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Decision of Interest Judge Brient In Re: NewPower Holdings, Inc. Securities Litigation – In this private securities fraud class action regulated by the Private Securities Litigation Reform Act (PSLRA), the Court has before it the obligatory motions to dismiss the Consolidated Class Action Complaint for failure to state a claim, pursuant to Rule 12(b)(6) F.R.Civ.P. Under the PSLRA, the making of such a motion stays discovery, 15 U.S.C. §78u-4(b)(3)(B). The statute, PLSRA 15 U.S.C. §78u-4(b)(a)(B) requires detailed fact pleading generally inconsistent with the requirement of Rule 8 F.R.Civ.P. However, to survive a motion, it is not necessary that all of the allegations in the challenged pleading describing separate violations of federal securities law should be found by the Court to state a claim. Fully submitted following oral argument on April 4th, 2003, are the following motions: (1) Motion filed on December 13, 2002 by Defendants Credit Suisse First Boston Group (“CSFB”), CSFB Direct Holdings, Inc., (formerly DLJDirect, Inc.), Chase Securities, Inc. (“Chase”), CIBC World Markets Corp. (“CIBC”), PaineWebber, Inc. (“PaineWebber”), Salomon Smith Barney, Inc. (“Salomon”) and Donaldson Lufkin & Jenrette Securities Corp. (“DLJ”) (collectively, the “Underwriter Defendants”), and Peter Grauer (a former outside director of NewPower), pursuant to Rule 12(b)(6), Fed. R. Civ. P. to dismiss Plaintiffs’ Consolidated Class Action Complaint (the “Complaint”) and (2) Motion filed on December 19, 2002, by Defendants Eugene H. Lockhart, Kenneth L. Lay, Lou L. Pai, James V. Derrick Jr., Richard A. Causey, William I. Jacobs, Linda G. Alvarado, Ray G. Groves pursuant to Rule 12(b)(6) to dismiss Plaintiffs’ Consolidated Class Action Complaint. Background of the Case The Consolidated Class Action Complaint was filed in these consolidated cases on July 31, 2002 and the Court indulges the convention that familiarity therewith on the part of the reader is assumed. This pleading contains 55 pages and is the work of three co-lead counsel law firms aided by a liaison counsel law firm and Executive Committee of Lawyers. The pleading contains 122 numbered paragraphs, exclusive of the claims for relief. So much for the “short and plain statement of claim” contemplated by Rule 8 Fed. R. Civ. P. Plaintiffs sue on behalf of all person or entities (the “Class”) who purchased the common stock of New Power Holdings Corporation (“New Power”) during the period October 5, 2000 through and including December 5, 2001 (the “Class Period”), either directly from the Underwriters Defendants as part of an (“IPO”) initial public offering or in the aftermarket. In this action, Plaintiffs allege that New Power’s officers and directors and the Underwriters engaged in a pattern of misleading transactions, false representations and misleading omissions throughout the Class Period which concealed the true nature of New Power’s business and financial condition. They allege that New Power’s directors 1 and Underwriters, many of whom are named Defendants, could have corrected the misrepresented facts and omissions proffered during New Power’s October 5, 2000 IPO, but, they failed to exercise due diligence and therefore did not do so. Plaintiffs allege that Defendants violated Section 11 of the Securities Act of 1933 (the “Securities Act”) and Section 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated under Section 10(b). New Power, the issuer in this case, formed initially as TNPC, is an offshoot of the Enron Corporation fraud, characterized by the federal Court having jurisdiction over that litigation, as a Ponzi scheme. On October 5, 2000, 27.6 million shares of NewPower common stock were offered and sold to the public for the price of $21 per share as an IPO. Prior to the IPO, NewPower was a wholly-owned subsidiary of Enron Corp. After the public distribution, NewPower was a controlled affiliate of Enron. The business of NewPower was formerly conducted by Enron under the name of Enron Energy Services, Inc. (“EES”). EES failed to earn a profit. Following the underwriting, Enron retained 13.6 million shares of New Power common stock and received warrants to purchase 42 million more shares. As pointed out by Judge Harmon in In Re Enron Corp. Securities Derivative and ERISA Litigation, supra, at page 626 : “[T]o obtain desperately needed profit to perpetuate its alleged Ponzi scheme, Enron decided to take New Power public and create a trading market in its stock, in order to recognize a profit on the gain and value of its shares by a sham hedging transaction with an LJM2 Co-Investment, L.P. (“LJM2″) SPE . . . pursuant to a deal structured before the IPO, Enron . . . .used LJM2 to hedge Enron’s gain in the value of its NewPower stock and create an enormous