Case 1:21-cv-00511-LAP Document 45 Filed 04/28/22 Page 1 of 27
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`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF NEW YORK
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`SCOTT BISHINS and DARSHAN
`HASTHANTRA, Individually and on Behalf
`of All Others Similarly Situated,
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`Plaintiff,
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`Case No. 1:21-cv-00511-LAP
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`CLEANSPARK, INC., ZACHARY
`BRADFORD, and S. MATTHEW SCHULTZ,
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`
`v.
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`Defendants.
`
`
`DEFENDANTS’ MEMORANDUM OF LAW
`IN SUPPORT OF MOTION TO DISMISS
`
`
`Jay S. Auslander
`Michael Van Riper
`Wilk Auslander LLP
`825 Eighth Avenue, Suite 2900
`New York, NY 10019
`Tel: 212-981-2300
`
`Attorneys for Defendants CleanSpark, Inc.,
`Zachary Bradford, and S. Matthew Schultz
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`
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`

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`Case 1:21-cv-00511-LAP Document 45 Filed 04/28/22 Page 2 of 27
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`TABLE OF CONTENTS
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`PAGE
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`PRELIMINARY STATEMENT .....................................................................................................1
`STATEMENT OF FACTS ..............................................................................................................1
`A. THE PARTIES.....................................................................................................................2
`B. BACKGROUND .................................................................................................................2
`1. The FE1 Timeline ....................................................................................................3
`2. The Culper Report ....................................................................................................3
`C. THE PAST: ALLEGED NON-DISCLOSURE OF EXISTING FACTS
`REGARDING ATL ACQUISITION ..................................................................................4
`1. Previous Owner’s Bankruptcy .................................................................................4
`2. Marathon Retreats From Its Acquisition of ATL ....................................................4
`3. Blue Chip Accounting, LLC Performs a Diligence Audit .......................................5
`D. THE FUTURE: TIMING ESTIMATES FOR EXPANSION OF ATL’S
`BITCOIN MINING OPERATIONS....................................................................................5
`E. CLEANSPARK’S CLEAR AND MEANINGFUL CAUTIONARY LANGUAGE ..........6
`POINT I: PLEADING REQUIREMENTS ARE RIGOROUS .......................................................6
`A. Plaintiffs Must State a Plausible Claim Under Rule 8 .........................................................6
`B. Plaintiffs Must Plead Fraud With Specificity ......................................................................7
`1. Rule 9(b) Requires
`..............................................................................................7
`Particularity
`2. PSLRA Requires Even More Specificity .................................................................7
`a. Alleged Misstatements and Omissions .............................................................7
`b. Scienter .............................................................................................................8
`(1) Motive and Opportunity ...................................................................... .......9
`(2) Conscious Misbehavior and Recklessness .......................................... .......9
`POINT II: PLAINTIFFS FAIL TO STATE A SECTION 10(b) CLAIM .....................................10
`A. Elements of 10(b) Claim ....................................................................................................10
`B. Plaintiffs Fail to Plead Misstatements And Scienter ..........................................................10
`1. Estimates
`............................................................................................11
`a. Contemporaneous Falsity Is Required ............................................................11
`b. The Estimates Are Not Material
`Misstatements or Omissions ............................................................................12
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`i
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`Case 1:21-cv-00511-LAP Document 45 Filed 04/28/22 Page 3 of 27
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`c. Plaintiffs Fail to Allege Scienter .....................................................................14
`2. Statements Regarding ATL Due Diligence ...........................................................15
`a. ATL Analysis Date .........................................................................................15
`b. Bankruptcy of Virtual Citadel .........................................................................16
`c. Competitor’s Decision Not to Buy ATL ..........................................................16
`3. Blue Chip Audit
`............................................................................................18
