Gsc Partners Cdo Fund; Gsc Partners Cdo Fund Ii, Ltd; Gsc Recovery Ii, L.p. v. Dennis R. Washington

PRECEDENTIAL
UNITED STATES COURT OF
APPEALS
FOR THE THIRD CIRCUIT
______________
No: 03-2347
_______________
GSC PARTNERS CDO FUND;
GSC PARTNERS CDO FUND II, LTD;
GSC RECOVERY II, L.P.,
Appellants
v.
DENNIS R. WASHINGTON;
STEVEN G. HANKS; THOMAS H.
ZARGES;
ANTHONY S. CLEBERG; DAVID H.
BATCHELDER;
LEONARD R. JUDD; ROBERT S.
MILLER, JR.;
DORN PARKINSON; TERRY W.
PAYNE;
JOHN D. ROACH; CREDIT SUISSE
FIRST
BOSTON CORPORATION; JOHN
DOES I THROUGH X
Appeal from the United States District
Court
for the District of New Jersey
(D.C. Civil Action No.01-CV-04905)
District Judge: Honorable Anne E.
Thompson
_____________________
Argued on December 19, 2003
Before: ROTH, MCKEE and
CUDAHY* , Circuit Judges
(Opinion filed May 17, 2004)
Howard J. Kaplan, Esquire (Argued)
Stanley S. Arkin, Esquire
590 Madison Avenue
35th Floor
New York, NY 10022
Bruce H. Snyder, Esquire
Sheppard A. Guryan, Esquire
Lasser Hochman
75 Eisenhower Parkway
Roseland, NJ 07068
Counsel for Appellants
Shannon M. Kasley, Esquire
Beth Heiftz, Esquire (Argued)
Adrian Wager-Zito, Esquire
Megyn M. Kendall, Esquire
Jones Day
51 Louisiana Avenue, N.W.
Washington, D.C. 20001
Robinson B. Lacy, Esquire (Argued)
Sullivan & Cromwell LLP
125 Broad Street
New York, New York 10004
Anthony J. Marchetta
Pitney, Hardin, Kipp & Szuch LLP
P.O. Box 1945
Morristown, New Jersey 07962
___________________
*The Hon.Richard D. Cudahy, Circuit
Judge for the United States Court of
Appeals for the Seventh Circuit, sitting
by designation.

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Christopher J. Carey, Esquire
David Blackwell, Esquire
Graham, Curtin & Sheridan
Four Headquarters Plaza, P.O. Box 1991
Morristown, New Jersey 07962-1991
George T. Manning, Esquire
Jones Day
1420 Peachtree Street, N.E.
Atlanta, Georgia 30309-3053
Counsel for Appellees
O P I N I O N
CUDAHY, Circuit Judge
The background of this case is the
classic corporate love story. Company A
meets Company B. They are attracted to
each other and after a brief courtship, they
merge. Investor C, hoping that the two
companies will be fruitful and multiply,
agrees to pay $50 million for the wedding.
Nine months later, however, things begin
to fall apart and the combined entity
declares bankruptcy. Investor C feels
misled. He believes that Company A
knew that there were problems with
Company B but that it made the oft
repeated mistake of thinking that it would
be able to change Company B for the
better. Investor C files suit in the district
court and after his complaint is dismissed,
we find ourselves here. It is an old story
but it never fails to elicit a tear.
In this case, appellants GSC
Partners CDO Fund, Ltd., GSC Partners
CDO Fund, Ltd. II, LTD., and GSC
Recovery II, L.P. (the plaintiffs) appeal the
district court’s dismissal of their action
against individual officers and directors of
Washington Group International, Inc.
(Washington) and Credit Suisse First
Boston Corporation (CSFB). The
plaintiffs filed this action under section
10(b), Rule 10b-5 of the Securities
Exchange Act of 1934 (the Act), alleging
that their purchase from CSFB of $48.8
million in notes, which Washington used
to finance its acquisition of Raytheon
Engineers & Constructors International,
Inc. (REC), was carried out pursuant to
defendants’ allegedly false and misleading
offering circular. Because the plaintiffs
failed to meet the heightened pleading
requirements of the Act, we affirm the
district court’s grant of defendants’ motion
to dismiss.
I.
Washington is an international
engineering and construction firm that, in
2000, employed approximately 39,000
workers and brought in approximately $5
billion in annual revenue.1 App. at 41, 77.
Defendants Dennis R. Washington, Hanks,
Zarges, Cleberg, Batchelder, Judd, Miller,
Parkinson, Payne, and Roach were officers
and/or directors of Washington during the
acquisition process. App. at 38-9 (Cplt. ¶
14-23).
W a s h i n g t o n r epre s e n t a ti v es
1 Washington was known as Morrison
Knudsen Corporation (sometimes referred to
as MK) before the note offering. App. at 41.
The company filed for bankruptcy
protection in May 2001, and was not named
as a defendant in this action.

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commenced negotiations during the
summer of 1999 for the acquisition of
REC, the engineering and construction
division of Raytheon Company. App. at
42 (Cplt. ¶ 37). After conducting an initial
exam i n a t io n o f RE C’s f inanc ial
information, Washington submitted a non-
binding offer of between $775 and $875
million for the business operations of
REC, subject to its findings in due
diligence. App. at 42 (Cplt. ¶ 39).
Raytheon accepted this offer in September
1999. Id. at ¶ 41. Before finalizing the
deal, Washington began its due diligence
process, which entailed thorough scrutiny
of REC’s financial statements and
projections. Id. In this process, it received
assistance from Arthur Andersen, L.L.P.
Id. at ¶ 41. Meanwhile, the parties began
negotiating a definitive agreement for the
acquisition. Id. at ¶ 40. To augment this
process, Washington employed defendant
CSFB to act as its financial advisor for the
REC purchase. Id. at ¶ 40. CSFB
conducted its own due diligence and had
access to all of Washington’s due
diligence findings as well. Id. at ¶ 43.
Throughout the due diligence process, the
two companies communicated their
findings and concerns to each other. Id.
On October 27, 1999, after one
month of interviews, document reviews
and project site visits, Washington’s
management reported to the Washington
Board its findings regarding the accuracy
of REC’s financial information. App. at
44 (Cplt. ¶ 46), 317. The team was
impressed with the “[s]trong, capable
management team in place” and with
REC’s “solid position in [the] Independent
Power Producer (IPP) market,” as well as
in the rail, power, chemicals, metals
pharmaceutical, pulp and paper, chemical
demilitarization, refinery and heavy
maintenance markets. App. at 320. The
team also noted that the personnel it
worked with had been “cooperative and
forthcoming.” Id. at 317.
The due diligence team expressed
some concerns as well. It cited as among
R E C ’ s g e n e r a l w e a k n e s s e s i t s
“aggressive” and “optimistic” plans for
sales volume and profit growth in certain
businesses, the volatility of the company’s
working capital, the possible lack of
accounting integrity of its unaudited
financial statements and its “[u]nderstated
or undisclosed liabilities.” Id. at 319. In
particular, the team calculated that the
profit projections for some of the
construction projects were inaccurate. For
example, the team revised estimated profit
projections for the “Pine Bluff” project
from $20.2 million to $3.1 million, for the
“SADAF” project from $4.2 million to
$0.8 million and for the Hudson Bergen
project from $61.1 million to $46.9
million. Id. at 326. At the same time,
however, Washington noted, that “[w]ider
leverage of proprietary technology” could
improve some of the pro jects ’
deterio r a t in g m a r g i n s , a n d t h a t
“[o]perational synergies offer [an] upside
to a combined new company.” Id. at 346.
On November 3, defendant Zarges
sent a memorandum to other members of
the Washington management, elaborating
on some of the perceived inaccuracies in
the project profit estimates but projecting

