GEORGE STEEH, District Judge

INTRODUCTION

This securities fraud litigation, alleging liability on the part of two corporations and certain individual officers and/or directors, stems from "round-trip" no margin energy trading and the alleged improper accounting for and reporting concerning such trades. Currently before the court is a renewed Fed.R.Civ.P. 12(b)(6) and 12(b)(1) motion to dismiss made by defendant CMS Energy Corporation ("CMS"), joined in by both Consumers Energy Corporation ("Consumers") and all individual defendants in the matter. This motion tests the plaintiffs' Second Amended Consolidated Class Action Complaint ("CCAC" or "Complaint"), filed May 26, 2004. For the reasons stated below, defendants' motions to dismiss will be granted in part and denied in part; other related motions are also determined below.

BACKGROUND FACTS

The wholesale, round-trip electricity trading transactions engaged in by MST occurred between approximately mid-2000 through January 2002, are alleged to have spurred "severe accounting improprieties committed by CMS Energy Corporation and its wholly-owned subsidiary CMS Marketing, Services and Trading Company" ("MST"). Complaint, ¶ 2. As the Complaint defines them, "[r]ound-trip or wash trades are generally defined as nearly simultaneous, pre-arranged buy-sell trades of energy with the same counter-party, at the same price and volume, and over the same term, resulting in neither profit nor loss to either transacting party." Complaint, ¶ 83. The improprieties complained of were committed by virtue of the defendants' disregard of and failure to disclose to investors that increased revenues were attributable to the round-trip trading activity and not a real growth in sales.

It is alleged that the round-trip trading, although it did not affect CMS's net income, was used to show increased buying and selling volume, by including billions of dollars of revenues and expenses which "served no legitimate purpose, other than to artificially increase the Company's reported revenues or artificially misrepresent or overstate the current market price of certain forms of energy." Complaint, ¶ 2. In summary, CMS and Consumers Energy Corporation ("Consumers"), along with individual defendants William T. McCormick, Jr. ("McCormick"); David W. Joos ("Joos"); Alan M. Wright ("Wright"); Tamela Pallas ("Pallas"); Kenneth L. Way ("Way"); Earl D. Holton ("Holton"); Kathleen R. Flaherty ("Flaherty"); Kenneth Whipple ("Whipple"); Dennis DaPra ("DaPra"); John M. Deutch ("Deutch"); James J. Duderstadt ("Duderstadt"); W.U. Parfet ("Parfet"); Percy A. Pierre ("Pierre"); John B. Yasinsky ("Yasinsky"); Victor J. Fryling ("Fryling"); and Preston D. Hopper ("Hopper") (officers and/or directors of the corporate defendants) are alleged to have "engaged in a fraudulent scheme through the use of round-trip trading, which artificially inflated the Company's stock price and ultimately led to one of the largest financial losses inflicted on the investing public." Complaint, ¶ 3. The CMS stock price is alleged to have dropped after CMS voluntarily stopped making round trip trades in January 2002, and an investigation of the practice became public in May 2002.

PROCEDURAL BACKGROUND

Plaintiffs' "Consolidated Class Action Complaint" was filed May 1, 2003. That document alleged four causes of action:

1. Violation of Section 10(b) of the Exchange Act and Rule 10b-5 Promulgated Thereunder Against CMS, Consumers, and the Individual Defendants

2. Violation of Section 20(a) of the Exchange Act Against the Individual Defendants

3. Violation of Section 11 of the Securities Act (Against CMS, Consumers, the Underwriter Defendants, and Defendants McCormick, Deutch, Duderstadt, Flaherty, Fryling, Holton, Parfet, Pierre, Way, Whipple, and Yasinsky)

4. Violation of Section 15 of the Securities Act (Against Defendants McCormick, Deutch, Duderstadt, Flaherty, Fryling, Holton, Parfet, Pierre, Way, Whipple, and Yasinsky)

Defendants filed their first motion to dismiss following the filing of that complaint. Counts III and IV of the complaint were dismissed in the court's opinion on defendants' first motion to dismiss. At that juncture, the court allowed plaintiffs to bring a motion to amend, which it heard and granted, resulting in the filing of plaintiffs' Second Amended Consolidated Class Complaint, filed May 26, 2004 (the "Complaint"). The Complaint states plaintiffs' amended Exchange Act and control person claims, brought under § 10(b)/10b-5 and § 20(a). This opinion addresses defendants' renewed motion to dismiss those claims; their arguments include asserted pleading deficiencies (i.e. lack of particularity and scienter); lack of materiality; and inadequate loss causation allegations. Defendants also assert the court's lack of jurisdiction over the claims, contending that the Complaint actually houses disguised breach of fiduciary duty claims, not cognizable under federal securities laws. The court's consideration of the defendants' various motions, and its determination on those requests, is set forth below.

STANDARD

When this court considers a Fed.R.Civ.P. 12(b)(6) motion to dismiss, "well-pleaded facts" contained in a complaint must be accepted as true. Morgan v. Church's Fried Chicken, 829 F.2d 10, 12 (6^th Cir. 1987). Any ambiguities in the pleadings must be resolved in the plaintiff's favor. Jackson v. Richards Medical Co., 961 F.2d 575, 577 (6^th Cir. 1992). The court construes the complaint in the light most favorable to the plaintiffs, and must "determine whether the plaintiffs undoubtedly can prove no set of facts in support of their claims that would entitle them to relief." PR Diamonds, Inc. v. Chandler, 364 F.3d 671, 680 (6^th Cir. 2004) (citing Mayer v. Mylod, 988 F.2d 635, 637 (6^th Cir. 1993)) However, the court need not accept as true legal conclusions or unwarranted factual inferences. Morgan, 829 F.2d at 12. A district court properly grants the motion to dismiss when there is no set of facts contained in the complaint that would allow the plaintiff to recover. Carter by Carter v. Cornwall, 983 F.2d 52, 54 (6^th Cir. 1993).

