Parot

UNITED STATES DISTRICT COURT

BASTERN DISTRICT OF NEW YORK

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PENSION TRUST FUND FOR OPERATING

ENGINEERS et al., Individually and on

Behalf of All Others Similarly MEMORANDUM & ORDER

Situated,! 22-CV-394 (EK) (MMH)

Plaintiffs, (Consolidated with Case

Nos. 22-CV-1371 and

-against- 22-CV-1372)

CLARIVATE PLC et al.,

Defendants.

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Table of Contents

I. BaCkGrOuUnd 2... ee ee ee te ee ee ete eee ence 3

A. The Partie€S.. ee ee ee ee ee ee ence

B. De-SPAC Transaction and Public Offerings............. 5

C. Clarivate Restates Expenses and Earnings............. 7

D. Clarivate’s Alleged Operational Struggles........... 10

II. Procedural HiStOry.... ec eee ee ee ee ee ee eee ee eee eee LSD

TIT. Legal Standards... ee ee ee ee ee ee eee ee 16

A. Rule 12(b) (6)... . □□□ ee ee ee ee eee ee ee eee eee □□ □□ LEG

B. Rule GD)... ee ee ee ee ee ee ee ee eee tee rece LT

C. The Private Securities Litigation Reform Act........ 18

IV. Securities Act Section 11 Claims □□□□□□□□□□□□□□□□□□□□□□□□ 19

A. Elements and Pleading Standard...................... 19

B. Against the Clarivate Defendants and CGMI........... 20

C. Against the Fund Defendants..................-.---2-- 24

1. Fund Defendants as “Signatories”............... 24

2. Fund Defendants as “Underwriters”.............. 26

D. Against PricewaterhouSeCOopers.... eee ee eee ee ee eee 82

V. Exchange Act ClaimS .... eee eee eee ee eee □□

A. Material Misrepresentations or Omissions Claim...... 40

1. Legal Standard Under Rule 10b-5(b)............. 40

2, Alleged Misrepresentations or Omissions........ 41

a. Organic Growth Projections................ 41

1 Since the filing of the original complaint, Pension Trust Fund for

Operating Engineers, City of Birmingham Retirement and Relief System,

Michigan Laborers’ Pension Fund, and Town of Davie Police Pension Fund

replaced Kevin Parot as the named plaintiffs. The Clerk of Court is

respectfully directed to amend the caption of this case accordingly.

b. Progress Toward Organic Growth Projections

(“On Track” Statements) ............-.-.-.. 47

Cc. ACV Growth... . eee ee eee eee ee ee ee ee ee □□

d. Q4 2021 Bump (Seasonality)................ 54

e. Revenue Backlog... .. ee ee ee eee eee eee ee □□

f. New Product Development and Investment.... 58

g. Transition to an Inside Sales Force (Item

BOB) LL eee eee ee ee ee ee ee eee eee eee 60

B. SCLi@nNter. ee eee ee ee ee ee ee ete eee eee erence 64

1. Standard Under Section 10(b) and Rule 10b-5.... 64

2, Plaintiffs Plausibly Allege Scienter for Jerre

Stead, Richard Hanks, Mukhtar Ahmed, and

Clarivate Itself... ee ee eee ee eee ee eee 8D

a. Jerre Stead... ee ee ee ee ee ee ee ee ee 8D

b. Richard Hanks... ee ee ee ee ee ee eee 12

Cc. Mukhtar Ahmed.......... 2. eee ee ee ee ee ee ee ee IO

3. Plaintiffs Do Not Plausibly Allege Scienter for

Christie Archbold or Sheryl von Bulcher........ 77

a. Christie Archbold... ee ee ee ee eee ee TT

b. Sheryl von Blucher..... ee ee ee ee ee ee ee □□

C. Scheme Liability Claim........ 2... ee eee ee ee ee ee ee 78

VI. Control Person Liability ....... ee eee ee eee eee es 80

VII. Leave to Amend... . ee ee ee eee et eee eee ee eee OL

VIII. ConcluSion .... ee ee ee eee ee eee ee eee OL

ERIC KOMITEE, United States District Judge:

On February 3, 2022, Clarivate Plc announced that it

would restate certain financial metrics for fiscal year 2020, as

well as four individual quarters in 2020 and 2021. The firm

also updated its guidance to investors, indicating that it

expected to fall short of previously projected “organic” revenue

growth for the full fiscal year in 2021. Clarivate stock

declined 16.4% that day.

The plaintiffs in this action owned Clarivate stock.

They bring securities-fraud claims against the company; current

and former Clarivate officers and directors; the investment bank

that underwrote Clarivate’s stock offerings (Citigroup Global

Markets Inc., hereinafter “CGMI”); Clarivate’s auditor

(PricewaterhouseCoopers LLP, or “PwC”); and certain investment

funds that acquired early equity stakes in Clarivate (the “Fund

Defendants”).

The complaint brings claims under two statutes.

First, plaintiffs allege Securities Act claims against

Clarivate, CGMI, the Fund Defendants, PwC, and certain

individual defendants. These claims are predicated on

Clarivate’s restatement. Second, plaintiffs articulate a

broader securities fraud case under the Exchange Act against

Clarivate and certain individual defendants, based on the missed

organic-growth projections.

The defendants now move to dismiss the complaint in

its entirety. For the following reasons, the motion is granted

in part.

Background

The facts below are taken from the complaint and

documents it incorporates by reference or that are “integral” to

its allegations. Chambers v. Time Warner, Inc., 282 F.3d 147,

153 (2d Cir. 2002); see also Kramer v. Time Warner, Inc., 937

F.2d 767, 774 (2d Cir. 1991) (taking judicial notice of

securities filings and associated documents).

A. The Parties

The named plaintiffs were investors in Clarivate

common and preferred stock. Am. Consolidated Compl. (“ACC”)

¶¶ 8-11, ECF No. 97. They bring the Securities Act claims on

behalf of all those “who purchased or acquired Clarivate

securities traceable” to June and September 202l common stock

offerings, or a June 2021 preferred stock offering. Id. ¶¶ 51,

84. They bring the Exchange Act claims on behalf of those who

“purchased or otherwise acquired Clarivate securities” between

July 30, 2020 and February 2, 2022 (the “Class Period”) and who

were damaged thereby. Id. ¶¶ 3, 325.

Clarivate is an “information services and data

analytics” company that spun off from Thomson Reuters in 2016.

Id. ¶¶ 104-106. Clarivate sells subscriptions to scientific,

healthcare, and intellectual property databases, as well as

datasets. Id. ¶¶ 105, 106, 115. Clarivate went public through

a reverse merger with a “special purpose acquisition company,”

or “SPAC,” in May 2019. Id. ¶¶ 12, 103, 111. This type of

transaction is sometimes called a “de-SPAC” transaction.

CGMI served as lead underwriter for common stock

offerings by Clarivate in June and September 2021, as well as a

mandatory convertible preferred stock offering in June 2021.

PwC has served as Clarivate’s auditor since 2016. Id. ¶¶ 34-35.

The Fund Defendants are Onex Corporation and various

affiliated partnerships; the Baring Asia Private Equity Fund VI,

L.P.1 and L.P.2; and Elgin Investment Holdings Limited (an

affiliate of Baring). Id. ¶¶ 39-48. They purchased

unregistered equity in Clarivate when it spun off from Thomson

Reuters in 2016 and ultimately sold that stock in public

offerings in June and September 2021. The plaintiffs assert

Securities Act claims against the Fund Defendants on the theory

that this sale qualifies them for “underwriter” liability

thereunder.

The individual defendants are current and former

officers and directors of Clarivate.2

B. De-SPAC Transaction and Public Offerings

The 2019 de-SPAC transaction that led to Clarivate’s

public listing was, in substance, a merger between privately

held Clarivate and Churchill Capital Corp., a publicly traded

special purpose acquisition vehicle. The Churchill SPAC had its

2 Defendants Jerre Stead (former CEO and Board Executive Chairman),

Richard Hanks (former CFO), Christie Archibold (former Chief Accounting

Officer), Sheryl von Blucher (Board member), Kosty Gilis (Board member),

Balakrishnan S. Iyer (Board member), Nicholas Macksey (Board member), Anthony

Munk (Board member), Jane Okun Bomba (Board Member), Charles J. Neral (Board

member), Richard W. Roedel (Board member), Valeria Alberola (Board member),

Usama N. Cortas (Board member), Adam T. Levyn (Board member), and Roxane

White (Board member) are the Securities Act individual defendants. ACC

¶¶ 13-15, 22-33, 50. Defendants Stead, Hanks, Archibold, and von Blucher are

also sued under the Exchange Act, along with defendants Mukhtar Ahmed (former

President of the Science Group), Jeffrey Roy (former President of the

Intellectual Property Group), Steen Lomholt-Thomsen (former Chief Revenue

Officer), and Gordon Samson (President of the Intellectual Property Group).

Id. ¶¶ 13-21. They are the Exchange Act individual defendants.

initial public offering on the New York Stock Exchange in

September 2018. See Churchill Cap. Corp. Proxy Statement

(Schedule 14A), at 1, 5 (Apr. 26, 2019) (“Merger Proxy”).

In the de-SPAC transaction, Clarivate’s owners — the

Fund Defendants — exchanged their shares of private Clarivate

for an approximately 74% stake in the public entity that emerged

from the combination. Id. at 13–16. The remaining equity in

the public entity (approximately 26%) went to Churchill

shareholders. Id. at 15–16. The proxy statement projected

that, after giving effect to vesting restrictions, the Fund

Defendants would own roughly 71% of Clarivate’s equity. Id. at

16. The Fund Defendants and the SPAC founders also received

registration rights — that is, the right to “request” Clarivate

to “effect” a public offering of their shares, or to participate

in any offering undertaken by Clarivate. See id. at 77, A-1-A-4

to A-1-A-6.

Clarivate conducted the first offering contemplated by

this agreement in June 2021. ACC ¶ 54. The company sold $750

million in newly issued common shares; alongside this, the Fund

Defendants sold $250 million of their holdings. Id. Clarivate

also sold $1.25 billion in newly issued convertible preferred

shares. Id. ¶ 55. In September of that year, Clarivate

conducted a second offering, this time of $631 million of common

stock held solely by the Fund Defendants. Id. ¶ 59. At the end

of 2021, following these stock sales, the Fund Defendants held

less than 10% of Clarivate’s common stock. Id. ¶ 110.

In connection with each sale, the Fund Defendants

signed Underwriting Agreements that were “incorporated by

reference into the respective share Offering Materials,”

pursuant to the June 19, 2020 and July 1, 2021 Form S-3

Registration Statements. Id. ¶¶ 46-47; Clarivate Plc,

Registration Statement (Form S-3) (June 19, 2020) (“2020 Shelf

Registration Statement”); Clarivate Plc, Registration Statement

(Form S-3) (July 1, 2021) (“2021 Shelf Registration Statement”).

The plaintiffs point to these signatures in their effort to

ascribe underwriting liability to the Fund Defendants.

C. Clarivate Restates Expenses and Earnings

On December 27, 2021, Clarivate announced that several

of its previously filed financial statements should no longer be

relied upon due to accounting errors. Clarivate Plc, Current

Report (Form 8-K) (Dec. 27, 2021). The 8-K indicated that the

company had understated expenses by as much as $185 million.

Id. The company noted that restated financials would follow.

Id. This restatement is, as noted above, the basis for the

plaintiffs’ Securities Act claims.

On February 3, 2022, Clarivate amended four SEC

filings: its 2020 Form 10-K and its quarterly reports (on Form

10-Q) for the first three quarters of 2021 (together, the

“Restatement”). ACC ¶ 53. The amended filings included

restated financial statements for the fourth quarter of 2020,

full year 2020, and first three quarters of 2021. Id. ¶¶ 53, 66

(summarizing the restated expenses and net income). The

erroneous financial statements (with the exception of Q3 2021)

had been incorporated into offering materials for Clarivate’s

June and September 2021 stock offerings, which had been

conducted pursuant to Clarivate’s Shelf Registration Statements.

Id. ¶¶ 56-62. Clarivate’s Shelf Registration Statements were

signed by many of the individual defendants in this lawsuit.3

The Restatement purported to correct three errors

stemming from Clarivate’s acquisition of two companies —

Decision Resources Group (“DRG”) and CPA Global — in 2020. See

Clarivate Plc, Amended Annual Report (Form 10-K/A), at 189-90

(Feb. 3, 2022) (“Amended 2020 10-K”); ACC ¶ 64. First,

Clarivate had incorrectly accounted for a stock-based

compensation plan that CPA Global had instituted for its

employees. ACC ¶ 64. Specifically, Clarivate had treated “the

majority of the expenses” associated with this plan as having

already been accrued — that is, as a liability — at the time of

the acquisition. Id.; Amended 2020 10-K 81. Instead, Clarivate

3 Defendants Stead, Hanks, Archbold, von Blucher, Gilis, Iyer, Macksey,

Munk, Bomba, Neral, and Roedel signed both Shelf Registration Statements.

Defendant Klein signed the June statement, while defendants Alberola, Cortas,

Levyn, and White only signed in September. ACC ¶¶ 56, 60.

acknowledged that it should have recognized these expenses as

“share-based compensation” expenses over their subsequent one-

year vesting period. Amended 2020 10-K 81. This change had the

effect of increasing expenses and reducing earnings for all but

one of the affected periods.

Second, Clarivate had incorrectly accounted for

6,325,860 shares that it had issued to CPA Global’s owner.

Those shares were issued to this owner, but then “returned to

Clarivate” to fund an employee benefit plan established for CPA

Global employees. Id. at 99. Such shares should thus not have

been included in the consideration Clarivate paid for CPA

Global. Id. Finally, Clarivate had understated certain

deferred tax liabilities — the complaint does not allege (and

Clarivate’s filings do not clarify) what kind — in accounting

for the acquisitions of both DRG and CPA Global. Id. at 81.

The upshot of these three errors, according to the

Restatement, is that Clarivate had understated expenses by more

than $120 million from Q4 2020 through Q2 2021 — understatements

of 9.2% (Q4 2020), 3.1% (full-year 2020), 7.6% (Q1 2021), and

11.2% (Q2 2021). ACC ¶¶ 63, 66. The complaint does not include

allegations related to Q3 2021, for which Clarivate restated

expenses downward, raising net income for the quarter.

