Securities & Exchange Commission v. Goldstone

MEMORANDUM OPINION AND ORDER 1

JAMES 0. BROWNING, District Judge.

THIS MATTER comes before the Court on: (i) the Motion to Dismiss on Behalf of Defendants Larry Goldstone and Clarence G. Simmons and Memorandum of Law in Support, filed May 21, 2012 (Doc. 35)(“Goldstone & Simmons MTD”); (ii) the Defendant Jane Starrett’s Motion to Dismiss and Memorandum of Points and Authorities in Support, filed May 21, 2012 (Doc. 36)(“Starrett MTD”); and (in) the Request for Judicial Notice in Support of Defendants’ Motions to Dismiss Complaint, filed May 21, 2012 (Doc. 39)(“Re-quest for Judicial Notice”). 2 The Court held a hearing on July 31, 2012. The primary issues are: (i) whether the Court may or must take judicial notice of certain documents which Defendants Larry A. Goldstone, Clarence G. Simmons, III, and Jane E. Starrett have attached to their motions to dismiss; and (ii) whether the Plaintiff Securities and Exchange Commission (“SEC”) has stated a plausible claim that the Defendants made, aided and abetted, or are liable as control persons for material misrepresentations and omissions to the investing public and Thornburg Mortgage, Inc.’s outside auditor, Klynveld, Peat, Marwick, Goerdeler (“KPMG”), in connection with the filing of Thornburg Mortgage’s 2007 Form 10-K Annual Report. The Court will grant the Request for Judicial Notice in part, and deny it in part, and will grant the motions to dismiss in part, and deny them in part.

The Court will dismiss the SEC’s allegations based upon the statement in the 2007 Form 10-K and to Thornburg Mortgage’s outside auditor that Thornburg Mortgage successfully met its margin calls without violating its lending agreements, and did not sell assets to meet margin calls. The Court will also dismiss the SEC’s allegations that Starrett engaged in a scheme to defraud the investing public, and that the Defendants schemed to defraud Thorn-burg Mortgage’s outside auditor in connection with the 2007 Form 10-K.

On the other hand, the Court has determined that the SEC has sufficiently alleged that the representation that Thorn-burg Mortgage had the intent and ability *1077 to hold its impaired assets to maturity or their value recovered in the market at the time it filed the 2007 Form 10-K was materially false or misleading. The Court determines that the Defendants’ knowledge of objective financial factors — including that Thornburg Mortgage was late in meeting margin calls in February, 2008, Thornburg had diminished liquidity and cash on hand to meet margin calls on a daily basis, and Goldstone and Simmons’ awareness that Thornburg would likely receive additional margin calls — undermines the statement that Thornburg would be able to continue to meet margin calls without selling assets at a loss. The Court will not dismiss the SEC’s allegation that Gold-stone and Simmons are primarily liable or liable as control persons for that misrepresentation in the 10-K, and the Court will not dismiss the SEC’s allegations that the Defendants aided and abetted the misrepresentation, as the Court has determined that the SEC sufficiently alleged that Goldstone and Simmons made, and the Defendants provided substantial assistance to, the misrepresentation with knowledge of or recklessness to its falsity. Similarly, the Court will not dismiss the SEC’s allegations that the Defendants misled Thorn-burg Mortgage’s auditor before the 2007 Form 10-K was filed through the statement that Thornburg Mortgage had the intent and ability to hold its impaired assets to maturity or their value recovered in the market.

The Court will also allow certain claims to proceed against Goldstone and Simmons individually. The SEC has sufficiently alleged that Goldstone and Simmons failed to disclose the material information to KPMG before the 2007 Form 10-K was filed that the collapse of a European hedge fund would negatively impact Thornburg Mortgage’s financial condition. The SEC has sufficiently alleged that Simmons misrepresented to KPMG the purpose of certain transactions Thornburg Mortgage used to satisfy margin calls before the 2007 Form 10-K was filed. The SEC has also sufficiently alleged that Goldstone materially misrepresented Thornburg Mortgage’s financial condition after the 2007 Form 10-K was filed. The SEC has sufficiently alleged that Goldstone and Simmons materially misled KPMG by not providing correspondence confirming that Thornburg Mortgage experienced an event of default in the two weeks before the 2007 Form 10-K was filed, and that Simmons misrepresented that unforeseen events had an unexpected negative financial impact on Thornburg Mortgage after the 2007 Form 10-K was filed.

FACTUAL BACKGROUND 3

The SEC alleges that the Defendants— Larry A. Goldstone, Clarence G. Simmons, III, and Jane E. Starrett — were involved in fraudulent misrepresentations and omissions made in connection with the Thorn-burg Mortgage, Inc. 2007 Form 10-K Annual Report, filed May 21, 2012 (Doc. 37- *1078 2)(“2007 Form 10-K”). 4 Complaint ¶¶ 1-3, at 1-2, filed March 13, 2012 (Doc. 1). Thornburg Mortgage, Inc. (“Thornburg Mortgage”) was a publicly traded single-family mortgage lender and real estate investment trust, founded in 1993, headquartered in Santa Fe, New Mexico and previously was the second-largest independent mortgage company after Countrywide Financial Corporation. See Complaint ¶ 2, at 1; id. ¶ 20, at 7. During the time frame of the allegations in the Complaint, Thorn-burg Mortgage’s shares were traded on the New York Stock Exchange. See Complaint ¶ 20, at 7. :

1. The Defendants and Thornburg Mortgage.

At the time of the allegations set forth in the Complaint, Goldstone, as Thornburg Mortgage’s president and chief executive officer (“CEO”), and also one of Thornburg Mortgage’s directors, signed and certified Thornburg Mortgage’s filings with the SEC, and exercised control over Thorn-burg Mortgage’s management, general operations, and policies. . Complaint 17, at 6. Simmons, as senior executive vice-president, chief financial officer (“CFO”), and one of Thornburg Mortgage’s directors, signed and certified Thornburg Mortgage’s filings with the SEC, and exercised control over Thornburg Mortgage’s management, general operations, and policies. Complaint ¶ 18, at 6-7. Starrett was Thorn-burg Mortgage’s chief accounting officer (“CAO”), and as such, was responsible for Thornburg Mortgage’s financial reporting and served as Thornburg Mortgage’s principal contact with its outside auditor. Complaint ¶ 19, at 7. Starrett became a certified public accountant in 1976, but her license has been inactive since 1989. See Complaint ¶ 19, at 7.

Thornburg Mortgage’s lending operations focused on “jumbo” and “superjumbo”' ' adjustable-rate mortgage (“ARM”) securities, and also purchased ARM securities third parties originated. 5 Complaint ¶21, at 7. Thornburg Mortgage paid' most of its earnings into dividends, and obtained financing for its mortgage and investment business through reverse repurchase agreements backed by ARM securities. 6 Complaint ¶ 3, at 2. Thorn-burg Mortgage’s reverse repurchase agreements “typically consisted of a simultaneous sale- of pledged securities to a lender at an agreed price in return for Thornburg Mortgage’s agreement to repurchase the same securities at a future date (the maturity date) at a higher price.” Complaint ¶ 22, at 7-8. The re *1079 verse repurchase agreements required Thornburg Mortgage to maintain a certain degree liquidity and- subjected Thornburg Mortgage to margin calls if the value of the ARM securities serving as collateral on the agreements fell below a specified level. See Complaint ¶22, at 8. 7 A margin call would generally require Thornburg Mortgage to pay cash to reduce its loan amount or to pledge additional collateral to the lender, either on the same day that Thornburg Mortgage received the margin call or on the following day, unless- the parties otherwise agreed. See Citigroup Global Markets, Inc. as Intermediating Agent for Citigroup Global Markets Limited and [Counterparty] Thornburg Mortgage, Inc., International Securities Lenders Association ISLA Global Master Securities Lending Agreement § 5.8, at 11, filed May 21, 2012 (Doc. 37-6)(“Citigroup Global Repo Agreement”); Master Repurchase Agreement Between Greenwich Capital Markets, Inc., and Thornburg Mortgage, Inc. § 4(c) at 5,- § 11(a), at 7-8, filed July 20, 2012 (Doc. 60-2)(“Green-wich Repo Agreement”); Master Repurchase Agreement Between Credit Suisse First Boston Corporation and Thornburg Mortgage Asset Corporation § 4(c), at 4, § 11(a), at 7, filed July 20, 2012 (Doc. 60-3)(“Credit Suisse Repo Agreement”); Complaint ¶23, at 8. Thornburg Mortgage’s failure to timely meet a margin call would be an event of default and allows a lender to declare Thornburg Mortgage in default, which would trigger cross-defaults on Thornburg Mortgage’s other reverse repurchase agreements, and all lenders with whom Thornburg Mortgage had defaulted would then be allowed to seize and to sell the ARM securities collateralizing Thornburg Mortgage’s loans. See Complaint ¶24, at 8. Receiving margin calls was part of Thornburg Mortgage’s normal course of business, as the value of its ARM securities would often fluctuate. See Complaint ¶ 25, at 8.

As part of Thornburg Mortgage’s auditing process in 2007, Thornburg Mortgage had to assess whether it had the intent and ability to hold its ARM securities until maturity or when they recovered their value on the market — referred to as an “other-than-temporary impairment ... analysis” (“OTTI analysis”). 8 Complaint ¶¶ 49-50, at 50-51. If Thornburg Mortgage had the intent and ability to hold its ARM securities to maturity, any losses associated with those securities would not need to be reflected on Thornburg Mortgage’s balance sheet; conversely, if Thornburg Mortgage determined it did not have the intent and ability to hold its ARM securities to maturity, any losses associated with those securities would be deemed “other than temporary,” and Thornburg Mortgage would be required to include those losses on its balance sheet. Complaint ¶¶ 49-50, at 14-15 (citing Statement of Financial Accounting Standards No. 115, filed May 21, 2012 (Doc. 37-34)(“SFAS 115”)).

2. Thornburg Mortgage’s Financial Troubles in 2007-2008.

In August, 2007, disruptions in the housing and financial markets led Thornburg Mortgage to receive approximately two bil *1080 lion dollars in margin calls. See Complaint ¶¶ 25-26, at 8. To meet these margin calls, Thornburg Mortgage had to sell twenty-two billion dollars of its mortgage-backed securities (“MBS”) at a loss of $1.1 billion and not issue a dividend in the third quarter of 2007. 9 See Complaint ¶ 26, at 8. Thornburg Mortgage’s Board of Directors expressed concerns in Thornburg Mortgage’s Form 10-Q for the third quarter of 2007 regarding the company’s “ongoing availability of financing for mortgage assets in the fourth quarter given the substantial likelihood of continued rating agency downgrades of MBS, and the still fragile state of the financial markets.” Complaint ¶ 26, at 8-9. In the fourth quarter of 2007 — November and December, specifically — Thornburg Mortgage paid approximately $360 million in margin calls. See Complaint ¶ 27, at 9.

Thornburg Mortgage received approximately $650 million in margin calls from January through the middle of February, 2008. See Complaint ¶ 28, at 9. Thornburg Mortgage received approximately $300 million in margin calls in the last two weeks of February, 2008, which it could not timely meet. See Complaint ¶ 3, at 2; id. ¶ 29, at 9. Thornburg Mortgage was late in meeting margin calls, in violation of its reverse repurchase agreements, with Credit Suisse First Boston (“Credit Suisse”), Greenwich Capital Markets, Inc. (“Greenwich”), and Citigroup Global Markets Limited. Complaint ¶ 29, at 9. On February 21, 2008, a senior vice-president with Thornburg Mortgage’s structured finance group informed the Defendants that, in connection with Thornburg Mortgage’s anticipated capital raise: “ ‘[Credit Suisse] is willing to withdraw from the underwriting group since they realize their attorneys will probably not agree to anything short of disclosing the delay in meeting their margin call earlier this week.’” Complaint ¶ 64, at 18-19 (emphasis in originalXquoting Electronic Mail Transmission from Deborah Burns to Larry Goldstone at 2 (February. 21, 2008, 2:47 p.m.), filed July 20, 2012 (Doc. 60-l)(“Feb. 21 Burns/Goldstone Email”)). Goldstone discussed Thornburg Mortgage’s margin calls in an electronic mail transmission with Simmons and Starrett on February 22, 2008, in which he stated that Thornburg Mortgage had paid approximately $100 million in margin calls and he had “ ‘plans to satisfy the rest over the next week.’ ” Complaint ¶ 62, at 18 (quoting Electronic Mail Transmission from Larry Goldstone to Garrett Thornburg, et al. at 2 (Feb. 22, 2008, 8:42 a.m.), filed May 21, 2012 (Doc. 37-8)(“Feb. 22 BOD Email”)). Goldstone also stated, regarding Thornburg Mortgage’s recent margin calls: “ ‘We had negotiated some additional [borrowing] capacity with Credit Suisse a few weeks ago, but they pulled back on that commitment when we had margin issues with them.’ ” Complaint ¶ 63, at 18 (alteration in originalXquoting Feb. 22 BOD Email at 3).

Citigroup Global’s margin call on February 21, 2008 was the largest of the three Thornburg Mortgage could not immediately meet — $196 million. See Complaint ¶ 33, at 10. In response to Thornburg Mortgage’s inability to meet the Citigroup *1081 Global margin call on February 21, 2008, Citigroup Global sent a letter to Goldstone and Simmons, on February 21, 2008, stating that Thornburg Mortgage was in breach of the parties’ reverse repurchase agreement and reserving Citigroup Global’s right to declare Thornburg Mortgage in default (“the Citigroup Global Letter”). Complaint ¶ 3, at 2; id. ¶ 34, at 10-11. See Letter from Stephen G. Malekian to Thornburg Mortgage, Inc., Re: The Global Master Securities Lending Agreement dated as of September 20, 2007 between Citigroup Global Markets, Inc. (“CGMI”) as intermediating agent for Citigroup Global Markets Limited (“CGML”) and together with CGMI (“CITI”) and Thornburg Mortgage, Inc. (the “Fund”) (the “Agreement”), sent February 21, 2008, filed May 21, 2012 (Doc. 37-7)(“Citigroup Global Letter”). Citigroup Global made clear that, although Citigroup Global was not exercising its rights under the reverse repurchase agreement, it was not waiving its right to declare Thornburg Mortgage in default, or amend the underlying reverse repurchase agreement. See Complaint ¶ 34, at 11. In an electronic mail transmission from Gold-stone to Simmons, Starrett, and others, dated February 21, 2008, Goldstone stated that he had negotiated a “payment plan with Citigroup Global in order to satisfy the call by the end of [the following] week[.]” Complaint ¶ 61, at 18 (alterations in originalXquoting Electronic Mail Transmission from Clay Simmons to Nyira Ghana, re: FW:TMA update at 2 (February 21, 2008, 9:30 a.m.), filed May 21,.2012 (Doc. 37-10)(“Feb. 21 BOD Email”)). Thornburg Mortgage paid the Citigroup Global margin call over seven days and made the final payment of seventy-five million dollars on February 27, 2008. Complaint ¶ 35, at 11.

In the last week of February, 2008, Thornburg Mortgage had to sell the interest only portions of its ARM loans (“I/O Strip Transactions”) to generate sufficient cash to meet the margin calls it received in the second half of the month. 10 Complaint ¶ 36, at 11. The' I/O Strip Transactions further depleted Thornburg Mortgage’s liquidity to meet margin calls. See Complaint ¶ 36, at 11. In an electronic mail transmission from Goldstone to Simmons and Starrett on February 22, 2008, Gold-stone informed them of some of Thornburg Mortgage’s plans to raise liquidity to meet margin calls: “ ‘Citi sold two of [Thorn-burg’s] IO securities as well for a gain of approximately $25 million and net proceeds to Citi of $10 million.’ ” Complaint ¶ 67, at 19-20 (alteration in original)(Feb. 22 BOD Email at 2). In an electronic mail transmission sent February 25, 2008, Gold-stone informed Simmons and Starrett that Thornburg Mortgage was “moving towards resolving [its] margin issues’ ” through, among other strategies, having “ ‘sold some additional IO securitiesf.]’ ” Electronic Email Transmission from Larry Goldstone to the Thornburg Board of Directors, sent February 25, 2008, at 5:03 p.m., filed May 21, 2012 (Doc. 37-9)(“Feb. 25 BOD Email”). See Complaint ¶ 68, at 20 (quoting Feb. 25 BOD Email).

The Defendants planned to quickly raise cash to satisfy Thornburg Mortgage’s future margin calls after ' filing the 2007 Form 10-K. See Complaint ¶ 32, at 10. The Defendants did,-not plan to disclose that Thornburg Mortgage was late in meeting margin calls. See Complaint ¶ 32, *1082 at 10. In an electronic mail transmission from Goldstone to Simmons and Starrett on February 22, 2008, Goldstone stated that Thornburg Mortgage was “ ‘planning to sell two of [its] TMA securities’ ” to meet margin calls and that this sale would “ ‘allow[ ] us to keep our current situation quiet while we deal with it.’ ” Complaint ¶ 67, at 20 (alterations in original)(quoting Feb. 22 BOD Email at 2).

The Defendants “scrambled” to meet Thornburg Mortgage’s margin calls before filing the 2007 Form 10-K. Complaint ¶ 30, at 9-10. In an electronic mail transmission from Goldstone dated February 22, 2008, which Simmons and Starrett received, Goldstone stated:

“We don’t want to disclose our current circumstance until it is resolved. Our goal for resolution i[s] the filing of our 10-K. How we disclose this issue and what we say will depend on where we are next week when we need to file. But, our plan is to say that we had margin calls and all have been met.”

Complaint ¶ 30, at 10 (alteration in originalXquoting Feb. 22 BOD Email at 2). Goldstone also discussed strategies that would allow Thornburg Mortgage “ ‘to keep [its] current situation quiet while we deal with it’ ” in the same electronic mail transmission. Complaint ¶ 31, at 10 (alteration in originalXquoting Feb. 22 BOD Email at 2). Goldstone also stated: “ ‘Hopefully our disclosure will be a simple one, meaning all margin calls have been met.’ ” Complaint ¶ 31, at 10 (quoting Feb. 22 BOD Email at 3).

Goldstone and Simmons also learned, on February 27, 2008, that a large European hedge fund with substantial MBS holdings, similar to those Thornburg Mortgage held, was collapsing. See Complaint ¶ 38, at 12. Goldstone anticipated that European hedge fund’s collapse would negatively impact Thornburg Mortgage’s ARM Securities, and sent an electronic mail transmission to Simmons on February 27, 2008, in which he said:

“Also, you should know that a large Alt-A hedge fund in Europe is blowing up this afternoon. UBS credit just mentioned it to me1. They got his with 20 point haircuts on Alt-A and AAA’s overnight. I think we will get this a little more gradually, but we should be ready for it.” 11

Complaint ¶38, at 12 (quoting Electronic Mail Transmission from Larry Goldstone to Clay Simmons at 2 (February 27, 2008, 3:48 p.m.), ‘filed May 21, 2012 (Doc. 37-21)(“Feb. 27 Goldstone/Simmons Email”)). Simmons sent an electronic mail transmission to Goldstone, and others, regarding the potential collapse of a European hedge fund, stating: “ ‘This makes it even more critical to be done with Citi today so we can get the K filed.’ ” Complaint ¶ 39, at 12 (quoting Electronic Mail Transmission from Clay Simmons to Patrick Feldman and Larry Goldstone at 2, (February 27, 2008, 8:08 a.m.), filed May 21, 2012 (Doc. 37-20)(“Feb. 27 Simmons/Feldman Email”)). Later on February 27, 2008, Simmons sent an electronic mail transmission to Starrett, in which he stated: “T gave [Thornburg’s SEC Reporting manager] a 6:00 AM Thursday deadline to file the K. I do not want there to be any issues based on Thursday activity.’ ” Complaint ¶ 40, at 12 (alteration in originalXquoting *1083 Electronic Mail Transmission from Clay Simmons to Jane Starrett at 2 (February 27, 2008, 10:35 a.m.), filed May 21, 2012 (Doc. 37-38)(“Feb. 27 Simmons/Starrett Email”)).