Under a Fed.R.Civ.P. 12(b)(1) motion to dismiss for lack of federal question jurisdiction, the plaintiff must show that the complaint alleges a "substantial" claim under federal law. RMI Titanium Co. v. Westinghouse Elec. Corp., 78 F.3d 1125, 1134 (6^th Cir. 1996).

More stringent standards made applicable to these claims under Fed.R.Civ.P. 9(b) and the Private Securities Litigation Reform Act are discussed in the pertinent sections, below.

DISCUSSION/ANALYSIS

1. THRESHOLD MOTIONS A. CMS' Motion to Strike Extraneous Allegations

Defendants request that the court strike references made by plaintiffs in paragraphs 338-342 of the Complaint to administrative proceedings before the Federal Energy Regulatory Commission. Defendants assert the references were "slipped in" despite this court's prior ruling striking allegations based on administrative proceedings before the SEC and CFTC, including two sets of consent decrees and complaints. Defendants cite to Lipsky v. Commonwealth United Corporation, 551 F.2d 887 (2d Cir. 1976), which held that a consent judgment between a private corporation and a federal agency, which does not result from actual adjudication of any issues, may not be cited in a complaint, and In re Merrill Lynch Co. Research Reports Securities Litigation, 218 F.R.D. 76, 78-79 (S.D.N.Y. 2003), where the court found that "references to preliminary steps in litigations and administrative proceedings, not resulting in adjudication on the merits are, as a matter of law, immaterial under Rule 12(f) of the Federal Rules of Civil Procedure."

Fed.R.Civ.P. 12(f) states that upon motion or the court's initiative, "the court may order stricken from any pleading any insufficient defense or any redundant, immaterial, impertinent, or scandalous matter." Despite plaintiffs' argument that Rule 12(f) motions are rarely granted, these materials are remarkably similar to those SEC/CFTC materials already stricken by the court and shall be stricken from the Complaint as well.

B. CMS' Request for Judicial Notice

CMS asks that the court take judicial notice of:

1) the complaint filed in the derivative action in the Circuit Court of Jackson County, Michigan; 2) press releases issued by CMS Energy; 3) certain documents filed by CMS Energy with the SEC; and 4) the Arthur Andersen documents proffered to the court by plaintiffs' counsel. These documents are supplied under cover of the declaration of Eric Landau.

Plaintiffs object to judicial notice of the Jackson County Circuit Court derivative action, but do not object to judicial notice of the remaining documents, so long as notice of the press releases and SEC filings is for a determination of the contents thereof, for purposes other than the truth. The court will, therefore, take judicial notice of those items not objected to by plaintiffs, only for consideration of their contents. The court will likewise take judicial notice of all Arthur Andersen documents previously provided to the court, as plaintiffs have no objection thereto. Concerning the derivative action, plaintiffs assert that it was not filed by any party to this action, and is irrelevant. Plaintiffs distinguish Javitch v. First Union Secs., Inc., 315 F.3d 619 (6^th Cir. 2003) and Lyons v. Stovall, 188 F.3d 327 (6^th Cir. 1999), relied on by defendants, arguing that here, the pleadings are not orders by another court, but rather pleadings which were filed by third parties. The court agrees with plaintiffs that judicial notice is not appropriate as to the truth of allegations in a complaint, but certainly sees no reason not to take judicial notice of the fact of the filing of the derivative action. Therefore, the requests are granted in part and denied in part.

C. Plaintiffs' Request for Judicial Notice and Consideration of Various Documents

Plaintiffs also request judicial notice be taken of certain items: 1) the order instituting cease and desist proceedings inIn the Matter of CMS Energy Corp. and Terry Woolley, Securities and Exchange Commission Administrative Proceeding File No. 3-11436 (March 17, 2004); 2) the order instituting proceedings pursuant to §§ 6(c) and 6(d) of the Commodity Exchange Act, making finds and imposing remedial sanctions, in In the Matter of CMS Marketing Services and Trading Co. and CMS Field Services, Inc., CFTC docket No. 94-05 (Nov. 25, 2003); 3) Certain pages from defendant Pallas' motion to dismiss in the United States District Court for the Southern District of Texas; and 4) CMS Energy Corporation common stock price data.

Defendants assert that the first two items requested are the consent decrees this court already struck from the Complaint. In fact, upon allowing amendment of the complaint, this court's order stated "[s]aid complaint may reference the Arthur Andersen materials but may not reference or attach the SEC/CFTC documents, which were the subject of this motion and extensively discussed on the record (May 12, 2004 order, p. 1). Therefore, reference to such documents in response to a motion to dismiss will likewise not be allowed, and the request will be denied as to these items.

