MEMORANDUM AND ORDER
WHITMAN KNAPP, District Judge.
This is an action for violations of the Securities and Exchange Act of 1934 (“1934 Act”). Plaintiffs are twenty corporations, associations and individuals who purchased on the New York Stock Exchange between July 12 and July 18, 1979 an aggregate of 52,100 shares of the common stock of Raneo, Inc. Defendants are Warner & Swasey Company, an Ohio corporation; Raneo, an Ohio corporation; and Vorwerk & Co. (KG), a German trading and holding company. With regard to defendant Raneo, plaintiffs allege violations of section 10(b)' of the 1934 Act, as amended, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5. Before us is Ranco’s motion to dismiss the complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim upon which relief can be granted and failure to allege fraud with the particularity required by Rule 9(b) of the Federal Rules of Civil Procedure. For reasons set forth in this opinion, the motion is granted, with leave to replead.
The Facts
According to plaintiffs’ amended complaint, the facts underlying this action are as follows: On September 1, 1978, Warner & Swasey purchased 518,100 shares of Raneo common stock, constituting approximately 14% of Ranco’s outstanding common stock. On September 5, Raneo filed a complaint in Ohio State court alleging that Warner & Swasey’s acquisition of the Raneo stock violated Ohio’s take-over statute. On September 16, Raneo and Warner & Swasey entered into an agreement' (“September 16 Agreement”) pursuant to which the Ohio action was dismissed and Warner & Swasey agreed not to buy or sell Raneo stock for a period of one year, but which agreement could be terminated by either party on thirty days written notice. On July 12, 1979 Warner & Swasey’s president sent a letter (“July 12 letter”) to the chairman of Ranco’s Board of Directors in which Warner & Swasey (a) offered to purchase all of Ranco’s outstanding common stock, and (b) gave the required thirty days notice of its intent to terminate the September 16 Agreement on August 11, 1979.
Simulta
neous with its sending of the July 12 letter to Raneo, Warner & Swasey filed it with the Securities and Exchange Commission as an amendment to the Form 13-D which it had filed in September 1978 pursuant to section 13(d)(1) of the 1934 Act, 15 U.S.C. § 78m(d)(l), and Rules 13d-l and 13d-2 promulgated thereunder, 17 C.F.R. §§ 240.-13d-l, 13d-2. The contents of the July 12 letter were released to the public, causing the price of Raneo common stock to rise from $15V4 to $22V4. On July 12, Raneo issued a press release in which it acknowledged receipt of the July 12 letter, reported that the proposal would be considered by its Board of Directors at a meeting to be held on July 16, and expressed the opinion [vindicated by subsequent events] that there would be no hostile tender offer on the part of Warner & Swasey.
On July 16, Raneo issued another press release in which it reported that its Board of Directors had rejected Warner & Swasey’s proposed offer as “inadequate and not in the best interests of the Company and its shareholders.”
Between July 12 and July 18, plaintiffs, who are arbitrageurs, that is, speculators in securities of companies which are the possible targets of tender offers,
purchased a total of 52,100 shares of Raneo common stock. On August 1, Warner & Swasey entered into an agreement with Vorwerk to sell its entire Raneo holdings to Vorwerk, whereupon the price of Raneo common stock fell from $22 to $16%.
In their amended complaint, plaintiffs allege in essence: (a) they had made their purchases of Raneo stock in reliance upon the July 12 letter as filed with the Securities and Exchange Commission; (b) the July 12 letter “created the impression that if Ranco’s board did not approve of the Offer,” Warner & Swasey would make a hostile tender offer; (c) Ranco’s July 12 press release was “materially false and misleading” in that it “failed to disclose” that Raneo had already “determined to oppose efforts by defendant [Warner & Swasey] to increase its ownership in Raneo” and instead stated that Ranco’s Board of Directors would “consider and evaluate” the proposal; (d) the July 16 press release also was “materially false and misleading” in that it “augmented the impression, created by the July 12 [letter], which Raneo knew to be false, that defendant [Warner & Swasey] would make a hostile tender offer”; (e) “Defendant Raneo issued the false press releases in furtherance of its aim to frustrate defendant [Warner & Swasey’s] efforts to acquire Raneo and to facilitate defendant [Warner & Swasey’s] sale of its Raneo holdings”; (f) the news of Warner & Swasey’s decision not to make a hostile tender offer for Raneo stock but instead sell its Raneo holdings to Vorwerk “took investors by surprise, and caused the price of Raneo stock to plummet . . (g) Raneo and Vorwerk were somehow in collusion with each other in the alleged violations of the 1934 Act.