Clarivate Plc, Amended Quarterly Report for Q3 2021 (Form

10Q/A), at 69 (Feb. 3, 2022).

Clarivate issued the Restatement simultaneously with

updated, lowered estimates for 2021 (though the complaint

erroneously alleges that Clarivate published full-year financial

information that day). Compare ACC ¶ 196 (“On February 3, 2022,

Clarivate posted disappointing organic growth numbers for the

fourth quarter of 2021 . . . .”), with Clarivate Plc, Ex. 99.1

to Current Report (Form 8-K) (Feb. 3, 2022) (“Restatement Press

Release”) (“Clarivate expects to report its financial results

for the fourth quarter and full year 2021 in early March.”).

The market reaction was brutal: Clarivate stock declined 16.4%,

on a day when the S&P 500 Index declined only 2.4%. ACC ¶ 299.

D. Clarivate’s Alleged Operational Struggles

Clarivate’s business allegedly struggled in the years

after it went public. See id. ¶¶ 145, 151. Management had

presented Clarivate to investors as an “organic growth machine,”

id. ¶ 199 — that is, a company that could grow without relying

on acquisitions. By the first quarter of 2022, however,

investors had “lost confidence in Clarivate’s business,

management, and value proposition as a growth company.” Id.

¶ 197. Plaintiffs rely on several confidential witnesses

(“CWs”) to describe this struggle. See, e.g., id. ¶ 146.

“Seasonality” and the Migration to a “Software as a

Service” Model. Soon after the reverse merger closed in May

2019, Clarivate’s new management, led by defendant Stead,

“migrate[d] all of Clarivate’s products to [a Software as a

Service (‘SaaS’)] model.” Id. ¶ 112. The SaaS model (generally

speaking) contemplates the sale of subscriptions to software

products. Id. Clarivate’s “focus on subscription revenues

. . . was supposed to generate highly predictable free cash flow

that could be directed towards growth.” Id. ¶ 113. The new

expectation was that subscribers would “typically sign a

contract for the full year,” but pay “monthly,” allowing

Clarivate and its investors to anticipate monthly payments from

a particular customer even without further sales. See id. In

addition to this subscription revenue, Clarivate also earned

“transactional revenues” from discrete sales of, for example,

individual data sets. Id. ¶ 115.

Clarivate implemented this change to a subscription

model at DRG, one of the companies it acquired in 2020.

Predictability would be a shift from the traditional seasonality

and transactional nature of DRG’s revenue stream. When

acquired, 30% of DRG’s revenues were transactional, and 36% of

its revenues came during the fourth quarter. Id. ¶ 174. This

weighting was due to the seasonality of transactional revenues.

See id. ¶¶ 176, 178. The transition to a subscription model was

underway at DRG by the second half of 2020. See id. ¶ 175.

And by the fourth quarter of 2021, defendants claimed that this

transition had occurred, describing DRG’s revenue as “equalized

through the year.” Id. ¶ 176. Through the CWs, the plaintiffs

allege that this transition “cannibalized DRG’s Q4 transactional

revenues.” Id. ¶ 177. Plaintiffs allege that the defendants

nevertheless continued to predict a fourth-quarter revenue bump

throughout the second half of 2021 to pacify investor concerns.

Id. ¶¶ 181, 182.

Tracking Sales Internally. Throughout the Class

Period, Clarivate’s salespeople used the company’s customer

relationship management systems (“CRMs”) to track potential

sales from inception through consummation. Id. ¶ 126.

Clarivate aggregated these subscription and transactional

revenues in multiple non-GAAP metrics that they presented to

investors. Id. ¶ 116. Two of these were “Annualized Contract

Value” (“ACV”) and “backlog.” Id. ACV is a metric for tracking

subscription revenue that has been “contracted-for but not yet

recognized.” Id. ¶ 120. It represents “the annualized value

for the next 12 months of subscription-based client license

agreements, assuming that all expiring license agreements during

that period are renewed at their current price level.” Id.

(quoting 2021 Form 10-K). “Backlog,” according to plaintiffs,

is “a term of art” that “refers to the amount of product sold

but for which delivery has not yet occurred, and thus revenue

has not yet been recognized.” Id. ¶ 117.

Growth Projections. During the Class Period,

defendants made projections about Clarivate’s organic growth.

In investor presentations, Clarivate projected “4%-6% organic

growth by the end of 2020.” Id. ¶ 134. Clarivate reiterated

that growth target on each investor call in 2020. Id. ¶ 136.

At the company’s November 10, 2020 Investor Day, Clarivate

projected that revenues would grow organically at a rate between

5.5% and 6.5% for the full year of 2021, accelerating to between

6% and 8% “exiting 2021.” Id. The plaintiffs challenge this

projection.

The references to an “exit” growth rate recurred in

the defendants’ statements to investors. See, e.g., id. ¶¶ 122,

186. The complaint does not indicate that the defendants ever

defined them, but the plaintiffs attempt to: as used by

Clarivate and analysts, according to the complaint, an “exiting”

figure was one for the final quarter of a given year, compared

to the final quarter of the prior year. See, e.g., id. ¶¶ 166-

167 (8-K comparing organic growth in fourth quarter 2020 to “the

prior year period”); id. ¶ 172 (analyst report noting that “the

jump from 2.4% growth . . . in fourth quarter 2020 to the 6%-8%

target range exiting 2021 appears ambitious at first glance”);

id. ¶ 237 (Stead explaining that “Q4 will be very strong as we

exit”). Clarivate reiterated these “exit” projections “on

nearly every conference call throughout 2021.” Id. ¶ 136.

The “Inside Sales” Model. In pursuit of revenue

growth targets, plaintiffs say, Clarivate raised prices and

shifted to an “inside sales” model under which the company would

service customers out of “call centers” instead of using field

agents. Id. ¶¶ 137–139. Clarivate also endeavored to reduce

costs, including by “firing or laying people off, failing to

backfill vacated positions, and failing to adequately invest in

product quality and new products.” Id. ¶¶ 142–144. As

“uniformly reported” by the six CWs, these changes left

Clarivate “disorganized and drove away key sales people, subject

matter experts, and the analysts needed to provide strategic

insights to Clarivate’s customers,” and those positions were not

backfilled. Id. ¶ 146.

Organic Growth Targets. Against this backdrop,

Clarivate missed its organic growth targets for 2020 and 2021.

Id. ¶¶ 166, 197. Clarivate reported 4.5% organic growth in

2021, rather than its projected 5.5%–6.5% rate for that year.

Id. ¶¶ 136, 197. Additionally, the company reported organic

growth of 1% in the fourth quarter of 2020 and 4% in the fourth

quarter of 2021, rather than its projected “exit” rates of 4%-6%

in 2020 and 6%–8% in 2021. See id. ¶¶ 134, 136, 166, 197.

Plaintiffs’ CW-6 stated that despite an “increase[] [in]

collections [of] approximately $240 million in 2021 over 2020,”

nevertheless “sales had declined.” Id. ¶ 150. Based on

“track[ing] the order book as it came in,” CW-6 identified a “7%

sales decrease in 2021 from the prior year.” Id.

Clarivate’s misses surprised investors. When

Clarivate restated its financials, it also updated its estimate

for 2021 organic growth, lowering the rate from 5.5%-6.5% to

4.5%. Id. ¶¶ 210, 299; Restatement Press Release. This led

multiple analysts to downgrade their outlook for Clarivate

stock. See ACC ¶¶ 197, 299.

In sum, plaintiffs allege that Clarivate and its

leaders fostered the perception among investors that Clarivate

was on track to meet organic growth targets, despite knowing

that the “promised growth was not materializing.” See id.

¶ 151. Plaintiffs allege that this perception was the result of

material misrepresentations or omissions, in violation of SEC

Rule 10b-5(b), as well as a fraudulent scheme, in violation of

SEC Rules 10b-5(a) and (c).

Procedural History

The plaintiffs’ first action, No. 22-CV-394, commenced

on January 24, 2022, before Clarivate filed the Restatement.

Two additional cases, No. 22-CV-1371 and No. 22-CV-1372,

followed on March 11 of that year. The three cases were

consolidated on May 18, 2022. Order, ECF No. 21. Also on that

date, the Pension Trust Fund for Operating Engineers was

appointed the lead plaintiff. Id. Plaintiffs filed a

consolidated complaint on August 8, 2022. ECF No. 30

(“Consolidated Compl.”). All defendants moved to dismiss the

consolidated complaint. See ECF Nos. 23, 62, 65, 73, 75.

The Court held oral argument on the motions to dismiss

on May 19, 2023. Following oral argument, the Court requested

supplemental briefing on whether, if the Court were to dismiss

one or more claims, such dismissal should be with prejudice or

whether the Court should grant leave to amend with any

dismissal. See ECF Nos. 90-93. After considering the

supplemental briefing, the Court sua sponte granted plaintiffs

limited leave to amend their complaint. Mem. & Order, ECF No.

94. The Court now proceeds to consider the fully briefed

motions to dismiss the ACC.

Legal Standards

A. Rule 12(b)(6)

To overcome a motion to dismiss under Rule 12(b)(6), a

complaint must plead facts sufficient “to state a claim to

relief that is plausible on its face.” Bell Atl. Corp. v.

Twombly, 550 U.S. 544, 570 (2007).4 A claim is facially

plausible “when the plaintiff pleads factual content that allows

the court to draw the reasonable inference that the defendant is

4 Unless otherwise noted, when quoting judicial decisions this order

accepts all alterations and omits all citations, footnotes, and internal

quotation marks.

liable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S.

662, 678 (2009).

On a motion to dismiss, the district court must accept

all factual allegations in the complaint as true and draw all

reasonable inferences in the plaintiff’s favor. See Lundy v.

Cath. Health Sys. of Long Island Inc., 711 F.3d 106, 113 (2d

Cir. 2013). However, the court need not construe legal

conclusions dressed as facts in favor of the plaintiff. See

Iqbal, 556 U.S. at 678.

B. Rule 9(b)

Private securities fraud actions brought pursuant to

the Exchange Act are subject to the heightened pleading

requirements imposed by Federal Rule of Civil Procedure 9(b).

Rule 9(b) requires plaintiffs to “state with particularity the

circumstances constituting fraud.” Fed. R. Civ. P. 9(b). “A

securities fraud complaint based on misstatements must (1)

specify the statements that the plaintiff contends were

fraudulent, (2) identify the speaker, (3) state where and when

the statements were made, and (4) explain why the statements

were fraudulent.” ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493

F.3d 87, 99 (2d Cir. 2007). “Allegations that are conclusory or

unsupported by factual assertions are insufficient.” Id. Rule

9(b) does not extend to Securities Act claims that are — like

Counts I and II of the ACC — not premised on allegations of

fraud. Panther Partners Inc. v. Ikanos Commc’ns, Inc., 681 F.3d

114, 120 (2d Cir. 2012); see ACC ¶ 82 (expressly disclaiming

fraud).

C. The Private Securities Litigation Reform Act

Exchange Act claims (but not Securities Act claims)

are also subject to the Private Securities Litigation Reform Act

(“PSLRA”). In re Synchrony Fin. Sec. Litig., 988 F.3d 157, 166

(2d Cir. 2021); see 15 U.S.C. § 78u-4(a)(1) (PSLRA “shall apply

in each private action arising under this chapter [2B] that is

brought as a plaintiff class action pursuant to the Federal

Rules of Civil Procedure”). The PSLRA goes further than Rule 9,

requiring plaintiffs 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, . . . state with

particularity all facts on which that belief is formed.”

15 U.S.C. § 78u-4(b)(1). Thus, plaintiffs “must do more than

say that the statements were false and misleading; they must

demonstrate with specificity why and how that is so.”

Carpenters Pension Tr. Fund of St. Louis v. Barclays PLC, 750

F.3d 227, 236 (2d Cir. 2014). The PSLRA also reaches scienter;

plaintiffs 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. § 78u-4(b)(2)(A).

Securities Act Section 11 Claims

Plaintiffs assert primary liability claims under

Section 11 of the Securities Act against Clarivate, certain

Clarivate executives and Board members,5 CGMI, the Fund

Defendants, and PwC for making materially misleading statements

in connection with a securities offering. 15 U.S.C. § 77k(a).

Plaintiffs also bring control-person liability claims under

Section 15 of the Act against Clarivate and the individual

Securities Act defendants. Id. § 77o.

A. Elements and Pleading Standard

Section 11 of the Securities Act concerns registration

statements. It imposes liability on certain participants in a

registered securities offering (like the June and September 2021

Offerings) when the offering documents contain materially

misleading statements or omissions. 15 U.S.C. § 77k(a). These

participants include several categories relevant here:

individuals who signed the registration statement, the corporate

issuer itself, and its directors, accountants, and underwriters.

To state a claim under Section 11, the plaintiff must

allege that: “(1) she purchased a registered security, either

directly from the issuer or in the aftermarket following the

5 As noted above, the individual defendants sued pursuant to Section 11

are defendants Stead, Hanks, Archbold, Gilis, Iyer, Macksey, Munk, Bomba,

Neral, Roedel, Alberola, Cortas, Levyn, and White. ACC ¶ 50.

offering;6 (2) the defendant participated in the offering in a

manner sufficient to give rise to liability under section 11;

and (3) the registration statement contained an untrue statement

of a material fact or omitted to state a material fact required

to be stated therein or necessary to make the statements therein

not misleading.” In re Morgan Stanley Info. Fund. Sec. Litig.,

592 F.3d 347, 358-59 (2d Cir. 2010). Section 11 does not

“requir[e] any particular state of mind or scienter.” In re

Synchrony, 988 F.3d at 172.

