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UNITED STATES DISTRICT COURT DISTRICT OF CONNECTICUT IRENE RUCKER and GUSTAV RUCKER, Individually and On Behalf of All Others Similarly Situated, Plaintiffs, vs. STOLT-NIELSEN S.A., JACOB STOLTNIELSEN, NIELS G. STOLT-NIELSEN, SAMUEL COOPERMAN and REGINALD J.R. LEE, Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) Civil Action No. 3:03-cv-00409-DJS CLASS ACTION MEMORANDUM OF LAW IN OPPOSITION TO DEFENDANTS' MOTION TO DISMISS SECOND CONSOLIDATED AMENDED COMPLAINT

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TABLE OF CONTENTS Page TABLE OF AUTHORITIES ......................................................................................................... iii I. II. III. PRELIMINARY STATEMENT .........................................................................................1 STATEMENT OF FACTS ..................................................................................................4 ARGUMENT.....................................................................................................................10 A. B. Standards on a Motion to Dismiss .........................................................................10 The SAC Adequately Alleges Scienter..................................................................11 1. 2. Legal Standard ...........................................................................................11 The SAC Adequately Alleges Conscious Misbehavior and Recklessness Through Defendants' Knowledge of (and Participation in) SNTG's Anti-Competitive Activities..............................12 Even Absent Direct Allegations of Awareness by SNSA, Possessed by SNTG, as a Wholly Owned Subsidiary and Major Component of SNSA, Is Imputed to SNSA Under the Concept of Corporate Scienter .....................................................................................15

3.

C.

SNTG, Cooperman and Lee Are Primarily Liable For SNSA's Materially False and Misleading Statements...........................................................................17 1. 2. SNTG, Cooperman and Lee Were a Knowing Source of SNSA's Materially False and Misleading Statements .............................................17 SNTG, Cooperman and Lee Are Liable Under the Concept of Scheme Liability ........................................................................................20

D.

Defendants' Failure to Disclose the Anti-Competitive Activities and Antitrust Violations Violated Section 10(b) and Rule 10b-5 Thereunder .............22 1. 2. Defendants' Positive Statements About SNSA's Business Affairs Created a Duty to Disclose the Bid Rigging Conspiracy...........................22 Defendants' Alleged Omissions Were Material ........................................26

E. F.

The SAC More Than Adequately Meets the Reform Act's Particularity Requirements. ........................................................................................................28 Defendants' Statements are Not Protected As Forward Looking Statements ..............................................................................................................30

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Page G. IV. Plaintiffs Have Stated a Claim for Control Person Liability Under Section 20(a) .......................................................................................................................32

CONCLUSION..................................................................................................................33

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TABLE OF AUTHORITIES Page CASES Anixter v. Home-Stake Prod. Co., 77 F.3d 1215 (10th Cir. 1996) ...........................................................................................18 Ballan v. Wilfred Am. Educ. Corp., 720 F. Supp. 241 (E.D.N.Y. 1989) ....................................................................................24 Castellano v. Young & Rubicam, Inc., 257 F.3d 171 (2d Cir. 2001)...............................................................................................27 Caterpillar v. Great Am. Ins. Co., 62 F.3d 955 (7th Cir. 1995) ...............................................................................................16 City of Monroe Emples. Ret. Sys. v. Bridgestone Corp., 399 F.3d 651 (6th Cir. 2005) .............................................................................................18 Cooper v. Pickett, 137 F.3d 616 (9th Cir. 1997) .............................................................................................18 Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976)...........................................................................................................21 Friedl v. City of New York, 210 F.3d 79 (2d Cir. 2000).................................................................................................29 Ganino v. Citizens Utilities Co., 228 F.3d 154 (2d Cir. 2000).........................................................................................11, 27 Goldman v. Belden, 754 F.2d 1059 (2d Cir. 1985).............................................................................................27 Halperin v. eBanker USA.com, Inc., 295 F.3d 352 (2d Cir. 2002)...............................................................................................27 Hamilton Chapter of Alpha Delta Phi Inc. v. Hamilton College, 128 F.3d 59 (2d Cir. 1997).................................................................................................10 Hunt v. Alliance North Am. Gov't Income Trust, Inc., 159 F.3d 723 (2d Cir. 1998)...............................................................................................30 In re Alstom SA Secs. Litig., No. 03 Civ. 6595 (VM), 2005 U.S. Dist. LEXIS 35641 (S.D.N.Y. 2005) ............17, 18, 19

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Page In re Carter-Wallace Inc. Sec. Litig., 220 F. 3d 36 (2d Cir. 2000)................................................................................................12 In re Credit Suisse First Boston Corp. v. ARM Fin. Group, 2001 U.S. Dist. LEXIS 3332 (S.D.N.Y. Mar. 27, 2001) ...................................................31 In re DaimlerChrysler AG Sec. Litig., 197 F. Supp. 2d 42 (D. Del. 2002).....................................................................................14 In re Dynex Capital, Inc. Secs. Litig., 05 CV 1897 (HB), 2006 U.S. Dist. LEXIS 4988 (S.D.N.Y. Feb. 10, 2006)..............................................................................15 In re Global Crossing, Ltd. Sec. Litig., 322 F. Supp. 2d 319 (S.D.N.Y. 2004)....................................................................19, 20, 22 In re IPO Sec. Litig., 241 F. Supp. 2d 281 (S.D.N.Y. 2003)..........................................................................10, 22 In re Initial Pub. Offering Sec. Litig., 2004 U.S. Dist. LEXIS 20552 (S.D.N.Y.) Oct. 15, 2004).................................................31 In re Int'l Bus. Machines Corporate Sec. Litig., 163 F.3d 102 (2d Cir. 1998)...................................................................................26, 27, 31 In re Kidder Peabody Sec. Litig., 10 F. Supp. 2d 398 (S.D.N.Y. 1998)......................................................................17, 18, 19 In re LaBranche Sec. Litig., No. 03 Civ. 8201 (RWS), 2005 U.S. Dist. LEXIS 32599 (S.D.N.Y. Dec. 13, 2005) ..................................................................................................19 In re Lernout & Hauspie Sec. Litig., 236 F. Supp. 2d 161 (D. Mass. 2003) ................................................................................22 In re Mercator Software, Inc. Sec. Litig., 161 F. Supp. 2d 143 (D. Conn. 2001)................................................................................11 In re MicroStrategy Inc. Sec. Litig., 115 F. Supp. 2d 620 (E.D. Va. 2000) ................................................................................11 In re Motorola Secs. Litig., No. 03 C 287, 2004 U.S. Dist. LEXIS 19250 (N.D. Ill. Sept. 9, 2004).............................16