phony profit of $370 million in the fourth quarter of 2000. Immediately after the October IPO, Enron . . . .created an SPE designated as a Hawaii 125-0. [Enron banks] made a sham loan of $125 million to Hawaii 125-0, but actually Enron gave the banks a secret “total return swap” guarantee that protected them from any loss. Enron sold millions of its NewPower warrants to Hawaii 125-0 to “secure” the bank’s loans while recording a $370 million profit on the claimed gain on the NewPower warrants made possible by the IPO. Hawaii 125-0 simultaneously allegedly hedged the warrants with another entity created and controlled by Enron called “Porcupine” into which LJM2 had placed $30 million to capitalize it and facilitate the sham hedge of the NewPower warrants; a week later, however, Porcupine paid back the $30 million to LJM2 along with $9.5 million profit leaving Porcupine stripped of assets. When NewPower stock fell sharply in 2001, Enron’s alleged gain on its NewPower equity holdings was converted into a loss of about $250 million . . . .Enron . . . .agreed to and did conceal that loss until October 2001, when Enron disclosed a $1 billion writeoff and a $1 billion reduction in shareholders equity.” Although NewPower raised $543 million in its October 2000 IPO through the sale of $27.6 million common shares at a price of $21 per share, NewPower’s stock closed at a $1.05 on December 5, 2001, the close of the class period, only 14 months after the company went public at $21 per share. During that period the proceeds of the issue were largely dissipated. The Consolidated Class Action Complaint alleges a large number of different frauds and misleading statements or omissions. As noted earlier, if any one of them survives the motion, the Complaint cannot be dismissed. We refer to these in the order listed in the Consolidated Amended Complaint. The IPO registration statement and prospectus for NewPower is incorporated by reference in the Consolidated Class Action Complaint and is found attached to Document No. 46 filed December 13, 2002. The Complaint fairly pleads, apparently with some factual basis although there has been, as yet, no pretrial discovery in the litigation, that the stated business purpose of NewPower was to supply natural gas and electricity to consumers in a growing number of states that were in the process of deregulating the energy market. Plaintiffs allege that the NewPower Registration Statement, and statements made by Defendants in the market following the IPO, were materially and intentionally false and misleading. Specifically, Plaintiffs allege that Defendants represented that NewPower planned to employ the same hedging strategies employed by Enron, and in doing so, falsely represented in the Registration Statement, and thereafter, that these hedging strategies had been profitably employed by Enron. Enron had only been able to report profitable operations prior to the IPO through a byzantine structure of interrelated SPEs that manufactured profits by trading assets among themselves. When the public discovered the materially false and misleading statements, NewPower’s common stock dropped to $1.05 per share on December 5, 2001 (the end of the Class Period). Plaintiffs therefore seek damages, based on the approximately $20.50 decline in the price of the NewPower common stock from the IPO to the December 5, 2001, in excess of $500 million. Plaintiffs allege that NewPower falsely stated in its Prospectus that NewPower’s relationship with Enron provided the Company with a competitive edge in the deregulated energy market. Complaint ¶34. According to Defendants, NewPower was “uniquely positioned to succeed because of our access to Enron’s technical resources, regulatory and risk management expertise, and reliable wholesale commodity purchasing power.” See Prospectus at p. 27. The Complaint alleges, with some factual support, these Statements were false and misleading. NewPower had no viable plan to hedge against volatile prices. Instead, NewPower’s true plan involved purchasing forward contracts and capacity from Enron and its affiliates and providing Enron with cash security in order to protect Enron from volatility if energy prices decreased. See Complaint ¶36(ii). This actually increased NewPower’s risk of business failure and advanced the economic interests of Enron. See Id. at ¶36(ii). When they failed to disclose information that was readily available to them, that these same strategies had already been employed unsuccessfully by EES, Defendants misled investors. See Id. at 36(ii). In August 2001, Margaret Ceconi (“Ceconi”), a whistle blower who was an EES executive, informed Kenneth Lay, a NewPower director and a Defendant, that EES had failed for two years (i.e. since about 1999) in “almost all” of its energy sales purportedly involving