Walker v. Chidambaran. — Entry #102: REPLY to Response to Motion re 80 MOTION to Dismiss for Failure to State a Claim filed by Marcum LLP.(Franklin, Shirlethia) (Entered: 10/22/2025)

Case 8:24-cv-02900-DKC          Document 102   Filed 10/22/25   Page 1 of 22


                     IN THE UNITED STATES DISTRICT COURT
                        FOR THE DISTRICT OF MARYLAND


DANNY WALKER, Individually and on                  Civil Action No. 8:24-cv-02900-DKC
Behalf of All Others Similarly Situated,
                                                   Hon. Deborah K. Chasanow
                            Plaintiff,

              v.

ILEARNINGENGINES, INC., et al.,

                            Defendants.


            REPLY IN SUPPORT OF DEFENDANT MARCUM LLP’S
       MOTION TO DISMISS THE AMENDED CLASS ACTION COMPLAINT
          FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS


        Case 8:24-cv-02900-DKC                       Document 102                Filed 10/22/25             Page 2 of 22


                                                TABLE OF CONTENTS

I.      THE AMENDED COMPLAINT DOES NOT ADEQUATELY PLEAD
        SECTION 11 LIABILITY AS TO MARCUM. ............................................................... 2
        A. Plaintiffs Admit Their Claim Against Marcum Fails Under Omnicare. ....................... 2
        B. Plaintiffs’ Embedded Facts Alternative is a Non-Starter. ............................................. 3
        C. Plaintiffs’ Strict Liability Theory Under Section 11 Is Novel, and, Like The
           Embedded Facts Theory, Wrong. .................................................................................. 5
        D. Plaintiffs’ Attacks on the Majority Interpretation Are Unfounded. .............................. 8
II.     THE AMENDED COMPLAINT DOES NOT ADEQUATELY PLEAD
        TRACEABILITY.............................................................................................................. 11
        A. Slack Demands That Actual, Not Hypothetical, Traceability be Pled......................... 11
        B. Plaintiffs’ “Statistical Probability” Approach is Legally Deficient............................. 12
        C. Speculation About Discovery Cannot Cure Plaintiffs’ Pleading Defect. .................... 14
CONCLUSION .......................................................................................................................... 15


        Case 8:24-cv-02900-DKC                      Document 102                Filed 10/22/25            Page 3 of 22


                                              TABLE OF AUTHORITIES

                                                                                                                               Page

CASES

Barbour v. Garland,
   105 F.4th 579 (4th Cir. 2024) ..................................................................................................15

Barnes v. Osofsky,
   373 F.2d 269 (2d Cir. 1967).....................................................................................................12

Cozzarelli v. Inspire Pharms. Inc.,
   549 F.3d 618 (4th Cir. 2008) ...................................................................................................15

Cupat v. Palantir Techs., Inc.,
   2025 WL 1141534 (D. Colo. Apr. 4, 2025) .............................................................................14

Deephaven Private Placement Trading, Ltd. v. Grant Thornton & Co.,
   454 F.3d 1168 (10th Cir. 2006) ...............................................................................................10

Hunt v. Bloom Energy Corp.,
   2021 WL 4461171 (N.D. Cal. Sept. 29, 2021) ..................................................................2, 4, 6

IBEW Loc. No. 58 Annuity Fund v. EveryWare Glob., Inc.,
   849 F.3d 325 (6th Cir. 2017) ...................................................................................................13

In re Ariad Pharms., Inc. Sec. Litig.,
    842 F.3d 744 (1st Cir. 2016) ....................................................................................................12

In re Century Aluminum Co. Sec. Litig.,
    729 F.3d 1104 (9th Cir. 2013) .....................................................................................11, 12, 13

In re Coinbase Glob., Inc. Sec. Litig.,
    2024 WL 4053009 (D.N.J. Sept. 5, 2024) ...............................................................................14