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that if the acquisition went through, even
taking into account the risks, the combined
entity could perform well in the
engineering and construction industry.
App. at 362. Zarges first emphasized that
the findings in the October 27 Board
presentation were not conclusive. Id. He
wrote that, although the Umatilla and Pine
Bluff projects had been presented as
breakeven projects through 2001, they
were at the time of the memo in “loss
positions with deteriorating performance
trends.” App. at 364. The memorandum
reiterated concerns about Raytheon’s
aggressive plans and optimistic positions
on most projects, reporting inconsistencies
and shaky performance history. Id. at 365-
66. Zarges concluded, however, that the
projected operating fee (i.e. profit) in 2000
could, taking into account Washington’s
adjustments to REC’s calculations,
“provide an industry-leading margin of
3.8% on adjusted revenues.” App. at 362.
He added, “This . . . represents quite an
improvement over recent performance
histories . . . [and] is no easy task.” Id.
A month later, on December 2,
1 9 9 9 , d e f e ndan t Han ks sen t a
memorandum to the Board on the progress
of the due diligence team. App. at 362.
He reported that in order to address
Washington’s concerns about the accuracy
of REC’s financial statements, Washington
had hired PricewaterhouseCoopers L.L.P.,
independent accountants, to audit the
financial statements for 1996, 1997, and
1998, and to “review” the financial
statement for 1999. App. at 207, 367.
These audited financial statements
required $350 million of adjustments to
bring them into compliance with Generally
Accepted Accounting Principles (GAAP).
Id. Hanks stipulated that in order to
remedy the discrepancies, it would be
necessary to arrange for an increase in
liabilities assumed by Raytheon of up to
$100 million. Id.
The Washington Board met on
March 14, 2000 to consider the progress of
the due diligence team. App. at 548-88.
The team again reported some concerns
about REC’s financial health, but also
expressed confidence that a partnership
with Washington would improve REC’s
position, “having actually experienced
what it takes to turn a company around.”
App. at 420, 422. The team reported risks
involved in the acquisition of REC, citing
h i s to r i c a l perform a nc e t ha t w as
characterized by large loss projects. Id. at
554. The team revised the projected profit
for the Umatilla project downward to
“22M loss, best case,” an adjustment of
$38 million from REC’s estimate. App. at
559. It also adjusted the projected profit
for the Pine Bluff project from breakeven
to a $20 million loss. Id. REC had
“[p]oor financial controls/accounting
practices,” and the team suspected that
there may have been inadequate
restructuring reserves in The Hague and in
Houston. Id. at 554. The due diligence
team also revised REC’s projected
EBITDA (earnings before interest,
taxes, depreciation and amortization) for
the year 2000, from $143 million to $115
million, assuming that the combined
company would be indemnified by
Raytheon against any downside from
Umatilla and Pine Bluff and that it “would

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incur 50% of the $60 million of
vulnerabilities identified in the due
diligence report.” Id. at 420-21, 567.
In addition, the due diligence team
had encountered practical difficulties in
completing the due diligence. Defendant
Hanks recorded in his notes and reported
to the board that “the due diligence and
negotiation process has been a difficult
one- Raytheon’s procedural rules limited
our opportunities for open and candid
discussions with management, limited our
ability to see company offices and projects
… and Raytheon has not been cooperative
with Washington Group’s attempts to
reconcile the [discrepancies between
financial and operational reports and other
comparative data].” App. at 418, 552.
These limitations led Hanks to suspect that
Raytheon was “hiding serious business
issues and problems.” Id. The same
concern had been recorded in the
November 3 memorandum, which noted
that the “team has been concerned about
the abrupt limits of the due diligence
process and data. With 2 ½ weeks to
evaluate data, the diligence was restricted
to selected high-impact projects and
issues.” App. at 365.
Hanks also recorded in his
presentation notes some high points
disclosed by the due diligence process. He
wrote, “Raytheon’s Power Group is poised
to benefit greatly from the surge in
demand for new power,” and expressed
confidence that “[t]he combination of
MK’s contractors unit with Raytheon’s
Infrastructure business would create the
most experienced and powerful provider of
Design and build services in the
infrastructure market today.” Id. at 422.
In addition, “[t]he combination of MK’s
industrial process unit with Raytheon’s
indu strial unit affords synerge tic
opportunities … and a greatly improved
client base.” Id. at 422-23. He reported
that the due diligence team was not in
complete agreement as to the value of
REC. Id. at 423. He highlighted some
points on which they all agreed, however,
including that “[t]he strengths of MK –
and the strengths of Raytheon are
complementary” and that “the Markets that
the combined MK/Raytheon will serve
going forward are the fastest growing
segments of the industry.” Id. at 424. His
notes concluded by suggesting that
Washington should pursue the acquisition.
Id.
Zarges’ April 3 memorandum was
more positive about the team’s access to
data, reporting that the recent site visits
were “more informative.” App. at 433.
Having been given more access to data,
the team had been able to update its
calculations about profit from operations.
Its findings did confirm some losses. In
large part due to the lower profitability of
the Damshead Creek and San Roque
projects, the team reduced its estimate of
REC’s 2000 operating fee from $63
million to $45 million. Id. at 433, 653,
655. A further memorandum dated July 6
disclosed that for certain projects, the
“total MAC [material adverse changes]
e s t i m a t e – p r o j e c t
deterioration/understated liabilities” was
$73.5 million. App. at 657.
It appears that throughout the due