hedging attempts, and had been reporting losses on power contracts as gains through an abuse of ordinary acceptable accounting methods. See Id. at 36(iv). Ms. Ceconi discovered this readily ascertainable fact by examining the cash flows on various energy contracts in which EES had been engaged in over the years. See Id. at 36(iv). The data containing EES’s true experience in hedging retail contracts in a volatile market was known to EES executives like Ceconi, and was documented in EES documents. At least for pleading purposes, the truth of the situation may be deemed to be within that which Defendants knew or should have known. Hedging The Prospectus and counsel for both sides at the oral argument appear to discuss hedging, in this context as something else when contrasted with the ordinary understanding of the word. Hedging is defined as follows: hedge, vb. – to make advance arrangements to safeguard oneself from loss on an investment, speculation, or bet, as when a buyer of commodities insures against unfavorable price changes by buying in advance at a fixed rate for later delivery.-hedging, n. Black’s Law Dictionary, 7th Edition, 1999. In Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Curran, 456 U.S. 353, 359 102 S. Ct. 102 S. Ct. 1825, 1830 (1982), the Court defined hedging: Those who actually are interested in selling or buying the commodity are described as ‘hedgers’; their primary financial interest is in the profit to be earned from the production or processing of the commodity. Those who seek financial gain by taking positions in the futures market generally are called ‘speculators’ or ‘investors’; without their participation, futures markets ‘simply would not exist. There was no hedging at New Power for the benefit of New Power, within the traditional meaning of the word known to the investing public. As to this item, there was a material misrepresentation. Post argument letters requested by the Court and received from counsel add little to our understanding. Counsel for Defendants Lockhart and Jacobs by letter dated April 11, 2003 contend that “New Power typically attempted to lock in profit margins on its contracts with customers by simultaneously arranging for the future purchase of energy requirements that it would later re-sell”, and therefore due to a “dramatic decline” in prices was required to post substantial collateral with Enron and others. Counsel for Plaintiffs by letter dated April 8, 2003 repeat their version of the nature and effect of the so-called hedging system outlined in the Complaint, and assumed to be true by this Court, because the allegations must be construed most favorably to the non-moving party. At the very least the present record before the Court shows that there are disputed facts which preclude dismissal, and that it is more likely than unlikely that the only hedging in effect was intended to and did protect Enron, not NewPower. In sharp contrast to traditional hedging contracts, the EES “hedging system,” ultimately employed by NewPower is alleged, and appears to be a sham, based on an artificial 10 year demand curve that skewed future projections so that EES or NewPower could immediately book large paper profits, regardless of the actual financial results its current transactions produced. This sale and hedging system relied upon a manipulation known internally at Enron as “Tilting the Curve.” “Tilting the Curve” involved an artificial prediction that prices for electricity and gas would remain steady for three years, then drop suddenly in year four, before rising again in about year seven. This was pure financial alchemy. In an article published in the March 28, 2002 edition of the Houston Post (see Exhibit A of Plaintiffs’ letter dated April 8, 2003), Ms. Ceconi described the artificial and manipulative nature of this system, which was radically different from what was being done by other energy companies involved in future sales. Ms. Ceconi stated: “Other companies couldn’t figure out how Enron made money at this, because when they tried to do it, they couldn’t figure out how to make money at it.” See Houston article at ¶56. The artificial nature of the “Tilting the Curve” System carried with it significant risks that EES or NewPower would lose money if the underlying concept of the curve did not turn out as expected. This artificial and probably fraudulent concept runs contrary to a true hedging system. A clause from Enron’s risk assessment manual (not disclosed to the public) stated that “corporate management’s performance is generally measured by accounting income, not underlying economics. Risk management strategies are therefore directed at accounting rather than economic performance.” See Houston article at ¶48. Other Issues of Misrepresentation and Omission The Registration Statement and Prospectus