Pension Trust Fund For Operating Engineers v. DeVry Education Group, Inc. et al

Northern District of Illinois, ilnd-1:2016-cv-05198

MEMORANDUM by DeVry Education Group, Inc., Richard M. Gunst, Daniel Hamburger, Patrick J. Unzicker, Timothy J. Wiggins in support of motion to dismiss 91

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Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 1 of 42 PageID #:1525 IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION PENSION TRUST FUND FOR OPERATING ENGINEERS, INDIVIDUALLY AND ON BEHALF OF ALL OTHERS SIMILARLY SITUATED, Plaintiff, No. 1:16-CV-05198 v. Hon. Jorge L. Alonso DEVRY EDUCATION GROUP INC., DANIEL HAMBURGER, RICHARD M. GUNST, PATRICK J. UNZICKER, and TIMOTHY J. WIGGINS, Defendants. DEFENDANTS' MEMORANDUM OF LAW IN SUPPORT OF THEIR MOTION TO DISMISS THE THIRD AMENDED COMPLAINT ARNOLD & PORTER KAYE SCHOLER LLP 70 West Madison Street, Suite 4200 Chicago, IL 60602 (312) 583-2300 250 West 55th Street New York, New York 10022 (212) 836-8000 Attorneys for Defendants Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 2 of 42 PageID #:1526 TABLE OF CONTENTS Page PRELIMINARY STATEMENT .................................................................................................... 1 STATEMENT OF FACTS ............................................................................................................. 2 A. DVU's Employment Rates Reporting Methodology and Challenged Advertisements ....................................................................................................... 3 B. Regulatory Actions and Settlements ....................................................................... 4 C. Procedural History .................................................................................................. 6 D. Plaintiff's New Allegations..................................................................................... 6 ARGUMENT .................................................................................................................................. 7 I. Plaintiff Fails to Carry Its Heightened Pleading Burden .................................................... 7 II. Plaintiff Fails to Allege a Strong Inference of Scienter ...................................................... 8 A. The New CW Allegations Fail to Establish Recklessness ...................................... 9 1. The majority of the new CW allegations are substantially similar to those the Court has already considered and dismissed ............................. 10 2. None of the CWs with first-hand knowledge of graduate outcome data had access to nationwide employment statistics, and their allegations do not otherwise support an inference of scienter .................. 12 3. The majority of the CWs' allegations must be steeply discounted because they lack first-hand knowledge of DVU's employment statistics ..................................................................................................... 15 4. Almost all of the CWs make allegations that are unreliable because they are based on hearsay and/or speculation ........................................... 18 5. The CW allegations support the non-fraudulent inference that DVU reasonably relied on robust employment statistics procedures ....... 20 B. The Remaining New Allegations Do Not Alter the Court's Holding that the Investigations and Settlements are Insufficient to Support an Inference of Scienter ............................................................................................................. 22 1. The FOIA documents fail to support an inference of scienter .................. 23 Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 3 of 42 PageID #:1527 2. The MA AG settlement adds nothing to plaintiff's scienter allegations ................................................................................................. 25 III. The TAC Fails to Allege Material Falsity ........................................................................ 26 A. The TAC Fails to Identify Which Statements It is Challenging and Why ........... 26 B. The Parroted Government Allegations Do Not Demonstrate Falsity ................... 27 1. Plaintiff fails to plead with particularity that Adtalem's representation to investors that 90% of DVU graduates actively seeking employment were employed within their field of study six months after graduation was false............................................................. 28 2. Plaintiff's suggestion that the reported salary statistics were false is baseless ..................................................................................................... 31 IV. The TAC Fails to Plead Loss Causation ........................................................................... 32 V. The TAC Fails to Plead Control Person Liability............................................................. 34 VI. This Action Should Be Dismissed with Prejudice ............................................................ 34 CONCLUSION ............................................................................................................................. 35 ii Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 4 of 42 PageID #:1528 TABLE OF AUTHORITIES Page(s) Cases Alizadeh v. Tellabs, Inc., 2014 WL 2726676 (N.D. Ill. June 16, 2014) ...........................................................................27 In re Autodesk, Inc. Sec. Litig., 132 F. Supp. 2d 833 (N.D. Cal. 2000) .....................................................................................20 In re Bally Total Fitness Sec. Litig., 2007 WL 551574 (N.D. Ill. Feb. 20, 2007) ..................................................................... passim Boca Raton Firefighters' & Police Pension Fund v. DeVry Inc., 2012 WL 1030474 (N.D. Ill. Mar. 27, 2012) ...............................................................11, 12, 29 In re Career Educ. Corp. Sec. Litig., 2006 WL 999988 (N.D. Ill. Mar. 28, 2006).............................................................................32 City of Austin Police Ret. Sys. v. ITT Educ. Servs., Inc., 388 F. Supp. 2d 932 (S.D. Ind. 2005) ......................................................................................15 City of Livonia Emps.' Ret. Sys. & Local 295/Local 851 v. Boeing Co., 711 F.3d 754 (7th Cir. 2013) ........................................................................................... passim Constr. Workers Pension Fund Lake Cty. & Vicinity v. Navistar Int'l, 114 F. Supp. 3d 633 (N.D. Ill. 2014) .......................................................................................27 Davis v. SPSS, Inc., 431 F. Supp. 2d 823 (N.D. Ill. 2006) .................................................................................16, 34 Dura Pharms., Inc. v. Broudo, 544 U.S. 336 (2005) ...........................................................................................................32, 33 Geinko v. Padda, 2002 WL 276236 (N.D. Ill. Feb. 27, 2002) .............................................................................27 Glaser v. The9, Ltd., 772 F. Supp. 2d 573 (S.D.N.Y. 2011)......................................................................................26 Harrison v. Dean Witter Reynolds, Inc., 974 F.2d 873 (7th Cir. 1992) ...................................................................................................34 Higginbotham v. Baxter Int'l Inc., 495 F.3d 753 (7th Cir. 2007) .....................................................................................8, 9, 11, 18 iii Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 5 of 42 PageID #:1529 Indiana Elec. Workers' Pension Tr. Fund IBEW v. Shaw Group, Inc., 537 F.3d 527 (5th Cir. 2008) ...................................................................................................20 Iron Workers Local No. 25 Pension Fund v. Oshkosh Corp., 2010 WL 1287058 (E.D. Wis. Mar. 30, 2010) ........................................................................35 Makor Issues & Rights, Ltd. v. Tellabs Inc., 513 F.3d 702 (7th Cir. 2008) .........................................................................................9, 16, 17 In re Metawave Commc'ns Corp. Sec. Litig., 298 F. Supp. 2d 1056 (W.D. Wash. 2003)...............................................................................19 Metzler Inv. GMBH v. Corinthian Colleges, Inc., 540 F.3d 1049 (9th Cir. 2008) ...........................................................................................33, 34 Meyer v. Greene, 710 F.3d 1189 (11th Cir. 2013) ...............................................................................................34 Miller v. Champion Enters. Inc., 346 F.3d 660 (6th Cir. 2003) ...................................................................................................35 In re Morgan Stanley & Van Kampen Mut. Fund Sec. Litig., 2006 WL 1008138 (S.D.N.Y. Apr. 18, 2006)..........................................................................27 In re Motorola Sec. Litig., 2004 WL 2032769 (N.D. Ill. Sept. 9, 2004) ............................................................................11 In re Netflix, Inc. Sec. Litig., 2005 WL 1562858 (N.D. Cal. June 28, 2005) ...................................................................28, 31 Oregon Pub. Emps. Ret. Fund v. Apollo Grp., Inc., 774 F.3d 598 (9th Cir. 2008) ...................................................................................................33 Pavelic & LeFlore v. Marvel Entm't Grp., 493 U.S. 120 (1989) .................................................................................................................27 Pension Tr. Fund for Operating Eng'rs v. DeVry Educ. Group, Inc., 2017 WL 6039926 (N.D. Ill. Dec. 6, 2017) ..................................................................... passim Perrigo Co. PLC v. Mylan N.V., 2015 WL 9916726 (S.D.N.Y. Oct. 29, 2015) ..........................................................................28 Plumbers & Pipefitters Local Union 719 Pension Fund v. Zimmer Holdings, Inc., 679 F.3d 952 (7th Cir. 2012) ...................................................................................................12 Plumbers Local No. 200 Pension Fund v. Washington Post Co., 831 F. Supp. 2d 291 (D.D.C. 2011) .......................................................................................8, 9 iv Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 6 of 42 PageID #:1530 Pugh v. Tribune Co., 521 F.3d 686 (7th Cir. 2008) .....................................................................................................8 In re Retek Inc. Securities Litigation, 2009 WL 928483 (D. Minn. 2009) ..........................................................................................33 Shoemaker v. Cardiovascular Sys., Inc., 2017 WL 1180444 (D. Minn. Mar. 29, 2017) .........................................................................19 Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) ...............................................................................................................7, 8 Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981 (9th Cir. 2009), as amended (Feb. 10, 2009) .....................................................16 Other Authorities 75 Fed. Reg. 34806, 34873 (June 18, 2010) ....................................................................................3 75 Fed. Reg. 66832, 66836-38 (Oct. 29, 2010) ...............................................................................3 79 Fed. Reg. 16426, 16477 (Mar. 25, 2014) ....................................................................................3 v Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 7 of 42 PageID #:1531 Defendants Adtalem Global Education Inc. f/k/a DeVry Education Group Inc. ("Adtalem") and Daniel Hamburger, Richard M. Gunst, Patrick J. Unzicker, and Timothy J. Wiggins (the "Individual Defendants") submit this memorandum of law in support of their motion to dismiss lead plaintiff Utah Retirement Systems' ("URS") third amended securities class action complaint ("TAC") pursuant to Rules 9(b) and 12(b)(6) of the Federal Rules of Civil Procedure for failure to meet the heightened pleading requirements established by the Private Securities Litigation Reform Act of 1995 ("PSLRA"). PRELIMINARY STATEMENT On December 6, 2017, this Court dismissed URS's second amended complaint ("SAC"), finding that, based on the allegations presented, any inference that defendants made the alleged misrepresentations with scienter "requires a degree of speculation that the PSLRA does not tolerate." Pension Tr. Fund for Operating Eng'rs v. DeVry Educ. Group, Inc., 2017 WL 6039926, at *13 (N.D. Ill. Dec. 6, 2017). The Court gave URS the opportunity to amend its inadequate complaint, instructing URS that it would have to provide "particularized allegations shedding light on when, if ever, defendants should have known that the 90% Statement was or might be false" to meet the stringent pleading standard. Id. at *12. But plaintiff's third (and overstuffed) bite at the apple is just more of the same – intolerable speculation. The centerpiece of the new matter in the TAC are allegations attributed to 13 new confidential witnesses ("CWs"). But, yet again, "none of [the CW] allegations qualifies as 'stat[ing] with particularity facts giving rise to a strong inference that defendants acted' with knowledge of a substantial risk that the statistics were false." Id. at *13. None of the new CWs can claim to know about nationwide graduate employment performance – a deficiency that was and remains fatal to plaintiff's allegations. Id. at *8. And the vast majority of the CWs must be Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 8 of 42 PageID #:1532 discounted as sources of particularized allegations because they either did not work for DeVry University ("DVU") – the only school for which Adtalem made graduate employment claims that form the basis for URS's complaint – or they were not in a position to know how DVU categorized, compiled, and reported employment statistics. The new CW allegations are similar to and every bit as insufficient as those the Court has already reviewed and rejected. Even taken at face value, the CW allegations do not support URS's desired narrative that Adtalem's senior executives engaged in a secretive plot to inflate employment statistics. Rather, they support the far more compelling inference that DVU used a uniform, thoroughly-vetted process for reporting employment statistics, and that DVU's policies for fostering and marketing successful graduate outcomes were equally meticulous. There is not a single allegation in the TAC that calls into doubt the reasonableness of the individual defendants' reliance on those robust controls. Three strikes, and URS is out. The Court should dismiss the TAC with prejudice. STATEMENT OF FACTS Defendants assume familiarity with the facts set forth in their motion to dismiss the SAC and incorporate those facts by reference. Adtalem is a leading global education provider, and the parent organization of numerous career-oriented undergraduate and graduate educational institutions all over the world, which included DVU and its Keller Graduate School of Management, Becker Professional Education, Carrington College, and Chamberlain University. (Ex. A (2016 10-K) at 3-8.)1 The allegations in the complaint concern only a single program – the undergraduate program – from only one of Adtalem's 20 schools – DVU. As of June 30, 2016, DVU's undergraduate program was offered at 60 locations in the United States and 1 Citations to "¶ __" refer to paragraphs of the TAC; "Ex. __" refer to exhibits attached to the Geraci Declaration submitted in support of defendants' motion to dismiss the TAC. 2 Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 9 of 42 PageID #:1533 through DVU's online platform. (Id. at 8.) Prior to June 30, 2015, DVU's physical footprint included an additional 21 locations. (Id.) A. DVU's Employment Rates Reporting Methodology and Challenged Advertisements DVU is primarily regulated by the Department of Education ("DoE"). The DoE has repeatedly declined to mandate the manner in which universities like DVU calculate graduate employment rates, leaving it to the discretion of universities, provided that they appropriately disclose their methodology. 75 Fed. Reg. 34806, 34873 (June 18, 2010); 75 Fed. Reg. 66832, 66836-38 (Oct. 29, 2010); 79 Fed. Reg. 16426, 16477 (Mar. 25, 2014). Accordingly, DVU developed its own methodology and repeatedly disclosed that methodology to investors. (See, e.g., ¶¶ 92, 295-96, 299-300; Ex. B (2014 10-K) at 36; Ex. L (Oct. 25, 2011 8-K) at 6.) By their own terms, the statistics were limited in nature and did not purport to reflect data for all DVU graduates. To the contrary, DVU adopted a methodology that relied on self- reported data from graduates and excluded certain segments of the graduate population. As plaintiff admits, that methodology, and the limitations and risks associated with it, were disclosed to Adtalem investors and DVU employees. (See, e.g., ¶¶ 92, 295-96, 299-300.) From about 2008 through 2015, DVU's marketing included three ad messages to prospective students: (1) 90% (more or less in some years) of DVU graduates in a particular year who were actively seeking employment had jobs in their fields of study within six months after graduation (the "90% Statement"); (2) 90% of DVU graduates since 1975 who were actively seeking employment had jobs in their fields of study within six months after graduation (the "Since 1975 Statement"); and (3) according to a study conducted by the third-party service PayScale.com, DVU graduates reported median earnings 15% higher than other college graduates one year after graduation (the "15% Statement"). (¶¶ 240-41.) Importantly, although Adtalem referenced some versions of the 90% Statement in its SEC filings and other investor 3 Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 10 of 42 PageID #:1534 disclosures during the proposed class period, it did not reference the Since 1975 Statement or the 15% Statement in those disclosures during that period. Throughout the complaint, plaintiff also refers to average starting salaries, or the so-called "90/40" ads. (See e.g., ¶ 84.) No federal regulators or state attorney generals have alleged that DVU's reported average starting salaries were false or misleading. B. Regulatory Actions and Settlements On January 28, 2014, Adtalem received a civil investigation demand ("CID") for information from the FTC relating to "the advertising, marketing, or sale of secondary or postsecondary educational products or services, or educational accreditation products or services," which it disclosed to investors. (Ex. B at 51.) Adtalem cooperated with the investigation and produced substantial responsive information as requested by the FTC. (Id.) Adtalem also disclosed that it received a CID from the Massachusetts Attorney General ("MA AG") in April 2013, and a letter from the New York Attorney General ("NYAG") requesting cooperation with its inquiry in July 2014. (Ex. C (2013 10-K) at 46; Ex. B at 51.) On January 27, 2016, the FTC and the DoE brought separate actions against Adtalem, DVU, and DeVry/New York, Inc.2 (Exs. D (FTC Complaint) & E (DoE Notice).) The FTC alleged that the 90% and 15% Statements were unfair or deceptive to current and prospective DVU students under § 5(a) of the FTC Act because DVU was unable to substantiate these claims. DeVry, 2017 WL 6039926, at *2. The FTC alleged that certain students were misclassified and that "the actual percentage of DVU graduates who, at or near the time they graduated, found jobs that could reasonably be considered 'in their field' is significantly smaller 2 URS alleges that it has obtained litigation documents from both proceedings through the Freedom of Information Act ("FOIA"), specifically: (i) certain discovery requests and responses exchanged by the parties in the FTC action (¶¶ 250-53); and (ii) Federal Student Aid's appellate brief filed in response to DVU's appeal from the imposition of limitations by the DoE and certain other documents. (¶¶ 268-73.) 4 Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 11 of 42 PageID #:1535 than 90%." Id. at *3. The FTC did not specify what it believed the actual percentage was in any year during the proposed class period (August 26, 2011 to January 27, 2016). Id. at *12. Adtalem and its subsidiaries filed a motion to dismiss the FTC's complaint and later filed an answer denying all of the FTC's material allegations. In December 2016, the parties announced that they had reached a settlement pursuant to which DVU agreed to cease using the challenged ads, and to pay $49.4 million to be distributed at the FTC's discretion, as well as $50.6 million in debt relief to DVU students. Id. at *3. The settlement did not contain any admissions of liability, nor did it involve any fine, penalty, forfeiture, or punitive assessment against the companies or any individuals. (Ex. F (FTC Stipulation) at 17.) The DoE simultaneously issued an administrative "Notice of Intent to Limit" DVU's eligibility to participate in federal financial aid programs under Title IV of the Higher Education Act of 1965. (Ex. E.) Although DVU supported the Since 1975 Statement with aggregate student data collected from 1975 to October 1980 and, with the advent of computers, student-by- student data from October 1980 forward, the DoE deemed the aggregated paper records from 1975 to October 1980 insufficient to meet DVU's regulatory obligations. (Id. at 5.) As a result, the DoE claimed DVU violated federal regulations governing Title IV programs participants, 20 U.S.C. § 1094(a)(8) and 34 C.F.R. § 668.14(b)(10) (requiring an institution that uses job placement rates to attract students to provide "the most recent available data concerning employment statistics and. . . any other information necessary to substantiate the truth of the advertisements."). The DoE action was also settled without any findings or admissions of wrongdoing by DVU. (Ex. G (Oct. 13, 2016 8-K) at 2.) DVU entered into follow-on settlements involving substantially