Concerning the pages from Pallas' motion to dismiss, defendants argue that judicial notice of the truth of facts stated in a legal brief is improper, citing Kramer v. Time Warner, Inc., 937 F.2d 767, 774 (2^nd Cir. 1991). In addressing the request for judicial notice of certain historical stock prices, defendants contend that this request relates to matters not pled in the SAC, and that such a request is improper in support of their opposition brief to defendants' motion, because Fed.R.Civ.P. 12(b)(6) was designed to test the sufficiency of the pleadings as they exist. However, as stated by the court in the earlier motion to dismiss, matters of public record outside of the pleadings may be considered on a motion to dismiss brought under Fed.R.Civ.P. 12(b)(6). Amini v. Oberlin College, 259 F.3d 493, 502 (6^th Cir. 2001). However, judicial notice of pleadings in another lawsuit clearly cannot extend to consideration of such allegations for the truth thereof. The court will therefore grant the motion for judicial notice as to the legal brief, but not for the truth of any allegations therein. Concerning the stock prices, the court finds that the question of judicial notice does not need to be resolved, for the reasons stated in section E, below, entitled Loss Causation. That portion of the request is, accordingly, denied. D. Plaintiffs' Motion for Judicial Notice of William McCormick's Discovery Responses

During the pendency of this motion to dismiss, the court received plaintiffs' request for judicial notice of certain discovery responses provided by defendant McCormick in the court's companion matter, In re CMS Energy ERISA Litigation. Defendants opposed that request, asserting that the information was provided to plaintiffs in error, and that plaintiffs are further constrained under the PSLRA discovery stay.

The court's decision, set forth below, does not take this information into consideration. Because the court at present has maintained the claims against most individual defendants, including Mr. McCormick, and does so without reference to the ERISA discovery materials, plaintiffs' request is denied as moot.

2. FED. R. CIV. P. 12(B)(6) MOTION TO DISMISS A) Pleading Deficiencies i. Particularity

Defendants' first ground for attack of the Complaint is that it lacks the requisite particularity to state a claim under Section 10(b) of the Securities and Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5. Such claims must meet the standards of Fed.R.Civ.P. 9(b) generally applicable to claims of fraud, as well as the Private Securities Litigation Reform Act ("PSLRA"). The PSLRA, which embodied 1995 amendments to the Securities Act, requires that "the complaint shall, with respect to each act or omission alleged to violate this chapter, 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)(1)(B). Those amendments were spurred by Congress' finding that Fed.R.Civ.P. 9(b) had "not prevented abuse of the securities laws by private litigants." H.R. Conf. Rep. No. 104-369 (1995).

Claims made under Section 10(b) must allege (1) a misrepresentation or omission, (2) of a material fact, (3) made with scienter, (4) justifiably relied on by plaintiffs, which (5) proximately causes them injury. Helwig v. Vencor, Inc., 251 F.3d 540, 553 (6^th Cir. 2001). It is the defendants' position that, applying Fed.R.Civ.P. 9(b) and the PSLRA to the elements of a § 10(b) claim, the individual defendants have not been sufficiently charged with having made particular misleading statements, but rather that all defendants are too generally and collectively accused of securities fraud.

Plaintiffs, of course, vigorously contest this depiction of the Complaint. In fact, plaintiffs laboriously list with respect to each of the individual defendants, the CMS Board's Audit Committee, and Consumers Energy, each specific paragraph in the Complaint containing the name of that defendant (or entity). Their contention is that the circumstances constituting the fraud have been pled with particularity and meet all applicable requirements, including those for material, fraudulent statements or omissions.

The requirements for a Rule 10b-5(b) claim, which relates to an alleged material statement or omission, are distinguished in plaintiffs' brief from those for a Rule 10b-5(a) or (c) claim, which relate to "any device, scheme, or artifice to defraud," (10b-5(a)), and "any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person . . ." (10b-5(c)). Plaintiffs cite to In re Global Crossing, Ltd. Secs. Litig., 2004 WL 763890 (S.D.N.Y. Mar. 23, 2004) for the pleading requirements for a claim of a primary violation under Rule 10b-5(a) or (c): allegations that defendants (1) committed a manipulative or deceptive act, (2) in furtherance of the alleged scheme to defraud, (3) with scienter, and (4) provoking reliance. Concerning 10b-5(b) claims, it is not disputed that the PSLRA, 15 U.S.C. § 78u-4(b)(1)(B), requires that "the complaint shall specify each statement alleged to have been misleading, and the reason or reasons why the statement is misleading." However, plaintiffs emphasize that the heightened pleading requirements of the PSLRA do not require them to plead all of a transaction's details, citing In re SmarTalk Teleservices, Inc. Secs. Litig., 124 F.Supp.2d 487, 498 (S.D. Ohio 2000), and Liberty Ridge LLC v. Realtech Sys. Corp., 173 F.Supp.2d 129, 137 (S.D.N.Y. 2001).

Although claims against certain of the individual defendants are dismissed in this opinion, as set forth below, that determination is made on the basis that the pleadings fail to sufficiently allege scienter. However, it does appear to the court that dismissal solely on the basis that the pleadings lack particularity is warranted as to defendant Consumers. Consumers, a sister company to MST, was not the registrant of securities at issue in this case, and is not alleged to have had any shared responsibilities with CMS or MST which might subject it to liability in this case. The court notes that plaintiffs did not genuinely dispute defendants' assertion at oral argument, that the parties' respective submissions to the SEC were merely "bound together," rather than jointly submitted.