emphasize that NewPower would be aggressively entering the market for consumer electricity and natural gas, and that the plans for deregulated competition in these markets was proceeding well: We estimate that the total residential and small commercial electric and natural gas marketplace in the United States exceeds $150 billion annually, making it one of the largest consumer markets to undergo competitive regulatory restructuring. As of September 2000, a significant portion of markets in nine states were open to retail natural gas competition. A number of other states had also approved pilot programs to evaluate restructuring on a test basis, and laws or regulatory plans providing for future retail electric competition had been adopted in several other states. Although in many of these jurisdictions, final rules implementing market restructuring are not yet finalized and effective, we estimate that by the end of 2002, roughly 50 percent of the U.S. population, or approximately 55 million households, will be in markets where consumers can choose either their electricity or natural gas provider or both. As was the case in the deregulation of the long- distance telephone markets, we believe that a significant percentage of consumers will be receptive to switching from their monopoly energy providers to competitive providers. See Complaint at ¶36; See Prospectus at p. 27. The Registration Statement and Prospectus also stated that the Company was evaluating entering into large markets for electrical power in early 2001, including power markets in “Connecticut, Massachusetts, Ohio, New Jersey, Pennsylvania and Texas, and natural gas markets in New Jersey.” See Complaint at ¶38; See Prospectus at p. 27. These statements which are not entirely forward looking, are alleged to be false and misleading, because NewPower did not, in fact, have any plans to aggressively enter the deregulated electricity markets, which accounted for two-thirds of the estimated $150 billion market opportunity. Prior to the IPO, NewPower’s energy consultants had concluded that these markets were not viable and that deregulation was largely stalled rather than advancing in the way that the Registration Statement and Prospectus represented. In the year ending December 31, 2000, NewPower had retained Arthur Andersen, Inc. (“Andersen”) for its consulting services. In late September 2000, only weeks before the IPO, Andersen produced a comprehensive report on the deregulated energy issue entitled “Electric Power Trends 2001″ (“Andersen Report”), which was provided to Andersen clients such as NewPower. The report concluded that “the electric industry faced a prolonged and muddled transition to deregulation that could produce re- regulation”. It went on to conclude further that “the slowing pace of state restructuring efforts complicated the development of competitive markets for energy services, retail and wholesale marketing” and that the “there is no indication that this trend will change”. Yet, despite this report, NewPower and Defendants went forward with the Registration Statement and Prospectus containing materially false statements about the electricity market and NewPower’s ability to enter and compete in that market. This report was paid for by NewPower and available to all of NewPower’s directors and Underwriters, so pre-trial discovery may establish actual or constructive notice. Stating that NewPower’s success would depend upon its “ability to identify and enter favorable restructured energy markets and to achieve sufficient customer sale to create a profitable operating cost structure,” “to attract and retain . . . customers,” “to develop internal corporate organization and systems,” and that “we are a company without a successful operating history and cannot assure you that we will become profitable,” (Prospectus p. 7) does not overcome the failure to mention that there already were known problems in the business NewPower was taking over from its parent. New Power’s Prospectus also misrepresented that a “superior” customer management system had already been developed for NewPower by IBM: “We believe that the revenue management and customer care system developed for us by IBM will offer significant advantages in scalability (sic) of our operations and will permit us to offer superior customer service and to maintain an attractive cost structure.” See Complaint at ¶41; See Prospectus at p. 28. This statement is arguably false and misleading. Plaintiffs allege that at the time of the IPO, IBM was significantly behind schedule in the development of those systems. As it turned out, IBM remained incapable, throughout the Class Period, of developing superior or even adequate systems for the claimed purpose. A former employee who worked in the tax department at NewPower revealed that the