Petition for Writ of Certiorari — BDO USA, LLP, Petitioner v. New England Carpenters Guaranteed Annuity and Pension Funds, et al.

Supreme Court briefMay 7, 2025

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APPENDICES

TABLE OF CONTENTS

APPENDIX A – Amended Opinion of the U.S. Court

of Appeals, Second Circuit (Oct. 31,

2024) ........................................................ 1a

APPENDIX B – Opinion of the U.S. Court of

Appeals, Second Circuit (Aug. 23,

2023) ...................................................... 41a

APPENDIX C – Memorandum Opinion of the U.S.

District Court, Southern District of

New York (Sep. 9, 2019) ........................ 78a

APPENDIX D – Memorandum Opinion of the U.S.

District Court, Southern District of

New York (Apr. 20, 2020) .................... 158a

APPENDIX E – Order of the U.S. Court of Appeals,

Second Circuit Denying BDO’s

request for en banc rehearing

(Jan. 7, 2025) ....................................... 166a

APPENDIX A

United States Court of Appeals

For the Second Circuit

August Term, 2020

Argued: June 4, 2021

Decided: August 23, 2023

Amended: October 31, 2024

Docket No. 20-1643-cv

NEW ENGLAND CARPENTERS GUARANTEED ANNUITY AND

PENSION FUNDS,

Lead Plaintiff-Appellant,

STANLEY NEWMARK, IRVING LICHTMAN REVOCABLE

LIVING TRUST, JUPITER CAPITAL MANAGEMENT,

Plaintiff-Movant-Appellants,

SHARON ALBANO, Individually and On Behalf of All

Others Similarly Situated,

Consolidated-Plaintiff-Movant-Appellant,

JOHN SACHETTI, Individually and On Behalf of All

Others Similarly Situated,

Consolidated-Plaintiff,

JOEL RUBEL, Individually and On Behalf of All

Others Similarly Situated,

Plaintiff,

DONALD T. DECARLO, SUSAN C. FISCH, ABRAHAM

GULKOWITZ, GEORGE KARFUNKEL, JAY J. MILLER,

Consolidated-Defendants-Appellees,

AMTRUST FINANCIAL SERVICES, INC., BARRY D.

ZYSKIND, RONALD E. PIPOLY, JR., BDO USA, LLP, RBC

CAPITAL MARKETS, LLC, UBS SECURITIES LLC,

CITIGROUP GLOBAL MARKETS INC., KEEFE, BRUYETTE &

WOODS, INC., MORGAN STANLEY & CO. LLC,

Defendants-Appellees.

Before:

LOHIER, NARDINI, Circuit Judges

KOVNER, Judge. *

The Appellants, investors in the securities of AmTrust

Financial Services, Inc., appeal from a judgment of the

United States District Court for the Southern District of

New York (Kaplan, J.) dismissing their complaint for

failure to state a claim under Sections 11, 12, and 15 of the

Securities Act of 1933 and Section 10(b) of the Securities

Exchange Act of 1934 against AmTrust, various AmTrust

corporate officers and board members, AmTrust’s outside

auditor, and multiple underwriters of AmTrust’s sale of

securities. The District Court determined that certain

public misstatements relating to AmTrust’s recognition of

revenue generated by its extended warranty contracts and

the expenses associated with its payment of discretionary

employee bonuses were non-actionable statements of

opinion. We conclude that these misstatements of opinions

were actionable under the circumstances alleged in the

Appellants’ complaint. We further conclude that the

District Court erred in dismissing the Appellants’ claims

under Section 10(b) and Rule 10b-5 against AmTrust’s

outside auditor. We identify no error in the District Court’s

dismissal of the Appellants’ remaining claims. We

therefore AFFIRM in substantial part, VACATE in part,

and REMAND the case for further proceedings.

ANDREW S. LOVE (Susan K. Alexander, Robbins Geller

Rudman & Dowd LLP, San Francisco, CA; Samuel H.

Rudman, David A. Rosenfeld, Mark T. Millkey,

Judge Rachel P. Kovner, of the United States District Court for the

Eastern District of New York, sitting by designation.

William J. Geddish, Avital O. Malina, Robert D.

Gerson, Vincent M. Serra, Robbins Geller Rudman &

Dowd LLP, Melville, NY; Jeremy A. Lieberman,

Pomerantz LLP, New York, NY; Thomas J. McKenna,

Gainey McKenna & Egleston, New York, NY; Kim E.

Miller, Kahn Swick & Foti, LLC, New York, NY, on the

brief), Robbins Geller Rudman & Dowd LLP, San

Francisco, CA, for Plaintiffs-Appellants.

STEVEN M. FARINA (John S. Williams, Matthew J.

Greer, on the brief), Williams & Connolly LLP,

Washington, D.C., for Defendants-Appellees AmTrust

Financial Services, Inc., Barry D. Zyskind, Ronald E.

Pipoly, Jr., Donald T. DeCarlo, Susan C. Fisch,

Abraham Gulkowitz, George Karfunkel, and Jay J.

Miller.

TIMOTHY E. HOEFFNER (Jason D. Gerstein, Ludwig von

Rigal, on the brief), McDermott Will & Emery LLP,

New York, NY, for Defendant-Appellee BDO USA, LLP.

GREGG L. WEINER (Christopher Thomas Brown, Ropes

& Gray LLP, New York, NY; William T. Davison, Ropes

& Gray LLP, Boston, MA), Ropes & Gray LLP, New

York, NY, for Defendants-Appellees Morgan Stanley &

Co. LLC, Citigroup Global Markets Inc., UBS

Securities LLC, RBC Capital Markets, LLC, and Keefe,

Bruyette & Woods, Inc.

LOHIER, Circuit Judge:

When is a statement of opinion that reflects some

subjective judgment nevertheless actionable under the

federal securities laws?

On April 4, 2017, AmTrust Financial Services, Inc., one

of the country’s largest publicly traded property and

casualty insurers, restated five years of its financial results

to correct what it acknowledged were significant errors in

its annual and quarterly reports filed with the Securities

and Exchange Commission (“SEC”). Among other things,

AmTrust disclosed that it had improperly recognized most

of the expected revenue from certain extended warranty

contracts at the start rather than over the life of the

contracts. AmTrust also reported that it had improperly

accounted for certain discretionary employee bonuses by

treating the bonuses as expenses in the year they were paid

rather than the year they were earned by employees.

AmTrust’s restatement spurred the Appellants in this

case, all investors in AmTrust securities, 1 to sue AmTrust,

its officers (the “Officer Defendants,” and, together with

AmTrust, the “AmTrust Defendants”), members of its

board of directors (the “Director Defendants”), 2 its former

auditor, 3 and certain underwriters of AmTrust securities

(the “Underwriter Defendants”), 4 for misstating the

company’s financial condition and results in violation of

Sections 11, 12, and 15 of the Securities Act of 1933 (the

“Securities Act”), and Section 10(b) and 20(a) of the

Securities Exchange Act of 1934 (the “Exchange Act”) and

the corresponding Rule 10b-5.

The United States District Court for the Southern

District of New York (Kaplan, J.) dismissed the third

amended complaint (the “Complaint”) under Federal Rule

of Civil Procedure 12(b)(6), holding that none of the

The named plaintiffs are New England Carpenters Guaranteed

Annuity and Pension Funds, Stanley Newmark, Irving Lichtman

Revocable Living Trust, Jupiter Capital Management, Sharon Albano,

John Sachetti, and Joel Rubel.

The Officer Defendants are Barry D. Zyskind (at all relevant times

AmTrust’s President and Chief Executive Officer (“CEO”)) and Ronald

E. Pipoly Jr. (at all relevant times AmTrust’s Executive Vice President

and Chief Financial Officer (“CFO”)). The Director Defendants are

Donald T. DeCarlo, Susan C. Fisch, Abraham Gulkowitz, George

Karfunkel, and Jay J. Miller.

BDO USA, LLP (“BDO”).

RBC Capital Markets, LLC, UBS Securities LLC, Citigroup Global

Markets Inc., Keefe, Bruyette & Woods, Inc., and Morgan Stanley &

Co. LLC.

misstatements were actionable under the securities laws.

We agree with the District Court’s dismissal of the claims

relating to most of the misstatements, and we therefore

AFFIRM in substantial part. But as we explain below, we

disagree with the District Court’s dismissal of the

Appellants’ claims under Sections 11, 12(a)(2), and 15 of

the Securities Act against AmTrust, its officers and

directors, and the Underwriter Defendants related to

AmTrust’s accounting for revenue generated by its

extended warranty contracts and the expenses associated

with discretionary employee bonuses. We also conclude

that the District Court should not have dismissed the

Appellants’ claims under Section 10(b) of the Exchange Act

and corresponding Rule 10b-5 against BDO. We therefore

VACATE the judgment insofar as it dismisses those claims

and REMAND to the District Court for further proceedings

consistent with this opinion.

BACKGROUND

I. FACTUAL BACKGROUND

The following facts, which we assume to be true for

purposes of this appeal, are drawn from the Complaint and

the documents it incorporates by reference. See Litwin v.

Blackstone Grp., L.P., 634 F.3d 706, 708 (2d Cir. 2011).

AmTrust provides workers’ compensation, commercial

automobile insurance, general liability, and extended

service and warranty coverage. As relevant to this appeal,

AmTrust promotes and markets extended service plans

(“ESPs”)—essentially extended warranties. AmTrust

receives two types of revenue from its ESP business. First,

AmTrust and its subsidiaries sell contractual liability

insurance to various retailers, covering the obligations that

the retailers assume as part of the ESPs. Second, retailers

pay AmTrust “for marketing and administrative services,”

including “call center services,” related to the ESPs. Joint

App’x 67, 82. During the relevant time, AmTrust

“recognize[d] revenue related to promotion, marketing and

administration services at the time of the sale of ESP[s]”

but “defer[red] a portion of service revenue based upon an

estimate of administrative services to be provided in future

periods.” Joint App’x at 82.