In re Everyware Glob., Inc. Sec. Litig.,
    175 F. Supp. 3d 837 (S.D. Ohio 2016) ....................................................................................13

In re Honest Co. Sec. Litig.,
    2023 WL 3190506 (C.D. Cal. May 1, 2023) ...........................................................................12

In re Ikon Off. Sols., Inc.,
    277 F.3d 658 (3d Cir. 2002).....................................................................................................10


                                                                   i


        Case 8:24-cv-02900-DKC                      Document 102                Filed 10/22/25            Page 4 of 22


In re Lehman Bros. Sec. & ERISA Litig.,
    131 F. Supp. 3d 241 (S.D.N.Y. 2015)................................................................................6, 7, 8

In re OSG Sec. Litig.,
    971 F. Supp. 2d 387 (S.D.N.Y. 2013)........................................................................................6

In re Petrobras Sec. Litig.,
    2016 WL 1533553 (S.D.N.Y. Feb. 19, 2016) ........................................................................4, 5

In re Suprema Specialties, Inc. Sec. Litig.,
    438 F.3d 256 (3d Cir. 2006).....................................................................................................15

In re Ubiquiti Networks, Inc. Sec. Litig.,
    33 F. Supp. 3d 1107 (N.D. Cal. 2014) .....................................................................................13

In re Velti PLC Sec. Litig.,
    2015 WL 5736589 (N.D. Cal. Oct. 1, 2015)..............................................................................6

In re Worlds of Wonder Securities Litig.,
    35 F.3d 1407 (9th Cir. 1994) .....................................................................................................7

Johnson v. CBD Energy Ltd.,
   2016 WL 3654657 (S.D. Tex. July 6, 2016).................................................................... passim

Krim v. pcOrder.com, Inc.,
   402 F.3d 489 (5th Cir. 2005) .................................................................................11, 12, 13, 14

Lee v. Ernst & Young, LLP,
   294 F.3d 969 (8th Cir. 2002) .....................................................................................................7

Levy v. Luo,
   2025 WL 437022 (D. Del. Feb. 7, 2025) ...................................................................................4

McCaffery v. Cnty.,
  2024 WL 4045450 (E.D. Va. Sept. 4, 2024)............................................................................14

Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund,
  575 U.S. 175 (2015) ......................................................................................................... passim

Orient Plus Int’l Ltd. v. Baosheng Media Grp. Holdings Ltd.,
   --- F. Supp. 3d ---, 2025 WL 2613530 (S.D.N.Y. Sept. 10, 2025) ..................................6, 7, 10

Pirani v. Slack Techs., Inc.,
   127 F.4th 1183 (9th Cir. 2025) ................................................................................................12


                                                                  ii


        Case 8:24-cv-02900-DKC                        Document 102                Filed 10/22/25              Page 5 of 22


Querub v. Hong Kong,
   649 F. App’x 55 (2d Cir. 2016) ....................................................................................... passim

S.E.C. v. Seaboard Corp.,
    677 F.2d 1301 (9th Cir. 1982) ...................................................................................................7

Slack Technologies, LLC v. Pirani,
    598 U.S. 759 (2023) .......................................................................................................1, 11, 14

Special Situations Fund III QP, L.P. v. Marrone Bio Innovations, Inc.,
   243 F. Supp. 3d 1109 (E.D. Cal. 2017)..............................................................................5, 6, 7

United States v. Weiner,
   578 F.2d 757 (9th Cir. 1978) ...................................................................................................10

Webster v. Fall,
  266 U.S. 507 (1925) ...................................................................................................................8

STATUTES

15 U.S.C. § 77k(a) ................................................................................................................. passim

REGULATIONS

17 C.F.R. § 210.1-02(f) ...............................................................................................................7, 9

OTHER AUTHORITIES

Public Company Accounting Oversight Board (“PCAOB”), AS 1000.14 ....................................10

Merriam-Webster’s Online Dictionary, Respecting ........................................................................9