`4. The Culper Reports and Employee Questions About Them ..................................18
`5. Safe Harbor Applies
`............................................................................................19
`C. Plaintiffs’ Reliance Allegations Are Defective ..................................................................19
`D. Plaintiffs Fail to Plead Loss Causation ..............................................................................19
`POINT III: PLAINTIFFS FAIL TO STATE A SECTION 20(a) CLAIM ....................................20
`CONCLUSION ..............................................................................................................................20
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`ii
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`Case 1:21-cv-00511-LAP Document 45 Filed 04/28/22 Page 4 of 27
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`
`
`TABLE OF AUTHORITIES
`
`Cases
`Abuhamdan v. Blyth, Inc.,
`9 F. Supp. 3d 175 (D. Conn. 2014) .............................................................................. 20
`
`
`Page(s) 
`
`Affiliated Ute,
`406 U.S. 128 (1972) ..................................................................................................... 19
`
`Ashcroft v. Iqbal,
`556 U.S. 662, 129 S.Ct. 1937 (2009) ............................................................................. 7
`
`Ashland Inc. v. Morgan Stanley & Co.,
`652 F.3d 333 (2d Cir. 2011) ........................................................................................... 7
`
`ATSI Commc’ns, Inc. v. Shaar Fund, Ltd.,
`493 F.3d 87 (2d Cir. 2007) ........................................................................................... 21
`
`Cavello Bay Reinsurance Ltd. v. Shubinn Stein,
`986 F.3d 161 (2d Cir. 2021) ........................................................................................... 7
`
`ECA, Loc. 134 IBEW Joint Pension Tr. of Chicago v. JP Morgan Chase Co.,
`553 F.3d 187 (2d Cir. 2009) ....................................................................................... 8, 9
`
`Employees' Ret. Sys. of Gov't of the Virgin Islands v. Blanford,
`794 F.3d 297 (2d Cir. 2015) ........................................................................................... 8
`
`In re Eros Int’l Secs. Litig,
`2017 WL 6405846 ........................................................................................ 8, 10, 12, 16
`
`Finger v. Pearson PLC,
`2019 WL 10632904 (S.D.N.Y. Sept. 16, 2019) .................................................... passim
`
`Gamm v. Sanderson Farms, Inc.,
`944 F.3d 455 (2d Cir. 2019) ..................................................................................... 8, 18
`
`Ganino v. Citizens Utilities Co.,
`228 F.3d 154 (2d Cir. 2000) ........................................................................................... 9
`
`Halliburton Co. v. Erica P. John Fund, Inc.,
`573 U.S. 258, 134 S. Ct. 2398 (2014) .................................................................... 10, 19
`
`Harris v. AmTrust Fin. Servs., Inc.,
`135 F. Supp. 3d 155 (S.D.N.Y. 2015) ............................................................................ 7
`
`iii
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`

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`Case 1:21-cv-00511-LAP Document 45 Filed 04/28/22 Page 5 of 27
`
`
`
`In re AT&T/DirecTV Now Sec. Litig.,
`480 F. Supp.3d 507 (S.D.N.Y. Aug. 18, 2020) ............................................... 12, 13, 16
`
`In re Bear Stearns Cos, Inc. Sec., Derivative, & ERISA Litig.,
`995 F. Supp. 2d 291 (S.D.N.Y. 2014) ............................................................................ 7
`
`In re Bristol-Myers Squibb Sec. Litig.,
`312 F. Supp. 2d 549 (S.D.N.Y. 2004) .......................................................................... 12
`
`In re Diebold Nixdorf, Inc., Sec. Litig.,
`2021 WL 1226627 (S.D.N.Y. Mar. 30, 2021) ....................................................... 12, 14
`
`In re Int’l Bus. Machines Corp. Sec. Litig.,
`163 F.3d 102 (2d Cir. 1998) ................................................................................... 11, 13
`
`In re Longtop Fin. Tech. Ltd. Sec. Litig.,
`910 F Supp. 2d 561 (S.D.N.Y. 2012) ..................................................................... 18, 19
`
`In re Lululemon Sec. Litig.,
`14 F. Supp. 3d 553 (S.D.N.Y. 2014) .................................................................. 9, 14, 15
`
`In re Omnicom Grp. Inc. Sec. Litig.,
`597 F.3d 501 (2d Cir. 2010) ......................................................................................... 20
`
`In re Puda Coal Sec. Inc., Litig.,
`30 F. Supp. 3d 230 (S.D.N.Y. 2014) .................................................................. 9, 15, 18
`
`In re Skechers USA, Inc. Sec. Litig.,
`444 F. Supp. 3d 498 (S.D.N.Y. 2020) .............................................................. 11, 13, 17
`
`Kalnit v. Eichler,
`264 F.3d 131 (2d Cir. 2001) ............................................................................... 8, 11, 15
`
`Lau v. Opera Ltd.,
`527 F. Supp. 3d 537 (S.D.N.Y. 2021) .......................................................................... 20
`
`Lehmann v. Ohr Pharm. Inc.,
`No. 18 CIV. 1284 (LAP), 2019 WL 4572765 (S.D.N.Y. Sept. 20, 2019) ............ passim
`
`Lipow v. Netl UEPS Techs., Inc.,