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diligence process, the due diligence team
and the Washington Board communicated
regularly and frankly about their
assessment of REC’s strengths and
weaknesses. At no point in this process
did the Washington management express
the conviction that the acquisition would
prove a failure. In fact, the management
team took steps to remedy the weaknesses
it pinpointed by renegotiating the purchase
so as to avoid acquisition of liabilities and
risky projects. App. at 81.
On April 14, 2000, Washington
entered into a Stock Purchase Agreement
with Raytheon and REC. Id. The
agreement specified that the purchase
price, which was to be based on the April
30, 2000 balance sheet, would be
approximately $510 million—between
$265 and $365 million less than
Washington’s initial of fer. Id.
W a s h i n g to n w o u l d a c q u i r e t h e
engineering, design, procurement,
construction, operation and maintenance
business of REC, as well as the capital
stock of certain REC subsidiaries. App. at
51 (Cplt. ¶ 78). The purchase price
reflected the exclusion of the four most
significant REC loss projects, for which
Raytheon had agreed to retain liability. Id.
at 51 (Cplt. ¶ 77), 81. Raytheon also
agreed to “retain specified assets” of REC
and to indemnify Washington for
“specified liabilities of REC and its
subsidiaries.” App. at 81. Later,
Washington was able to get Raytheon to
retain partial liability for the Umatilla
project as well, which Washington had
predicted was in a position to show a loss
of $22 million. See Supp. App. (discussed
supra at n.1).
On July 7, 2000, Washington’s
acquisition of REC closed. App. at 52
(Cplt. ¶ 82). The acquisition was primarily
financed through the $300 million note
offering, sold pursuant to a confidential
offering circular dated June 28, 2000. Id.
at ¶¶ 86-7. The offering circular included
certain audited financial statements as well
as unaudited financial statements for the
first quarter of 1999 and the first quarter of
2000. App. 286-96. Defendant CSFB was
one of the lead underwriters and initial
purchasers of the notes. App. at 53 (Cplt.
¶ 88). It purchased $225 million in
principal amount of the notes, then offered
and resold some of those notes to the
petitioners, who purchased $48.8 million
face amount of notes. Id. (Cplt. ¶ 93).
On October 23, 2000, Washington’s
Form 10-Q filing announced that as a
result of “a comprehensive review” of
REC’s existing contracts, Washington
“reduced [REC’s] net assets relating to
long-term contracts in the preliminary
purchase price by approximately $325
[million] . . . [and] had made reductions in
net contract assets in the preliminary
purchase price allocation of approximately
$225 [million].” App. at 58-59 (Cplt. ¶
105). Washington also disclosed that it
had to record approximately $1.2 billion in
goodwill. Id. In a press release dated
March 2, 2001, Washington disclosed that
“[s]everal [REC] projects had serious
undisclosed problems and were in trouble”
before it acquired REC. App. at 59 (Cplt.
¶ 110). It noted that as of September 1,

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2000, Washington had reduced REC’s
assets and increased its liabilities by
approximately $700 million from the
amounts originally estimated. App. at 60
(Cplt. ¶ 111). On March 8, 2001,
Washington’s Form 8-K filing indicated
that REC’s financial statements referred to
in the circular should not be relied upon.
Id. at ¶ 112.
On May 14, 2001, Washington and
some of its subsidiaries filed petitions in
bankruptcy in the Bankruptcy Court in
Nevada for relief pursuant to Chapter 11 of
the Bankruptcy Code. Id. at 61 (Cplt. ¶
117). Washington also filed a complaint
in a Idaho state court against Raytheon
alleging fraudulent inducement, fraud and
misrepresentation, requesting rescission or
specific performance. App. at 455-81.
That suit was apparently settled in
November 2001, and is under a
confidentiality restriction. Pl. Br. at 17
n.4. Plaintiffs commenced this action
alleging violation of federal and state
securities laws. Id. at 37-8. In January
2002, the defendants filed a motion to
dismiss plaintiffs’ amended complaint.
Although no formal discovery had taken
place in the civil action, the plaintiffs were
a b l e t o o b t a in a c c es s t h ro u g h
Washington’s bankruptcy to documents
discussed in the instant opinion. The
district court granted the defendants’
motion, holding that the complaint failed
to state a cause of action for securities
fraud. App. at 1. This appeal followed.
II.
We exercise plenary review over
the district court’s decision to grant the
defendants’ motions to dismiss. See
Broselow v. Fisher, 319 F.3d 605, 607 (3d
Cir. 2003). We also exercise plenary
review over the district court’s
interpretation of federal securities laws.
See Oran v. Stafford, 226 F.3d 275, 281
n.2 (3d Cir. 2000); In re Westinghouse
Sec. Litig., 90 F.3d 696, 706 (3d Cir.
1996). We accept all allegations in the
plaintiffs’ complaint as true and draw all
reasonable inferences in favor of the non-
moving party. See Oran, 226 F.3d at 279.
A court may look beyond the complaint to
extrinsic documents when the plaintiffs’
claims are based on those documents. See
In re Burlington Coat Factory Sec. Litig.,
114 F.3d 1410, 1426 (3d Cir. 1997). A
court may not dismiss the complaint unless
it appears beyond doubt that the plaintiffs
can prove no set of facts in support of their
claims that would entitle them to relief.
See In re Rockefeller Ctr. Props., Inc. Sec.
Litig., 311 F.3d 198, 215-16 (3d Cir.
2002).
The plaintiffs allege a violation
under Section 10(b) of the 1934 Securities
Exchange Act and Rule 10b-5 under it. In
order to state a claim under Rule 10b-5,
plaintiffs must allege “with particularity”
that defendants (1) made a misstatement or
omission of material fact (2) with scienter
(3) in connection with the purchase or the
sale of a security (4) upon which the
plaintiffs reasonably relied and (5) the
plaintiffs’ reliance was the proximate
cause of their injury. Semerenko v. Cedant
Corp., 223 F.3d 165, 174 (3d. Cir. 2000);
see also In re Westinghouse, 90 F.3d at
710.
The plaintiffs’ securities fraud
claim is also subject to heightened