As the defendants emphasize, neither the sharing of officers and/or directors with CMS, or ownership of CMS stock, constitute sufficient allegations to maintain claims against Consumers. Aside from pointing to all paragraphs in the Complaint containing allegations about Consumers, many of which assert liability because CMS and Consumers SEC filings were submitted together, the court agrees that plaintiffs have failed to allege, with particularity, misstatements or omissions of Consumers which might subject it to liability under federal securities laws. The claims brought against Consumers will be dismissed.

ii. Material Misrepresentations

In this section of their brief, defendants assert that plaintiffs have not met the materiality requirement of Rule 10b-5. Defendants quote from ABC Arbitrage Plaintiffs Group v. Tchuruk, 291 F.3d 336, 359 (5^th Cir. 2002) (quoting RW Technical Servs. Ltd. v. Commodity Futures Trading Comm'n, 205 F.3d 165, 169 (5^th Cir. 2000): "`[a] statement or omitted fact is "material" where there is a substantial likelihood that a reasonable investor would consider the information important in making a decision to invest." Defendants contend that the "financial health of the issuer" is what is material to a securities investor, and that none of the statements or omissions alleged to have been made by CMS misrepresented CMS' financial health, as both revenues and expenses were included in the reports.

Plaintiffs point out the Supreme Court's "fact intensive test of materiality in securities cases." Basic, Inc. v. Levinson, 485 U.S. 224, 240 (1988). They quote from TSC Industries v. Northway, Inc., 426 U.S. 438 (1976) in arguing that dismissal at the pleading stage on lack of materiality allegations is not appropriate unless the "alleged misrepresentations or omissions are so obviously unimportant to an investor that reasonable minds cannot differ on the question of materiality." Id. at 449.

The court agrees with plaintiffs that dismissal on the ground of materiality would be inappropriate. Logically, a reasonable investor may equate larger business volumes with stability; also, such an investor may believe greater cost-cutting opportunities exist with large volume business to improve the bottom line. The sheer size of CMS' restatements along with the alleged misleading statements made by CMS concerning the "growing and very successful marketing, services and trading company," would allow a reasonable mind to find the acts and/or omissions complained of to be material.

iii. Scienter

The parties' arguments regarding scienter comprise the bulk of the briefs. A complaint must "state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind." 15 U.S.C. sec. 78u-4(b)(2). That state of mind is "scienter," which consists of knowledge, or at least recklessness. Helwig, 251 F.3d at 552.

Defendants contend that sufficient allegations of scienter are not present in plaintiffs' pleadings, despite reference to the Arthur Andersen documents, the signing of public disclosures, and certain individual defendants' insider trading. Plaintiffs argue that the factual allegations give rise to the "strong inference" of scienter, and remind the court that they are entitled to "the most plausible of competing inferences," citing In re Comshare Inc. Secs. Litig., 183 F.3d 542, 548 (6^th Cir. 1999). Additionally, plaintiffs refer to their request for judicial notice, pointing to orders following settlement of SEC and CFTC matters, of which the court has declined to take judicial notice, and Pallas' statement in a U.S. District Court case in Texas that she "told the CMS Board of Directors about the trading practice."

Plaintiffs further point to the statement of CMS' compliance officer, Michael VanHemert, concerning the purpose of the round-trip trading: "to enhance our ability to market our company as a player." Complaint, ¶ 92. They quote from the statement of Pallas' attorney, set forth in ¶ 94 of the Complaint, that the round-trip trading "was fully disclosed to CMS." They also point to the Form 10-K filed with the SEC in March 2004, stating that in late 2001 and 2002, deficiencies in internal accounting controls were identified relating to "procedures and processes surrounding our accounting for energy trading contracts, including mark-to market accounting." Complaint, ¶ 93. Plaintiffs emphasize the size of the financial misstatements, the Arthur Andersen documents, and the defendants' five public offerings of securities during the class period.

Count one of the Complaint is based on violations of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Securities Exchange Commission Rule 10b-5, 17 C.F.R. § 240.10b-5. Section 10(b) provides as follows:

It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or any facility of any national securities exchange —

(b) To use or employ, in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered, or any securities-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act), any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors.

It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange . . .

(b) To make an untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading . . .

Under the PSLRA, in order to state a claim under § 10(b) or Rule 10b-5, "the complaint shall, with respect to each act or omission alleged to violated this title, 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). "To state a claim under § 10(b) of the Securities and Exchange Act of 1934 ("Securities Act") and Rule 10b-5, a plaintiff must allege, in connection with the purchase or sale of securities, the misstatement or omission of a material fact, made with scienter, upon which the plaintiff justifiably relied and which proximately caused the plaintiff's injury." Comshare, 183 F.3d at 548. Scienter is "a mental state embracing intent to deceive, manipulate, or defraud." Ernst Ernst v. Hochfelder, 425 U.S. 185, 193 (1976). "The PSLRA provides that if a plaintiff does not meet this requirement, a court may, on any defendant's motion, dismiss the complaint. See 15 U.S.C. § 78u-4(b)(3) (1998)."Comshare, 183 F.3d at 549.

Though § 10(b) proscribes knowing or intentional conduct, "recklessness satisfies the § 10(b)/Rule 10b-5 scienter requirement." Mansbach v. Prescott, Ball Turben, 598 F.3d 1017, 1024 (6^th Cir. 1979). "[R]ecklessness [is] highly unreasonable conduct which is an extreme departure from the standards of ordinary care. While the danger need not be known, it must at least be so obvious that any reasonable man would have known of it." Id. at 1025 (citing Sundstrand Corp. v. Sun Chem. Corp., 553 F.2d 1033, 1045 (7^th Cir. 1977)). Thus, "a plaintiff may survive a motion to dismiss by pleading with particularity facts giving rise to a strong inference that the defendant acted with knowledge or recklessness." PR Diamonds, Inc. v. Chandler, 364 F.3d 671, 682 (6^th Cir. 2004).