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Page In re NUI Sec. Litig., 314 F. Supp. 2d 388 (D.N.J. 2004) ....................................................................................16 In re Nortel Networks Corp. Sec. Litig., 238 F. Supp. 2d 613 (S.D.N.Y. 2003)....................................................................10, 11, 12 In re Oxford Health Plans, Inc. Sec. Litig., 187 F.R.D. 133 (S.D.N.Y. 1999) .......................................................................................31 In re Parmalat Sec. Litig., 375 F. Supp. 2d 278 (S.D.N.Y. 2005)................................................................................32 In re Par Pharm., Inc. Sec. Litig., 733 F. Supp. 668 (S.D.N.Y. 1990).....................................................................................23 In re Philip Servs., Corp. Sec. Litig., 98 Civ. 0835, 2004 U.S. Dist. LEXIS 9261 (S.D.N.Y. May 24, 2004).............................16 In re Priceline.com Inc., 342 F. Supp. 2d 33 (D. Conn. 2004)......................................................................14, 27, 31 In re Prudential Sec. Ltd. Pshps. Litig., 930 F. Supp. 68 (S.D.N.Y. 1996).......................................................................................31 In re Scholastic Corp. Sec. Litig., 252 F.3d 63 (2d Cir. 2001)...........................................................................................11, 32 In re Sirrom Capital Corp. Sec. Litig., 84 F. Supp. 2d 933 (M.D. Tenn. 1999)..............................................................................23 In re Sotheby's Holdings, Inc. Sec. Litig., No. 00 Civ. 1041 (DLC), 2000 U.S. Dist. LEXIS 12504 (S.D.N.Y. Aug. 31, 2000) ..................................................................................................23 In re Van Der Moolen Holding N.V. Sec. Litig., No. 03 Civ. 8284 (RWS), 2005 U.S. Dist. LEXIS 32598 (S.D.N.Y. Dec. 13, 2005) ..................................................................................................19 In re Vivendi Universal, S.A. Sec. Litig., 02 Civ. 5571, 2003 U.S. Dist. LEXIS 19431 (S.D.N.Y. Nov. 3, 2003) ............................30 In re Warner Communications Sec. Litig., 618 F. Supp. 735 (S.D.N.Y. 1985).....................................................................................16

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Page In re Worldcom, Inc. Secs. Litig., 352 F. Supp. 2d 472 (S.D.N.Y. 2005)................................................................................15 Irvine v. Imclone Sys., 2003 U.S. Dist. LEXIS 9342 (S.D.N.Y. June 3, 2003) .....................................................30 Irvine v. Imclone Sys. Inc., 02-Civ.-109 2003 U.S. Dist. LEXIS 9342 (S.D.N.Y. June 4, 2003) ................................11 Klein ex rel. IRA v. PDG Remediation, 937 F. Supp. 323 (S.D.N.Y. 1996).....................................................................................26 Kronfeld v. Trans World Airlines, Inc., 832 F.2d 726 (2d Cir. 1987)...............................................................................................25 McKesson HBOC, Inc. Sec. Litig., 126 F. Supp. 2d 1248 (N.D. Cal. 2000) .............................................................................14 Menkes v. Stolt-Nielsen S.A., No. 3:03CV409, 2005 U.S. Dist. LEXIS 28202 (D. Conn. Nov. 10, 2005).............. Passim Nordstrom, Inc. v. Chubb & Son, Inc., 54 F.3d 1424 (9th Cir. 1995) .............................................................................................16 Novak v. Kasaks, 216 F.3d 300 (2d Cir. 2000).........................................................................................10, 12 Ottmann v. Hanger Orthopedic Group, Inc., 353 F.3d 338 (4th Cir. 2003) .............................................................................................23 Phelps v. Kapnolas, 308 F.3d 180 (2d Cir. 2002)...............................................................................................11 Picard Chem. Profit Sharing Plan v. Perrigo Co., 940 F. Supp. 1101 (W.D. Mich. 1996) ..............................................................................18 Pozniak v. Imperial Chemical Industries, PLC, 2004 WL 2186546 (S.D.N.Y. Sept. 28, 2004)...................................................................25 Rubinstein v. Collins, 20 F.3d 160 (5th Cir. 1994) ...............................................................................................31 SEC v. Texas Gulf Sulphur Co., 401 F.2d 833 (2d Cir. 1968)...............................................................................................23 - vi -

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Page

SEC v. U.S. Envtl., Inc., 155 F.3d 107 (2d Cir. 1998)...............................................................................................12 SEC v. Zandford, 535 U.S. 813 (2002)...........................................................................................................22 Schnall v. Annuity & Life Re (Holdings), Ltd., No. 02-CV-2133 (GLG), 2004 U.S. Dist. LEXIS 4643 (D. Conn. Mar. 9, 2004).............32 Shapiro v. UJB Fin. Corp., 964 F.2d 272 (3d Cir. 1992)...............................................................................................23 Stolt Nielsen, S.A. v. United States, 2006 U.S. App. LEXIS 7203 (3d. Cir. March 23, 2006) .....................................................2 Stolt-Nielsen S.A. v. United States of America, 352 F. Supp. 2d 553 (E.D. Pa. 2005) .............................................................................8, 14 Suez Equity Investors, L.P. v. Toronto-Dominion Bank, 250 F.3d 87 (2d Cir. 2001).................................................................................................32 TSC Indus. v. Northway, Inc., 426 U.S. 438 (1976).....................................................................................................25, 28 United Paperworkers Int'l Union v. International Paper Co., 801 F. Supp. 1134 (S.D.N.Y. 1992)...................................................................................23

STATUTES 15 U.S.C. §78j(b) ...........................................................................................................................21 15 U.S.C. §78u-4(b)(2) ..................................................................................................................11 15 U.S.C. §78u-5 ...........................................................................................................................30 17 C.F.R. §240.10b-5.....................................................................................................................21

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Lead Plaintiffs Irene Rucker and Gustav Rucker (the "Plaintiffs" or "Lead Plaintiffs") respectfully submit this Memorandum of Law in opposition to Defendants Stolt-Nielson S.A. ("SNSA"), Stolt-Nielson Transportation Group, Inc. ("SNTG") (collectively, "the Companies"), Jacob Stolt-Nielson, Niels G. Stolt-Nielson, Samuel Cooperman ("Cooperman") and Reginald J.R. Lee's ("Lee")1 (collectively, the "Defendants") motion to dismiss the Second Consolidated Amended Complaint (the "SAC"), dated March 1, 2006. I. PRELIMINARY STATEMENT This is a federal securities fraud class action brought on behalf of the purchasers of American Depository Receipts ("ADRs") of SNSA between February 1, 2001 through February 20, 2003 (the "Class Period"), alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 10b-5 promulgated thereunder. The Class also includes all U.S.-based purchasers of SNSA shares traded on the Oslo exchange during the Class Period. This is the second time the parties have briefed pleading issues before the Court. On November 10, 2005, the Court granted Defendants' motion to dismiss Plaintiffs' Amended Class Action Complaint2 (the "AC") holding that the Lead Plaintiffs failed to sufficiently allege Defendants' scienter. Menkes v. Stolt-Nielsen S.A., 2005 U.S. Dist. LEXIS 28208 (D. Conn. Nov. 10 2005) ("Order"). Shortly thereafter, Plaintiffs moved for reconsideration of the Order on a number of grounds. The Court denied that motion but permitted Plaintiffs the opportunity to amend the AC. On March 1, 2006, Plaintiffs filed the Second Amended Class Action Complaint.