Starting in 2010, AmTrust made a number of

acquisitions that fueled much of its corporate growth. The

acquisition most relevant to this appeal closed in 2010,

when AmTrust bought Warrantech, a publicly traded

company focused on providing ESPs and warranty

programs for retailers, dealers, distributors, and

manufacturers that became, after the acquisition, a core

part of AmTrust’s business. Prior to the acquisition, the

SEC had investigated Warrantech’s practice of recognizing

the full amount of the revenue it received from its ESPs

and other service contracts at the time the contract was

entered and the initial sale of services commenced (we will

at times refer to this as the “time-of-sale” approach). The

SEC had instructed Warrantech instead to recognize the

revenue generated by those contracts on a straight-line

basis over the life of the contracts. Warrantech publicly

announced that it would comply with the SEC’s guidance,

abandoned its time-of-sale approach, and revised its

method of recognizing revenue relating to the ESPs. For

reasons that are unclear, AmTrust, though aware of the

SEC’s prior guidance to the contrary, reverted back to the

original time-of-sale approach after it acquired Warrantech.

From 2012 to 2016 the price of AmTrust stock, which

traded on the NASDAQ Global Market, skyrocketed. The

company’s gross written premiums, a central measure of

its financial condition, grew from $2.75 billion to $7.95

billion. Yet as early as 2013, financial commentators and

analysts began speculating publicly about AmTrust’s

actual financial condition. One commentator reported that

AmTrust may have used accounting gimmicks to inflate its

earnings and net equity. A financial journal, Barron’s,

questioned AmTrust’s accounting practices.

The bad press failed to slow AmTrust’s growth. In

November 2015 AmTrust filed a preliminary prospectus

supplement and prospectus supplement with the SEC

announcing an offer of 5 million shares of common stock

(the “November 2015 Offering”) pursuant to a registration

statement filed on June 11, 2015 (the “2015 Registration

Statement”). The transaction, underwritten by Defendants

Citigroup Global Markets Inc. (“Citigroup”) and Morgan

Stanley & Co. LLC (“Morgan Stanley”), occurred on

November 11, 2015 and raised $320 million. In September

2016 AmTrust filed another preliminary prospectus

supplement and prospectus supplement under the 2015

Registration Statement, this time announcing that the

company planned to offer American depositary shares in a

transaction (the “September 2016 Offering”) underwritten

by Morgan Stanley, UBS Securities LLC (“UBS”), RBC

Capital Markets, LLC (“RBC”), and Keefe, Bruyette &

Woods, Inc. (“KBW”). The prospectus supplement

accompanying the September 2016 Offering incorporated

by reference AmTrust’s annual financial report on Form

10-K for the year ending December 31, 2015, its 10-Q

report for the quarter ending March 31, 2015, and various

other reports the company had previously filed with the

SEC. The September 2016 Offering raised $278.2 million.

AmTrust’s prospects took a turn for the worse in 2017.

In February and March 2017 AmTrust announced that

accounting errors had prompted it to delay the filing of its

10-K for the year ending December 31, 2016 and that it

needed more time to complete its consolidated financial

statements. On April 4, 2017, AmTrust finally filed its

Form 10-K for 2016. The 2016 10-K included restated

financial results for the years ending December 31, 2012,

2013, 2014, 2015, and 2016, as well as each interim period

during 2015 and 2016. The restatement revealed that the

company’s income and earnings had been significantly

overstated since 2012. 5

The restatement identified two material accounting

errors. First, according to a press release that AmTrust

issued describing the errors, AmTrust had mistakenly

relied on the “upfront recognition of a portion of warranty

contract revenue associated with administration

services, . . . instead of deferring recognition of the revenue

over the life of the contract.” Joint App’x 208. In other

words, AmTrust had “historically recognized the majority

of revenue related to administrative services at the time of

sale of ESP,” but had “revised its application of the revenue

recognition guidance to record revenue related to

administration services on a straight-line basis over the

term of the ESP contracts.” Joint App’x 80. The second

accounting error was that discretionary employee

“bonuses . . . were expensed in the year paid but . . . should

have been accrued [as an expense] in the year earned based

on” accepted accounting standards. Joint App’x 208. The

restatement also identified other “miscellaneous

adjustments” to AmTrust’s financial statements that the

company concluded were not material. 6 Joint App’x 208.

To use the annual financial results for 2015 as an example, the errors

meant that income before other income, income taxes, equity in

earnings of unconsolidated subsidiaries, and non-controlling interest

was overstated by 16.79 percent; income before income taxes, equity in

earnings of unconsolidated subsidiaries, and non-controlling interest

was overstated by 17.04 percent; net income was overstated by 11.56

percent; net income attributable to AmTrust common stockholders was

overstated by 12.62 percent; diluted earnings per share was overstated

by 12.45 percent; comprehensive income was overstated by 22.94

percent; and comprehensive income attributable to AmTrust Financial

Services, Inc. was overstated by 23.55 percent. See Joint App’x 213–14.

Although the Appellants challenged other statements below, they do

not press those arguments on appeal and, as a result, we do not

consider them.

II.

PROCEDURAL BACKGROUND

The Appellants commenced this putative class action

in March 2017, after AmTrust first publicly disclosed the

accounting errors at issue in this case. Although there are

two slightly different class periods during which the

Appellants purchased AmTrust securities—the first

between February 14, 2013 and April 10, 2017 (the

“AmTrust Class Period”) and the second between March 3,

2014 and April 10, 2017, during which BDO served as

AmTrust’s outside auditor (the “BDO Class Period”)—for

our purposes, the distinction is immaterial. The Appellants

eventually filed a second amended complaint asserting

claims under Sections 11, 12(a)(2), and 15 of the Securities

Act, 15 U.S.C. §§ 77k, 77l(a)(2), 77o, Sections 10(b) and

20(a) of the Exchange Act, 15 U.S.C. §§ 78j(b), 78t(a), and

Rule 10b–5, 17 C.F.R. § 240.10b–5. The District Court

dismissed the second amended complaint without

prejudice, concluding for the most part that the alleged

misstatements were nonactionable statements of opinion.

The Appellants filed a third amended complaint (the

operative complaint here), which the District Court also

dismissed, largely for the same reasons, this time with

prejudice.

This appeal followed.

DISCUSSION

We review the District Court’s dismissal under Rule

12(b)(6) de novo, accepting all factual allegations as true

and drawing all reasonable inferences in favor of the

Appellants. Olagues v. Icahn, 866 F.3d 70, 74 (2d Cir. 2017).

THE SECURITIES ACT CLAIMS AGAINST THE

AMTRUST DEFENDANTS AND THE DIRECTOR

DEFENDANTS

We begin with the Appellants’ claims against the

AmTrust Defendants and the Director Defendants under

Sections 11 and 15 of the Securities Act, as well as their

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claims against AmTrust under Section 12(a)(2) of the

Securities Act. The Act requires that companies issuing

securities make a “full and fair disclosure of information”

in connection with a public offering. Pinter v. Dahl, 486 U.S.

622, 646 (1988); see Fed. Hous. Fin. Agency for Fed. Nat’l

Mortg. Ass’n v. Nomura Holding Am., Inc., 873 F.3d 85, 98

(2d Cir. 2017). The Act aims to protect investors and to

“achieve a high standard of business ethics in the securities

industry.” Lorenzo v. SEC, 139 S. Ct. 1094, 1103 (2019)

(quotation marks omitted); see also SEC v. First Jersey Sec.,

Inc., 101 F.3d 1450, 1466 (2d Cir. 1996). It thus permits

purchasers of a public company’s securities to sue the

company and certain corporate officers for any material

misstatements or for the omission of material information

in the company’s registration statements filed with the

SEC.

Section 11 of the Act, for example, provides:

In case any part of the registration statement,

when such part became effective, contained an

untrue statement of a material fact or omitted to

state a material fact required to be stated therein

or necessary to make the statements therein not

misleading, any person acquiring such security . . .

[may] sue.

15 U.S.C. § 77k(a); see Omnicare, Inc. v. Laborers Dist.

Council Const. Indus. Pension Fund, 575 U.S. 175, 179

(2015). So “[i]n the event of such a misdeed, the statute

provides for a cause of action by the purchaser of the

registered security against the security’s issuer, its

underwriter, and certain other statutorily enumerated

parties.” In re Morgan Stanley Info. Fund Sec. Litig., 592

F.3d 347, 358 (2d Cir. 2010). “Section 15, in turn, creates

liability for individuals or entities that ‘control[ ] any

person liable’ under section 11.” Id. (quoting 15 U.S.C.

§ 77o). And as relevant to this appeal, Section 12(a)(2)

similarly imposes liability on any person who offers or sells

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a security by means of a prospectus containing material

misrepresentations or omissions. 7

Appellants’ principal challenge under the Securities

Act relates to the two accounting errors described above

that AmTrust identified in its restatement as materially

affecting its reported income during the relevant time: (1)

its recognition of revenue from administration services

based on the time-of-sale approach; and (2) its decision to

record discretionary bonus payments as expenses the year

in which they were paid rather than the year in which the

bonuses were actually earned.

Relying largely on the Supreme Court’s decision in

Omnicare and our decision in Fait v. Regions Financial

Corp., 655 F.3d 105 (2d Cir. 2011), the District Court

determined that AmTrust’s financial statements reflected

the exercise of subjective judgment and were thus nonactionable statements of opinion. Cf. Omnicare, 575 U.S. at

184 (noting that an executive who expressed “a view, not a

certainty” “could not be liable for a false statement of fact”).

We respectfully disagree with this particular conclusion of

the very able and experienced District Judge, who did not

have the benefit of our latest guidance in this area. See

Section 12(a)(2) provides, in relevant part:

Any person who . . . offers or sells a security . . . by the use of

any means or instruments of transportation or

communication in interstate commerce or of the mails, by

means of a prospectus or oral communication, which includes

an untrue statement of a material fact or omits to state a

material fact necessary in order to make the statements, in

the light of the circumstances under which they were made,

not misleading (the purchaser not knowing of such untruth

or omission), and who shall not sustain the burden of proof

that he did not know, and in the exercise of reasonable care

could not have known, of such untruth or omission, shall be

liable . . . to the person purchasing such security from him . . . .

15 U.S.C. § 77l(a)(2).

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Abramson v. Newlink Genetics Corp., 965 F.3d 165 (2d Cir.

2020).

In Fait, we explained that “when a plaintiff asserts a

claim under section 11 or 12 based upon a [defendant’s

alleged] belief or opinion . . . liability lies only to the extent

that the statement was both objectively false and

disbelieved by the defendant at the time it was expressed.”

Fait, 655 F.3d at 110. But we have since recognized that

the Supreme Court in Omnicare, which was decided after

Fait, unequivocally “rejected the proposition that there can

be no liability based on a statement of opinion unless the

speaker disbelieved the opinion at the time it was made.”