The Procedural Setting
Plaintiffs initiated the instant action on August 27,1979 by filing their original complaint. Defendants Raneo and Vorwerk responded by moving pursuant to Rule 12(b) of the Federal Rules of Civil Procedure to dismiss the complaint for failure to state a claim upon which relief can be granted and failure to allege fraud with the particularity required by Rule 9(b) of the Federal Rules of Civil Procedure.
On December 4, 1979, plaintiffs filed an amended complaint dated November 7, 1979. Thereafter, defendant Raneo did not make a new motion specifically addressed to the amended complaint.
However, its counsel, Whitney North Seymour, Jr., Esq., did submit an affidavit in support of an application by Raneo to have both the original and amended complaints dismissed as “sham and false” in accordance with Rule 11 of the Federal Rules of Civil Procedure. In addition, defendant Raneo submitted a “Reply Memorandum in Support of its Motion to Dismiss and Strike the Original and Amended Complaints” in which it asserted:
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MEMORANDUM AND ORDER
WHITMAN KNAPP, District Judge.
This is an action for violations of the Securities and Exchange Act of 1934 (“1934 Act”). Plaintiffs are twenty corporations, associations and individuals who purchased on the New York Stock Exchange between July 12 and July 18, 1979 an aggregate of 52,100 shares of the common stock of Raneo, Inc. Defendants are Warner & Swasey Company, an Ohio corporation; Raneo, an Ohio corporation; and Vorwerk & Co. (KG), a German trading and holding company. With regard to defendant Raneo, plaintiffs allege violations of section 10(b)' of the 1934 Act, as amended, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5. Before us is Ranco’s motion to dismiss the complaint pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure for failure to state a claim upon which relief can be granted and failure to allege fraud with the particularity required by Rule 9(b) of the Federal Rules of Civil Procedure. For reasons set forth in this opinion, the motion is granted, with leave to replead.
The Facts
According to plaintiffs’ amended complaint, the facts underlying this action are as follows: On September 1, 1978, Warner & Swasey purchased 518,100 shares of Raneo common stock, constituting approximately 14% of Ranco’s outstanding common stock. On September 5, Raneo filed a complaint in Ohio State court alleging that Warner & Swasey’s acquisition of the Raneo stock violated Ohio’s take-over statute. On September 16, Raneo and Warner & Swasey entered into an agreement' (“September 16 Agreement”) pursuant to which the Ohio action was dismissed and Warner & Swasey agreed not to buy or sell Raneo stock for a period of one year, but which agreement could be terminated by either party on thirty days written notice. On July 12, 1979 Warner & Swasey’s president sent a letter (“July 12 letter”) to the chairman of Ranco’s Board of Directors in which Warner & Swasey (a) offered to purchase all of Ranco’s outstanding common stock, and (b) gave the required thirty days notice of its intent to terminate the September 16 Agreement on August 11, 1979.
Simulta
neous with its sending of the July 12 letter to Raneo, Warner & Swasey filed it with the Securities and Exchange Commission as an amendment to the Form 13-D which it had filed in September 1978 pursuant to section 13(d)(1) of the 1934 Act, 15 U.S.C. § 78m(d)(l), and Rules 13d-l and 13d-2 promulgated thereunder, 17 C.F.R. §§ 240.-13d-l, 13d-2. The contents of the July 12 letter were released to the public, causing the price of Raneo common stock to rise from $15V4 to $22V4. On July 12, Raneo issued a press release in which it acknowledged receipt of the July 12 letter, reported that the proposal would be considered by its Board of Directors at a meeting to be held on July 16, and expressed the opinion [vindicated by subsequent events] that there would be no hostile tender offer on the part of Warner & Swasey.
On July 16, Raneo issued another press release in which it reported that its Board of Directors had rejected Warner & Swasey’s proposed offer as “inadequate and not in the best interests of the Company and its shareholders.”
Between July 12 and July 18, plaintiffs, who are arbitrageurs, that is, speculators in securities of companies which are the possible targets of tender offers,
purchased a total of 52,100 shares of Raneo common stock. On August 1, Warner & Swasey entered into an agreement with Vorwerk to sell its entire Raneo holdings to Vorwerk, whereupon the price of Raneo common stock fell from $22 to $16%.