1

Jacob Stolt-Nielson, Niels G. Stolt-Nielson, Cooperman and Lee are collectively referred to as the "Individual Defendants". Plaintiffs' Amended Class Action Complaint was filed on September 8, 2003. -1-

2

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Plaintiffs respectfully submit that the SAC cures the pleading deficiencies cited by the Court in the Order. In the Order, the Court found that Defendants were under a duty to disclose that SNSA's core subsidiary, SNTG, was engaging in anti-competitive conduct in violation of United States antitrust laws and that certain of Defendants' statements were materially false and misleading for failing to disclose this activity. Menkes, 2005 U.S. Dist. LEXIS 28208 at *19. The Court, however, found that the AC failed to provide a link between SNTG's anti-competitive conduct and SNSA (or its officers) such that they knew or should have known of the improper conduct and, therefore, failed to adequately allege Defendants' scienter.3 The new allegations contained in the SAC strengthen Plaintiffs' scienter allegations and provide the missing "link" sought by the Court in the Order. The SAC alleges that SNSA management, in particular Jacob Stolt-Nielson, actually participated in the execution of the bid rigging conspiracy between SNTG and one of its competitors. As detailed herein, in April 2001, Jacob Stolt-Nielson requested for the preparation of a cost-benefit analysis regarding the pros and cons of conspiring with Odjfell versus competing with them.4 Furthermore, the SAC alleges numerous examples of the manner in which SNSA directors and officers knew or should have known about the anti-competitive activities conducted by SNTG at the time SNSA issued false and misleading statements to the public. Specifically, the SAC alleges

The Court also held that the AC's allegations concerning Defendants' failure to disclose embargo violations was not actionable. After review of the Order, Plaintiffs decided to no longer pursue those claims in the interest of efficiency and judicial economy. This facsimile, in addition to other facts, appears to have caused the United States Department of Justice ("DOJ") to take the unprecedented step of revoking its corporate amnesty agreement with SNSA. The United States Court of Appeals for the Third Circuit recently vacated an injunction which barred the DOJ from indicting SNSA due to the amnesty agreement. The Third Circuit held that SNSA could assert the agreement as a defense to an indictment and the parties could then litigate the enforceability of the agreement. Stolt Nielsen, S.A. v. United States, 2006 U.S. App. LEXIS 7203 (3d Cir. March 23, 2006). -24

3

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that the bid rigging conspiracy began as early as 1998 and that several employees of SNTG ­ including its former general counsel ­ informed senior management of both SNTG and SNSA of the anti-competitive activities carried out by SNTG. In addition, SNSA has represented in its public filings that it was aware of SNTG's violations of antitrust laws at least as early as 2002. The SAC also adds key background information about SNTG and SNSA and their U.S operations that further support a strong inference of scienter. The SAC alleges that Jacob StoltNielson and Niels G. Stolt-Nielson served on the Board of Directors for both SNTG and SNSA. These allegations are particularly significant as there is no dispute whatsoever that senior management and senior executives at SNTG participated in, or at least had direct knowledge of, SNTG's business affairs. In addition, the SAC alleges that SNSA maintains its U.S. office in the same office space maintained by SNTG and that the companies share the same computer system and administrative staff. In other words, SNSA and SNTG were very much operated as one entity despite their separate legal identities. Clearly, the SAC's new scienter allegations, coupled with Plaintiffs' previous allegations, more than adequately allege that Defendants acted with a conscious disregard for the truth of their statements. Defendants' scienter arguments are nothing more than improper factual disputation ­ they either ask the Court to not accept Plaintiffs' allegations as true or to adopt Defendants' interpretation of certain facts. A fair reading of the SAC demonstrates that Plaintiffs have more than met their pleading burden and Defendants should have to wait until summary judgment to have their version of the facts heard by the Court. Finally, it is respectfully submitted that no matter how the Court rules on the sufficiency of the SAC's new scienter allegations, the SAC states a claim against SNTG, Cooperman and Lee. SNTG, Cooperman and Lee can be held responsible for SNSA's materially false and misleading statements because they were a knowing source of the misrepresentations. It should be noted that -3-

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the Court did recognize in the Order that the AC sufficiently alleged that knowledge of SNTG's anticompetitive conduct reached the "highest level of SNTG management in Cooperman." For the reasons set forth herein, it is respectfully submitted that Defendants' motion to dismiss should be denied in all respects. II. STATEMENT OF FACTS Defendant SNSA is a holding company that, through its subsidiaries, engages in worldwide transportation, storage and distribution of, among other things, chemicals. ¶2.5 SNSA conducts its business out of multiple offices, including one maintained in Norfolk, Connecticut. ¶10. One of SNSA's multiple subsidiaries is SNTG. ¶2. SNTG does an array of interrelated activities, which SNSA self-describes as "fully integrated." For example, SNTG transports, stores and distributes bulk liquid chemicals, edible oils, acids and other specialty liquids. ¶2. SNTG carries its customers' products on worldwide seaborne trade routes for producers, refiners and distributors. ¶2. Several of SNTG's largest customers are among the world's major chemical companies. ¶11. SNTG's executive offices are located in Norfolk, Connecticut, at the same location as SNSA's Connecticut offices. ¶11. SNTG is a wholly-owned subsidiary of SNSA. ¶11. More than 50% of SNTG's shares are owned and operated by Defendant Jacob Stolt-Nielsen and his family. ¶87. In 2001, SNTG represented 39% of SNSA's net operating revenue, 94% of income from operations, and 50% of SNSA's total assets. ¶11. By 2004, SNTG represented about 62% of SNSA's net operating revenue and 73% of SNSA's total assets. ¶11. Defendant Jacob Stolt-Nielsen served as Chairman of SNSA since he founded the Company in 1959. During the Class Period, Jacob Stolt-Nielsen served on the Board of Directors for both

5

"¶__" refers to paragraphs of the SAC. -4-

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SNSA and SNTG. ¶12. Niels G. Stolt-Nielsen served as Chief Executive Officer ("CEO") of SNSA during the Class Period. ¶13. Niels G. Stolt-Nielsen served on the Board of Directors for both SNSA and SNTG. ¶13. Cooperman served as Chairman of SNTG during the Class Period. ¶14. Lee served as SNTG's CEO during the Class Period. ¶15. SNTG's major industry competitor was Odjfell ASA ("Odjfell"). ¶3. The SAC alleges that, as early as 1998, SNTG and its competitors, including Odjfell, conspired to, among other things, rig bidding for international shipping contracts. ¶¶3, 29. SNTG and its competitors, in violation of antitrust and anti-competitive laws, schemed to fix shipping rates, rig bids and allocate customers. The scheme enabled SNTG ­ and, in turn, SNSA ­ to dominate international shipping trade and remain profitable. ¶29. The Wall Street Journal provided a detailed account of the scheme between SNSA and Odjfell. How Seagoing Chimical Haulers May Have Tried To Divide Market, The Wall Street Journal, February 20, 2003. ¶30. With respect to the origin of the scheme, the February 20, 2003 article reported that SNSA and Odjfell began the bid rigging conspiracy as early as 1998 when the Asian economy experienced a slowdown, which resulted in a decrease in the production and shipments of chemicals. ¶¶30, 31. The article reported that, at that time, a meeting was held between SNTG and SNSA representatives, at their Connecticut office, to address an agreement between SNTG and Odjfell regarding their customers. According to the article, Andrew Pickering6 described the customer-related agreement in the following manner: "They had `carved up the world'." ¶31. The SAC alleges that Pickering's statement was reported to executives at both SNSA and SNTG, including Kenneth Bloom7 and Cooperman. ¶32.