Abramson, 965 F.3d at 175. By pointing out that a

statement of opinion, even if believed, may nonetheless be

actionable if it contains a factual misstatement or is

rendered misleading by the omission of material facts,

Omnicare expanded the scope of issuer liability for

statements of opinion. Nevertheless, Fait continues to

guide us in distinguishing between a statement of fact and

a statement of opinion in the first place.

So what distinguishes a fact from an opinion under the

federal securities laws? In general, a fact is “a thing done

or existing or an actual happening,” while an opinion is “a

belief, a view, or a sentiment which the mind forms of

persons or things.” Omnicare, 575 U.S. at 183 (quotation

marks omitted). A statement of fact “expresses certainty

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

Statements of opinion often include qualifying language

(like “I believe” or “I think”) that conveys a lack of certainty

about the thing being expressed, marks the statement as

reflecting the speaker’s impression or point of view rather

than an objective truth, and makes it easier to identify the

statement as one of opinion rather than fact. See id. at 183–

84.

But not all statements of opinion include such

qualifying language. In Fait, for example, we held that

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unqualified estimates of goodwill and loan loss reserves

were statements of opinion because the estimates were

clearly “subjective . . . rather than objective factual

matters.” Fait, 655 F.3d at 111 (quotation marks omitted).

Certain statements address issues so plainly subjective, we

reasoned, that the statement is one of opinion not just by

virtue of the words used but also because of the nature of

the information conveyed. In Fait, we characterized the

inquiry as turning on whether the relevant statement

reflects the speaker’s determination of “a matter of

objective fact” or instead expresses the speaker’s judgment

about a matter that lacks “any objective standard.” Id. at

109–10 (quotation marks omitted). The latter statement,

we said, is “inherently subjective.” Id. at 113.

The rule we articulated in Fait was narrowly invoked

in the context of estimates of goodwill and loan loss

reserves, both of which we characterized as inherently

requiring a substantial exercise of judgment. Estimates of

goodwill “depend on management’s determination of the

‘fair value’ of the assets acquired and liabilities assumed.”

Id. at 110. Absent “any objective standard such as market

price that” the company “should have but failed to use in

determining” the value of its assets, “an estimate of the fair

value of those assets will vary depending on the particular

methodology and assumptions used.” Id. at 110–11.

Likewise, in Omnicare, the Supreme Court described an

opinion variously as a statement that “in ordinary usage . . .

does not imply . . . definiteness . . . or certainty,” or as a

statement that “rest[s] on grounds insufficient for complete

demonstration.” 575 U.S. at 183 (quotation marks omitted).

If a statement turns on the exercise of subjective

judgment, a plaintiff will be unable to establish that it is

false merely by showing that other reasonable alternative

views exist. Where those alternatives exist, the speaker

making the statement (expressing an opinion) can choose

among them without running afoul of the federal securities

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provisions at issue here. See Omnicare, 575 U.S. at 189–90

(“Reasonable investors understand that opinions

sometimes rest on a weighing of competing facts.”) This is

true even if most of the existing facts cut against the

statement.

But opinions lead double lives. Most obviously, as the

Supreme Court clarified in Omnicare and our Court more

recently observed in Abramson, an opinion may implicitly

convey “facts about how the speaker has formed the

opinion—or, otherwise put, about the speaker’s basis for

holding that view.” Omnicare, 575 U.S. at 188; see

Abramson, 965 F.3d at 175–76. In the context of a

securities transaction, a reasonable investor expects that

opinion statements “rest on some meaningful . . . inquiry,”

“fairly align[] with the information in the issuer’s

possession at the time,” and do not “reflect baseless, offthe-cuff judgments,” id. at 188–90; see Virginia Bankshares,

Inc. v. Sandberg, 501 U.S. 1083, 1093 (1991) (noting that

even “conclusory terms in a commercial context are

reasonably understood to rest on a factual basis that

justifies them as accurate, the absence of which renders

them misleading”). If, for example, “a registration

statement omits material facts about the issuer’s inquiry

into or knowledge concerning a statement of opinion, and

if those facts conflict with what a reasonable investor

would take from the statement itself,” then the issuer may

be liable under Section 11’s omissions clause even though

the statements convey an opinion. Omnicare, 575 U.S. at

189. “By increasing the ability of plaintiffs to plead

material omissions with respect to statements of

opinion . . . , Omnicare reduced the significance of district

courts’ classification of statements as those of fact or

opinion.” Abramson, 965 F.3d at 176.

Opinions are thus actionable under Section 11 of the

Securities Act not only when “the speaker did not hold the

belief she professed,” Omnicare, 575 U.S. at 185–86, but

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also if the statement of opinion contains embedded

statements of fact that are untrue, or the statement omits

information whose omission conveys false facts about the

speaker’s basis for holding that view and makes the

opinion statement misleading to a reasonable investor, id.

at 186–88; see Abramson, 965 F.3d at 175; Fait, 655 F.3d

at 111 (noting that opinion “statements may be actionable

if they misstate the opinions or belief held, or, in the case

of statements of reasons, the actual motivation for the

speaker’s actions, and are false or misleading with respect

to the underlying subject matter they address” (emphasis

omitted)). The standard for opinion liability presents “no

small task for an investor” seeking to plead that an opinion

is misleading. Omnicare, 575 U.S. at 194.

So one of the more straightforward ways a statement

of opinion may be actionable is if it contains an embedded

statement of fact that is not true. In other words, the

opinion may be false or misleading if the embedded fact is

not one as to which reasonable minds can differ. This

occurs where, for example, there is an accepted method for

assessing whether the statement is true, but the statement

is not justified by the accepted method and clearly

contradicts the facts on which it purports to rest. Consider

the following example from Abramson:

A statement structured, ‘I believe that x is so

because y has occurred,’ contains the factual and

falsifiable statement, ‘y has occurred.’ If y has in

fact not occurred, the statement of opinion is

actionable because an embedded but complete

‘statement of a material fact’ . . . can be proven false.

Abramson, 965 F.3d at 175.

Statements of opinion are also actionable as false or

misleading under Section 11’s omission clause if the

opinion “omits material facts about the issuer’s inquiry into

or knowledge concerning a statement of opinion, and if

those facts conflict with what a reasonable investor would

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take from the statement [of opinion] itself.” Omnicare, 575

U.S. at 188; see Abramson, 965 F.3d at 175 (“[P]laintiffs can

allege that a statement of opinion, without providing

critical context, implied facts that can be proven false.”).

“With respect to this [alternative] basis for challenging a

statement of opinion, Omnicare held that the appropriate

perspective for identifying whether a statement of opinion

implies facts is that of the reasonable investor.” Abramson,

965 F.3d at 175.

Mindful of these background principles, we conclude

that the Appellants have stated a claim under Section 11

of the Securities Act against the AmTrust Defendants and

the Director Defendants based on AmTrust’s past

recognition of revenue for extended warranty contracts

using the time-of-sale approach, as well as its practice of

recording discretionary bonuses as expenses when they

were paid rather than earned. 8 For the same reasons, we

vacate the District Court’s dismissal of the Appellants’

Section 12(a)(2) claims against AmTrust arising from the

same misstatements. See In re Morgan Stanley Info. Fund

Sec. Litig., 592 F.3d at 359.

The Appellants claimed that the Defendants were also

liable for improper reporting of acquisition costs, foreign

exchange gains and losses, software costs, interest

expenses, intercompany transactions,

and other

The District Court dismissed the Appellants’ control-person liability

claim under Section 15 of the Securities Act against AmTrust’s officers

and directors because it found no primary liability under Section 11.

Because we conclude that the Appellants have stated a claim for

primary liability for the statements about the accounting treatment of

warranty contracts and bonuses, we vacate the District Court’s

dismissal of the corresponding Section 15 claims against Zyskind,

Pipoly, DeCarlo, Fisch, Gulkowitz, Karfunkel, and Miller and remand

for further proceedings consistent with this opinion. See In re Morgan

Stanley Info. Fund Sec. Litig., 592 F.3d at 358 (noting that “the success

of a claim under section 15 relies, in part, on a plaintiff’s ability to

demonstrate primary liability under section[] 11”).

17a

accounting-related statements. They do not challenge the

District Court’s dismissal of those claims on appeal, and we

therefore affirm the judgment insofar as it dismissed the

claims. We focus instead, as do the Appellants, on the

claims relating to the extended warranty contracts and the

bonuses.

THE EXTENDED WARRANTIES

We turn first to AmTrust’s practice of recognizing

“upfront” most of the revenue generated from its extended

warranty contracts during the relevant time. In a March

2017 media release, AmTrust clarified that this revenue

recognition practice was “based on the interpretation of

ASC [Accounting Standards Codification] 605, Revenue

Recognition, used in the previously filed financial

statements

multiple-element

revenue

recognition.” Joint App’x 670. The company conceded,

however, that it should have instead “deferr[ed]

recognition of the revenue over the life of the contract.” 9

Joint App’x 670. The restatement acknowledged that the

time-of-sale approach resulted in material misstatements

regarding AmTrust’s income and revenue associated with

the warranty contracts. Specifically, it explained:

The Company has historically recognized the

majority of revenue related to administration

services at the time of the sale of ESP. However,

the Company revised its application of the revenue

recognition guidance to record revenue related to

The Accounting Standards Codification (“ASC”) is the “source of

authoritative generally accepted accounting principles,” commonly

referred to as “GAAP,” published by the Financial Accounting

Standards Board (“FASB”) “to be applied by nongovernmental entities”

such as AmTrust. Financial Accounting Standards Board, Accounting

Standards Codification: Overview and Background 105-10-05-1 (2020),

https://asc.fasb.org/1943274/2147479442; see also Ind. Pub. Ret. Sys. v.

SAIC, Inc., 818 F.3d 85, 93 (2d Cir. 2016) (relying on FASB standards

as a source of GAAP).

18a

administration services on a straight-line basis

over the term of the ESP contracts. This correction

of an error, which created an overstatement of

service and fee income and an overstatement of

other expenses that were also recognized upfront in

current periods, required a restatement of the

Company’s previously issued financial statements.

Joint App’x 568 (emphasis added).

appeal,

AmTrust

describes

its

initial

representations

about

the

revenue

administrative services for ESPs as statements of opinion,

not fact, because its determination of when to recognize the

revenue associated with ESPs was a subjective judgment

call. In particular, AmTrust explains that its prerestatement decision to recognize this revenue upfront was

“based on its interpretation of the accounting guidance

regarding

‘multiple-element

revenue

recognition,’”

including ASC 605-25-25-5. AmTrust Br. 31. ASC 605-2525-5 governs when a “delivered item or items shall be

considered a separate unit of accounting.” Under that

accounting standard, revenue from these multi-element

arrangements (also known as bundled contracts or sales)

can be recognized upon delivery only if the contracts or

services “have value to the customer on a standalone basis.”