Thornburg Mortgage filed its 2007 Form 10-K on February 28, 2008, approximately twelve hours after sending its last payment to Citigroup Global and meeting its outstanding margin calls. Complaint ¶ 3, at 6; id. ¶ 41, at 12. Goldstone, Simmons, and Starrett drafted and reviewed Thorn-burg Mortgage’s 2007 Form 10-K before filing it, and Goldstone and Simmons signed the Form 10-K. See Complaint ¶ 7, at 3. In the 2007 Form 10-K, Goldstone and Simmons represented that Thornburg Mortgage had successfully met its margin calls without selling any assets. See Complaint ¶ 7, at 3; 2007 Form 10-K at 35 (“[D]espite these challenges, we successfully continue to meet all margin calls, we maintain existing short-term financing facilities with our existing finance counter-parties and we have successfully added new financing capacity since year end.”); id. at 39 (“In the event that we cannot meet future margin calls from our available cash position, we might need to selectively sell assets in order to raise cash. To date, no such sales have been required. ...”). Thornburg Mortgage’s 2007 Form 10-K accounted for the I/O Strip Transactions as the issuance of secured debt. 12 See Complaint ¶ 37, at 11. The 2007 Form 10-K also stated that Thorn-burg Mortgage had the “ ‘intent and ability to hold its ARM Securities until their value recovered in the market,’ ” notwithstanding that the lenders which declared Thorn-burg Mortgage in default of reverse repurchase agreements could have seized Thornburg Mortgage’s ARM securities pledged as collateral. Complaint ¶ 8, at 3 (quoting 2007 Form 10-K at 41). In accordance with the statement that Thornburg Mortgage had the intent and ability to hold its ARM securities until their value recovered, Thornburg Mortgage did not recognize $427.8 million in losses associated with its ARM securities that serve as collateral on its reverse repurchase agreements. See Complaint ¶ 8, at 4. Thorn-burg Mortgage also reported a fourth-quarter 2007 profit. See Complaint ¶ 11, at 4. Thornburg Mortgage’s financial statements in the 2007 Form 10-K were incorporated into its Form S-3 ASR registration statement, which relates to Thornburg Mortgage’s dividend reinvestment and stock purchase plan, which Goldstone and Simmons signed and was filed with the SEC on December 10, 2007. See Complaint ¶ 89, at 26.

Thornburg Mortgage began receiving margin calls at 6:00 a.m. on February 28, 2008. See Complaint ¶ 41, at 12-13. Thornburg Mortgage’s stock prices fell after the 2007 Form 10-K was filed. See *1084 Complaint ¶ 10, at 4; Thornburg Hit with Margin Calls; Shares Slide, Down Jones Newswires, Feb. 28, 2008, filed May 21, 2012' (Doc. 87-29)(“Feb. 28 Dow Jones Newswire”); MarketWatch Feb. 28, 2008, Thornburg, MF Global Send Financial Stocks Lower, MarketWatch, filed May 21, 2012 (Doc. 37-30)(“Feb. 28 Market-Watch”). Simmons commented to Gold-stone, in an early-morning electronic mail transmission regarding Thornburg Mortgage’s falling stock prices: “I guess the recent development section did not go over well. If they only knew.” Complaint ¶ 10, at 4 (quoting Electronic Mail Transmission from Clay Simmons to Larry Goldstone at 2 (February 28, 2008, 6:33 a.m.), filed May 21, 2012 (Doc. 37-24)(“Feb. 28 Simmons/Goldstone Email”)). In an electronic mail transmission from Goldstone to Thornburg Mortgage’s investor relations department on February 28, 2008 at 5:29 a.m., Goldstone instructed the group to “ ‘try to calm the panic,’ ” and to inform investors that “ ‘[a]ll margin calls met,’ ‘[l]enders are fine,’ and ‘[w]e have sufficient operating cash[.]’ ” Complaint ¶ 94, at 27 (alterations in original). See Electronic Mail Transmission from Larry Gold-stone to Amy Pell, Suzanne O’Leary Lopez, and Allison Yates at 2 (February 28, 2008, 5:29 a.m.), filed May 21, 2012 (Doc. 37-27)(“Feb. 28 IR Email”). At 6:56 a.m., Goldstone informed Thornburg Mortgage’s Board of Directors in an electronic mail transmission that he estimated Thornburg Mortgage had approximately forty million dollars available in cash at that time. See Complaint ¶ at 28; Electronic Mail Transmission from Larry Goldstone to Thorn-burg Mortgage Board of Directors at 2 (February 28, 2008, 6:56 a.m.), filed May 21, 2012 (Doc. 37-ll)(“Feb. 28 BOD Email”). As of 7:30 a.m. on February 28, 2008, Thornburg Mortgage had received over $100 million in margin calls. Complaint ¶ 9, at 4; id. ¶ 41, at 13.

In the afternoon of February 28, 2008, Goldstone appeared on Street Signs on the Consumer News and Business Channel (“CNBC”). Complaint ¶ 98, at 28. On Street Signs, Goldstone stated that: (i) he did not believe Thornburg Mortgage would need to sell assets; (ii) Thornburg Mortgage had “ ‘met all of [its] lending requirements’”; and (iii) Thornburg Mortgage had “‘liquidity and cash available to continue to support the portfolio.’ ” Complaint ¶ 98, at 28 (alterations in original), (quoting Street Signs: Interview with Larry Goldstone at 3:54-4:09 (CNBC television broadcast February 28, 2008), filed May 21, 2012 (Doc. 37-1)).

On the evening of February 28, 2008, Thornburg Mortgage received a default notice from J.P. Morgan Chase Bank, N.A. for an unpaid margin call J.P. Morgan had issued to Thornburg Mortgage earlier that day. Complaint ¶ 41, at 13. At the end of day on February 28, 2008, Goldstone, Simmons, and Starrett confirmed, via electronic mail transmission, that the “top messages [they] reinforced in the market” were: “ “We have met all margin calls to date, and we expect to continue to do so. We have sufficient operating cash, and we don’t expect to sell assets to meet margin calls. We returned to profitability during the fourth quarter despite a tough market.’ ” Complaint ¶ 96, at 28 (alterations in original).

By the morning of February 29, 2008, Thornburg Mortgage had received over $200 million in margin calls. See Complaint ¶ 41, at 13. Because of the additional margin calls, on March 3, 2008, Thornburg Mortgage filed a Form 8-K announcing that it had received $270 million in margin calls, most of which it could not meet, and that it had received a default *1085 notice from a lender. 13 See Complaint ¶ 9, at 4; id. ¶ 42, at 13. Thornburg Mortgage’s stock price fell by over fifty-percent after filing the Form 8-K. See Complaint ¶ 43, at 13. On March 5, 2008, Thornburg Mortgage filed a second Form 8-K, announcing that the lender which had issued a notice of default was exercising its right to seize Thornburg Mortgage’s collateral because Thornburg Mortgage could not meet its twenty-eight million dollar margin call. See Complaint ¶ 44, at 13. Thorn-burg Mortgage also stated in the March 5, 2008 Form 8-K that, because of the lender’s actions, Thornburg Mortgage was cross-defaulting on all of its reverse repurchase agreements. See Complaint ¶ 44, at 13. At this time, Wall Street analysts began to question whether Thornburg Mortgage would go bankrupt. See Complaint ¶ 45, at 13.

On March 7, 2008, Thornburg Mortgage filed another Form 8-K, and announced that it had received over $1.77 billion in margin calls since December 31, 2007, and that it did not have sufficient cash to cover $610 million of its outstanding margin calls. See Complaint ¶ 46, at 13-14. Thornburg Mortgage also announced that it would restate its 2007 Form 10-K. See Complaint ¶ 11, at 4; id. ¶46, at 14. In the restated 2007 Form 10-K, filed March 11, 2008, Thornburg Mortgage recognized a loss of $427.8 million in ARM securities, a loss in the fourth quarter of 2007,' and a qualification that Thornburg Mortgage might not be able to continue as a going concern without restructuring or new capital. See Complaint ¶ 11, at 4; id. ¶ 46, at 14. By March 11, 2008, Thornburg Mortgage’s stock price had fallen over ninety-percent from what it was on February 28, 2008. See Complaint ¶ 47, at 14. Thorn-burg Mortgage filed for Chapter 11 bankruptcy on May 1, 2009. See Complaint ¶ 48, at 14.

3. The Defendants’ Representations to Thornburg Mortgage’s Auditor.

As part of Thornburg Mortgage’s 2007 audit, Thornburg Mortgage’s auditor, KPMG, assessed whether Thornburg Mortgage’s OTTI analysis was accurate. See Complaint ¶ 49, at 14-15. 14 The Defendants did not disclose to KPMG: (i) Thornburg Mortgage’s “precarious” financial condition; (ii) that Thornburg Mortgage was in violation of its reverse repurchase agreements and relying on lender forbearance to meet its margin calls; (iii) that Thornburg Mortgage had used I/O Strip Transactions to meet margin calls in the last two weeks of February, 2008; (iv) that Thornburg Mortgage had received the Citigroup Global Letter; and (v) that the European hedge fund was on the verge of collapsing. Complaint ¶ 51, at 15; id. ¶ 76, at 22; id. ¶ 99', at 29.

On February 20, 2008, Starrett and Simmons reviewed and approved, and circulated to Goldstone, KPMG’s “year-end going concern analysis,” which “repeatedly rep *1086 resented that Thornburg Mortgage successfully continued to meet all margin calls and returned to profitability in the fourth quarter.” Complaint ¶ 72, at 21. The going-concern analysis also stated:

“As the Company has the ability and intent to hold its Purchased ARM assets until recovery, losses are not considered to be other than temporary impairments. The basis for the Company’s ability to hold these securities is predicated on its going profitability, liquidity position and ability to continue to make margin ealls[J”

Complaint ¶ 74, at 22 (quoting Going Concern Analysis at 12, filed May 21, 2012 (Doc. 37-23) 15 ).

In an electronic mail transmission from Goldstone to Starrett and Simmons on February 21, 2008, Goldstone stated that Thornburg Mortgage planned to meet the Citigroup Global margin call by “‘[h]aving Citi sell a $100 million Interest Only security that may generate $20 to $25 million.... We may undertake additional asset sales depending on how market conditions evolve ' over the next few weeks[.]’ ” Complaint ¶ 66, at 19 (alterations in originalXquoting Feb. 2i BOD Email at 2). Simmons informed KPMG that it had entered into the I/O Strip Transactions to take advantage of opportune pricing. See Complaint ¶ 65, at 19. On February 25, 2008, Starrett stated, in an electronic mail transmission to Gold-stone and Simmons, that: “ ‘We have purposely not told [the auditors] about the margin calls so that we don’t escalate an issue which we believe will be put to rest by the time they have to issue their opinion.’ (Emphasis added).” Complaint ¶53, at 16 (emphasis and alterations in originalXquoting Electronic Mail Transmission from Larry Goldstone to Jane Starrett at 2) (Feb. 25, 2008, 10:09 a.m.), filed May 21, 2012 (Doc. 38-5) (“Feb. 25 Starrett/Goldstone Email”). Starrett also informed Goldstone and Simmons of the “essence of an OTTI analysis”:

“In short, selling some assets is substan- ■ tially the same as selling all assets because the only reason we don’t have to recognizé the impairments on all assets with negative marks in income now is that we represent we have the intent and ability to hold the assets to maturity. Selling some assets calls into question our intent and having to sell them to meet margin calls or reduce exposure, calls into question our ability to hold them.”

Complaint ¶ 54, at 16 (quoting Feb. 25 Goldstone/Starrett Email at 2-3). Gold-stone responded: “ ‘Got it. Understand it. Thanks.’ ” Complaint ¶ 55, at 16 (quoting Feb. 25 Goldstone/Starrett Email at 2).

The Defendants each signed Thornburg Mortgage’s February 27, 2008 management representation letter to. KPMG, in which they stated that: (i) Thornburg Mortgage was in compliance with all aspects of its contractual obligations that would have a material effect on its consolidated financial statements in the event of a noncompliance; (ii) Thornburg Mortgage had the intent and ability to hold its impaired securities for a sufficient period of time to allow for them to recover their value in the market; (iii) Thornburg Mortgage had experienced no subsequent events requiring it to adjust or disclose its financial statements; and (iv) Thornburg Mortgage’s financial statements disclosed all matters of which the Defendants were aware were relevant regarding Thornburg Mortgage’s ability to continue as a going *1087 concern. See Complaint ¶ 57, at 17. Gold-stone and Simmons did not inform the auditor of the possible collapse of a large European hedge fund, holding ARM securities similar Thornburg Mortgage’s. See Complaint ¶ 76, at 22. “[A]t or about the time” that Simmons learned of the possible collapse of the European hedge fund, he had “just advised ... Thornburg’s outside auditor that he believed the MBS market had reached its lowest point and MBS prices were not likely to deteriorate further.” Complaint ¶ 77, at 22-23.

On March 3, 2008, KPMG requested evidence from the Defendants “that the events subsequent to filing were unforeseeable catastrophic events,” such as “correspondence with lenders/attorneys/shareholders, emails” Electronic Mail Transmission from Jennifer Hall to Larry Goldstone, Jane Starrett, Clay Simmons, Shawn Buniel at 2 (March 3, 2008 11:44 p.m.), filed May 21, 2013 (Doc. 37-28)(“Mar. 3 Hall Email”); Request for Correspondence at 3-4, filed May 21, 2012 (Doc. 37-28). , See Complaint ¶ 100, at 29. KPMG also requested a “position paper” which “provide[d] the Company’s assessment of the ability to hoid securities for the foreseeable future as of August 27, 2008, including but not limited to.... Correspondence with counter parties for the two weeks prior to filing, along with süpporting evidence.” Request for Correspondence at 4. See Complaint ¶ 100, at 29 (“Thornburg’s outside auditor sent an email ... requesting, among other items, all correspondence between Thornburg and its lenders during the two-week period leading to the ... Form 10-K.”). At the time, the auditor was considering whether to restate Thornburg Mortgage’s financial statements and was reevaluating the validity of its audit opinion. See Complaint ¶ 99, at 29. Goldstone and Simmons were aware of the Citigroup Global Letter, but did not provide it to the auditor. See Complaint ¶ 101, at 29. KPMG did not become aware of the Citigroup Global Letter while preparing its restatement. See Complaint ¶ 101, at 29. Simmons reviewed and approved an analysis to the auditor that explained Thornburg Mortgage’s margin calls on February 28, 2008, and the corresponding collapse in the mortgage market, were part of “ ‘an unforeseeable catastrophic' decline in mortgage market valuations.’ ” Complaint ¶ 102, at 29 (quoting ABX Index Moves Late February at 2-3, filed May 21, 2012 (Doc. 37-25)(“Position Paper”)). The analysis continued to state: “ ‘Due to a number of factors including the unexpected collapse of a major hedge fund in Europe the mortgage market gapped significantly wider ... [.] No one in the market could have foreseen the sudden decline in mortgage valuations.’ (Emphasis ’ added).” Complaint ¶ 103, at 30 (quoting Position Paper at 2).

PROCEDURAL BACKGROUND

The SEC contends that the Defendants misrepresented and/or engaged in a scheme to deceive, or aided and abetting material misrepresentations of Thornburg Mortgage’s financial condition to, KPMG and the investing public regarding Thorn-burg Mortgage’s financial situation as stated in the 2007 Form 10-K. See Complaint ¶ 5, at 3; id. ¶ 13, at 5. The SEC contends that the Defendants “violated, or aided and abetted the violation of, and, unless restrained and enjoined, will continue to violate or aid and abet the violation of’ the following statutes and federal rules: (i) 15 U.S.C § 77q(a), also known as § 17(a) of the Securities Act of 1933, 15 U.S.C. §§ 77a-77bbb (“the Securities Act”); (ii) 15 U.S.C. §§ 78j(b), 78m(a), 78m(b)(2), and 78m(b)(5), also known as §§ 10(b), 13(a), 13(b)(2), and 13(b)(5) of the Securities Ex *1088 change Act of 1934, 15 U.S.C. §§ 78a-78pp (“the Exchange Act”); and (iii) 17 C.F.R. §§ 240 .10b-5, 240.12b-20, 240.13a-l, 240.13b2-l, and 240.13b2-2. Complaint ¶ 14, at 5. The SEC contends that Gold-stone and Simmons have violated, and “unless restrained and enjoined, will continue to violate” 17 C.F.R. § 240 .13a-14, and rules 13a-14 promulgated under the Exchange Act. Complaint ¶ 14, at 5. The SEC asserts, in the alternative, that Goldstone and Simmons are liable as control persons under 15 U.S.C. § 78t, § 20(a) of the Exchange Act, for Thornburg Mortgage’s violations of §§ 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) and rules 10b-5, 12b-20, 13a-l of the Exchange Act. See Complaint ¶ 14, at 5. The SEC asserts that the Defendants, either directly or indirectly, used instruments of transportation or communication in interstate commerce, the means and instrumentalities of interstate commerce, or the mail, in connection with, the acts, practices, and courses of business alleged in the Complaint. See Complaint ¶ 15, at 6.

The SEC’s first, second, third and fourth claims for relief are related to alleged violations of § 17(a) of the Securities Act and § 10(b) and rule 10b-5 of the Exchange Act. The SEC’s first claim for relief that the Defendants’ actions violated, and will continue to violate if not enjoined, Exchange Act Section 10(b) and rule 10b-5. See Complaint ¶¶ 106-108, at 31. The SEC’s second claim for relief is alleged alternatively against Goldstone and Simmons, and asserts that Goldstone and Simmons are liable as control persons under § 20(a) of the Exchange Act for Thorn-burg Mortgage’s violations of § 10(b) and rule 10b-5 of the Exchange Act. See Complaint ¶¶ 109-112, at 31-32. The SEC’s fourth claim for relief alleges that the Defendants violated § 17(a) of the Securities Act and committed fraud in the offer or sale of securities, and that the Defendants will continue to violate § 17(a) of the Securities Act if not enjoined. See Complaint ¶¶ 117-119, at 33-34. The SEC’s third claim for relief is alleged against all Defendants, alternatively, and asserts that the Defendants are liable for aiding and abetting Thornburg Mortgage’s violations of § 10(b) and rule 10b-5 of the Exchange Act. The SEC asserts that the Defendants “each aided and abetted the fraud violations of Thornburg, in that they knowingly or recklessly provided substantial assistance to Thornburg in committing these reporting violations.” Complaint ¶¶ 113-116, at 32-33.

The SEC’s eighth and ninth claims for relief allege violations of § 13(a) and rules 12b-20 and 13a-l of the Exchange Act— false SEC filings. The SEC asserts that Thornburg Mortgage, “an issuer of securities registered pursuant to Section 12 of the Exchange Act,” filed a materially false and misleading annual report with the SEC. Complaint ¶ 129, at 36. The SEC’s eighth claim for relief asserts that the Defendants aided and abetted Thornburg Mortgage’s violations of § 13(a) and rules 12b-20 and 13a-l of the Exchange Act, by “knowingly or recklessly providing] substantial assistance to Thornburg in committing these reporting violations.” Complaint ¶¶ 130-131, at 36. Alternatively, the SEC also asserts that Goldstone and Simmons are liable as control persons for Thornburg Mortgage’s false SEC filings, under § 20(a) of the Exchange Act. See Complaint ¶¶ 132-135, at 37.

The SEC’s tenth and eleventh claims for relief relate to alleged false SEC filings. The SEC’s tenth claim for relief asserts that the Defendants aided and abetted Thornburg Mortgage’s violation of § 13(b)(2) of the Exchange Act, by “knowingly or recklessly providing] substantial assistance to Thornburg[’s]” failure to keep “books, records, and accounts which, *1089 in reasonable detail, accurately and fairly reflected the company’s transactions and dispositions of its assets,” and failure to “devise and maintain a system of internal accounting controls” sufficient to assure reasonable conformity with generally accepted accounting principles. 16 Complaint ¶¶ 137-39, at 37-38. Alternatively, the SEC’s eleventh claim for relief alleges that Goldstone and Simmons are liable as control persons, under § 20(a) of the Exchange Act, for Thornburg Mortgage’s failure to keep accurate books, records and accounts, in violation § 13(b)(2) of the Exchange Act. See Complaint ¶¶ 140-143, at 38-39.