similar claims with the following regulators, without admitting or denying their allegations: (i) the NYAG on January 5 Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 12 of 42 PageID #:1536 27, 2017 for $2.75 million; and (ii) the MA AG on June 30, 2017 for $455,0000. (Ex. H (2017 10-K) at 104, 131.) Like the FTC, although the state AGs alleged that classification errors occurred, neither attempted to quantify the total number of students who were misclassified during any year of the class period. None of the regulators alleged that the individual defendants or any other Adtalem officers or entities engaged in fraud or reckless misconduct, nor did they make any allegations concerning the state of mind or intent of any individual executive. Adtalem vigorously contested these actions, and since the actions were resolved through settlement, the third-party allegations remain unproven. C. Procedural History Plaintiff filed its SAC on December 23, 2016 naming the company as a defendant and its former chief executive, chief financial, and chief accounting officers as individual defendants. Defendants moved to dismiss the SAC, and on December 6, 2017, this Court dismissed the 182- page SAC for failing to meet the PSLRA standard, but gave plaintiff an opportunity to attempt to cure the defects in the SAC by amendment. On January 29, 2018, plaintiff – now represented by new counsel – filed the windy and repetitive TAC, inflated to 518 paragraphs covering 229 pages. D. Plaintiff's New Allegations In light of the Court's admonition that plaintiff provide particularized allegations of defendants' knowledge that the 90% Statement was or might be false, the focus of this motion must be on what is new in the TAC. What was already in the SAC has been held inadequate. But the new allegations do not supply what has always been missing in this case: facts that create a strong inference of scienter. Briefly summarized, plaintiff's new allegations consist of the following: 6 Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 13 of 42 PageID #:1537 • Allegations from 13 new CWs, not one of whom can provide first hand evidence of the individual defendants' knowledge or state of mind; and • Litigation documents from the FTC, DoE, and state AG proceedings concerning discovery and procedural issues that have nothing to do with defendants' scienter. As we now demonstrate, those new allegations are insufficient to revive this failed pleading. ARGUMENT I. PLAINTIFF FAILS TO CARRY ITS HEIGHTENED PLEADING BURDEN In an ordinary fraud action, the heightened pleading standard under Rule 9(b) of the Federal Rules of Civil Procedure requires plaintiffs to "state with particularity the circumstances" constituting an alleged fraud, "or, to put it differently, by providing the 'who, what, where, when and how' of the alleged fraudulent conduct." DeVry, 2017 WL 6039926, at *5 (citing Bank of Am., Nat'l Ass'n, v. Knight, 725 F.3d 815, 818 (7th Cir. 2013)). The PSLRA mandates a much more stringent pleading standard for securities fraud class actions. Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 313 (2007). Courts routinely dismiss securities fraud complaints like this one that fail to carry this heightened pleading burden. To state a claim for a violation of § 10(b) of the Securities Exchange Act, a plaintiff must allege that: (1) the defendant made a false statement or omission (2) of material fact (3) with scienter (4) in connection with the purchase or sale of securities (5) upon which the plaintiff justifiably relied and (6) that the false statement proximately caused the plaintiff damages. DeVry, 2017 WL 6039926, at *5. Under the PSLRA, plaintiffs must not only plead with particularity "the factual circumstances constituting fraud. . . but they must also plead with particularity sufficient facts to give rise to a "strong inference" that the defendant acted with 7 Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 14 of 42 PageID #:1538 scienter." Id. at *6. This requires the plaintiff, with respect to each allegedly false or misleading statement, to state with particularity facts giving rise to a strong inference that each named defendant acted with scienter; i.e., actual knowledge of the statement's falsity or reckless disregard of a substantial risk that the statement is false. 15 U.S.C. § 78u-4(b)(2); Higginbotham v. Baxter Int'l Inc., 495 F.3d 753, 756 (7th Cir. 2007). And where, as here, allegations are made on "information and belief," the PSLRA directs that the complaint "shall state with particularity all facts on which that belief is formed." 15 U.S.C. § 78u-4(b)(1). II. PLAINTIFF FAILS TO ALLEGE A STRONG INFERENCE OF SCIENTER The TAC is fatally deficient because it fails to establish a strong inference of scienter, the sine qua non of securities fraud. Plaintiff is required to "state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind." 15 U.S.C. § 78u- (4)(2) (emphasis added). A complaint must be dismissed unless "a reasonable person would deem the inference of scienter cogent and at least as compelling as any opposing inference one could draw from the facts alleged." Tellabs, 551 U.S. at 324; Pugh v. Tribune Co., 521 F.3d 686, 693 (7th Cir. 2008). The Seventh Circuit has defined the "required state of mind" as an "intent to deceive; demonstrated by knowledge of the statement's falsity or reckless disregard of a substantial risk that the statement is false." Higginbotham, 495 F.3d at 756. Like URS's previous complaints, the TAC fails to allege "direct evidence demonstrating that defendants actually knew that the 90% Statement was false." DeVry, 2017 WL 6039926, at *10. Thus, it has the substantial burden of pleading recklessness, which requires plaintiff to show "'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.'" City of Livonia Emps.' Ret. Sys. & Local 295/Local 851 v. Boeing Co., 711 F.3d 754, 756 (7th Cir. 2013) (emphasis added); Plumbers Local No. 200 Pension Fund v. Washington Post Co., 8 Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 15 of 42 PageID #:1539 831 F. Supp. 2d 291, 294 (D.D.C. 2011) ("recklessness is a lesser form of intent, it is not a 'should have known standard'"). The TAC must be dismissed because, even with all of its new allegations viewed in a light favorable to plaintiff, it cannot meet this substantial burden. A. The New CW Allegations Fail to Establish Recklessness In this Circuit, anonymous CW allegations are heavily discounted. "The sources may be ill-informed, may be acting from spite rather than knowledge, may be misrepresented, may even be non-existent – a gimmick for obtaining discovery costly to the defendants and maybe forcing settlement or inducing more favorable settlement terms." Boeing, 711 F.3d at 759; Higginbotham, 495 F.3d at 757. While they need not be entirely disregarded, the accounts of the CWs must be "set forth in 'convincing detail,'" and the CWs must "provide enough information about their jobs to demonstrate that they 'were in a position to know at first hand the facts to which they are prepared to testify.'" DeVry, 2017 WL 6039926, at *8 n.6 (quoting Makor Issues & Rights, Ltd. v. Tellabs Inc., 513 F.3d 702, 711-12 (7th Cir. 2008)). In its prior decision, the Court concluded that: No Confidential Witness makes particularized factual allegations supporting an inference that evidence of widespread misclassification of graduates either as employed-in-field or non- job-seeking rose so far up the corporate of chain of command as to reach defendants. Nor do the Confidential Witnesses' particularized, rather than merely vague or generalized, factual allegations add up to a sufficient basis for a strong inference that the misclassification problem was so pervasive and widespread, that such a high volume of graduates were being misclassified, that defendants, as corporate executives, must have had knowledge of at least a substantial risk that the 90% Statement was false or misleading. DeVry, 2017 WL 6039926, at *14. Despite introducing 13 new CWs and struggling to beef up the allegations of a few old CWs, plaintiff has failed to cure these fatal defects. The new CW allegations are substantially similar to those the Court has already 9 Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 16 of 42 PageID #:1540 dismissed as insufficient. None of them can provide direct evidence of the individual defendants' knowledge. Only seven of the CWs were employed in a capacity that permitted them "to know at first hand" information regarding DVU's student outcome reporting process, and none of them were in a position to speak to "misclassification problems so dire as to affect nationwide statistics." Id. at *13. The remaining 13 CWs were not employed by DVU and/or did not work in career services or another department that would have provided them access to graduate employment data. Many of the CW allegations should be discounted because they are based on speculation or rumor. To the extent any consistent picture emerges at all, the CW allegations support the non-fraudulent inference that DVU relied on a robust system of internal controls for gathering and reporting graduate statistics. DVU disclosed its policies and procedures to all relevant employees, and reported its methodology to investors. 1. The majority of the new CW allegations are substantially similar to those the Court has already considered and dismissed. In its decision granting defendants' first motion to dismiss, the Court found "'weak' at best" CWs who "vaguely allege" that Adtalem's senior executives must have been aware the reported graduate outcome data was false because the CWs believed: (i) "the practice of using graduate employment statistics in marketing and recruitment came from high levels of management"; (ii) "graduate job placement data was available to defendants via internal databases such as HireDeVry"; and/or (iii) the Individual Defendants were aware of the data "or had to be monitoring [the data] because the numbers were so important to them" and to DVU's business. DeVry, 2017 WL 6039926, at *13. Despite the Court's admonition that allegations like those are insufficient, nearly all of the new CWs repeat some variation of them. (See, e.g., ¶ 327 (CW10 "was sure the posters were approved and produced at the national level"); ¶ 334 (CW12 alleges employment statistics 10 Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 17 of 42 PageID #:1541 "reports were then 'definitely' being sent to DeVry's corporate office"); ¶ 362 (CW16's former supervisor (not a corporate officer) "received reports on job placement statistics on a regular basis, including reports from HireDeVry").) Even if accepted as true, there is nothing controversial about the fact that some DVU managers like that supervisor – none of whom are named as defendants – approved policies and procedures or marketing materials relating to employment data or received reports containing such statistics. "[T]here is a big difference between knowing about the [statistics] and knowing that the [statistics] are false." DeVry, 2017 WL 6039926, at *13 (quoting Higginbotham, 495 