                                                                    iii


      Case 8:24-cv-02900-DKC              Document 102          Filed 10/22/25       Page 6 of 22


        Plaintiffs’ opposition memorandum confirms that their Section 11 claim against Marcum

is fatally deficient in two independent respects, each of which warrants dismissal with prejudice

of Count One of the Amended Complaint as to Marcum. 1

        First, Plaintiffs cannot escape the import of Omnicare, Inc. v. Laborers District Council

Construction Industry Pension Fund, 575 U.S. 175 (2015). Under the framework articulated by

the Supreme Court, Section 11 liability for an opinion statement arises only where a plaintiff

plausibly alleges either subjective falsity or that the opinion omitted material facts going to the

basis for the opinion. Here, Plaintiffs concede that they do not allege either. Instead, Plaintiffs

attempt to circumvent Omnicare by invoking a narrow “embedded facts” exception and by

advancing a novel theory of strict liability for auditors for the allegedly fraudulent behavior of the

preparers of such financial records. Neither works. The Marcum Opinion does not embed any

distinct, verifiable facts in the manner contemplated by Omnicare, and Plaintiffs’ strict liability

theory finds no support in the text of Section 11, SEC regulations, any decision in this Circuit, or

any appellate decision in any circuit. Indeed, the only circuit court to address this precise issue—

the Second Circuit in Querub v. Hong Kong, 649 F. App’x 55 (2d Cir. 2016)—squarely rejected

Plaintiffs’ position. District courts across the country have followed suit, dismissing Section 11

claims against auditors where, as here, the complaint fails to meet the Omnicare pleading standard.

        Second, Plaintiffs’ claim against Marcum independently fails because the Amended

Complaint does not plausibly allege that Plaintiffs’ shares are traceable to the supposedly defective

Registration Statements as required by the Supreme Court in Slack Technologies, LLC v. Pirani,

598 U.S. 759, 770 (2023). Plaintiffs’ reliance on its “statistical probability” theory and the promise


        1
          Capitalized terms retain the meaning given them in Marcum’s Memorandum in Support of its Motion to
Dismiss (the “MTD”), Dkt. 80-1.

                                                     1


      Case 8:24-cv-02900-DKC           Document 102         Filed 10/22/25      Page 7 of 22


that future discovery will fill the traceability gap cannot substitute for well pleaded facts.

Plaintiffs’ own allegations confirm that they purchased shares in the open market, which both

renders tracing virtually impossible and leaves them without well pleaded facts on which to stand.

For this reason, too, the Court should dismiss with prejudice Count One of the Amended Complaint

as to Marcum.

I.     THE AMENDED COMPLAINT DOES NOT ADEQUATELY PLEAD SECTION 11
       LIABILITY AS TO MARCUM.

       The Supreme Court’s decision in Omnicare sets forth the standard for pleading Section 11

liability based on statements of opinion, including those made by auditors. See 575 U.S. at 182-

90. Under Omnicare, a plaintiff in a Section 11 case involving an opinion must plausibly allege

either (1) that the speaker did not actually hold the stated belief at the time the opinion was

expressed (subjective falsity), or (2) that the opinion omitted material facts about the basis for the

opinion in a manner that would mislead a reasonable investor, when the statement is read in

context. See id. See also MTD at 12–16.

       A.       Plaintiffs Admit Their Claim Against Marcum Fails Under Omnicare.

       Several courts to have squarely addressed the issue—including the only federal appellate

court to do so—have held that auditor reports, such as the Marcum Opinion, are classic statements

of opinion governed by Omnicare. See, e.g., Querub, 649 F. App’x at 58 (“Audit reports, labeled

‘opinions’ and involving considerable subjective judgment, are statements of opinion subject to

the Omnicare standard for Section 11 claims.”); Johnson v. CBD Energy Ltd., 2016 WL 3654657,

at *10 (S.D. Tex. July 6, 2016) (noting Omnicare “makes no mention of an ‘auditor certification’

exception”); Hunt v. Bloom Energy Corp., 2021 WL 4461171, at *14 (N.D. Cal. Sept. 29, 2021)

(“The Court sees no meaningful distinction between [the opinion in Omnicare] and the opinions

[an auditor] offers about a company’s financial statements.”). Omnicare governs.