The SEC’s fifth claim for relief alleges that the Defendants falsified books, records, or accounts, in violation of § 13(b)(5) and rule 13b2-l of the Exchange Act. The SEC asserts that the Defendants “knowingly circumvented or knowingly failed to implement a system of internal accounting controls to assure that Thornburg’s financial statements were prepared in conformity with GAAP or knowingly falsified or caused to be falsified books, records, or accounts of Thornburg,” in violation of § 13(b)(5) and rule 13b2-l of the Exchange Act. Complaint ¶¶ 12-122, at 34. The SEC’s Sixth claim for relief asserts that Goldstone and Simmons “each falsely certified in connection with Thornburg’s 2007 10-K,” in violation of rule 13a-14 promulgated under the Exchange Act, and that they will continue to violate rule 13a-14 if not enjoined. Complaint ¶¶ 123-125, at 34-35.

The SEC’s seventh claim for relief asserts that the Defendants deceived auditors, in violation of rule 13b2-2 promulgated under the Exchange Act, and will in the future violate rule 13b2-2 if not enjoined. See Complaint ¶¶ 126-128, at 35-36.

1. The Defendants’ Alleged Misrepresentations and Omissions Concerning the 2007 Form 10-K.

The SEC contends that the Defendants w;ere “scrambling” to meet Thornburg Mortgage’s outstanding margin calls before filing the 2007 Form 10-K, “so they could claim in [the 2007 Form 10-k] ... to have successfully met all margin calls.” Complaint ¶ 38, at 12. The SEC contends that the Defendants misrepresented in the 2007 Form 10-K that Thornburg Mortgage had successfully met all of its margin calls without selling any assets. See Complaint ¶¶ 5, 7 at 3; id. ¶ 59, at 17; id. ¶ 65, at 19. The SEC asserts that the Defendants either knew, or were reckless in not knowing, that Thornburg Mortgage was late in margin call payments under its reverse repurchase agreements, as Gold-stone and Simmons had received the Citigroup Global Letter on or about February 21, 2008, which declared Thornburg Mortgage in default. See Complaint ¶ 60, at 17. The SEC asserts that the Defendants’ electronic mail transmissions in the final two weeks of February, 2008, demonstrate that Thornburg Mortgage was late in meeting margin calls, was relying on the cooperation and forbearance of its lenders to meet margin calls, and had entered into payment plans with its lenders. See Complaint ¶ 61, at 18. The SEC asserts that Simmons has conceded that, if the 2007 Form 10-K contained the “truth relating to Thornburg’s financial position,” Thorn- *1090 burg Mortgage’s stock prices would have fallen much more after the filing of the 2007 Form 10-K. Complaint ¶ 92, at 27 (“ ‘I guess the recent development section did not go over well. If they only knew’ ” (emphasis in original)(quoting Feb. 28 Simmons/Goldstone Email, at 2)).

The SEC also asserts that the Defendants should have recognized the I/O Strip Transactions as sales, rather than as the issuance of secured debt, to avoid misleading investors in the 2007 Form 10-K. The SEC contends that the Defendants “each knew, or were reckless in not knowing,” that Thornburg Mortgage entered into the I/O Strip Transactions to meet margin calls, as the Defendants’ electronic mail transmission on February 21, 2008, demonstrates. Complaint ¶ 66, at 19. The SEC also contends that the Defendants have, in the past, characterized I/O Strip Transactions as sales, and not as the issuance of secured debt, as the Defendants accounted for the Thornburg Mortgage’s I/O Strip Transaction in the 2007 Form 10-K. See Complaint ¶37, at 11. The SEC highlights that, in electronic mail transmissions discussing the I/O Strip Transactions, the Defendants refer to the transactions as “sales” or state that the I/O Strips were “sold” to meet margin calls. Complaint ¶¶ 67-69, at 19-20. The SEC contends that the I/O Strip Transactions were “in form sales and contemporaneously referred to as sales.” Complaint ¶ 69, at 20.

The SEC also contends that the Defendants misrepresented in the 2007 Form 10-K that Thornburg Mortgage had the intent and ability to hold its ARM securities until their value was recovered in the market. The SEC asserts that the OTTI analysis was “directly contradicted by Thornburg’s severe liquidity crisis and exposure to declarations of default by lenders who then could have seized the company’s ARM Securities collateral,” and-by Thornburg Mortgage’s use of I/O Strip Transactions to meet margin calls. Complaint ¶ 8, at 3-4; id. ¶¶ 51-52, at 15. The SEC asserts that the Defendants “knew, or were reckless in not knowing,” that the I/O Strip Transactions informed the OTTI analysis. Complaint ¶ 71, at 21. The SEC contends that Starrett provided “clear accounting guidance” to Goldstone and Simmons, which indicates that the Defendants knew that “ ‘selling some assets callfed] into question [Thornburg’s] intent and having to sell them to meet margin calls or reduce exposure, call[ed] into question [the company’s] ability to hold them.’ ” Complaint ¶ 70, at 20 (alterations in originalXquoting Feb. 25 Goldstone/Starrett Email at 2).

Similarly, the SEC asserts that, just as the Defendants’ OTTI analysis was fraudulent, the Defendants knew, or were reckless in not knowing, that Thornburg Mortgage was required to recognize a loss of approximately $400 million in its ARM securities in the 2007 Form 10-K, because Thornburg Mortgage could not hold those assets to maturity. See Complaint ¶ 70, at 20-21; id. ¶ 85, at 25.

The SEC asserts that Starrett “accurately” relayed this information to Gold-stone and Simmons in an electronic mail transmission on February 25, 2008. Complaint ¶ 56, at 16; id. ¶ 70, at 20-21; id. ¶ 85, at 25. The SEC contends that, if the Defendants had properly accounted for an impairment of $427.8 million in its ARM securities in the 2007 Form 10-K, Thorn-burg Mortgage would have suffered a net loss of approximately $357 million, instead of a net profit of sixty-five million dollars in the fourth quarter of 2007, an annual net loss of approximately $1.3 billion, instead of $875 million, and losses per share of $10.94, instead of $7.48. See Complaint ¶¶ 8, 12, at 4, 5; id. ¶¶ 86-88, at 25-26. The SEC asserts that, because Thornburg *1091 Mortgage’s Form S-3 ASR registration, which Goldstone and Simmons signed, incorporated the financial statements in the 2007 Form 10-K, was, therefore, materially false. 17 See Complaint ¶ 89, at 26. The SEC asserts that, because Starrett served as Thornburg Mortgage’s CAO and directly participated in “materially misrepresenting the company’s financial condition,” she “knew or reasonably could have anticipated” that Thornburg Mortgage’s “false Form 10-K and accompanying financial statements would be incorporated into Thornburg’s pending registration statements.” Complaint ¶ 90, at 26.

The SEC asserts that Goldstone and Simmons “continued to project a materially false image of Thornburg’s financial condition and to perpetuate the materially false image they had presented in the Form 10-K” in the days and hours after filing the 2007 Form 10-K. Complaint ¶ 93, at 27. The SEC asserts that Goldstone “knew, or was reckless in not knowing,” that his electronic mail transmission to the investor relations department on February 28, 2008 was misleading, because Thorn-burg Mortgage had violated reverse repurchase agreements the previous week. Complaint ¶ 95, at 27. The SEC also asserts that Goldstone’s electronic mail transmission to the investor relations department became false within “approximately one hour of his instructions,” as Thornburg Mortgage received escalating margin calls that exceeded Thornburg Mortgage’s liquidity, consisting of approximately forty million dollars in cash at that time. Complaint ¶ 95, at 27. The SEC asserts that Goldstone knew, or was reckless in not knowing, that, inconsistent with the “ ‘top- messages’ ” the Defendants “ ‘reinforced in' the market,’ ” on February 28, 2008, Thornburg Mortgage did not have sufficient cash to meet the margin calls it received that day. Complaint ¶¶ 96-97, at 28. The SEC similarly asserts that Gold-stone knew, or was reckless in not knowing, that Thornburg Mortgage did not have liquidity and cash sufficient to support its margin calls on February 28, 2008, contrary to his statements on Street Signs. See Complaint ¶ 98, at 28.

2. The Defendants’ Alleged Misrepresentations to KPMG.

The SEC contends that the Defendants made misrepresentations and omissions to KPMG. The SEC asserts that the Defendants “misrepresented and/or concealed the fact -that” Thornburg Mortgage had violated reverse repurchase agreements, and was at risk of having its ARM securities seized as collateral by its lenders, and that Thornburg Mortgage was required to enter into I/O Strip Transactions to meet margin calls in the last two weeks of February, 2008. Complaint ¶ 51, at 15; id. ¶79, at 23. The SEC asserts that the Defendants’ misrepresentations and omissions precluded the auditor from having “critical information to evaluate Thorn-burg’s OTTI analysis of its ARM Securities and to determine whether Thornburg had the intent and ability to hold those securities until maturity or their value re *1092 covered in the market.” Complaint ¶ 79, at 23. The SEC asserts that Goldstone and Simmons failed to disclose that a large European hedge fund holding ARM securities similar to Thornburg Mortgage’s was close to collapsing, which made Simmons’ statements regarding the ARM securities market false and misleading. See Complaint ¶ 76, at 22. The SEC also asserts that Goldstone and Simmons perpetuated Thornburg Mortgage’s materially false financial statements in the 2007 Form 10-K by not disclosing to the auditor that Thornburg Mortgage had received the Citigroup Global Letter in the days after the 2007 Form 10-K was filed. See Complaint ¶ 80, at 23; id. ¶ 99, at 29. The SEC asserts that the Defendants’ electronic mail transmissions on February 25, 2008, demonstrate a “plan ... not to disclose the margin call situation until it was resolved” to KPMG. Complaint ¶ 52, at 16.

Regarding Thornburg Mortgage’s overall financial situation, the SEC asserts that the Defendants’ repeated statements in Thornburg Mortgage’s going-concern analysis that Thornburg Mortgage “successfully continued to meet all margin calls” was materially false and misleading, given Thornburg Mortgage’s failure to timely meet the Credit Suisse, Citigroup Global, and Greenwich margin calls. Complaint ¶ 72, at 21. The SEC also asserts that the Defendants either knew, or were reckless in not knowing, that the statements in the going-concern analysis that Thornburg Mortgage had “returned to profitability in the fourth quarter,” were false, because of the Defendants’ improper OTTI analysis of the ARM securities. Complaint ¶ 73, at 21-22. The SEC contends that, had the Defendants disclosed the truth of Thorn-burg Mortgage’s liquidity crisis and exposure to default and cross-defaults, KPMG would have questioned its OTTI analysis in the 2007 Form 10-K, and the Defendants’ plan to raise additional cash would have been undermined. See Complaint ¶ 2, at 2; id. ¶ 52, at 15-16. The SEC also asserts that the Defendants’ February 27, 2008 management representation letter to KPMG misrepresented that Thornburg Mortgage was not in violation of its reverse repurchase agreements, that Thorn-burg Mortgage was in compliance with all aspects of its reverse repurchase agreements which would have an effect on its financial statements in the event of non-' compliance, that Thornburg Mortgage had the intent and ability to hold its impaired securities until their value recovered in the market, that Thornburg Mortgage had not experienced subsequent events which would require it to adjust its financial statements, and that the financial statements disclosed all matters relevant to Thornburg Mortgage’s ability to continue as a going concern. See Complaint ¶¶ 57-58, at 17.

Regarding the I/O Strip Transactions, the SEC contends that the Defendants either “knew, or were reckless in not knowing,” that the “circumstances of the I/O Strip Transactions were important information” that KPMG needed to know to properly review Thornburg Mortgage’s OTTI analysis regarding its ARM securities. Complaint ¶71, at 21. The SEC asserts that Simmons misrepresented to KPMG that Thornburg Mortgage entered into the I/O Strip Transactions to take advantage of opportune pricing. See Complaint ¶ 65, at 19.

The SEC contends that the Defendants’ statement in the going-concern analysis that Thornburg Mortgage “ ‘has the ability and intent to hold its Purchased ARM assets until recovery,’ ” based upon Thorn-burg Mortgage’s “ongoing profitability, liquidity position and ability to continue to make margin calls,” was a misrepresentation. Complaint ¶ 12, at 4-5; id. ¶ 74, at 22 (quoting Going Concern Analysis at 12). *1093 The SEC also asserts that the. statement demonstrates the Defendants knew, or were reckless in not knowing, “the relevant criteria for an OTTI analysis.” Complaint ¶ 75, at 22. The SEC asserts that the Defendants “misrepresented or failed to disclose” to the auditor that Thornburg Mortgage’s “margin calls events” were a continuation “of a condition that existed as of Thornburg’s fiscal year,” and that Thornburg Mortgage’s margin calls were “reaching crisis proportions” in the first two months of 2008. Complaint ¶ 81, at 24. The SEC asserts that Thornburg Mortgage’s margin calls in the last two weeks of February, 2008, “were a continuation of a condition that existed as of Thornburg’s December 31, 2007 balance sheet,” and, therefore, were a “Type 1 subsequent event for accounting purposes,” and KPMG should have considered the margin calls in its opinion. Complaint ¶ 82, at 24. The SEC asserts that, if the Defendants had provided KPMG with “accurate and complete information about Thornburg’s margin call situation during the two-week period leading to the filing of Thornburg’s 2007 Form 10-K,” KPMG would have disagreed with the Defendants’ OTTI analysis. Complaint ¶ 83, at 24.

The SEC also contends that Goldstone and Simmons knew, or were reckless in not knowing, that failing to inform the auditor that the impending collapse of a European hedge fund, of which Goldstone and Simmons became aware on February 27, 2008, would “likely further depress the price of Thornburg’s ARM Securities and trigger additional margin calls.” Complaint ¶ 76, at 22. The SEC contends that the collapse of the European hedge fund was “material information that” Goldstone and Simmons should have provided to the auditor to allow it to properly review Thornburg Mortgage’s OTTI analysis of its ARM securities. Complaint ¶ 78, at 23. The SEC asserts that Simmons “improperly failed to update” his previous statement to KPMG expressing his belief that the MBS market had “reached its lowest point and ... [would] not likely [ ] deteriorate further.” Complaint ¶ 77, at 22-23.

The SEC asserts that Goldstone and Simmons perpetuated Thornburg Mortgage’s false 2007 Form 10-K subsequent to its filing. The SEC contends that Gold-stone and Simmons failed to provide the “critical” Citigroup Global Letter in response to the Request for Correspondence. Complaint ¶ 99, at 29. The SEC also contends that the Position Paper, which Simmons approved, falsely stated that the collapse of the European hedge fund was “ ‘unexpected’ ” and that Thornburg Mortgage’s' margin calls after the filing of the 2007 Form 10-K’ were “ ‘unforeseeable.’ ” Complaint ¶ 105, at 30 (quoting Position Paper at 2). The SEC asserts that Simmons was aware that the hedge fund was collapsing on February 27, 2008, and understood at that time that the collapse would likely “have a negative impact on the price of Thornburg’s ARM Securities.” Complaint ¶¶ 38-40, at 12, id. 104, at 30. The .SEC asserts that Simmons “continued to deceive the company’s auditor” “in an attempt to defend Thornburg’s improper OTTI analysis and failure to recognize the losses associated with its ARM Securities.” Complaint ¶ 105, at 30.

3. Goldstone and Simmons’ Motion to Dismiss.

Goldstone and Simmons move to dismiss the SEC’s eleven claims against them. See Goldstone & Simmons MTD at 9. Goldstone and Simmons assert that the SEC has failed to allege a plausible claim against them in the Complaint, and assert that the SEC’s allegations of fraud fail to meet the requirements of rule 9(b) of the Federal Rules of Civil Procedure. See Goldstone & Simmons MTD at 8. Gold- *1094 stone and Simmons assert that the SEC “uses 20/20 hindsight, the SEC’s own sinister characterization of events, and misleading excerpts of internal documents in a belated attempt to hold the defendants liable for, in essence, not having done even more to predict the future.” Goldstone & Simmons MTD at 8.

Goldstone and Simmons assert that the claims against them are “facially invalid in at least five respects:” (i) the Thornburg Mortgage 2007 Form 10-K was not misleading, and that the Defendants had no duty to “disclose incidental details about how Thornburg met its margin calls or to attempt to predict the extent of future margin calls,” Goldstone & Simmons MTD at 9-10; (ii) the Complaint “fails to allege facts demonstrating that Defendants prepared the 10-K with any intent to defraud investors,” Goldstone & Simmons MTD at 10; (iii) the Complaint fails to allege plausible facts that Goldstone acted with fraudulent intent to misrepresent Thornburg Mortgage’s “ability to support its portfolio with cash and liquidity during an interview on Street Signs and in instructions he gave to the Company’s investor relations department on February 28, 2008,” Gold-stone & Simmons MTD at 11; (iv) the information Goldstone and Simmons withheld regarding the means Thornburg Mortgage used to meet its margin calls and the European hedge fund “rumor,” and related issues was not material in light of the full disclosures in the 2007 Form 10-K, was not relevant to Thornburg Mortgage’s financial conditions, and would not have changed the auditors’ view on Thornburg Mortgage’s OTTI analysis, Goldstone & Simmons MTD at 11; (v) the SEC has not sufficiently alleged facts to support Goldstone and Simmons’ liability as “control persons,” because the SEC has not adequately alleged a primary securities violation and has not sufficiently alleged that Goldstone and Simmons had “actual knowledge that they substantially assisted Thornburg in its alleged commission of the securities fraud, books and records violations, and internal control violations at issue,” Goldstone & Simmons MTD at 11-12. Goldstone and Simmons also join in Starrett’s arguments set forth in the Starrett MTD, and incorporate by reference all of Starrett’s arguments into the Goldstone & Simmons MTD. See Goldstone & Simmons MTD at 12 n. 1.

First, Goldstone and Simmons assert that the SEC has failed to state a claim in connection with representations and omissions in Thornburg Mortgage’s 2007 Form 10-K. Goldstone and Simmons contend that Thornburg Mortgage’s disclosures therein were accurate and not misleading, and further contend that the SEC has not plausibly alleged that Goldstone and Simmons .made misrepresentations and omissions with fraudulent intent. Goldstone and Simmons assert that, under federal securities laws, “a statement or omission is material only if there is a ‘substantial likelihood that’the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the total mix of information made available’ to the public.” Goldstone & Simmons MTD at 37 (quoting TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 , 96 S.Ct. 2126 , 48 L.Ed.2d 757 (1976)(sec-ondary quotations omitted)(citing Basic Inc. v. Levinson, 485 U.S. 224, 238 , 108 S.Ct. 978 , 99 L.Ed.2d 194 (1988))). Gold-stone and Simmons assert that the 2007 Form 10-K contained “extensive disclosures concerning the facts that mattered to investors,” specifically: (i) “the receipt of more than $300 million in margin calls following a sharp downturn in the MBS market on February 14, 2008”; and (ii) “Thornburg’s diminished liquidity, and the risks that the MBS market could decline further and subject Thornburg to addi *1095 tional margin calls that it might be unable to meet.” Goldstone & Simmons MTD at 37. Goldstone and Simmons also note that they disclosed “$427.8 million in unrealized losses on Purchase ARM Assets, [and] diminished liquidity.” Goldstone & Simmons MTD at 40. Goldstone and Simmons contend that these disclosures render any allegedly omitted information “immaterial as a matter of law.” Goldstone & Simmons MTD at 40.