IBM operating system was such a fiasco that NewPower employees were secretly using an antiquated system acquired from Columbia Gas Company. This system was incompatible with the needs of electricity customers and with NewPower’s essential business needs. The warnings contained in the Prospectus with respect to the IBM systems were: “Any problems that arise with the design and construction of our back-office or web-site functions could result in increased expenditures, delays in the expansion of our commercial operations, or unfavorable customer experiences that could materially adversely affect our business strategy.” These warnings are general, not specific warnings regarding existing problems that were known at the time the Prospectus was issued. The Prospectus provided investors with false assurances about the role of IBM in New Power and omitted the fact that NewPower had actual existing systems problems at the time of the IPO. The Complaint fairly alleges that NewPower presented investors with distorted material information concerning the state of IBM’s efforts. Defendants represented in the Prospectus that the IPO net proceeds of $543 million were “sufficient for NewPower to carry forward its Business Plan for at least 24 months”. NewPower was formed by Enron. Enron was its largest and controlling shareholder. Statements about the close relationship between Enron and NewPower are found throughout the Prospectus. However, absent from the Prospectus are critical facts that would have revealed that Enron was far from enthusiastically backing NewPower. See Complaint ¶46. Although the Prospectus repeatedly stressed the importance of Enron’s significant interest and support of NewPower, the Prospectus neglected to mention that Enron had set up an SPE known as “Raptor III” for the exclusive purpose of avoiding anticipated losses in the value of its investment in NewPower shares and convert those shares into an immediate paper profit. The Registration Statement and Prospectus purports to fully describe the relationship between Enron, its affiliates, and NewPower, and all of their related party transactions, but it fails to disclose the significant Raptor transactions. These facts were material. Plaintiffs allege that the Registration Statement and Prospectus omitted critical information regarding conflicts of interest among the Underwriters, in particular, a conflict of interest affecting co-lead Underwriter Credit Suisse. See Complaint ¶47. Defendants had information that in years prior to the IPO, Credit Suisse had been successful in helping to raise billions of dollars for Enron in stock and debt offerings. Investment bankers from Credit Suisse and DLJ had also created and structured certain of Enron’s SPEs including a series of partnerships using the name “Raptor”. Other Issues Raised on the Motion In addition to their general argument that the Complaint does not state a claim, Defendants claim that the statute of limitations bars Plaintiffs’ claims. Defendants further argue that Plaintiffs’ 1933 Act claims should be dismissed for failure to allege material misrepresentations. Plaintiffs argue that the issue of materiality is a factually intensive inquiry that is not properly resolved on a motion to dismiss. Defendants also allege that Plaintiffs have failed to sufficiently plead scienter with respect to the 1934 Act claims. Defendants also contend that Plaintiffs’ Complaint fails to plead reliance and that they are insulated under the PSLRA safe harbor. Discussion Legal Standard Dismissal under Rule 12(b)(6) is appropriate only when “it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” Conley v. Gibson, 355 U.S. 41, 45-46, 78 S. Ct. 99, 102 (1957). Pursuant to Fed.R. Civ. P. §9(b), allegations of fraud must be pleaded with particularity. “The [C]omplaint must identify the statements plaintiff asserts were fraudulent and why, in plaintiff’s view, they were fraudulent, specifying who made them, and where and when they were made.” In re Scholastic Corp. Securities Litig., 252 F.3d 63, 69-70 (2d Cir. 2001). Under Securities Act §10(b) and Rule 10b-5, a securities fraud complaint “must allege that in connection with the purchase or sale of securities, defendant, acting with scienter, either made a false material misrepresentation or omitted to disclose material information so that plaintiff- acting in reliance either on defendant’s false representation or its failure to disclose material information-suffered injury and damages.” In re Scholastic Corp. Securities Litig., 252 F.3d 63, 70 (2d Cir. 2001). Scienter has no part in the 1933 Act claims. A pleading is adequate if it gives notice of the claims and identifies the claims sufficient to support res judicata following the entry of final Judgment. In a securities fraud claim under Securities Act of 1933, Rule 