amount to fraud if the problem with the loan was "so apparent." Therefore, we must determine if the problems with the VMS loan were "so apparent" at the time of the alleged fraud. According to Harris, defendants committed fraud by failing to increase their loan loss reserve to account for VMS' troubles on October 13, 1989 (press release announcing third quarter results - am. cplt. P24), November 13, 1989 (Form 10-Q for third quarter - am. cplt. P25), January 15, 1990 (press release announcing fourth quarter results - am. cplt. P30), March 14, 1990 (press release stating First Chicago knew of no reason to account for recent activity in its common stock trading) and March 19, 1990 (Form 10-K and 1989 Annual Report - am. cplt. P34).
Harris acquired his First Chicago common stock through a merger with Ravenswood, which was effective on November 1, 1989, some two weeks before VMS' announcement. It is for this reason that Harris, as a former Ravenswood stockholder, cannot prevail under the federal securities laws. Rule 10(b)(5) requires a plaintiff to show that the defendant "(1) made an untrue statement of material fact or omitted a material fact that rendered the statements made misleading, (2) in connection with a securities transaction, (3) with the intent to mislead, and (4) which caused plaintiff's loss." Schlifke v. Seafirst Corp., 866 F.2d 935, 943 (7th Cir. 1989) (emphasis added).
Those persons, like Harris, acquiring First Chicago stock through the Ravenswood merger on November 1, 1989, simply lack standing to satisfy the "in connection with" language of Rule 10b-5. "To satisfy the 'in connection with' language of § 10(b) and Rule 10b-5, a plaintiff must show a causal connection between his decision to buy or sell securities and the defendant's fraudulent conduct." Craig v. First American Capital Resources, Inc., 740 F. Supp. 530, 535 (N.D. Ill. 1990) (citing Schlifke, 866 F.2d at 943). See also McGrath v. Zenith Radio Corp., 651 F.2d 458, 467 (7th Cir. 1981), cert. denied, 454 U.S. 835, 70 L. Ed. 2d 114, 102 S. Ct. 136 (1981) ("in connection with" requirement satisfied if "fraud may be said to 'touch' the transaction involving the purchase").
In an effort to satisfy Rule 10b-5's causation requirement in regard to the Ravenswood merger of November 1, 1989, plaintiff offers defendants' October 13, 1989 press release -- the only statement cited in the amended complaint that theoretically could have been, in terms of timing, "in connection with" the merger. This effort fails. Plaintiff offers only that defendants must have had access to non-public information concerning VMS' troubles on October 13, 1989. "The question is not merely whether the Bank had knowledge of the undisclosed facts; rather, it is the 'danger of misleading buyers [that] must be actually known or so obvious that any reasonable man would be legally bound as knowing'". Schlifke, 866 F.2d at 946 (quoting Sundstrand Corp. v. Sun Chemical Corp., 553 F.2d 1033, 1045 (7th Cir. 1977), cert. denied, 434 U.S. 875, 54 L. Ed. 2d 155, 98 S. Ct. 224 (1977) (emphasis added).
Plaintiff's theory of recovery suffers from several incurable defects. First of all, the allegations are simply insufficient to infer that First Chicago had access to non-public information concerning the plight of VMS one month before the VMS public announcement on November 14, 1989, information that was so material to the well-being of First Chicago that it had a duty to disclose it even if VMS did not. "Although states of mind may be pleaded generally under Fed.R.Civ.P 9(b), the rule requires plaintiffs to plead 'with particularity' any 'circumstances constituting fraud.' . . . 'the complaint must still afford a basis for believing that plaintiffs could prove scienter.'" Robin v. Arthur Young & Co., 915 F.2d 1120, 1127 (7th Cir 1990), cert. denied, 113 L. Ed. 2d 250, 111 S. Ct. 1317 (1991) (citing DiLeo, 901 F.2d at 627, 629). The amended complaint leaves us without such a basis. We are asked to infer that VMS advised First Chicago, a month before its own public disclosure, of such devastating financial reverses that they jeopardized the bank's likelihood of ever recovering upon its VMS loans; that VMS otherwise concealed that information from the public; that First Chicago acquiesced in that concealment; and that the bank in October was well aware that VMS' difficulties were considerably greater than those disclosed on November 14. Those inferences are, however, in the realm of specu-lation.
Secondly, even if we assume First Chicago was privy to some amount of non-public information, plaintiff has offered nothing that would permit an inference that the Ravenswood stockholders' decision to merge with First Chicago -- adopted on September 7, 1989 -- was "in connection with" the October 13, 1989 press release. This five-week differential belies any alleged causation on the part of the Ravenswood stockholders. In short, post-sale misrepresentations are not enough to satisfy 10b-5.
Craig, 740 F. Supp. at 535-36. See also Denny v. Barber, 576 F.2d 465, 468-69 (2d Cir. 1978). Because the former Ravenswood shareholders cannot prevail under 10b-5 in this action, defendants' motion is granted with prejudice.
Plaintiff Harris, as a former Ravenswood stockholder, lacks standing to sue defendants for securities fraud in this action. Therefore, we grant defendants' motion to dismiss the amended complaint with prejudice.
JAMES B. MORAN, Chief Judge, United States District Court