Goldstone and Simmons note that Thornburg Mortgage reported in the 2007 Form 10-K that, beginning on February 14, 2008, “there was a ‘sudden adverse change in mortgage market conditions’ that ‘resulted in a decline in [the] estimate fair value’ of Thornburg’s ‘mortgage securities backed by Alt-A mortgage loan collateral.’ ” Goldstone & Simmons MTD at 17 (quoting 2007 Form 10-K at 37, 114). Goldstone and Simmons assert that the market’s “immediate, negative reaction” to the 2007 Form 10-K, as seen through analysts’ reports and Thornburg’s subsequent “unprecedented” amount of margin calls, demonstrates the “robustness of these disclosures.” Goldstone & Simmons MTD at 27-30, 32-33, 37 (citing Yalman Qnaran, Thornburg Mortgage May Have to Sell Assets to Meet Margin Calls, Bloomberg, Feb. 28, 2008, filed May 21, 2012 (Doc. 37-36)(“Feb. 28 Bloomberg”); Feb. 28 Dow Jones Newswire; Thornburg Mortgage, Inc., 10-K Provides Update on Still Challenging Financial Conditions, Bear Stearns, Feb. 29, 2008, filed May 21, 2012 (Doc. 37-19)(“Feb. 29 Bear Stearns”); Thornburg Mortg., Volatility Prompts Additional Margin Calls, Jefferies & Company, Inc., Feb. 28, 2008, filed May 21, 2012 (Doc. 37-18)(“Feb. 28 Jefferies”)).

Goldstone and Simmons assert, thus, that “additional details regarding the precise manner in which margin calls were met and the receipt of a boilerplate reservation of rights letters from Citi” were immaterial. Goldstone & Simmons MTD at 38. Goldstone and Simmons assert that, in Fulton Cnty. Emps. Ret. Sys. v. MGIC Inv. Corp., 675 F.3d 1047 (7th Cir. 2012) (Easterbook, J.), the United States Court of Appeals for the Seventh Circuit “rejected a nearly identical attempt to impose unnecessary disclosure requirements on a. public company.” Goldstone & Simmons MTD at 38. Goldstone and Simmons assert that, in Payne v. DeLuca, 433 F.Supp.2d 547, 594 (W.D.Pa.2006), a United States District Judge for the Western District of Pennsylvania rejected the plaintiffs’ argument that the defendants should have disclosed “the difficulty it had meeting” loan covenants, because no specific GAAP provision required a company to disclose the difficulty it experiences in meeting financial obligations, and the defendants had made other robust disclosures. Goldstone & Simmons MTD at 39. Goldstone and Simmons also assert that the Court reached a similar conclusion in In re Thornburg Mortg., Inc. Sec. Litig., 824 F.Supp.2d 1214 (D.N.M.2011) (Browning, J.), where the Court found that the defendants’ failure to disclose the extent of its Alt-A MBS holdings used as collateral for repo loans was not a material omission, because the defendants disclosed its “ ‘actual, realized liquidity issues and that it might not be able to recover from them in the future.’ ” Goldstone & Simmons MTD at 39 (quoting In re Thornburg Mortg., Inc. Sec. Litig., 824 F.Supp.2d at 1266 ). Goldstone and Simmons assert that, in light of these three decisions, “where the gravamen of a company’s bad news is disclosed, the disclosure of additional, incidental details is unnecessary.” Goldstone & Simmons MTD at 39-40.

Goldstone and Simmons also assert that they did not have a duty to disclose the information allegedly omitted from the 2007 Form 10-K. Goldstone and Simmons *1096 assert that a duty to disclose arises only when: (i) “it is necessary to correct a previous statement that is false or later turns out to be false,” Goldstone & Simmons MTD at 40 (citing Cornett v. Justus Enters. of Kansas, Inc., 68 F.3d 382 , 385 (10th Cir.1995)); (ii) “it is mandated by statute or relationship,” Goldstone & Simmons MTD at 40 (citing In re Thornburg Mortg., Inc. Sec. Litig., 695 F.Supp.2d 1165, 1209 (D.N.M.2010)); or '(hi) “it is required by virtue of a fiduciary-type relationship (other than the ‘general fiduciary relationship that a corporation and its directors owe shareholders’),” Goldstone & Simmons MTD at 40 (quoting New Jersey Div. of Inv. v. Sprint Corp., 314 F.Supp.2d 1119, 1128, 1138 (D.Kan.2004)). Goldstone and Simmons assert that a statement is •not misleading merely because it omits facts, unless those omissions make the statement “less true.” Goldstone & Simmons MTD at 40-41 (citing McDonald v. Kinder-Morgan, Inc., 287 F.3d 992, 998-99 (10th Cir.2002)). Goldstone and Simmons thus assert that they did not have a duty to disclose the details regarding how Thornburg Mortgage was addressing the challenges facing it in the 2007 Form 10-K. See Goldstone & Simmons MTD at 41.

Goldstone and Simmons contend that they did not have a duty to disclose the I/O Strip Transactions in the 2007 Form 10-K, because those transactions were not sales, but rather were “the issuance of secured debt.” Goldstone & Simmons MTD at 41 (quoting Complaint ¶¶ 37, 65, 69). Gold-stone and Simmons assert that under GAAP, “the creation and transfer of an interest-only strip is indisputably a secured borrowing, not a sale of assets.” Goldstone & Simmons MTD at 41 (Statement of Financial Accounting Standards No. 140 ¶ 9, at 3, filed May 21, 2012 (Doc. 37-32)(“SFAS 140”)); Statement of Financial Accounting Standards No. 166 ¶ 26C(b), at 5, filed May 21, 2012 (Doc. 37-33)(“SFAS 166”). Goldstone and Simmons contend that the SEC’s allegations are conclusory regarding the I/O Strip Transactions having depleted Thornburg Mortgage’s liquidity to meet margin calls and ability to hold its ARM Securities to maturity. Goldstone and Simmons also assert that the SEC has provided “no basis to conclude the disclosure of the I/O Strip Transactions was necessary to make the 10-K not misleading.” Goldstone & Simmons MTD at 42.

Goldstone and Simmons contend that the assessment whether to recognize $427.8 million in impaired assets as a loss is an “inherently subjective judgment about management’s intent and ability.” 18 Goldstone & Simmons 'MTD at 25-26. Goldstone and Simmons assert that, if a decline, or an “impairment,” “is deemed temporary — that is, securities are expected to recover their value — ” then the impairment is not charged to income ánd the temporary decline is recorded as an “unrealized loss.” Goldstone & Simmons MTD at 25-26, 25 n. 22 (citing SFAS 115 ¶ 16, at 4; 2007 Form 10-K at 90). Goldstone and Simmons state that, if an impairment’s decline in value is determined to be OTTI “then the amount of the decline is taken as a charge against income in that period.” Goldstone & Simmons MTD at 26, 26 n. 25 (citing SEC Staff Accounting Bulletin No. 59, Accounting for Noncurrent Marketable Equity Securities, codified as SAB Topic 5.M, Other Than Temporary Impairment *1097 of Certain Investments in Debt and Equity Securities, (March 9, 2011), http://www. sec.gov/interps/account/sabcodet5. htm#5m). Goldstone and Simmons assert, thus, that the judgment whether an impairment is temporary “turns on whether the company has the ‘intent and ability’ to hold the security until maturity or until its value recovers,” and thus “requires an assessment of uncertain future events and market conditions.” Goldstone & Simmons MTD at 26.

Goldstone and Simmons assert that they determined that the $427.8 'million decline in value of Thornburg Mortgage’s ARM securities was temporary, and therefore, did not charge it against income but instead disclosed that Thornburg Mortgage was accounting for the decline as “ ‘gross unrealized loss.’ ” Goldstone & Simmons MTD at 26 (quoting 2007 Form 10-K at 100). Goldstone and Simmons assert that the 2007 Form 10-K “clearly set forth how and why TMA made that determination, explaining that the OTTI assessment ‘requires management judgment,’ ” including judgments based upon various market factors which are known to fluctuate. Gold-stone & Simmons MTD at 26 (quoting 2007 Form 10-K at 98-103). Goldstone and Simmons point out that KPMG did not disagree the OTTI analysis in the 2007 Form 10-K. See Goldstone & Simmons MTD at 27 (citing 2007 Form 10-K at 81-82).

Goldstone and Simmons also assert that they had not duty to disclose the payment plans for Thornburg Mortgage’s margin calls. Goldstone and Simmons first assert that the 2007 Form 10-K does not “contain a statement that Thornburg ‘complied with its lending agreements,’ ” as the SEC contends it does. Goldstone & Simmons MTD at 42 (quoting Complaint ¶ 60, at 17-18). Goldstone and Simmons also assert that Thornburg Mortgage was not in breach of its reverse repurchase agreement with Citigroup Global, because the Citigroup Global Repo Agreement “required margin calls to be met on the same business day ‘unless otherwise agreed between the Parties,’ ” and Citigroup Global and Thornburg Mortgage had agreed to another deadline. Goldstone & Simmons MTD at 43 (quoting Citigroup Global Repo Agreement § 5.8, at 11).

Goldstone and Simmons assert, thus, that Citigroup Global was incorrect to characterize Thornburg Mortgage as being in breach in a boilerplate statement in the Citigroup Global Letter. Goldstone & Simmons MTD at 19. Goldstone and Simmons also assert that the SEC has not alleged facts which demonstrate that they received the Citigroup Global Letter, as the electronic mail transmission containing the Citigroup Global Letter was not sent to Goldstone or Simmons. See Goldstone & Simmons MTD at 19 (citing Electronic Mail Transmission from Arlene Hamilton to nfellers&thornburgmortgage.com (February 22, 2008, 9:38 a.m.), filed May 21, 2012 (Doc., 37-7)(“Feb. 22 Hamilton/Fellers Email”); Complaint ¶ 34, at 10-11). Contrary to the SEC’s contention that Goldstone and Simmons received the Citigroup Global Letter, Goldstone and Simmons contend that the electronic mail transmissions referenced in the Complaint demonstrate that Goldstone was “traveling by plane, when the letter was sent, and out of town the rest of the week.” Goldstone & Simmons MTD at 19 (citing Complaint ¶ 60, at 17-18; Feb. 21 BOD Email at 2; Feb. 22 BOD Email; Feb. 25 BOD Email).

Moreover, Goldstone and Simmons assert that the SEC has not identified any legal requirement “to disclose precisely how margin call obligations are met.” Goldstone & Simmons MTD at 43. Gold-stone and Simmons contend that there is not “any sound reason why disclosures of *1098 such day-to-day difficulties should be required.” Goldstone & Simmons MTD at 43 (citing Mo. Portland Cement Co. v. Cargill, Inc., 498 F.2d 851, 873 (2d Cir. 1974); In re Goodyear Tire & Rubber Co. Sec. Litig., No. CIV A. 88-8633, 1993 WL 130381 , at *8 (E.D.Pa. Apr. 22, 1993), aff'd 16 F.3d 403 (3d Cir.1993)). Goldstone and Simmons assert that “ ‘the existence of an event of default permitting a creditor to accelerate the obligation and demand its payment is not equivalent to an actual current default,’ ” because an event of default does not alter a company’s financial obligations. Goldstone & Simmons MTD at 43 (quoting Baron v. Smith, 285 F.Supp.2d 96, 104 (D.Mass.2003), aff'd, 380 F.3d 49 (1st Cir.2004)). Goldstone and Simmons thus assert that they had no duty to disclose the event of default or reservation of rights letter from Citigroup Global, because “no default was declared, all margin calls were satisfied, and Thornburg’s financial obligations remained the same.” Goldstone & Simmons MTD at 44.

Goldstone and Simmons also contend that the SEC is seeking to make them liable for failing to predict the future, through the SEC’s allegation that the 2007 Form 10-K’s statement that “ ‘Thornburg had the intent and ability to hold its ARM Securities until their value recovered in the market’ ” was “knowingly and recklessly false.” Goldstone & Simmons MTD at 44 (quoting Complaint ¶ 8, at 3-4)(citing Complaint ¶¶ 41-48, 51, at 12-15). Gold-stone and Simmons assert that they could not have predicted that creditors would issue additional margin calls which could not be met without selling assets. See Goldstone & Simmons MTD at 44. Gold-stone and Simmons also assert that “the federal securities laws do not provide a cause of action for failing to foresee future events.” Goldstone & Simmons MTD at 45 (citing Fulton Cnty. Emps. Ret. Sys. v. MGIC Inv. Corp., 675 F.3d at 1050 ; In re Radian Sec. Litig., 612 F.Supp.2d 594, 619 (E.D.Pa.2009); City of Phila. v. Fleming Cos., Inc., 264 F.3d 1245, 1260 (10th Cir. 2001)). Goldstone and Simmons assert that courts addressing claims in the context of the recent financial crisis have “rejected the proposition that corporate officers should have anticipated and disclosed what the crisis would ultimately do to their companies.” Goldstone & Simmons MTD at 45 (citing Fulton Cnty. Emps. Ret. Sys. v. MGIC Inv. Corp., 675 F.3d at 1050 ). Goldstone and Simmons contend that the SEC has not alleged any facts from which one “could plausibly conclude that it was obvious before the filing of the 10-K that Thornburg would soon be overwhelmed by margin calls.” Goldstone & Simmons MTD at 46. Goldstone and Simmons assert that the internal documents to which the SEC cites in the Complaint indicate that “February 2008 was a highly unpredictable time for Thornburg.” Goldstone & Simmons MTD at 46. Goldstone and Simmons contend that prices in the.MBS market declined suddenly, and note that many lenders left the mortgage financing business altogether, while others increased margin requirements. See Goldstone & Simmons MTD at 15 (citing Thornburg Mortgage, Inc. 3rd Quarter 2007 Form 10-Q at 5, filed May 21, 2012 (Doc. 37-14)(“2007 Form 10-Q”)). Goldstone and Simmons assert that the SEC is attempting to make them liable for securities fraud “on the mere occurrence of a major adverse event soon after a public statement,” a basis for liability which courts have rejected. Goldstone & Simmons MTD at 46 (citing Fox v. Equimark Corp., 782 F.Supp. 295, 300 (W.D.Pa.1991)).

Second, Goldstone and Simmons assert that the SEC’s scienter allegations are inherently implausible. See Goldstone & Simmons MTD at 56. Goldstone and Simmons contend that the SEC has not al *1099 leged facts which support a plausible conclusion that they “disregarded risks of misleading investors that were ‘so obvious that [they] must have been aware of it.’ ” Goldstone & Simmons MTD at 47 (quoting City of Phila. v. Fleming Cos., Inc., 264 F.3d at 1258 ). Goldstone and Simmons first assert that the disclosure in the 2007 Form 10-K are “fulsome” and “definitively undercut Plaintiffs assertion that Defendants intended to conceal Thornburg’s ‘margin call crisis’ and misrepresent its ‘financial condition.’ ” Goldstone & Simmons MTD at 48 (quoting Complaint ¶ 6, at 3; id. ¶ 13, at 5). Goldstone and Simmons contend that the electronic mail transmissions referenced in the Complaint demonstrate that they “planned to-make complete and accurate disclosures in Thornburg’s 10-K and to its auditors.” Goldstone & Simmons MTD at 23 (citing Feb. 21 BOD Email, Feb. 22 BOD Email, Electronic Mail Transmission from Larry Goldstone to Jane Starrett (February 25, 2008, 10:09 a.m.), filed May 21, 2012 (Doc. 37-22)(“Feb. 25 Starrett/Goldstone Email”); Complaint ¶¶ 53-55, at 16).

Goldstone and Simmons also assert that the SEC has failed to allege any facts which demonstrate the they “believed the statements in the 10-K were false or misleading at the time they were made.” Goldstone & Simmons MTD at 48 (citing Grossman v. Novell, Inc., 120 F.3d 1112, 1124 (10th Cir.1997)). Goldstone and Simmons note that, before filing the 2007 Form 10-K, Thornburg Mortgage successfully raised cash in the third quarter of 2007, notwithstanding general MBS market turmoil. See Goldstone & Simmons MTD at 16 (citing 2007 Form 10-Q at 9-10). Goldstone and Simmons contend that the Feb. 22 BOD Email demonstrates that Goldstone was concerned about the unpredictability in the mortgage markets, but also that he had a plan to raise cash which he believed would provide Thorn-burg Mortgage a “ ‘cushion’ ” of close to $300 million before Thornburg Mortgage filed the 2007 Form 10-K. Goldstone & Simmons MTD at 20 (quoting Feb. 22 BOD Email)(citing Feb. 21 BOD Email; Complaint ¶ 29, at 9). Goldstone and Simmons also assert that Goldstone expressed confidence that Thornburg Mortgage’s lenders would agree to payment plans in the weeks preceding the filing of the 2007 Form 10-K. See Goldstone & Simmons MTD at' 21 (citing Feb. 22 BOD Email). Goldstone and Simmons contend that the Feb. 25 BOD Email further demonstrates Goldstone’s confidence that Thornburg Mortgage would raise the funds it needed to meet its ongoing margin calls. See Goldstone & Simmons MTD at 21 (citing Feb. 25 BOD Email). Goldstone and Simmons further assert that the facts in the Complaint show that: (i) “Thornburg had successfully met all margin calls by the time of the 10-K filing”; (ii) “had not violated its lending agreements”; (iii) “did not sell assets to satisfy its margin calls”; and (iv) “that Defendants believed all of that to be so.” Goldstone & Simmons MTD at 59 (emphasis in original)(citing Feb. 21 BOD Email; Feb. 22 BOD Email; Feb. 25 BOD Email).

Goldstone and Simmons also assert that, because the SEC has not shown that the allegedly omitted facts were material, the SEC has failed to plausibly allege that they acted with scienter. See Goldstone & Simmons MTD at 50 (citing City of Dear-born Heights v. Waters Corp., 632 F.3d 751, 757-58 (1st Cir.2011); Rosenberg v. Gould, 554 F.3d 962, 966 (11th Cir.2009); In re Parmalat Sec. Litig., 684 F.Supp.2d 453, 475 (S.D.N.Y.2010)). Goldstone and Simmons assert that the electronic mail transmissions to which the. SEC cites indicate that they did not believe the allegedly omitted information was significant, especially in light of the gravity which Gold- *1100 stone and Simmons attached to the other events disclosed in the 2007 Form 10-K. See Goldstone & Simmons MTD at 50.

Regarding the SEC’s allegations that the Defendants ‘“should have’ reached a different conclusion in their OTTI analysis based on the facts available to them,” Goldstone and Simmons contend that this standard is insufficient to state a claim for negligence, and even more insufficient to state a claim for fraud. Goldstone & Simmons MTD at 48-49 (quoting Complaint ¶ 51, at 15; id. ¶ 71, at 21; id. ¶ 82, at 24)(citing City of Omaha v. CBS Corp., 679 F.3d 64 (2d Cir.2012)). Goldstone and Simmons additionally contend that the complexity of the OTTI analysis undercuts the SEC’s allegations of scienter. See Goldstone & Simmons MTD at 50. Gold-stone and Simmons assert, further, that the SEC’s allegations that the OTTI guidance at the time was “ ‘clear’ defies reality.” Goldstone & Simmons MTD at 51. Goldstone and Simmons point out that, at the time, the SEC had recommended that the current OTTI guidance be modified or eliminated in favor of a “more uniform system of impairment testing standards for financial instruments.” Goldstone & Simmons MTD at 51 (citing SEC Market-to-Market Study). Goldstone and Simmons also assert that the SEC has “grossly mischaracterize[d]” Starrett’s February 25 electronic mail transmission, in which she stated that “ ‘some assets’ would ‘call into question’ Thornburg’s ‘intent and ability’ to hold ‘all assets’ until maturity.” Goldstone & Simmons MTD at 51 (internal alterations omitted)(quoting Feb. 25 Gold-stone/Starrett Email). Goldstone and Simmons assert that the SEC’s falsely characterizes of this electronic mail transmission as “clear guidance” that the value of all of Thornburg Mortgage’s ARM Securities was impaired, as the electronic mail transmission indicates only that Thornburg Mortgage may not be able to hold assets until maturity if some assets were sold, and did not indicate that Thornburg Mortgage’s impairment would be OTTI if Thornburg Mortgage decided to sell a portion of its assets instead. Goldstone & Simmons MTD at 51 (quoting Complaint ¶ 12, at 4; id. ¶¶ 54-56, at 15; id. ¶ 70, at 20-21; id. ¶ 85, at 25). Goldstone and Simmons also assert that the GAAP does not support the SEC’s allegations in the Complaint, because SFAS 115 does not state that a company’s sale of some securities calls into question the company’s intent and ability to hold all of its securities for purposes of an OTTI analysis. See Goldstone & Simmons MTD AT 51-52 (citing Complaint ¶ 12, at 4; id. ¶¶ 54-56, at 15; id. ¶ 70, at 20-21; id. ¶85, at 25). Goldstone and Simmons also assert that SFAS 115 indicates only that an OTTI should be recognized when a company intends to sell a specifically identified security before its value has recovered and that the OTTI analysis only extends to that individual security. See Goldstone & Simmons MTD at 52 (citing FASB Staff Position FAS 115-1 and FAS 124-1, filed May 21, 2012 (Doc. 37-35)(“FAS 115-1 & 124-1”); Thornburg Mortgage, Inc. 2007 Form 10-K/A, filed May 21, 2012 (Doc. 37-13)(“2007 Form 10-K/A”). Goldstone and Simmons argue, therefore, that GAAP does not support the SEC’s contention that Thornburg Mortgage should have taken an impairment, because it might need to sell some portion of its portfolio. Gold-stone & Simmons MTD at 52 (citing Complaint ¶ 70, at 20-21; id. ¶ 85, at 25).