"Accordingly, we `must construe the complaint in a light most favorable to the plaintiff, and accept all of [the] factual allegations as true. When an allegation is capable of more than one inference, it must be construed in the plaintiff's favor.'"Helwig, 251 F.3d at 553 (citing Bloch v. Ribar, 156 F.3d 673, 677 (6th Cir. 1998)). "Inferences must be reasonable and strong-but not irrefutable . . . the `strong inference' requirement means that plaintiffs are entitled only to the most plausible of competing inferences." Id. In determining whether there is a strong inference of at least recklessness, courts are to employ a totality of the circumstances analysis. PR Diamonds, 364 F.3d at 683.

In Greebel, the First Circuit indicated several factors usually relevant to scienter. These have been enumerated as follows: (1) insider trading at a suspicious time or in an unusual amount; (2) divergence between internal reports and external statements on the same subject; (3) closeness in time of an allegedly fraudulent statement or omission and the later disclosure of inconsistent information; (4) evidence of bribery by a top company official; (5) existence of an ancillary lawsuit charging fraud by a company and the company's quick settlement of that suit; (6) disregard of the most current factual information before making statements; (7) disclosure of accounting information in such a way that its negative implications could only be understood by someone with a high degree of sophistication; (8) the personal interest of certain directors in not informing disinterested directors of an impending sale of stock; and (9) the self-interested motivation of defendants in the form of saving their salaries or jobs.

While facts regarding motive and opportunity may be `relevant to pleading circumstances from which a strong inference of fraudulent scienter may be inferred, `and may, on occasion, rise to the level of creating a strong inference of reckless or knowing conduct, the bare pleading of motive and opportunity does not, standing alone, constitute the pleading of a strong inference of scienter.

Here, plaintiffs allege that the individual defendants listed in the complaint, through their acts or omissions, misstated a material fact regarding CMS's finances to the investing public during the class period. Specifically, they claim that the individual defendants knew or should of known about the round-trip trading practice of CMS-MST yet signed off on financial documents that misrepresented these round-trip trades as legitimate transactions of economic substance.

On October 25, 2000, CMS issued a press release announcing consolidated operating revenues totaling $2.4 billion, up 63% from $1.47 in the same period in 1999. This was due primarily to "increased lower-margin energy marketing revenues." Complaint, ¶ 149. Since this is the first materially misleading public statement alleged in the Complaint, the class period can be alleged to start no earlier than October 25, 2000.

Defendants Joos, Deutch, Duderstadt, Pierre and Yasinsky

A review of the complaint reveals that defendants Joos, Deutch, Duderstadt, Pierre and Yasinsky were alleged to have found out about the round-trip trades, at the latest, in April 2001. The complaint alleges that:

During her presentation to CMS's Board of Directors and members of CMS senior management at the April 2001 special meeting in Houston, Pallas confirmed to the Board and management that CMS's round-trip trading was being implemented as a `ploy' to elevate the Company's industry rankings. Pallas described the round-trip trades as a marketing ploy that would enable MST to scale the industry rankings and attract more business. Accordingly, at least as early as April 2001, all members of the Boards of Directors and Audit Committees of CMS and Consumers who were present at the April 2001 meeting were aware of and participated in the Company's fraudulent round-trip trading scheme.

Complaint, ¶ 65. Joos, as the CMS and Consumers President and COO at that time, is presumably part of the "CMS senior management" present at the meeting. Defendants Deutch, Duderstadt, Pierre and Yasinsky were all members of CMS' and Consumers' Board of Directors as well as members of the Audit Committee, and thus were also allegedly present at the April 2001 meeting.

Despite this awareness, plaintiffs argue, the individual defendants continued to make materially false and misleading statements and omissions in CMS's financial statements and press releases. Defendants Joos, Deutch, Duderstadt, Pierre and Yasinsky all signed off on the December 12, 2001 form S-3 Registration Statement ("the Statement"). Complaint, ¶ 250. That statement incorporated by reference the 2000 10-K, the first, second and third quarter 2001 10-Qs, and the February 23^rd, May 17^th, June 22^nd, July 12^th, August 1^st, August 31^st, October 26^th and November 2^nd 2001 forms 8-K. Complaint, ¶ 248. Many of these referenced items specifically claim that revenues increased due to "lower-margin" energy transactions. Complaint, ¶ 168-69, 173, 180, 204-05, 210-212, 234-35, 237, 240. These were not touted by the company as minor changes or achievements; in fact, the December 12, 2001 Registration Statement showed a "dramatic 196% increase" in revenue! Complaint, ¶ 249.

Since the Court is to give plaintiff the most plausible of competing inferences, defendants Joos, Deutch, Duderstadt, Pierre and Yasinsky cannot be dismissed on the pleadings. Plaintiff has alleged sufficient facts for scienter: that the defendants knew of the company's practice of round-trip or no-margin trading, and yet indicated their agreement to the dissemination of documentation attributing success of the company to those very trades, called "lower-margin" trades in the reports.

Defendant McCormick

Defendant McCormick, as CMS Chairman of the Board of Directors, Chief Executive Officer (CEO) and President, was also alleged to have been in attendance at the April 2001 meeting both as a director and member of senior management. Therefore, he had knowledge of the round-trip trading practice, at the latest, in April of 2001. McCormick also signed the Statement on December 12, 2001, after he is alleged to have been informed of the misleading character of that statement. Plaintiffs' claims against McCormick, then, would defeat dismissal on the same basis as that set forth above.