B. Against the Clarivate Defendants and CGMI

Plaintiffs argue that the Clarivate Defendants —

Clarivate and certain individuals — and CGMI are liable under

Section 11 of the Securities Act for the accounting errors

concerning the acquisitions of DRG and CPA Global that were

corrected by the Restatement. ACC ¶¶ 82-92. Specifically, they

allege that the net income and expenses reported in Clarivate’s

6 It remains unclear, at this stage, whether plaintiffs intend to

include aftermarket purchasers in the class definition. Compare ACC ¶ 84

(“This Count is asserted by Plaintiffs and members of the Class who purchased

or acquired Clarivate securities traceable to the Offering Materials.”), with

id. ¶ 92 (“[T]he Securities Act Defendants violated § 11 of the Securities

Act and are liable to Plaintiffs and the members of the Class who acquired

Clarivate securities in the June 2021 Offerings and September 2021 Offering,

each of whom has been damaged as a result of such violations.” Aftermarket

purchasers must “trace their shares to an allegedly misleading registration

statement” to prevail under Section 11. DeMaria v. Andersen, 318 F.3d 170,

178 (2d Cir. 2003). This tracing “may be established either through proof of

a direct chain of title from the original offering to the plaintiff or

through proof that the plaintiff bought her shares in a market containing

only shares issued pursuant to the allegedly defective registration

statement.” In re Initial Pub. Offerings Sec. Litig., 471 F.3d 24, 31 n.1

(2d Cir. 2006).

2020 10-K, Q1 2021 10-Q, and Q2 2021 10-Q were materially

misleading. Id. ¶¶ 66, 71, 74, 76, 78. The parties do not

dispute that plaintiffs purchased registered Clarivate

securities, that these defendants may be liable under Section

11, or — at least at this stage — that the registration

statements included an untrue statement (the erroneous financial

statements). Thus, whether plaintiffs state a Section 11 claim

against the Clarivate Defendants and CGMI turns on the third

element: namely, whether Clarivate’s registration statement

contained any untrue statement (or omission) of a material fact.

A fact is material if there is a “a substantial

likelihood that a reasonable shareholder would consider it

important in making an investment decision.” United States v.

Bilzerian, 926 F.2d 1285, 1298 (2d Cir. 1991). “Determination

of materiality is a mixed question of law and fact that the

Supreme Court has stated is especially well suited for jury

determination.” Id.

The Clarivate Defendants and CGMI argue that

allegations of stock-price decline, without more, are

insufficient to allege materiality. See Clarivate Suppl. Ltr.

3, ECF No. 100. They also argue the plaintiffs have set out no

basis to conclude that the restated metrics were material to

investors. Id.

Neither argument is ultimately persuasive. True, the

16.4% drop in Clarivate’s stock price is not, as the defendants

point out, sufficient to establish materiality; but neither is

it irrelevant to that analysis. See Bilzerian, 926 F.2d at 1298

(stock-price movement “is a factor the jury may consider

relevant” to materiality); New Orleans Emps. Ret. Sys. v.

Celestica, Inc., 455 F. App’x 10, 16 (2d Cir. 2011) (considering

“precipitous decrease in share price” as part of materiality

analysis).

Beyond the stock-price decline, we have the sheer

magnitude by which certain key metrics changed in the

Restatement. For the earnings statements at issue here,

Clarivate understated its expenses by amounts ranging from 3.1%

to 11.2%. ACC ¶ 66. That resulted in overstating net income by

12.4% to 133.6% in the various quarters, and flipped the

earnings result in one quarter — Q4 2020 — from a profit to a

loss. Id. At the risk of stating the obvious, earnings is a

key metric. See Ganino v. Citizens Utils. Co., 228 F.3d 154,

164 (2d Cir. 2000) (“[E]arnings reports are among the pieces of

data that investors find most relevant to their investment

decisions.”).7

7 The Restatement itself acknowledged as much: while materiality is

ultimately, of course, an issue for a jury, the document stated the view

“that the impacts were material to the Company’s financial statements

prepared according to U.S. generally accepted accounting principles.” ACC

¶ 69.

These changes generally exceed the “presumptive 5%

threshold of materiality” for misstatements of a “particular

item” on financial statements. Litwin v. Blackstone Grp., L.P.,

634 F.3d 706, 717-19 (2d Cir. 2011); see also Yaroni v. Pintec

Tech. Holdings Ltd., 600 F. Supp. 3d 385, 403 (S.D.N.Y. 2022)

(misstatement of net cash from financing activities of less than

5% presumptively immaterial); see generally SEC Staff Accounting

Bulletin No. 99, 64 Fed. Reg. 45150 (Aug. 12, 1999).

The presumption is a “rule of thumb” that “is not

conclusive.” IBEW Loc. Union No. 58 Pension Tr. Fund & Annuity

Fund v. Royal Bank of Scotland Grp., PLC, 783 F.3d 383, 390 (2d

Cir. 2015). Courts also consider qualitative factors, including

whether the alleged misstatements “masked a potential change in

earnings or other trends,” and whether the misstatement “relates

to a segment that plays a significant role in the registrant’s

business.” Litwin, 634 F.3d at 720, 722.

Here, Clarivate’s errors allegedly “masked a potential

change in” net income by at least 12%, and as much as 133.6%.

See ACC ¶¶ 66, 69. And the acquisition accounting was allegedly

central to the story Clarivate was telling investors: the

company had described the DRG and CPA Global acquisitions as

“transformative” and a source for cross-selling, another driver

of organic growth. Id. ¶ 214. A reasonable shareholder would

plausibly have wanted a clear understanding of how these

acquisitions were affecting the company’s results. Put

otherwise, the “significance” of these acquisitions “to the

company’s operations and profitability” supports the inference

of materiality. Celestica, Inc., 455 F. App’x at 16.

Thus, the motion to dismiss is denied as to the

Section 11 claims against the Clarivate Defendants.

C. Against the Fund Defendants

Plaintiffs also assert Section 11 claim against the

Fund Defendants. Those defendants are liable, plaintiffs claim,

under two separate theories: first, because they “signed the

offering materials,” and second, because they functioned as

underwriters. Neither theory has merit.

1. Fund Defendants as “Signatories”

Section 11 of the Securities Act establishes liability

for “every person who signed the registration statement” that is

false or misleading. 15 U.S.C. § 77k(a)(1). The plaintiffs

argue that the Fund Defendants qualify as such.

This argument proceeds by way of a tenuous syllogism.

Plaintiffs do not contend that the Fund Defendants signed the

actual registration statement (on Form S-3) itself. Nor could

they, as the Fund Defendants’ signatures do not appear on the

signature blocks for the S-3. 2020 Shelf Registration Statement

II-4 to II-5; 2021 Shelf Registration Statement II-5-II-7.

Instead, they point to underwriting agreements that the Fund

Defendants signed, and that the issuer then attached to the

registration statement as exhibits. Because the statute defines

“registration statement” to include documents filed as part of

such statement or incorporated therein by reference, see

15 U.S.C. § 77k(a), the plaintiffs contend that every party

whose signature appears on any such exhibit must be a

“signatory” of the registration statement itself.

If there is any case holding that simply signing an

exhibit gives rise to underwriting liability, the plaintiffs

have not cited it (nor has the Court unearthed it). The

contention finds no support in the language of the statute

itself, which establishes liability for those who sign the

registration statement, not exhibits thereto. Id.; see

generally In re Lehman Bros. MBS Litig., 650 F.3d 167, 175 (2d

Cir. 2011) (Section 11 liability is “limited” to “statutorily

enumerated parties”); Herman & MacLean v. Huddleston, 459 U.S.

375, 382 (1983) (describing Section 11 liability as “limited in

scope”).

And this aspect of the plaintiffs’ theory would, if

adopted, lead to absurd results. The plaintiffs lean heavily on

the Fund Defendants’ acknowledgment that the underwriting

agreement was “one of the exhibits ‘filed as part of th[e]

Registration Statement.’” See Pls.’ Opp. to Funds 6-7, ECF No.

79. But the SEC calls for a panoply of documents to be attached

as exhibits to registration statements, including some typically

signed by parties who might be shocked to find themselves named

as defendants to a Section 11 claim. For example, issuers who

file on Form S-1 (though not S-3) are required to attach certain

material contracts. 17 C.F.R. § 229.601(b)(10). Would the

arm’s-length counterparties to those contracts — who may be

total strangers to the offering in question — also be subject to

Section 11 liability? If there is a reason that the plaintiffs’

theory would exclude them, it does not readily appear on the

face of the briefing.8

In the end, even putting aside its overbreadth, the

plaintiffs’ argument fails straightforwardly at its first step:

the Fund Defendants signed underwriting agreements, not the

registration statement, so they are not liable as signatories to

the registration statement.

2. Fund Defendants as “Underwriters”

Section 11 also establishes liability for “every

underwriter” of a given offering. The plaintiffs endeavor to

label the Fund Defendants “underwriters,” too, but this

contention fares no better than the signatory argument.

8 The plaintiffs do attempt to distinguish other exhibit-signatories

from the Fund Defendants on the basis that they did not sell their shares in

the offering. Pls.’ Opp. to Funds 11 & n.9. This distinction is germane to

the plaintiffs’ argument that the Fund Defendants served as underwriters

(addressed in the next section). But it is not apparent why this would

affect the assessment of their liability as signatories.

Here, the contention is that the Fund Defendants

underwrote the offering because (a) they sold millions of their

shares in the offerings, and (b) in doing so, they “were

critical to the distribution” of those shares to the investing

public. Pls.’ Suppl. Ltr. 3, ECF No. 102. In making this

argument, the plaintiffs attach substantial significance to the

fact that the Fund Defendants sold in the offerings pursuant to

the registration rights they had negotiated for years earlier,

when they first obtained their stakes in Clarivate. Id.

An underwriter is:

any person who has purchased from an issuer with a

view to, or offers or sells for an issuer in

connection with, the distribution of any security, or

participates or has a direct or indirect participation

in any such undertaking, or participates or has a

participation in the direct or indirect underwriting

of any such undertaking.

15 U.S.C. § 77b(a)(11). In practice, underwriters perform a

variety of functions in connection with a public offering of

securities. An issuer like Clarivate, which is in the business

of selling database subscriptions, not securities, engages an

underwriter — usually an investment bank — to assist in the

structuring, marketing, pricing, and ultimate distribution of

the securities. See, e.g., Slack Techs. LLC v. Pirani, 598 U.S.

759, 768 (2023) (“Investment banks underwrite the offering

. . . .”). As investment managers, the Fund Defendants are not

in the business of underwriting. They invest in securities to

generate returns for their investors, rather than conducting

road shows and soliciting indications of interest in new issues

like investment bankers do.9

These practical roles are not, however, necessarily

dispositive. As the text quoted above indicates, stock and bond

purchasers can be deemed underwriters if they act “with a view

to,” or sell “in connection with,” the distribution of a

security — even if they are not in the business of underwriting.

See, e.g., SEC v. Caledonian Bank, 145 F. Supp 3d 290, 309

(S.D.N.Y. 2015). “Whether one acquires shares with a view to

distributing them depends on whether one had ‘investment intent’

or intended only to sell the shares.” Id.

Which brings us to the question of what constitutes

intent to distribute. A distribution is the “process by which

in the course of a public offering the block of securities is

dispersed and ultimately comes to rest in the hands of the

investing public.” R.A. Holman & Co. v. SEC, 366 F.2d 446, 449

(2d Cir. 1966); see 15 U.S.C. § 78j(b). Courts consider various

factors to identify the intent to facilitate distribution.

9 Indeed, the underwriting agreements signed by the Fund Defendants in

this case recognize this distinction. The definition of “underwriters”

includes CGMI and other banks, but excludes the Fund Defendants. Clarivate

Plc, Ex. 1.1 to Current Report (Form 8-K), at 1, A-1 (June 14, 2021) (“June

2021 Underwriting Agreement”); Clarivate Plc, Ex. 1.1 to Current Report (Form

8-K), at 1, A-1 (Sept. 9, 2021) (“September 2021 Underwriting Agreement”).

And in both underwriting agreements, the Fund Defendants granted those

underwriters an option to purchase additional shares (a so-called greenshoe

provision). June 2021 Underwriting Agreement 16; September 2021 Underwriting

Agreement 15.

These include the length of the purchaser’s holding period and

the indications of their intent at the time of purchase.

Holding Period. The holding period would seem, at

first blush, an odd metric from which to infer “investment” or

“distribution” intent. Investors generally aspire to buy low

and sell high, rather than to sell after any given length of

time. The rational investor buys stock that she believes is

worth more than the price at which it is offered to her. After

her purchase, she will (generally speaking) be motivated to sell

when the stock reaches or exceeds her price target, regardless

of whether she has held the stock for three hours or three

years. Thus, in the case of an investor who is focused on a

security’s intrinsic value, the holding period may be a

secondary consideration (at most).10 Whether the holding period

is a useful metric in this context or not, however, the

straightforward application of this factor cuts strongly against

the instant plaintiffs.

Here, the Fund Defendants’ holding periods were

approximately five years — from the July 2016 acquisition from

10 To be sure, the holding period is a valuable metric by which to

identify “distribution” intent in one circumstance not present here: the

“pump and dump” scheme. In a typical iteration of that scheme, the initial

purchasers may be the issuer’s (or the underwriter’s) co-conspirators. These

purchasers, often “nominees,” may sell newly issued shares back and forth to

one another to drive increasing prices (and volume), so as to create the

illusion of strong demand. See, e.g., Caledonian Bank, 145 F. Supp. 3d at

307-08. Many of the cases on which the plaintiffs rely were decided in this

(easily distinguishable) context.

Thomson Reuters to the June 2021 stock offering (and more than

two years if measured from the de-SPAC transaction). Several

district courts have observed that a holding period in excess of

two years precludes a finding of distributive intent. E.g.,

United States v. Sherwood, 175 F. Supp. 480, 483 (S.D.N.Y. 1959)

(two-year holding period was an “insuperable obstacle” to the

finding that purchaser acted with a view to distribution); see

also SEC v. Olins, No. C-07-6423, 2010 WL 900518, at *2 (N.D.

Cal. Mar. 12, 2010) (“[C]ourts look to whether the defendant

held the shares for a period of more than two years.”);

17 C.F.R. § 230.144(d)(1) (sellers of certain restricted

securities not underwriters if securities are held for more than

six months). The de-SPAC transaction is not particularly

relevant here, as the Fund Defendants emerged from that

transaction with the dollar exposure they held before, even if

their ownership percentage in the company declined. See ACC

¶ 48. The shift from a private equity stake to public does not

undermine a finding of investment intent.