Goldstone and Simmons also argue that, even if their judgment was wrong, “ ‘allegations of GAAP violations or accounting irregularities, standing alone, are insufficient to state a securities fraud claims.’ ” Goldstone & Simmons MTD at 52 (quoting City of Phila. v. Fleming Cos., Inc., 264 F.3d at 1261 )(citing In re Int’l Rectifier

*1101 Corp. Sec. Litig., No. CV07-02544-JFWVBKX, 2008 WL 4555794 , at *13 (C.D.Cal., May 23, 2008); Funke v. Life Fin. Corp., 237 F.Supp.2d 458, 469 (S.D.N.Y.2002)). Goldstone and Simmons assert that, absent “facts suggesting that Defendants disbelieved their own OTTI judgment — which the Complaint does not allege — the Court has no plausible basis to infer that Defendants made that judgment in bad faith.” Goldstone & Simmons MTD at 53.

Rather than sufficiently alleging a fraudulent scienter, Goldstone and Simmons assert that the Complaint and documents upon which it relies “show that Thornburg was succeeding in cash and capital-raising efforts that would help it avoid selling ARM securities,” and that the allegation that the Defendants intended to deceive investors in the OTTI analysis is “flatly implausible.” Goldstone & Simmons MTD at 53-54 (citing Feb. 22 BOD Email; Feb. 25 BOD Email; Feb. 27 Goldstone/Simmons Email).

Goldstone and Simmons also assert that the SEC has read too much into the electronic mail transmissions which they exchanged when the SEC “speculates that Mr. Simmons implicitly acknowledged misleading the investing public.” Goldstone & Simmons MTD at 55 (quoting Complaint ¶ 10, at 4). Goldstone and Simmons assert that Simmons’ statements in an electronic mail transmission to Goldstone on February 28, 2008, regarding the market’s reaction to the 2007 Form 10-K, are “inscrutable],” noting that Simmons did not complete his second sentence. Gold-stone & Simmons MTD at 28, 55 (citing Feb. 28 Simmons/Goldstone Email at 2). Goldstone and Simmons assert that the SEC’s “nefarious interpretation of Mr. Simmons’ statement is far less plausible than alternative, innocent explanations.” Goldstone & Simmons MTD at'55. Gold-stone and Simmons contend that Simmons was referring to Thornburg Mortgage’s “still-undisclosed plans to raise cash and capital rather than to a fraudulent scheme mentioned nowhere else in the documents,” when Simmons mentioned that “if they only knew.” Goldstone & Simmons MTD at 55-56; Goldstone and Simmons assert that this “obvious alternative explanation” renders the SEC’s allegations implausible. Goldstone & Simmons MTD at 56 (citing Ashcroft v. Iqbal, 556 U.S. 662, 682 , 129 S.Ct. 1937 , 173 L.Ed.2d 868 (2009); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557 , 127 S.Ct. 1955 , 167 L.Ed.2d 929 (2007)).

Goldstone and Simmons assert that various electronic mail transmissions cited in the Complaint reveal that the market’s negative reaction to the 2007 Form Í0-K was a surprise to them. See Goldstone & Simmons MTD at 55. Goldstone points out that he took efforts to “try to ‘calm the panic’ ” after Thornburg Mortgage’s stock price fell eighteen-percent on February 28, 2009. Goldstone & Simmons MTD at 28 (quoting Feb. 28 IR Email at 2)(citing Complaint ¶ 94, at 27).

Goldstone and Simmons also assert that trying to save Thornburg Mortgage does not demonstrate fraudulent scienter. Goldstone and Simmons assert that the “desire to save one’s company is a standard motive possessed by all corporate executives,” and that a desire to save Thornburg Mortgage could only be evidence of fraudulent scienter if the SEC had also alleged that Goldstone and Simmons would personally benefit from Thornburg Mortgage’s salvation. Goldstone & Simmons MTD at 56 (citing Brecher v. Citigroup, Inc., 797 F.Supp.2d 354, 370 (S.D.N.Y.2011)). Goldstone and Simmons assert that the SEC has, rather, alleged “only the type of generic desire that could be attributed to any responsible *1102 corporate executive — ‘alleviat[ing] [Thorn-burg’s] liquidity crisis.’” Goldstone & Simmons MTD at 56 (quoting Complaint ¶ 4, at 2). Goldstone and Simmons point out that the SEC has not alleged that they would have benefited through stock sales or “other forms of personal enrichment that courts have found to be indicative of scienter.” Goldstone & Simmons MTD at 56-57 (citing In re Bear Steams, Co., Inc. Sec., Deriv., and ERISA Litig., 763 F.Supp.2d 423, 499 (S.D.N.Y.2011)).

Third, Goldstone and Simmons also assert that the SEC has not sufficiently alleged that Goldstone made misstatements knowingly or recklessly to Street Signs after the 2007 Form 10-K was filed. See Goldstone & Simmons MTD at 57. Gold-stone and Simmons assert that the SEC is wrong to characterize Goldstone’s comments as misstatements, because Gold-stone, in addition to recognizing that Thornburg Mortgage had only forty million dollars available in cash on February 28, 2008, also expressed in an electronic mail transmission to the Board of Directors that Thornburg Mortgage “expected to generate $25 million from stock sales within two days, another $60 million from a securitization by March 3rd, and $25-$50 million from a preferred stock sale by” the following Monday, which totals “‘$150 to $175 million of liquidity while [Thornburg] work[ed] on a capital raise’ (of between $300 to $500 million).” Goldstone & Simmons MTD at 57-58 (quoting Feb. 28 BOD Email). Goldstone and Simmons assert that the SEC left out Goldstone’s plans for raising cash when it alleged that Gold-stone’s statements on Street Signs were false, because Thornburg Mortgage had only forty million dollars in cash at the time. Goldstone & Simmons MTD at 58. Goldstone and Simmons assert that the “additional sources of liquidity provide precisely the type of ‘obvious alternative explanation,’ consistent with a non-culpable state of mind, that establishes this claim’s insufficiency under the basic plausibility standards of Twombly , ... and Iqbal.” Goldstone & Simmons MTD at 58 (citing Bell Atl. Corp. v. Twombly, 550 U.S. at 567 , 127 S.Ct. 1955 ; Ashcroft v. Iqbal, 556 U.S. at 682 , 129 S.Ct. 1937 ).

Goldstone and Simmons also assert that Goldstone’s statements should be “evaluated in light of the qualifying statements he made in the CNBC interview,” under the “ ‘bespeaks caution’ doctrine” — the rule that, the more a speaker qualifies a statement, the less people will be misled if the statement turns out to be false. Goldstone & Simmons MTD at 58 (quoting Genesee Cnty. Emps. ’ Ret. Sys. v. Thornburg Mortg. Sec. Trust, 2006-3, 825 F.Supp.2d 1082, 1127 (D.N.M.2011)(Browning, J.)). Goldstone and Simmons point out that Goldstone warned on Street Signs that “ ‘this mortgage market continues to be a slippery slope,’ ” and “ ‘we’re just not seeing the bottom of the environment ... the market continues to trend lower,’ ” which Goldstone and Simmons assert any reasonable investor would understand as a qualification on Goldstone’s statements regarding Thornburg Mortgage’s liquidity. Goldstone & Simmons MTD at 28, 58 (quoting Street Signs at 00:40-52).

Regarding the SEC’s allegation that Goldstone’s direction to Thornburg Mortgage’s investor relations department was a knowing or reckless misstatement, Gold-stone and Simmons assert that the SEC has failed to allege that Thornburg Mortgage had received, or Goldstone was informed of, “any additional margin calls before he sent his ‘calm the panic’ email instructions to the investor relations department,” and the SEC’s allegation is therefore baseless. Goldstone & Simmons MTD at 59 (quoting Complaint ¶¶ 94-97, at 27-28). Goldstone and Simmons contend that the SEC’s allegation is an improper *1103 attempt to demonstrate “fraud by hindsight.” Goldstone & Simmons MTD at 59. Goldstone and Simmons further assert that Thornburg Mortgage’s history with its lenders gave Goldstone no reason to believe that Thornburg Mortgage’s current liquidity and expected incoming cash would be insufficient to satisfy Thornburg Mortgage’s margin call obligations. See Goldstone & Simmons MTD at 59. Gold-stone and Simmons argue, therefore, that, even if Goldstone was aware of additional margin calls early in the day on February 28, 2008, “he had no reason to conclude that Thornburg could not weather the storm by negotiating payment plans with its lenders — as it had successfully done before.” Goldstone & Simmons MTD at 59-60.

Turning to the SEC’s allegations based upon misrepresentations and omission to KPMG, Goldstone and Simmons similarly assert that the SEC has failed to state a plausible claim for relief under rule 13b2-2. Goldstone and Simmons contend that the SEC has engaged in “impermissible ‘shotgun pleading’ that incorporates ‘all or nearly all antecedent allegation^] by reference [to] each subsequent claim for relief or affirmative defenses.’ ” Goldstone & Simmons MTD at 60 (alterations in original)(quoting SEC v. Fraser, No. CV-09-00443-PHX-GMS, 2010 WL 5776401 , at *9 (D.Ariz., Jan. 28, 2010)(internal quotations omitted)). Goldstone and Simmons assert that the SEC’s reliance on shotgun pleading is, without more, a “sufficient basis to dismiss this claim under Rule 9(b).” Goldstone & Simmons MTD at 60 (citing SEC v. Fraser, 2010 WL 5776401 , at *9; SEC v. Patel, No. 07-cv-39-SM, 2009 WL 2015794 , at **1-2 (D.N.H. July 7, 2009)). Goldstone and Simmons assert that the SEC’s scattered allegations of their misrepresentations and omissions to KPMG “do not come close to meeting the minimum pleading requirements of Rule 8 and Rule 9(b).” Goldstone & Simmons MTD at 60.

Goldstone and Simmons first point out that the SEC brings many of the same allegations against them for deceiving KPMG as it did for securities fraud: (i) “fraudulent omissions concerning Thorn-burg’s purported violation of lending agreements”; (ii) “the Citi reservation of rights letter”; (iii) “the I/O Strip Transactions”; (iv) “not selling assets to meet margin calls”; and (v) “Thornburg’s alleged precarious financial condition.” Goldstone & Simmons MTD at 60-61. Goldstone and Simmons assert that these allegations suffer from the same pleading deficiencies as the SEC’s securities fraud claims, and the Court should dismiss the claims on that basis. See Goldstone & Simmons MTD at 61.

Goldstone and Simmons also assert that the SEC has not alleged that KPMG was unaware of Thornburg Mortgage’s financial difficulties which Goldstone and Simmons alleged omitted in their communications with KPMG. Goldstone and Simmons assert that the 2007 Form 10-K “disclosed Thornburg’s difficulties in obtaining financing, the fact that Thornburg had received $300 million in margin calls since February 14th, the $427.8 million in gross unrealized losses that Thornburg considered temporary, and the declining prices in the MBS market that could lead to more margin calls.” Goldstone & Simmons MTD at 23-25, 61. Goldstone and Simmons assert that the SEC cannot allege that KPMG was unaware of these facts, and Goldstone and Simmons point out that the SEC acknowledges that “an unnamed partner at the audit firm discussed the I/O Strip . Transactions with Mr. Simmons.” Goldstone & Simmons MTD at 61 (citing Complaint ¶ 65, at 19).

*1104 Goldstone and Simmons also assert that Court should dismiss the SEC’s claims under rule 13b2-2, because the SEC has not established that the information withheld from KPMG was material. See Gold-stone & Simmons MTD at 61-62 (citing SEC v. Kovzan, 807 F.Supp.2d 1024, 1043-44 (D.Kan.2011); SEC v. Coffman, No. 06-CV-00088 REBBNB, 2007 WL 2412808 , at **13-14 (D.Colo. Aug. 21, 2007)). Gold-stone and Simmons assert that the SEC’s allegation that KPMG would have reached a different conclusion if it had more details about Thornburg Mortgage’s margin call situation before the 2007 Form 10-K is conclusory and unsupported, and, thus, “not entitled to Rule 12(b)(6)’s assumption of truth.” Goldstone & Simmons MTD at 62 (citing Complaint ¶ 83). Goldstone and Simmons also assert that, because the SEC contends that the withheld information only would have caused KPMGs to “question,” and not disagree with, Thorn-burg Mortgage’s OTTI conclusion, the SEC has not sufficiently alleged that any information omitted was material. Gold-stone & Simmons MTD at 62 (quoting Complaint ¶ 4, at 2)(citing Complaint ¶ 83, at 24).

Regarding Goldstone and Simmons’ failure to include the rumored upcoming collapse of a large European hedge fund, Goldstone and Simmons assert that they had no duty to disclose this “rumor,” and that Simmons had no obligation to update his opinion of the MBS in light of the rumor. Goldstone & Simmons MTD at 62 (citing Complaint ¶ 38. at 12; id. ¶¶ 77-78 , at 22-23). Goldstone and Simmons point out that the electronic mail transmission which they received on February 27, 2008 indicated that a Thornburg Mortgage employee, Patrick Feldman, had spoken with a contact who indicated that a large European repo client would collapse, but the contact would not give details beyond stating that the client owned “ ‘billions that presumably would have to get sold.’ ” Goldstone & Simmons MTD at 22 (quoting Feb. 27 Simmons/Feldman Email at 2)(cit-ing Complaint ¶¶ 38-40, at 12). Goldstone and Simmons assert that the federal securities laws impose no “duty to disclose rumors.” See Goldstone & Simmons MTD at 63 (citing In re Synchronoss Sec. Litig., 705 F.Supp.2d 367, 421 (D.N.J.2010)). Goldstone and Simmons assert that, to the contrary, had they disclosed the alleged rumor “ ‘before completing the steps necessary to determine just what had happened,’ they ‘might more plausibly have been accused of deceiving’ the auditor.” Goldstone & Simmons MTD at 53 (quoting Higginbotham v. Baxter Int’l, Inc., 495 F.3d 753, 760-61 (7th Cir.2007)).

Goldstone and Simmons also assert that the SEC has not alleged that, because Simmons’ opinion regarding the state of the MBS market and MBS price deterioration changed because of the European hedge fund rumor, and, therefore, the SEC has not established that Simmons had a duty to update his opinion on the MBS market. See Goldstone & Simmons MTD at 63. Goldstone and Simmons contend that the SEC has not alleged “facts demonstrating that the European hedge fund rumor was trustworthy, much less material,” and therefore their failure to disclose the rumor did not render their previous statements false. Goldstone & Simmons MTD at 63-64 (citing SEC v. Todd, No. 03CV2230 BEN (WMc), 2007 WL 1574756 , at *15 (S.D.Cal. May 30, 2007); SEC v. Autocorp Equities, Inc., No. 2:98-CV-00562 PGC, 2004 WL 1771608 , at *6 (D.Utah Aug. 4, 2004)). Goldstone and Simmons point out that, later on February 27, 2008, Goldstone sent Simmons an electronic mail transmission regarding final changes to the 2007 10-K, and stated that UBS AG had mentioned that a “ ‘large Alt-A hedge fund in Europe’ was ‘blowing *1105 up,’ ” but Goldstone also expressed his belief that Thornburg Mortgage would feel the repercussions of the hedge fund’s collapse “ ‘more gradually.’ ” Goldstone & Simmons MTD at 22 (quoting Feb. 27 Goldstone/Simmons Email at 2)(citing Complaint ¶ 38, at 12).

Goldstone and Simmons also assert that the SEC mischaracterizes the record in its allegation that auditors “specifically requested] ... all correspondence between Thornburg and its lenders during the two week period” before the 2007 Form 10-K was filed. Goldstone & Simmons MTD at 64 (quoting Complaint ¶ 99, at 29). Gold-stone and Simmons contend that the March 3 electronic mail transmission to which the SEC refers makes ho such request, but rather asked Thornburg Mortgage for a position paper which presented evidence that “ ‘events subsequent to the filing were unforeseeable catastrophic events.’ ” Goldstone & Simmons MTD at 64 (quoting Request for Correspondence at 2-3). Goldstone and Simmons assert that KPMG mentioned correspondence as an example of evidence that Thornburg Mortgage could include in a position paper, but did not specifically request Thornburg Mortgage to produce all correspondence and letters. See Goldstone & Simmons MTD at 64 (citing Request for Correspondence at 3). Goldstone and Simmons assert that the Citigroup Global Letter “was immaterial because it had no impact on Thornburg’s financial statements,” and is thus insufficient to support a claim under rule 13b2-2. Goldstone & Simmons MTD at 65.

Last, regarding the SEC’s claims under rule 13b2-2, Goldstone and Simmons argue the SEC has not alleged that Simmons’ “attribution of the February 28th margin calls to ‘unforeseeable’ circumstances” was misleading or false. Goldstone & Simmons MTD at 65 (quoting Complaint ¶¶ 102-105, at 29-30). Goldstone and Simmons note that Goldstone stated that Thornburg Mortgage would experience similar problems as those plaguing the European hedge fund, but “ ‘a little more gradually,’ ” and that Thornburg Mortgage “ ‘should be ready for it.’ ” Goldstone & Simmons MTD at 65 (quoting Feb. 27 Goldstone/Simmons Email). Goldstone and Simmons, thus, assert that they did not believe that the European hedge fund collapse “would have immediate, serious consequences for Thornburg,” and that their correspondence evidences that Thornburg Mortgage’s February 28th margin calls were unforeseeable to Gold-stone and Simmons. Goldstone & Simmons MTD at 65. Goldstone and Simmons also note that the Position Paper contained evidence which demonstrated that mortgage markets experienced “sudden, stastically unlikely and steep” declines on February 27, 2008. Goldstone & Simmons MTD at 31 (citing Position Paper).

Goldstone and Simmons contend that, because the SEC has failed to sufficiently allege that a primary violation of securities laws, the SEC’s claims for aiding'and abetting and control-person liability must fail. See Goldstone & Simmons MTD at 65-66 (citing SEC v. Lucent Techs., Inc., 363 F.Supp.2d 708, 718 (D.N.J.2005)(Walls, S.J.); In re Thornburg Mortg. Sec. Litig., 695 F.Supp.2d at 1189 ). Goldstone and Simmons also assert that the SEC has failed to plausibly allege that they “knowingly provided substantial assistance” to the commission of any primary violation. Goldstone-& Simmons MTD at 66 (quoting 15 U.S.C. § 78t(e)). Goldstone and Simmons argue that they must have had actual knowledge for the SEC to succeed on their claim for aiding and abetting, and argue that the SEC has failed to allege that they had actual knowledge of any primary violation. See Goldstone & Sim *1106 mons MTD at 66-67 (citing 15 U.S.C. § 78u-4(f)(10)(A); SEC v. Lucent Techs., Inc., 610 F.Supp.2d 342, 369 (D.N.J.2009)).