Additionally, however, the fact that McCormick sold 40,000 shares of his CMS common stock for $1,002,768 as an insider during the class period reinforces the strong inference that he acted with scienter. Complaint, ¶ 38. Indeed, one of the factors which the Sixth Circuit has stated is probative of scienter is insider trading at a suspicious time or in an unusual amount. Such "particularized sorts of motive allegations are more probative of scienter." PR Diamonds, 364 F.3d at 690. In particular, McCormick's sale of a significant amount of stock close in time to CMS' May 2002 disclosure of its round-trip trading practice is unusual and bolsters a finding of scienter on his part. Defendants dispute that in fact this inside trading, as well as that of other defendants, is unusual. That contention, however, is better evaluated following discovery, in the context of a motion for summary judgment. It is this court's determination that plaintiffs' allegations are sufficient to defeat a motion to dismiss defendant McCormick.

Defendants Way, Holton, Flaherty and Whipple

Defendants Way, Holton, Flaherty and Whipple were also allegedly in attendance at the April 2001 meeting, as these defendants were all members of CMS' and Consumers' Boards of Directors at that point in time. Defendant Way also served as the Chair of the Special Committee, and Holton, Flaherty and Whipple were all members of the Special Committee. CMS organized the Special Committee on May 31, 2001 to investigate round-trip trades by the Company's CMS-MST division. Complaint, ¶ 42-45. Thus, each of these defendants had special and particular knowledge of CMS's round-trip trading practice, yet each of these defendants still signed the Statement indicating that these no-margin trades were lower-margin trades. Therefore, the court finds that the plaintiffs have sufficiently alleged these defendants' knowing misrepresentation of information material to plaintiffs, and cannot be dismissed on the pleadings.

Defendant Wright

Defendant Wright, as CMS Vice-President, Chief Financial Officer (CFO) and Chief Accounting Officer (CAO) was also allegedly present at the April 2001 meeting, and therefore knew of the round-trip trades, at the latest, in April of 2001. In addition to signing the Statement, Wright signed the following documents: the first quarter 2001 10-Q on May 11, 2001; the 8-K for the third quarter 2001 on October 26, 2001; the third quarter 2001 10-Q on November 14, 2001; and the May 1, 2002 8-K. Each one of these documents attributed the increased CMS revenue to "lower-margin" transactions rather than no-margin transactions.

An additional indication of defendant Wright's scienter is the fact that during the class period, he sold 15,640 shares of his CMS common stock for $449,658.60. Complaint, ¶ 40. Like defendant McCormick, at is alleged that defendant Wright sold a significant amount of stock immediately prior to CMS' disclosure of its round-trip trading practice. Therefore, allegations of Wright's knowledge and repeated misstatements, combined with the record of his insider trading, create claims sufficient to withstand dismissal.

Defendants Parfet and Hopper

Defendants Parfet and Hopper are alleged to have had knowledge of round-trip trading far before the April 2001 meeting. They are alleged to have knowledge of this practice by October 27, 2000. Paragraph 88 of the Complaint refers to certain Arthur Andersen documents produced in this litigation subject to a protective order agreed to between the parties, and which therefore will not be quoted in this opinion. Among those documents are a memo and other notes, which reference or allude to conversations with Hopper and Parfet, on dates including October 27, 2000, and February 24 and July 30, 2001, which demonstrate Hopper's and Parfet's knowledge of the round-trip trading. See, e.g., AA03385-87, AA03822-23, AA04232 (all filed under seal April 21, 2004 with Proposed Amended Consolidated Class Action Complaint).

Therefore, it is alleged that at the latest, defendants Hopper and Parfet knew of the round-trip trades on October 27, 2000. Hopper and Parfet are also presumed to have been in attendance at the April 2001 meeting, due to their positions with CMS and Consumers.

Both Parfet and Hopper signed the Statement, and Parfet also signed the 2000 10-K on March 23, 2001. Complaint, ¶ 184. The 2000 10-K is alleged to have contained statements made in a January 24, 2001 press release, attributing increased revenues to lower-margin transactions, instead of referring in any form to round-trip trades or no-margin transactions. Complaint, ¶ 180, 168-69. Therefore, the complaint has sufficiently alleged extensive knowledge of the no-margin transactions on the part of Parfet and Hopper, and scienter in signing financial documents stating that these transactions were merely "lower-margin" transactions, rather than the wash or no-margin transactions they were in truth. Thus the court will deny the motion to dismiss the claims against Parfet and Hopper.

Defendant Pallas

Defendant Pallas, as CMS-MST's President and CEO (formerly COO), had knowledge of MST's round-trip trades at the latest in April 2001. Indeed, she is alleged to have shared this information with the other individual defendants at the April 2001 meeting. Complaint, ¶ 65. However, the complaint never alleges any misrepresentation, public or private, of which Pallas was a part. The complaint sets forth Pallas' position in the company and her 2001 bonus as evidence of scienter, which is not sufficient to sustain 10(b)/10b-5 claims against her. Furthermore, the allegations contained in, e.g. ¶¶ 246-254, concerning press releases touting the remarkable growth of CMS-MST (¶ 31), Platt's Power Markets Week 3^rd Quarter 2000 Rankings (¶ 33), and Pallas' naming as one of the "50 Key Women in Energy" by "Commodities Now" magazine are not sufficient to maintain these claims against Pallas. There is no specificity connecting Pallas' actions to these alleged statements, and these "statements" do not attribute growth to "lower-margin," rather than "no-margin" or round-trip trading. In this instance it appears that the plaintiffs do rely on an individual defendant's title, rather than sufficiently pleading a nexus between her actions or omissions and actionable material representations or omissions made to the investing public.