6 7

At that time, Pickering was the vice-president for SNTG's tanker trading. ¶31. At that time, Bloom was a vice-president or logistics with SNSA. ¶31. -5-

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Even after the Asian economy began to recover, the SAC alleges that SNTG and its competitors were forced to address the merger between Dow Chemical and Union Carbide. ¶34. SNTG and its competitors recognized that the merged entity would seek discounts in its chemical shipments due to the sheer volume generated by the combination the two companies. ¶34. SNTG and its competitors carried out a scheme which would enable them to maintain profit levels despite any efforts by Dow Carbine and Union Carbide to negotiate reduced rates. ¶¶34, 35. According to the February 20, 2003 The Wall Street Journal article, in late 2001 through 2002, Richard B. Wingfield8 worked with Odjfell to rig bidding on shipping contracts. ¶35. The article attributes quotes from Wingfield's journal notes, which described a February 28, 2001 meeting between representatives of both SNTG and SNSA and representatives of Odjfell. ¶36. The article further attributes quotes from a fax to Wingfield, dated April 10, 2001, which outlined the cost-benefit analysis between competing with Odjfell and conspiring with them. ¶37. The Complaint specifically alleges that the referenced fax was prepared by SNSA at the behest of Jacob Stolt-Nielsen. ¶¶37, 49. An article published in Tradewinds, dated May 27, 2005, reported that in connection with the U.S. Department of Justice's ("DOJ") investigation into SNSA, "Prosecutors cited an April 2001 internal memo written by SNTG's Bjorn Jansen to his superior, Richard Wingfield, detailing the pros and cons of continued pricing collusion with supposed competitor Odfjell. The analysis `had been requested by Stolt SA Chairman Jacob Stolt-Nielsen,' the DOJ said in a footnote to its appeal." [Emphasis Added.] ¶80. The Complaint alleges that based on the April 2001 internal memorandum, SNSA, including Defendant Jacob Stolt-Nielsen himself, was not only aware of SNTG's anti-competitive activities, the parent company was involved in the decision to accomplish the conspiracy. ¶¶37, 49, 80, 84.

8

At that time, Wingfield was the managing director of SNTG's tanker trading division. ¶34. -6-

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By January 24, 2002, the Complaint alleges, Wingfield informed the SNTG management board that the Dow contracts "were all but locked up" and, according to the February 20, 2003 The Wall Street Journal article, Wingfield attributed the securing of the contracts to the conspiracy between SNSA and Odjfell. ¶38. The SAC further alleges that less than two weeks after Wingfield's announcement regarding the Dow contracts, Paul O'Brien9 advised Cooperman to: (1) suspend Wingfield for his involvement in conspiring with Odjfell; (2) investigate SNSA's illegal and anti-competitive practices; and (3) bring an end to SNSA's and SNTG's antitrust violations. ¶40. After Cooperman refused to comply with O'Brien's recommendations, the SAC alleges, on March 1, 2002, O'Brien resigned from the Companies. ¶40. O'Brien later filed suit against the Companies, alleging that he had to resign in order to avoid any participation in the illegal or criminal activities conducted by the Companies.10 ¶¶40, 51. The publicly available documents11 from O'Brien's lawsuit state that O'Brien expressed concern regarding the anti-competitive behavior conducted by SNTG directly to the attention of the highest authorities in both SNSA and SNTG, including Defendants Jacob Stolt-Nielsen and Niels G. StoltNielsen, as well as Alan Windsor.12 ¶¶51-52. According to the SAC, twelve days after O'Brien's resignation, SNSA scheduled a meeting for Wingfield "to present an antitrust update" to its directors. ¶41.

9

At that time, O'Brien was general counsel of SNTG. See Paul O'Brien v. Stolt-Neilsen, etal, 02-cv-190051-S (filed Jun. 19, 2002).

10 11

Although a large portion of the documents filed in O'Brien's wrongful termination suit have been redacted at the request of SNSA and SNTG, the unredacted language of the pleadings, motion practice and supporting affidavits supply ample statements regarding the information conveyed by O'Brien to various officers and directors with both SNTG and SNSA. ¶¶52-56. At that time, Windsor was general counsel of SNSA. -7-

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On June 24, 2003 the United States government filed a criminal complaint against Wingfield. ¶¶42, 79. An affidavit of John W. Sharp ("Sharp"), special agent with the Federal Bureau of Investigation ("FBI"), accompanied the complaint against Wingfield and outlined background and facts concerning Wingfield's actions. ¶¶42, 79. Sharp attested that Wingfield entered into conspiratorial agreements with SNTG's competitors as early as March 2001 and continued as late as October 2002. ¶42. In October 2003, in connection with the same investigation by the DOJ, Odjfell ­ as well as its chairman and vice president ­ plead guilty to participating in the antitrust and anti-competitive activities. ¶44. Odjfell was ordered to pay a $42.5 million fine in connection with the plea agreement. ¶44. The Wall Street Journal later reported, in an article dated October 6, 2004, that the bid rigging conspiracy between SNTG and Odjfell did not cease upon the DOJ's investigation. ¶45. The article conveyed that high ranking SNSA executives met with Odjfell representatives to provide assurances that the arrangement ­ the scheme ­ between the companies would continue. ¶45. The DOJ became aware of the continued relationship between the companies and sought to revoke their amnesty agreement with SNTG. ¶45. SNSA brought suit against the DOJ in the District Court of Pennsylvania seeking an order that the DOJ could not revoke the amnesty agreement. ¶45. The District Court denied the DOJ's revocation of the agreement.13 ¶45. (Since the filing of the SAC,

13

Defendants misleadingly attempt to utilize the court's findings of facts in Stolt-Nielsen S.A. v. United States of America, 352 F. Supp. 2d 553 (E.D. Pa. 2005) to support their position that SNSA was unaware of SNTG's antitrust activity in April 2001. Defendants blatantly misrepresent the Court's findings as its own when, in fact, the court merely conveyed that that the statements were the belief of John M. Nannes ("Nannes"). For example, the court stated: "Nannes believed that the [April 2001] fax was evidence of conscious parallelism, not of a Sherman Act violation. Tr. 4/13/04 at 163-64." 352 F. Supp. 2d at 564. Defendants claim that the court (Judge Savage) found the statement credible. Defendants Memorandum of Law in Support of Motion to Dismiss Second -8-