Indicia of Intent at Purchase. Also fatal to this

claim is that the Fund Defendants did not purchase securities

with an eye towards distribution. They were founding investors

in Clarivate, having purchased its shares in the spinoff from

Thomson Reuters. Id. ¶ 106. Under the Fund Defendants’

ownership, Clarivate “built a new senior executive management

team, completed a number of acquisitions, and worked on fully

transitioning the business away from reliance on Thomson

Reuters.” Id. The Fund Defendants took an active role in these

operations. See id. (describing Clarivate Board member since

2016 who was a managing director at Baring); Merger Proxy 138

(“Onex, Baring and a new executive team have focused on

transitioning the Company to be independent and have completed a

substantial number of operational improvements . . . .”).

Underwriters do not get so involved in a company’s operations.

The de-SPAC transaction and registration rights

agreement the Fund Defendants signed in 2019 do not alter our

conclusion. Oral Arg. Tr. 84:6–86:20, ECF No. 88; see ACC

¶ 110. The registration rights agreement gave the Fund

Defendants the right (but not the obligation) to require

registration of their shares in certain circumstances. ACC

¶ 48. There is no incompatibility between investment intent, on

the one hand, and registration rights, on the other, as every

investor will wish for a process by which they can exit the

investment at some point. See Harriman v. E.I. du Pont de

Nemours & Co., 411 F. Supp. 133, 162 (D. Del. 1975) (“The

existence of the [registration rights] agreement cannot be taken

as an indication of an intent to sell, but rather is a common

business practice in appropriate circumstances.”). If

plaintiffs’ view here was correct, then most early-stage

investors could be construed as underwriters by virtue of

selling their own shares after their companies go public.

Thus, plaintiffs have failed to state a claim that the

Fund Defendants are underwriters or registration statement

signatories. The Section 11 claims against the Fund Defendants

are dismissed.

D. Against PricewaterhouseCoopers

Section 11 also provides acquirors of securities a

path to holding the issuer’s auditor liable. But not for all

misstatements or omissions in a registration statement: only

those that the auditor “prepared or certified,” and as to which

the auditor has consented to being named as having done so.

15 U.S.C. § 77k(a)(4).

The parties dispute which statements may give rise to

PwC’s liability as Clarivate’s auditor under this standard. The

plaintiffs argue that PwC is liable for all misstatements or

omissions in the full-year 2020 financial statements it

certified, including (for example) the income and expense

numbers that were subsequently restated. Pls.’ Opp. to PwC 10,

ECF No. 68.

PwC, for its part, does not dispute that those

financial statements contained material misrepresentations or

omissions. But it argues that it cannot be held liable for them

— only, it argues, for statements and omissions in its audit

report. Clarivate Plc, Annual Report (Form 10-K) (2020 10-K),

at 67 (Feb. 26, 2021). And, PwC continues, the audit report’s

contents are statements of opinion for which it cannot be held

liable under Omnicare and its progeny. PwC Suppl. Ltr. 1-2, ECF

No. 98 (citing Omnicare, Inc. v. Laborers Dist. Council Constr.

Indus. Pension Fund, 575 U.S. 175, 176, 195 (2015)).

PwC’s reading of the Securities Act is squarely

foreclosed by settled law (both pre- and post-Omnicare). The

firm clearly “certified” Clarivate’s “consolidated balance

sheet[,] . . . statement[] of operations[, and statement] of

comprehensive income . . . and of cash flows” for the full-year

2020, through its audit report.11 2020 10-K 67. PwC may

therefore be held liable under Section 11 for misstatements and

omissions in those financial statements such as net income and

expenses (subject to the due-diligence defense set out elsewhere

in the Securities Act, and discussed below). This conclusion

emerges from the plain language of Section 11(a)(4), from other

securities law and regulations, and from the prevailing case law

in this Circuit.

11 That report contained PwC’s statement that “[i]n [its] opinion,”

Clarivate’s “consolidated financial statements” “present fairly, in all

material respects, the financial position of the Company” and “the results of

its operations and its cash flows” during the contested periods. 2020 10-K

67.

The “prepared or certified” language in Section 11 has

been in the Securities Act since its adoption in 1933.12 Legal-

dictionary definitions of “certify,” from that period and now,

confirm that PwC’s audit report “certified” the financial

statements at issue. See, e.g., Certify, Black’s Law Dictionary

(3d ed. 1933) (“To testify in writing; to make known or

establish as a fact. To vouch for a thing in writing. To give

a certificate, or to make a declaration about a writing.” );

Certify, Black’s Law Dictionary (12th ed. 2024) (“To

authenticate or verify in writing. To attest as being true or

as meeting certain criteria.”) (all emphases added). Lay

dictionaries are in accord.13 These definitions plainly

encompass PwC’s statement that Clarivate’s “consolidated

financial statements . . . present[ed] fairly, in all material

respects, the financial position of the Company.” 2020 10-K 67.

This understanding of “certify” is also dictated by

language found elsewhere in the Securities Act itself, which

requires a registration statement to include a balance sheet and

a profit and loss statement “certified by an independent public

12 Securities Act of 1933, ch. 38, 48 Stat. 74, 82 (codified at

15 U.S.C. § 77k(a)(4)).

13 See, e.g., Certify, American Heritage Dictionary (3d ed. 1992) (“To

confirm formally as true, accurate, or genuine. To guarantee as meeting a

standard.” ); Certify, Webster’s New International Dictionary (2d ed. 1946)

(“To give certain information of; to make certain, as a fact; to attest

authoritatively; to verify.”) (all emphases added).

or certified accountant.” 15 U.S.C. § 77aa(25)-(26).14 That

consistent (and nearby) usage confirms that PwC “certified” the

financials at issue. See, e.g., Sorenson v. Sec’y of the

Treasury, 475 U.S. 851, 860 (1986) (“The normal rule of

statutory construction assumes that identical words used in

different parts of the same act are intended to have the same

meaning.”).15

The case law, too, is squarely at odds with PwC’s

position. The Second Circuit has written — post-Omnicare — that

an “outside auditor” is “responsible under Section 11 for any

material inaccuracy in the [issuer’s] registration statements

that it certified, or in financial reports incorporated in those

statements.” New Eng. Carpenters Guaranteed Annuity & Pension

Funds v. DeCarlo, 122 F.4th 28, 52 (2d Cir. 2024).

Several district court cases are in accord. In re

Lehman Bros. Sec. & ERISA Litig., 131 F. Supp. 3d 241, 260

(S.D.N.Y. 2015) (“Accountants may be found liable under Section

14 Given this language, PwC’s argument about the limits of its

certification would, if true, leave Clarivate’s offering in violation of the

Securities Act. See, e.g., United States v. Arthur Young & Co., 465 U.S.

805, 810-11 (1984) (“[V]arious provisions of the federal securities laws

require publicly held corporations to file their financial statements with

the [SEC]. Commission regulations stipulate that these financial reports

must be audited by an independent certified public accountant in accordance

with generally accepted auditing standards.”).

15 SEC regulations are consistent. They provide that “[t]he term

certified, when used in regard to financial statements, means examined and

reported upon with an opinion expressed by an independent public or certified

public accountant.” Regulation S-X, 17 C.F.R. § 210.1-02(f); see Regulation

S-K, 17 C.F.R. § 230.405.

11 for portions of registration statements that they audited.”);

In re OSG Sec. Litig., 971 F. Supp. 2d 387, 399 (S.D.N.Y. 2013);

In re Wachovia Equity Sec. Litig., 753 F. Supp. 2d 326, 378-79

(S.D.N.Y. 2011); ; In re WorldCom, Inc. Sec. Litig., 352 F.

Supp. 2d 472, 492 (S.D.N.Y. 2005); Special Situations Fund III

QP, L.P. v. Marrone Bio Innovations, Inc., 243 F. Supp. 3d 1109,

1116 (E.D. Cal. 2017).16

PwC attempts to resist this conclusion by resort to

Section 11’s use of “consent,” arguing that its consent was

limited to the audit report and that it did not provide consent

to having certified any part of Clarivate’s registration

statement. PwC Suppl. Ltr. 2-3. But it clearly “consent[ed] to

the incorporation by reference” of its February 26, 2021 audit

report of Clarivate’s 2020 financial statements (with two

carveouts not relevant here) in Clarivate’s Shelf Registration

Statements. Clarivate Plc, Ex. 23.1 to Amended Annual Report

(Form 10-K/A) (May 10, 2021); Clarivate Plc, Ex. 23.1 to

Registration Statement (Form S-3) (July 1, 2021). PwC was also

listed under the heading “Experts” in the relevant Shelf

Registration Statements. The Form S-3 Registration Statement

reads: “The financial statements of Clarivate Plc . . .

incorporated into this prospectus by the reference to the” 2020

16 Plaintiffs also argue that PwC’s audit reports are themselves

materially false or misleading, but given the foregoing, we need not reach

this issue. See Pls.’ Opp. to PwC 1–3.

Form 10-K “have been so incorporated in reliance on” PwC’s audit

report, “given on the authority of [PwC] as experts in auditing

and accounting.” 2021 Shelf Registration Statement 46; 2020

Shelf Registration Statement 40 (same). It is thus apparent

from Clarivate’s SEC filings that PwC is the “independent public

or certified accountant” that “certified” Clarivate’s balance

sheet and profit and loss statement to enable registration of

Clarivate’s securities. See 15 U.S.C. § 77aa(25)-(26)

(requiring certification for securities offerings).

In support of its contention that it can be held

liable only for material misstatements in its own audit report,

PwC relies primarily on two Court of Appeals decisions: the

Second Circuit’s unpublished order in Querub v. Hong Kong, 649

F. App’x 55, 58 (2d Cir. 2016), and a more recent decision from

the Ninth Circuit, Hunt v. PricewaterhouseCoopers LLP (PwC), 159

F.4th 603 (9th Cir. 2025). Neither compels the outcome that PwC

seeks.

PwC invokes Querub’s observation that “[a]udit

reports, labeled ‘opinions’ and involving considerable

subjective judgment, are statements of opinion subject to the

Omnicare standard for Section 11 claims.” Querub, 649 F. App’x

at 58. That is of course true as to the auditor’s own

statements, but it says nothing one way or the other about the

auditor’s liability for the statements that the issuer makes and

the auditing firm certifies.

PwC also relies heavily on Hunt, 159 F.4th at 614-16.

Hunt, in this Court’s view, was decided incorrectly. The

opinion begins by acknowledging that those who certify the

financials set forth in a registration statement are liable for

misstatements contained therein. It then goes on, in a section

entitled “PwC is not liable as a certifier,” to acknowledge that

PwC did certify the financial statements at issue. Id. at 614.

But the opinion then shifts gears, holding that PwC cannot be

liable because an auditor is not a “guarantor” of the accuracy

of every statement in the registration materials. Id. at 616.

This, again, is true insofar as it goes: it is correct that

auditors do not occupy the status of guarantors. But that is

not because they are outside the realm of “certifier” liability

in Section 11(a)(4) to begin with. Instead, it is because they

benefit from the affirmative due-diligence defense in Section

11. See 15 U.S.C. § 77k(b)(3)(B)(1) (setting out defense); see

also In re Wachovia, 753 F. Supp. 2d at 378-79 (“[A]lthough

issuers are subject to virtually absolute liability under

Section 11, experts such as accountants who have prepared

portions of the registration statement are accorded a due

diligence defense.”).

For the foregoing reasons, PwC’s motion to dismiss the

Section 11 claims is denied.

Exchange Act Claims

In addition to the Securities Act claims arising from

Clarivate’s restated financials, plaintiffs bring claims under

Section 10(b) of the Securities Exchange Act of 1934,

challenging various statements concerning the company’s

performance that the defendants made on earnings calls, at

investor conferences, and in other settings. Plaintiffs allege

that these statements “artificially inflated” the price of

Clarivate securities, and that they “would not have purchased

or otherwise acquired” these securities had they “known the

truth.” ACC ¶ 315.

Section 10(b) forbids (1) the use of any “deceptive

device” (2) “in connection with the purchase or sale of any

security” and (3) “in contravention of” SEC “rules and

regulations.” 15 U.S.C. § 78j(b). SEC Rule 10b-5, in turn,

makes it unlawful to (a) “employ any device, scheme, or artifice

to defraud,” (b) “make any untrue statement of a material fact,”

or (c) “engage in any act, practice, or course of business” that

“operates . . . as a fraud or deceit” in connection with the

purchase or sale of securities. 17 C.F.R. § 240.10b–5.

The plaintiffs’ Count One alleges violations of

Section 10(b) and Rule 10b-5. ACC ¶¶ 308-17. First, they

allege that defendants made material misrepresentations and

omissions regarding the firm’s organic growth potential, among

other subjects, in violation of Rule 10b-5(b). See ACC ¶¶ 102,

200. Second, plaintiffs contend that defendants engaged in a

“scheme” to defraud investors regarding the firm’s promised

organic revenue growth, in violation of Rule 10b-5(a) and (c).

See id. ¶¶ 102, 151. We take up these two categories of claim —

misrepresentations and omissions, and scheme liability — in that

sequence.

A. Material Misrepresentations or Omissions Claim

1. Legal Standard Under Rule 10b-5(b)

Subsection (b) of Rule 10b-5 deals with

misrepresentations and omissions. To state a claim under that

subsection, a plaintiff must plead “(1) a material

misrepresentation or omission by the defendant; (2) scienter;

(3) a connection between the misrepresentation or omission and

the purchase or sale of a security; (4) reliance upon the

misrepresentation or omission; (5) economic loss; and (6) loss

causation.” Matrixx Initiatives, Inc. v. Siracusano, 563 U.S.

27, 37–38 (2011). An actionable statement may be “‘untrue’

outright or ‘misleading’ by virtue of what it omits to state.”

In re Vivendi, S.A. Sec. Litig., 838 F.3d 223, 239 (2d Cir.

2016).

Clarivate moves to dismiss plaintiffs’ 10b-5(b) claim

on the grounds that the complaint fails to adequately plead that

any defendant made an actionable misrepresentation or omission.