F.3d at 758); Boca Raton Firefighters' & Police Pension Fund v. DeVry Inc. ("Boca Raton"), 2012 WL 1030474, at *11 (N.D. Ill. Mar. 27, 2012); In re Motorola Sec. Litig., 2004 WL 2032769, at *31-32 (N.D. Ill. Sept. 9, 2004) (rejecting argument that defendants "failed to check information they had a duty to monitor" based on allegations that they were "actually aware of and received reports" about loans significant to the company's core operations). In the TAC, URS introduces a new, but equally insufficient, variant on the vague allegations described above. Four of the new CWs allege that they communicated or attended meetings with the individual defendants where the general topics of employment statistics and/or regulatory investigations were discussed. CW 15 alleges that Hamburger would send him emails saying he was "reviewing [CW15's] statistics" and "proceed to tell CW15 what he thought of that particular statistic." (¶ 358.) CW18, CW19, and CW20 all allege that they attended meetings with one or more of the individual defendants where unidentified participants discussed the general topics of "student graduate employment statistics," "graduate employment metrics," and/or "FTC and DoE investigations." (¶¶ 368, 369, 370.) Critically, none of the CWs allege when those meetings occurred or the actual contents of 11 Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 18 of 42 PageID #:1542 those discussions. URS leaves the finer and requisite details – the who, what, where, when, and how of fraud – to the imagination. That is not sufficient to support an inference of scienter. See, e.g., Plumbers & Pipefitters Local Union 719 Pension Fund v. Zimmer Holdings, Inc., 679 F.3d 952, 955 (7th Cir. 2012) (affirming holding that plaintiff failed to plead scienter where the complaint alleged only that "executives attended meetings at which quality issues were discussed"); Boca Raton, 2012 WL 1030474, at *11 (rejecting inference that the individual defendants knew employment statistics were misleading based on allegation that they "had to be monitoring the placement numbers because the numbers – placement, enrollment, and retention – were so important" to DeVry and were discussed at periodic meetings); In re Bally Total Fitness Sec. Litig., 2007 WL 551574, at *10-11 (N.D. Ill. Feb. 20, 2007) (allegation regarding meetings was insufficient because it failed to "give any details about the locations or dates of the meetings [the CW] attended, who was in attendance, or what was discussed"). None of the vague and amorphous new allegations provides "a sufficient basis for a strong inference. . . that defendants, as corporate executives, must have had knowledge of at least a substantial risk that the 90% Statement was false or misleading." DeVry, 2017 WL 6039926, at *14. 2. None of the CWs with first-hand knowledge of graduate outcome data had access to nationwide employment statistics, and their allegations do not otherwise support an inference of scienter. Only seven of the 20 CWs allege that they were both employed by DVU and worked in a position that provided them with direct access to graduate outcome data: CW3, CW6, CW10, CW13, CW14, CW15, and CW17. CW10 and CW14 are the only CWs who allege that they worked at DVU throughout the entire class period. (¶¶ 325, 352.) Three of these CWs' allegations do nothing more than describe the meticulous process through which DVU compiled employment data. CW14 alleges that the HireDeVry system 12 Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 19 of 42 PageID #:1543 contained codes that permitted students to be designated as "non-job seeking" and waived from inclusion in DVU's employment statistics, the usage of which required approval from the corporate office. CW14 also alleges that DVU's "Home Office – Career Services" distributed and regularly updated a lengthy "career services manual" that served as a "bible" for coding in HireDeVry, and that "all campuses were required to adhere to the manual so that there was a uniform approach." (¶¶ 353-54.) CW6 and CW17 provide substantially similar benign accounts of DVU's graduate outcome reporting policy and process. (¶¶ 364-65, 381.) The remaining CWs' allegations fail to establish a strong inference of scienter because, at best, they provided anecdotal accounts of classification errors at individual campuses. The Court concluded in its prior decision that only CW3, who alleged that the "true job placement rate at his campus was at most 60-70%" (¶ 301), provides "specific allegations of misclassification."3 DeVry, 2017 WL 6039926, at *14. However, the Court determined that because CW3's "experience was limited to two campuses in central California," plaintiff failed to "identify specific facts that should have put defendants on notice of misclassification problems so dire as to affect nationwide statistics." Id. at *8, 13. The TAC and CW3's new allegations do not ameliorate that failure. Even weaker than CW3, the new CWs cannot even provide particularized allegations of misclassification for any campus. CW10, who worked for an unspecified portion of the class 3 In the TAC, plaintiff attributes to CW3 a number of new allegations that add nothing to the scienter analysis. For instance, CW3 "estimated that if the true job placement statistics were disclosed that included waived graduates, DeVry's job placement statistics (during her [sic] tenure) would have been significantly lower (likely in the 70-80% range)." (¶ 302.) Plaintiff does not explain how CW3, a junior career services employee who worked at two campuses, could possibly have been qualified to make an "estimate" about DVU's nationwide statistics that covered 60 campuses. CW3 also alleges that someone from "DeVry's corporate office directed him and his staff to alter starting wages for graduates" if their wages changed "between the time each school session ended and the time the school reported employment statistics." (¶ 307.) CW3 does not allege from whom he received this direction, when this occurred, how many students' data were updated, what impact this had on the overall salary statistics, or how that relates to any public disclosure. 13 Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 20 of 42 PageID #:1544 period as a graduate career services advisor for DVU's online program in Naperville, IL, observed anecdotally that "of the students he communicated with, about 20 percent complained they couldn't find work." (¶ 329.) However, he does not claim that any of these students were excluded from any reported statistic or otherwise misclassified. CW13 and CW15, who respectively worked at the Elk Grove, CA and Phoenix, AZ campuses for a portion of the class period, similarly do not allege that students were misclassified. Rather, both allege that the 90% statistic excluded waived students. (¶¶ 347, 356.) But the use of waivers alone is not indicative of a misclassification problem.4 CW13 opines that the waiver process left "a lot of room for manipulation" because it permitted students to opt out of career services (¶ 348), but CW13 does not explain why giving students this option would be manipulative or that DVU employees actually manipulated employment data.5 CW15 alleges that "DeVry also ran a hard number to see how many students they actually placed," and while he "could not recall the exact number," he "estimated that if they had included the waived students, the percentage would have been less than 90%" (¶ 356 (emphasis added)). CW15's non-specific "estimate" is plainly insufficient to demonstrate a "problem so dire as to affect nationwide statistics." DeVry, 2017 WL 6039926 at *13. But even more important, this allegation constitutes an astonishing admission that, excluding the graduates waived from employment statistics, DVU did, in fact, achieve a 90% rate. And because CW15 did not allege 4 The U.S. Bureau of Labor Statistics similarly excludes from its unemployment rate calculations people who have not "actively looked for work in the prior 4 months." (BLS, How the Government Measures Unemployment (June 2014), available at https://www.bls.gov/cps/cps_htgm.htm.) URS does not explain why DVU executives should have questioned a practice that is shared by the federal government. 5 Tellingly, CW13 explained that he "believed the reason that DeVry got in trouble with the FTC was because DeVry did not have the records to substantiate the employment metrics or salary information," not because of any fraudulent conduct. (¶ 348.) 14 Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 21 of 42 PageID #:1545 that graduates were improperly waived – indeed, CWs 13 and 15 made clear that the waivers were consistent with transparent DVU policies – the allegations attributed to CW15 directly undermine the fundamental premise of the TAC. To the extent they had any concerns about DVU's reporting process or the statistics themselves, none of the CWs allege that they ever communicated their concerns to one of the individual defendants or that the individual defendants otherwise received information indicating the 90% Statement was false.6 Even taken at face value, these allegations suggest that, at most, the actual employment statistics were below 90% at some point at a handful of more than 60 campuses. They were not "so pervasive and widespread, that such a high volume of graduates were being misclassified, that defendants, as corporate executives, must have had knowledge of at least a substantial risk that the 90% Statement was false or misleading." Devry, 2017 WL 6039926, at *14; City of Austin Police Ret. Sys. v. ITT Educ. Servs., Inc., 388 F. Supp. 2d 932, 949 (S.D. Ind. 2005) ("[T]he allegation of wrongdoing at some local institutes, even in the core business, does not support an inference of scienter on the part of senior management and the corporation itself."). 3. The majority of the CWs' allegations must be steeply discounted because they lack first-hand knowledge of DVU's employment statistics. Five of the CWs relied upon by URS did not even work for DVU, the only Adtalem school whose advertisements were challenged by the regulators. Although plaintiff attempts to sow confusion by referring to these CWs as "DeVry" employees, it is evident that CW8 and CW9 both worked for the Chamberlain 6 CW10 alleges that he "questioned his boss on more than one occasion about the 90% statistic. However, his boss never provided a legitimate explanation." (¶ 328.) The "boss" was a "manager" at a single campus, not a corporate executive. And CW10 does not describe the responses he received or indicate that his concerns were ever communicated up the reporting line to the individual defendants. 