10b-5, there must be a claim of misrepresentation or omission of a material fact. See Mayer v. Oil Field Sys. Corp., 803 F.2d 749, 755 (2d Cir. 1986). See also In re Time Warner, Inc. Sec. Litig., 9 F.3d 259, 264 (2d Cir. 1993). On a motion to dismiss, in addition to considering the face of the Complaint, the Court may also consider any public documents such as SEC filings. See Kramer v. Time Warner, Inc., 937 F.2d 767, 773-74 (2d Cir. 1991). Safe Harbor Defendants contend that their statements or most of them were forward-looking and thus protected under the PSLRA, 15 U.S.C. §78u-5. Plaintiffs respond that Defendants’ misrepresentations are misstatements of present facts for which the PLRSA safe harbor protection is not available, and in any event, it is impossible to determine this issue on a motion to dismiss. This Court agrees. Safe harbor does not apply to material misrepresentations or omissions of present or historical facts. See In re Regeron Pharms. Sec. Litig., 1995 U.S. Dist. LEXIS 4023, at *14 (S.D.N.Y. Mar. 10, 1995); ABF Capital Mgmt. v. Askin Capital Mgmt., L.P., 957 F. Supp. 1308, 1324 (S.D.N.Y. 1997). Safe harbor also does not apply to material misstatements of present intention, even when accompanied by cautionary language. This Court held in In re Oxford Health Plans, Inc. Sec. Litig., 187 F.R.D. 133, 141 (S.D.N.Y. 1999) that “the safe harbor and bespeaks caution doctrines do not apply to [historical and existing material fact] omissions.” In this case, there is a strong inference of scienter. Our Court of Appeals has a pleading requirement for scienter: (a) alleging facts showing that Defendant had the motive and opportunity to commit fraud or (b) alleging facts that show strong circumstantial evidence of Defendant’s conscious misbehavior or recklessness. In re Scholastic Corp. Securities Litig., 252 F.3d 63, 74 (2d Cir. 2001). This pleading satisfies that standard, especially when viewed against the entire background of Enron, of which New Power is but a small part, involving some of the same participants using the same means. Common sense suggests that the more egregious the conduct the more likely the requisite intent is present. Defendants contend any misrepresentations were not actionable for three reasons: (1)they were accompanied by adequate cautionary language which warned investors of the risks of investing in NewPower; (2) they were mere expressions of optimism or puffery that could not have misled investors, who would not have reasonably relied; or (3) they fully disclosed the necessary information and/or concerned matters Defendants were under no obligation to disclose. These arguments are at best fact intensive and do not lend themselves to a disposition of litigation by a Rule 12 motion. This Court concludes that Defendants cannot avail themselves of the “bespeaks caution” doctrine, because the allegations fairly read show that the omissions and misrepresentations relate at least in part to existing and historical material facts and statements of present intention. Outstanding among the misrepresentations and omissions are the facts regarding a system of hedging that was already a calamity and failure, if indeed it really was a system of hedging to protect NewPower. See Turkcell, 202 F.Supp. 2d at 12, (citing In re Oxford Health Plans Sec. Litig., 187 F.R.D. 133, 141 (S.D.N.Y. 1999)). The warnings that Defendants rely on are: “NewPower may fail to hedge our positions effectively” (Prospectus at p. 9) and “NewPower’s business model may not be profitable.” (Prospectus at p.7, F-14). These are merely boilerplate disclaimers that warn that something bad might happen as a result of Defendants’ inability to predict the future. However, these statements do not disclose in full the existing facts regarding the non-existence of the hedging system as described or the failure of the hedging system to work for EES, all of which was or should have been known to Defendants. Second, Defendants argue that the statement that NewPower was “uniquely positioned to succeed” was “nothing more than a vague statement of general optimism and is non-actionable corporate puffery”. Defendants’ assertion that NewPower was “uniquely positioned to succeed” is not cheerful optimism about the future of the business but is a material misrepresentation of an existing fact. At least, a jury may so find. It is evident that Defendants wanted investors to believe that NewPower had in place something the others did not have, which was its relationship with Enron and an effective hedging strategy. This was supposed to provide NewPower with the mechanism it needed to succeed. In fact, NewPower did not have either and it is highly likely the Defendants knew this. Defendants’ claim that this statement was merely an optimistic forward- looking statement fails, at