See Clarivate Mem. 3, ECF No. 73-1. The alleged

misrepresentations fall into several broad categories: (1) the

organic growth projections themselves; (2) assurances that

Clarivate was “on track” to meet its projections; (3) reports of

Annualized Contract Value growth; (4) reports of revenue

backlog; (5) representations that Clarivate’s transactional

business was seasonal, weighted to the fourth quarter; (6)

statements that investments in products were contributing to

revenue growth; and (7) statements omitting that the transition

to an “inside sales” model would have a negative impact on

Clarivate’s ability to grow its revenues. We address each

category in turn, before proceeding to consider scienter as to

any actionable misrepresentations.

2. Alleged Misrepresentations or Omissions

a. Organic Growth Projections

Plaintiffs allege that Clarivate’s organic growth

projections were false when made, for several reasons — for

example, because the defendants were allegedly aware that the

company was struggling to convert invoiced sales into revenue.

ACC ¶ 207(b)-(c). Defendants respond that these projections are

inactionable under the PSLRA safe harbor for forward-looking

statements, as they were accompanied by meaningful cautionary

language. See Clarivate Mem. 32-35. The Court agrees.

Clarivate’s organic-growth projections were “forward-

looking” within the meaning of the applicable safe harbor. The

PSLRA defines a forward-looking statement to include “a

statement of future economic performance, including any such

statement contained in a discussion and analysis of financial

condition by the management.” 15 U.S.C. § 78u–5(i)(1)(C).

Here, plaintiffs point to statements regarding future economic

performance, such as Stead’s November 10, 2020 comment that “I

said in January of 2019 . . . that we would exit 2020 at 4% to

6% organic. . . . I expect us to end in that 4% to 6%.” ACC

¶ 206.

These statements about expected organic revenue growth

qualify as forward looking, even if — as here — some were made

relatively close to the measurement date for the projection at

issue. In In re Lottery.com, Inc. Sec. Litig., 715 F. Supp. 3d

506, 540 (S.D.N.Y. 2024), for example, the court held that a

press release estimating earnings was forward looking, despite

being issued after the quarter in question had closed (but

before results had been tabulated). Here, it would not have

been possible on November 10 to know what the “exit-growth” rate

would be seven weeks later. See, e.g., Harris v. IVAX Corp.,

998 F. Supp. 1449, 1453 (S.D. Fla. 1998) (“[T]he representations

are made mid-quarter, before the calculations businesses use to

quantitatively evaluate their financial well being are

completed.”), aff’d, 182 F.3d 799 (11th Cir. 1999); Dougherty v.

Esperion Therapeutics, Inc., 905 F.3d 971, 983 (6th Cir. 2018)

(holding that the “critical inquiry in determining whether a

statement is forward-looking is whether its veracity can be

determined at the time the statement is made”).

Under the PSLRA’s safe harbor, a forward-looking

statement is not actionable if it is (a) “identified and

accompanied by meaningful cautionary language,” (b) “is

immaterial,” or (c) “the plaintiff fails to prove that the

forward-looking statement was made with actual knowledge that it

was false or misleading.” Vivendi, 838 F.3d at 245. “Because

the safe harbor is written in the disjunctive, a forward-looking

statement is protected under the safe harbor if any of the three

prongs applies.” Id. at 245–46.17

17 One might reasonably expect otherwise — that even “meaningful

cautionary language” would not save a forward-looking projection that the

speaker “actually knew” to be false (that is, a projection that the speaker

knew for a fact the company could not possibly meet). This rule prevails in

the Fifth Circuit. See Lormand v. US Unwired, Inc., 565 F.3d 228, 244 (5th

Cir. 2009) (“Because the plaintiff adequately alleges that the defendants

actually knew that their statements were misleading at the time they were

made, the safe harbor provision is inapplicable to all alleged

misrepresentations [at issue].”) But Vivendi (and Slayton, which it relied

on) appear to foreclose this alternative reading. See Vivendi, 838 F.3d at

245-46; see also Slayton v. Am. Exp. Co., 604 F.3d 758, 771 & n.7 (2d Cir.

2010) (legislative history of the PSLRA “makes quite plain” that Congress did

“not want courts to inquire into a defendant’s state of mind,” that is, “a

defendant’s knowledge of the risks at the time he made the statements”).

The forward-looking statements at issue here were

accompanied by meaningful cautionary language. To be

meaningful, cautionary language must not be “boilerplate” and

must “convey[] substantive information.” Id. at 247. A

defendant must identify in the cautionary language “important

factors that could cause actual results to differ materially

from those in the forward-looking statement[s].” 15 U.S.C.

§ 78u–5(c)(1)(A). In its 10-K for fiscal year 2020, Clarivate

disclosed that all “projections” contained therein constituted

forward-looking statements that might “be materially different

from” actual results due to certain risks. The company

specifically flagged the organic-growth metric, noting that it

might be unable “to derive fully the anticipated benefits from

organic growth.” 2020 10-K 23. In the “Risk Factors” section

of the 10-K, Clarivate pointed to certain reasons why that might

be the case. These included potential difficulties with

“maintain[ing] and / or achiev[ing]” “broad market acceptance”

of the company’s products. Id. at 21. The company also flagged

its potential “inability to attract and retain[] key personnel,”

including in “sales, marketing, [and] product development”

roles. Id. at 21-22.

These disclosed risks match — quite closely — the

reasons why plaintiffs say Clarivate actually failed to reach

its organic- and exit-growth targets. As a reason for the

company’s alleged failure to maintain market acceptance, the

plaintiffs blame Clarivate’s decision to forego “an opportunity

to invest in [its] products.” See ACC ¶ 288 (alleging that

after foregoing that opportunity, Clarivate “lost numerous

customers”). The plaintiffs also blame Clarivate’s failure to

meet projections on its inability to retain key sales personnel.

See id. ¶ 238 (Clarivate’s “restructuring plans, reduction of

the outside sales force, and the shift to an inside sales model

had a negative impact on Clarivate’s revenue-generating

capabilities and eventually caused its revenue trends to

decline”). This is what the safe harbor requires. See, e.g.,

In re Turquoise Hill Res. Ltd. Sec. Litig., 625 F. Supp. 3d 164,

225 (S.D.N.Y. 2022) (cautionary language was meaningful because

it “convey[ed] substantive information about factors that

realistically could cause results to differ materially from

those projected in the forward-looking statement, and directly

related to the risk that brought about plaintiffs’ loss”).

And Clarivate regularly flagged such cautionary

language. On earnings calls and at presentations (like the

November 2020 call from which CEO Stead is quoted above),

speakers noted that they might make forward-looking statements,

and referred listeners to Clarivate’s SEC filings for more

detail on risks and uncertainties. See 15 U.S.C. § 78u-

5(c)(2)(B) (oral projections may be accompanied by cautionary

statements that refer to listeners to written documents for

additional information); e.g., Clarivate Plc, Ex. 99.1 to

Current Report (Form 8-K) (Nov. 10, 2020) (November 2020 call

materials); Weinstein Decl. Ex. D, at 6, ECF No. 73-6

(transcript of Q3 2020 earnings call); Weinstein Decl. Ex. S, at

3, ECF No. 73-21 (slide from 2021 Investor Day presentation).

Plaintiffs contend that this language was not

meaningful because Clarivate failed to warn investors of

“exactly the risk that plaintiffs claim was not disclosed”: that

the “organic revenue growth projections were unrealistic.” See

Pls.’ Opp. to Clarivate 19, ECF No. 73-22. Plaintiffs also

argue that the cautionary language was misleading because it

said only that Clarivate “may” miss organic revenue targets,

when those targets were actually “unachievable.” Id.

We can easily dispose of the plaintiffs’ claim that

Clarivate failed to disclose the risk that the company’s growth

projections “were unrealistic.” Clarivate’s obligation was to

disclose the business and economic factors that might cause

results to fall short — not the generic risk that their

projections might be unrealistic. It would be odd, to say the

least, to require a corporate executive to “caution” that her

projections should be treated as unrealistic. Here, the

Clarivate Defendants’ task was to warn about the risks in

growing the business organically, and their cautionary language

did do that. Thus, Clarivate’s cautionary language was

meaningful, and the forward-looking statements regarding organic

growth are protected by the PSLRA safe harbor.18

b. Progress Toward Organic Growth Projections (“On

Track” Statements)

Plaintiffs also argue that Clarivate’s statements

about progress toward growth projections, like Clarivate being

“on track,” were misleading. Plaintiffs argue that these

statements do not fall under the PSLRA safe harbor, as they

contained misstatements of present facts and thus were not

forward looking. The Court disagrees.

The Second Circuit has recognized that a statement

“may contain some elements that look forward and others that do

not, and forward-looking elements may be severable from non-

forward-looking elements.” Vivendi, 838 F.3d at 246. Where the

forward-looking elements are sufficiently specific — and

therefore severable — they may be actionable. See In re

Supercom Inc. Sec. Litig., No. 15-CV-9650, 2018 WL 4926442, at

*21 (S.D.N.Y. Oct. 10, 2018) (“Mixed present and future

statements are not entitled to the safe harbor with respect to

18 The plaintiffs also argue that statements relaying organic revenue

growth projections were misleading because they omitted information about the

departure of “key talent” and a decrease in product quality. See Pls.’ Opp.

to Clarivate 13. The PSLRA safe harbor does not protect material omissions.

Turquoise Hill, 625 F. Supp. 3d at 217 n.17. However, plaintiffs here are

merely “recharacteriz[ing] their false-statement claims as material-omission

claims,” which is unavailing, because to find “[o]therwise, the PSLRA would

have no force.” Id.

the part of the statement that refers to the present.”). But

“when the present-tense portion . . . does not provide specific

information about the current situation, but merely says that,

whatever the present situation is, it makes the future

projection attainable, the present-tense portion of the

statement is too vague to be actionable apart from the future

projection.” Turquoise Hill, 625 F. Supp. 3d at 211 (emphasis

added); see also Institutional Investors Group v. Avaya, Inc.,

564 F.3d 242, 255 (3d Cir. 2009) (claims that a company was “on

track” to meet projections, “when read in context,” could not

“meaningfully be distinguished from the future projection of

which they [were] a part”).

Here, there is no sufficiently specific, severable

present-tense component in the statements at issue. As an

example, plaintiffs point to Stead’s April 2021 comment: “[O]ur

first quarter results demonstrate that we are absolutely on the

pathway to achieving 6% to 8% organic growth exiting 2021. . . .

We’re on track to do what we’ve said we’re going to do.” ACC

¶ 211(b). A severable projection might say: “we expect to meet

our year-end earnings goal because, halfway through the year,

we’ve already exceeded 50% of that goal.” The italicized

component is of course about the present, not future. But that

is not the kind of statement at issue here: all Clarivate said

was that it was “on track” to meet a year-end goal — an “exit-

growth” rate goal, specifically, that would not be falsifiable

until the year had ended.19 Thus, the present component of this

statement cannot be isolated.

Indeed, courts in this Circuit have consistently held

that statements about being “on track” fall within the PSLRA’s

safe harbor. See, e.g., Villare v. Abiomed, Inc., No. 19-CV-

7319, 2021 WL 4311749, at *17 (S.D.N.Y. Sept. 21, 2021)

(agreeing with “other courts in this District [that] have held

that language stating that a company was presently on track with

its projected goals was forward looking under the PSLRA”); see

also Turquoise Hill, 625 F. Supp. 3d at 210-11 (statements that

project was “on track” and “on schedule” were protected).

The cases on which plaintiffs rely do not compel a

contrary conclusion. In Vivendi, for example, one statement ran

as follows: “Vivendi Universal enters its first full year of

operations with strong growth prospects and a very strong

balance sheet. This new company is off to a fast start and we

are very confident that we will meet the very aggressive growth

targets we have set for ourselves . . . .” 838 F.3d at 246.

The panel explained that “there is nothing prospective about the

19 The “on track” statement also cannot be evaluated for its present

truth without knowing something about the actual distribution of Clarivate’s

revenues over the course of a year. A seller of Christmas trees, by way of

example, might pronounce its yearly revenue to be “on target” in July, but if

that seller typically earns 95+% of its income in November and December, the

projection would contain relatively little current factual content. Here,

the complaint itself indicates that Clarivate’s revenues were historically

back-loaded to the fourth quarter. E.g., ACC ¶ 236.

representation that Vivendi entered 2001 with a ‘very strong

balance sheet,’ which Plaintiffs argued . . . was part of what

made [the] statement misleading.” Id. The statement at issue

here contains no analogue to that current component, as the

plaintiffs are not challenging Clarivate’s first quarter 2021

results. ACC ¶ 211. Thus, statements about progress toward

organic growth projections are protected by the PSLRA safe

harbor.

c. ACV Growth

Plaintiffs allege that defendants materially

overstated Annualized Contract Value and ACV growth by including

“incomplete sales” — that is, deals with customers who never

actually agreed to pay — in the metric. In turn, they say,

defendants used the inflated ACV metric to support their organic

growth projections. Contrary to defendants’ argument, these

statements are plausibly misleading, as plaintiffs have alleged

in some detail the basis for their assertion that Clarivate’s

ACV figures were inflated. And these statements are neither

covered by the safe harbor nor opinions. Thus, the motion to

dismiss will be denied as to these alleged representations.

The defendants argue that the allegations about ACV do

not make any statement false or misleading. Specifically, they

contend that the complaint fails to specify (a) how often sales

were logged prematurely, (b) the degree to which (and period in

which) ACV was overstated, and (c) when (or if) the market

learned of any misstatement. Clarivate Mem. 29. They also

contend that the complaint leaves a gap between CW-6’s statement

that invoices were missing information and the conclusion that

this was so because those invoices reflected incomplete sales.

See Clarivate Suppl. Ltr. 2.

As articulated above, Rule 9(b) and the PSLRA create a

heightened pleading standard. But plaintiffs need not plead

facts beyond those required: the speaker of each allegedly

fraudulent statement, where and when it was made, and why the

statements were fraudulent, generally speaking. See Rombach v.

Chang, 355 F.3d 164, 170 (2d Cir. 2004). Here, plaintiffs plead

all information required. See, e.g., ACC ¶¶ 217-218. Most

importantly, plaintiffs have adequately alleged falsity. They

plead that the defect in ACV was rooted in Clarivate’s customer

relationship management (“CRM”) systems. Id. ¶¶ 126-129, 152.