In their amended complaint, plaintiffs allege in essence: (a) they had made their purchases of Raneo stock in reliance upon the July 12 letter as filed with the Securities and Exchange Commission; (b) the July 12 letter “created the impression that if Ranco’s board did not approve of the Offer,” Warner & Swasey would make a hostile tender offer; (c) Ranco’s July 12 press release was “materially false and misleading” in that it “failed to disclose” that Raneo had already “determined to oppose efforts by defendant [Warner & Swasey] to increase its ownership in Raneo” and instead stated that Ranco’s Board of Directors would “consider and evaluate” the proposal; (d) the July 16 press release also was “materially false and misleading” in that it “augmented the impression, created by the July 12 [letter], which Raneo knew to be false, that defendant [Warner & Swasey] would make a hostile tender offer”; (e) “Defendant Raneo issued the false press releases in furtherance of its aim to frustrate defendant [Warner & Swasey’s] efforts to acquire Raneo and to facilitate defendant [Warner & Swasey’s] sale of its Raneo holdings”; (f) the news of Warner & Swasey’s decision not to make a hostile tender offer for Raneo stock but instead sell its Raneo holdings to Vorwerk “took investors by surprise, and caused the price of Raneo stock to plummet . . (g) Raneo and Vorwerk were somehow in collusion with each other in the alleged violations of the 1934 Act.
The Procedural Setting
Plaintiffs initiated the instant action on August 27,1979 by filing their original complaint. Defendants Raneo and Vorwerk responded by moving pursuant to Rule 12(b) of the Federal Rules of Civil Procedure to dismiss the complaint for failure to state a claim upon which relief can be granted and failure to allege fraud with the particularity required by Rule 9(b) of the Federal Rules of Civil Procedure.
On December 4, 1979, plaintiffs filed an amended complaint dated November 7, 1979. Thereafter, defendant Raneo did not make a new motion specifically addressed to the amended complaint.
However, its counsel, Whitney North Seymour, Jr., Esq., did submit an affidavit in support of an application by Raneo to have both the original and amended complaints dismissed as “sham and false” in accordance with Rule 11 of the Federal Rules of Civil Procedure. In addition, defendant Raneo submitted a “Reply Memorandum in Support of its Motion to Dismiss and Strike the Original and Amended Complaints” in which it asserted:
“Raneo presses its motion to dismiss both the original and amended complaints for failure to state a cause of action as to it. Raneo has also expanded its motion to include an application to strike both the original and amended complaints under Rule 11 as sham because of the misstatement of the essential facts on which they purport to be based.”
Consequently, at a hearing before us, we deemed Ranco’s original Rule 12(b) motion to have been renewed, and it was argued as such by counsel for both Raneo and plaintiffs.
Discussion
It is well established that “the securities laws do not distinguish between sophisticated and unsophisticated investors . . . .”
In re Scientific Control Corp. Securities Litigation
(S.D.N.Y.1976) 71 F.R.D. 491, 512. Specifically, “sophisticated investors, like all others, are entitled to the truth.”
Stier v. Smith
(5th Cir. 1973) 473 F.2d 1205, 1207. See also
Wheat v. Hall
(5th Cir. 1976) 535 F.2d 874, 876;
Welch Foods, Inc. v. Goldman, Sachs & Co.
(S.D.N.Y.1974) 398 F.Supp. 1393, 1398-99;
Barthe v. Rizzo
(S.D.N.Y.1974) 384 F.Supp. 1063, 1067;
Altschuler v. Cohen
(S.D.Tex.1979) 471 F.Supp. 1372, 1383;
Newman v. Shearson, Hammill & Co., Incorporated
(W.D.Tex.1974) 383 F.Supp. 265, 268.
However, it would seem self-evident that sophisticated arbitrageurs such as plaintiffs are not entitled to either a greater level or a different type of protection under the securities laws than that afforded to the average, far less sophisticated, investor. One cannot create a cause of action out of one’s own cunning. The essence of plaintiffs’ claim appears to be that because they were such sophisticated arbitrageurs, they assumed that defendant Ranco’s perfectly truthful statements contained in its July 12 and July 16 press releases
were designed to convey a meaning diametrically opposite to their apparent meaning. The law does not sanction such convoluted reasoning.