least for purposes of this motion because in order to not be misleading the statements must be “adequately tinged with caution”. See In re Nokia Corp. Sec. Litig., 1998 U.S. Dist. LEXIS 4100 at *16 (April 1, 1998, S.D.N.Y.). Whether the trier of fact could find otherwise on a complete trial record we leave for another day. The Underwriter Defendants argue that the hedging strategy risks were adequately disclosed in the Prospectus because the Prospectus contained, elsewhere, a table which showed that EES had sustained operating losses, presumably while using the same hedging strategy. The table does not indicate that EES’s operating losses were due the company’s inadequate hedging and risk management system, and implies that it was due to high marketing costs. This information did not forewarn investors, but misled them; at least the trier of fact may so find. Defendants also contend as to aftermarket purchasers that gradual revelations which occurred during the class period cured any possible omissions. This issue cannot be dealt with on a pleading motion. Reliance on the part of open market purchasers after the IPO closed is adequately pled as a fraud on the market. Where a purchase is made based on a prospectus, reliance may be presumed. Statute of Limitations Plaintiffs allege that, through their acts and omissions, Defendants have violated §§10(b) and 20(a) of the Securities Exchange Act. In Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 111 S.Ct. 2773, 115 L. Ed. 2d 321 (1991), the Supreme Court held that the limitations period for civil claims under Section 10(b) of the Securities Exchange Act of 1934 is that found in Section 9(e) of the Exchange Act, 15 U.S.C. §78(I)(e) which provides: No action shall be maintained to enforce any liability . . . unless brought within one year after the discovery of the facts constituting the violation and within three years after such violation. As such, claims brought under Section 10(b) and Rule 10b-5 are subject to a one year/three year statute of limitations. The issue to be decided then is whether the information available to the plaintiffs prior to December 5, 2000, (one year before commencement of this action) was sufficient to place them on “inquiry notice,” triggering the running of a statute of limitations early enough to render their suit time-barred. Defendants, asserting that a one-year statute of limitations applies to Plaintiffs’ causes of action asserted in this lawsuit, argue that the action must be dismissed as untimely because, before December 2000, Plaintiffs were on at least inquiry notice of the matters in the Complaint. Pointing to the statements in an article in a trade journal: Platt’s Retail Energy: Retail Services Report dated December 8, 2000, (See Julie A. North Affidavit December 13, 2002, Exh. 2), Defendants assert that Plaintiffs were in a position to ascertain the true status of the matters as to which they claim they were misled. Plaintiffs dispute that this article put them on inquiry notice of the various frauds of which Plaintiffs complained. The Court cannot reach this issue on the bare record presently before the Court, because whether Plaintiffs should have discovered the fraud earlier than they did, and whether the action is timely, presents a fact intensive issue. See, e.g., In re Executive Telecard, Ltd. Securities Litigation, 913 F.Supp. 280, 283-84 (S.D.N.Y.1996) (holding that resolution of “inquiry notice” issue for purposes of securities fraud claim is inappropriate on a motion to dismiss where a reasonable fact finder could conclude that Plaintiffs were not on notice of fraud). Claims against Defendant Peter Grauer Defendant Peter Grauer (“Mr. Grauer”) was a late comer to the issues in the case. He served as a member of the NewPower Board of Director from June 2000 until his resignation on March 12, 2002. In late 2000, he became Managing Director of Credit Suisse First Boston Private Equity’s Leveraged Corporate Equity Group. Mr. Grauer also signed the Registration Statement for the NewPower IPO. Complaint §18. Liability under Section 12(a)(2) is limited to a person who “offers or sells” securities pursuant to a materially misleading prospectus. 