Salespeople used CRMs, like Salesforce, to track sales data.

Id. ¶ 126. Salespeople prematurely reported sales as “closed”

therein. Id. ¶¶ 152, 159. “[T]hese incomplete sales would then

be sent to [Clarivate’s] Invoice Review Desk . . ., which would

flag the invoices for failing to meet quality control parameters

. . . .” Id. ¶ 152. Despite the flag, Clarivate invoiced

counterparties, and these incomplete sales were included in

calculating ACV. Id. ¶ 153.

Plaintiffs support these claims with allegations by a

CW. According to CW-6, Clarivate “pushed through” “hundreds” of

flagged invoices for collection. Id. ¶¶ 157–158. These

invoices were “incomplete”: they were based on “disorganized

notes” and did not reflect committed sales. Id. ¶¶ 156–157.

Kathy Sullivan, Chief Tax and Revenue Operations Officer, told

employees to push invoices through, because CFO Hanks “wants to

make our forecast, so [we] have to make numbers, and need

revenue.” Id. ¶ 157. While these putative sales contributed to

ACV, “only about 30%” of invoices “were ever paid.” Id. ¶ 158.

Plaintiffs also explain that missing information on invoices

meant incomplete sales: the sales in question often lacked

“purchase order[s] from” customers. Id. ¶ 152. And plaintiffs

contend that the market learned of the misleading nature of the

ACV statements when Clarivate reported disappointing revenue not

reflecting previously reported ACV. See id. ¶¶ 169-171, 197.

Plaintiffs have thus adequately pled that these ACV statements

were misleading.

Clarivate argues that plaintiffs may not rely on CW-6

because the complaint does not “provide facts suggesting that”

he or she “ha[d] a basis to know” the ACV statements were false

or misleading. Clarivate Suppl. Ltr. 2. Given Rule 9(b), the

complaint must provide particularized factual content about such

a source — enough “to support the probability that a person in

the position occupied by the source would possess the

information alleged.” Emps.’ Ret. Sys. v. Blanford, 794 F.3d

297, 305 (2d Cir. 2015). Plaintiffs have done so. CW-6 was the

Director of Clarivate’s “Order to Cash department” between

October 2020 and September 2022. ACC ¶¶ 154, 292. This

department was “generally responsible for all of the steps

involved” between a sale and payment, “from processing an order

through [to] when payment [was] received and applied to accounts

receivable.” Id. ¶ 154. CW-6 managed 200 employees via eight

direct reports, responsible for collections, billing, invoicing,

and cash posting. Id. ¶ 292. CW-6’s supervisor was Sullivan,

the Chief Tax and Revenue Operations Officer, who first reported

to CEO Stead, and later to the CFO. Id. At this stage, the

Court credits CW-6’s allegations regarding invoicing practices.

Clarivate also argues that its ACV claims, too, are

protected by the safe harbor for forward-looking statements.

See Clarivate Ltr. Br. 2-3, ECF No. 106. But unlike, for

example, the organic growth projections, the statements about

ACV did look backward. By Clarivate’s own definition, the

metric assumed clients renewed “expiring license agreements” at

the “current price level.” ACC ¶ 120 (emphasis added); see

Burman v. Phoenix Worldwide Indus., Inc., 384 F. Supp. 2d 316,

335-36 (D.D.C. 2005) (“[I]ndicating that a contract has been

signed is not a forward-looking statement . . . .”).

Finally, Clarivate argues that these statements are

inactionable opinions under Omnicare. See Clarivate Ltr. Br. 3.

This is not correct. A “statement of fact expresses certainty

about a thing, while a statement of opinion does not.” New Eng.

Carpenters, 122 F.4th at 40. “Statements of opinion often

include qualifying language (like ‘I believe’ or ‘I think’) that

conveys a lack of certainty . . ., mark[ing] the statement as

reflecting the speaker’s impression or point of view rather than

an objective truth . . . .” Id. And the statements at issue

were objective. CFO Hanks informed investors, for example, that

“ACV growth on an ongoing basis increased by almost 5% and was

driven by organic growth and annual price increases.” ACC ¶

202(a). This statement “expresses certainty” about both the

extent of ACV growth and the reasons for it. New Eng.

Carpenters, 122 F.4th at 40. Therefore, the comments about ACV

are actionable.

d. Q4 2021 Bump (Seasonality)

Plaintiffs also allege that Clarivate represented

throughout 2021 that revenues in its life sciences business

remained weighted to the fourth quarter. This back weighting

was characteristic of DRG, the company Clarivate acquired in

2020. By the fourth quarter of 2021, however, the defendants

had stated publicly that they had completed transitioning much

of DRG’s transactional revenue to less seasonal, subscription-

based revenue. ACC ¶ 176. Hence the falsity: even after this

transition, Clarivate continued to maintain — without a basis —

that DRG would continue to see a fourth quarter revenue bump.

E.g., id. ¶¶ 178, 191. Here, the complaint sufficiently alleges

that the statements were misleading.

CW-3, who joined from DRG, explained that the

transition meant that “certain deals that were typically closed

at year-end were no longer available to meet sales targets

because they had been converted to subscription services earlier

in the year.” Id. ¶ 177; see also id. (CW-2 reporting that

“some [fourth-quarter] business was lost” because of the

“attempts to transition this business to a subscription model”).

Ultimately, Clarivate’s total “revenue split [including, but not

limited to, DRG] between the first [and] second half of the year

in 2021 was 49% vs. 51%,” rather than “earlier assurances of 47%

vs 53%.” Id. ¶ 245. One analyst reported that “weakness [in

Clarivate’s results] was likely due to lower than expected DRG

transaction[al] revenues.” Id. ¶ 196; see Plumbers &

Pipefitters Nat’l Pension Fund v. Davis, No. 16-CV-3591, 2020 WL

1877821, at *1 (S.D.N.Y. Apr. 14, 2020) (statement that company

was experiencing “strong demand” misleading after defendants

“engage[d] in sales tactics designed to inflate [the company’s]

short-term sales figures”).

Clarivate argues that it did, in fact, disclose the

shift from transactional to subscription sales. It finds some

support for this assertion in the complaint itself. In one

example, Ahmed noted on a conference call in December 2021:

“[W]hat we’ve done [is] . . . move [DRG] more into a Data-as-a-

service offering. . . . So it’s not a one-time transactional

deal in Q4 . . . . [Revenue] becomes equalized through the year

. . . .” ACC ¶ 176.

But Clarivate’s statements on this issue pointed in

multiple directions. The company continued to make seasonality-

driven assertions, including when asked specifically about this

issue. For example, an analyst asked during the Q2 2021

earnings call “if there’s a pull forward or a shift” caused by

“something changing operationally.” Id. ¶ 181. Stead denied

any shift: “What you should have heard from my comments was Q3

will be pretty close to where we [were] with Q2. And Q4 will be

very strong as we exit.” Id. On that same call, Stead

highlighted the back-loading of DRG’s revenue, noting:

As an important reminder, 60% of DRG’s business comes

in the second half of the year, with 60% of this in

the fourth quarter. . . . Additionally, transactional

revenue is seasonally strongest in the fourth quarter.

These items together will drive our [exit] organic

growth rate into the upper end of our 6% to 8% target.

Id. ¶ 186; see also id. ¶ 191 (“[R]emember, Q4, 36% of total DRG

revenue comes into Q4 . . . most” being “heavy transaction.”

(November 2021 comment by Stead)). The allegations leave this

issue disputed (at least), at this stage, making dismissal

premature. See, e.g., SEC v. Westport Cap. Mkts. LLC, 408 F.

Supp. 3d 93, 104–05 (D. Conn. 2019) (“internally contradictory”

disclosures insufficient).20

Finally, Clarivate argues that the CWs’ allegations

are facially incredible, as neither CW remained at Clarivate

through Q4 2021. Clarivate Mem. 29. But that is not the

relevant period: the point is that, because the alleged pull-

forward of DRG revenue occurred prior to Q4 2021, see, e.g., ACC

¶¶ 234-237, they were in a position to understand why the later

statements were false, even if they were hearing those

statements after their employment ended.21

e. Revenue Backlog

In a similar vein, the plaintiffs next challenge the

defendants’ statements favorably characterizing Clarivate’s

backlog. See, e.g., id. ¶¶ 151-52. The plaintiffs describe

this backlog as including “orders and contracts received for

20 Because we conclude that these claims are actionable, we need not

reach the import of Item 303.

21 Additionally, these CWs are described with enough “particularity to

support the probability” that those in their roles “would possess the

information alleged,” all that is required to credit their accounts.

Blanford, 794 F.3d at 305. Specifically, CW-2 was a Senior Director, Data

Analytics at DRG and then Clarivate from 2017 to April 2021. ACC ¶ 288. CW-

2 frequently worked with clients and engineers to implement new product

features. See id. CW-3 was a Key Account Director, Strategic Partnerships

at DRG and then Clarivate from June 2016 until October 2021. Id. ¶ 289.

They worked to identify new business opportunities and strategies. See id.

which performance has not occurred . . . .” See id. ¶ 118

(quoting Clarivate’s 2021 10-K).

However, the ACC includes only a single purported

misstatement that includes the word “backlog” — a comment by

Ahmed about expected Q4 2021 revenues from DRG:

We have a consulting backlog that we typically deliver

in Q4. . . . We have direct insight into the

backlog. And going into Q4, that backlog is pretty

strong as well as line of sight to key deals that upon

conversion, we plan to then subsequently convert to

revenue.

Id. ¶ 189. To the extent this statement is actionable, it is

because of the misrepresentations about DRG’s expected Q4

revenues (discussed above), not because of distortions of the

unquantified “backlog” metric. The plaintiffs’ “backlog” theory

thus adds no actionable misstatements.

f. New Product Development and Investment

The plaintiffs also allege that the defendants’

statements that “the quality of [Clarivate’s] product offerings”

were contributing to growth — or at least greater “retention” of

customers — were false. Id. ¶¶ 220-225. They challenge, for

example, CFO Hanks’ statement (on a “Q2 2020 conference call”)

that Clarivate was “enjoying the benefits of the product

renovations flowing through to even higher renewal rates.” Id.

¶ 220 (emphasis in complaint). Likewise, Hanks announced at the

company’s 2021 Investor Day that, in “our near-term outlook, we

see our renewal rates increasing” by “at least 100 basis points”

over the prior year, and attributed that outlook to “the

continued investment we’ve made in products.” Id. ¶ 223.

These statements were false, plaintiffs allege,

because Clarivate had not actually “invested in new products

that could drive” revenue growth and the “quality of Clarivate’s

existing products [had] declined due to a lack of investment.”

Id. ¶ 225. Rather than leading to new sales or greater

retention of existing customers, this failure of investment was

“negatively impacting revenue growth.” Id.

To the extent that plaintiffs are claiming these

statements were false simply because Clarivate’s revenue growth

was inflated, they are addressed above. But the complaint is

more specific on this point: it alleges that Clarivate’s revenue

growth was “negatively impacted” by the company’s failure to

provide “sufficient additional value through improved product

offerings” at the same time that it was “rais[ing] prices.” Id.

This allegation still fails because the plaintiffs

have not adequately alleged the needed causal connection —

specifically, that any CW (or, perhaps, anyone else) was in a

position to know the extent to which product investments were

driving, or would drive, revenue growth. Four of the CWs were

sales representatives (CW-1, CW-3, CW-4, and CW-5), id. ¶ 128,

and one led the “Order to Cash” Department (CW-6). Id.

¶ 154. The complaint offers no basis to conclude that the CWs

were positioned to know how changes in the quality of

Clarivate’s product portfolio might affect growth. CW-2, a

Senior Director of Data Analytics, had some responsibility for

“monitoring the quality of . . . product offerings.” Id.

¶ 288. While CW-2 stated that he saw product quality fall, CW-2

is not alleged to have any insight into how deterioration would

affect revenue growth. The plaintiffs therefore have not

plausibly pled that these statements were materially misleading.

g. Transition to an Inside Sales Force (Item

303)

The plaintiffs also seek to hold the defendants liable

for their failure to disclose certain “trends” as required under

Regulation S-K, Item 303. Though they do not define it with

precision, one such trend is the effect of Clarivate’s shift to

an inside sales force — that is, the use of call centers instead

of “outside” field sales agents.

Item 303 of Regulation S–K requires filers to spell

out “known trends or uncertainties that the registrant

reasonably expects will have a material unfavorable impact on

revenues or income from continuing operations.” Stratte-McClure

v. Morgan Stanley, 776 F.3d 94, 101 (2d Cir. 2015) (citing 17

C.F.R. § 229.303(a)(3)(ii)). Filers must also disclose the

“manner in which [the trend] might reasonably be expected to

materially impact a company’s overall financial position.” Id.

at 105.

The plaintiffs appear to be asserting that an Item 303

violation is separately actionable. See Pls.’ Opp. to Clarivate

28 (contending that the omissions in question “give rise to Item

303 liability”). It is not; Item 303 “itself does not support

an independent cause of action.” Rein v. Dutch Bros., Inc., No.

23-CV-1794, 2024 WL 3105004, at *6 (S.D.N.Y. June 24, 2024)

(citing Stratte-McClure, 776 F.3d at 101-02)). Instead, “the

failure to disclose information required by Item 303 can

support” a claim under Section 10(b) and Rule 10b-5 — but “only

if the omission [to say what Item 303 requires] renders

affirmative statements made misleading.” Macquarie

Infrastructure Corp. v. Moab Partners, L.P., 601 U.S. 257, 265

(2024).22 Following Macquarie, a company’s total silence on a

given trend is not redressable in a private securities action,

even if it violates Item 303. Instead, the omission must render

statements actually made misleading by its absence. Id. As

described below, the statements the plaintiffs allege were

misleading by omission are not actionable.

22 This misapprehension leads, in turn, to them invoking the wrong

materiality standard. Pls.’ Opp. to Clarivate 28 (referring to Item 303’s

requirement to disclose trends that are “reasonably likely to be material”);

see generally Oran v. Stafford, 226 F.3d 275, 288 (3d Cir. 2000) (observing

that the materiality standards for Rule 10b-5 and Item 303 “differ

significantly”).

