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January 6, 1995

MARGARET B. ADAM, On Behalf Of Herself and All Others Similarly Situated, Plaintiffs,

The opinion of the court was delivered by: RONALD M. WHYTE

 Defendant Deloitte & Touche's motion to dismiss plaintiffs' class action complaint alleging a violation of the Securities Exchange Act was heard on December 9, 1994. After the hearing, the Ninth Circuit rendered its opinion in In re GlenFed, Inc. Sec. Litig., slip. op. 92-55419 (9th Cir. December 9, 1994 (en banc). Both sides submitted letter briefs in light of that opinion. *fn1" The court has considered the moving papers and opposing papers including the post-hearing submittals and the oral argument on the motion. For reasons that will be set forth more fully below, the court denies defendant's motion to dismiss.

 I. Background

 This lawsuit is a securities class action brought on behalf of all persons (other than the defendants) who purchased the common stock of Silicon Valley Bancshares ("SVB") between January 9, 1991 and October 22, 1992. Plaintiffs contend that, by the end of 1990, SVB was incurring substantial losses in its loan portfolio due largely to inadequate monitoring and loss recognition procedures. According to plaintiffs, SVB issued to plaintiffs a series of false and misleading "financial statements and a series of favorable public statements in annual and quarterly reports to shareholders, press releases and press interviews," including a Prospectus for the sale of common stock issued in July 1991. Those statements allegedly masked, among other things, the true nature and amount of SVB's earnings, future business prospects, nonperforming loans and loan loss reserves.

 The defendants in this case originally included SVB and its officers and directors as well as the moving party, defendant Deloitte and Touche ("D & T"), who served as an independent auditor for SVB during the class period. However, plaintiffs and all defendants except for D & T reached a settlement as to all claims brought in this action; final approval of that settlement was issued on November 28, 1994. Thus, D & T is the only defendant remaining in this case.

 Plaintiffs contend that D & T violated Section 10(b) of the Securities and Exchange Act and rule 10b-5 promulgated thereunder (collectively, "10(b)"), when it "caused or permitted SVB to issue" the allegedly misleading financial statements, annual and quarterly reports, and press statements. Specifically, plaintiffs assert that D & T was aware of critical weaknesses in SVB's internal controls and loan portfolio, yet "never expanded its audit procedures to accommodate these material weaknesses as required by GAAS, and falsely assured investors both that it had complied with GAAS and that SVB's financial statements fairly presented its financial condition in conformity with GAAP." Plaintiffs' Opp. at 6. Plaintiffs claim that D & T's opinion stating that its audits of those statements were conducted in accordance with GAAS, that the statements conformed with GAAP, and that the statements "fairly presented" SVB's financial position were material misrepresentations, and that D & T "participated in a scheme to defraud through its involvement in SVR's Prospectus, interim financial statements and press releases." Id. at 15.

 On February 8, 1994, this court issued an order ("Order") dismissing, inter alia, plaintiffs' 10(b) claim after finding that plaintiffs had failed to allege an actionable misrepresentation by D & T, had failed to allege facts supporting an inference of scienter, and had failed to state a claim for secondary liability. However, the court gave plaintiffs leave to amend their complaint to adequately plead a 10(b) claim. Plaintiffs filed their first amended complaint on July 8, 1994.

 D & T now moves to dismiss the first amended complaint, pursuant to Federal Rules of Civil Procedure, Rules 9(b) and 12(b)(6). It first argues that a recent Supreme Court case eliminates any claim against it for statements that it did not itself make, or that were not made to effect the purchase or sale of securities. D & T further contends that, as to the only statement which it arguably did make in connection with the purchase and sale of securities, plaintiffs have failed to state an actionable claim against D & T.

 II. Legal Standards

 A. Motion to Dismiss

 In ruling on a motion to dismiss, district courts must accept all material allegations of fact alleged in the complaint as true, and resolve all doubts in favor of the plaintiff. Blake v. Dierdorff, 856 F.2d 1365, 1368 (9th Cir. 1988). The court may dismiss a complaint as a matter of law for either of two reasons: (1) lack of a cognizable legal theory, or (2) the pleading of insufficient facts under a cognizable legal theory. Robertson v. Dean Witter Reynolds, Inc., 749 F.2d 530, 533 (9th Cir. 1984). The Ninth Circuit recently reiterated the pleading standard in the securities fraud context:

[While] Rule 8[a] . . . requires a "short and plain statement of the claim showing that the pleader is entitled to relief," . . . Rule 9(b) clearly imposes an additional obligation on plaintiffs: the statement of the claim must also aver with particularity the circumstances constituting fraud. . . .
. . . .
Plaintiff must include statements regarding the time, place and nature of the alleged fraudulent activities. . . . The plaintiff must set forth an explanation as to why the statement or omission complained of was false and misleading.

 In re GlenFed, Inc. Sec. Litig., slip. op. 92-55419, 15227-8 (9th Cir. December 9, 1994) (en banc) (citations omitted).

 B. Primary and Secondary 10(b) Liability

 1. Primary Liability

 SEC Rule 10b-5(b) essentially outlaws the making of a material misrepresentation or omission. Rule 10-b also makes it unlawful for any person, "directly or indirectly" to "employ any device, scheme or artifice to defraud," SEC Rule 10b-5(a), or to "engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon ...

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