`131 F. Supp. 3d 144 (S.D.N.Y. 2015) .................................................................... 16, 17
`
`Martin v. Quartermain,
`732 F. App'x 37 (2d Cir. 2018) .............................................................................. 12, 13
`
`Novak v. Kasaks,
`216 F.3d 300 (2d Cir. 2000) ..................................................................................... 9, 12
`
`iv
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`Case 1:21-cv-00511-LAP Document 45 Filed 04/28/22 Page 6 of 27
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`
`
`Sharette v. Credit Suisse Int’l,
`127 F. Supp. 3d 60 (S.D.N.Y. 2015) .............................................................................. 7
`
`South Cherry St., LLC v. Hennessee Group LLC,
`573 F.3d 98 (2d Cir. 2009) ............................................................................................. 9
`
`Tellabs, Inc. v. Makor Issues & Rts., Ltd.,
`551 U.S. 308, 127 S. Ct. 2499 (2007) ................................................................ 8, 16, 17
`
`Tongue v. Sanofi,
`816 F.3d 199 (2d Cir. 2016) ............................................................................... 7, 12, 17
`
`Waggoner v. Barclays PLC,
`875 F.3d 79 (2d Cir. 2017) ..................................................................................... 19, 20
`
`Woolgar v. Kingstone Companies, Inc.,
`477 F. Supp. 3d 193 (S.D.N.Y. 2020) .......................................................................... 13
`Statutes 
`15 U.S.C. § 78u-4 ...................................................................................................... passim
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`v
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`Case 1:21-cv-00511-LAP Document 45 Filed 04/28/22 Page 7 of 27
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`PRELIMINARY STATEMENT
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`First, an anonymous short seller called Culper Research issued an inflammatory, self-
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`serving “report” deriding Defendant CleanSpark, Inc.’s (“CleanSpark”) acquisition of ATL Data
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`Centers LLC (“ATL”) and its data center and bitcoin mining facility. A few days later, this action
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`followed.
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`Like the short-seller reports it leans on, this action has no merit. Plaintiffs go to great
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`lengths to attempt to squeeze securities fraud claims out of benign, true statements: they allege that
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`vague estimates of future timing were unreasonable and that accurate statements about due
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`diligence omitted “facts” that are clearly immaterial. In short, Plaintiffs come nowhere near
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`satisfying the heightened pleading requirements of Federal Rule of Civil Procedure 9(b) and the
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`Private Securities Litigation Reform Act.
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`The claim Plaintiffs assert under Exchange Act Section 10(b) and Rule 10b-5 (together,
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`the “10(b)(5) Claim”) lacks at least three of the necessary elements of such a claim. They identify
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`no material misrepresentation or omission whatsoever. Their allegations do not even approach the
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`very strong inference of “recklessness” that they would have to establish under their chosen theory
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`of scienter. They fail to allege loss causation as well, relying on “corrective disclosures” that are
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`not corrective disclosures and a fraud-on-the-market theory of reliance that undercuts their loss
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`causation allegations. And their reliance allegations are defective as well, because several of the
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`allegedly misleading statements occurred after Plaintiffs purchased their shares.
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`Finally, because Plaintiffs fail to allege the elements of their primary 10(b)(5) Claim, their
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`“control person liability” claim under Section 20(a) of the Exchange Act fails as a matter of law.
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`STATEMENT OF FACTS
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`On December 10, 2020, CleanSpark, Inc. (“CleanSpark”), a provider of innovative and
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`efficient microgrid controls (Amended Complaint ¶ 2) (“AC”), announced its acquisition of ATL
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`Case 1:21-cv-00511-LAP Document 45 Filed 04/28/22 Page 8 of 27
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`Data Centers LLC (“ATL”) and ATL’s principal asset, a data center and bitcoin mining facility in
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`College Park, Georgia (the “ATL Facility”). (AC ¶¶ 3, 61).