15 Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 22 of 42 PageID #:1546 College of Nursing.7 (¶¶ 308, 320.) CW5 worked for the Keller Graduate School of Management (¶ 380), CW12 worked for Carrington College (¶ 340), and CW20 also worked for Chamberlain. (¶ 370.) The allegations of CWs who have "never been employed by the company" must be "heav[ily] discount[ed]" if not altogether disregarded. Boeing, 711 F.3d at 759-760; Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 996-97 (9th Cir. 2009), as amended (Feb. 10, 2009) (allegations of CWs who "were not employed by the [defendant entity] during the time period in question and have only secondhand information about" the challenged practices are "not reliable enough to support the [complaint's] allegations of scienter").8 The allegations of seven other CWs must be steeply discounted because they were not employed in capacities that involved the gathering or reporting of graduate outcome data. CW1, CW4, CW11, and CW18 all worked in admissions. (¶¶ 332, 366, 373, 378.) CW2 worked in marketing (¶ 375), CW16 was a secretary (¶ 361), and CW19 worked in business services/operations where he oversaw the "the business systems that supported students and faculty." (¶ 368.) These CW allegations "hold[] little weight because the description[s] of [them] do[] not indicate that [they] could have knowledge of or access to the facts underlying" their assertions regarding the gathering and reporting of employment statistics. Davis v. SPSS, Inc., 431 F. Supp. 2d 823, 832 (N.D. Ill. 2006); Makor, 513 F.3d 702, 712 (7th Cir. 2008) 7 URS attempts to transform Chamberlain employees into DVU employees through a sleight of hand. CW8 is described as a "Senior Director of Academic Effectiveness for DeVry from September 2013 to March 2014" based in Downers Grove, IL, but his reporting structure indicates he "reported to a Vice President at DeVry's Chamberlain College of Nursing, who reported to Susan Groenwald, the President of the Chamberlain College of Nursing." (¶ 308 (emphasis added).) CW9, who reported to CW8 before CW8's termination, explains that "DeVry's Office of Institutional Effectiveness was created with the goal of creating a system to evaluate that effectiveness of the curriculum at all the Chamberlain College of Nursing campuses." (¶ 320.) 8 The allegations of CW13, CW15, and CW16 should also be discounted because they worked for Adtalem institutions other than DVU for a portion of the class period (¶¶ 346, 355, 361), and it is unclear which of their allegations relate to DVU or to other schools. 16 Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 23 of 42 PageID #:1547 (credible CWs "consist of persons who from the description of their jobs" indicate that they "were in a position to know at first hand the facts to which they are prepared to testify"); Bally, 2007 WL 551574, at *10–11 (marketing executive's allegations regarding accounting matters lacked credibility because he "was not an accountant and did not work" at the headquarter). Plaintiff flagrantly attempts to pass off CWs who had no personal knowledge of DVU's employment statistics as credible witnesses. As explained above, CW8 and CW9 were employed by Chamberlain's Office of Institutional Effectiveness for, respectively, six months and a year and a half, where their duties entailed creating a curriculum effectiveness evaluation system for Chamberlain. (¶¶ 308, 320.) That project allegedly involved a survey of various statistics, including certain employment data, at Chamberlain campuses.9 (¶¶ 309, 321-23.) Although their work was unrelated to DVU, CW8 and CW9 allege that they somehow "discovered that DeVry did not have the data to back up the claim that 90% of its graduates got jobs in their field of study within six months of graduation," which CW8 further alleges constitutes a discovery that "the statistics that DeVry was reporting in its SEC filings were false." (¶¶ 309-10, 323.) CW8 – who worked at Chamberlain, not DVU – purportedly informed an in-house attorney in DeVry's corporate compliance department that "there was no data to substantiate DeVry's job placement rates and the 90% representation," and speculates that he was terminated approximately a month later as a result of this meeting. (¶¶ 310-11.) CW8 9 Although URS attempts to muddy the waters by claiming that CW8 also analyzed "other DeVry schools," CW8's own allegations reveal that he only had first-hand knowledge of Chamberlain statistics. For instance, CW alleges that "what he witnessed at Chamberlain wasn't just a problem there," purportedly because "other schools were using the same flawed formulas." (¶ 313 (emphasis added).) CW8 does not describe the formulas or explain why they were flawed, and aside from vaguely hinting at the existence of colleagues who served similar roles at other Adtalem schools, does not indicate how he knew the same formula was being used at those schools. CW8 further alleges that "his counterpart," a purported statistician, at DVU "confirmed there was insufficient data to substantiate [DVU's] job placement claims in DeVry's SEC filings." (¶ 309 (emphasis added).) The second-hand hearsay of that unidentified person can hardly supply any inference of scienter, much less a strong one. 17 Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 24 of 42 PageID #:1548 claims that Groenwald, his indirect supervisor, spoke to him about this meeting, and that Hamburger "definitely" knew about the meeting because "Groenwald told him. . . that she discussed CW8's findings with Hamburger." (¶¶ 308, 311.) CW8 does not elaborate on the content of his discussion with Groenwald or what Groenwald purportedly discussed with Hamburger. Even if these allegations are accepted as true, it is unclear what, if anything, the in- house attorney, Groenwald, or Hamburger were supposed to take away from CW8's allegations, given that he played no role in compiling or reporting DVU graduate outcome statistics. CW8 also alleges that "no more than 20 percent of the students in DeVry University or [Chamberlain's] degree programs completed their degree and found a job in their field of study." (¶ 315.) How CW8 arrived at this number, which is wildly inconsistent with the allegations of the CWs who actually worked for DVU (see, e.g., ¶¶ 301-02, 329), is anyone's guess.10 Given these inconsistencies, CW8 exemplifies the type of witness who "may be ill- informed, may be acting from spite rather than knowledge, may be misrepresented, may even be nonexistent," who may "have axes to grind," and/or "who may be lying" that the Seventh Circuit has repeatedly warned about plaintiffs using as "a gimmick for obtaining discovery costly to the defendants and maybe forcing settlement or inducing more favorable settlement terms." Boeing, 711 F.3d at 759; Higginbotham, 495 F.3d at 757. But the palpable "red flag[s]" in CW8's account should have given plaintiff's counsel pause, and their "failure to inquire puts one in mind of ostrich tactics." Boeing, 711 F.3d at 762. 4. Almost all of the CWs make allegations that are unreliable because they are based on hearsay and/or speculation. Numerous CWs engage in gossip-mongering. (See, e.g., 10 In addition to the above, CW8 makes a number of speculative comments about reporting issues at Chamberlain (¶¶ 311, 315, 317, 319), which are irrelevant because the statistics challenged in the TAC pertain only to DVU. 18 Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 25 of 42 PageID #:1549 ¶ 309 (CW9 "recalled that his counterpart at [DVU] confirmed there was insufficient data to substantiate [DVU's] job placement claims in DeVry's SEC filings"); ¶ 299 (CW3 "recalled her peers at other campuses telling her that they had to deem a student non-job seeking because they had to hit specific numbers"); ¶ 343 ("CW12 further recalled that a former Director of Career Services told him that DeVry frequently misrepresented the employment statistics for business degree graduates"); ¶ 350 (CW13 "described how his counterpart at [another] campus was so concerned with achieving the 90% metric that his 'ethical foundation' was compromised").) Others offer mere hearsay and speculation. (See, e.g., ¶ 297 (CW3 "believed the opt-outs and waivers were a 'choice selection' by the school used for the purpose of boosting the appearance of its job placement statistics"); ¶ 309 (CW8 "added that 'no university on the planet can with any integrity' tout the kind of numbers DeVry was claiming in their SEC filings"); ¶ 331 ("CW10 suspected the company [changed its name to Adtalem] to distance themselves from their tainted brand"); ¶ 374 ("CW1 believed that other Admissions Advisors also suspected that the job placement and salary statistics were misleading at best, but felt pressure to make the claims to protect their jobs" (emphasis added)).) Courts should disregard allegations when CWs "merely relay office gossip," and when their allegations "are vague or based on second-hand knowledge." Shoemaker v. Cardiovascular Sys., Inc., 2017 WL 1180444, at *9 (D. Minn. Mar. 29, 2017); In re Metawave Commc'ns Corp. Sec. Litig., 298 F. Supp. 2d 1056, 1068, 1070 (W.D. Wash. 2003) ("The Court must be able to tell whether a confidential witness is speaking from personal knowledge, or 'merely regurgitating gossip and innuendo,'" and even "a shared opinion among confidential witnesses does not necessarily indicate either falsity or a strong inference of scienter if the allegations themselves are not specific enough").11 11 Plaintiff invites the Court to speculate about Hamburger's mental state based on various CW conjectures regarding his purported "hands-on management style." (¶ 358.) CW15 claims that 19 Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 26 of 42 PageID #:1550 5. The CW allegations support the non-fraudulent inference that DVU reasonably relied on robust employment statistics procedures. Far from establishing an inference of scienter, the CW allegations support the opposing, non-fraudulent inference that DVU relied on a disclosed methodology and fairly reported statistics to investors based on that methodology. As CW3 noted, "the accrediting agencies of higher-learning institutions did not have specific requirements for how schools calculated job placement statistics." (¶ 295.) Accordingly, DVU implemented its own policies and disclosed its methodology to investors.12 CW3, CW7, CW14, and CW17 all allege that DVU had a detailed "written national policy that described the process and rules for which students were included or excluded in the job placement statistics," which was distributed and regularly updated by "Home Office – Career Services." (¶¶ 299-300, 353-54, 365, 382.) The process for designating a student as non-job seeking involved numerous "phone calls and emails" to graduates who did not voluntarily waive their inclusion. (¶ 298.) Hamburger "'had to have approved [the 90%] advertising' because it was 'very provocative advertising and he would not have approved it without doing very detailed, scrutinizing research. . . . He would have wanted to see the data'" and "that's just how he was." (¶ 359.) CW20 similarly alleges that Hamburger "was very involved in the day-to-day operations and decision-making" because he "visited campuses periodically and he was always engaged with the executive team." (¶ 412.) None of those conjectures indicates Hamburger knew of any falsity. But, in any event, these types of "sweeping generalizations" "are another species of the 'must have known' allegations about senior executives" that courts routinely reject. Bally, 2007 WL 551574, at *8; Indiana Elec. Workers' Pension Tr. Fund IBEW v. Shaw Group, Inc., 537 F.3d 527, 535 (5th Cir. 2008) (finding none of plaintiff's assertions that the "individual defendants must have known of irregularities because of their executive positions in the company. . . 