the Fourth Circuit , in discussing the one-year limitation period of § 13, stated that “[§ 13] provides for-26-

the commencement of the one-year limitations period when the plaintiff knows of the facts on which the action is based orhas such knowledge as would put a reasonably prudent purchaser on notice to inquire, so long as that inquiry would reveal the facts on which a claim is ultimately bas ed.” Id. at 1303. Other courts have indicated the one-year limitation s period commences when the plaintiff is placed on inquiry notice, unl ess the plaintiff can show the actual exercise of reasonable diligence to discoverthe fraud. If the plaintiff can show the exercise of such diligence, the limitation s period begins to run when the plaintiff actually discovers the facts underlying t he alleged fraud. If, however, the plaintiff cannot show such actual diligence, co nstructive knowledge of the fraud is imputed to the plaintiff as of the date of inquiry notice. For example, in Dodds v. Cigna Securities, Inc. , 12 F.3d 346 (2d Cir. 1993), the Second Circuit stated that “when the circumstances would suggest t o an investor of ordinary intelligence the probability that she has been defr auded, a duty of inquiry arises, and knowledge will be imputed to the investor who d oes not make such an inquiry.” Id. at 350. The Dodds court further stated that the doctrine of “[e]quitable tolling will stay the running of the s tatute of limitations only so long as the plaintiff has exercised reasonable care and diligence in seeking to learn the facts which would disclose fraud.” Id. (internal quotations omitted).18 The Marks case dismissed the defendant’s reliance on Whirlpool ,

reasoning that the court in Whirlpoolwas “dispos[ing] of the plaintiff’s equitable tolling argument rather than addressing an inquiry notice argument.” Marks v. CDW Comupter Ctrs., Inc. , 122 F.3d 363, 368 n.1 (7th Cir. 1997). -27- The Seventh Circuit, essentially merging the inquiry notice and reasonable diligence standards into one governing standard, ha s indicated that a plaintiff is not put on inquiry notice until the plaintiff reaso nably should have discovered the fraud. See Marks v. CDW Comupter Ctrs., Inc. , 122 F.3d 363, 368 (7th Cir. 1997) (“[I]nquiry notice does not begin to run unless anduntil the investor is able, with the exercise of reasonable diligence (whether or no t actually exercised), to ascertain the information needed to file suit.”); see also Law v. Medco Research,
Inc. , 113 F.3d 781, 785 (7th Cir. 1997) (“[T]he plainti ff gets a year after he learned or should have learned the facts that he mu st know to know that he has a claim.”). An earlier Seventh Circuit case, however , rejected the plaintiff’s argument that “in spite of reasonable diligence, itcould not discover the facts underlying the defendants’ fraud” and held that the one-year limitations period began to run once the plaintiff was placed on inqui ry notice of the possibility of fraud. 18 Whirlpool Fin. Corp. v. GN Holdings, Inc. , 67 F.3d 605, 610 & n.3 (7th Cir. 1995). The First Circuit, based on the same rationale as t he Seventh Circuit, has stated that while “‘storm warnings’ of the possibil ity of fraud trigger a plaintiff’s-28-

duty to investigate in a reasonably diligent manner , . . . his cause of action is deemed to accrue on the date when he should have discovered the alleged fraud.” Maggio v. Gerard Freezer & Ice Co. , 824 F.2d 123, 128 (1st Cir. 1987) (citation omitted). In Cooperativa de Ahorro y Credito Aguada v. Kidder, P eabody & Co. , 129 F.3d 222 (1st Cir. 1997), however, the First Ci rcuit stated that it “need not decide whether the statute of limitations begins to run on the date the storm warnings appear or the later date on which an inqui ring investor would through reasonable diligence have discovered the fraud. Th e time between the two dates in most cases is not likely to be long enough to af fect the outcome.” Id. at 225 (citations omitted) (citing First Circuit cases sup porting both accrual dates). D. Determination of Proper Standard In this case the time between the date Plaintiff wa s allegedly placed on inquiry notice and the date Plaintiff claims he cou ld reasonably have discovered the facts underlying the alleged fraud does affect the outcome. If this court accepts the district court’s determination that Pla intiff was on inquiry notice as of August 1, 1994, the date the Barron’s article was published, but agrees with Plaintiff that a reasonable investor should not hav e discovered the facts underlying the fraud until January 1995, then the t imeliness of Plaintiff’s October 1995 filing hinges on the resolution of whether the limitations period begins to19 We recognize that our phrasing of what constitutes inquiry notice is