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pleading requirements. Under Federal Rule
of Civil Procedure 9(b), “[i]n all averments
of fraud . . . , the circumstances
constituting fraud . . .shall be stated with
particularity. Malice, intent, knowledge,
and other condition of mind of a person
may be averred generally.” Fed. R. Civ. P.
9(b). This particularity requirement is
“rigorously applied in securities fraud
cases.” Burlington, 114 F.3d at 1417. The
Private Securities Litigation Reform Act
(PSLRA), 15 U.S.C. § 78u, “imposes
another layer of factual particularity to
allegations of securities fraud.” In re
Rockefeller, 311 F.3d at 217. If a
complaint fails to comply with the
PSLRA’s pleading requirements, dismissal
is mandatory. 15 U.S.C. § 78u-4(b)(3)(A).
The PSLRA requires the complaint to
specify “each statement alleged to have
been misleading, the reason or reasons
why the statement is misleading, and, if an
allegation regarding the statement or
omission is made on information and
belief, the complaint shall state with
particularity all facts on which that belief
is formed.” 15 U.S.C. § 78u-4(b)(1).
With regard to the “scienter”
component of the 10b-5 claim, the critical
issue before this Court, the PSLRA further
requires the plaintiffs, “with respect to
each act or omission,” to “state with
particularity facts giving rise to a strong
inference that the defendant acted with the
required state of mind.” 15 U.S.C. § 78u-
4(b)(2). This particularity requirement
supersedes Rule 9(b)’s provision allowing
state of mind to be averred generally. See
In re NAHC, Inc. Sec. Litig., 306 F.3d
1314, 1328 (3d Cir. 2002) (citing In re
Advanta Corp. Sec. Litig., 180 F.3d 525,
531 n.5 (3d Cir. 1999)).
The plaintiffs may establish a
“strong inference” that the defendants
acted with “scienter” “either (a) by
alleging facts to show that defendants had
both motive and opportunity to commit
fraud, or (b) by alleging facts that
constitute strong circumstantial evidence
of conscious misbehavior or recklessness.”
In re Burlington, 114 F.3d at 1418
(quoting Acito v. IMCERA Group, Inc., 47
F.3d 47, 53 (2d Cir. 1995)); see also In re
Advanta, 180 F.3d at 534-35; Oran, 226
F.3d at 288-89.
A. Motive and opportunity
Motive must be supported by facts
stated “with particularity,” and must give
rise to a “strong inference” of scienter. In
re Advanta, 180 F.3d at 535; 15 U.S.C. §
78u-4(b)(2). “Blanket assertions of motive
and opportunity” will not suffice, and
“catch-all allegations that defendants stood
to benefit from wrongdoing and had the
opportunity to implement a fraudulent
scheme are no longer sufficient, because
they do not state facts with particularity or
give rise to a strong inference of scienter.”
In re Advanta, 180 F.3d at 535. Moreover,
“[m]otives that are generally possessed by
most corporate directors and officers do
not suffice; instead, plaintiffs must assert
a concrete and personal benefit to the
individual defendants resulting from this
fraud.” Kalnit v. Eichler, 264 F.3d 131,
139 (2d Cir. 2001) (citation omitted).
In their amended complaint, the
plaintiffs allege that the defendants’
motive to commit fraud was that

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Washington “would not have been able to
acquire REC without the successful
issuance of the Notes,” and would not
have been able to sell any of the notes at or
near the price sought “had the true
financial condition of the REC been
revealed in the Circular.” Pl. Br. at 32;
App. at 37, 53 (Cplt. ¶¶ 7, 86, 89).
Further, the complaint suggests that
because defendant Dennis Washington
received stock options in 1999 after
Washington acquired Westinghouse, it can
be inferred that he would receive stock
options after the present merger. See App.
at 41, (Cplt. ¶ 36). Plaintiffs argue that
these alleged stock options provided
Washington with an additional motive to
commit fraud. These allegations are
insufficient.
In every corporate transaction, the
corporation and its officers have a desire to
complete the transaction, and officers will
usually reap financial benefits from a
successful transaction. Such allegations
alone cannot give rise to a “strong
inference” of fraudulent intent. See In re
Burlington, 114 F.3d at 1424; see also
Phillips v. LCI Int'l, Inc., 190 F.3d 609,
623 (4th Cir. 1999) (“Similar situations
arise in every merger; thus, allowing a
plaintiff to prove a motive to defraud by
simply alleging a corporate defendant's
desire to retain his position with its
attendant salary, or realize gains on
company stock, would force the directors
of virtually every company to defend
securities fraud actions every time that
c o m p a n y effected a m erger o r
acquisition.”); San Leandro Emergency
Med. Group Profit Sharing Plan v. Philip
Morris Cos., 75 F.3d 801, 813-14 (2d Cir.
1996) (finding that a “company's desire to
maintain a high bond or credit rating”
insufficient motive for fraud because such
motive could be imputed to any company);
Tuchman v. DSC Communications Corp.,
14 F.3d 1061, 1068 (5th Cir. 1994)
(“[I]ncentive compensation can hardly be
the basis on which an allegation of fraud is
predicated.”) (citation omitted); Herzog v.
GT Interactive Software Corp., 98 Civ.
0085, 1999 WL 1072500, at *9 (S.D.N.Y.
Nov. 29, 1999) (holding that a defendant's
“‘desire to consummate [a] corporate
transaction does not constitute a motive for
securities fraud’”); Leventhal v. Tow, 48
F. Supp. 2d 104, 115 (D. Conn. 1999)
(“[T]he allegation that the defendants
artificially inflated Citizens’ stock price in
order to ‘protect and enhance their
executive positions’ and ‘negotiate as
favorable a deal as possible’ on a pending
employment contract also fail[s] to give
rise to a strong inference of scienter. This
motive has been rejected routinely.”);
Thacker v. Medaphis Corp., 97 Civ. 2849,
1998 WL 684595, at *3 (S.D.N.Y . Sept.
30, 1998) (finding plaintiff’s claim that
defendant was motivated by a desire to
eliminate competitors and to acquire
related companies insufficient to plead
scienter because such motive could be
imputed to any corporate officer).
Although the allegation is not
apparent from the complaint, plaintiffs
now argue that CSFB had a motive to
commit fraud because it stood to receive
underwriting and financial advisory fees.
This allegation is undoubtedly true but
equally unavailing. See M elder v. Morris,