'hands-on management style,' and the magnitude and extent" of the issues "withstand analysis"); In re Autodesk, Inc. Sec. Litig., 132 F. Supp. 2d 833, 844 (N.D. Cal. 2000) (allowing plaintiffs to plead knowledge of key officers "by virtue of their 'hands-on' positions. . . would eliminate the necessity for specially pleading scienter, as any corporate officer could be said to possess the requisite knowledge by virtue of his or her position"). 12 Adtalem disclosed in its 2014 10-K that DVU's methodology for calculating employment statistics was "based upon self-reported data from graduates," excluded certain graduates, and that "graduates are not counted differently to the extent they were employed when they enrolled or they became employed while completing their academic programs." (Ex. B at 36.) Adtalem's disclosures in prior years were similar. (See Ex. C (2013 10-K) at 32; Ex. M (2012 10-K) at 30; Ex. N (2011 10-K) at 31; Ex. O (2010 10-K) at 30-31.) 20 Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 27 of 42 PageID #:1551 The protocol, which was "identical across the board," required career advisors to "input all job placement information about each graduate" into the HireDeVry database, and to report to their superiors "on a regular basis about the progress of job placement for graduates." (¶¶ 299- 300, 303-04.) The career services manual served as a "bible" for coding in HireDeVry, and "all campuses were required to adhere to the manual so that there was a uniform approach." (¶¶ 353- 54.) "[I]n order to designate a graduate as non-job seeking the file required a signature from the campus president as well as approval from DeVry's Vice President of Career Services," and "waiver decisions and graduates' files were also occasionally reviewed for accuracy by higher- level employees." (¶¶ 300, 353, 382.) Although all campuses followed the same procedure, "the length of time to make that designation was at each campus's discretion," and took anywhere from "four weeks" to "several months." (¶ 299.) DVU used a similarly meticulous policy for recruiting. Admissions employees had to use "a mandatory script to guide their recruitment conversations which was developed" and approved by upper DVU management. (¶¶ 333, 367.) "[S]pecific language about job placement rates. . . [were] reviewed and approved by DeVry's legal and compliance department" before it was disseminated to the public. (¶ 375.) In the absence of red flags that might have alerted the individual defendants to purported statistical falsity, plaintiff fails to plead that they had any reason to believe that the information conveyed to investors was inaccurate or that they had any motive to commit fraud.13 Indeed, "there is little or no factual detail in the complaint weighing against an inference that, to this very 13 Plaintiff does not allege that the individual defendants acted with intent to deceive or with any motive to commit fraud; there are no allegations, for example, that the individual defendants engaged in any sales of Adtalem stock that were suspicious in timing or amount. That lack of any motive weighs against the inference of scienter because "[w]ithout a motive to commit securities fraud, businessmen are unlikely to commit it." Boeing, 711 F.3d at 758. 21 Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 28 of 42 PageID #:1552 day, defendants do not believe" the 90% Statement. DeVry, 2017 WL 6039926, at *11. To the contrary, the more cogent and compelling inference is that DVU cautiously navigated an uncertain regulatory landscape by implementing and following a transparent process for calculating employment statistics.14 The robustness of the policies and procedures relating to gathering and reporting employment statistics described by numerous CWs supports the inference that the Individual Defendants "believed that the 90% Statement was true in reliance on the work of subordinates, without any knowledge of a substantial risk that the subordinates who collected the data or calculated the statistics were doing their work improperly." Id. at *13. Accordingly, neither the new nor the old CW allegations support an inference of scienter. B. The Remaining New Allegations Do Not Alter the Court's Holding that the Investigations and Settlements are Insufficient to Support an Inference of Scienter In the SAC and its opposition to defendants' first motion to dismiss, plaintiff argued that the FTC, DoE, and NYAG investigations and settlements support an inference of scienter. The Court disagreed, holding that the "mere fact of the FTC investigation is not enough to put defendants on notice of the potential falsity of the 90% Statement." DeVry, 2017 WL 6039926, at *11. With respect to the FTC settlement, the Court concluded that "it came long after the class period had ended, so it provides no help to plaintiff with respect to notice of a risk of falsity that might support a strong inference of scienter. Further, even if it had come before the end of the class period, the settlement did not contain an admission of wrongdoing, so even the settlement provides no insight into when or whether defendants learned enough to know that there was a serious risk that the 90% Statement was false." Id. 14 For instance, URS helpfully highlights that Hamburger stated during the post-class period Q2 2016 earnings call that "there's not now nor has there ever been a national standard for calculating employment statistics. We've advocated for there to be one for all of higher education. In the absence of regulation, DeVry University designed a methodology for calculating the employment outcomes of its graduates over 40 years ago. . . . We believe it's a very sound way of doing it." (¶ 255.) 22 Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 29 of 42 PageID #:1553 The Court similarly concluded that the substance of the regulators' allegations "are not enough to 'state with particularity facts giving rise to a strong inference' of scienter." Id. at *12. Because the regulators "did not make any attempt to quantify the number of graduates who were misclassified," there were no "allegations of the precise or even proximate scope of the misclassification problems" that would permit the Court to "infer there must have been 'obvious red flags' in DVU's process for tracking graduate employment data and calculating statistics that would have warned of nationwide problems." Id.. Plaintiff adds nothing of substance in the TAC to bolster the allegations that the Court has dismissed as insufficient. 1. The FOIA documents fail to support an inference of scienter. URS alleges that it obtained litigation documents through the FOIA from the FTC and DoE actions. The FTC allegedly produced discovery requests and related documents indicating that: (i) Adtalem's CEO, Chairman, and CFO had been designated as document production custodians for certain topics relating to graduate outcome; and (ii) the FTC's lengthy discovery requests included topics relating to the employment statistics disclosed by Adtalem in its 2012 and 2013 10-Ks, as well as other Adtalem schools. (¶¶ 250-253.) Inferring scienter based on the existence of discovery requests requires multiple leaps of logic. The Court has already considered and rejected substantially similar claims about Gunst and non-party David Pauldine being listed as percipient witnesses in the parties' Rule 26(f) report in the FTC action. DeVry, 2017 WL 6039926, at *11- 12. The FTC presumably received any documents that were responsive to its request. Yet it expressly acknowledged that its complaint "does not include any specific allegations of scienter or knowledge of falsity" (Ex. I (FTC Opposition to Motion to Dismiss) at 9), and chose not bring any claims against other Adtalem institutions, which undercuts any inference of scienter. Similarly, URS claims that it received an adversarial brief and related litigation 23 Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 30 of 42 PageID #:1554 documents filed by the DoE in DVU's agency appeal from the limitations imposed by the DoE. (¶ 270.) The DoE allegedly argued in its appellate brief that DVU continued using the 90% Statement after its staff members and others "raised questions about [DVU's] ability to substantiate the claim." (¶ 271.) In support of that argument, the DoE cited three documents, all of which predate the proposed class period and are not connected to the individual defendants: (i) a 2008 presentation regarding the "Careers" ad campaign, which purportedly included questions regarding the source of the 90% Statement and whether it could be substantiated; (ii) a February 2009 email sent on behalf of non-party Pauldine, which purportedly asked whether DVU should be exploring "alternative messaging such that it brings the ultimate credibility to our employment claims"; and (iii) a November 2009 exchange between a DVU senior consumer insights specialist and its advertisement agency. The agency allegedly "questioned certain details" regarding the 90% representation, but the senior consumer insights specialist responded "that [DVU] had 'dug into these numbers 8 ways to Sunday, and there is no other clear, compelling, and compliant story." (¶¶ 271-72.) The arguments advanced by the DoE to uphold the limitations it placed based on DVU's alleged violation of books-and-records requirements do not support an inference of scienter. The documents cited by the DoE, which are presented without any context, are not pleaded with sufficient particularity to satisfy the stringent standards of the PSLRA. They are lawsuit arguments, not facts, and they do not indicate that the individual defendants ever received or saw the communications at issue. The November 2009 email exchange indicates that DVU employees thoroughly investigated whatever questions were raised regarding the 90% Statement, and concluded that the numbers were sound, which undercuts an inference of scienter. 