different from that of the Seventh Circuit. That c ircuit apparently holds that inquiry notice does not exist until the investor is able to discover the facts underlying the fraudulent activity. See Marks , 122 F.3d at 368. Our holding, however, recognizes that inquiry notice, which is t riggered by evidence of the possibility of fraud, may exist before a reasonable investor is able to discover the facts underlying the alleged fraud. -29- run when an investor is placed on inquiry notice orinstead when the investor should reasonably have discovered the fraud. This court concludes that inquiry notice, as define d by Anixter I, triggers an investor’s duty to exercise reasonable diligence an d that the one-year statute of limitations period begins to run once the investor, in the exercise of reasonable diligence, should have discovered the facts underly ing the alleged fraud. We reach this conclusion after a considered analysis o f this circuit’s precedent, other circuits’ case law, and the policies underlying the securities laws. As indicated above, language in the Anixterline of cases and in Celestial Seasonings supports our holding. See supraPart II.B. Further, consistent with our holding, a recent case from the Seventh Circuithas recognized that the oneyear limitations period should not begin to run unt il a reasonable investor should have discovered the facts underlying the alleged fr audulent activity. 19 See Marks , 122 F.3d at 367-68. Delaying the accrual of the on e-year limitations period until this time is also consistent with the Supreme Court ’s statement in Lampf that-30-

equitable tolling is “unnecessary” because the doct rine is already reflected in the one-year discovery period. Lampf , 501 U.S. at 363. Our holding further strikes a balance between two c ompeting policies underlying the securities laws. While we recognize there is a strong federal interest in requiring plaintiffs to file suit soon after they are put on notice of their claims, the applicable statute of limitations should not pr ecipitate groundless or premature suits by requiring plaintiffs to file sui t before they can discover with the exercise of reasonable diligence the necessary facts to support their claims.
See Anixter I, 939 F.2d at 1440; Law, 113 F.3d at 786. The purpose behind commencing the one-year limitati ons period upon inquiry notice is to discourage investors from adop ting a wait-and-see approach. See Tregenza v. Great Am. Communications Co. , 12 F.3d 717, 722 (7th Cir. 1993) (stating inquiry notice standard discourages tactic of “[h]eads I win, tails you lose.”); Anixter IV

, 977 F.2d at 1552 (stating securities laws are int ended “‘to protect the innocent investor, not one who loses hi s innocence and then waits to see how his investment turns out before he decides to invoke the provisions of the Act’” (quoting Volk v. D.A. Davidson & Co. , 816 F.2d 1406, 1413 (9th Cir. 1987)). Adopting inquiry notice as the point when the one-year limitations period begins to run, however, could lead to valid suits b eing barred because the plaintiff, although on inquiry notice, could not re asonably have discovered within20 As discussed above, some courts have indicated thata plaintiff must

actually exercise due diligence in order to “toll” the one-year limitations period. See, e.g., Dodds v. Cigna Sec., Inc. , 12 F.3d 346, 350 (2d Cir. 1993). This court, however, has indicated that although a plaintiff ha s an “obligation of diligence,” the plaintiff need not show the actual exercise of diligence in order to “toll” the limitations period. Peterson, Lowry, Rall, Barber & Ross , 651 F.2d at 693 n.10, 694-95, 695 n.16 (noting that “[e]quity’s requireme nt that plaintiff prove actual diligence has survived in a few modern federal case s” but applying test based on “hypothetical diligence”). Rather, in deciding whe ther the statute should be tolled, it must be determined whether a “reasonablydiligent plaintiff” would have discovered the fraud. Id. at 694. -31- one year sufficient facts to file a suit which sati sfies the particularized pleading requirements of § 9(b). The objective of encouragi ng investors to file suit as soon as possible is not undermined by delaying the accrual of the statute of limitations until the plaintiffs, in the exercise o f reasonable diligence, should have discovered the facts underlying the alleged fraud. 20 Delaying the accrual of the one-year limitations period until this time does, h owever, ensure that plaintiffs are given the opportunity to adequately develop the fac ts and determine whether those facts merit bringing suit, thus giving meaning to t he term “inquiry.” E. Application of Standard 1. Inquiry Notice The district court determined that an article publi shed in Barron’s on August 1, 1994, entitled “A Question of Immunity,” put Plaintiff on inquiry notice of his claims. In support of its conclusion , the district court quoted the following passages from the article:-32- “The story you’re about to read is true. And in it s broad outlines, alas, oft-told. Not even the names have been changed. Maybe its retelling will protect a few innocents. [The main body of the article is critical of Biomun e’s research and claims regarding the effectiveness of Immuno-C. ] Concludes Hatch, who studied under one of Biomune’s founders at Brigham Young University in the mid-Sev enties, ‘I don’t rule out the one in 100 chance that Biomune actuall y has something. But if I were betting, I’d say the other 99% is goi ng to rule.’ And that’s a bet, it turns out, based on considerab ly more than the scientific evidence. As Hatch knows—and anyone else who cares to take the trouble to research Biomune’s corporate history can discover—ever since its December 1981 founding as N ew Age Corp.—the company’s true raison d’etre hasn’t been shrimp farming in Ecuador or tomato cultivation in Egypt or immuni ty enhancers or any of the other ventures it’s run through. It’s b een to sell shares—or, at the least, to use shares as currency to keep any number of its promoters’ ventures afloat. And who are those promoters? The list is long and their connections colorful, but we will list only one. B iomune founder and consultant of long-standing is a Salt Lake City phi lanthropist, Jack D. Solomon. He owns no Biomune shares, according t o the company’s SEC filings. But a byzantine array of en tities in one way or another affiliated with Solomon own more than 35 % of its stock. As it happens, way back when—in 1983—the federal di strict court in Nevada permanently enjoined Solomon from violations of the registration, antifraud, stock ownership reporting and proxy solicitation provisions of the securities laws. Wi thout admitting or denying the charges, Solomon consented to the filin g of that injunction rather than fight SEC charges that, as p resident and chairman of Advanced Patent Technology Inc., he had illegally sold about 8.7 million shares of unregistered stock in p urported private placements between 1975 and late 1980 to raise mone y for APT’s purchase of a Las Vegas slot machine route business and other gaming-related enterprises. Over that span, APT’s shares climbed from pennies to just under $10—and they subsequentl y went back to pennies, before being delisted from Nasdaq. There’s a lesson there somewhere.”21 Defendants correctly note that many of these suppos edly “sarcastic