ASC 605-25-25-5(a), superseded by Accounting Standard

Update No. 2014-09 (May 28, 2014). Lastly, AmTrust

observes that a contract or service has “value on a

standalone basis if [it is] sold separately by any vendor or

the customer could resell [it] on a standalone basis.” Id.

The company suggests that assessing value to the

customer on a standalone basis—that is, determining

whether the administrative services revenue received from

vendors who administer the warranty programs is

separable from revenue generated by the warranty

coverage provided to customers—is an inherently

subjective enterprise. The problem with this argument is

19a

that AmTrust has never actually contended that its

customers can resell the administrative services associated

with the warranty contracts at issue here on a standalone

basis or that vendors are able to sell them separately.

Nothing in the Complaint suggests that doing so is even

possible, and although AmTrust maintains that there are

other ways to determine a contract’s “value on a standalone

basis” under the services section of ASC 605 that require

judgment calls, nothing in the text of ASC 605, including

ASC 605-25-55-1, on which AmTrust also relies, refers to

other methods for determining value.

In further support of their respective arguments, both

the Appellants and AmTrust turn to ASC 605-20-25-3,

which provides:

[R]evenue from separately priced extended

warranty or product maintenance contracts shall

be deferred and recognized in income on a straightline basis over the contract period except in those

circumstances in which sufficient historical

evidence indicates that the costs of performing

services under the contract are incurred on other

than a straight-line basis.

ASC 605-20-25-3 (emphasis added), superseded by

Accounting Standards Update No. 2014-09 (May 28, 2014).

On one hand, the Appellants suggest that ASC 605-20-253 establishes an objective standard that generally requires

the recognition of this revenue on a straight-line basis. On

the other hand, AmTrust defends the District Court’s

decision by relying on the exception contained in ASC 60520-25-3, claiming that the determination of whether

historical evidence is sufficient to permit non-straight-line

treatment is “a quintessential question of judgment” and

that the standard is thus inherently subjective. AmTrust

Br. 30–31.

For its part, the District Court concluded that the

restated financial statements were non-actionable opinions

20a

because determining the sufficiency of historical evidence

that would support incurring costs on a non-straight-line

basis “inherently requires a subjective judgment as to

whether the exception applies.” Spec. App’x 89. As the

District

Court

itself

recognized,

however,

the

determination that AmTrust’s statements are opinion, not

fact, is not necessarily the end of the analysis. Spec. App’x

42 (“The claim will survive . . . if plaintiffs have alleged

adequately that the statement was an untrue or

misleading statement of opinion.”); see Abramson, 965 F.3d

at 176.

The Appellants respond that they have alleged the

objectively determinable absence of historical evidence

necessary to support the non-straight-line accounting

approach that AmTrust applied. See Joint App’x 152 (“ASC

Topic No. 605 . . . does not permit the method of recognition

employed by AmTrust without historical evidence

demonstrating the appropriateness of such method,

historical evidence AmTrust acknowledges it never

possessed.”). AmTrust’s reliance on the sufficiency of

historical evidence to justify its accounting treatment, the

Appellants contend, runs headlong into the Complaint’s

allegation, which at this stage we accept as true, that there

was in fact no historical evidence to support its approach.

We agree with the Appellants that subjective

judgments about the sufficiency of historical evidence to

support a particular accounting treatment presuppose the

existence of some historical evidence. Indeed, AmTrust now

acknowledges that it should have recorded revenue for its

warranty contracts on a straight-line basis in reliance on

ASC 605-20-25-3. And no one disputes that GAAP permits

time-of-sale recognition only if some historical evidence

justified doing so. At the pleading stage, we think the

alleged absence of such evidence, if accepted as true, means

that AmTrust’s representations about the warranty

contract revenue reported in its historical consolidated

21a

financial statements misled investors to conclude that the

company was aware of some historical evidence in support

of recognizing the revenue on a non-straight-line basis,

when in (alleged) fact it was not. In other words, AmTrust

is plausibly alleged to have “sa[id] one thing and [held]

back another.” Omnicare, 575 U.S. at 192.

We therefore conclude that AmTrust’s financial

statements relating to the warranty contract revenue

reported in its historical consolidated financial statements

were actionable statements of opinion under Section 11,

and we vacate the District Court’s dismissal of the

Appellants’ Section 11 claims against the AmTrust

Defendants and the Director Defendants arising from

those statements.

THE DISCRETIONARY BONUSES

We turn next to AmTrust’s practice of expensing

certain discretionary employee bonuses in the year the

bonuses were paid rather than the year the bonuses were

earned.

According to the Complaint, in its restatement

AmTrust “admitted that the financial statements it issued

to investors during the relevant period were presented in

violation of GAAP by failing to timely accrue compensation

related expenses.” Joint App’x 83. Specifically, AmTrust

explained that:

In prior years, the Company had expensed

discretionary bonuses paid to its employees in the

year the bonuses were paid because the Company

did not consider the discretionary bonuses to be

“probable,” which is the standard required for

accrual. Upon review of ASC 270, Interim

Reporting,

and

ASC

450,

Contingencies,

management determined that its application was

incorrect because, even though the bonuses were

discretionary, the bonuses should have been

22a

estimated and expenses assigned to interim

periods so that the interim periods bear a

reasonable portion of the anticipated annual

amount.

Joint App’x 83.

The parties agree that ASC 450 applies to determine

how to account for these bonuses. Under ASC 450-20-25-2,

companies should expense costs when it is “probable” that

a liability has been incurred and when “[t]he amount of loss

can be reasonably estimated” within a range. 10 AmTrust

asserts that its decision to expense bonuses in the period

they were paid rather than earned in its previously issued

consolidated financial statements is a classic exercise of

subjective judgment. Suggesting to investors that it is not

“probable” that the company would pay bonuses at a future

time is, the company asserts, merely stating a nonactionable opinion. Even assuming without deciding that

these are statements of opinion, we are not persuaded.

In our view, there is some reason to conclude that the

Appellants have plausibly alleged that AmTrust’s method

of deferring the recognition of expenses related to bonuses

until the bonuses were paid (thus delaying the charge to

income) was objectively improper rather than an exercise

of subjective judgment. In particular, the Appellants allege

that AmTrust had a practice of paying bonuses. The

Complaint thus plausibly alleges that there was no basis to

conclude that the continued payment of earned bonuses

was not “probable” and that such bonuses therefore could

not be expensed when earned. There is no dispute that the

bonuses at issue on appeal were earned during the relevant

periods and, as AmTrust’s restatement eventually

See also ASC 450-10-55-3 (“Amounts owed for services received. . .

are not contingencies even though the accrued amounts may have been

estimated; there is nothing uncertain about the fact that those

obligations have been incurred.”)

23a

acknowledged, that they should have been expensed during

those periods. Although multiple accounting standards

may have been relevant to determining when to expense a

bonus, all of the standards in play here support the position

that the bonuses should have been expensed in the year

they were earned, not the year they were paid. 11 We are not

aware of any GAAP provision on which AmTrust relied

that suggests otherwise. And the fact that these GAAP

standards, together or alone, are subject to misreading,

misinterpretation, or misapplication, as happened here,

does not necessarily mean that they entail an exercise of

subjective judgment.

But we do not need to decide whether these financial

statements are statements of fact or, as AmTrust asserts,

statements of opinion. See Abramson, 965 F.3d at 176.

Even if they are statements of opinion (because, say,

determining whether it is “probable” that the corporate

officers would exercise their discretion to pay the bonuses

at a future time is a matter of subjective judgment), we

conclude that the statements are nonetheless actionable

because the Complaint adequately alleges that it was

improbable that the earned bonuses would not be paid.

Accepting that allegation as true makes it quite plausible

that the AmTrust Defendants did not base the company’s

statements of probability on a “meaningful . . . inquiry,”

that their statements did not “fairly align[] with the

information in the issuer’s possession at the time,” and that

there was no basis for AmTrust to state that the bonuses

should be expensed in the year they were paid rather than

earned. Omnicare, 575 U.S. at 188–89.

Under ASC 450-10-55, bonuses should have been expensed as

incurred during the relevant period. ASC 710-10-25 likewise required

AmTrust to expense an employee’s right to be compensated when

earned. And ASC 270 required the bonuses to be expensed as incurred

in interim periods.

24a

For these reasons, we conclude that the Complaint

states a claim under Section 11 against the AmTrust

Defendants and the Director Defendants arising from

AmTrust’s misrepresentation of reported income in its

historical consolidated financial statements based on the

erroneous accounting treatment relating to bonus

payments.

SOX CERTIFICATIONS BY AMTRUST EXECUTIVES

The remaining Section 11 claims against the AmTrust

Defendants are a different matter. They rest on

certifications by company executives regarding, among

other things, the accuracy of AmTrust’s financial reporting,

its conformity with GAAP, and the effectiveness of

AmTrust’s disclosure controls and procedures. The District

Court concluded that these certifications were nonactionable statements of opinion. We agree.

First, the Officer Defendants, Zyskind (the CEO) and

Pipoly (the CFO), attested to (1) the accuracy of AmTrust’s

financial reporting, (2) the effectiveness of the company’s

disclosure controls and procedures, and (3) their disclosure

of any weaknesses in internal controls over the company’s

financial reporting in certifications mandated by Section

302 of the Sarbanes Oxley Act (“SOX”), 15 U.S.C. § 7241(a);

see also 17 C.F.R. §§ 240.13a-14, 240.13a-15, 240.15d-15.

Their certifications about the accuracy of AmTrust’s

financial reporting, including that financial statements

were prepared in conformity with GAAP, signal that they

are opinions by stating that they are “based on [the]

knowledge” of the officer. See Joint App’x 103–04, 153.

There is no allegation that the opinion is actionable on the

ground that it was not based on the officer’s knowledge. 12

For the reasons discussed below, we disagree with the Appellants

that the existence of the Warrantech SEC guidance letter

demonstrates that the officers knew the financial reports were false or

misleading or did not comply with GAAP, even with all reasonable

inferences drawn in the Appellants’ favor.