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`A.
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`The Parties
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`Defendant CleanSpark is a bitcoin miner, and “an industrial one at that.” (Id. ¶ 27).
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`Defendant Zachary Bradford (“Bradford”) is CleanSpark’s CEO and President. (Id. ¶ 22).
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`Defendant S. Matthew Schultz is CleanSpark’s Executive Chairman and a Director. (Id. ¶ 23).
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`Lead Plaintiff Darshan Hasthantra purchased his shares of CleanSpark between December 31,
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`2020 and March 5, 2021. (AC Ex.1). Plaintiff Scott Bishins bought CleanSpark shares on January
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`8, 2021 and sold all of them on January 14, 2021. (Certification to Compl., ECF No. 1).
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`B.
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`Background
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`CleanSpark’s acquisition of ATL has undeniably succeeded, driving a 400% increase in
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`year-over-year revenue and a seventeen fold increase in net quarterly revenue, with record net
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`income. (See CleanSpark, Inc., Form 10-K 2021, at pp. 35, 39, F-6 (filed Dec. 14, 2021));
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`(CleanSpark, Inc., Form 10-Q 2022 Q1, at p. F-2 (filed Feb. 9, 2022)) (Exs. A and B to the
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`accompanying Declaration of Michael Van Riper). Plaintiffs nevertheless allege that Defendants
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`made material misstatements and omissions regarding CleanSpark’s acquisition of ATL and its
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`anticipated expansion of mining operations throughout the Class Period (December 10, 2020
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`through August 16, 2021, inclusive) (AC ¶ 1) (but see AC ¶ 34 (“The Class Period starts on
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`December 20, 2020.”).
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`In “support,” Plaintiffs cite the wild ravings of a short seller, the anonymous collective
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`known as Culper Research (“Culper”) (Id. ¶¶ 45-54; 101-04) and the post-hoc musings of a
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`holdover from the failed team that managed ATL before CleanSpark acquired it, Former Employee
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`1, who departed in June 2021 (“FE1”) (Id. ¶¶ 67-79).
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`2
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`Case 1:21-cv-00511-LAP Document 45 Filed 04/28/22 Page 9 of 27
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`1.
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`The FE1 Timeline
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`In FE1’s opinion, a set of physical and legal conditions at the ATL mining facility made
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`Bradford’s timing estimates concerning completion of capacity expansion unreasonable. (Id. ¶¶
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`76-77, 80). Yet neither FE1 nor Plaintiffs claim that she or anyone else conveyed those conditions
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`to Bradford, nor that Bradford considered those conditions and agreed that they made his
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`anticipated timeline unreasonable. Rather, the Complaint alleges only that sometime in “January
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`or February 2021” Bradford “tasked FE1 with” preparing a “detailed timeline and construction
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`plan” (the “FE1 Timeline”). (Id. ¶ 75).
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`Tellingly, the Amended Complaint also leaves the actual details of FE1’s “detailed” plan
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`to the reader’s imagination. Beyond allegations that the FE1 Timeline “contemplated a completion
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`date in October 2021,” (Id.) Plaintiffs allege nothing of the FE1 Timeline’s contents.
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`2.
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`The Culper Report
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`Culper is an admitted short-seller, which inclines it towards trashing its targets in order to
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`depress their share price and cover Culper’s short positions.1 (AC ¶ 45 and Ex. 2 at 1-2). On
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`January 14, 2021, Culper issued a report (the “First Culper Report”) titled “Cleanspark (CLSK):
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`Back to the Trash Can” (Id.), in which Culper maligns Defendants at length. The Report especially
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`derides CleanSpark’s acquisition of ATL, opining on the bankruptcy of ATL’s predecessors (id.
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`at 2, 4-6); and postulating (wrongly) that if competing miner Marathon Patent Group (“Marathon”)
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`could not make ATL work, neither could CleanSpark. (Id. at 6). The First Culper Report also
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`1 Indeed, in unrelated litigation, Culper has conceded the “obvious bias” arising from its desire to
`“benefit from declines in [the target’s] share price.” (See Defs.’ Mem. in Supp. Mot. Dismiss 1, 8,
`LifeMD, Inc., et al. v. LaMarco, Culper Research, et al. (W.D. Pa.) (“LifeMD”), ECF No. 19 (Van
`Riper Decl. Ex. C)). Culper aptly describes its own work product as “replete with language of
`conjecture,” (Id. 10), “speculative” (Id.), and “biased opinion.” (Defs. Reply Mem. in Supp. Mot.