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27 F.3d 1097, 1104 (5th Cir. 1994)
(declining to find scienter where plaintiffs
alleged that underwriters’ motive in
participating in fraud was to collect fees);
Schnell v. Conseco, Inc., 43 F. Supp. 2d
438, 449 (S.D.N.Y. 1999) (“[A]n
underwriter's alleged motive to earn its
underwriting fees is not alone sufficient to
sustain a strong inference of fraudulent
intent. If it were, every underwriter, law
firm, accountant, and investment advisor
whose compensation or commission
depended on the completion of an initial
public offering would have a motive to
commit fraud, which would make Rule
9(b) wholly meaningless.”) (quoting
Fisher v. Offerman & Co., Inc., No. 95
Civ. 2566, 1996 WL 563141 at *6
(S.D.N.Y. Oct. 2, 1996)). Therefore,
plaintiffs have failed to meet the scienter
requirement by pleading motive and
opportunity to commit fraud on the part of
any of the defendants.
B. Recklessness or conscious
misbehavior
Because the plaintiffs have not
adequately pleaded that the defendants had
both motive and opportunity to commit
fraud, their complaint will survive the
motion to dismiss only if they allege
specific facts that constitute “strong
circumstantial evidence of conscious
misbehavior or recklessness.” Oran, 226
F.3d at 288-289; Kalnit, 264 F.3d at 142
(“Where motive is not apparent, it is still
possible to plead scienter by identifying
circumstances indicating conscious
behavior by the defendant, though the
strength of the circumstantial allegations
must be correspondingly greater.”)
(quoting Beck v. Mfrs. Hanover Trust Co.,
820 F.2d 46, 50 (2d Cir. 1987)).
A reckless statement is a material
misrepresentation or omission “‘involving
not merely simple, or even inexcusable
negligence, but an extreme departure from
the standards of ordinary care, and which
presents a danger of misleading buyers or
sellers that is either known to the
defendant or is so obvious that the actor
must have been aware of it.’” In re
Advanta, 180 F.3d at 535 (quoting McLean
v. Alexander, 599 F.2d 1190, 1197 (3d Cir.
1979)).
The plaintiffs argue that they
“alleged specific information transmitted
to Defendants prior to issuance of the
Offering Circular and sale of the Notes
that contradicted representations made in
t h e C i r c u l a r , id e n t i f y i n g w h o
communicated them to whom, when, and
how.” Pl. Br. at 23. In other words, it is
the plaintiffs’ position that the defendants
had actual knowledge of the falsity of their
statements in the circular at the time they
were made. It is certainly true that “in a
non-disclosure situation, any required
element of scienter is satisfied where . . .
the defendant had actual knowledge of the
material information.” Fenstermacher v.
Phila. Nat’l Bank, 493 F.2d 333, 340 (3d
Cir. 1974); see also In re Advanta, 180
F.3d at 535.
Of course, it is not enough for
plaintiffs to merely allege that defendants
“knew” their statements were fraudulent or
that defendants “must have known” their
statements were false. See In re Digital
Island Sec. Litig., 357 F.3d 322, 328-29

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-11-
(3d Cir. 2004); Rombach v. Chang, 355
F.3d 164, 176 (2d Cir. 2004) (finding no
scienter where plaintiffs did “not allege
facts and circumstances that would support
an inference that defendants knew of
specific facts that are contrary to their
public statements”); Bovee v. Coopers &
Lybrand C.P.A., 272 F.3d 356, 361 (6th
Cir. 2001) (“Plaintiffs may not simply rely
on the proposition that Defendants must
have known or should have known of, and
participated in, the fraud.”). Plaintiffs
must plead allegations of scienter with
particularity. See 15 U.S.C. § 78u-4(b)(2).
They must support their allegations with
the essential factual background that
would accompany “the first paragraph of
any newspaper story”—that is, the “who,
what, when, where and how” of the events
at issue. In re Burlington, 114 F.3d at
1422 (citing DiLeo v. Ernst & Young, 901
F.2d 624, 627 (7th Cir.1990)).
Although the plaintiffs argue that
they have demonstrated that the defendants
had “actual knowledge” that their public
statements were false and misleading at
the time in which they were made, the
plaintiffs have failed to plead with
particularity facts that so demonstrate.
The plaintiffs point to many statements
that the individual defendants made during
the due diligence period as evidence that
they had actual knowledge that their
circular statements were false and
misleading. However, these statements
made during the due diligence period
cannot be connected directly to any
misleading statement in the offering
circular.
1. Liabilities
The plaintiffs allege a number of
different affirmative misstatements that
form the basis of their 10b-5 claim. First,
the plaintiffs argue that the circular was
misleading in including REC’s financials
for the 2000 stub period which indicated
“that as of April 2, 2000, REC had
liabilities of $1,279,333.” Reply Br. at 6;
Pl. Br. at 26-7; App. at 288. To establish
that Washington had actual knowledge to
the contrary, plaintiffs refer to a comment
in Washington’s October 27, 1999
presentation which indicated that REC had
“understated or undisclosed liabilities.”
See App. at 44 (Cplt. ¶ 48), App. at 319.
However, this comment could not have
been made in reference to the financial
statements for the stub period between
January and April 2000, since those
statements would not have been available
in October of 1999. See App. at 47 (Cplt.
¶ 59-60) (noting that as of December 2,
1999 “Washington Group had ‘requested
“audited” financials for RE&C for years
1996, 1997, and 1998 and “reviewed”
financial statements for the stub period
from January 1 to September 30, 1999.’”).
Moreo ver, in the October 27th
presentation, Washington was referring to
understated liabilities in REC’s unaudited
financial statements. App. at 319
(referring to “[a]ccounting integrity of
financial statements (unaudited) provided
to date”). These statements were later
audited and adjusted to comply with
GAAP before they were incorporated into
the circular. App. at 367. Plaintiffs
present no evidence that Washington had
actual knowledge that the audited
statements were inaccurate during the
relevant time period.

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Plaintiffs also rely on their
complaint allegation that “[a]s of January
4, 2000, Wash ington Group and
Defendants knew that REC’s financial
statements of September 30, 1999
overstated assets by approximately $275
million and understated liabilities by $145
million.” Reply Br. at 6; App. at 47-48
(Cplt. ¶ 62). The plaintiffs, however, do
not provide any source to connect this
accusation to record evidence. In other
words, plaintiffs have failed to plead with
particularity. See In re Party City Sec.
Litig., 147 F. Supp. 2d 282, 300 (D.N.J.
2001) (“Simply referring to a series of
public statements and then alleging, in a
general and conclusory manner, that those
disclosures were false or misleading is
insufficient.”). Plaintiffs do not even
mention whether, in this paragraph, they
are referring to REC’s audited or
unaudited statements. Moreover, any
knowledge Washington may have had
regarding the accuracy of the 1999
financial statements is of little relevance in
determining whether Washington had
actual knowledge that the statements from
the later stub period were inaccurate.
2.Contracts in progress
Similarly, the plaintiffs argue that
the circular was misleading in that REC’s
unaudited financials for the 2000 stub
period indicated “that as of April 2, 2000,
REC’s ‘contracts in process’ had a value
of $638,881,000.” Reply Br. at 6; GSC
Br. at 26; App. at 288. To show that
Washington knew this statement was
misleading, plaintiffs refer us to various
documents Washington produced during
its due diligence period, in which
Washington indicated its belief that several
of REC’s many contracts were overvalued.
Id. (citing App. 45-51 (Cplt. ¶¶ 50, 54, 72-
76)). Again, in some of these documents,
Washington was referring to REC's
unaudited statements which were later
audited before inclusion in the circular and
the other documents focused on projects
for which Washington was later
indemnified.2 Moreover, there is no
2 Appellees filed a Motion for Leave
to File a Supplemental Appendix
containing an Ancillary Letter
Agreement revealing that Washington
was partially indemnified against loss
regarding one of REC’s projects.
Appellants oppose this motion. “We
decide on a case-by-case basis whether
an appellate record should be
supplemented. Even when the added
material will not conclusively resolve an
issue on appeal, we may allow
supplementation in the aid of making an
informed decision.” Schwartz v. Million
Air, Inc., 341 F.3d 1220, 1225 n.4 (11th
Cir. 2003). The Ancillary Letter
Agreement, while not crucial to the
instant decision, helps explain
Washington’s motive for not discussing
its concerns with respect to this particular
project in the circular. Therefore, we
find that the agreement will aid the Court
in making an informed decision.
Appellants do not question the validity or
authenticity of the agreement nor do they
argue that they would be prejudiced in
any way by our consideration of the
agreement. Appellants do not even argue
that they are unfamiliar with the
agreement. See, e.g., Kalimian v. Liberty
Mutual Fire Ins. Co., 300 F.2d 547, 549