comments” made their way into Plaintiff’s original Complaint. -33- Id. at 1533-34 (quoting Kathryn M. Welling, A Question of Immunity , Barron’s , Aug. 1, 1994, at 5, 5-6). Plaintiff argues the district court erred in conclu ding the Barron’s article put him on inquiry notice. He characterizes the article as “consist[ing] primarily of sarcastic comments” 21 and asserts that nothing in the article even “rais es the possibility” that Defendants made knowing misrepres entations about Immuno-C or knowingly manipulated the market for Biomune sto ck. With respect to the alleged misrepresentations about Immuno-C, Plaintif f contends that any storm warnings raised by the article were premature, as t he article was published only nine days after the Healey study commenced and oversix weeks before the Healey results became available. Likewise, with re spect to the fraud claim premised on Biomune’s NASDAQ listing, i.e., the ill egal Regulation S offering, the acquisition of Furtek Technologies, and the settlement arrangement with Genesis, Plaintiff asserts that because the article did not even mention these transactions, “it would have been impossible” for the article to put him on notice. Finally, Plaintiff argues that two “dear shareholde r” letters written by Derrick a few days after the Barron’s article was published sufficiently negated any-34-

suspicions raised by the article so that Plaintiff could not have been placed on inquiry notice. Plaintiff misunderstands the nature of inquiry noti ce. As this court in
Anixter I recognized, Plaintiff “‘need not . . . have fully discovered the nature and extent of the fraud before [he was] on notice that something may have been amiss. Inquiry notice is triggered by evidence of the poss ibility of fraud, not full exposition of the scam itself.’” 939 F.2d at 1438 ( quoting Kennedy v. Josephthal
& Co. , 814 F.2d 798, 802 (1st Cir. 1987)). In other wor ds, “facts in the sense of indisputable proof or any pr oof at all, are different from facts calculated to excite inquiry w hich impose a duty of reasonable diligence and which, if pursued, woul d disclose the fraud. Facts in the latter sense merely constitute objects of direct experience and, as such, may comprise rumors or vag ue charges if of sufficient substance to arouse suspicion.” Cook v. Avien Inc. , 573 F.2d 685, 697 n.25 (1st Cir. 1978) (quoting Tobacco & Allied Stocks v. Transamerica Corp. , 143 F. Supp. 323, 331 (D. Del. 1956)). The district court correctly ruled that the Barron’s article, as a whole, created sufficient “storm warnings” to put a reason able investor on notice of the possibility of fraudulent activity. Importantly, t he Barron’s article questioned whether Biomune’s purpose was to create a viable pr oduct, Immuno-C, or whether it was in business simply to “sell shares.” The article pointed out that Solomon, who, according to Biomune’s SEC filings, owned no s tock, actually owned more than 35% of Biomune’s stock through a “byzantine array of entities.” This22 Although the determination of whether Plaintiff was on inquiry notice is