Reading the complaint generously (to the plaintiffs),

we can identify certain statements that might arguably give

render the omission to disclose the inside-sales trend

misleading (even if the plaintiffs do not identify such

statements themselves). For example, Stead stated that

Clarivate had “abundant opportunities” to cross-sell or upsell

its products. ACC ¶ 242. The plaintiffs allege that Stead’s

touting the cross-selling opportunities was misleading because

the inside-sales shift resulted in Clarivate lacking the

necessary personnel to do so. Id. ¶¶ 238, 239.

Even framing the claim in this way, plaintiffs have

not sufficiently alleged why these statements are misleading by

omission. For one, the complaint does not make the necessary

logical connection between the inside-sales transition, on the

one hand, and any concrete impact on cross-selling, on the

other. While the complaint cites the company’s disclosure of a

“reduction in workforce,” that disclosure did not indicate which

part of Clarivate’s sales team was affected. Id. ¶ 231. The

complaint does allege, via CW-4, a sales representative, that

Clarivate fired “numerous field sales people.” Id. ¶ 290. CW-4

also asserts that Clarivate “failed to backfill vacated

positions in the sales force,” and that employees hired for the

inside sales force were “ineffective rookies.” Id. But this

level of generality does not suffice, absent some specifics

regarding how many field agents were terminated, how many inside

salespeople were hired to replace them, and what quantum of

sales may have been lost as a result.

Clarivate did ultimately recognize “staffing gaps” and

“sales force” vacancies “late in [2021]” in explaining why it

missed its growth targets. Id. ¶ 248. But the challenged

statements — ranging from January 2020 to February 2021 — long

pre-date “late” 2021. See Rombach, 355 F.3d at 174 (“[W]ithout

contemporaneous falsity, there can be no fraud . . . .”). And

“the fact that [Clarivate] decided to pursue another strategy

does not make its earlier statements false.” Pehlivanian v.

China Gerui Advanced Materials Grp., Ltd., 153 F. Supp. 3d 628,

646 (S.D.N.Y. 2015).

* * *

As to the actionable conduct described above, only the

“makers” of these statements may be liable. See Janus Cap. Grp,

Inc. v. First Derivative Traders, 564 U.S. 135, 142 (2011). As

to written documents, signers of a misleading document, and the

entities on whose behalf they signed, are makers of the

statements in the document. See In re Weight Watchers Int’l

Inc. Sec. Litig., 504 F. Supp. 3d 224, 262–63 (S.D.N.Y. 2020)

(collecting cases and applying Janus). To be liable, any maker

must have acted with scienter, which we consider next.

B. Scienter

1. Standard Under Section 10(b) and Rule 10b-5

“In order to plead scienter adequately under the

PSLRA, a plaintiff must plead ‘with particularity facts giving

rise to a strong inference that the defendant acted with the

required state of mind.’” ECA & Loc. 134 IBEW Joint Pension Tr.

of Chi. v. JP Morgan Chase Co., 553 F.3d 187, 198 (2d Cir. 2009)

(quoting 15 U.S.C. § 78u–4(b)(2)). The required state of mind —

scienter — is “a mental state embracing intent to deceive,

manipulate, or defraud.” Tellabs, Inc. v. Makor Issues & Rts.,

Ltd., 551 U.S. 308, 319 (2007); see also Ernst & Ernst v.

Hochfelder, 425 U.S. 185, 199 (1976) (reading the term

“manipulative . . . device” to “connote[] intentional or willful

conduct designed to deceive or defraud investors”). An

inference of scienter is strong only when it is “cogent and at

least as compelling as any opposing inference of nonfraudulent

intent.” Tellabs, 551 U.S. at 314.

Given that direct proof of a defendant’s state of mind

is uncommon, “scienter can be established by alleging facts to

show either” (1) strong circumstantial evidence of conscious

misbehavior or recklessness23 or (2) that defendants had the

23 While the applicable standard refers to “conscious misbehavior or

recklessness,” ECA, 553 F.3d at 198, the case law sometimes treats the two

phrases as synonymous. See, e.g., In Re Carter-Wallace, Inc. Sec. Litig.,

220 F.3d 36, 39 (2d Cir. 2000) (“To survive dismissal under the ‘conscious

motive and opportunity to commit fraud. ECA, 553 F.3d at 197-

98. Scienter can be imputed to the corporation if an officer or

director of the corporation committed a culpable act with

scienter. See Jackson v. Abernathy, 960 F.3d 94, 98 (2d Cir.

2020) (per curiam).

2. Plaintiffs Plausibly Allege Scienter for Jerre

Stead, Richard Hanks, Mukhtar Ahmed, and

Clarivate Itself

a. Jerre Stead

Following the determinations above, only two

categories of statements by CEO Stead remain at issue. The

first category is statements contained in SEC filings — on Forms

10-Q and -K — ascribing a percentage to Annualized Contract

Value growth. See, e.g., ACC ¶ 202(b). The second category

includes statements describing DRG’s revenues as continuing to

be “seasonal[]” — for example, his statement on the Q2 2021

earnings call that, “[a]s an important reminder, 60% of DRG’s

business comes in the second half of the year, with 60% of this

in the fourth quarter.” Id. ¶¶ 185-186. This seasonality, he

claimed — falsely, according to plaintiffs — would help “drive

our organic growth rate into the upper end of our 6% to 8%

target rate exiting 2021.” Id. As described above, the

misbehavior’ theory, the appellants must show that they alleged reckless

conduct by the appellees . . . .” (emphasis added)); Kalnit v. Eicher, 85 F.

Supp. 2d 232, 243 n.5 (S.D.N.Y. 1999) (“Although courts often refer to

‘conscious misbehavior’ or ‘recklessness,’ the terms appear to be legally

interchangeable.”).

plaintiffs have sufficiently alleged the falsity of these

statements. We thus consider Stead’s scienter as to each.

Plaintiffs allege no direct evidence of Stead’s

knowledge. Rather, they contend that they have adequately

alleged scienter by pleading his motive and opportunity, as well

as recklessness. We begin first by considering motive and

opportunity. Where, as here, the relevant defendants are all

“corporations, corporate officers, and corporate directors,”

“courts often assume” that the defendants “would have the

opportunity to commit fraud if they so desired.” Pension Comm.

of Univ. of Montreal Pension Plan v. Banc of Am. Sec., LLC, 446

F. Supp. 2d 163, 181 (S.D.N.Y. 2006). In such cases, under the

“motive and opportunity” rubric, plaintiffs can establish a

strong inference of scienter if their “complaint sufficiently

alleges that the defendants . . . benefitted in a concrete and

personal way from the purported fraud.” Novak v. Kasaks, 216

F.3d 300, 311 (2d Cir. 2000).

The complaint fails to do so. As to both categories,

plaintiffs contend that they have adequately alleged Stead’s

motive by pointing to his “incentive to perform inadequate due

diligence” as a SPAC sponsor. Pls.’ Opp. to Clarivate 31.

Plaintiffs argue that Stead needed to “gin up investor interest”

in a de-SPAC transaction. Id. But any such motive “dissipated

once the de-SPAC transaction was complete.” In re Lottery.com,

Inc., 715 F. Supp. 3d at 555. And the putative class period

does not start until months after the de-SPAC transaction. At

that time, Stead was, for our purposes, a public company CEO

like any other.

Because plaintiffs have not sufficiently alleged

motive, the dispositive question is whether they have plausibly

alleged conscious misbehavior or recklessness for each set of

misstatements or omissions.

Annualized Contract Value Growth. Plaintiffs bring

various theories to allege Stead’s recklessness as to ACV.

Whether considered separately or together, these theories fail.

Plaintiffs first contend that Stead was a “hands-on” manager who

paid close attention to organic revenue and growth. Pls.’ Opp.

to Clarivate 33. But “simply alleging that executive defendants

are closely involved in running their business is not enough” to

establish scienter. Maloney v. Ollie’s Bargain Outlet Holdings,

Inc., 518 F. Supp. 3d 772, 781 (S.D.N.Y. 2021). Plaintiffs also

point to allegations that Stead reviewed sales reports each

week, and to “executive management” meetings with the CWs

regarding financial data and customers’ activities. Pls.’ Opp.

to Clarivate 35-36; ACC ¶¶ 255, 292. But the complaint does not

indicate whether these reports included any information about

ACV. See id. ¶ 255 (describing reports reviewed by Stead but

excluding any mention of ACV). Nor does the complaint “specify

whether [Stead] was actually involved” or present at the CWs’

meetings with “executive management” or “C-Suite executives.”

See United States v. Strock, 982 F.3d 51, 66-67 (2d Cir. 2020)

(applying analogous False Claims Act requirement of “strong

inference of fraud”); see, e.g., ACC ¶ 292 (using these terms

but not specifying Stead’s involvement).

Plaintiffs’ invocation of the “core operations

doctrine” is similarly unavailing. A “core operation” is one

that “constitute[s] nearly all of a company’s business.”

Frankfurt-Tr. Inv. Luxemburg AG v. United Techs. Corp., 336 F.

Supp. 3d 196, 225 (S.D.N.Y. 2018), aff’d sub nom.

Kapitalforeningen Lægernes Inv. v. United Techs. Corp., 779 F.

App’x 69 (2d Cir. 2019). Under that doctrine, where a defendant

made false or misleading statements about core operations of a

company, a showing that a defendant knew or should have known

about “contradictory facts of critical importance to the

company” supports an inference of scienter. In re Atlas Air

Worldwide Holdings, Inc. Sec. Litig., 324 F. Supp. 2d 474, 489

(S.D.N.Y. 2004). Here, the complaint alleges that Clarivate

miscalculated ACV because of issues affecting “hundreds of

invoices.” ACC ¶ 257. Yet Stead claimed Clarivate had “13,000+

customers” in November 2019. Id. ¶ 139. The invoicing issues

therefore did not affect “nearly all” of Clarivate’s

business.24

Plaintiffs also point to the proximity between the

final alleged ACV misstatements (in October 2021) and the

corrective disclosure — Clarivate’s updated growth projections

on February 3, 2022. Pls.’ Opp. to Clarivate 37. But temporal

proximity “is too ephemeral a connection to raise a strong

inference of scienter.” Pearlstein v. BlackBerry Ltd., 93 F.

Supp. 3d 233, 247 (S.D.N.Y. 2015), aff’d sub nom., Cox v.

Blackberry Ltd., 660 F. App’x 23 (2d Cir. 2016).

Relatedly, plaintiffs point to the “magnitude” of the

Restatement. Pls.’ Opp. to Clarivate 42. This fact has an

obvious “nonculpable explanation”: as described above, the

Restatement concerned how Clarivate accounted for its mergers

with DRG and CPA Global — not any issues related to ACV.

Tellabs, 551 U.S. at 314; supra Section I.C.

Finally, contrary to plaintiffs’ argument, Stead’s

Sarbanes-Oxley certifications are insufficient. Pls.’ Opp. to

Clarivate 42. Stead purportedly “certified” he had “undertaken

an assessment and evaluation of the Company’s disclosure

controls to ensure that [Clarivate’s] SEC filings did not

contain any false information” and that these controls were in

24 Moreover, it is an open question in the Second Circuit whether the

core operations doctrine can ever establish scienter after the PSLRA. See In

re Lottery.com, Inc., 715 F. Supp. 3d at 557.

part “designed to ensure all relevant and material information

is reviewed by Stead” before such certification. ACC ¶ 268.

Such certifications “cannot raise an inference of fraudulent

intent . . . without alleging any facts to show a concomitant

awareness of or recklessness to the materially misleading nature

of the statements.” Plumbers & Pipefitters Nat’l Pension Fund

v. Orthofix Int’l N.V., 89 F. Supp. 3d 602, 615 (S.D.N.Y. 2015)

(collecting cases); see also Rotunno v. Wood, No. 22-502, 2022

WL 14997930, at *3 (2d Cir. Oct. 27, 2022) (no scienter despite,

among other allegations, defendants submitting “false Sarbanes-

Oxley certifications . . . without additional, concrete

allegations of fraudulent intent”). The plaintiffs have thus

failed to allege Stead’s scienter as to these ACV statements.

DRG Seasonality. The plaintiffs have, however,

adequately alleged recklessness as to Stead’s statements

regarding the seasonality of DRG’s revenues. Plaintiffs may

allege recklessness by alleging that Stead “knew facts or had

access to information suggesting that [his] public statements

were not accurate.” ECA, 553 F.3d at 199. “Where,” as here,

“plaintiffs contend defendants had access to contrary facts,

they must specifically identify the reports or statements

containing this information.” Novak, 216 F.3d at 309.

Plaintiffs have done so. CFO Hanks publicly commented that he

and Stead received weekly data indicating what DRG had “sold and

contracted for delivery,” and compared that data “to the same

period [the] prior year.” ACC ¶ 255 (March 2021 earnings call

comment); see San Antonio Fire & Police Pension Fund v. Dentsply

Sirona Inc., 732 F. Supp. 3d 300, 320 (S.D.N.Y. 2024) (scienter

adequately pled as “Defendants’ own statements suggest that they

had access to — and reviewed . . . information [containing

contrary facts].”).

Clarivate also publicly announced that it would

restructure DRG’s business, allowing the inference that Stead

was generally aware of this initiative. At the January 17, 2020

conference call announcing the DRG acquisition, for example,

Hanks (with Stead on the line) announced that “We have a plan

to, over time, migrate some of the reoccurring and onetime

revenues onto a platform capability, which will be subscription-

based.” ACC ¶ 175. These circumstantial “allegations that

[Stead] had actual knowledge that [his] statements were false or

misleading are sufficient to plead scienter.” zCap Equity Fund

LLC v. LuxUrban Hotels Inc., 792 F. Supp. 3d 407, 441 (S.D.N.Y.

2025).

The complaint includes at least one other allegation

that supports the strong inference of scienter. Stead responded

to an analyst who specifically asked about seasonality, telling

him that “Q4 will be very strong as we exit.” ACC ¶ 181. That

Stead “placat[ed]” an analyst’s concerns “provides cogent

support.” Fresno Cnty. Emps.’ Ret. Ass’n v. comScore, Inc., 268

F. Supp. 3d 526, 552 (S.D.N.Y. 2017).

The defendants argue there is an “equally strong”

inference that any “declines in revenues were simply a temporary

result of the Company’s initiatives to strengthen the business.”