4. Starrett’s Motion to Dismiss.

Starrett asserts that the SEC’s claims that she “made false statements in TMI’s 2007 Form 10-K ... and deceived TMI’s outside auditor KPMG LLP ... are absolutely false.” Starrett MTD at 10. ' Starrett contends that the SEC has failed to show that she made “any false statement, either in the 10-K or to KPMG.” Starrett MTD at 11 (emphasis in original). Starrett also asserts that the SEC has failed to allege facts which support her having the requisite scienter. See Starrett MTD at 13. Starrett argues that, because the SEC’s allegations of reporting violations, record-keeping violations, and deceit of auditors are derivative of its fraud-based claims, these claims fail to sufficiently allege that Starrett committed fraud. See Starrett MTD at 13. Starrett asserts that the SEC’s allegations for internal controls violations are insufficiently pled, because the SEC did not “specify which internal controls Ms. Starrett allegedly circumvented, how she supposedly did so, or how better controls would have prevented the alleged problems with TMI’s financial reporting.” Starrett MTD at 14.

Starrett asserts that the SEC has failed to meet the heightened pleading standard of rule 9(b) of the Federal Rules of Civil Procedure which applies to its claims under § 17(a) of the Securities Act, and § 10(b) of the Exchange Act. See Starrett MTD at 14. Starrett also asserts that, because the SEC “does not differentiate its factual allegations among different claims, but instead alleges a single, unified course of conduct that it ‘incorporate^] by reference’ into each of its eleven claims for relief,” the SEC’s claims which are not alleging fraud— § 13 and rules 13b2-l and 13b2-2 of the Exchange Act — are subject to the rule 9(b)’s heightened pleading standard. Starrett MTD at 15 (quoting Complaint ¶¶ 120, 126, 129, 136)(citing In re Daou Sys., Inc., 411 F.3d 1006, 1027 (9th Cir.2005)). , ■ •

Starrett first asserts that the SEC has failed to allege particular facts which show that the statements she made in the 2007 Form 10-K were false when made. See Starrett MTD at 16. Starrett contends that, contrary to the SEC’s allegation, the statement that Thornburg Mortgage “ ‘successfully continued[d] to meet margin calls’ ” was true when made. Starrett MTD at 16 (quoting Complaint ¶ 5, at 3). Starrett points out that the SEC concedes that Thornburg Mortgage had “ ‘exeeute[ed] [sic] its plan to pay all outstanding margin calls before filing its Form 10-K,’ including the Citi margin call, and thus Thornburg Mortgage’s statement that it had successfully met all margin calls was true at the time. Starrett MTD at 16-17 (quoting Complaint ¶ 6, at 3; id. ¶¶ 35, 38 at 11-12).

Starrett also asserts that Thornburg Mortgage’s statement that it “ ‘did not sell any assets to meet margin calls’ ” was true when made, even without the additional disclosure that I/O Strip Transactions were taken to meet those margin calls. Starrett MTD at 17 (quoting Complaint ¶ 65, at 19). Starrett points out that the SEC acknowledges that the 2007 Form 10-K accounted for the I/O Strip Transactions as issuances of secured debt. Starrett also points out that the SEC has not alleged that KPMG was unaware of the I/O Strip Transactions, or that KPMG disagreed with Thornburg Mortgage’s accounting for them. See Starrett MTD at 17 (citing Complaint ¶ 37, at 11; In re Bausch & Lomb, Inc., Sec. Litig., 592 F.Supp.2d 323, 341 (W.D.N.Y.2008)). Starrett also asserts that the I/O Strip *1107 Transactions were a “gain to TMI,” and thus irrelevant when classifying Thorn-burg Mortgage’s unrealized losses. Starrett MTD at 17 (emphasis in original). Starrett thus asserts that the 2007 Form 10-K’s statement that “ ‘no [asset] sales had been required’ ” meant that Thorn-burg Mortgage “did not need to sell its impaired ARM Securities at a loss to meet margin calls.” Starrett MTD. at 17 (quoting 2007 Form 10-K at 34-35). Starrett also contends that the SEC’s assertion that the I/O Strips were components of Thornburg Mortgage’s “ ‘Securitized ARM Loans,’ ” contradicts the SEC’s allegation that the I/O Strips were an investment subject to evaluation for OTTI under GAAP, or classification under SFAS 115. Starrett MTD at 17 (quoting Complaint ¶ 36, at 11; id. ¶ 71, at 21)(citing Complaint ¶ 3, at 2; id. ¶ 21, at 7). Starrett asserts that Securitized ARM Loans are not evaluated for impairment, and thus Thornburg Mortgage’s statement that it was not required to sell any assets to meet margin calls was true when made. See Starrett MTD 'at 18.

Starrett also asserts that Thornburg Mortgage’s statement that it had the intent and ability to hold its ARM Securities until recovery was true when made. Starrett contends that the SEC is seeking to hold her hable for a misrepresentation based upon the “unprecedented deluge of margin calls immediately after the 10-K filing,” which is “quintessential fraud-by-hindsight.” Starrett MTD at 19 (emphasis in original)(internal quotations omitted). Starrett asserts that there áre no bright lines for assessing whether a company has both' the intent and ability to hold impaired assets until recovery, but rather that companies are required to use discretion in judging market conditions when determining whether they have the intent and ability to hold impaired assets. Starrett contends that Thornburg Mortgage was making discretionary judgments regarding its impairments at a time of “extraordinary global market turmoil and uncertainty,” which “cuts against the conclusion” that Thornburg Mortgage’s statements regarding the future of its impairments was false when made. Starrett MTD at 19 (citing Fait v. Regions Fin. Corp., 712 F.Supp.2d 117, 123 (S.D.N.Y. 2010), aff'd 655 F.3d 105 (2d Cir.2011)).

Starrett also asserts that'the SEC’s contention that Thornburg Mortgage’s statement of its ability to hold its assets was false overlooks the fact that Thornburg Mortgage “satisfied all outstanding margin calls prior to filing its 10-K.” Starrett MTD at 20 (citing Complaint ¶ 6, at 3). Starrett points out that Thornburg Mortgage was not notified in advance of filing the 2007 Form 10-K that its lenders would issue a wave of margin calls, a “disaster scenario,” which cannot be anticipated. Starrett MTD at 20 (citing SFAS 115 ¶ 16, at 4). Starrett also points out that the SEC alleges that Thornburg Mortgage expected a “significant infusion of cash within days of the 10-K filing,” and thus Thornburg Mortgage’s judgment that it had the ability to hold its impaired assets was reasonable. Starrett MTD at 21 (citing Complaint ¶ 32, at 10). Starrett also notes that KPMG agreed with Thornburg Mortgage’s assessment of its intent and ability to hold its assets. See Starrett MTD at 21 (citing 2007 Form 10-K at 81).

Starrett asserts that Thornburg Mortgage’s statements could not have been materially false in light of the other disclosures in the 2007 Form 10-K under the “ ‘bespeaks caution doctrine.’ ” Starrett MTD at 21-22 (quoting Grossman v. Novell, Inc., 120 F.3d at 1120-2 )(citing 2007 Form 10-K at 25, 39, 53). Starrett asserts that, because Thornburg Mortgage disclosed its “reduced liquidity, the risk of additional margin calls if prices of mort *1108 gage-backed securities declined further, and the risk that it might not be able to satisfy additional margin calls without having to sell assets,” Thornburg Mortgage disclosed any potentially misleading effect of its statements in the 2007 Form 10-K through these “candid disclosures.” Starrett MTD at 21-22. Starrett also argues that Thornburg Mortgage’s disclosure of its unrealized losses associated with its ARM Securities allowed investors to “assess independently the full impact of a potential writedown on the Company’s income statement,” making Thornburg Mortgage’s statements regarding its intent and ability to pay not materially misleading. Starrett MTD at 22 (citing Kuriakose v. Fed. Home Loan Mortg. Corp., No. CIV 08-7281(JFK), 2011 WL 1158028 , at **12-13 (S.D.N.Y. Mar. 30, 2011) (Keenan, J.); In re MRU Holdings Sec. Litig., 769 F.Supp.2d 500, 509 (S.D.N.Y.2011)).

Starrett also asserts that the SEC fails to allege particular facts which support its assertion that Starrett made false statements to, or hid information from, KPMG. See Starrett MTD at 23. Starrett first contends that the SEC concedes that she was unaware of the Citigroup Global Letter, which Starrett asserts was “only a formality and, as such, is neither material nor subject to a duty of disclosure.” Starrett MTD at 23-24 (citing Complaint ¶ 34, at 10-11; id. ¶ 101, at 29). Starrett also asserts that the SEC concedes that she was unaware of the European hedge fund rumor, and she contends that there is no obligation to disclose mere rumors about possible market events. See Starrett MTD at 24 (citing Complaint ¶ 6, at 3; id. ¶¶ 38, 39, at 12; id. ¶¶ 76, 78, 80, at 22-23; id. ¶ 104, at 30).

Starrett also contends that the SEC fails to allege that she had the familiarity with the reverse repurchase agreements, or expertise, such that she would question whether Thornburg Mortgage’s payment plan with Citigroup Global violated its reverse repurchase agreement. Starrett also points out that the Court has rejected the argument that, “because a particular ‘default provision in the RPAs was eventually triggered, the provision was material and thus should have been disclosed,’ ” and that the Court has concluded that the “ ‘failure to disclose a contract provision, without alleging that the provision is unique, cannot constitute á material omission.’ ” Starrett MTD at 25 (quoting In re Thornburg Mortg., Inc. Sec. Litig., 695 F.Supp.2d at 1222-23 ). Starrett contends that the SEC alleges only that she was generally aware of the reverse repurchase agreements and that she was informed that the lenders had agreed to the plans, but not that any information would have put her on notice of Thornburg Mortgage’s potential violation of a reverse repurchase agreement. See Starrett MTD at 25.

Starrett also asserts that the SEC fails to show that she withheld material information from KPMG regarding Thornburg Mortgage’s “ ‘margin call situation.’ ” Starrett MTD at 26 (quoting Complaint ¶ 32, at 10; id. ¶57, at 16-17). Starrett asserts that the 10-K disclosures which KPMG reviewed in connection with the audit disclosed the “amount of margin calls during the last two weeks of February 2008,” and the SEC has not alleged that Thornburg Mortgage’s disclosures were inaccurate or misleading. Starrett MTD at 26 (emphasis in original). Starrett contends that Thornburg Mortgage had no duty to disclose that it satisfied some of its margin calls pursuant to negotiated payment plans. See Starrett MTD at 27.

Starrett also asserts that the SEC “cherry-picked an incomplete set of emails allegedly evidencing a scheme to withhold information from KPMG.” Starrett MTD *1109 at 26. Regarding Starrett’s statement that Thornburg Mortgage had “ ‘purposely not told [KPMG] about the margin calls so that we don’t escalate an issue which we believe will be put to rest by the time they have to issue their opinion,’ ” Starrett’s concern regarding the timing of Thorn-burg Mortgage’s disclosure to KPMG and, the electronic mail transmission as a whole, shows that Starrett intended to disclose the margin calls if Thornburg Mortgage was not able to meet all of its margin calls. Starrett MTD at 27-28 (alterations added in original)(quoting Complaint ¶ 53, at 16; Feb. 25 Starrett/Goldstone Email). 19 Starrett asserts that this electronic mail transmission is “consistent with the practical understanding that when a company receives new information, it is often prudent to process that information internally and decide upon an appropriate course of action before transmitting it to others.” Starrett MTD at 28 (citing Higginbotham v. Baxter Int’l, Inc., 495 F.3d at 760-61 ; In re Thornburg Mortg., Inc. Sec. Litig., 695 F.Supp.2d at 1207, 1212 ).

Starrett also asserts that she did not make any of the alleged misstatements or omission in the 2007 Form 10-K. Starrett asserts that “only the ‘person or entity with ultimate authority over the [false] statement, including its content and whether and how to communicate it’ can be held liable for misstatements under Rule 10b-5 and Section 10(b).” Starrett MTD at 29 (quoting Janus Capital Grp., Inc. v. First Derivative Traders, —— U.S. -, 131 S.Ct. 2296, 2302 , 180 L.Ed.2d 166 (2011)). Starrett contends that she cannot be liable for any misstatements or omission in the 2007 Form 10-K, because she only prepared the statement on behalf of Thornburg Mortgage, and did not have the ultimate authority over the contents of the 2007 Form 10-K, or “whether and how to communicate that content.” Starrett MTD at 29. ■ Starrett contends that, because the SEC excluded her from its control-person claims, the SEC has admitted that Starrett “ ‘did not exercise control over ... the specific activities upon which Thornburg’s violations are based.’ ” Starrett MTD at 29 (citing Complaints 134, at 37; id. ¶ 142, at 39; SEC v. Kelly, 817 F.Supp.2d 340, 344 (S.D.N.Y.2011) (McMahon, J.); Haw. Ironworkers Annuity Trust Fund v. Cole, No. 3:10CV371, 2011 WL 3862206 , at *5, 2011 U.S. Dist. LEXIS 98760 , at **15-16 (W.D.Ohio, Sep. 1, 2011)). Starrett asserts that the failure to allege that she had ultimate authority over the contents of the 2007 From 10-K warrants the Court’s dismissal of the SEC’s claims against her regarding the 2007 Form 10-K. See Starrett MTD at 29.

Starrett additionally contends that the SEC’s failure to allege that she filed or signed, or that her name appears anywhere on, the 2007 Form 10-K also warrants dismissal of the SEC’s allegations arising from the 2007 Form 10-K against her. Starrett asserts that the SEC has not alleged that Starrett filed or signed, or that her name appears on, the 2007 From 10-K, and the SEC has not alleged that Starrett was a key person “whose services were instrumental” to Thornburg Mortgage’s operations. Starrett MTD at 30 (citing Janus Capital Grp., Inc. v. First Derivative Traders, 131 S.Ct. at 2302 ; Kerr v. Exobox Techs. Corp., No. H-10-4221, 2012 WL 201872 , at **11-12, 2012 U.S. Dist. LEXIS 7523 , at **30-33 (S.D.Tex. Jan. 23, 2012); City of Roseville *1110 Emps. Ret Sys. v. EnergySolutions, Inc., 814 F.Supp.2d 395, 417 (S.D.N.Y.2011);. 2007 Form 10-K at 1, 24, 74). Starrett also asserts that the SEC has inconsistently pled that she was both a primary violator, and aided and abetted securities violations, an improper tactic which does -not follow the Supreme Court of the United States’ direction to “ ‘draw a clean line’ between primary violators who have ultimate authority over a statement, and aiders and abettors who are subject only to secondary liability.” Starrett MTD at 31 (quoting Janus Capital Grp., Inc. v. First Derivative Traders, 131 S.Ct. at 2302 n. 6).

Starrett contends that the SEC has failed to allege particularized facts which would support an inference that she acted with fraudulent scienter in preparing the 2007 Form 10-K. Starrett asserts that the SEC must plausibly allege that Starrett had a mental state “ ‘embracing intent to deceive, manipulate, or defraud’ ” including “ ‘knowing or intentional misconduct’ and recklessness,” to be liable under § 10(b). Starrett MTD at 31 (quoting City of Phila. v. Fleming Cos., Inc., 264 F.3d 1245, 1258 (10th Cir.2001)). Starrett asserts that the United States Court of Appeals for. the Tenth Circuit is “ ‘cautious about imposing liability for securities fraud based on reck^ less conduct,’ ” which is conduct that is “‘an extreme departure from the standards of ordinary care, and which presents a danger of misleading buyers or sellers that is either known to the defendant or is so obvious that the actor must have been aware of it.’ ” Starrett MTD at 31 (quoting City of Phila. v. Fleming Cos., Inc., 264 F.3d at 1260 ). Starrett contends that she may have fraudulent scienter based upon a non-disclosure only if she had “ ‘knowledge of a fact that was so obviously material that the defendant must have been aware both of its materiality and that its non-disclosure would likely mislead investors.’ ” Starrett MTD at 32 (quoting City of Phila. v. Fleming Cos., Inc., 264 F.3d at 1261 ).

Starrett contends that the SEC has not established that she had the requisite scienter through its allegations that “Starrett either knew (or was reckless in not predicting) the unprecedented margin call crisis that unfolded after the 10-K filing.” Starrett MTD at 32 (emphasis in original)(citing Complaint ¶¶ 9, 12, 14, at 4-5). Starrett asserts that the Tenth Circuit has rejected this basis of liability, finding that “ ‘there is no reason to assume that what is true at the moment plaintiff discovers it was also true at the moment of the alleged misrepresentation.’ ” Starrett MTD at 32 (quoting City of Phila. v. Fleming Cos., Inc., 264 F.3d at 1260 ). Starrett asserts that, when the 2007 Form 10-K was filed, she knew that: (i) “all outstanding margin calls had been met in full,” Starrett MTD at 33 (citing Complaint ¶ 6, at 3; id. ¶ 35, at 11); (ii) Thornburg Mortgage “had a ‘cushion’ of available cash to meet additional margin calls in the short term,” Starrett MTD at 33 (quoting Electronic Mail Transmission from Clay Simmons to Nyira Gitana, re: FW:TMA update (February 21, 2008, 9:30 a.m.), filed.May 21, 2012 (Doc. 38-3)(“Feb. 21 BOD Email”) 20 (citing Complaint ¶¶ 61, 66, at 18,19); and (iii) Thornburg. Mortgage had “plans both to soon raise $300 to $500 million or more in new capital through a public offering and to complete a $1 billion securitization,” Starrett MTD at 33 (citing Complaint ¶ 32, at 10; Electronic Mail Transmission from Larry Goldstone to Garrett Thornburg, et al. (February 22, 2008, 8:42 a.m.), filed *1111 May 21, 2012 (Doc. 38-4)(“Feb. 22 BOD Email”) 21 ). Starrett contends' that she had no way of knowing that a wave of margin calls would follow the filing of the 2007 Form 10-K, or that Thornburg Mortgage would be unable to satisfy those margin calls, as, she asserts, the margin calls was “an event unlike anything TMI had previously experienced.” Starrett MTD at 33 (citing.Complaint ¶32, at 10; id. ¶42, at 13; id. ¶ 102, at 29). Starrett contends that she cannot be held liable for her failure to predict the future or market forces beyond her control. See Starrett MTD at 33 (citing City of Omaha v. CBS Corp.; In re Radian Sec. Litig., 612 F.Supp.2d at 619 n. 25; Meyer v. St. Joe Co., No. 5:11-ev-27/RS-EMT, 2011 WL 3750324 , at *8, 2011 U.S. Dist. LEXIS 94576 , at **26-27 (N.D.Fla. Aug. 24, 2011)).

Starrett also contends that the negative disclosures in the 2007 Form 10-K negate any plausible inference of scienter. Starrett asserts that Thornburg Mortgage’s negative disclosures in the 20Ú7 Form 10-K undermine any inference that the Defendants “intentionally or recklessly misled the investing public or KPMG.” Starrett MTD at 34 (citing Plumbers and Pipefitters Local Union No. 719 Pension Trust Fund v. Conseco, Inc., No. 09 Civ. 6966 (JGK), 2011 WL 1198712 , at **6-8 (S.D.N.Y. Mar. 30, 2011); In re Home-Banc Corp. Sec. Litig., 706 F.Supp.2d 1336, 1357-58 (N.D.Ga.2010)). Starrett points out that the market’s negative response to the 2007 Form 10-K demonstrates that it understood the impact of Thornburg Mortgage’s negative disclosures: (i) Thornburg Mortgage’s “precarious financial condition”; (ii) the “margin call activity”; (iii) Thornburg Mortgage’s “dwindling liquidity”; and (iv) the “significant risks TMI faced due to turmoil in the márket for mortgage-based securities.” Starrett MTD at 33 (citing 2007 Form 10-K at 34-35, 48-49; Complaint ¶¶ 9, 32, at 4, 10).

