such violations were not disclosed in the statements. This is sharply different than the situation in DiLeo in which the complaint alleged that financial statements did not adequately reserve for loans that are likely to become uncollectible in the future. In the instant case, there was no speculation. The violations had already occurred and the sanctions had already been imposed. Hindsight is irrelevant in such a situation. Also unlike DiLeo, the individual defendants, all directors and/or senior officers, have incentive to withhold disclosure of material information which would have an adverse effect on Abbott. These facts, expressly missing in DiLeo, "afford a basis for believing that plaintiffs could prove scienter." DiLeo, 901 F.2d at 629.
The court concludes that the complaint alleges facts which, if true, establish that defendants acted consciously to defraud investors. The complaint describes a situation in which a corporation and its "insiders" realized the significance of FDA sanctions, know about FDA inspections of their facilities, the violations uncovered and the sanctions imposed, and do not thereafter disclose this material information on SEC filings. To require greater detail of the alleged fraudulent scheme at this time would be tantamount to allowing only those with inside information to bring suit. This is especially true where the heart of the alleged fraud lies with material omissions, a type of fraud which is evidenced by the absence, rather than the presence, of express fraudulent conduct. Thus, the court finds that Morse's first amended complaint notifies defendants of the nature of his rule 10b-5 claim by briefly alleging how the fraudulent scheme operated, when and where it occurred, and the participants. See Tomera v. Galt, 511 F.2d 504, 509 (7th Cir. 1975).
B. INDIVIDUAL CULPABILITY
Defendants argue that Morse's complaint fails "to specify what role each defendant allegedly played in the purported fraudulent scheme. Instead, the complaint lumps all of the defendants together. . . ." (Mem. in Support, p. 6.) However, in cases of corporate fraud where the false or misleading information is conveyed in prospectuses, registration statements, annual reports, press releases, or other "group-published information," it is reasonable to presume that these are the collective actions of the officers. Wool v. Tandem Computers Inc., 818 F.2d 1433, 1440 (9th Cir. 1987); Latimer v. Hall Financial Group, Inc., 1990 U.S. Dist. LEXIS 12028 (N.D. Ill. 1990). Furthermore, Morse has named only those individuals who signed the 10-K and 10-Q statements in which the FDA information was omitted. The individual defendants are alleged to be in corporate positions which ordinarily bear responsibility for financial statement preparation and submission. Once again, requiring Morse to have knowledge of the specific role played by each individual defendant in the alleged fraud effectively bars suits brought by investors who are not privy to the inner workings of corporate management. Rule 10b-5 was not intended to have such a stifling effect on the large number of investors in today's securities markets who are significantly distanced from the operations of the corporations in which they have invested.
C. Aiding and Abetting and Conspiracy Claims
In Morse's complaint, he advances three theories in support of a finding of a Rule 10b-5 violation. (Complaint, para. 45.) One of those theories, that defendants directly violated the Rule, has been discussed above. The complaint also appears to allege aiding and abetting and conspiracy liability for violations of Rule 10b-5. Defendants challenge these two theories based on insufficiency of the allegations. However, Morse does not respond to these challenges. The court interprets this response, or lack thereof, as an indication that Morse desires to pursue Count I as a direct violation of Rule 10b-5, and not under aiding and abetting or conspiracy theories. Accordingly, the court construes Count I as alleging only a direct violation of Rule 10b-5.
II. COUNT II: SECTION 20(a)
Defendants assert that Count II of Morse's amended complaint alleging violations of Section 20(a) of the 1934 Act is redundant of the Section 10(b) and Rule 10b-5 allegations of Count I. Accordingly, defendants urge the court to dismiss Count II under Fed. R. Civ. P. 12(f). (Mem. in Support, p. 9.)
Defendants cite no cases in support of the existence of redundancy between these two sections of the 1934 Act. Section 20(a) imposes joint and several liability on persons who directly or indirectly control a violator of securities laws. Wool v. Tandem Computers Inc., 818 F.2d 1433, 1440 (9th Cir. 1987). Courts have found corporate officers liable under Section 20(a) when their corporation has violated securities laws, such as Rule 10b-5. See, e.g., Wool, 818 F.2d at 1440-42. Accordingly, the court will not dismiss Count II as redundant of Count I.
III. COUNT III: COMMON LAW CLAIMS
Claims for common law fraud and negligent misrepresentation require a showing of actual reliance. Cf. Trautman v. Knights of Columbus, 121 Ill. App. 3d 911, 460 N.E.2d 350, 352, 77 Ill. Dec. 294 (1st Dist. 1984); Board of Education v. A, C & S, Inc., 131 Ill. 2d 428, 546 N.E.2d 580, 591, 137 Ill. Dec. 635 (1989). In regards to this element, Morse's complaint states that
Plaintiff and other members of the Class relied on the misleading statements, in ignorance of their falsity, and/or on the integrity of the market when they purchased Abbott common stock. Plaintiff and other members of the Class would not have purchased Abbott common stock at the prices they paid, if at all, had they been aware of the misleading nature of defendants' public statements.
(Complaint, para. 48.) Morse points to no cases which apply the "fraud on the market" theory to these state claims. Under Fed. R. Civ. P. 9(b), Morse is required to allege actual reliance with particularity. In this respect, the above allegation is insufficient. As correctly stated by defendants, Morse's complaint is void of allegations that Morse or anyone in the class actually read any of the misleading reports or even knew of their existence. Instead, the complaint only states a conclusion that actual reliance existed. Since such allegation fails the particularity requirement of Rule 9(b), Count III must be dismissed.
For the reasons discussed above, defendants' motion to dismiss the first amended class action complaint is DENIED with respect to Counts I and II, and GRANTED with respect to Count III. The parties are urged to discuss settlement of this case.