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the Third Circuit reversed the District Court's decision and remanded the case to the District Court to dismiss SNSA's complaint.) The Truth is Revealed to the Public On November 22, 2002, The Wall Street Journal reported that O'Brien accused SNTG of performing anti-competitive activities. ¶72. In reaction to this report, SNSA's stock price fell from $7.62 per share to $6.50 per share. ¶72. Next, on February 20, 2003, The Wall Street Journal published an article detailing the conspiracy conducted by the Companies and the manner in which the scheme had been carried out "for years". ¶73. SNSA's stock price again tumbled in reaction to the revelation of negative news regarding SNTG's business practices. ¶73. SNSA's stock price fell from $7.10 per share on February 19, 2003 to $5.94 per share on February 20, 2003, with over thirteen times the trading volume on the day The Wall Street Journal article was published versus the previous day. ¶73. On February 21, 2003, The Wall Street Journal added to its story regarding the Companies' anti-competitive activities by reporting that the DOJ launched a criminal investigation into allegations of price fixing between SNSA and Odjfell. The February 21, 2003 article added that Richard Fisher, SNSA's former sole American director, had resigned due to concerns about the way SNSA handled O'Brien's allegations and the DOJ's probe. ¶75. The article stated that the government probe began as early as late-2001. The article further stated that, in early 2002, SNSA's

Consolidated Amended Complaint at 7 ("Def. Mem. at __"). The court made no such finding. The court simply relayed that the statement was Nannes' belief. Also, Defendants stated that "Judge Savage found convincing that as of December 2002, StoltNielsen's outside counsel was still unsure whether SNTG had engaged in any anticompetitive activity." See Def. Mem. at 8. Plaintiffs do not dispute ­ nor care ­ when Nannes became sure of the anti-competitive activity. The issue before this Court is when Defendants were aware of the activity. Quite simply, the SAC alleges that Defendants engaged in, or at a minimum had knowledge of, a bid rigging scheme between SNTG and its competitors as early as May 24, 2000. ¶¶3, 29, 42. -9-

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outside lawyers in Britain informed the company that its business practices may be in violation of antitrust laws. ¶74. This article, the Complaint alleges, clearly evinces that SNSA officers and directors were well-aware of the business practices implemented by SNTG and its competitors and had knowledge of the allegations of anti-competitive activities during the Class Period. ¶¶74-75. On February 21, 2003, SNSA issued a press release announcing that the DOJ granted SNTG conditional amnesty for its alleged violation of antitrust laws. ¶76. The press release acknowledged that in the course of an investigation of SNTG, SNSA became aware of possible collusive behavior in its subsidiary's business affairs. ¶76. SNSA reiterated its statement regarding its internal investigation in SNSA's June 4, 2003, June 16, 2004 and May 31, 2005 20-F statements, stating that in the course of an investigation conducted by SNSA in 2002, the company "became aware of information that caused us to undertake an investigation regarding potential improper collusive behavior in our parcel tanker and intra-Europe inland barge operations." ¶76. III. ARGUMENT A. Standards on a Motion to Dismiss

A motion to dismiss imposes a heavy burden on the movant, as the defendants must demonstrate that the plaintiffs either failed to state claims as a matter of law under Rule 12(b)(6) or that the plaintiffs have failed to properly plead those claims under the Federal Rules of Civil Procedure or the Private Securities Litigation Reform Act ("PSLRA"). See In re IPO Sec. Litig., 241 F. Supp. 2d 281, 321-31 (S.D.N.Y. 2003). In reviewing the complaint, the Court draws all reasonable inferences in Plaintiffs' favor and accepts as true the factual allegations in the Complaint. See Novak v. Kasaks, 216 F.3d 300, 305 (2d Cir. 2000); Hamilton Chapter of Alpha Delta Phi Inc. v. Hamilton College, 128 F.3d 59, 63 (2d Cir. 1997) ("[T]he court must accept as true all the factual allegations in the complaint and must draw all reasonable inferences in favor of the plaintiff."); In re Nortel Networks Corp. Sec. Litig., 238 F. Supp. 2d 613, 621 (S.D.N.Y. 2003). Since the Court is merely reviewing the complaint, the issue "is not whether a plaintiff is likely to ultimately prevail, - 10 -

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but whether the claimant is entitled to offer evidence to support the claims." Phelps v. Kapnolas, 308 F.3d 180, 184-185 (2d Cir. 2002). The purpose of a pleading is to state a claim and provide adequate notice of that claim. In essence, "[a] pleading is not a trial and plaintiffs are not required to marshal their evidence and sustain a verdict at this stage." Nortel, 238 F. Supp. 2d at 621; see also In re Scholastic Corp. Sec. Litig., 252 F.3d 63, 72 (2d Cir. 2001). Furthermore, all allegations must be read in their totality, not in isolation. See In re Mercator Software, Inc. Sec. Litig., 161 F. Supp. 2d 143, 150 (D. Conn. 2001). B. The SAC Adequately Alleges Scienter 1. Legal Standard

The PSLRA dictates that a complaint alleging violations of Section 10(b) of the Exchange Act must state "facts giving rise to a strong inference that the defendant acted with the required state of mind." 15 U.S.C. §78u-4(b)(2). Under the Second Circuit's standard, a plaintiff may establish a "strong inference" of scienter by alleging facts that constitute strong circumstantial evidence of conscious misbehavior or recklessness. Ganino v. Citizens Utilities Co., 228 F.3d 154, 170 (2d Cir. 2000); see also Irvine v. Imclone Sys. Inc., 02-Civ.-109 (RO), 2003 U.S. Dist. LEXIS 9342, at *6-7 (S.D.N.Y. June 4, 2003). In consideration of whether the allegations of the SAC give rise to a strong inference of scienter, the Court should not consider the SAC's allegations in isolation, but rather in their entirety. See Mercator, 161 F. Supp. 2d at 150 (holding that when determining whether scienter has been sufficiently pleaded the complaint's allegations should be "read in their totality"); see also In re MicroStrategy Inc. Sec. Litig., 115 F. Supp. 2d 620, 631(E.D. Va. 2000) (same). The Second Circuit does not require `"great specificity' provided the plaintiff alleges enough facts to support `a strong inference of fraudulent intent.'" Ganino, 228 F.3d at 169.

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2.

The SAC Adequately Alleges Conscious Misbehavior and Recklessness Through Defendants' Knowledge of (and Participation in) SNTG's Anti-Competitive Activities

In order "to survive dismissal under the `conscious misbehavior' theory, [Plaintiffs] must show that they alleged reckless conduct by the [Defendants], which is at the least, conduct which is highly unreasonable and which represents 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." Nortel, 238 F. Supp. 2d at 631 (quoting In re Carter-Wallace Inc. Sec. Litig., 220 F. 3d 36, 39 (2d Cir. 2000)). Moreover, "securities fraud claims typically have sufficed to state a claim based on recklessness when they have specifically alleged defendants' knowledge of facts or access to information contradicting their public statements. Under such circumstances, defendants knew or, more importantly, should have known that they were misrepresenting material facts related to the corporation." Novak, 216 F.3d at 308; see also SEC v. U.S. Envtl., Inc., 155 F.3d 107, 111 (2d Cir. 1998) ("It is well-settled that knowledge of the proscribed activity is sufficient scienter under §10(b)."). In essence, a plaintiff may sufficiently plead scienter under the conscious misbehavior or recklessness prong by "specifically alleg[ing] defendants' knowledge of facts or access to information contradicting their public statements." Novak, 216 F.3d at 308. Here, this Court has already analyzed the issue of scienter as applied to the actionable statements (and similar thereto) alleged in the SAC. Menkes, 2005 U.S. Dist. LEXIS 28208, at *31*36. In deciding Defendants' motion to dismiss filed in connection with the AC, this Court acknowledged that "each statement was spoken by SNSA or by SNSA's agent on behalf of SNSA, while SNTG employees actually engaged in the anti-competitive activity. Plaintiffs must therefore allege that SNSA offered these potentially false and misleading statements with scienter." Id. at *31. In its scienter analysis, this Court sought allegations that SNSA management participated or had