24 Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 31 of 42 PageID #:1555 2. The MA AG settlement adds nothing to plaintiff's scienter allegations. URS also alleges that DVU's $455,000 settlement with the MA AG, which was announced on July 5, 2017, 18 months after the end of the proposed class period, regarding its job placement rate advertisements supports an inference of scienter. But like the other regulatory settlements, it too "came long after the class period had ended, so it provides no help to plaintiff with respect to notice of a risk of falsity that might support a strong inference of scienter." DeVry, 2017 WL 6039926, at *11. URS also claims the press release allegation that "the AG's investigation found that certain [DVU] programs had job placement rates as low as 52 percent" serves as "evidence that the fraud at issue pervaded the Company." (¶ 293; Ex. J (MA AG Press Release).) But it proves nothing of the sort. The MA AG's allegation did not relate to misclassification. Instead, it was made in the context of the MA AG's allegation that DVU's 90% claim advertisements "were unclear and inadequate" because even though "[DVU] made information on program-specific placement rates available to students, [DVU] did not include in the footnotes that some of its programs had significantly lower placement rates." (Ex. K (MA AG Assurance of Discontinuance) ¶ 6.) To illustrate, the MA AG pointed to the fact that "using [DVU's] rate calculation methodology, [DVU] reported that the placement rate for [DVU's] Web Graphic Design associate's degree program was 52% in 2011, 64% in 2012, and 71% in 2013," but it "did not include these lower program-specific rates in advertisement footnotes." (Id.) However, "these rates were disclosed separately in documents and website information made available to students." (Id.) And plaintiff cannot explain what, if any, impact those rates had on DVU's overall placement rate. In its ruling, the Court made clear that URS must present clear and compelling allegations regarding "the precise or even approximate scope of the misclassification problems" 25 Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 32 of 42 PageID #:1556 to plead scienter. DeVry, 2017 WL 6039926, at *12. URS has again failed to meet that substantial burden, and its complaint should be dismissed with prejudice.15 In granting defendants' motion to dismiss the SAC, the Court found that it was "a close question" whether URS had alleged falsity with particularity, but concluded that URS had "done just enough" to satisfy the pleading standard. DeVry, 2017 WL 6039926, at *8-9. Because URS has failed to plead scienter, the Court may dismiss the TAC without addressing the remaining elements of section 10(b). But for the sake of completeness and because the TAC does not add any particularized allegations contradicting contemporaneous public disclosures, defendants raise the following points as additional bases for dismissal. III. THE TAC FAILS TO ALLEGE MATERIAL FALSITY To successfully plead a false statement under the PSLRA, plaintiff must identify each statement alleged to have been misleading and, for each such statement, point to "(1) specific contradictory information [that] was available to the defendants (2) at the same time they made their misleading statements." Glaser v. The9, Ltd., 772 F. Supp. 2d 573, 588 (S.D.N.Y. 2011). Plaintiff's inappropriate reliance on CWs who lack any foundation for their purported statements to buttress the government's vague allegations is equally glaring with respect to falsity. A. The TAC Fails to Identify Which Statements It is Challenging and Why The TAC highlights numerous excerpts from Adtalem investor disclosures made 15 The Court previously rejected URS's argument that the purported magnitude and duration of defendants' repetition of the 90% Statement demonstrates scienter as "unpersuasive" because its allegations "do not establish the magnitude of defendants' misrepresentations with any degree of specificity." DeVry, 2017 WL 6039926, at *14. For the reasons above, even if the Court accepts as true the FTC's vague allegation "that the number of graduates working in their field of study was 'significantly' smaller than the approximately 90% that defendants claimed," URS has introduced no new "particularized allegations. . . to shed any light on how large the discrepancy actually was." Id. 26 Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 33 of 42 PageID #:1557 throughout the 53-month proposed class period without making clear which disclosures are alleged to be false and why. Many of those excerpts do not relate to DVU at all or concern any specific DVU employment statistics, and they are replete with vague and immaterial puffery. Some quoted statements – such as those recounting DVU graduates' average starting salaries – were not challenged by the FTC or DoE, and plaintiff does not explain why they were allegedly false. Courts routinely dismiss securities fraud actions that rely on such "puzzle-pleading" complaints. See, e.g., Constr. Workers Pension Fund Lake Cty. & Vicinity v. Navistar Int'l, 114 F. Supp. 3d 633, 638 (N.D. Ill. 2014); Alizadeh v. Tellabs, Inc., 2014 WL 2726676, at *4-6 (N.D. Ill. June 16, 2014). This Court should do the same. B. The Parroted Government Allegations Do Not Demonstrate Falsity Plaintiff's falsity allegations rely almost entirely on the repurposed FTC and DoE allegations, which it attempts to buttress with speculative and imprecise CW allegations. None of these allegations present facts that render any investor disclosure false when made. Plaintiff's reliance on the regulators' allegations is inappropriate because "statements made by [regulators] in the settlement agreements are not law; they are rather untested assertions made by litigants." In re Morgan Stanley & Van Kampen Mut. Fund Sec. Litig., 2006 WL 1008138, at *5 (S.D.N.Y. Apr. 18, 2006). By parroting the regulators' allegations, plaintiff has abdicated its "personal, nondelegable responsibility" to conduct a reasonable pre-suit investigation with respect to those allegations. Pavelic & LeFlore v. Marvel Entm't Grp., 493 U.S. 120, 126 (1989); Geinko v. Padda, 2002 WL 276236, at *6 (N.D. Ill. Feb. 27, 2002). The fact that the FTC and ED conducted extensive investigations does not relieve plaintiff of its "nondelegable" responsibility to conduct a reasonable investigation of its own and to include the government allegations only if it is able to independently corroborate them. The CWs do not 27 Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 34 of 42 PageID #:1558 sufficiently provide such corroboration. When evaluating falsity allegations under the PSLRA, precision is paramount. Because Adtalem's graduate employment statistics disclosures were accompanied by clear limitations and caveats consistent with the methodology used to calculate those statistics, plaintiff must allege facts that contradict those statistics based on the methodology applied. Plaintiff may not concoct a fraud claim by proposing a competing methodology and alleging that, because the competing methodology might result in different statistics, the one defendants used was false. See In re Netflix, Inc. Sec. Litig., 2005 WL 1562858, at *5-6 (N.D. Cal. June 28, 2005) (dismissing securities fraud complaint where company allegedly used an improper method of calculating "churn," a percentage measure of subscriber retention because, although "Plaintiffs call their method of calculating churn 'actual churn,' [they] offer no authority for the proposition that their method is proper and Netflix's method is improper"); Perrigo Co. PLC v. Mylan N.V., 2015 WL 9916726, at *18 (S.D.N.Y. Oct. 29, 2015) (no misstatement or omission where "the critical keys to understanding Perrigo's methodology were disclosed" and plaintiff failed to plead that "defendants used one calculation method when another is mandated by industry practice, generally accepted accounting principles or federal securities regulations") (quotations omitted). Broadly stated, URS challenges the veracity of two categories of statements: defendants' statements that (i) approximately 90% of DVU graduates who were actively seeking employment found jobs within their chosen fields within six months of graduation, and (ii) their average salary was approximately $43,000. (See, e.g. ¶ 430.) For the reasons discussed below, each of these claims fail. 1. Plaintiff fails to plead with particularity that Adtalem's representation to investors that 90% of DVU graduates actively seeking employment were employed within 28 Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 35 of 42 PageID #:1559 their field of study six months after graduation was false. Even assuming that plaintiff could borrow the FTC's allegation that the number of students was significantly less than 90%, it still fails to plead falsity with particularity. The Court has made clear that URS cannot rely on the FTC's allegations alone. "The FTC did not specifically identify the information that it allegedly discovered other than to give a few examples of graduates who were misclassified. The Court agrees with defendants that the fact that even a dozen or so DVU graduates were misclassified as either working in their field of study or non-job-seeking does not strongly indicate by way of 'specific facts' . . . that the 90% Statement, which purports to be based on the employment history of thousands of graduates, is false." DeVry, 2017 WL 6039926, at *7. There is nothing new in the TAC to remedy that deficiency. Plaintiff not only needs to plead with particularity what it alleges the nationwide statistics actually were for each year of the proposed class period, but it also must explain what percentage of that discrepancy was attributable to each of the practices it challenges (misclassifying students, use of waivers and opt-outs, including students who were employed prior to graduation). Without this information, the Court has no way of assessing whether the "job- placement statistics were materially false" to investors. Boca Raton, 2012 WL 1030474, at *8 (emphasis added). While URS may disagree with DVU's employment statistics reporting methodology, the use of the vast majority of the challenged practices were disclosed to investors. Adtalem disclosed that the graduates counted in those statistics "had careers in their fields within six months" and that "[g]raduates are not counted differently to the extent they were employed when they enrolled or they became employed while completing their academic programs." (Ex. B at 36; see also Ex. L at 6 "[t]hese statistics include graduates of associate and bachelor's degree programs and those who were already employed in their field of study." 29 Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 36 of 42 PageID #:1560 (emphasis added); Ex. M (2012 10-K) at 30 (same).) With respect to the use of waivers, plaintiff itself alleges that DVU annually disclosed the raw data indicating how many graduates were excluded from its graduate employment statistics. (See ¶¶ 212-15.) Any reasonable shareholder with access to that data could determine the extent to which waivers affected the statistics. Additionally, during each year of the proposed class period, Adtalem warned investors that "[t]o a large extent, the reliability of such data depends on the quality of information that graduates self-report." (See, e.g., Ex. M at 30.) Because it cannot rely on the FTC's allegations, URS must look to its CWs to plead with particularity that the actual national employment rates were during each of the class period, as well as to what degree the use of the challenged practices caused the reported national average to deviate from the purported actual number. As discussed in Point I, the CWs fail to carry even one of those substantial burdens. With the exception of CW3's speculative "estimat[e] that if the true job placement statistics were disclosed that included waived graduates, DeVry's job placement statistics (during her [one-year] tenure) would have been significantly lower (likely in the 70-80% range)" (¶ 302), none of the CWs who worked for DVU attempts to quantify the actual national job placement statistics for even a single year. The Court has already found that CW3's allegations are insufficient "to support the inference that the misclassification problems were so widespread and pervasive as to affect the accuracy of nationwide graduate employment statistics. DeVry, 2017 WL 6039926, at *8. At most, the new CWs with personal knowledge of DVU's employment statistics vaguely suggest that "that if [DVU] had included the waived students, the percentage would have been less than 90%," without attempting to quantify that difference or alleging with particularity that students were improperly waived. (¶¶ 347, 356.) 