`Dismiss 8, LifeMD, ECF No. 24 (Van Riper Decl. Ex. D)).
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`3
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`Case 1:21-cv-00511-LAP Document 45 Filed 04/28/22 Page 10 of 27
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`relies on already public information: As the Complaint concedes, the fact of Virtual Citadel’s
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`bankruptcy, ATL’s acquisition of the data center in the bankruptcy, and Marathon’s decision to
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`walk away from ATL were all matters of public record in court filings and press releases. (Id. ¶¶
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`57-58, 61 n. 16, 47, and 48 n. 10). So, too, were the corporate records and websites Culper
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`reviewed in order to spin its yarn about CleanSpark investors “paying Porsche 911 prices for what
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`amounts to a broken-down Toyota Corolla [i.e., ATL].” (AC Ex. 2 at 2).
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`This action commenced almost immediately thereafter, on January 20, 2021, with an
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`original complaint that did little more than overlay legal boilerplate over a near-verbatim quotation
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`of the First Culper Report. (ECF No. 1). On June 18, 2021, Culper issued a second report (the
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`“Second Culper Report,” and, together with the First Culper Report, the “Culper Reports”),
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`claiming that it could not reconcile CleanSpark’s reported costs and expenses for its mining
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`operations with ATL’s utility bills. (AC ¶¶ 101-03 and Ex. 3).
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`C.
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`The Past: Alleged Non-Disclosure of Existing Facts Regarding ATL Acquisition
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`Plaintiffs claim CleanSpark should have “disclosed” three categories of alleged facts when
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`it announced its acquisition of ATL on December 10, 2020:
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`1.
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`Previous Owner’s Bankruptcy
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`The ATL Facility was previously owned by Virtual Citadel, Inc. (“Virtual Citadel”), an
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`entity that went into receivership in November 2019 and bankruptcy in February 2020 after the
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`death of its founder. (AC ¶¶ 56-58). Virtual Citadel’s management team incorporated ATL on
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`April 13, 2020 (Id. ¶ 61); ATL acquired the data center on or about June 5, 2020 (Id.); and
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`CleanSpark announced its agreement to acquire ATL on December 10, 2020. (Id. ¶ 3).
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`2.
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`Marathon Retreats From Its Acquisition of ATL
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`Virtual Citadel’s team, however, marketed the data center under the name “FastBlock
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`Mining” (“FastBlock”). (Id. ¶¶ 6, 62-63). It was under that name, FastBlock, that Marathon, a
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`4
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`Case 1:21-cv-00511-LAP Document 45 Filed 04/28/22 Page 11 of 27
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`bitcoin miner and CleanSpark competitor, announced its own fleeting bid to acquire the data center
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`on August 26, 2020. (Id. ¶ 63(a)). Marathon withdrew that bid on September 17, 2020, stating in
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`a press release that the expiration of a subsidized power rate agreement a full three years in the
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`future made the project economically infeasible—for Marathon (not CleanSpark). (Id. ¶ 45, 47).
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`3.
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`Blue Chip Accounting, LLC Performs a Diligence Audit
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`FE1 alleges that Blue Chip Accounting, LLC (“Blue Chip”), which Bradford co-founded,
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`conducted two due diligence audits of ATL for CleanSpark. (Id. ¶ 73). To be sure, she is mistaken,
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`but in any event Plaintiffs ignore that CleanSpark has long disclosed its and Bradford’s relationship
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`with Blue Chip as a related party transaction and disclosed that Blue Chip provides bookkeeping,
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`accounting, and administrative support assistance to CleanSpark. (CleanSpark, Inc., Form 10 Q
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`2020 Q3, at p. F-22 (filed Aug. 4, 2020) (Van Riper Decl. Ex. E)).
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`D.