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knowledge of the anti-competitive activities performed by SNTG. To the disappointment of Plaintiffs, this Court reasoned: As currently constituted, the complaint does not establish a clear link between those who were involved in the anti-competitive arrangements at SNTG and SNSA management. Although they do allege that word of anti-competitive activities reached the highest level of SNTG management in Cooperman, plaintiffs do not allege any facts supporting the conclusion that Cooperman relayed this information to SNSA management. Id. at *35. Ultimately, this Court concluded that it could "only assume, and not infer, that SNSA's management knew about the illegal activity." Id. at *36. Now, in the SAC, Plaintiffs have alleged a clear link between those involved in the anticompetitive activities at SNTG and SNSA management. ¶¶12, 13, 31, 32, 36, 39, 40, 42, 48, 50-52, 54 and 55. In fact, the SAC pleads more than a link, but alleged that SNSA management was involved in the decision to conspire with (or, at least, continue to conspire with) Odjfell in the bid rigging scheme with SNTG. ¶¶36, 37, 42 and 49. Now, this Court need not make any assumptions about what information SNSA management had regarding the anti-competitive activity at the time SNSA issued the false and misleading statements. The SAC pleads numerous allegations that, at a minimum, infer that Defendants SNSA, Jacob Stolt-Nielson and Niels G. Stolt-Nielson had knowledge of SNTG's anti-competitive activity (and, even more, participated in carrying out the conspiracy between SNTG and its competitors). For example, The SAC further alleges that Pickering advised members of both SNSA and SNTG of SNTG's conspiracy with Odjfell. ¶¶31-32. Jacob Stolt-Nielson and Niels G. Stolt-Nielson each served on the Board of Directors for both SNSA and SNTG. ¶¶12, 13, 48. Defendants do not deny that SNTG and its executives had knowledge of SNTG anti-competitive activities. In this regard, Jacob Stolt-Nielson and Niels G. Stolt-Nielson inherently had knowledge of SNTG's business affairs. This fact, coupled with the fact that they were members of the SNSA board, infers that

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Defendants SNSA, Jacob Stolt-Nielson and Niels G. Stolt-Nielson were well aware of bid rigging conspiracy performed by SNTG and its competitors. Next, the SAC alleges that O'Brien informed members of SNTG, "as well as high level executives at SNSA," about SNTG's anti-competitive activities. ¶¶51-52. Also, while SNSA's own statements acknowledge that they were aware of the activity at least as early as 200214 (¶¶38, 40, 42, 50, 54, 74, 76, and 82), there is strong indication that SNSA knew about the scheme well before then (¶¶31, 49, 50, 80, and 84). In fact, according to DOJ investigations, Jacob Stolt-Nielson not only knew about the anti-competitive activity, as early as April 2001, but he participated in orchestrating the continued conspiracy with SNTG's competitor Odjfell.15 ¶78.

Defendants purport that the investigation conducted by SNSA in 2002 does not infer fraudulent intent on the part of Defendants. Def. Mem. at 8-11. In doing so, Defendants spend pages arguing that SNSA acted responsibly by initiating the investigation. Plaintiffs do not allege that an investigation should not have been conducted. Rather, the allegations regarding SNSA's investigation in 2002 simply refutes the position taken by Defendants until now; namely, that SNSA and its executives were unaware of any wrongdoing by SNTG during the Class Period. See Defendants' Motion to Dismiss Plaintiffs' Amended Class Action Complaint, at 9-12; Defendants' Opposition to Plaintiffs' Motion for Reconsideration, at 11-14. Clearly, Defendants were aware of SNTG's wrondoing prior to February 20, 2003. Defendants further argue that "[a]s Stolt-Nielsen's case against DOJ established it was not until November 2002 that Stolt-Nielson [SNSA] commenced its investigation" (Def. Mem. at 11) and that no misleading statements are alleged after that date. Defendants' argument overlooks the numerous other allegations imputing knowledge to SNSA and its executives to dates as far back as early 2002 (¶¶38, 40, 42, 50, 54, 74, 76, and 82), April 2001 (¶¶49, 50, 80, and 84) and even 1998 (¶31). In fact, the Pennsylvania District Court (which Defendants repeatedly cite to and rely upon in their memorandum of law (Def. Mem. at 7-8, 11)) issued a finding of fact that the bid rigging conspiracy began well in advance of the Class Period. The court specifically found: "Beginning in August 1998 and continuing into 2002, SNTG had express agreements with Odfjell and Jo Tankers to allocate customers by not bidding on each other's selected shipping routes." 352 F. Supp. 2d at 564. In support of one of several bases for scienter, Plaintiffs cite to a May 27, 2005 article published in Tradewinds. ¶80. The article reiterated the allegation that Jacob Stolt-Nielsen was not only aware of the anti-competitive activity performed by SNTG, but he requested a study ­ a cost-benefit analysis ­ between conducting business through the bid rigging scheme with Odjfell or conducting business without violating antitrust laws. Id. Defendants argue that Plaintiffs use of the article in the Complaint, as a basis for evincing scienter, is improper. Def. Mem. at 6-7. Defendants' argument ignores the basic tenet that a Plaintiff may rely on media articles to plead a case. In re - 14 15

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The SAC, therefore, has undoubtedly provided this Court with the necessary "link" it sought between the antitrust activities conducted by SNTG and knowledge of those activities by SNSA and its executives. As the only remaining genuine issue of law concerning Plaintiffs' Complaint (following this Courts' grant for leave to replead), this Court should sustain the SAC and reject Defendants' motion to dismiss in its entirety. 3. Even Absent Direct Allegations of Awareness by SNSA, Possessed by SNTG, as a Wholly Owned Subsidiary and Major Component of SNSA, Is Imputed to SNSA Under the Concept of Corporate Scienter

Corporate scienter is a viable legal theory that has been adopted by Second Circuit courts. See In re Dynex Capital, Inc. Secs. Litig., 05CV1897 (HB), 2006 U.S. Dist. LEXIS 4988 (S.D.N.Y. Feb. 10, 2006) (stating that a plaintiff may allege scienter on the part of a corporate defendant without pleading scienter against any particular employees of the corporation). In order "[t]o carry their burden of showing that a corporate defendant acted with scienter, plaintiffs in securities fraud cases need not prove that any one individual employee of a corporate defendant also acted with scienter; Proof of a corporation's collective knowledge and intent is sufficient." In re Worldcom, Inc. Secs. Litig., 352 F. Supp. 2d 472, 497 (S.D.N.Y. 2005).