In fact, to state a 10(b)/10b-5 claim against Pallas, the plaintiffs had to claim a misstatement or omission of a material fact, made with scienter, which proximately caused their injury.In re Comshare Inc. Secs. Litig., 183 F.3d at 548. Furthermore, knowledge of the practice of round-trip trading, by itself, is at most a reasonable inference of scienter, but "[a] mere reasonable inference is insufficient to survive a motion to dismiss." PR Diamonds, 364 F.3d at 692 (citing Greebel, 194 F.3d at 196). Plaintiffs' allegations simply fail to demonstrate Pallas' participation in material misstatements or omissions made with scienter, in connection with the sale of securities. Therefore, defendant's motion to dismiss defendant Pallas will be granted. Defendants DaPra and Fryling

For defendants DaPra and Fryling, the complaint states no specific instance where either DaPra or Fryling had knowledge of the round-trip trades. Defendant Fryling acted as a member of the CMS Board of Directors and was the COO only until December 4, 2000, when he retired. Complaint, ¶ 52. Although Fryling signed some documentation, there is not enough evidence of even recklessness to provide the necessary inference of scienter.

Though defendant DaPra was the Vice President of Consumers during the entire class period, there is similarly no evidence that he knew of the round-trip trades. The complaint alleges most of the individual defendants attended the April 2001 meeting by stating that "members of CMS senior management . . . all members of the Boards of Directors and Audit Committees of CMS and Consumers" were present. Complaint, ¶ 65. Defendant DaPra, however, is unique in that his membership was of the senior management at Consumers, not CMS, and he was similarly not a member of either CMS' or Consumers' Board of Directors or Audit Committee. Therefore, there is no particularized allegation of DaPra's knowledge of these transactions, and therefore, not enough evidence to create a strong inference of scienter. Defendants Fryling and DaPra must therefore be dismissed.

B. Secondary Corporate Liability Under § 10(b)

Defendants rely on Central Bank of Denver, N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164 (1994), in arguing that `all "common law theories" of secondary liability have been foreclosed, and assert that thus no liability exists for CMS. Plaintiffs contend, in response, that Central Bank had no effect on claims against a company for issuing materially false and misleading statements in its own name. The court agrees. Furthermore, defendants' assertion that plaintiffs could not sustain claims against a corporation under the doctrine of respondeat superior is far from clear. Although defendants cite to some authority for this proposition, such as In re Fidelity/Micron Sec. Litigation, 964 F. Supp. 539, 544 (D. Mass 1997), plaintiffs' support for claims brought under these principles is equally strong. As stated by the Sixth Circuit inBridgestone, "[t]he scienter of the senior controlling officers of a corporation may be attributed to the corporation itself to establish liability as a primary violator of § 10(b) and Rule 10b-5 when those senior officials were acting within the scope of their apparent authority." Bridgestone, 387 F.3d at 506 (citingAdams v. Kinder-Morgan, 340 F.3d 1083, 1107 (10^th Cir. 2003)). It appears from their argument that defendants would have the court ignore that CMS can only act through its officers and directors. The court will not dismiss the claims brought against CMS on this basis.

C. Section 20(a) Claim

In Count Two of the Second Amended Consolidated Class Action Complaint, Plaintiff's allege control person liability against the individual defendants under Section 20(a) of the Securities Exchange Act of 1934. Controlling person liability is set out as follows:

Every person who, directly or indirectly, controls any person liable under any provision of this chapter or of any rule or regulation thereunder shall also be liable jointly and severally with and to the same extent as such controlled person to any person to whom such controlled person is liable, unless the controlling person acted in good faith and did not directly or indirectly induce the act or acts constituting the violation of cause of action.

[B]y reason of their status as senior executive officers and/or directors were `controlling persons within the meaning of Section 20 of the Exchange Act and had the power and influence to cause the Company to engage in the unlawful conduct complained of herein. Because of their positions of control, the Individual Defendants were able to and did, directly or indirectly, control the conduct of CMS's business.

Specifically, because of their positions with CMS, the Individual Defendants possessed the power and authority to control the contents of CMS's annual and quarterly reports, press releases and presentations to securities analysts, money and portfolio managers and institutional investors, i.e., the market. Each of the individual defendants, by reason of their respective management or board positions, and the ability and opportunity to review copies of the Company's SEC filings, reports and press releases alleged herein to be misleading, prior to, or shortly after their issuance, and to prevent their issuance or cause them to be corrected.

By virtue of their positions, the Individual Defendants had access to the material adverse non-public information concerning the business and financial condition of the Company. Indeed, the Company's own risk management policies during the Class Period demonstrate that the Individual Defendants directly manage or, at a minimum, were aware of, the various risk levels associated with the Company's operations, including its round-trip trading positions in its MST division.

* * *

Based on their respective positions and access to material non-public information, each of the Individual Defendants knew or recklessly disregarded that the adverse facts specified herein had not been disclosed to, and were being concealed form the public, and that the positive representations which were being made were then materially false and misleading.

Complaint, ¶ 55-60.

Liability under § 20(a) is secondary liability, and is contingent upon liability under some other provision of the Securities Exchange Act of 1934 of a person controlled by the defendant. 15 U.S.C. § 78t(a). Though Section 20(a) claims are sometimes pled in the alternative to a 10(b) claim, there is case law for the proposition that a plaintiff can assert only one or the other.