judged by an objective standard, this court notes t hat Plaintiff’s own buying pattern of Biomune stock supports our conclusion th at the Barron’s article was sufficient to put Plaintiff on inquiry notice. In the 11 months prior to the date the article was published, Plaintiff made 10 purchases of Biomune stock totaling approximately 13,000 shares. The day the article w as published, August 1, 1994, Plaintiff purchased 333.33 shares, and after that d ate, he purchased only 33.33 shares. -35- statement related directly to Plaintiff’s claim that Defendants fraudulently represented to the SEC that Solomon owned no Biomun e stock in order to obtain Biomune’s NASDAQ listing. The article also stated that Solomon had been permanently enjoined in 1983 from violating various provisions of the securities laws. While insufficient by itself to establish in quiry notice, Solomon’s prior history may be considered in determining whether Pl aintiff was on inquiry notice. Cf. Lenz v. Associated Inns & Restaurants Co. of Am

. , 833 F. Supp. 362, 375 (S.D.N.Y. 1993) (“[A]wareness of other lawsuits or criminal fraud convictions involving a defendant puts a plaintiff on inquiry n otice of the probability of fraud within another transaction involving the defendant. ”). The article further raised serious questions about Biomune’s claims regarding the FDA approval process and expressed skepticism about Biomune’s assertions regarding the efficacy of Immuno-C. Finally, as Plaintiff acknowledges in hi s Complaint, the market apparently took notice of the Barron’s article, as the price of Biomune’s stock “suffered a slide” after the article was published. 22 Cf. Law , 113 F.3d at 78423 This court expresses no opinion on Plaintiff’s argu ment that the “dear

shareholder” letters affected his ability to discov er the facts underlying the fraud. -36- (noting that market did not respond to articles cri ticizing defendants and concluding that articles consisted of “premature” s torm warnings). Contrary to Plaintiff’s assertions, the Barron’s article need not discuss each and every aspect of the alleged fraudulent activity to put him on notice of the need to inquire. See In re Valence Tech., Inc. Sec. Litig. , 987 F. Supp. 796, 802- 03 (N.D. Cal. 1997) (rejecting plaintiffs’ argumentthat because Forbes article did not address core allegations, it could not have putthem on inquiry notice). Rather, the article need only alert a reasonable in vestor to the possibility of fraud.
See Anixter I, 939 F.2d at 1438. Once the storm clouds gathered, the “dear sharehold er” letters from Derrick refuting the claims in the article could not dissip ate them. 23 See id. at 1438-39 & 1439 n.37 (holding rescission offer and article putplaintiffs on inquiry notice even though defendant’s CEO issued assurances in re sponse); Great Rivers Coop. , 120 F.3d at 898 (“[The defendant’s] self-serving st atements about the invalidity of the suit do not . . . negate the other pertinentinformation presented in the article.”); In re Valence Tech., Inc. Sec. Litig. , 987 F. Supp. at 803-04 (noting that defendant’s letter disputing substance of article “ should have heightened, not alleviated, a reasonable investor’s suspicion of po tential fraud”); Lenz, 833 F.24 Defendants have advanced nine additional arguments for upholding the

district court’s dismissal of Plaintiff’s Complaint . Because the district court concluded the Complaint was barred by the statute o f limitations, it did not consider any of these arguments. This court declin es to consider the arguments at this time and leaves them for the district court to address in the first instance. -37- Supp. at 376 n.12 (noting that “reassurances accomp anying the relevant notice” do not “relieve[] the plaintiff of his duty to unde rtake reasonable inquiry”). In sum, a reasonable investor would have investigat ed further after reading the Barron’s article. Contrary to Plaintiff’s assertions, the “dear shareholder” letters did not relieve him of his duty to investig ate. This court therefore concludes the article put Plaintiff on inquiry noti ce, triggering the duty to exercise reasonable diligence. 2. Reasonable Diligence The district court did not address whether, in the exercise of reasonable diligence, Plaintiff should have discovered the fac ts underlying the alleged fraudulent activity prior to October 12, 1994, one year before he filed suit. Rather, the district court held the statute began t o run on August 1, 1994, the date the Barron’s article was published. We therefore remand to the district court to determine whether Plaintiff’s Complaint was timely filed under the standard adopted herein. 24
III. CONCLUSION-38-

Based on the foregoing discussion, this court REVERSES the district court’s dismissal of Plaintiff’s Complaint and REMANDS for a determination of whether, under the standard announced herein, Plaintiff’s Complaint was timely filed.