25a

Similarly, we conclude that the two other challenged SOX

certifications relating to (1) disclosure controls and

procedures, and (2) internal control over financial

reporting contain language that conveys management’s

subjective judgments about the company’s internal

controls and thus constitute statements of opinion.

The Appellants point to allegations that AmTrust later

reversed course and that its restatement acknowledged a

failure of internal controls. The Appellants insist that the

reversal compels the inference that the SOX certifications

were not believed when made. But AmTrust’s change of

opinion, standing alone, does not mean that the original

certified opinions were disingenuous. 13 Nor is a genuinely

held opinion that “turned out to be wrong” necessarily

actionable. Omnicare, 575 U.S. at 186. In any event, as

noted, the Complaint fails to adequately allege that the

AmTrust executives who signed the certifications did not

believe what they certified.

Finally, Appellants contend that the certifications were

misleading because they falsely conveyed the existence of

“some meaningful . . . inquiry” conducted by the certifying

executives. Appellants’ Br. 42 (quoting Omnicare, 575 U.S.

at 188). But here too, the Complaint fails to allege any facts

that establish a lack of meaningful inquiry, other than the

fact that the certification turned out to be wrong.

For these reasons, we affirm the District Court’s

dismissal of the Appellants’ Section 11 claims relating to

the SOX certifications.

The Appellants reference in passing on appeal that the SOX

certifications contained embedded statements of fact. See Appellants’

Br. 41. We conclude that the argument is abandoned because the

Appellants have failed to develop it. See Zhang v. Gonzales, 426 F.3d

540, 545 n.7 (2d Cir. 2005).

26a

II.

THE EXCHANGE ACT CLAIMS AGAINST THE

AMTRUST DEFENDANTS

The District Court also dismissed the Appellants’

claims against the AmTrust Defendants under Section

10(b) of the Exchange Act and Rule 10b-5. To survive a

motion to dismiss under these provisions, “a plaintiff must

allege that [each] defendant (1) made misstatements or

omissions of material fact, (2) with scienter, (3) in

connection with the purchase or sale of securities, (4) upon

which the plaintiff relied, and (5) that the plaintiff’s

reliance was the proximate cause of its injury.” ATSI

Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 105 (2d

Cir. 2007); see also Ind. Pub. Ret. Sys. v. SAIC, Inc., 818

F.3d 85, 93 (2d Cir. 2016). Under the Private Securities

Litigation Reform Act of 1995, moreover, a plaintiff must

“state with particularity facts giving rise to a strong

inference that the defendant acted with [scienter].” 15

U.S.C. § 78u–4(b)(2)(A).

In contrast to the Securities Act claims under Section

11, which do not require a showing of scienter, 14 the central

question with respect to the Appellants’ claims under the

Exchange Act is whether the Complaint adequately

“pleaded facts giving rise to a strong inference that the . . .

Defendants acted with ‘scienter, a mental state embracing

intent to deceive, manipulate, or defraud.’” In re Advanced

Battery Techs., Inc., 781 F.3d 638, 644 (2d Cir. 2015)

(quoting Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551

U.S. 308, 319 (2007)). Scienter may be established by

alleging facts “(1) showing that the defendants had both

As we explained in Fait, “[w]hile issuers are subject to virtually

absolute liability under section 11, the remaining potential defendants

under sections 11 and 12(a)(2) [of the Securities Act] may be held liable

for mere negligence.” Fait, 655 F.3d at 109 (cleaned up). And “in

contrast to claims brought pursuant to section 10(b) of the [Exchange

Act], claims under sections 11 and 12 do not require allegations of

scienter.” Id.

27a

motive and opportunity to commit the fraud or (2)

constituting strong circumstantial evidence of conscious

misbehavior or recklessness.” ATSI Commc’ns, 493 F.3d at

99; see Set Cap. LLC v. Credit Suisse Grp. AG, 996 F.3d 64,

78 (2d Cir. 2021). Any allegation of conscious misbehavior

or recklessness should be “viewed holistically and together

with the allegations of motive and opportunity” to

determine whether the complaint supports a strong

inference of scienter. Set Cap. LLC, 996 F.3d at 78.

Although “the requisite intent of the alleged speaker of the

fraud need not be alleged with great specificity,” Chill v.

Gen. Elec. Co., 101 F.3d 263, 267 (2d Cir. 1996), the

“inference of scienter must be more than merely plausible

or reasonable—it must be cogent and at least as compelling

as any opposing inference of nonfraudulent intent.” Tellabs,

551 U.S. at 314; see also In re Advanced Battery, 781 F.3d

at 644; ECA & Loc. 134 IBEW Joint Pension Tr. of Chicago

v. JP Morgan Chase Co., 553 F.3d 187, 198 (2d Cir. 2009).

Keeping that standard in mind, we agree with the

District Court that the Complaint does not adequately

allege that the AmTrust Defendants acted with scienter.

First, the Complaint does not adequately plead

scienter based on the AmTrust Defendants’ motive and

opportunity to commit fraud. Urging otherwise, the

Appellants rely on the AmTrust Defendants’ financial

incentives to keep share prices high and to fuel the

company’s acquisition strategy. But the desire to sustain

“the appearance of corporate profitability” is not itself the

kind of incentive or motivation that raises an inference of

scienter. Chill, 101 F.3d at 268. The Appellants also direct

us to allegations that Pipoly and other top executive

officers (but, notably, not Zyskind or the Board

Defendants) sold a significant number of shares of

AmTrust stock during the AmTrust Class Period. In doing

so, however, the Appellants acknowledge that Pipoly’s

significant selloff began several months before the

28a

AmTrust Class Period, a fact that renders his stock sales

during this class period less unusual. See Ark. Pub. Emps.

Ret. Sys. v. Bristol-Myers Squibb Co., 28 F.4th 343, 355 (2d

Cir. 2022).

Nor does the Complaint allege facts that provide

“strong circumstantial evidence of conscious misbehavior

or recklessness.” ATSI Commc’ns, 493 F.3d at 99. We have

explained

that

“[s]cienter

based

conscious

misbehavior . . . requires a showing of deliberate illegal

behavior, a standard met when it is clear that a scheme,

viewed broadly, is necessarily going to injure.” Gould v.

Winstar Commc’ns, Inc., 692 F.3d 148, 158 (2d Cir. 2012)

(quotation marks omitted). Recklessness, meanwhile,

entails “an extreme departure from the standards of

ordinary care . . . to the extent that the danger was either

known to the defendant or so obvious that the defendant

must have been aware of it.” ECA, 553 F.3d at 198

(quotation marks omitted). None of the facts alleged in the

Complaint— including the “magnitude” of the restatement

and the duration of the period it covered—satisfy these

requirements. Joint App’x 213. In determining whether the

AmTrust Defendants acted with scienter, it is not enough

that it took a period of years for AmTrust to acknowledge

its significant accounting errors.

Finally, the Appellants argue that the AmTrust

Defendants did not believe their accounting judgments

regarding the early recognition of revenue on the

administration-service fees connected to AmTrust’s

warranty program. The Appellants allege that AmTrust

knew its accounting treatment was wrong because

Warrantech, the company AmTrust acquired in 2010,

announced in its Form 10-K for the year ending March 31,

2006 that it had changed its revenue-recognition practices

regarding its warranty contracts in response to SEC

guidance. In particular, the Complaint alleges that

AmTrust must have known, or recklessly disregarded, that

29a

the SEC earlier had advised Warrantech that its time-ofsale approach was improper and that its warranty business

compelled a straight-line revenue recognition approach.

But we think that AmTrust’s subsequent resort to a timeof-sale approach for the contracts, though wrong, is more

plausibly explained by the changes to the guiding

accounting principles since 2006 to which AmTrust points

us, or to AmTrust’s negligence. 15 See AmTrust Br. 42–44.

Negligence, even in a “heightened form,” is not sufficient to

allege scienter. Novak v. Kasaks, 216 F.3d 300, 312 (2d Cir.

2000).

For these reasons, we conclude that the Complaint fails

to raise a strong inference of scienter, and we affirm the

dismissal of the Appellants’ claims against the AmTrust

Defendants under Section 10(b) and Rule 10b–5. 16 We also

affirm the District Court’s corresponding dismissal of the

Appellants’ control-person claim under Section 20(a) of the

Exchange Act because such a claim is “necessarily

predicated on a primary violation of securities law.”

Rombach v. Chang, 455 F.3d 164, 177–78 (2d Cir. 2004).

The Appellants also call our attention to purported “red flags” in the

form of press coverage criticizing AmTrust’s accounting practices

generally, although none of the press articles mentions the two central

accounting issues that led to AmTrust’s restatement. Given the

generality of these media reports, we are not persuaded that they

support an inference of scienter that is at least as compelling as any

opposing inference of nonfraudulent intent.

We have applied the holding in Omnicare to claims brought under

Section 10(b) of the Exchange Act. See Tongue v. Sanofi, 816 F.3d 199,

209–10 (2d Cir. 2016). Because, as we previously concluded, the Officer

Defendants’ certifications are non-actionable statements of opinion, we

also affirm the dismissal of the Appellants’ Section 10(b) claims based

on these certifications. See City of Omaha, Neb. Civilian Emps.’ Ret.

Sys. v. CBS Corp., 679 F.3d 64, 67–68 (2d Cir. 2012) (noting that

Section 10(b) and Section 11 claims “share a material misstatement or

omission element”).

30a

III.

THE SECURITIES ACT CLAIMS AGAINST THE

UNDERWRITER DEFENDANTS

The Appellants also assert claims against the

Underwriter Defendants under Sections 11 and 12(a)(2) of

the Securities Act stemming from the two securities

offerings made pursuant to AmTrust’s 2015 Registration

Statement. The first is AmTrust’s November 2015 Offering,

underwritten by Citigroup and Morgan Stanley, of 5

million shares of common stock pursuant to a preliminary

prospectus supplement and a prospectus supplement. This

preliminary prospectus supplement and prospectus

supplement, together with the 2015 Registration

Statement, incorporated by reference AmTrust’s annual

financial report for 2014 and quarterly financial reports for

the first three fiscal quarters of 2015. The second offering

is AmTrust’s September 2016 Offering, underwritten by

Morgan Stanley, RBC, UBS, and KBW, of 10 million

depositary shares pursuant to a preliminary prospectus

supplement and a prospectus supplement that, together

with the 2015 Registration Statement, incorporated by

reference AmTrust’s annual financial report for 2015 and

quarterly financial reports for the first two quarters of

2016. Each of the relevant financial reports contained

overstated income numbers arising from the time-of-sale

approach for the warranty contracts and the improper

expensing of bonuses.