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-13-
indication that any of Washington’s
documents referred to the April 2000 stub
period or to any other value appearing in
the circular, and in none of these
documents does Washington provide an
estimate of the total value of REC’s
contracts in progress. For both of these
reasons, there is no way to know whether
Washington would have disagreed with
REC’s April valuation at the time the
circular was issued.
In any case, Washington made it
plain in the circular that REC’s accounting
for these contracts was aggressive, when it
warned that “REC revenue recognition
policies are significantly different from
those used by MK on certain contracts
where significant components are procured
in advance of installation. . . . REC’s
revenue recognition policy on such
contracts generally result in more revenue
recognition in the early stages of a
contract.” App. at 126. It also suggested
that this difference could be critical when
it noted that "[t]he loss of one or more
major contracts, or our inability to perform
profitably under one or more major
contracts . . . could have a material adverse
effect on our businesses, financial
condition, results of operation and cash
flows." App. at 94.
3 . F o u r p r o j e c t s d e v i a t e
significantly
The plaintiffs also take issue with a
statement in the circular indicating that
four projects for which REC retained
liability “deviate significantly and are not
representative of other contracts being
acquired.” Pl. Br. at 29, quoting App. at
126. Plaintiffs argue that this statement
was misleading because defendants knew
“that numerous other projects were also
misestimated, likely to incur costly
overruns that were uncollectible and were
losing money.” Id. First, a fair reading of
this excerpt from the circular is that these
four projects deviated significantly
because of (a) the extent of loss already
incurred on each project; (b) “the reversal
of previously-recognized profit”; and (c)
“the establishment of reserves for future
losses.” Id.; In re Burlington, 114 F.3d at
1426 (noting that if plaintiffs rely on
extrinsic documents in their complaint, the
documents must be understood in their
entirety). Plaintiffs have failed to identify
any evidence suggesting that Washington
believed that other contracts equally met
these three criteria. To the contrary,
plaintiffs concede in their complaint that
these projects are distinguishable, referring
to them as “the four most significant loss
projects.” App. at 51 (Cplt. ¶ 77). Finally,
because Raytheon ultimately retained
liability for at least one additional project
that plaintiffs allege “deviate[d]
significantly,” any misleading statements
based on that project is immaterial as a
matter of law. See In re NAHC, Inc. Sec.
Litig., 306 F.3d 1314, 1330 (3d Cir. 2002)
(“If the disclosure of certain information
has no effect on stock prices, it follows
(2d Cir. 1962) (“[T]his court is free to
consider facts which have been admitted
in argument and in the briefs on appeal . .
. .”). To the contrary, appellants argue
that the agreement actually supports their
case. Reply Br. at 5-6. For these
reasons, we grant appellees’ motion to
file their supplemental appendix.

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-14-
that the information disclosed was
immaterial as a matter of law.”).
4.Collection is probable
The plaintiffs also argue that the
circular was misleading in stating that
“[u]napproved change orders and claims .
. . are included in contracts in process at
their estimated realizable value. [REC]
has a contractual or legal basis for
pursuing recovery of these unapproved
change orders and claims and has
determined that collection is probable.”
Pl. Br. at 28 (quoting App. at 277, 293);
see also Pl. Br. at 7. Plaintiffs suggests
that Washington knew this statement was
false, because in a March 27, 2000
memorandum it indicated that it believed
the recovery percentage for one particular
project would be “poor” and that
attempted recovery could result in a loss of
between $22 and $60 million. App. at
429. It should be noted, however, that the
circular refers to a total of $581 million
worth of change orders and claims. App.
at 276. Therefore, plaintiffs’ argument
comes down to the fact that Washington
actually believed that between 3.8 and 10
percent of these contracts were not
recoverable. As far as we know,
Washington believed collection was
probable for at least 90-96 percent of these
change orders. Moreover, far from having
actual knowledge that between $22 and
$60 million of change orders would be
u n c o l l ec t i b le , t h e M a r c h 2 7 t h
memorandum suggests a lack of certainty
or confidence in Washington’s predictions.
App. at 428 (“[P]rojects results are
difficult to quantify”); Id. at 429 (“[I]t is
difficult to predict the extent of the loss”).
On top of this, the circular
statement was qualified through the use of
the word “probable” and was accompanied
by cautionary language, which indicated
that “[t]he settlement of these amounts
depends on individual circumstances and
negotiations with the counterparty;
accordingly, the timing of the collection
will vary and approximately $235 million
of collections are expected to extend
beyond one year.” App. at 277. Any
reasonable reading of this statement,
would make one skeptical about the
recovery of the full $235 million.
Similarly, as noted supra, the circular
emphasized that REC took an aggressive
approach to revenue recognition. App. at
126. When viewed in this context, we do
not believe that the plaintiffs have
adequately alleged that any knowing
misstatement Washington may have made
in print here was material. This is
especially true given that Washington was
at least partially indemnified by Raytheon
for losses associated with the very project
discussed in the March 27th memorandum.
See Supp. App.
In any case, because the statement
about collectability is a prediction of the
likelihood of collection on change orders
and claims, it is a classic forward-looking
statement. See 15 U .S.C . 78u-
5c(4)(I)(1)(A) (defining a forward-looking
statement, in part, as “a statement
containing a projection of revenues,
income (including income loss), earnings
(including earnings loss) per share, capital
expenditures, dividends, capital structure,
or other financial items”); see also In re
Kindred Healthcare, Inc. Sec. Litig., No.