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`The Future: Time Estimates For Expansion of ATL’s Mining Operations
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`Upon acquiring ATL, CleanSpark immediately made plans to expand the mining capacity
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`at the ATL Facility. (AC ¶¶ 3-4, 35). In press releases and statements at investor conferences,
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`Bradford made forward-looking predictions of the dates on which CleanSpark expected it would
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`meet certain target benchmarks for power capacity (as expressed in megawatts) and total
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`processing power (as expressed in petahashes or exahashes), adjusting the expected dates where
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`appropriate.2 Relying heavily on FE1, Plaintiffs claim these were unreasonable. (Id. ¶ 80).
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`2 The alleged statements are: (i) a 12/10/20 press release stating, “[i]t is expected that this
`expansion will begin promptly and be completed in April 2021.” (AC ¶ 118); (ii) at a 12/10/20
`virtual conference for investors, Bradford allegedly, in answer to an investor question, stated,
`“[O]ur expansion from 20 to 50 should happen over the next, call it three, three and a half months.
`So we expect it to be complete by the end of April….” (Id. ¶ 120); (iii) a 12/31/20 press release
`that does not include any estimated date for capacity expansion completion, and states, “We are
`working diligently to expand the data center capacity allowing us to further increase these initial
`estimates [regarding revenue], but the Company’s guidance will remain somewhat conservative
`until the expansion has been completed and we have sufficient date to forecast a firm outlook.”
`(Id. ¶ 122); (iv) a 1/5/21 press release that does not include any estimated date for capacity
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`5
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`Case 1:21-cv-00511-LAP Document 45 Filed 04/28/22 Page 12 of 27
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`E.
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`CleanSpark’s Clear and Meaningful Cautionary Language
`The statements Plaintiffs cite identify themselves as forward-looking statements and
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`incorporate CleanSpark’s existing SEC reports. These are replete with meaningful cautionary
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`language, including warnings that CleanSpark expected to incur losses and that its success
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`depended on the successful integration of acquisitions (specifically including ATL), its
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`management of contract suppliers, its ability to withstand the impact of future growth on operations
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`and systems, and the continued availability of favorable utility rate structures and government
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`subsidies. (CleanSpark, Inc., Press Release, CleanSpark Agrees to Acquire Bitcoin Miner ATL
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`Data Center 5, Dec. 10, 2020 (Van Riper Decl. Ex. F)); (CleanSpark, Inc., Form 10-K 2019, at pp.
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`11, 13-14, filed December 16, 2019 (Van Riper Decl. Ex. G)).
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`POINT I: PLEADING REQUIREMENTS ARE RIGOROUS
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`Strict pleading requirements apply to the securities fraud claims Plaintiffs assert.
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`A.
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`Plaintiffs Must State a Plausible Claim Under Rule 8
`Under FRCP 8, a “complaint must contain sufficient factual matter, accepted as true, to
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`‘state a claim to relief that is plausible on its face.’” Ashland Inc. v. Morgan Stanley & Co., 652
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`F.3d 333, 337 (2d Cir. 2011) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937 (2009)).
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`While a court on a Rule 12(b)(6) motion “‘must accept as true all of the [factual] allegations
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`contained in the complaint,’” it need not accept “‘a legal conclusion couched as a factual
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`expansion completion, and states, “We will continue to provide periodic updates as we make
`additional progress on our expansion plans….” (Id. ¶ 124); (v) a 2/12/21 press release stating that
`the increase in capacity “is expected to be complete by mid-year 2021” (Id. ¶ 126)); (v) at a 2/18/21
`virtual conference, Bradford allegedly stated that “we expect” the capacity expansion to be
`complete “by midsummer” (Id. ¶ 128); (vi) a 3/2/21 press release stating, “[w]e … expect” to reach
`expanded capacity “this summer” (Id. ¶ 130); (vii) a 3/26/21 press release stating, “as previously
`announced, [CleanSpark] intends to reach” expanded capacity “by end of summer, 2021.” (Id. ¶
`132); (viii) a 4/15/21 press release containing the same statement. (Id. ¶ 134); (iv) a 5/6/21 press
`release stating, “The capacity increase is underway and is expected to be complete by summer
`2021.” (Id. ¶ 136).
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`6
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`

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`Case 1:21-cv-00511-LAP Document 45 Filed 04/28/22 Page 13 of 27
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`
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`allegation.’” Harris v. AmTrust Fin. Servs., Inc., 135 F. Supp. 3d 155, 168 (S.D.N.Y. 2015)
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`(quoting Iqbal, 556 U.S. at 678, 129 S.Ct. 1937), aff’d, 649 F. App’x 7 (2d Cir. 2016).