Starrett points out that the 2007 Form 10-K discloses that Thornburg Mortgage had received margin calls “in excess of $300 million” and had met those calls at the time the 2007 Form 10-K was filed. Starrett MTD at 34 (quoting 2007 Form 10-K at 38-39). Starrett asserts that, because of the negative nature of this disclosure, the omission of any disclosures related to the terms of Thornburg Mortgage’s reverse repurchase agreement or the use of proceeds from I/O Strip Transactions to meet margin calls was immaterial. See Starrett MTD at 34-35 (citing Complaint ¶ 31, at 10; id. ¶¶ 65, 66, at 19). Starrett also contends that the 2007 Form 10-K fully disclosed Thornburg Mortgage’s liquidity constraints when it stated that “ ‘our liquidity position was severely impacted by the mortgage market events during the third quarter and fourth quarter of 2007,’ ” and that the “ ‘sudden decline in the valuation of [Thornburg’s Ali>A mortgage securities] has left us with reduced readily available liquidity to meet future margin calls.’ ” Starrett MTD at 35 (quoting 2007 Form 10-K at 39, 52-53). Starrett asserts that Thornburg Mortgage fully disclosed the risk of a default on its reverse repurchase agreements and foreclosure through the statement: “If we do not have sufficient unpledged assets or liquidity to meet these [Repo loan] requirements, we may need to sell assets under adverse market conditions or at losses.... Alternatively, the lender may terminate the lending agreement and sell *1112 the assets without our knowledge.... ” Starrett MTD at 36 (quoting 2007 Form 10-K at 25). Starrett contends that the SEC’s allegation that “‘more could have been disclosed’ ” is an attempt to show “ ‘fraud by hindsight,’ consistently rejected by the federal courts.” Starrett MTD at 36 (quoting In re Fannie Mae 2008 Sec. Litig., 742 F.Supp.2d 382, 402 (S.D.N.Y. 2010)).

Starrett asserts that the analysis whether Thornburg Mortgage had the “intent and ability to hold its ARM Securities until maturity or until their value recovered,” requires a complex accounting judgment, undermining the SEC’s allegations of fraudulent scienter. Starrett MTD at 37 (quoting Complaint ¶ 12, at 4-5). Starrett contends that the “OTTI analysis is far from straightforward.” Starrett MTD at 38 (citing Meyer v. St. Joe Co., 2011 WL 3750324 , at *12, 2011 U.S. Dist. LEXIS 94576 , at *37). Starrett contends that the OTTI analysis “requires the holder of impaired, securities to make subjective, complex judgment and to predict a future value of the impaired assets,” which is far from the SEC’s description of the OTTI analysis as “ ‘clear accounting guidance.’ ” Starrett MTD at 38 (quoting Complaint ¶ 12, at 5). Starrett points out that the SEC is aware that OTTI guidance was complex and dependent upon factors that “ ‘vary from case to case.’ ” Starrett MTD at 38-39 (quoting SEC Staff Accounting Bulletin No. 59, filed May 21, 2012 (Doc. 38-6)(“SAB 59”) 22 ). Starrett also points out that the OTTI accounting model in effect in 2008 has been proven unworkable and the FASB has since modified it. See Starrett MTD at 41-42 (citing Report and Recommendations Pursuant to section 133 of the Emergency Economic Stabilization Act of 2008: Study on Mark-to-Market Accounting at 30, 205, filed May 21, 2012 (Doc. 38-10)(“Mark-to-Market Study”); FASB Staff Position No. FAS 115-2 and FAS 124-2, ¶¶ 2, 4, 7, at 2, 3, 4, filed May 21, 2012 (Doc. 38-ll)(“FAS 115-2 & 124-2”); Minutes from FASB March 16, 2009 Board Meeting ¶ 9, at 4, filed May 21, 2012 (Doc. 38-12)(“March 16 FASB Minutes”); Minutes from FASB April 2, 2009 Board Meeting ¶ 12, at 6-7 filed May 21, 2012 (Doc. 38-13)(“April 2 FASB Minutes”). Starrett asserts that the FASB’s recognition that the pre-2009 OTTI guidance was “ ‘flawed and confusing’ .... weighs heavily against the notion that Ms. Starrett acted” with fraudulent scienter. Starrett MTD at 42 (quoting Apr. 2 FASB Minutes ¶ 12, at 4).

Starrett asserts that, because this statement was based upon her “reasonable belief in the accuracy of the information at her disposal ... and the undisputed complexity of OTTI accounting judgments, she did not have the requisite mental state to support securities fraud liability.” Starrett MTD at 37 (citing City of Omaha v. CBS Corp., 679 F.3d at 68-69 ; In re Bristol-Myers Squibb Sec. Litig., 312 F.Supp.2d 549, 567-68 (S.D.N.Y.2004); 2007 Form 10-K at 41). Starrett asserts that numerous federal courts have “refused to attribute scienter in cases involving difficult accounting judgments that later turn out to have been erroneous, and have dismissed securities fraud cases as a result.” Starrett MTD at 39 (citing In re Fannie Mae 2008 Sec. Litig., 742 F.Supp.2d at 408-09 ; City of Omaha v. CBS Corp.; In re Bell- *1113 South Sec. Litig., 355 F.Supp.2d 1350, 1375 (N.D.Ga.2005); SEC v. Price Waterhouse, 797 F.Supp. 1217, 1241 (S.D.N.Y. 1992)). Starrett asserts that, in In re Ra-' diah Sec. Litig., the United States District Court for the Eastern District of Pennsylvania was presented with similar, facts as those in the Complaint, and. found that, because the “impairment analysis involved a ‘range of reasonable business treatments permitted under GAAP,’ ... even if an impairment occurred earlier than [the defendant] had stated,” the plaintiff did not allege facts which demonstrated that the defendant’s “ ‘failure to report an impairment ... was an egregious departure from the range of reasonable business decisions, even in light of the deteriorating sub-prime market.’ ” Starrett MTD at 40 (quoting 612 F.Supp.2d at 615 , 6Í8). Starrett contends that, in In re Fannie Mae 2008 Sea Litig., the United States District Court for the Southern District of New York found that the “ ‘accounting rules governing the relevant practices [including OTTI analysis] are sufficiently flexible so as to encompass Fannie’s interpretation” whether its impairment was OTTI or an unrealized loss. Starrett MTD at 40 (quoting 742 F.Supp.2d at 408, 411 ). Starrett asserts that the SEC’s allegations that she should have concluded that Thornburg Mortgagees losses were other-than-temporary is, at most, an allegation that she did not comply with GAAP, and not an allegation of the commission of securities fraud. Starrett MTD at 37-38 (citing Complaint ¶ 51, at 15).

Starrett also asserts that Thornburg Mortgage’s restatement on March 11, 2008 undermines an inference of fraudulent scienter. Starrett argues that the restatement “‘standing alone, does not support an inference of scienter.’ ” Starrett MTD at 42 (quoting In re Thornburg Mortg., Inc. Sec. Litig., 695 F.Supp.2d at 1202-03 ). Starrett contends that punishing Thorn-burg Mortgage “ ‘when subsequent events disclose errors’ ” in its original 2007 Form 10-K would defeat “ ‘the core purpose of the securities laws.' ” Starrett MTD at 42 (quoting In re Segue Software, Inc. Sec. Litig., 106 F.Supp.2d 161, 170 (D.Mass. 2000)). Starrett contends that the Court has acknowledged the “unpredictable volatility of the market during 2007 and 2008,” and credited Thornburg Mortgage for disclosing “ ‘material facts quickly, after reasonable investigation.’ ” Starrett MTD at 43 (quoting In re Thornburg Mortg., Inc. Sec. Litig., 695 F.Supp.2d at 1212 ).

Starrett also argues that the SEC has not adequately alleged that she possessed a motive to mislead investors. Starrett asserts that the SEC’s allegations that the Defendants were “motivated by ‘imminent plans to raise additional cash and thereby alleviate [Thornburg’s] liquidity crisis’ ” does not adequately plead the concrete and particular facts necessary to show a motive to mislead. Starrett MTD at 43 (alteration in originalXquoting Complaint ¶ 4, at 2)(citing City of Phila. v. Fleming Cos., Inc., 264 F.3d at 1261-62, 1269 ). Starrett contends that the SEC has not alleged that she personally benefitted from the alleged misconduct, either through having sold stock or because her compensation was contingent on Thornburg Mortgage’s performance reported in the 2007 Form 10-K. See Starrett MTD at 43 (citing In re N. Telecom Ltd. Sec. Litig., 116 F.Supp.2d 446, 462 (S.D.N.Y.2000)).

Starrett asserts that the SEC has failed to allege facts showing that she had actual knowledge of Thornburg Mortgage’s alleged violation of §§ 10(b) and 13(a), and rules 13a-l and 12b-2 of the Exchange Act, and, thus, the SEC has not sufficiently pled a claim for aiding and abetting against Starrett. See Starrett MTD at 44 *1114 (citing SEC v. Lucent Techs., Inc., 610 F.Supp.2d at 362 ). Starrett asserts that, given the complexity of the OTTI accounting rules and their subsequent revision, “there is no plausible basis for the SEC’s contention that Ms. Starrett knew that TMI incorrectly applied those rules.” Starrett MTD at 44 (emphasis in original). Starrett asserts that she had no reason to doubt the validity of Thornburg Mortgage’s OTTI analysis and did not know before the 2007 Form 10-K was filed that it allegedly misstated Thornburg Mortgage’s unrealized losses as temporary. See Starrett MTD at 43-14 (citing SEC v. Espuelas, 579 F.Supp.2d 461, 485 (S.D.N.Y.2008) (Holwell, J.)).

Starrett further contends that the SEC has not alleged sufficient facts to show that she knowingly violated, or aided and abetted, Thornburg Mortgage’s alleged violation of the internal control provisions, in §§ 13(b)(5) and 13(b)(2) of the Exchange Act. Starrett first asserts that the SEC “relies on impermissible puzzle pleading” by incorporating by reference the Factual Background into its claims for relief, “paraphrasing the relevant securities law provisions, and then stating that Defendants violated these provision.” Starrett MTD at 45 (citing Complaint ¶¶ 120-122, at 34; id. ¶¶ 136-39, at 37-38). Starrett asserts that this pleading tactic is improper because it leaves the Court and the Defendants to decipher which facts apply to which stated violation and claim for relief. See Starrett MTD at 45-46 (citing SEC v. Fraser, No. CV-09-00443-PHX-GMS, 2009 WL 2450508 , at *14, 2009 U.S. Dist. LEXIS 70198 , at **45-46 (D.Ariz. Aug. 11, 2009)). Starrett further contends that “internal controls” within the meaning of the Exchange Act refers to policies and procedures, and the SEC has not “identified any policies or procedures, let alone alleged that relevant controls were flawed or circumvented,” or that superior controls could have been implemented. Starrett MTD at 46 (citing 17 C.F.R. § 240 .13a-15(f)). • Starrett thus contends that the SEC has made only “[Unsupported, eonclusory assertions” which “satisfy neither the plausibility nor the particularity pleading standards of the Federal Rules.” Starrett MTD at 46 (citing SEC v. Fraser, 2009 WL 2450508 , at **14-15, 2009 U.S. Dist. LEXIS 70198 , at **47-48).

Starrett also asserts that internal controls need not be perfect to satisfy § 13(b)(2)’s requirements. Starrett points out that KPMG concluded that Thornburg Mortgage’s internal controls were adequate. She also contends that the evaluation of the sufficiency of internal controls “ ‘is inevitably a highly subjective process in which knowledgeable [sic] individuals can arrive at totally different conclusions.’ ” Starrett MTD at 48 (quoting SEC v. World-Wide Coin Inv., Ltd., 567 F.Supp. 724, 751 (N.D.Ga.1983)). Starrett asserts that KPMG’s and Thornburg Mortgage’s evaluation of the internal controls as effective “refutes the notion that deficient internal controls had caused the error in the 10-K.” Starrett MTD at 47 (citing In re Bausch & Lomb, Inc. Sec. Litig., 592 F.Supp.2d at 341 ).

Starrett also contends that the SEC did not plausibly allege that she knowingly violated, or aided and abetted, Thornburg Mortgage’s alleged violation of the record keeping provisions in §§ 13(b)(5), 13(b)(2)(A), and rule 13b2-l of the Exchange Act. Starrett asserts that the Complaint does not clearly set forth which of the Defendants’ conduct forms the basis of the SEC’s claims under §§ 13(b)(5), 13(b)(2)(A), and rule 13b2-l of the Exchange Act, and thus the Complaint does not meet rule 9(b)’s pleading requirements. See Starrett MTD at 47-48. Starrett also contends that the SEC has not shown that the Defendants “knew that TMI’s OTTI *1115 accounting was incorrect, or acted unreasonably or recklessly with respect to the impairment analysis.” Starrett MTD at 48. Starrett asserts that the “ ‘clarity of authoritative accounting guidance with respect to the misstatement’ is one of the factors to be considered” in deciding whether a registrant violated the duty to keep books and records in accurate, reasonable detail, and asserts that the SEC has since found that the OTTI guidance in effect at the time the 2007 Form 10-K was filed was flawed, confusing, and challenging to apply. Starrett MTD at 48 (quoting SEC Staff Accounting Bulletin No. 99— Materiality, at 3-4, filed May 21, 2012 (Doc. 38-15)(“SAB 99”). Starrett asserts that the complexities and difficulties of applying the OTTI guidance when the 2007 Form 10-K was filed makes the SEC’s allegations that the “Defendants acted knowingly or recklessly in applying the OTTI model” implausible. Starrett MTD at 48.

Last, Starrett contends that the SEC has not alleged sufficient facts to allow a plausible inference that she concealed material information, or otherwise misled KPMG, in violation of Exchange Act rule 13b2-2. Starrett contends that the information allegedly withheld from KPMG was “either: (i) not in Starrett’s possession,” such as the Citigroup Global Letter; (ii) “disclosed to KPMG,” such as Thornburg Mortgage’s margin call situation; and/or (iii) “not material,” such as the I/O Strip Transactions. Starrett MTD at 49. Starrett thus asserts that the SEC has not alleged sufficient facts to make its claim against her under Exchange Act rule 13b2-2 plausible. See Starrett MTD at 49 (citing SEC v. Espuelas, 579 F.Supp.2d at 487 ).

5. The Defendants’ Request for Judicial Notice.

The Defendants request that the Court take judicial notice of the documents they attached to their motions to dismiss. See Request for Judicial Notice in Support of Defendants’ Motions to Dismiss Complaint, at 1-2, filed May 21, 2012 (Doc. 39)(“Request for Judicial Notice”). The documents fall into the following categories:

1. Reports filed with the [SEC] by Thornburg Mortgage, Inc. and other relevant public companies;

2. Reports by securities analysts and news reports concerning Thornburg during the relevant time period;

3. Correspondence, legal agreements, memoranda and other documents cited by Plaintiff in the Complaint;

4. SEC and FASB publications regarding applicable accounting standards;

5. Widely reported facts relating to the financial crisis of 2007-08;

6. Publicly available historical stock price and stock index information; and

7. Public testimony, reports and statements by government regulators.

Request for Judicial Notice at 1-2. The Defendants assert that the Court should “consider the full text of Defendant’s email communications and Thornburg’s SEC filings, which are partially quoted in, and are integral to the theories of, the SEC Complaint.” Request for Judicial Notice at 2-3 (citing In re Thornburg Mortg., Inc. Sec. Litig., 695 F.Supp.2d at 1188 ; City of Phila. v. Fleming Cos., Inc., 264 F.3d at 1251 n. 4; GFF Corp. v. Assoc.’d Wholesale Grocers, 130 F.3d 1381, 1384 (10th Cir. 1997)). The Defendants also assert that the Court “ ‘may take judicial notice of ... documents that are required by law to be filed with the SEC,’ such as Forms 10-K and Forms 10-K/A.” Request for Judicial Notice at 3 (quoting In re Bausch & Lomb, *1116 Inc., Sec. Litig., 592 F.Supp.2d at 338 ). The Defendants assert that the same principle applies to: (i) records and reports of administrative bodies; (ii) testimony before legislative bodies; (iii) and public agency filings. Request for Judicial Notice at 3 (internal quotations omitted)(citing In re Intelligroup Sec. Litig., 527 F.Supp.2d 262, 274 (D.N.J.2007); E & J Gallo Winery v. EnCana Energy Seros., Inc., No. CY F 03-5412 AWI LJO, 2008 WL 4224492 , at *6 (E.D.Cal. Sept. 12, 2008); Kavowras v. New York Times Co., 328 F.3d 50, 57 (2d Cir.2003); Wible v. Aetna Life Ins. Co., 375 F.Supp.2d 956, 965 (C.D.Cal.2005)). The Defendants assert that within the Tenth Circuit it is proper to take judicial notice of “an official government publication.” Request for Judicial Notice at 3 (citing Clappier v. Flynn, 605 F.2d 519, 535 (10th Cir.1979)).

The Defendants thus assert that, because the accounting standards “ ‘are not subject to reasonable dispute,’ ” and are “‘capable of accurate and ready determination by resort to sources whose accuracy cannot reasonably be questioned,’ ” the Court may properly take judicial notice of those documents. Request for Judicial Notice at 3 (quoting Fed.R.Evid. 201(b)(2)). The Defendants also assert that the Court may take “judicial notice of news reports demonstrating the market’s awareness of certain facts and of events widely reported during the financial crisis.” Request for Judicial Notice at 4 (citing Lane v. Page, 649 F.Supp.2d 1256, 1301 (D.N.M.2009) (Browning, J.)). The Defendants assert that “a court may take judicial notice of historical stock price information and movement in stock price indexes.” Request for Judicial Notice at 4 (citing Katyle v. Penn Nat. Gaming, Inc., 637 F.3d 462, 466 (4th Cir.2011); La Grasta v. First Union Sec., Inc., 358 F.3d 840, 842 (11th Cir.2004); In re Acterna Corp. Sec. Litig., 378 F.Supp.2d 561, 572 (D.Md. 2005)).

6. The SEC’s Response to the Gold-stone & Simmons MTD.

The SEC asserts that the Defendants are attempting to “prematurely get to the merits of this case” by arguing that then-version of the facts, as supported by documents “not alleged at all” in the Complaint and “interpreted the way they argue they should be, show that they did not make any misstatements or intend to deceive.” Plaintiffs Response to the Motion to Dismiss on behalf of Defendants Larry Gold-stone and Clarence G. Simmons at 11-12, filed June 20, 2012 (Doc. 50)(“Response to Goldstone & Simmons MTD”). The SEC asserts that the Complaint does not allege fraud-by-hindsight, but rather sets forth that Goldstone and Simmons knew, or recklessly disregarded, material information “when they filed Thornburg’s Form 10-K, a filing timed to fall within the narrow window after which Thornburg had managed to meet its outstanding margin calls — ... through their lenders’ forbearance.” Response to Goldstone & Simmons MTD at 12. The SEC asserts that its allegations against Goldstone also demonstrate his knowledge after the 2007 Form 10-K was filed, before he spoke on Street Signs. The SEC argues that the Complaint sets forth the Defendants’ “intent to mislead in several ways, perhaps most strikingly in their email acknowledge[ing] that they were ‘purposely’ not telling KPMG about the lending agreement breaches.” Response to Goldstone & Simmons MTD at 12. In its Response to Goldstone & Simmons MTD, the SEC addresses issues in the Goldstone & Simmons MTD which overlap with those raised in the Starrett MTD. See Response to Goldstone & Simmons MTD at 10.