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-15-
02CV-600-H, 2004 WL 77850 at *9 (W.D.
Ky. 2004) (“The amount Kindred keeps in
reserves to cover liability claims is
necessarily a prediction about its future
claims experience . . . [which] could only
be verified when liability claims were
actually filed, litigated to conclusion, or
settled. It would seem rather beyond
argument that such projections . . . are
forward-looking within the meaning of the
PSLRA.”); In re Smith-Gardner Sec.
Litig., 214 F. Supp. 2d 1291, 1296 (S.D.
Fla. 2002) (finding that defendant’s
statement was protected as forward-
looking where “[p]laintiffs . . . allege[d]
that Defendants either knew or were
severely reckless in disregarding that
Smith Gardner would not receive full
payment from [a customer], based on the
unpaid receivable balance of $1.5
million.”). Moreover, we find the
accompanying cautionary language to be
sufficient in this case. See EP
Medsystems, Inc. v. EchoCath, Inc., 235
F.3d 865 , 873 (3d Cir . 2000)
("[C]autionary language, if sufficient,
renders the alleged omissions or
misrepresentations immaterial as a matter
of law.") (quoting In re Donald J. Trump
Casino Sec. Litig., 7 F.3d 357, 371 (3d Cir.
1993)).3
Therefore, this statement is
protected by the statutory safe-
harbor. See 15 U.S.C. 78u-5c.
5.Goodwill
Plaintiffs also raise the statement in
the circular that: “[a]djustments to the
purchase price . . . are expected to have no
effect on goodwill.” Pl. Br. at 28; App. at
111. Plaintiffs argue that this statement is
false because “[d]efendants already knew
that the true value of REC was
significantly lower than the purchase price,
which would require further allocation of
goodwill.” Id. Regardless of this alleged
knowledge, howe ver, the circula r
statement would only be false or
misleading if Washington knew at the time
3 The PSLRA requires forward-looking
statements to be accompanied by
“meaningful cautionary statements” in
order for safe harbor protection to apply.
The cautionary language should be
“directly related to the alleged
misrepresentations,” but it does not have
to “actually accompany the alleged
misrepresentation.” EP Medsystems, Inc.,
235 F.3d at 874 (referring to the
“bespeaks caution” doctrine which, like
the safe harbor provision, protects
forward-looking statements that are
accompanied by meaningful cautionary
statements from liability). Cautionary
language must be “extensive and
specific.” Semerenko v. Cendant Corp.,
223 F.3d 165, 182 (3d Cir. 2000)
(quoting In re Trump, 7 F.3d at 369.
This Court in In re Trump explained:
“[A] vague or blanket (boilerplate)
disclaimer which merely warns the
reader that the investment has risks will
ordinarily be inadequate to prevent
misinformation. To suffice, the
cautionary statements must be
substantive and tailored to the specific
future projections, estimates or opinions
in the prospectus which the plaintiffs
challenge.” Id. at 182 (quoting In re
Trump, 7 F.3d at 371-72).

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it made the statement (a) that it was going
to make adjustments to the purchase price
in the future and (b) that those adjustments
would not track the value of REC.
Plaintiffs have neither alleged nor have
they presented any evidence of such
knowledge. Moreover, none of the
documents relied upon by plaintiffs
suggests that Washington even had actual
knowledge that additional goodwill would
ultimately have to be recorded.4 The mere
fact that the amount of additional goodwill
that later had to be recorded was
substantial is not enough, on its own, to
infer either actual knowledge or
recklessness. See Kushner v. Beverly
Enters., 317 F.3d 820, 829 (8th Cir. 2003).
Additionally, this is another forward-
looking statement accompanied by
meaningful cautionary language, and is
therefore protected by the statutory safe-
harbor. See, e.g., App. at 93 (warning that
acquisitions “may involve risk of
undisclosed liabilities”).
6.Undiscovered liabilities
The plaintiffs argue that the circular
was misleading in stating that “[t]here may
be liabilities of acquired companies,
including REC, that we fail or are unable
to discover during our due diligence
investigation” because as plaintiffs allege,
“[d]efendants had already discovered
significant additional liabilities.” Pl. Br. at
28-29; App. at 93. This argument is
frivolous. First, this statement in the
circular is included in a long discussion of
risks associated with the company, and in
that context, it is true and not misleading.
Moreover, none of the documents upon
which the plaintiffs rely suggests that
Washington had actual knowledge that
there were significant additional liabilities
which were not already reflected in the
circular, or for which Washington had not
been indemnified. App. at 93 (noting in
the circular that Washington “generally
seek[s] to minimize the impact of . . .
liabilities by obtaining indemnities and
warranties from the seller.”)
7.Due diligence
Finally, plaintiffs raise various
omissions wh ich fall within two
categories. First, plaintiffs allege that
Washington failed to disclose that its due
diligence had been obstructed. While it is
clear that REC initially obstructed
Washington’s due diligence, it seems that
by the issuance of the circular, Washington
believed, perhaps mistakenly, that it had
been given adequate access. See, e.g., Due
Diligence Memorandum of April 3, 2000,
App. at 653 (noting that “[i]n most cases
the first visits were not conclusive because
site performance info rmatio n was
restricted. The recent update visits were
more informative.”). Although we do not
mean to suggest approval of the practice,
we note that it is not uncommon for a
target to be somewhat uncooperative with
respect to due diligence requests from a
potential acquirer. See, e.g., Larry
4 Similarly, none of the documents relied
upon by plaintiffs suggest that
Washington had actual knowledge
contradicting its statement that “[t]he
acquisition of REC will double
[Washington’s] size in terms of revenues
and backlog.” Pl. Br. at 27; App. at 117.

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Schnapf, Cost Effective Due Diligence In
Corporate Mergers and Acquisitions, 15
Nat. Resources & Env't 80 at 83 (2000)
(noting that even in a friendly takeover,
the target company may be reluctant to
share information that may cause a party to
back out of a deal, renegotiate the price or
that may end up having repercussions if
the transaction collapses). Often this
tendency towards secrecy relates to a
concern, that if the deal falls through, the
acquirer might use the target’s secrets to
better compete with it, or that the target
will be otherwise disadvantaged. Id. In
such situations, as here, the target will
often become more cooperative and candid
the closer the deal gets to becoming a
reality. We see no evidence in this case,
however, that Washington believed its due
diligence had been materially obstructed at
the time of the circular, nor do we believe
that Washington would have gone through
with this acquisition had it believed this to
be the case.5 There is simply nothing to
suggest that Washington was on a suicide
mission in this acquisition.
8.Poor financial accounting
Plaintiffs allege that Washington
“knew, but did not disclose, that Raytheon
and REC had poor financial accounting,
which necessarily entailed that the
unaudited financial statements for the first
quarter of 2000 should not be relied on.”
Reply Br. at 7. First, we reiterate our
earlier finding that plaintiffs have
presented no evidence that Washington
had actual knowledge that the unaudited
financial statements for the 2000 stub
period were unreliable. The plaintiffs’
argument appears to be, however, that
Washington was reckless in disclosing
REC’s unaudited financial statements
knowing that its earlier unaudited
statements evidenced poor accounting.
This argument is not without some
support.
In In re Lucent Tech., Inc. Sec.
Litig., 217 F. Supp. 2d 529 (D.N.J. 2002),
the court found recklessness under similar
circumstances. In Lucent, plaintiffs argued
that “Lucent management was already
aware that revenues had been inflated in
previous quarters, and that they learned of
these earlier accounting improprieties, at
the latest, during the third quarter.” Id. at
554 (citations omitted). As here, plaintiffs
in Lucent claimed that “Defendants would
have been at least reckless in reporting
financial results for the third quarter
without first determining whether those
results were also inflated.” Id. The
district court agreed, finding that “[i]f
Defendants were aware that accounting
manipulations occurred during the first
two quarters of 2000, then, conceivably,
they may have been reckless in blindly
reporting results for the following quarter,
and proof of recklessness is enough.” Id.
While such a scenario may very
well constitute recklessness under the facts
of Lucent, we do not believe that
5 In fact, we doubt that we would be
able to uncover any offering circular
which cautioned that due diligence had
been materially obstructed by the target
and that this issue was still unresolved,
given that it seems unlikely that any
acquirer would proceed with an
acquisition under such circumstances.