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`The Court may consider documents the complaint attaches or incorporates, see Cavello
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`Bay Reinsurance Ltd. v. Shubinn Stein, 986 F.3d 161, 165 (2d Cir. 2021), as well as SEC filings,
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`see Tongue v. Sanofi, 816 F.3d 199, 209 (2d Cir. 2016), and matters appropriate for “judicial
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`notice.” Sharette v. Credit Suisse Int’l, 127 F. Supp. 3d 60, 75 (S.D.N.Y. 2015).
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`B.
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`Plaintiffs Must Plead Fraud With Specificity
`Securities fraud claims are subject to “the heightened pleading requirements” of both FRCP
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`9(b) and the Private Securities Litigation Reform Act, 15 U.S.C. § 78u-4(b)(2) (“PSLRA”). See,
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`e.g., Lehmann v. Ohr Pharm. Inc., No. 18 CIV. 1284 (LAP), 2019 WL 4572765, at *2 (S.D.N.Y.
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`Sept. 20, 2019) (Preska, J.), aff’d and remanded, 830 F. App’x 349 (2d Cir. 2020)
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`Rule 9(b) Requires Particularity
`1.
`Plaintiffs alleging fraud must “state with particularity the circumstances constituting
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`fraud,” FRCP 9(b), by “(1) specify[ing] the statements that the [claimant] contends were
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`fraudulent, (2) identify[ing] the speaker, (3) stat[ing] where and when the statements were made,
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`and (4) explain[ing] why the statements were fraudulent.” In re Eros Int’l Secs. Litig., 2017
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`WL6405846, at *4 (S.D.N.Y. Sept. 22, 2017). “General, conclusory, or speculative allegations,
`
`unsupported by specific facts, are legally insufficient,” In re Bear Stearns Cos, Inc. Sec.,
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`Derivative, & ERISA Litig., 995 F. Supp. 2d 291, 299 (S.D.N.Y. 2014), as are “hindsight-driven
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`allegations.” See Finger v. Pearson PLC, 2019 WL 10632904, at *14 (S.D.N.Y. Sept. 16, 2019).
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`2.
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`PSLRA Requires Even More Specificity
`a.
`Alleged Misstatements and Omissions
`The “heightened pleading requirements” of the PSLRA also apply to securities fraud
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`claims. ECA, Loc. 134 IBEW Joint Pension Tr. of Chicago v. JP Morgan Chase Co., 553 F.3d
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`Case 1:21-cv-00511-LAP Document 45 Filed 04/28/22 Page 14 of 27
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`
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`187, 196 (2d Cir. 2009). “The PSLRA builds on Rule 9's particularity requirement,” Employees'
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`Ret. Sys. of Gov't of the Virgin Islands v. Blanford, 794 F.3d 297, 304 (2d Cir. 2015) (emphasis
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`added), requiring plaintiffs asserting Exchange Act claims to “specify each statement alleged to
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`have been misleading, the reason or reasons why the statement is misleading, and, if an allegation
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`regarding the statement or omission is made on information and belief the complaint shall state
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`with particularity all facts on which that belief is based.” 15 U.S.C. § 78u-4(b)(1).
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`As with FRCP 9(b), “[c]onclusory and hindsight-driven allegations” do not satisfy the
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`PSLRA’s pleading requirements. Finger, 2019 WL 10632904, at *14.
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`b.
`Scienter
`In addition, the PSLRA requires securities fraud plaintiffs to “plead scienter” – “intent[] to
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`deceive, manipulate, or defraud” – “with particularity.” Kalnit v. Eichler, 264 F.3d 131, 138 (2d
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`Cir. 2001); Eros, 2017 WL 6405846, at *3-4. Thus, securities fraud plaintiffs “must with respect
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`to each act or omission … state with particularity facts giving rise to a strong inference that the
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`defendant acted with the required state of mind.” Gamm v. Sanderson Farms, Inc., 944 F.3d 455,
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`462 (2d Cir. 2019) (emphasis added).