*1117 The SEC asserts that Goldstone and Simmons improperly reference documents outside of the Complaint in the Goldstone & Simmons MTD. The SEC also maintains that Goldstone and Simmons have “misconstrued” or “cited for a completely different proposition” the documents which are referenced in the Complaint. Response to Goldstone & Simmons MTD at 12. The SEC asserts that judicially noticed documents “should not be considered for the truth of any statements therein.” Response to Goldstone & Simmons MTD at 13-14 (citing In re Thornburg Mortg., Inc., Sec. Litig., No. CIV 07-0815 JB/ WDS, 2009 WL 5851089 , at *2 (D.N.M. Dec. 21, 2009)(Browning, J.)(secondary citation omitted)). The SEC notes that the Court may consider “documents to which the complaint refers, if the documents are central to the plaintiffs claims and the parties do not dispute their authenticity.” Response to Goldstone & Simmons MTD at 14 (citing In re Thornburg Mortg., Inc., Sec. Litig., 2009 WL 5851089 , at *2)(sec-ondary citation omitted). The SEC states that the documents which Goldstone and Simmons attached that are also cited in the Complaint may be considered to show their contents, and that “accounting standards and public testimony, reports, and statements by government regulators ... may be cited, ... for the fact that they were published and say what they say, but no more.” Response to Goldstone & Simmons MTD at 14. The SEC contends that the Court should not consider any other documents in ruling on the Defendants’ motions to dismiss, including: (i) reports by securities analysts, newspaper reporters, and bloggers; and (ii) “compilations prepared by Defendants’ counsel (Exs. 3-5, 18, 19, 29-31, 36).” Response to Goldstone & Simmons MTD at 14. The SEC asserts that the Court should disregard the 2008 Form 8-K, filed May 21, 2012 (Doc. 37-37)(“Apr. 18-K”), because it states that “ ‘Thornburg successfully raised $1.35 billion in new capital,’ ” which the SEC- contends is only relevant if true. Response to Goldstone & Simmons MTD at 15 (quoting 2008 Form 8-K at 3).

The SEC contends that the Defendants make numerous references to the attached documents “for the truth of statements made therein.” Response to Goldstone & Simmons MTD at 15 (citing Deck of Stephen McKenna in Opposition to Defendants’ Motion to Dismiss, filed June 20, 2012 (Doc. 51)(“McKenna Deck”)). The SEC asserts that the Defendants’ reference to the attached documents is an attempt to generate an evidentiary record, which the SEC contends is inappropriate for the Court to consider on a motion to dismiss. See Response to Goldstone & Simmons MTD at 16 (citing Sutton v. Utah State Sch. for the Deaf & Blind, 173 F.3d 1226, 1236 (10th Cir.1999); In re Network Equip. Techs., Inc., Litig., 762 F.Supp. 1359, 1363 (N.D.Cal.1991)). The SEC also contends that Goldstone & Simmons have attempted to demonstrate a disputed issue of fact, which the SEC asserts is an inappropriate inquiry for the Court when ruling on a motion to dismiss. See Response to Goldstone & Simmons MTD at 15 (citing Goldstone & Simmons MTD at 11).

The SEC contends that it may plead scienter generally. See Response to Goldstone & Simmons MTD at 13 (citing Fed. R.Civ.P. 9(b); SEC v. Gordon, No. 09-CV-0061, 2009 WL 1652464 , at *3 (N.D.Okla. June 11, 2009); SEC v. Arnold, No. 03-CV-0328-REB-OES, 2007 WL 2786428 , at *3 (D.Colo. Sept. 24, 2007)). The SEC contends that the Complaint has put the Defendants on adequate notice of the claims against them, and thus has satisfied rule 9(b)’s pleading standard. See Response to Goldstone & Simmons MTD at 18 (citing Odom v. Microsoft Corp., 486 F.3d 541, 553 (9th Cir.2007); Schwartz v. *1118 Celestial Seasonings, Inc., 124 F.3d 1246, 1252 (10th Cir.1997); Unified Container, LLC v. Mazuma Capital Corp., 280 F.R.D. 632, 638-39 (D.Utah 2012)).

. The SEC asserts that it has specifically identified the allegations against each Defendant, and, thus, the Court should not dismiss the Complaint on grounds that the SEC inappropriately engaged in ‘“puzzle pleading’ ” or “ ‘shotgun pleading.’ ” Response to Goldstone & Simmons MTD at 19 (quoting Starrett MTD at 36-37; Gold-stone & Simmons MTD at 53). The SEC contends that it has put the Defendants on notice of its allegations that the 2007 Form 10-K contained misstatements, and that the Defendants made materially misleading statements to Thornburg Mortgage’s investors and to KPMG, making the SEC’s allegations in the Complaint sufficient under rules 8(a)(2) and 9(b). See Response, to Goldstone & Simmons MTD at 19-20 (citing SEC v. Das, No. 8:10CV102, 2010 WL 4615336 , at *6 (D.Neb. Nov. 4, 2010); In re Williams Sec. Litig., 339 F.Supp.2d 1242, 1261 (N.D.Okla.2003)). The SEC asserts that the Tenth Circuit has specifically approved of “incorporating paragraphs of a complaint” into claims against defendants. Response to Goldstone & Simmons MTD at 20 (citing Schwartz v. Celestial Seasonings, Inc., 124 F.3d at 1253 ).

The SEC also disputes the Defendants’ assertion that rule 9(b) applies to the SEC’s claims under § 13 because they “purportedly ‘sound in fraud.’ ” Response to Goldstone & Simmons MTD at 20 (quoting Goldstone & Simmons MTD at' 29; Starrett MTD at 6). The SEC asserts that case law has not clearly established such a rule. See Response to Goldstone & Simmons MTD at 20 (citing Vess v. Ciba-Geigy Corp. USA 317 F.3d 1097, 1105 (9th Cir.2003); Schwartz v. Celestial Seasonings, Inc., 124 F.3d at 1251-52 ; In re Thornburg Mortg., Inc. Sec. Litig., 695 F.Supp.2d at 1190 ; SEC v. Sys. Software Assocs., Inc., 145 F.Supp.2d 954, 958 (N.D.Ill.2001)).

The SEC contends that it has alleged facts that, if proven true, would support its claims of fraud against the Defendants and entitle the SEC to relief. See Response to Goldstone & Simmons MTD at 21-24. The SEC contends that the ninety-percent drop in Thornburg Mortgage’s stock price on March 11, 2012, when it admitted that it “violated lending agreements and restated its materially misleading financial statements by ... recognizing the massive losses associated with its ARM Securities,” is evidence that the 2007 Form 10-K did not tell “the whole story” when compared with the eighteen-percent drop in Thornburg Mortgage’s stock prices on the day the 2007 Form 10-K was filed. Response to Goldstone & Simmons MTD at 24 (citing Complaint ¶ 47, at 14; Goldstone & Simmons MTD at 21).

The SEC asserts that it sufficiently alleged material misstatements and omissions in connection with the 2007 Form 10-K. The SEC asserts that the Defendants’ argument that the 2007 Form 10-K was “ ‘accurate and not misleading,’ ” is “belied by the restatement, which by definition corrects prior inaccurate statements.” Response to Goldstone & Simmons MTD at 24 (quoting Goldstone & Sinjmons MTD at 30)(eiting SEC v. Kelly, 663 F.Supp.2d 276, 285 (S.D.N.Y.2009)). The SEC asserts that the Defendants’ “ ‘extensive disclosure about the bottom-line bad news for Thornburg’ ” does not make the 2007 Form 10-K accurate and not misleading. Response to Goldstone & Simmons MTD at 26 (quoting Complaint ¶ 24, at 8). The SEC contends that the Defendants’ failure to disclose that it had not met margin calls from three lenders in accordance with the terms of their reverse repurchase agreements, and that its underlying assets col *1119 lateralizing those agreements could have been seized, was a material omission. See Response to Goldstone & Simmons MTD at 25-26 (citing Ganino v. Citizens Utils. Co., 228 F.3d 154 , 164 (2d Cir.2000); Grossman v. Novell, Inc., 120 F.3d at 1119-20 ; In re Thornburg Mortg., Inc. Sec. Litig., 695 F.Supp.2d at 1214-15 ). The SEC asserts that the Defendants’ citation to Fulton Cnty. Emps. Ret. Sys. • v. MGIC Inv. Corp. is inapposite, because the plaintiffs in that case did not allege “that the company falsely stated it had successfully met margin calls when it fact it had ■ been in breach of its lending agreements and thus subject to default and seizure of its assets,” as the SEC alleges in the Complaint. Response to Goldstone & Simmons MTD at 26 (citing 675 F.3d at 1049 ; Gold-stone & Simmons MTD at 31). The SEC also asserts that Payne v. DeLuca is distinguishable from the facts in the Complaint, because in that case, the plaintiffs failed to point to any procedure which required disclosure of the company’s difficulty in meeting financial obligations, whereas the SEC asserts that the Defendants “violated accounting standards by improperly failing to recognize an other than temporary impairment on its ARM Securities.” Response to Goldstone & Simmons MTD at 27 (citing Payne v. De-Luca, 433 F.Supp.2d at 594 ; Complaint ¶¶ 50, 54, 46, at 15-16). The SEC also asserts that its alleged omissions are distinguishable from those which the Court found to be immaterial in In re Thornburg Mortg., Inc. Sec. Litig., because the SEC has alleged that Thornburg Mortgage “made affirmative misrepresentations concerning its intent and ability to hold assets, margin call activity, and its income, as well as various omissions,” whereas in In re Thornburg Mortg., Inc. Sec. Litig., the alleged'omissions were not subject to restatement and did not include affirmative misrepresentations. Response to Gold-stone & Simmons MTD at 27 (citing 695 F.Supp.2d at 1208 ).

The SEC contends that the Defendants had a duty to disclose the omitted information. The SEC first asserts that it has alleged not only a duty to disclose, but also that the Defendants “materially misstated Thornburg’s income by over $400 million and reported a profit instead of a loss,” an allegation which the SEC contends that the Defendants “conveniently overlook :.. in arguing no duty to disclose.” Response to Goldstone & Simmons MTD at 28. The SEC also asserts that the Defendants have misstated the Tenth Circuit’s holding in Connett v. Justus Enters, of Kan., Inc., because the Tenth Circuit imposes liability for a failure to disclose when “ ‘the duty to disclose exists and the withheld information is material,’ ” Connett, 68 F.3d at 385, and not only when a “ ‘previous statement is false or later turns out to be false.’ [ (Goldstone & Simmons MTD at 33) ].” Response to Goldstone & Simmons MTD at 28. The SEC contends that an omission “may be actionable even if the statement that requires disclosure of the omission is true.” Response to Goldstone & Simmons MTD at 28-29 (citing Operating Lopal 619 Annuity Trust Fund v. Smith Barney Fund Mgmt., LLC, 595 F.3d 86, 92 (2d Cir.2010); SEC v. Gabelli, 653 F.3d 49, 57 (2d Cir.2011); SEC v. First Am. Bank & Trust Co., 481 F.2d 673, 678 (8th Cir. 1973)). The SEC asserts that the proper standard to apply is: “ ‘[W]hen defendants ■ voluntarily disclose information, they have a duty to disclose additional material facts only to the extent that'the volunteered disclosure was misleading as to a material fact.’ ” Response to Goldstone & Simmons MTD at 29 (emphasis added)(quoting In re Thornburg Mortg., Inc. Sec. Litig., 695 F.Supp.2d at 1209 )(secondary quotation omitted).

*1120 The SEC contends that the Defendants’ statement that Thornburg Mortgage had not sold any assets to meet its margin calls created a duty to disclose the I/O Strip Transactions. See Response to Goldstone & Simmons MTD at 29 (citing Complaint ¶ 65, at 19). The SEC contends that, because Thornburg Mortgage stated it did not need to sell assets to meet its margin calls, Thornburg Mortgage implied that it had sufficient cash and liquidity to meet its margin calls, which makes the I/O Strip Transactions material information relevant whether Thornburg Mortgage’s cash and liquidity were sufficient to meet its margin calls. The SEC argues that Simmons misrepresented to KPMG that the I/O Strip Transactions were “done to take advantage of opportune pricing, not to meet margin calls,” which further demonstrates that the I/O Strip Transactions were not “.‘so obviously unimportant to a reasonable investor that reasonable minds could not differ on the question of their importance.’ ” Response to Goldstone & Simmons MTD at 30 (quoting SEC v. Gabelli 653 F.3d at 57-58 ). The SEC contends that McDonald v. Kinder-Morgan, Inc. is inapposite, because the Defendants undertook the I/O Strip Transactions which “it had already been forced to undertake to meet margin calls,” whereas the defendants in McDonald v. Kinder-Morgan, Inc. failed to disclose “contingencies-that might alter the company’s future revenue pricing.” Response to Goldstone & Simmons MTD at 30 (citing 287 F.3d at 998 ). The SEC contends that the Defendants’ actions are more like those in SEC v. Gabelli in which the defendants “failed to disclose something it had done that was inconsistent with the inference to be drawn from its representation to investors.” Response to Goldstone & Simmons MTD at 30 (citing 653 F.3d at 57 ).

The SEC also contends that Thornburg Mortgage’s statement that it had met all margin calls created a duty to disclose that it had not met the margin calls within the terms of its reverse repurchase agreements, and was not in default only through lender forbearance. The SEC asserts that Thornburg Mortgage should have stated only that it successfully met margin calls if it had complied with the terms of its reverse repurchase agreements. The SEC argues that the Defendants do not escape liability for this omission simply because the 2007 Form 10-K did not state that Thornburg Mortgage had complied with its reverse repurchase agreements. See Response to Goldstone & Simmons MTD at 31 (citing Goldstone & Simmons MTD at 35).

The SEC also contends that the existence of the Citigroup Global Letter evidences that Thornburg Mortgage was in breach of its reverse repurchase agreement with Citigroup Global, and that the Defendants have improperly asked the Court to interpret the language of the Citigroup Global Letter in a light favorable to the Defendants. See Response to Gold-stone & Simmons MTD at 31-32 (citing Goldstone & Simmons MTD at 36; Citigroup Global Repo. Agreement). The SEC asserts that Thornburg Mortgage’s breach of the Citigroup Global Repo Agreement and its reverse repurchase agreements with two other lenders- was material information, because it “ ‘would inform investors that, at any moment, Thornburg Mortgage, Inc., could be broke which would tend to influence how one might invest money.’ ” Response to Goldstone & Simmons MTD at 32 (quoting In re Thorn-burg Mortg., Inc. Sec. Litig., 695 F.Supp.2d at 1214-15 ). The SEC argues that the Defendants’ assertion they were not in breach of the reverse repurchase agreements is a factual question appropriate for a jury to decide, and is not an assertion that the Court should consider *1121 on a motion to dismiss. The SEC asserts that the Defendants have mischarácterized the SEC’s allegations by contending that they did not need ‘“to disclose precisely how margin call obligations are met,’ ” because the Defendants’ misrepresentations were based upon their failure to disclose that Thornburg Mortgage had breached three reverse repurchase agreements, not the failure to disclose the details of Thorn-burg Mortgage’s margin call payments. Response to Goldstone & Simmons MTD at 32 (quoting Goldstone & Simmons MTD at 36). The SEC asserts Baron v. Smith is distinguishable because, in Baron v. Smith the information which the Defendants allegedly withheld was not information “ ‘of which the market is already aware,’ ” such as the effect which a company’s bankruptcy filing had on a loan guarantee in Baron v. Smith. Response to Goldstone & Simmons MTD at 33 (quoting 380 F.3d at 57 ).

The SEC contends that it has not alleged fraud-by-hindsight, because the Defendants’ misrepresentations and omissions were concerning past margin calls and income. The SEC asserts that its allegations of the Defendants’ fraud in filing the 2007 Form 10-K arise out of the Defendants’ knowledge of past events, including Thornburg Mortgage’s liquidity crisis, its exposure to default and cross-default notices, its receipt of the Citigroup Global Letter, and that the Defendants had conducted I/O Strip Transactions to meet margin calls. The SEC first contends that the Defendants have provided citations to cases which analyze scienter under “the heightened standard of the [Private Securities Litigation Reform Act of 1996, Pub.L. No. 104-67, 109 Stat. 737 (1995)(codified as amended in scattered sections of 15 U.S.C.)(“PSLRA”) ], which is inapplicable here as the SEC need only plead scienter generally.” Response to Goldstone & Simmons MTD at 34 (citing SEC v. Kovzan, 807 F.Supp.2d at 1039 n. 6). The SEC also asserts that the Defendants’ reliance on City of Phila. v. Fleming Cos., Inc., is inappropriate, because, in that casé, the plaintiffs “failed to plead any particular facts by which the court could plausibly infer that two defendants even knew about the litigation,” whereas the SEC has pled that the Defendants “knew or were reckless in not knowing that the statements in Thornburg’s Form 10-K regarding liquidity, margin calls, and income were false at the time they were made.” Response to Goldstone & Simmons MTD at 35-36 (citing 264 F.3d at 1263 ; Complaint ¶ 38, at 12; id. ¶ 40, at 12; id. ¶ 30, at 9-10). The SEC further argues that the margin calls Thornburg Mortgage received on February 28, 2008, were not “ ‘unprecedented.’ ” Response to Gold-stone & Simmons MTD at 36 (quoting Goldstone & Simmons MTD at 1, 22; Starrett MTD at 1,10, 23). ■ The SEC contends that the approximately $200 million in margin calls which Thornburg Mortgage received on February 28, 2008, cannot be unprecedented, given that Citigroup Global issued a margin call of $196 million only two weeks prior, and six months earlier Thornburg Mortgage received two billion dollars in margin calls. See Response to Goldstone & Simmons MTD at 36 (citing Complaint ¶¶ 26, 29, 33, at 8-10).

The SEC also contends that it has sufficiently alleged that the Defendants acted with fraudulent scienter: “an intent to deceive, manipulate, or defraud — in other words, acted with a mental state known as scienter.” Response to Goldstone & Simmons MTD at 37 (quoting In re Thornburg Mortg., Inc. Sec. Litig., 695 F.Supp.2d at 1187 ). The SEC asserts that it is not bound by the “ ‘strong inference’ of scienter” standard which rules fraud cases under the PSLRA. Response to Goldstone & Simmons MTD at 38 (quoting Tellabs, *1122 Inc. v. Malcor Issues & Rights, Ltd., 551 U.S. 308, 324 , 127 S.Ct. 2499 , 168 L.Ed.2d 179 (2007))(citing SEC v. Mannion, 789 F.Supp.2d 1321, 1334 (N.D.Ga.2011)). The SEC contends that the Defendants have not cited to a single case in which scienter was alleged under the standard applicable in this case, but rather that the Defendants have cited only to cases decided under the PSLRA’s higher requirement. See Response to Goldstone & Simmons MTD at 43-44. The SEC argues that the “Complaint leaves no doubt that Defendants were aware that the Form 10-K contained material misstatements at the time it was filed.” Response to Goldstone & Simmons MTD at 38-39 (citing Complaint ¶¶ 60-64, at 17-19; id. ¶¶ 66-71, at 19-21; id. ¶ 79, at 23; id. ¶ 11, at 4; id. ¶¶ 46-47, at 14; Complaint ¶¶ 72-74, at 21-22).

The SEC contends that the Defendants’ “negative disclosures” do not “ ‘negate any inference of scienter.’ ” Response to Gold-stone & Simmons MTD at 39 (quoting Goldstone & Simmons MTD at 40). The SEC asserts that the Defendants’ disclosure of Thornburg Mortgage’s future risk of default does not negate the falsity of its statement that it had “ ‘successfully’ met the margin calls” and that it had the “intent and ability to hold the ARM Securities until recovery,” and the Defendants’ failure to “recognize an income statement loss of approximately $428 million for Thornburg’s ARM Securities.” Response to Goldstone & Simmons MTD at 40 (citing Complaint ¶¶ 5, 7, at 3; id. ¶ 11, at 4; id. ¶ 32, at 10; id. ¶ 38, at 12; id. ¶¶ 53-54, at 16; id. ¶¶ 68-71, at 20-21; id. ¶¶ 79-80, at 23; id. ¶ 83, at 24). The SEC asserts that the Defendants’ negative disclosures do not negate the existence of their motive to make false statements: “to keep the margin call situation quiet and then quickly raise additional cash.” Response to Goldstone & Simmons MTD at 41 (citing Complaint ¶ 32, at 10). Finally, the SEC asserts that the Defendants’ negative disclosures do not remedy the falsity of other statements they made, specifically the SEC’s allegations that the Defe

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