DaimlerChrysler AG Sec. Litig., 197 F. Supp. 2d 42, 80 (D. Del. 2002); McKesson HBOC, Inc. Sec. Litig., 126 F. Supp. 2d 1248 (N.D. Cal. 2000). Defendants' argument further ignores the basic tenet that the allegations of the Complaint must be taken as true. See In re Priceline.com Inc., 342 F. Supp. 2d 33, 49 (D. Conn. 2004). In this regard, the Complaint provides multiple allegations stating that SNSA management, including Jacob StoltNielsen, had knowledge of SNTG's anti-competitive activities and/or participated in the execution of the scheme with SNTG's competitors during the Class Period. For example, O'Brien stated that he personally conveyed issues regarding the anti-competitive activities to members of SNSA's Board of Directors, including SNSA's general counsel. ¶¶51, 83. Also, DOJ documents, according to the Complaint, provide evidence that Jacob Stolt-Nielsen not only knew about the anti-competitive activities, but was personally involved in the decision to proceed with the bid rigging conspiracy. ¶¶49, 84. Further, SNSA's own 20-F statements acknowledge that SNSA was aware of the anticompetitive conduct at least as early as 2002. ¶50. Additional allegations assert that SNSA was aware of the conduct well before 2002. ¶¶49, 50, 84. - 15 -

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The SAC alleged (and this Court recognized) that Plaintiffs' adequately alleged knowledge of SNTG's anti-competitive activities on the part of senior officials at SNTG. ¶¶47-56; Menkes, 2005 U.S. Dist. LEXIS 28208, at *33. The SAC further alleged (and this Court likewise recognized) the significance of SNTG's operations to SNSA. ¶¶11, 87; Menkes, 2005 U.S. Dist. LEXIS 28208, at *35. The knowledge held by individuals that are critical to a company can be imputed to the company itself. See In re NUI Sec. Litig., 314 F. Supp. 2d 388, 410-413 (D.N.J. 2004) (finding collective scienter on the part of corporate defendant where the complaint alleged that the company's assistant general counsel was advised of improper bad debt procedures); Caterpillar v. Great Am. Ins. Co., 62 F.3d 955, 962 (7th Cir. 1995) (concluding that a corporation may be liable for actions by senior management personnel that are "intrinsically corporate and bear the imprimatur of the corporation itself"). Here, SNTG's involvement in the antitrust activity and/or the knowledge held by senior management at SNTG regarding the bid rigging conspiracy between SNTG and its competitors should impute knowledge of the conduct to SNSA. Even assuming that SNTG is ultimately found not liable, SNSA may be held primarily liable in lieu of the subsidiary. A case could hinge on the collective scienter of employees as well as defenses that are available to individuals and not available to the corporation. See Nordstrom, Inc. v. Chubb & Son, Inc., 54 F.3d 1424, 1435 (9th Cir. 1995) (noting that "collective scienter could be a basis for liability"); In re Warner Communications Sec. Litig., 618 F. Supp. 735, 752 (S.D.N.Y. 1985) (noting that corporate scienter differs from individual scienter and that "the requisite degree of scienter is likely to be easier to attribute to [corporate defendants] than to the individual defendants"); see also In re Motorola Secs. Litig., No. 03 C 287, 2004 U.S. Dist. LEXIS 18250 (N.D. Ill. Sept. 9, 2004) (finding corporate scienter, and not individual scienter, based on an inference of what the corporation knew or should have known); In re Philip Servs., Corp. Sec. Litig., - 16 -

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98 Civ. 0835 (MBM), 2004 U.S. Dist. LEXIS 9261 (S.D.N.Y. May 24, 2004) (concentrating on the firm's collective state of mind, not that of individual partners or employees, in the context of securities fraud). Based on the theory of corporate scienter, the knowledge maintained by SNTG and its management should be imputed to SNSA. Therefore, irrespective of this Court's determination with respect to liability on the part of SNTG and its executives, this Court should find SNSA primarily liable. C. SNTG, Cooperman and Lee Are Primarily Liable For SNSA's Materially False and Misleading Statements 1. SNTG, Cooperman and Lee Were a Knowing Source of SNSA's Materially False and Misleading Statements

Primary liability for the issuance of materially false and misleading statements is not restricted to those who participate in the fraud or scheme to defraud. See In re Alstom SA Secs. Litig., No. 03 Civ. 6595 (VM) 2005 U.S. Dist. LEXIS 35641, (S.D.N.Y. 2005). Based upon this concept, SNTG, Cooperman and Lee should be held liable for SNSA's materially false and misleading statements and disclosures made by SNSA. Cooperman and Lee ­ and SNTG as a whole ­ were directly responsible for the misrepresentations or omissions, using SNSA as a conduit for conveying materially false information to investors. See In re Kidder Peabody Sec. Litig., 10 F. Supp. 2d 398, 402 (S.D.N.Y. 1998). In Kidder, the complaint alleged that General Electric Company ("GE") made false and misleading statements regarding its revenue, which specifically originated from false profits derived from its wholly-owned subsidiary Kidder, Peabody & Co. ("Kidder"). There, the complaint alleged that Kidder should be held responsible for the statements made by GE. The Court explained that "if plaintiffs can show that defendants were the original and knowing source of a misrepresentation and that defendants knew or should have known that that misrepresentation would be communicated to investors, primary liability should attach." Kidder, 10 F. Supp. 2d at 407. - 17 -

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Here, SNTG is undeniably the original and knowing source of the false and misleading statements involving its business operations. In this regard, despite the fact that SNTG, Cooperman and Lee did not directly communicate the false and misleading statements to the public, SNTG, Cooperman and Lee should nevertheless be held primarily liable for Plaintiffs' securities claim. In general, a party can held responsible for materially false and misleading statements made to the public even without communicating directly with investors. See City of Monroe Emples. Ret. Sys. v. Bridgestone Corp., 399 F.3d 651, 686, n.29 (6th Cir. 2005) ("The requirement that the plaintiff allege that the defendant made a misrepresentation does not mean that the plaintiff must allege that the defendant communicated that misrepresentation directly to the plaintiff."); Cooper v. Pickett, 137 F.3d 616, 624 (9th Cir. 1997) (stating that a party "cannot escape liability simply because it carried out its alleged fraud through the public statements of third parties"); Anixter v. Home-Stake Prod. Co., 77 F.3d 1215, 1226 (10th Cir. 1996) (noting that "there is no requirement that the alleged violator directly communicate misrepresentations to plaintiffs for primary liability to attach").16 In Kidder, the court reasoned that, as a subsidiary of GE, it is sensible "to infer that Kidder knew this information would reach securities analysts, GE stockholders and others in the investment community." Kidder, 10 F. Supp. 2d at 407; See also In re Alstom, 2005 U.S. Dist. LEXIS 35641, *73-*74 (holding that the subsidiary may be held liable where the complaint sufficiently alleged that the subsidiary was "the `original and knowing' source of the alleged misrepresentations, and, because investors could ­ at least constructively ­ attribute this information to the subsidiary"). Here, SNTG, Cooperman and Lee knew that SNTG's anti-competitive actions would be omitted

A defendant that used or allowed another party to covey the message containing misstatements may be liable as a primary violator. See, for example, Picard Chem. Profit Sharing Plan v. Perrigo Co., 940 F. Supp. 1101 (W.D. Mich. 1996) ("In such circumstances, it was the defendant's original statement which misled investors­the person who communicated the statement to investors served as a mere conduit for [the] defendant's statement."). - 18 -