A reasonable person reading Ranco’s July 12 press release could not but conclude that if the Warner & Swasey proposal were to be rejected, no hostile tender offer would be forthcoming. Nothing in the July 16 press release could reasonably be interpreted as indicating otherwise. Furthermore, the July 12 press release is absolutely non-committal as to whether the Raneo Board of Directors would accept or reject Warner & Swasey’s proposal at its forthcoming July 16 meeting.
One would have to apply a peculiar “Alice in Wonderland” type of logic
to interpret the July 12 press release as somehow suggesting that the Warner & Swasey proposal would definitely or even possibly be accepted; or to conclude from either press release that Raneo at any relevant time anticipated a hostile tender offer by Warner & Swasey in the event that the proposal made in the July 12 letter
were to be rejected. Plaintiffs cannot now maintain their cause of action merely because, by the use of precisely such logic, they arrived at an erroneous interpretation of these two documents.
We need not now consider whether upon receipt of the July 12 letter Raneo was under a legal duty to issue a public announcement disclosing the relevant information.
Cf. Securities and Exchange Commission v. Texas Gulf Sulphur Co.
(2d Cir. 1968) 401 F.2d 833,
cert. denied sub nom. Coates v. Securities and Exchange Commission
394 U.S. 976, 89 S.Ct. 1454, 22 L.Ed.2d 756;
Elkind v. Liggett & Myers, Inc.
(S.D. N.Y.1978) 472 F.Supp. 123. The fact is that it did so in its July 12 press release. However, we are certainly not aware of any statute, regulation or rule of law that could conceivably have required Raneo to go even further in this press release and speculate
as to whether its Board of Directors would ultimately accept or reject Warner & Swasey’s proposal at the July 16 meeting.
This brings us to the question whether or not the naked allegation that Ranco’s July 12 press release “failed to disclose” Ranco’s predetermination to reject the Warner & Swasey proposal is sufficient to state a claim in the absence of any allegation of fact suggesting the actual existence of such a predetermination.
It is by now beyond question that mere conclusory allegations of fraud are insufficient as a matter of law to state a claim under section 10(b) of the 1934 Act and Rule 10b-5.
Segal v. Gordon
(2d Cir. 1972) 467 F.2d 602, 607;
Shemtob v. Shearson, Hammill & Co.
(2d Cir. 1971) 448 F.2d 442, 444;
Darvin v. Bache Halsey Stuart Shields, Inc.
(S.D.N.Y.1979) 479 F.Supp. 460, 464;
Carroll v. Bear, Stearns & Co.
(S.D.N. Y.1976) 416 F.Supp. 998, 1000. While it is true that Rule 9(b) provides that “[mjalice, intent, knowledge, and other condition of mind of a person may be averred generally”, it has recently been established in this Circuit that “plaintiffs can be required to supply a factual basis for their conclusory allegations regarding [defendant’s] knowledge.”
Ross v. A. H. Robins Company, Inc.
(2d Cir. 1979) 607 F.2d 545, 558.
In the present case plaintiffs have failed to supply such a factual basis in either their original or their amended complaint. Their amended complaint suggests no reason to believe that at its July 16 meeting, the Raneo Board of Directors did not duly “consider and evaluate.” the Warner & Swasey proposal in keeping with the intent .expressed in the July 12 press release. On the contrary, the sole facts presented on this subject are those contained in the July 16 press release, according to which the proposal was rejected by the Raneo Board only after “careful study and evaluation” in consultation with Ranco’s investment bankers.
We therefore conclude that plaintiffs’ allegations are insufficient to state a claim. Furthermore, we are mindful of the fact that plaintiffs have already once amended their complaint in response to two motions — one by defendant Raneo and the other by defendant Vorwerk — to dismiss pursuant to Rules 12(b)(6) and 9(b). “However, because we are hesitant to preclude the prosecution of a possibly meritorious claim because of defects in the pleadings, we believe that the plaintiffs should be afforded an additional, albeit final opportunity to conform the pleadings to Rule 9(b).”
Ross v. A. H. Robins Company, Inc., supra,
607 F.2d at 547. Specifically, we believe that plaintiffs should have one additional opportunity to allege any “factual basis” for the contention that Raneo had already on July 12 predetermined what its Board of Directors would do at the July 16 meeting (which meeting would accordingly have amounted to a mere charade).
Consequently, defendant Ranco’s motion to dismiss pursuant to Rules 12(b)(6) and 9(b) is granted with leave to plaintiffs to file a second amended complaint in accordance with this opinion within twenty days of the filing of this order.
SO ORDERED.