As a threshold matter, three of the Underwriter

Defendants—Morgan Stanley, UBS, and KBW—contend

that the Appellants lack standing to even assert Section 12

claims against them in connection with the September

2016 Offering because the Complaint does not specifically

allege that the Appellants purchased securities from those

31a

underwriters. 17 Under Section 12(a)(2), a plaintiff has

standing to bring an action against the seller of a security

only if the plaintiff is “the person purchasing such security

from them.” Akerman v. Oryx Commc’ns, Inc., 810 F.2d 336,

344 (2d Cir. 1987) (quotation marks omitted); see also

Freidus v. Barclays Bank PLC, 734 F.3d 132, 141 (2d Cir.

2013) (“In order to have standing under § 12(a)(2), . . .

plaintiffs must have purchased securities directly from the

defendants.”); 15 U.S.C. § 77l(a). A “statutory seller” may

include an underwriter who successfully solicited the

transfer of title from issuer to purchaser in exchange for

some financial gain. 18 Morgan Stanley, UBS, and KBW

assert that in a case involving multiple underwriters of a

single offering, the purchaser of a security must in its

pleadings specifically identify which underwriter sold the

security at issue in order to have standing to sue that

underwriter. We have not yet addressed this question.

We conclude that the Appellants have adequately

established standing under Section 12(a)(2) by alleging

that they purchased securities pursuant to the “pertinent

offering documents” or in the relevant offerings

underwritten by the defendants. In re Lehman Bros. Sec.

& ERISA Litig., 799 F. Supp. 2d 258, 311 (S.D.N.Y. 2011)

(Kaplan, J.). Here, according to the Complaint, the

Appellants bring their Section 12(a)(2) claims on their own

The Underwriter Defendants do not challenge Appellants’ standing

to sue the underwriters of the November 2015 Offering—Citigroup and

Morgan Stanley—or their standing to sue RBC for the September 2016

Offering.

In a similar vein, a purchaser of a security has standing to bring an

action under Rule 10b–5a against underwriters (and brokers, dealers,

and non-issuer sellers) for material misstatements about the security

“if those entities made material misstatements about the security, as

long as the plaintiff[] purchased or sold the securities about which the

misstatements were made.” Menora Mivtachim Ins. Ltd. v. Frutarom

Indus. Ltd., 54 F.4th 82, 88 (2d Cir. 2022); see In re NYSE Specialists

Sec. Litig., 503 F.3d 89, 102 (2d Cir. 2007).

32a

behalf and on behalf of “other members of the Securities

Act Class who purchased AmTrust common stock or

[shares sold in connection with the September 2016

Offering] pursuant to the Prospectuses.” Joint App’x 132

(emphasis added). We can reasonably infer from these

allegations that the Appellants acquired securities from

the Underwriter Defendants in connection with the

September 2016 Offering. We are therefore satisfied that

the allegations suffice to establish the Appellants’ standing

in this case. See, e.g., John v. Whole Foods Mkt. Grp., Inc.,

858 F.3d 732, 736–38 (2d Cir. 2017) (noting that “general

factual allegations of injury may suffice” to establish

standing, “for on a motion to dismiss we presume that

general allegations embrace those specific facts that are

necessary to support the claim” (cleaned up)).

Turning to the merits, the District Court dismissed the

Appellants’ Section 11 and Section 12 claims against the

Underwriter Defendants, concluding that the Appellants

had “fail[ed] to allege any untrue or misleading statements

of material fact or opinion with respect to those claims.”

Spec. App’x 73. In other words, the District Court

dismissed these claims, which it described as “identical to

those of the Securities Act claims asserted against the

AmTrust [D]efendants,” for effectively the same reasons it

dismissed the claims against the AmTrust Defendants.

Spec. App’x 73. For reasons we have already provided, we

disagree with the District Court’s conclusion that the

reported income statements related to AmTrust’s warranty

contracts and its employee bonuses were non-actionable

opinions. Insofar as the District Court dismissed the

Appellants’ claims under Section 11 and Section 12(a)(2)

against the Underwriter Defendants arising from those

two categories of statements, we vacate the dismissal and

remand for further proceedings consistent with this

opinion. As to any remaining claims against the

33a

Underwriter Defendants, we affirm the District Court’s

dismissal.

IV.

THE CLAIMS AGAINST BDO, AMTRUST’S OUTSIDE

AUDITOR

Finally, we address the Appellants’ claims against

AmTrust’s outside auditor, BDO, under Section 11 of the

Securities Act in connection with BDO’s audit reports on

AmTrust’s financial statements and its system of internal

controls over financial reporting for each of the years

ending December 31, 2013– 15, and under Section 10(b) of

the Exchange Act and Rule 10b-5 in connection with its

audit report for the year ending December 31, 2013 (“2013

Audit Opinion”), which was included in AmTrust’s 2013

Form 10-K.

We begin with the Securities Act claims. Section 11

provides in relevant part that if “any part of the

registration statement . . . contained an untrue statement

of material fact,” anyone acquiring the associated security

may sue “every accountant . . . who has with his consent

been named as having prepared or certified any part of the

registration statement or . . . any report or valuation which

is used in connection with the registration statement.” 15

U.S.C. § 77k(a)(4). BDO is thus responsible under Section

11 for any material inaccuracy in the AmTrust registration

statements that it certified, or in financial reports

incorporated in those statements. Id.; see Miyahira v.

Vitacost.com, Inc., 715 F.3d 1257, 1265 (11th Cir. 2013);

Belizan v. Hershon, 495 F.3d 686, 692 (D.C. Cir. 2007); see

also Herman & MacLean v. Huddleston, 459 U.S. 375, 381

n.11 (1983).

As BDO observes, the Appellants have not developed

the argument in their opening brief challenging the

District Court’s dismissal of the Section 11 claim against

BDO. The challenge, if it can be called that, appears in a

footnote. See Norton v. Sam’s Club, 145 F.3d 114, 117 (2d

Cir. 1998) (“[A]n argument made only in a footnote [i]s

34a

inadequately raised for appellate review.”). Although the

Appellants develop the argument somewhat in their reply

brief, that is too little too late. See JP Morgan Chase Bank

v. Altos Hornos de Mexico, S.A. de C.V., 412 F.3d 418, 428

(2d Cir. 2005) (“[A]rguments not made in an appellant’s

opening brief are waived even if the appellant . . . raised

them in a reply brief.”). We thus conclude that the

Appellants’ challenge to the dismissal of the Section 11

claim against BDO is abandoned, we affirm the District

Court’s dismissal of that claim, and we proceed to examine

the Exchange Act claims against BDO.

The Appellants contend that BDO is liable under

Section 10(b) of the Exchange Act for the 2013 Audit

Opinion, which stated that BDO had conducted its audit in

accordance with standards promulgated by the Public

Company Accounting Oversight Board (“PCAOB”), and

that the audit provided a reasonable basis for BDO to

determine that AmTrust’s financial statements were fairly

presented. Joint App’x 246–47.

On its face, the 2013 Audit Opinion appears in the

same guise as the SOX certifications that we have already

concluded are non-actionable opinions. But the Complaint

alleges some key facts that differentiate the audit opinion

from those certifications. The Appellants allege that the

BDO engagement partner on the audit, Richard J.

Bertuglia, and another BDO partner, John W. Green, in

fact failed to complete the necessary checks and audit work

papers before issuing the audit opinion; that they signed

several audit work papers without reviewing them; and

that they failed to verify that all the necessary audit work

was performed before issuing the opinion. The Appellants

also allege that the SEC later found that (1) Bertuglia had

violated the PCAOB standards by failing to supervise and

exercise due professional care, properly examine journal

entries for evidence of possible material misstatement due

to fraud, or perform sufficient tests of internal controls and

35a

substantive audit procedures to support their final opinion,

and (2) Green violated PCAOB standards by failing to

perform the appropriate engagement quality review.

We agree with the District Court that the Appellants

have adequately alleged that BDO’s audit opinion

contained potentially actionable misstatements of opinion

because the Complaint “render[s] it plausible that

Bertuglia,” who signed the audit opinion, “disbelieved the

statement that the audit was conducted in accordance with

the relevant PCAOB standards.” Spec. App’x 78. The

Appellants have also adequately alleged that BDO’s

statement that it “believe[d] [its] audits provide a

reasonable basis for [its] opinion,” Joint App’x 246–47,

would lead a reasonable investor to conclude that BDO had

conducted “some meaningful . . . inquiry,” Omnicare, 575

U.S. at 188, when in fact, according to the Complaint, BDO

never conducted such an inquiry.

We part ways with the District Court, however, insofar

as it concluded that the alleged misstatements were not

material.

To state a claim under § 10(b) and the

corresponding Rule 10b–5, a plaintiff must plead

that the defendant, in connection with the

purchase or sale of securities, made a materially

false statement or omitted a material fact, with

scienter, and that the plaintiff’s reliance on the

defendant’s action caused injury to the plaintiff.

Ganino v. Citizens Utils. Co., 228 F.3d 154, 161 (2d Cir.

2000). “At the pleading stage, a plaintiff satisfies the

materiality requirement . . . by alleging a statement or

omission that a reasonable investor would have considered

significant in making investment decisions.” Id. at 161–62;

see Basic Inc. v. Levinson, 485 U.S. 224, 231–32 (1988). “[A]

complaint may not properly be dismissed . . . on the ground

that the alleged misstatements or omissions are not

material unless they are so obviously unimportant to a

36a

reasonable investor that reasonable minds could not differ

on the question of their importance.” Ganino, 228 F.3d at

162 (quotation marks omitted); see Litwin, 634 F.3d at 717.

With these basic principles in mind, we conclude that

the Appellants adequately alleged that the misstatements

in BDO’s 2013 Audit Opinion were material. Although the

challenged audit certification reflects standardized

language, it is not “so general that a reasonable investor

would not depend on it as a guarantee.” ECA, 553 F.3d at

206. Instead, BDO’s certification that the audit was

conducted in accordance with PCAOB standards succinctly

conveyed to investors that AmTrust’s audited financial

statements were reliable. The absence of BDO’s

certification would have been significant, for without it,

BDO could not have issued an unqualified opinion, AU

508.07, which then would have alerted investors to

potential problems in the company’s financial reports, see

United States v. Arthur Young & Co., 465 U.S. 805, 818

(1984). The false certification thus subjected unknowing

investors to the risk that AmTrust’s financial statements

were unreliable. For that reason, contrary to the District

Court’s conclusion, the Appellants were not required to

allege a link between BDO’s false certification and specific

errors in AmTrust’s financial statements to establish that

BDO’s false audit certification was material.