Clarivate Mem. 16. But even if we drew this inference,

dismissal would be inappropriate: the plaintiffs’ inference need

only be “at least as compelling as any opposing inference.”

Tellabs, 551 U.S. at 324.

b. Richard Hanks

Two categories of statements by CFO Hanks remain at

issue. The first category are statements contained in SEC

filings — on Forms 10-Q and -K — as well as on conference calls

ascribing a percentage to Annualized Contract Value growth.

See, e.g., ACC ¶¶ 202(a), 214(a). Unlike Stead, Hanks also

described this percentage on conference calls, and provided

further detail, such as the amount of organic ACV growth. See,

e.g., id. ¶ 214(a). The second category includes statements

describing DRG’s revenues as continuing to be “seasonal[]” — for

example, his statement at an investor conference on November 17,

2021 that, DRG “has a significant back-end loading of revenue

into Q4.” Id. ¶¶ 214, 216. As described above, the plaintiffs

have sufficiently alleged the falsity of these statements. We

thus proceed to consider scienter as to each.25

Annualized Contract Value Growth. As to ACV growth,

the plaintiffs have alleged that Hanks “knew facts or had access

to information suggesting that [his] public statements were not

accurate.” ECA, 553 F.3d at 199. The plaintiffs have provided

specific allegations about the source of these facts. Unlike

Stead, Hanks received “a monthly tracking report of cash

collections which detailed clients that were not paying their

bills” from CW-6. ACC ¶ 260. Hanks had allegedly “asked CW-6

to look into the collection and invoicing issues at [a] face-to-

face meeting in early 2021.” Id. ¶ 292. CW-6 “report[ed] the

results” of his or her inquiry to Hanks, explaining that “a

significant reason for the lack of payments was ‘because

[Clarivate was] not invoicing them correctly.’” Id. ¶ 263.

Hanks also met “face-to-face” with CW-6 regarding these issues

“throughout 2021.” Id.; see In re AppHarvest Sec. Litig., 684

F. Supp. 3d 201, 247 (S.D.N.Y. 2023) (scienter adequately pled,

as “reports from a confidential witness support that Defendants

. . . participated in numerous meetings during which the

problems with hiring, productivity, turnover, and . . .

underperformance relative to [the company’s] forecasts were

25 Because we conclude that plaintiffs have adequately alleged Hanks’

recklessness as to each set of statements, we need not reach motive and

opportunity.

discussed”). CW-6 later sent “accounts receivable report[s]”

weekly, which Hanks received and reviewed. ACC ¶ 259.

Plaintiffs thus adequately allege that Hanks knew that invoicing

issues affected purported sales, and that some would not convert

to revenue; that is, that ACV was being inflated.

Additionally, while the only statements about ACV

growth attributable to Stead are those contained in SEC filings,

Hanks spoke directly to analysts about the metric. Hanks

defined the metric, explaining at the Company’s first Investor

Day in 2019 that ACV, measured “as a point in time,” is “the

annualized value of our book of business, of our subscription

contracts.” Id. ¶ 122. Hanks also explained why ACV grew in a

given period. See, e.g., id. ¶ 202(a) (“[ACV growth] was driven

by organic growth and annual price increases.”). Hanks’

detailed statements about ACV and ACV growth support a finding

of scienter. See Bos. Ret. Sys. v. Alexion Pharms., Inc., 556

F. Supp. 3d 100, 133–34 (D. Conn. 2021) (“Actively communicating

with the public about [the source of revenue growth] . . . is

strong circumstantial evidence that [defendant was] receiving

some form of specific information about the subject.”).

The inference that Hanks knew his statements about ACV

were misleading is “cogent and at least as compelling as any

opposing inference one could draw from the facts alleged.”

Tellabs, 551 U.S. at 324.

DRG Seasonality. As to statements about DRG, the

plaintiffs have alleged Hanks’s scienter for the same reasons

they have done so as to Stead. Hanks reviewed the same weekly

DRG sales data as Stead in 2021. See, e.g., ACC ¶ 255 (March

2021 earnings call comment).

c. Mukhtar Ahmed

As Ahmed did not sign any filings, the only statements

he made for which he could be liable are his own statements

describing DRG’s revenues as continuing to be seasonal. See

Janus, 564 U.S. at 142. For example, on November 9, 2021, Ahmed

stated, “[T]he latter half of the year is where there’s

typically a pickup [in revenue]. It’s a hockey stick effect

here in terms of deals coming through in conversion into

revenue.” ACC ¶ 191.26

Plaintiffs have raised a strong inference of

recklessness. The plaintiffs have alleged that Ahmed, the head

of the group that absorbed DRG, knew (or should have known) that

Q4 transactional revenues had been shifted earlier into the

year. Specifically, Ahmed spoke to investors during Clarivate’s

Q2 2020 earnings call about restructuring DRG’s business to turn

transactional into subscription revenue. Id. ¶ 175. And on

November 9 and December 7, 2021, Ahmed explained on investor

26 Because we conclude that plaintiffs have adequately alleged Ahmed’s

recklessness, we need not reach their arguments as to motive.

calls that this restructuring would shift DRG’s revenues earlier

into the year. Id. ¶ 176. As described above, Ahmed told

investors that Clarivate’s “invest[ments]” “since we’ve acquired

[DRG]” would change the business “[s]o it’s not a one-time

transactional deal in Q4 to meet the budgeting cycle . . . . It

becomes equalized through the year . . . .” Id.; cf. Alexion

Pharms., 556 F. Supp. 3d at 133–34 (“Actively communicating with

the public about [the source of revenue growth] . . . is strong

circumstantial evidence that [defendant was] receiving some form

of specific information about the subject.”).

Additionally, on one call, an analyst noted, “it’s

important that DRG does very well in the fourth quarter” and

asked for information on DRG’s growth “to give us some increased

confidence in the fourth quarter performance.” ACC ¶ 214(c).

Ahmed responded that he had a “line of sight” into DRG’s “key

deals” in Q4, that is, that he knew what revenue DRG could

recognize for the remainder of the year. Id.; see also

comScore, Inc., 268 F. Supp. 3d at 552 (“placating” an analyst’s

concerns “provides cogent support for the inference of

scienter”).

The inference that Ahmed knew his statements about the

Q4 bump were misleading is “cogent and at least as compelling as

any opposing inference one could draw from the facts alleged.”

Tellabs, 551 U.S. at 324.

* * *

Stead’s, Hanks’s, and Ahmed’s scienter may all be

imputed to Clarivate. See Jackson, 960 F.3d at 98.

3. Plaintiffs Do Not Plausibly Allege Scienter for

Christie Archbold or Sheryl von Bulcher

a. Christie Archbold

The plaintiffs have failed to raise a strong inference

of scienter as to Archbold. Archbold signed SEC filings

ascribing percentages to ACV growth. The plaintiffs do not make

any argument as to Archbold’s motive. The only allegations

about Archbold, besides that she signed these filings, are that

she stepped down from her role in March 2022. ACC ¶ 15. “[A]n

officer’s resignation, without more, is insufficient to support

a strong inference of scienter.” Gillis v. QRX Pharma Ltd., 197

F. Supp. 3d 557, 605 (S.D.N.Y. 2016).

b. Sheryl von Blucher

The plaintiffs have failed to raise a strong inference

of scienter as to von Blucher. Like Archbold, she signed SEC

filings ascribing percentages to ACV growth. Plaintiffs make

two arguments as to motive, but none as to recklessness.

Plaintiffs argue that von Blucher sold 14% of her shares in the

June 2021 Offering. ACC ¶ 274. But this is not the type of

“unusual insider trading activity during the class period” that

“may permit an inference of bad faith and scienter.” Acito v.

Imcera Grp., Inc., 47 F.3d 47, 54 (2d Cir. 1995). In Acito, the

Second Circuit held that a director’s stock sale was not unusual

in part because it amounted to “less than 11% of his

holdings.” Id. And courts have found far larger stock sales to

be insufficient to plausibly allege motive. See, e.g., Chapman

v. Mueller Water Prods., Inc., 466 F. Supp. 3d 382, 411

(S.D.N.Y. 2020) (65.6% of the defendant’s stake). Plaintiffs

also argue that von Blucher — like Stead — was a SPAC sponsor.

But as with Stead, any motive “dissipated once the de-SPAC

transaction was complete.” In re Lottery.com, Inc., 715 F.

Supp. 3d at 555.

C. Scheme Liability Claim

Plaintiffs also assert a “scheme liability” claim.

Scheme liability is premised on deceptive conduct, independent

of misrepresentations or omissions. See 17 C.F.R. § 240.10b–

5(a) and (c); see also Stoneridge Inv. Partners, LLC v. Sci.-

Atlanta, 552 U.S. 148, 159–60 (2008). This claim is predicated

on issues discussed above: issuing invoices for incomplete sales

to inflate ACV and backlog, ACC ¶¶ 152-161, and reducing DRG’s

Q4 2021 transactional sales by converting them into subscription

sales to show revenues earlier in the year. Id. ¶¶ 174-78; see

Pls.’ Ltr. Br. 3, ECF No. 110.27

27 The plaintiffs argue that the defendants did not move to dismiss the

scheme liability claims under 10b-5(a) and (c) and have waived the argument.

Pls.’ Ltr. Br 3. But there has been no such waiver. The defendants moved

to dismiss the plaintiffs’ “Section 10(b) and Rule 10b-5” claims, not just

To state a scheme liability claim, a plaintiff must

show: “(1) that the defendant committed a deceptive or

manipulative act, (2) in furtherance of the alleged scheme to

defraud, (3) with scienter, and (4) reliance.” Plumber &

Steamfitters Loc. 773 Pension Fund v. Danske Bank A/S, 11 F.4th

90, 105 (2d Cir. 2021). A scheme liability claim cannot be

premised on “misstatements and omissions alone.” SEC v. Rio

Tinto plc, 41 F.4th 47, 54 (2d Cir. 2022); see also Maso Cap.

Invs. Ltd. v. E-House (China) Holdings Ltd., No. 22-CV-355, 2024

WL 2890968, at *5 n.5 (2d Cir. June 10, 2024) (plaintiff must

“clearly identify any deceptive acts distinct from the

alleged . . . misstatements and omissions”).

Plaintiffs have failed to plead a scheme claim.

Plaintiffs’ theory of scheme liability relies solely on

misstatements: they plead that the defendants’ statements

regarding ACV, backlog, and revenue seasonality were false. As

to seasonality, the plaintiffs plead that Clarivate appeared to

be recognizing more revenue earlier in the year — but certain

defendants misleadingly stated otherwise. “The deceptive act is

the false statement” itself, such as when Stead denied any pull

forward in response to an analyst question. Turquoise Hill, 625

F. Supp. 3d at 252; supra Section V.A.2.d. As to issuing

10b-5(b) claims, and argued against the theory in their reply brief.

Clarivate Mem. 13; Clarivate Reply 2–3, ECF No. 73-23.

incomplete invoices, that conduct, too, was only deceptive

“because of a subsequent material misstatement” — the reported

amount of ACV — and thus “cannot be shoehorned into a claim for

scheme liability.” SEC v. Penn, 225 F. Supp. 3d 225, 235

(S.D.N.Y. 2016); see also In re VNET Grp., Inc. Sec. Litig., 804

F. Supp. 3d 426, 439 (S.D.N.Y. 2025) (dismissing scheme

liability claim based on “manipulating paperwork” via redactions

as duplicative because “these redactions are (part of) the basis

on which the Court determined that Plaintiffs have stated a

claim under Section 10(b)” as misstatements). “Outside the

allegations of the [misstatements, plaintiffs have not]

articulate[d] with precision the contours of an alleged scheme

to defraud investors.” Eden Alpha CI LLP v. Polished.com Inc.,

No. 22-CV-6606, 2026 WL 673462, at *13 (E.D.N.Y. Mar. 10, 2026)

(quoting Danske Bank A/S, 11 F.4th at 105).

Control Person Liability

Defendants’ sole argument for dismissing the Section

20(a) and Section 15 control-person claims is that they require

a primary violation of the securities laws, which the defendants

argue plaintiffs have not adequately pled. Because the

plaintiffs have stated certain primary violations, the

corresponding control-person claims may proceed. E.g., Friel v.

Dapper Labs, Inc., 657 F. Supp. 3d 422, 450 (S.D.N.Y. 2023).

Leave to Amend

The plaintiffs request leave to amend given that this

is the first ruling on the defendants’ arguments for dismissal.

See Pls.’ Ltr. Br. 10 & n.20. The plaintiffs are not entitled

to amend yet again after receiving “an opportunity to amend in

response to full briefing of the defendants’ motion to dismiss”

in June 2023, Mem. & Order, ECF No. 94, and also

“fail[ing] . . . to explain how [they] propose[] to amend the

complaint to cure its defects.” F5 Cap. v. Pappas, 856 F.3d 61,

90 (2d Cir. 2017). Leave to amend is thus denied.

Conclusion

The motions to dismiss Securities Act Count I (Section

11) are granted in part and denied in part. The claim may

proceed against Clarivate, CGMI, PwC, and the individual

defendants. Otherwise, this claim is dismissed. Onex

Corporation, the Baring Asia Private Equity Fund VI, L.P.1 and

L.P.2, and Elgin Investment Holdings Limited will be dismissed

from this case. The motions to dismiss Securities Act Count II

(Section 15) are denied as to the remaining defendants. The

motion to dismiss Exchange Act Count I (Section 10(b)) is

granted in part and denied in part. The claim may proceed

against defendants Clarivate, Stead, Hanks, and Ahmed, on the

misstatements identified in this order. Otherwise, this claim

is dismissed. The motion to dismiss Exchange Act Count II

(Section 20(a)) is granted in part and denied in part. The

claim may proceed, but the primary conduct supporting this claim

is limited to the portion of Exchange Act Count I that survives.

SO ORDERED.

/s/ Eric Komitee

ERIC KOMITEE

United State

s District Judge

D ated: March 30, 2026

Brooklyn, New Y ork