15 U.S.C. ¶771(a)(2). To qualify as a statutory seller, a defendant must have (1) passed title or other interest in the security, or 2) solicited the purchase of the security motivated, at least in part, by his own financial interests. Our Court of Appeals has held that under §12(a)(2), the term “seller” is “not ‘restricted to those who pass title,” ‘ but also includes “the person ‘who successfully solicits the purchase, motivated at least in part by a desire to serve his own financial interests or those of the securities owner.” ‘ Capri v. Murphy, 856 F.2d 473, 478 (2d Cir.1988) (quoting Pinter v. Dahl, 486 U.S. 622, 647 (1988)). A person who signs a registration statement is deemed to have solicited the purchase of the offered securities. See, e.g., APAC Teleservices, Inc. Sec. Litig., 1999 WL 1052004, *11 (S.D.N.Y.1999) (Jones, J). Under Gustafon v. Alloyd Co., 513 U.S. 561 (1995), “the term prospectus refers to a document soliciting the public to acquire securities.” Id. at 574. Courts have concluded that because the prospectus itself is a document that solicits the purchase of securities, those who sign the registration statement should be deemed persons who solicited the purchase of the offered securities. See Picard Chem. Inc. Profit Sharing Plan v. Perrigo Co., 940 F. Supp. 1011, 1133 (W.D. Mich. 1996) (“the Prospectus itself is considered a solicitation document . . . [t]hus, the Perrigo defendants who actually signed the Registration Statements may be said to have solicited the public to purchase Perrigo stock.”); Degulis v. LXR BioTechnology, Inc., 928 F. Supp. 1301, 1315 (S.D.N.Y. 1996). (On a motion to dismiss, allegation that defendants signed registration statement is sufficient to show active solicitation.) Although signing the registration statement need not constitute active solicitation, it is, at this stage of the proceedings, a sufficient allegation to permit Plaintiffs to present evidence that, alone or together with other acts, the signatures constituted active solicitation. Courts have held involvement in preparation and circulation of the prospectus sufficient to show solicitation. See Degulis at 1315; See, e.g., Capri, 856 F.2d at 478. And although scienter must be pleaded when a plaintiff seeks to hold collateral participants liable under Section 12(2), see, e.g., Akerman v. Oryx Communications, Inc., 810 F.2d 336, 344 (2d Cir.1987), whether or not any Defendants were collateral participants is more appropriately a question for summary judgment. Accordingly, the Court declines to dismiss as to Mr. Grauer, recognizing the apparent lessened participation on his part. Conclusion The Court has considered the other issues raised in the motions and not specifically mentioned in this decision. Essentially these issues are fact intensive, and may be raised again when adequate pretrial discovery has been completed. The motions to dismiss are denied. Nothing stated herein should be deemed to represent a finding of fact in the case, absent discovery and consideration of evidence apart from mere allegations. Similarly, the opinion of Judge Harmon relied on herein is not based on the credibility findings which would follow from a trial of the merits. Counsel shall conduct an office conference to consider and develop a discovery plan, and shall also discuss what knowledge, if any, would be helpful to them in making an early evaluation of the various claims and defenses, with a view to resolving the case in whole or in part, if possible, before undue transactional costs are incurred. A conference with the Court shall be held on May 21, 2003 at 9:00 a.m. to report the results of the meeting of counsel, enter a Case Management Order, and take such other proceedings as may be appropriate. So Ordered. FootNotes: The Ponzi scheme acquires its name from Charles K. Ponzi (1882 – 1949) who during an eight month period in 1920 swindled American investors for an amount in excess of $15 Million.Ponzi claimed that he could earn 50 percent interest in 90 days for clients by speculating in international postage reply coupons which he said were worth more in the United States than their cost in most foreign countries. He paid such interest to his initial investors solely out of the principal borrowed from subsequent investors. The scheme came to an end when Ponzi agreed with federal authorities to stop taking in new money until auditors could examine the books. SeeBalaber-Strauss as Trustee, etc. v. Lawrence, 264 B.R. 303 (S.D.N.Y. 2001). “We were formed by Enron Corp., the largest trader and marketer of electricity and natural gas in North America, to target the rapidly restructuring residential and small commercial markets for these products. We believe we are uniquely positioned to succeed because of our access to Enron’s technical resources, regulatory and risk management expertise, and reliable wholesale commodity purchasing power.” Id. “Although we expect the net proceeds from this offering, together with proceeds from our prior rounds of private financing and revenues from operations, to be sufficient to fund our business plan for at least twenty-four months, the proceeds from this offering may not be sufficient to fund our long-term marketing efforts, our build-out program and our working capital requirements.” Id. A raptor is a bird of prey. Somewhere in the Enron story there must be a swindler with a sense of humor.

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