We also respectfully disagree with the District Court’s

conclusion that the Appellants failed to allege loss

causation. Because the Appellants rely on a corrective

disclosure theory, they must show that “the loss caused by

the alleged fraud results from the relevant truth leaking

out.” In re Vivendi, S.A. Sec. Litig., 838 F.3d 223, 261 (2d

Cir. 2016) (cleaned up). More specifically, the Appellants

“must plausibly allege a disclosure of” BDO’s

misstatements by which “the available public information

regarding” BDO’s audit opinion “was corrected.”

37a

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

750 F.3d 227, 233 (2d Cir. 2014) (cleaned up).

The Complaint alleges that BDO’s misleading

representations regarding the 2013 Audit Opinion caused

investor losses because the unqualified audit opinion

artificially inflated the price of AmTrust securities. As

noted, at the time BDO issued its audit opinion, it had not

completed the necessary audit work. Its auditors completed

the work after BDO issued the unqualified opinion and

concluded that they did not need to revise the opinion.

Even then, the audit partners failed to note their

assessment of omitted procedures or to revise the audit

documentation to show that the work was completed only

after the opinion had been issued.

An April 2017 article in the Wall Street Journal

disclosed the debacle. The article reported that BDO

auditors failed to complete the necessary checks before

signing off on the audit paperwork. The article also

described how BDO auditors covered up their incomplete

work by “loading unfinished documents into an internal

software system to show the right time stamp, then

returned later to complete some of the work.” Joint App’x

262 (quotation marks omitted). After the article was

published, the price of AmTrust’s securities dropped.

Relying on the three-year gap between BDO’s

completion of the audit work and the disclosure in the Wall

Street Journal, the District Court concluded that the

Appellants failed to allege loss causation. In the District

Court’s view, the Appellants needed to allege a disclosure

and corresponding decline in the price of AmTrust’s

securities between the time BDO issued its misleading

audit opinion and the time that BDO retroactively

completed the work. See Lentell v. Merrill Lynch & Co., 396

F.3d 161, 175 n.4 (2d Cir. 2005) (explaining that the

plaintiffs could not establish loss causation based on a

38a

disclosure that did not “reveal to the market the falsity of

the prior” statements).

We disagree with this view for two reasons. First, the

Wall Street Journal article was the first time that the

problems with BDO’s audit were publicly disclosed. Prior

to the disclosure, the misleading nature of BDO’s audit

certification remained uncorrected, “continu[ing] to taint

the total mix of available public information.” Carpenters

Pension Tr. Fund, 750 F.3d at 234 (cleaned up). Because

the article revealed the specific deficiencies that rendered

the audit opinion misleading, there is a “clean match”

between the misleading audit opinion and the subsequent

disclosure. Ark. Tchr. Ret. Sys. v. Goldman Sachs Grp., Inc.,

77 F.4th 74, 80 (2d Cir. 2023). Second, even after cleaning

up their auditing paperwork, BDO’s auditors still failed to

correct that paperwork to reflect the dates the work was

actually completed or to document their assessment of the

omitted procedures. So BDO’s statement that it “conducted

[its] audits in accordance with the standards of the Public

Company Accounting Oversight Board,” Joint App’x 246,

remained at the very least misleading. See, e.g., AS 3.6

(requiring the auditor to document “the procedures

performed” with “sufficient information to enable an

experienced auditor” to determine “the date such work was

completed as well as the person who reviewed the work and

the date of such review”). Accordingly, despite BDO’s

belated completion of the audit work, the Wall Street

Journal article’s disclosure of the deficiencies in BDO’s

audit revealed the continuing falsity of its audit

certification.

Because the District Court dismissed the Appellants’

Section 10(b) and Rule 10b-5 claims against BDO on

materiality and loss causation grounds, it did not address

scienter. Addressing that issue in the first instance on

appeal, we conclude that the Appellants adequately alleged

that BDO acted recklessly in conducting the audit and

39a

issuing the audit opinion. In particular, the Appellants

alleged that BDO senior partners and managers—

Bertuglia, Green, and Lev Nagdimov—knew that the audit

did not comply with PCAOB standards and consciously

concealed their noncompliance. These allegations support

a strong inference of fraudulent intent. See Emps.’ Ret. Sys.

of Gov’t of the Virgin Islands v. Blanford, 794 F.3d 297, 308

(2d Cir. 2015) (holding that allegations describing the

defendants’ efforts to conceal information demonstrate

fraudulent intent). 19

BDO argues that the Appellants failed to establish

scienter because they did not allege that BDO’s conduct

“approximate[d] an actual intent to aid in the fraud being

perpetrated by” AmTrust. In re Advanced Battery, 781 F.3d

at 644; accord Novak, 216 F.3d at 309 (holding that

accounting irregularities “do[] not constitute reckless

conduct sufficient for § 10(b) liability”). But the Appellants

do not rely on mere accounting irregularities or BDO’s

failure to identify problems with AmTrust’s accounting

practices. Rather, they allege that BDO consciously

covered up its own misrepresentation that its audit

complied with PCAOB standards. For these reasons, we

vacate the District Court’s dismissal of the Appellants’

BDO argues that the Appellants failed to allege that any individual

whose intent could be imputed to BDO acted with the requisite scienter.

See Teamsters Loc. 445 Freight Div. Pension Fund v. Dynex Cap. Inc.,

531 F.3d 190, 195 (2d Cir. 2008). We disagree. BDO concedes that

Bertuglia, the engagement partner for the AmTrust audit, was the

“maker” of the misleading audit certification. BDO Br. 45. And the

Appellants alleged that Bertuglia did not review all of the audit

paperwork or confirm that the auditors had obtained sufficient

evidence to support their opinion, but he released the unqualified audit

certification anyway. These allegations support a strong inference that

Bertuglia knew that BDO’s audit opinion was misleading insofar as the

opinion falsely asserted that BDO conducted its audit in accordance

with PCAOB standards.

40a

Exchange Act claims under Section 10(b) and Rule 10b-5

against BDO.

CONCLUSION

To summarize:

1. We vacate the dismissal of the Appellants’ Section

11 claims against the AmTrust Defendants and the

Director Defendants, the Section 12(a)(2) claims against

AmTrust, and the Section 15 claims against the Officer

Defendants and Director Defendants (Zyskind, Pipoly,

DeCarlo, Fisch, Gulkowitz, Karfunkel, and Miller) relating

to AmTrust’s accounting for certain warranty contracts

and bonuses.

2. We vacate the dismissal of the Appellants’ claims

under Section 11 and Section 12(a)(2) against the

Underwriter Defendants relating to AmTrust’s accounting

for certain warranty contracts and bonuses.

3. We vacate the dismissal of the Appellants’ claims

under Section 10(b) and Rule 10b-5 against BDO. 20

4. We otherwise affirm the judgment of the District

Court.

We have considered the Appellants’ remaining

arguments and conclude that they are without merit.

Accordingly, for the reasons set forth above, the judgment

of the District Court is AFFIRMED in part and VACATED

in part, and the case is REMANDED for proceedings

consistent with this opinion.

After due consideration of the Appellants’ petition for rehearing, we

grant the petition only insofar as it concerns the Appellants’ claims

against BDO under Section 10(b) and Rule 10b-5—claims addressed by

the revisions in this amended opinion. We deny the remainder of the

Appellants’ petition.

41a

APPENDIX B

United States Court of Appeals

For the Second Circuit

August Term, 2020

Argued: June 4, 2021

Decided: August 23, 2023

Docket No. 20-1643-cv

NEW ENGLAND CARPENTERS GUARANTEED ANNUITY AND

PENSION FUNDS,

Lead Plaintiff-Appellant,

STANLEY NEWMARK, IRVING LICHTMAN REVOCABLE

LIVING TRUST, JUPITER CAPITAL MANAGEMENT,

Plaintiff-Movant-Appellants,

SHARON ALBANO, Individually and On Behalf of All

Others Similarly Situated,

Consolidated-Plaintiff-Movant-Appellant,

JOHN SACHETTI, Individually and On Behalf of All

Others Similarly Situated,

Consolidated-Plaintiff,

JOEL RUBEL, Individually and On Behalf of All

Others Similarly Situated,

Plaintiff,

DONALD T. DECARLO, SUSAN C. FISCH, ABRAHAM

GULKOWITZ, GEORGE KARFUNKEL, JAY J. MILLER,

Consolidated-Defendants-Appellees,

AMTRUST FINANCIAL SERVICES, INC., BARRY D.

ZYSKIND, RONALD E. PIPOLY, JR., BDO USA, LLP, RBC

CAPITAL MARKETS, LLC, UBS SECURITIES LLC,

42a

CITIGROUP GLOBAL MARKETS INC., KEEFE, BRUYETTE &

WOODS, INC., MORGAN STANLEY & CO. LLC,

Defendants-Appellees.

Before:

LOHIER, NARDINI, Circuit Judges

KOVNER, Judge. *

The Appellants, investors in the securities of AmTrust

Financial Services, Inc., appeal from a judgment of the

United States District Court for the Southern District of

New York (Kaplan, J.) dismissing their complaint for

failure to state a claim under Sections 11, 12, and 15 of the

Securities Act of 1933 and Section 10(b) of the Securities

Exchange Act of 1934 against AmTrust, various AmTrust

corporate officers and board members, AmTrust’s outside

auditor, and multiple underwriters of AmTrust’s sale of

securities. The District Court determined that certain

public misstatements relating to AmTrust’s recognition of

revenue generated by its extended warranty contracts and

the expenses associated with its payment of discretionary

employee bonuses were non-actionable statements of

opinion. We conclude that these misstatements of opinions

were actionable under the circumstances alleged in the

Appellants’ complaint. We identify no error in the District

Court’s dismissal of the Appellants’ remaining claims. We

therefore AFFIRM in substantial part, VACATE in part,

and REMAND the case for further proceedings.

ANDREW S. LOVE (Susan K. Alexander, Robbins Geller

Rudman & Dowd LLP, San Francisco, CA; Samuel H.

Rudman, David A. Rosenfeld, Mark T. Millkey,

William J. Geddish, Avital O. Malina, Robert D.