30 Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 37 of 42 PageID #:1561 Moreover, none of the CWs allege that DVU failed to follow the robust methodology it used for determining whether students should be waived or opted-out. In fact, they allege that the process used was "uniform," and DVU made every attempt to assure its accuracy by requiring multiple rounds of verification. (¶¶ 299, 354, 357.) The CWs' allegations regarding the use of waivers and opt outs, at most, amount to criticism of DVU's methodology for determining which graduates were actively seeking employment. They do not show falsity based on the methodology DVU actually used. Netflix, 2005 WL 1562858, at *5-6. 2. Plaintiff's suggestion that the reported salary statistics were false is baseless. Neither the FTC nor any other government authorities have challenged Adtalem's disclosures regarding the average starting salary of DVU graduates that were reported to investors. The challenged salary advertisements pertained to DVU's representation that, according to a study conducted by PayScale.com, DVU graduates reported median salaries 15% higher than other college graduates one year after graduation. (¶¶ 235, 249.) This Court will search the complaint in vain for any allegations that defendants made investor disclosures about the 15% Statement or that any such information was intended to induce a securities transaction. But even if the 15% Statement was actionable here, the TAC fails to allege any facts showing why not accounting for age, experience, degree, or any other "drivers" – all subjects of the FTC's criticism (¶ 246) – inflated the results or whether the income comparisons would have been any different if these drivers had been taken into account. Nor does plaintiff allege any facts showing which data differed from the data used to support the 15% Statement or the magnitude of that difference. Thus, the FTC's allegation that DVU graduates did not earn significantly more than graduates from other schools one year after graduation lends no support for plaintiff's allegations that the reported average starting salaries were false. 31 Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 38 of 42 PageID #:1562 The allegation that CW3 can corroborate the FTC's higher income allegation or somehow independently establishes the falsity of defendants' statements regarding the average national starting salary for even a single year is meritless. CW3 alleges that at two DVU campuses during one year of the class period, "graduates' jobs were almost always entry-level positions with salaries between $25,000-$30,000", and acknowledges that "graduates working in cities with higher wages could skew the averages higher." (¶ 306.) As the Court concluded, CW3 cannot plead falsity with particularity because "his experience was limited to two campuses in central California, and his statement does little to broaden the scope of the complaint's allegations to support the inference that the misclassification problems were so widespread and pervasive as to affect the accuracy of nationwide graduate employment statistics." DeVry, 2017 WL 6039926, at *8. CW13's allegation that the average starting salary at Sacramento, another California campus, was $24,000-$25,000 annually similarly adds nothing to the mix. See In re Career Educ. Corp. Sec. Litig., 2006 WL 999988, at *8 (N.D. Ill. Mar. 28, 2006) (allegations concerning six schools, when defendant operated "seventy-eight campuses world-wide," did not "raise an inference of fraud on a nation-wide level such that [defendant's] statements and omissions regarding its starts, student population, and job placement numbers nationally were false or misleading"). Because plaintiff has failed to plead falsity with particularity, its complaint should be dismissed. IV. THE TAC FAILS TO PLEAD LOSS CAUSATION The complaint fails to show causation between the purported "corrective disclosure" on January 27, 2016 and the alleged losses to the putative class. At the pleading stage, plaintiff must "provide a defendant with some indication of. . . the causal connection" between the defendant's misstatement or omission and the plaintiff's loss. Dura Pharms., Inc. v. Broudo, 544 32 Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 39 of 42 PageID #:1563 U.S. 336, 347 (2005). To establish loss causation, the plaintiff must show (1) that at the time of purchase of the stock, the stock price was inflated as a result of a defendant's material misrepresentations, and (2) that the plaintiff suffered a loss – a deflation in the stock price – when a corrective disclosure revealed the truth correcting the fraud to the public. Id. at 343-44. Disclosure of the FTC and DoE actions did not correct any previously disclosed information or reveal any truth. The TAC characterizes in a conclusory fashion that the disclosure of the fact that the "FTC and DoE had both taken action against [DVU] in response to its pervasive use of false DeVry University graduate employment and salary statistics" as the "January 27, 2016 corrective disclosure." (¶¶ 486-87.) But it makes no supporting allegation that either of these actions included facts that revealed a relevant truth to the market or corrected a prior misstatement. Indeed, as established above, plaintiff fails to plead any facts from the FTC or ED actions or elsewhere that demonstrate falsity. Although a corrective disclosure can take different forms, it is well established that it must reveal a truth. See In re Retek Inc. Securities Litigation, 2009 WL 928483 (D. Minn. 2009). A plaintiff does not properly plead loss causation where the defendant's disclosure reveals only a "risk" or "potential" of fraud. Metzler Inv. GMBH v. Corinthian Colleges, Inc., 540 F.3d 1049, 1063 (9th Cir. 2008). Thus, the commencement of an internal or external investigation; the disclosure of concerns by a company's principal regulator; or the disclosure of a regulatory settlement are insufficient. See Oregon Pub. Emps. Ret. Fund v. Apollo Grp., Inc., 774 F.3d 598, 608 (9th Cir. 2008) (press release disclosing DoE review and subsequent expression of concern insufficient); Metzler, 540 F.3d at 1063 (same). Likewise, the filing of civil and administrative actions here revealed a risk that Adtalem's previous disclosures were possibly misleading, and nothing more. Even if the disclosure of the FTC and DoE actions 33 Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 40 of 42 PageID #:1564 caused Adtalem's stock price to drop, that was, at most, a reaction to the risk of future liability or just a general market reaction to negative news; it did not correct any previous omission or misstatement. See Meyer v. Greene, 710 F.3d 1189, 1197 (11th Cir. 2013). The Court should dismiss the TAC on this independent ground. V. THE TAC FAILS TO PLEAD CONTROL PERSON LIABILITY To prevail on its claims of control person liability under § 20(a) of the Securities Exchange Act, URS must establish (1) a primary violation of the securities laws and (2) control over the primary violator by the alleged controlling person. See Harrison v. Dean Witter Reynolds, Inc., 974 F.2d 873, 881 (7th Cir. 1992). To show control, URS must point to facts that show the power to direct or cause the direction of the management and policies of a person. URS has failed to plead a claim for a primary violation of the securities laws under § 10(b) of the Exchange Act against defendants; the § 20(a) claim accordingly fails. Furthermore, URS has not demonstrated that any of the individual defendants controlled the disclosures made by anyone other than themselves. VI. THIS ACTION SHOULD BE DISMISSED WITH PREJUDICE The Court has now given URS three opportunities to amend its complaint. Yet the TAC "failed to cure those deficiencies." Bally, 2007 WL 551574, at *14. Despite adding 13 new CWs, another regulatory settlement, and FOIA documents, the TAC "suffer[s] from the same failures as the first." Davis v. SPSS, Inc., 431 F. Supp. 2d at 833-34. There is no reason to believe that permitting plaintiff to amend again would result in anything other than an equally deficient, 300-page complaint. Because defendants and "the court ha[ve] devoted a great deal of time and effort evaluating both the original complaint and the amended complaint," and there is no indication that "another amendment. . . would meet the stringent pleading requirements of the PSLRA," the complaint should be dismissed with prejudice. Bally, 2007 WL 551574, at *14; 34 Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 41 of 42 PageID #:1565 Miller v. Champion Enters. Inc., 346 F.3d 660, 690 (6th Cir. 2003) ("allowing repeated filing of amended complaints would frustrate the purpose of the PSLRA"); Iron Workers Local No. 25 Pension Fund v. Oshkosh Corp., 2010 WL 1287058, at *25 (E.D. Wis. Mar. 30, 2010) (because "it is difficult to imagine Plaintiffs adding anything to the 192-page complaint" that would cure its defects, "there is little reason to allow another round of pleadings and extensive briefing"). CONCLUSION For the foregoing reasons, this Court should dismiss the third amended complaint with prejudice. Dated: March 30, 2018 Respectfully submitted, ARNOLD & PORTER KAYE SCHOLER LLP ARNOLD & PORTER KAYE SCHOLER LLP Phillip A. Geraci By: /s/ Alan N. Salpeter Jeffrey A. Fuisz Alan N. Salpeter Aaron F. Miner 70 West Madison Street, Suite 4200 Zheng (Jane) He Chicago, IL 60602 250 West 55th Street Tel: (312) 583-2300 New York, New York 10019 Fax: (312) 583-2360 Tel: (212) 836-8000 Email: alan.salpeter@arnoldporter.com Fax: (212) 836-8689 Email: phillip.geraci@arnoldporter.com jeffrey.fuisz@arnoldporter.com aaron.miner@arnoldporter.com jane.he@arnoldporter.com Attorneys for Defendants 35 Case: 1:16-cv-05198 Document #: 92 Filed: 03/30/18 Page 42 of 42 PageID #:1566 CERTIFICATE OF SERVICE On March 30, 2018, I electronically submitted the foregoing document with the clerk of court for the U.S. District Court, Northern District of Illinois, using the electronic case filing system of the court. I hereby certify that I have served all counsel of record electronically or by another manner authorized by Federal Rule of Civil Procedure 5(b)(2). By: /s/ Alan N. Salpeter