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Washington’s conduct here rises to the
“extreme departure from the standards of
ordinary care” which is required for a
finding of recklessness. In re Advanta,
180 F.3d at 535 (quoting McLean, 599
F.2d at 1197). First, the circular contained
both audited and unaudited financial
statements for some overlapping periods as
well as for periods closely linked in time.
See, e.g., App. at 126, 288. Therefore, to
the extent that the unaudited statements
were out of line with the audited
statements, this deviation could be
deduced from the circular itself, obviating
the need for a special note.
S e c o n d , a s n o t e d ea r l ie r ,
Washington disclosed in the circular that
REC’s accounting was aggressive. App. at
126. This would give any reasonable
investor pause before relying on REC’s
unaudited statements. Third, plaintiffs
have shown at most that Washington
believed REC had “poor” accounting
practices. App. at 554 (March 14, 2000
presentation) (noting that REC had “[p]oor
financial controls/accounting practices”).
In contrast, in Lucent, plaintiffs alleged
that before it reported its earnings for the
fourth quarter, Lucent already knew that it
“had improperly booked hundreds of
millions of dollars of revenue on sales to
customers in situations where customers
had not ordered products”— clearly a more
egregious allegation. In re Lucent Tech.,
217 F. Supp. 2d at 538. Finally, in Lucent,
the alleged manipulations were in the
company’s own balance sheet, rather than
on the balance sheet of the company to be
acquired, as in this case. Therefore, unlike
Lucent, Washington realistically could not
have revised REC’s financial statements or
substituted different financial statements.
At most, it could have included an
additional cautionary note. While the
inclusion of such a note may have been a
good idea, we do not believe its omission
rises to the level of recklessness required
under the PSLRA.
In conclusion, plaintiffs have failed
to plead with particularity the required
e l e m e n t o f s c i e nt e r , e i t h er b y
demonstrating motive and opportunity,
conscious misbehavior or recklessness.
Therefore, the district court properly
granted Washington's motion to dismiss.
C. Credit Suisse First Boston
The plaintiffs allege that CSFB
conducted its own due diligence, had
access to Washington’s due diligence and
communicated with Washington about due
diligence findings. They further allege
that, because CSFB had access to and
shared information with Washington,
CSFB “knew and/or recklessly disregarded
all of the information known by
Washington Group and the other
Defendants.” App. at 43, 53 (Cplt. ¶¶ 43,
85). This a bare bones allegation, and the
plaintiffs fail to specify which statements
CSFB knew were false or misleading.
Furthermore, as noted supra, an allegation
that CSFB “must have known,” because of
its relationship with Washington, that a
statement was false or misleading, is
insufficient to raise a “strong inference”
that CSFB acted recklessly or with
conscious misbehavior. See In re Advanta,
180 F.3d at 539. The plaintiffs cannot
satisfy the scienter requirement by
grouping CSFB with the Washington

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defendants. Oran, 226 F.3d at 290; In re
Advanta, 180 F.3d at 539 (“Generalized
imputations of knowledge do not suffice .
. .”). Regardless, since the plaintiffs have
failed to show scienter with respect even to
Washington, the plaintiffs certainly cannot
establish scienter with respect to CSFB,
since the plaintiffs have made no
allegation unique to CSFB.
Finally, the plaintiffs have failed to
attribute any false statement or omission to
CSFB. The plaintiffs rely on Gabriel
Capital, L.P. v. NatWest Fin., Inc., 94 F.
Supp. 2d 491 (S.D.N.Y. 2000), for their
argument that CSFB can be held liable as
an initial purchaser for a Rule 10b-5
violation. The district court correctly
noted that Gabriel is distinguishable on its
facts. In Gabriel, the plaintiffs alleged that
the defendants, in addition to being the
initial purchasers, also drafted the offering
memorandum as well as distributed it
during sales pitches. Id. at 502. The
plaintiffs here do not allege that CSFB
drafted or distributed the circular.
Therefore, the holding of Gabriel is not
applicable here.6
D. Dismissal with prejudice
The plaintiffs ask that the case be
remanded with instructions to allow them
to replead, yet they “do not specify what
additional facts, if any, they would plead if
given another opportunity to amend their
Complaint.” In re NAHC, 306 F.3d at 1332
(holding that amendment of the complaint
would be futile). One of Congress’
objectives in enacting the PSLRA was “‘to
provide a filter at the earliest stage (the
pleading stage) to screen out lawsuits that
have no factual basis.” Id. (quoting In re
Champion Enters., Inc., Sec. Litig., 145 F.
Supp. 2d 871, 874 (E.D. Mich. 2001).
This objective would be frustrated where
“there is a stark absence of any suggestion
by the plaintiffs that they have developed
any facts since the action was commenced
which would, if true, cure the defects in
the pleadings under the heightened
requirements of the PSLRA.” Id. at 1333.
Because the plaintiffs have offered no
additional facts that would cure their
amended complaint, we decline the
plaintiffs' request for permission to replead
and for the foregoing reasons, we affirm
the district court's grant of defendants’
motion to dismiss.
6 Gabriel is distinguishable for
another reason. In Gabriel, the
disclaimer in the offering memorandum
stated only that the initial purchasers
made “no warranty” as to the statements
contained therein. Id. Here, in contrast,
the offering circular states that the initial
purchasers made “no representations” at
all. App. at 74 (“No representations or
warranty, express or implied, is made by
the initial purchasers as to the accuracy
or completeness of the information
contained in this offering circular.
Nothing contained in this offering
circular is, or shall be relied upon as, a
promise or representation by the initial
purchasers.”) While this subtle
difference in language is hardly
dispositive, it adds to our conclusion that
Gabriel does not apply and that CSFB
did not make any actionable statement.

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