Gerson, Vincent M. Serra, Robbins Geller Rudman &

Dowd LLP, Melville, NY; Jeremy A. Lieberman,

Judge Rachel P. Kovner, of the United States District Court for the

Eastern District of New York, sitting by designation.

43a

Pomerantz LLP, New York, NY; Thomas J. McKenna,

Gainey McKenna & Egleston, New York, NY; Kim E.

Miller, Kahn Swick & Foti, LLC, New York, NY, on the

brief), Robbins Geller Rudman & Dowd LLP, San

Francisco, CA, for Plaintiffs-Appellants.

STEVEN M. FARINA (John S. Williams, Matthew J.

Greer, on the brief), Williams & Connolly LLP,

Washington, D.C., for Defendants-Appellees AmTrust

Financial Services, Inc., Barry D. Zyskind, Ronald E.

Pipoly, Jr., Donald T. DeCarlo, Susan C. Fisch,

Abraham Gulkowitz, George Karfunkel, and Jay J.

Miller.

TIMOTHY E. HOEFFNER (Jason D. Gerstein, Ludwig von

Rigal, on the brief), McDermott Will & Emery LLP,

New York, NY, for Defendant-Appellee BDO USA, LLP.

GREGG L. WEINER (Christopher Thomas Brown, Ropes

& Gray LLP, New York, NY; William T. Davison, Ropes

& Gray LLP, Boston, MA), Ropes & Gray LLP, New

York, NY, for Defendants-Appellees Morgan Stanley &

Co. LLC, Citigroup Global Markets Inc., UBS

Securities LLC, RBC Capital Markets, LLC, and Keefe,

Bruyette & Woods, Inc.

LOHIER, Circuit Judge:

When is a statement of opinion that reflects some

subjective judgment nevertheless actionable under the

federal securities laws?

On April 4, 2017, AmTrust Financial Services, Inc., one

of the country’s largest publicly traded property and

casualty insurers, restated five years of its financial results

to correct what it acknowledged were significant errors in

its annual and quarterly reports filed with the Securities

and Exchange Commission (“SEC”). Among other things,

AmTrust disclosed that it had improperly recognized most

of the expected revenue from certain extended warranty

contracts at the start rather than over the life of the

44a

contracts. AmTrust also reported that it had improperly

accounted for certain discretionary employee bonuses by

treating the bonuses as expenses in the year they were paid

rather than the year they were earned by employees.

AmTrust’s restatement spurred the Appellants in this

case, all investors in AmTrust securities, 1 to sue AmTrust,

its officers (the “Officer Defendants,” and, together with

AmTrust, the “AmTrust Defendants”), members of its

board of directors (the “Director Defendants”), 2 its former

auditor, 3 and certain underwriters of AmTrust securities

(the “Underwriter Defendants”), 4 for misstating the

company’s financial condition and results in violation of

Sections 11, 12 and 15 of the Securities Act of 1933 (the

“Securities Act”), and Section 10(b) and 20(a) of the

Securities Exchange Act of 1934 (the “Exchange Act”) and

the corresponding Rule 10b-5.

The United States District Court for the Southern

District of New York (Kaplan, J.) dismissed the third

amended complaint (the “Complaint”) under Federal Rule

of Civil Procedure 12(b)(6), holding that none of the

misstatements were actionable under the securities laws.

We agree with the District Court’s dismissal of the claims

relating to most of the misstatements, and we therefore

The named plaintiffs are New England Carpenters Guaranteed

Annuity and Pension Funds, Stanley Newmark, Irving Lichtman

Revocable Living Trust, Jupiter Capital Management, Sharon Albano,

John Sachetti, and Joel Rubel.

The Officer Defendants are Barry D. Zyskind (at all relevant times

AmTrust’s President and Chief Executive Officer (“CEO”)) and Ronald

E. Pipoly Jr. (at all relevant times AmTrust’s Executive Vice President

and Chief Financial Officer (“CFO”)). The Director Defendants are

Donald T. DeCarlo, Susan C. Fisch, Abraham Gulkowitz, George

Karfunkel, and Jay J. Miller.

BDO USA, LLP (“BDO”).

RBC Capital Markets, LLC, UBS Securities LLC, Citigroup Global

Markets Inc., Keefe, Bruyette & Woods, Inc., and Morgan Stanley &

Co. LLC.

45a

AFFIRM in substantial part. But as we explain below, we

disagree with the District Court’s dismissal of the

Appellants’ claims under Sections 11, 12(a)(2), and 15 of

the Securities Act against AmTrust, its officers and

directors, and the Underwriter Defendants related to

AmTrust’s accounting for revenue generated by its

extended warranty contracts and the expenses associated

with discretionary employee bonuses. We therefore

VACATE the judgment insofar as it dismisses those claims

and REMAND to the District Court for further proceedings

consistent with this opinion.

BACKGROUND

FACTUAL BACKGROUND

The following facts, which we assume to be true for

purposes of this appeal, are drawn from the Complaint and

the documents it incorporates by reference. See Litwin v.

Blackstone Grp., L.P., 634 F.3d 706, 708 (2d Cir. 2011).

AmTrust provides workers’ compensation, commercial

automobile insurance, general liability, and extended

service and warranty coverage. As relevant to this appeal,

AmTrust promotes and markets extended service plans

(“ESPs”)—essentially extended warranties. AmTrust

receives two types of revenue from its ESP business. First,

AmTrust and its subsidiaries sell contractual liability

insurance to various retailers, covering the obligations that

the retailers assume as part of the ESPs. Second, retailers

pay AmTrust “for marketing and administrative services,”

including “call center services,” related to the ESPs. Joint

App’x 67, 82. During the relevant time, AmTrust

“recognize[d] revenue related to promotion, marketing and

administration services at the time of the sale of ESP[s]”

but “defer[red] a portion of service revenue based upon an

estimate of administrative services to be provided in future

periods.” Joint App’x at 82.

46a

Starting in 2010, AmTrust made a number of

acquisitions that fueled much of its corporate growth. The

acquisition most relevant to this appeal closed in 2010,

when AmTrust bought Warrantech, a publicly traded

company focused on providing ESPs and warranty

programs for retailers, dealers, distributors, and

manufacturers that became, after the acquisition, a core

part of AmTrust’s business. Prior to the acquisition, the

SEC had investigated Warrantech’s practice of recognizing

the full amount of the revenue it received from its ESPs

and other service contracts at the time the contract was

entered and the initial sale of services commenced (we will

at times refer to this as the “time-of-sale” approach). The

SEC had instructed Warrantech instead to recognize the

revenue generated by those contracts on a straight-line

basis over the life of the contracts. Warrantech publicly

announced that it would comply with the SEC’s guidance,

abandoned its time-of-sale approach, and revised its

method of recognizing revenue relating to the ESPs. For

reasons that are unclear, AmTrust, though aware of the

SEC’s prior guidance to the contrary, reverted back to the

original time-of-sale approach after it acquired Warrantech.

From 2012 to 2016 the price of AmTrust stock, which

traded on the NASDAQ Global Market, skyrocketed. The

company’s gross written premiums, a central measure of

its financial condition, grew from $2.75 billion to $7.95

billion. Yet as early as 2013, financial commentators and

analysts began speculating publicly about AmTrust’s

actual financial condition. One commentator reported that

AmTrust may have used accounting gimmicks to inflate its

earnings and net equity. A financial journal, Barron’s,

questioned AmTrust’s accounting practices.

The bad press failed to slow AmTrust’s growth. In

November 2015 AmTrust filed a preliminary prospectus

supplement and prospectus supplement with the SEC

announcing an offer of 5 million shares of common stock

47a

(the “November 2015 Offering”) pursuant to a registration

statement filed on June 11, 2015 (the “2015 Registration

Statement”). The transaction, underwritten by Defendants

Citigroup Global Markets Inc. (“Citigroup”) and Morgan

Stanley & Co. LLC (“Morgan Stanley”), occurred on

November 11, 2015 and raised $320 million. In September

2016 AmTrust filed another preliminary prospectus

supplement and prospectus supplement under the 2015

Registration Statement, this time announcing that the

company planned to offer American depositary shares in a

transaction (the “September 2016 Offering”) underwritten

by Morgan Stanley, UBS Securities LLC (“UBS”), RBC

Capital Markets, LLC (“RBC”), and Keefe, Bruyette &

Woods, Inc. (“KBW”). The prospectus supplement

accompanying the September 2016 Offering incorporated

by reference AmTrust’s annual financial report on Form

10-K for the year ending December 31, 2015, its 10-Q

report for the quarter ending March 31, 2015, and various

other reports the company had previously filed with the

SEC. The September 2016 Offering raised $278.2 million.

AmTrust’s prospects took a turn for the worse in 2017.

In February and March 2017 AmTrust announced that

accounting errors had prompted it to delay the filing of its

10-K for the year ending December 31, 2016 and that it

needed more time to complete its consolidated financial

statements. On April 4, 2017, AmTrust finally filed its

Form 10-K for 2016. The 2016 10-K included restated

financial results for the years ending December 31, 2012,

2013, 2014, 2015, and 2016, as well as each interim period

during 2015 and 2016. The restatement revealed that the

company’s income and earnings had been significantly

overstated since 2012. 5

To use the annual financial results for 2015 as an example, the errors

meant that income before other income, income taxes, equity in

48a

The restatement identified two material accounting

errors. First, according to a press release that AmTrust

issued describing the errors, AmTrust had mistakenly

relied on the “upfront recognition of a portion of warranty

contract revenue associated with administration

services, . . . instead of deferring recognition of the revenue

over the life of the contract.” Joint App’x 208. In other

words, AmTrust had “historically recognized the majority

of revenue related to administrative services at the time of

sale of ESP,” but had “revised its application of the revenue

recognition guidance to record revenue related to

administration services on a straight-line basis over the

term of the ESP contracts.” Joint App’x 80. The second

accounting error was that discretionary employee

“bonuses . . . were expensed in the year paid but . . . should

have been accrued [as an expense] in the year earned based

on” accepted accounting standards. Joint App’x 208. The

restatement also identified other “miscellaneous

adjustments” to AmTrust’s financial statements that the

company concluded were not material. 6 Joint App’x 208.

II.

PROCEDURAL BACKGROUND

The Appellants commenced this putative class action

in March 2017, after AmTrust first publicly disclosed the

accounting errors at issue in this case. Although there are

two slightly different class periods during which the

earnings of unconsolidated subsidiaries and non-controlling interest