Without deciding the question, we note that some authority suggests that a plaintiff may not be able simultaneously to assert both Section 10(b) and Rule 10b-5 claims and Section 20(a) claims against the same defendant. `Arguably, a § 20(a) claim cannot be asserted against a defendant who is also charged with primary violation of § 10(b) and Rule 10b-5; that is, secondary liability under § 20(a) is an alternative, not a supplement, to primary liability under § 10(b) and Rule 10b-5.' Lemmer v. Nu-Kote Holding, Inc., 2001 U.S. Dist. LEXIS 13978, No. CIV. A. 3:98-CV-0161-L, 2001 WL 1112577 at *12 (N.D. Tex., Sept. 6, 2001), citing Kalnit v. Eichler, 85 F. Supp. 2d 232, 246 (S.D.N.Y. 1999) (suggesting that plaintiffs could not allege primary liability against the directors of a corporation and at the same time allege control person liability against the directors).

However, defendants have not convinced the court that dismissal of this count is appropriate at this juncture. As plaintiffs contend, the PR Diamonds case did not hold that "culpable participation" was an element of a 20(a) claim. PR Diamonds, 364 F.3d at 696. Furthermore, the Complaint could certainly be read to allege "culpable participation" on the part of the defendants if defendants should convince the court that culpability is an element of such a claim. The court will deny defendants' motion as to this claim.

D. Restatements and GAAP Violation

Revisiting the subject of scienter, defendants separately address the CMS reclassification and restatement of revenue and expense in the 2001 annual financial statements, asserting that such a document does not show that previous statements were made knowingly or with reckless disregard for the truth, citing Comshare, 183 F.3d at 553. A similar argument is made about GAAP violations in the accounting during the relevant period, that such violations have to be coupled with allegations concerning "corresponding fraudulent intent." Navarre, 299 F.3d at 745. Defendants point out that the accounting treatment was not found to be faulty by the independent auditor when it was performed, and that fraudulent intent must be lacking if such practices were not deficient at the time they were employed.

Regarding GAAP violations, and the defendants' general argument concerning exculpatory reliance on CMS auditor Arthur Andersen, the court notes that such a reliance argument would be significantly weakened as of July 24, 2001. On that date, the substance of an internal Andersen memo, #AA00490-92, entitled "Subject, CMS MS T Review Procedures," lends support to plaintiffs' argument. As above, it is not quoted here in light of the protection order entered earlier on the agreement of the parties. These arguments do not persuade the court that its findings above concerning scienter were misplaced.

E. Loss Causation

Defendants assert that the public statements referenced in the complaint made by the corporate defendants did not change the market price of CMS stock, specifically tracking the market for CMS stock before and after the issuance of the statements. Defendants state that the market was not inflated by the public statements made by defendants, that in fact CMS stock prices remained flat or declined, and that plaintiffs have not established a causal connection between the alleged fraud and the stock price of CMS.

Such a determination is not properly made at this juncture; accordingly, dismissal is not appropriate on the grounds that plaintiffs have failed to plead loss causation. As plaintiffs argue, unlike for pleading scienter, there are no heightened pleading requirements for loss causation. See Gebhardt v. ConAgra Foods, Inc., 335 F.3d 824, 830 n. 3 (8^th Cir. 2003). Plaintiffs point to the Complaint, ¶¶ 439, 441, which asserts that plaintiffs would not have acquired CMS securities at the "artificially inflated prices which they paid" had they known of CMS' "true financial condition and business prospects." ¶ 439. Plaintiffs also cite to defendants' brief, which anticipated that plaintiffs would "focus on the drop in CMS Energy's stock price of $3.24 or 16.8% on May 13, 2002, upon the public reports the previous Friday of the SEC's investigation into round-trip trading" (see Complaint, ¶ 285), and assert that "admission" is sufficient by itself to establish loss causation. The court acknowledges defendants' contention that the drop in stock price on May 13, 2002 "necessarily reflects the market's negative reaction to a government inquiry" (Brief in support of defendants' motion to dismiss, p. 33). While a fact finder may agree with the defendants that the price drop was unrelated to the effects of the alleged misrepresentations, the court is not convinced that sufficient pleading of loss causation is defeated by defendants' assertion. The court should not speculate on what degree of the price decline is attributable to the disclosure of a government investigation. Plaintiffs enjoy the benefit of a plausible inference of causation at this stage, and therefore have adequately pled loss causation under the applicable standard. 3. FED. R. CIV. P. 12(B)(1) MOTION TO DISMISS

This argument is coined by plaintiffs as defendant's "Eleventh Hour" argument. Briefly, defendants assert that this court lacks subject matter jurisdiction over the claims in this litigation, because a "breach of fiduciary duty (unaccompanied by misrepresentation, nondisclosure or deception) does not violate the federal securities laws." Brief in support of CMS' Motion to Dismiss, p. 38. As outlined above, however, the court agrees with the plaintiffs that the asserted claims sound in fraud and plaintiffs are permitted to maintain the bulk of their federal securities claims. Dismissal is not appropriate on this basis.

CONCLUSION

As set forth above, for the reasons there given, the court hereby GRANTS defendant CMS' motion to strike extraneous allegations; GRANTS IN PART AND DENIES IN PART defendant CMS' request for judicial notice; GRANTS IN PART AND DENIES IN PART plaintiffs' requests for judicial notice and consideration of various documents; DENIES IN PART plaintiffs' request for judicial notice of William McCormick's discovery responses; and GRANTS IN PART AND DENIES IN PART defendants' motions to dismiss.

IT IS SO ORDERED.