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from SNSA's statements and disclosures. SNTG, Cooperman and Lee thereby effectuated the issuance of false and misleading statements about SNSA and its subsidiaries. In Kidder, the Court specifically stated: [H]olding a subsidiary immune from liability for statements communicated by its parent under these facts would lead to an anomalous result. A subsidiary could freely disseminate false information to the market through its parent, but investors relying on that information to their detriment would be left with no remedy: an action could not be brought against the subsidiary, and the parent would escape liability because it lacked scienter. This "would lead to a result `so bizarre' that Congress could not have intended it." This is precisely the situation facing plaintiffs in this case, where the lawsuit against GE was dismissed because plaintiffs' allegations against GE failed to establish scienter. [Citations omitted.] Id. SNTG, Cooperman and Lee can be held responsible for the misrepresentations in SNSA's statements even where the statements were not ascribed them. See In re Global Crossing, Ltd. Sec. Litig., 322 F. Supp. 2d 319, 333 (S.D.N.Y. 2004) (stating that "a plaintiff may state a claim for primary liability under section 10(b) for a false statement (or omission), even where the statement is not publicly attributed to the defendant"); see also In re LaBranche Sec. Litig., No. 03 Civ. 8201 (RWS), 2005 U.S. Dist. LEXIS 32599 (S.D.N.Y. Dec. 13, 2005); In re Van Der Moolen Holding N.V. Sec. Litig., No. 03 Civ. 8284 (RWS), 2005 U.S. Dist. LEXIS 32598 (S.D.N.Y. Dec. 13, 2005). In LaBranche, the court concluded that the subsidiary company may be held primarily liable for the statements disseminated by its parent company. LaBranche, 2005 U.S. Dist. LEXIS 32599, *44-47. When LaBranche & Co. reported its subsidiary's (LaBranche LLC) principal trading revenues, the court found that LaBranche & Co. was a "mere" conduit through which the information was disseminated. Id. Here, SNSA was likewise a "mere" conduit for SNTG, Cooperman and Lee to disseminate information regarding SNTG's operations, revenues and business affair. Defendants do not ­ and cannot ­ dispute that Defendants SNTG, Cooperman and Lee had actual and constructive knowledge of the anticompetitive activities conducted by SNTG.

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Essentially, these Defendants used SNSA as a conduit to misrepresent the public about SNTG's business operations and anti-competitive acts. Additionally, even where the parent corporation does not explicitly identify its subsidiary as the source of information, a misrepresentation can be attributed to the subsidiary. Global Crossing, 322 F. Supp. 2d at 333, n. 14; LaBranche, 2005 U.S. Dist. LEXIS 32599; Van Der Moolen, 2005 U.S. Dist. LEXIS 32598. Specifically, in Van Der Moolen, the court noted that the subsidiary corporation need not even participate in the drafting, producing, reviewing and/or disseminating of the alleged misstatements. The Court expressly stated that the defendant "need not directly communicate the misrepresentation to plaintiffs in order to be held liable under section 10(b)." 2005 U.S. Dist. LEXIS 32598, *37. Akin to the manner in which the recent Second Circuit District Court decisions found primary liability against subsidiary companies and their executives, this Court should sustain the allegations for primary liability against SNTG, Cooperman and Lee. 2. SNTG, Cooperman and Lee Are Liable Under the Concept of Scheme Liability

The SAC clearly alleges that SNSA and SNTG schemed to conceal the anti-competitive measures conducted by SNTG and the manner in which SNTG addressed competition concerns by conspiring with its competitors. In this regard, Defendants should be held liable for the executing the scheme that resulted in the fraud on investors. The language of §10(b) of the 1934 Act, entitled "Employment of manipulative and deceptive devices," expressly states: It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange, (a) To employ any device, scheme, or artifice to defraud,

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(b)

To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.

(c)

15 U.S.C. §78j(b). Rule 10b-5 promulgated by the SEC flows directly from the language of §10(b) itself and provides: §240.10b-5 Employment of manipulative and deceptive devices It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails, or of any facility of any national securities exchange, (a) (b) To employ any device, scheme, or artifice to defraud, To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, or To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.

(c)

17 C.F.R. §240.10b-5. In addition to forbidding "any untrue statement of a material fact," Rule 10b-5 also forbids the employment of a scheme. Scheme liability is further endorsed by the text of §10(b), which prohibits of "any manipulative or deceptive device or contrivance", thereby encompassing any "scheme to defraud." In Ernst & Ernst v. Hochfelder, 425 U.S. 185 (1976), the United States Supreme Court defined the term "device" as "[t]hat which is devised, or formed by design; a contrivance; an invention; project; scheme; often, a scheme to deceive; a stratagem; an artifice" and defined the term "contrivance" to mean "a scheme, plan, or artifice." Id. at 199 n. 20 (quoting Webster's International Dictionary (2d ed. 1934)). Indeed, the term "scheme" is unmistakably incorporated by the broad language of §10(b).

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Courts have endorsed the broad language of Rule 10(b) and §10b-5 and the understanding that a party to a fraudulent scheme should be held primarily liable for the fraud. See Global Crossing, 322 F. Supp. 2d at 335 (holding accountants liable for the fraudulent scheme behind the false and misleading statements by defendant corporation, on the basis that liability may "be assigned based on the use of a manipulative or deceptive device or participation in a scheme to defraud"); Initial Pub. Offering, 241 F. Supp. 2d at 385; see also SEC v. Zandford, 535 U.S. 813, 817-818 (2002) (reaffirmed the broad reading of the language under Section 10(b)); see also In re Lernout & Hauspie Sec. Litig., 236 F. Supp. 2d 161 (D. Mass. 2003) (finding adequate reliance by plaintiff on the secondary actors' actions by considering the alleged scheme as a whole rather than viewing the conduct and misrepresentations separately from one another). The allegations of the SAC articulate knowledge and participation of the bid rigging conspiracy ­ the scheme ­ on the part of both SNSA and SNTG. The Companies engaged in anticompetitive activities and then mislead investors by issuing statements regarding SNTG's operations without disclosing its specific business affairs. This Court should, therefore, find Defendants liable under the theory of scheme liability. D. Defendants' Failure to Disclose the Anti-Competitive Activities and Antitrust Violations Violated Section 10(b) and Rule 10b-5 Thereunder 1. Defendants' Positive Statements About SNSA's Business Affairs Created a Duty to Disclose the Bid Rigging Conspiracy

As detailed in the SAC, SNTG entered into a conspiracy with its competitors. The scheme between SNTG and Odjfell, for example, facilitated the companies to split customers' business at a rate set by SNTG and its competitor. The bid rigging scheme enabled SNTG ­ and, in turn, SNSA ­ to maintain revenues and profits that it would not have otherwise been able to attain. At the same time, SNSA issued repeated positive statements regarding SNTG's business model and operations. Defendants' statements specifically concerning competition, pricing and - 22 -

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customer contracts created a duty to disclose material facts regarding their business affairs and, most notably, that the success of SNTG was largely attributable to anti-competitive activities through a conspiracy entered into between SNTG and its competitors. See SEC v. Texas Gulf Sulphur Co., 401 F.