securities fraud under Section 10(b) and Rule 10b-5, “a plaintiff must plead: 1) a
misstatement or omission, 2) of a material fact, 3) made with scienter, 4) on which
plaintiff relied, 5) that proximately caused his injury.” Bryant, 187 F.3d at 1281.
Plaintiff also claims that the individual defendants and the Auditor Defendant
violated Section 20(a) of the Exchange Act, 15 U.S.C. § 78t(a)), which provides for joint
and several liability of “controlling persons” found liable for a securities violation. In full,
Section 20(a) provides:
Every person who, directly or indirectly, controls any person liable under any provision of this chapter or of any rule or regulation thereunder shall also be liable jointly and severally with and to the same extent as such controlled person to any person to whom such controlled person is liable, unless the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation or cause of action.
15 U.S.C. § 78t(a). The Eleventh Circuit has defined “controlling person” as one who “
‘had the power to control the general affairs of the entity primarily liable at the time the
entity violated the securities laws . . . [and] had the requisite power to directly or
indirectly control or influence the specific corporate policy which resulted in the primary
liability.’ ” Brown v. Enstar Group, Inc., 84 F.3d 393, 396 (11th Cir. 1996) (quoting
Brown v. Mendel, 864 F. Supp. 1138, 1145 (M.D. Ala. 1994)).
B. Scienter and Causation
As discussed below, the Whitney Defendants and Auditor Defendant argue that
the CAC is deficient because plaintiff fails to plead scienter or loss causation.6 With
6The Whitney Defendants presented other arguments, including that the CAC is not based on personal knowledge, it does not identify with particularity the misleading statements, it does not plead reliance. As noted at the hearing on defendants’ motion, the Court was not persuaded by these arguments. In their supplemental filing, the Whitney Defendants focus on scienter and causation.