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`In determining whether the plaintiff has satisfied that standard, “a court must consider
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`plausible, nonculpable explanations for the defendant's conduct, as well as inferences favoring the
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`plaintiff.” Tellabs, Inc. v. Makor Issues & Rts., Ltd., 551 U.S. 308, 322–24, 127 S. Ct. 2499, 2509–
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`10 (2007) (emphasis added). The alleged facts must give rise to “an inference of scienter at least
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`as likely as any plausible opposing inference.” Finger, 2019 WL 10632904, at *12.
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`“[F]raud by hindsight” is not sufficient. E.g., Novak v. Kasaks, 216 F.3d 300, 309 (2d Cir.
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`2000). Further, where plaintiffs claim that “defendants had access to contrary facts, they [the
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`plaintiffs] must specifically identify the reports or statements containing this information.” Id.
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`Finally, where the alleged facts do not “‘indicat[e] a clear duty to disclose, plaintiff’s scienter
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`Case 1:21-cv-00511-LAP Document 45 Filed 04/28/22 Page 15 of 27
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`allegations do not provide strong evidence of conscious misbehavior or recklessness.’” Finger,
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`2019 WL 10632904, at *13 (quoting Kalnit, 264 F.3d at 144).
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`To allege facts giving rise to a “strong inference” of scienter, the plaintiff must either “(1)
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`allege facts that constitute strong circumstantial evidence of conscious misbehavior or
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`recklessness, or (2) allege facts to show that defendants had both motive and opportunity to commit
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`fraud.” In re Puda Coal Sec. Inc., Litig., 30 F. Supp. 3d 230, 247 (S.D.N.Y. 2014), aff’d sub nom.
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`Querub v. Hong Kong, 649 Fed. Appx. 55 (2d Cir. 2016).
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`(1) Motive and Opportunity
`The “motive and opportunity” route to scienter may not rest on general allegations that
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`defendants were attempting to maximize corporate profit or their own compensation, however.
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`See, e.g., ECA, Loc. 134 IBEW, 553 F.3d at 198; Ganino v. Citizens Utilities Co., 228 F.3d 154,
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`170 (2d Cir. 2000).
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`(2)
`Conscious Misbehavior and Recklessness
`And the pleading requirements for the other route to scienter, “conscious misbehavior or
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`recklessness,” are demanding as well. “Conscious misbehavior generally consists of deliberate,
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`illegal behavior.” In re Lululemon Sec. Litig., 14 F. Supp. 3d 553, 573 (S.D.N.Y. 2014), aff’d, 604
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`Fed. Appx. 62 (2d Cir. 2015). Recklessness is “‘a state of mind approximating actual intent, and
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`not merely a heightened form of negligence.’” Lehmann, 2019 WL 4572765, at *6 (quoting South
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`Cherry St., LLC v. Hennessee Group LLC, 573 F.3d 98, 109 (2d Cir. 2009)). Pleading recklessness
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`“requires allegations that a defendant’s conduct was highly unreasonable and constitutes an
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`extreme departure from the standards of ordinary care to the extent that the danger was either
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`known to the defendant or so obvious that the defendant must have been aware of it.” Id. (internal
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`quotation marks omitted and emphasis added). See also Finger, 2019 WL 10632904, at *13.
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`Moreover, where scienter is based on “conscious misbehavior or recklessness,” the
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`Case 1:21-cv-00511-LAP Document 45 Filed 04/28/22 Page 16 of 27
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`inference must be even “stronger” than where it is based on “motive and opportunity.” E.g., Finger,
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`2019 WL 10632904, at *12.
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`POINT II: PLAINTIFFS FAIL TO STATE A SECTION 10(b) CLAIM
`Plaintiffs assert a claim under Section 10(b) of the Securities Exchange Act of 1934 (the
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`“Exchange Act”) and Securities and Exchange Commission Rule 10b-5 (“Rule 10b-5”).
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`A.
`
`Elements of 10(b) Claim
`The elements of a claim under Section 10(b) and Rule 10b-5 are: “(1) a material
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`misrepresentation or omission by the defendant; (2) scienter; (3) a connection between the
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`misrepresentation or omission and the purchase or sale of a security; (4) reliance upon the
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`misrepresentation or omission; (5) economic loss; and (6) loss causation.” Halliburton Co. v. Erica
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`P. John Fund, Inc., 573 U.S. 258, 267, 134 S. Ct. 2398, 2407 (2014) (“Halliburton II”).
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`An omission generally is actio