                                                  2


       Case 8:24-cv-02900-DKC                Document 102           Filed 10/22/25         Page 8 of 22


        As they now tacitly concede, Plaintiffs plead neither prong of the well-worn Omnicare

test. 2 This failure is fatal. Federal courts applying Omnicare have consistently dismissed Section

11 claims against auditors where, as here, the complaint disclaims fraud and pleads no facts

suggesting the auditor disbelieved its opinion when rendered or omitted particular, material facts

about the basis for the opinion. See, e.g., Querub, 649 F. App’x at 58; Johnson, 2016 WL 3654657,

at *11. The Court’s inquiry can end here and the Section 11 claim against Marcum be dismissed

with prejudice.

        B.        Plaintiffs’ Embedded Facts Alternative is a Non-Starter.

        Recognizing the weakness of their argument if Omnicare does apply, Plaintiffs now try to

recast iLearningEngines’ financial statements as “embedded facts” within the Marcum Opinion.

See Opp. at 20. This attempt is at odds with Omnicare’s narrow “embedded facts” exception and

the overwhelming weight of post-Omnicare jurisprudence. The Omnicare Court recognized that

an opinion statement may be actionable under Section 11 if it “contains embedded statements of

fact” that are themselves false. 575 U.S. at 185. Omnicare’s illustrative example—“I believe our

TVs have the highest resolution available because we use a patented technology to which our

competitors do not have access”—demonstrates that “embedded facts” liability attaches only

where the opinion embeds a distinct, verifiable fact (like the use of a patented technology) as the

basis for the opinion. Id.

        But here, Plaintiffs do not—and cannot—identify in the Marcum Opinion any such

embedded fact. The Marcum Opinion does not purport to certify the truth of any particular line

item or “fact” contained in iLearningEngines’ financial statements. See Am. Compl. ¶ 246.


        2
           See Dkt. 91 (“Opp.”) at 3 (Plaintiffs “do not base liability under § 11(a)(4) on any misrepresentation or
omission contained within Marcum’s opinion itself”). As further explained in Marcum’s Motion to Dismiss, Plaintiffs
do not allege either subjective falsity or any actionable omissions by Marcum. See MTD at 12–16.

                                                         3


      Case 8:24-cv-02900-DKC           Document 102        Filed 10/22/25     Page 9 of 22


Instead, as is standard, the Marcum Opinion expressly distinguishes between iLearningEngines’

responsibility for preparing the financial statements and Marcum’s responsibility to express an

opinion based on its audit. See id. (“These financial statements are the responsibility of the

Company’s management. Our responsibility is to express an opinion…”). Nor would the

embedded facts theory make sense as applied to an audit opinion. An audit opinion with embedded

financial statements would be both circular and redundant: “our opinion is that the financial

statements are accurate because they are accurate.” The numbers in iLearningEngines’ financial

statements, on which Marcum expressed its opinion, do not appear in the Marcum Opinion and

are not “embedded” in a subordinate clause in the Marcum Opinion in the way the Court in

Omnicare set out. Plaintiffs’ failure to quote any specific language from the Marcum Opinion that

supposedly embeds a verifiable fact is confirmation of this reality.

       Plaintiffs’ hopes of prevailing on this narrow exception rest on a single out-of-circuit

district court case: In re Petrobras Sec. Litig., 2016 WL 1533553 (S.D.N.Y. Feb. 19, 2016). The

Petrobras court fundamentally misunderstood the nature of an audit opinion, which is not based

on “the content of the financial statements,” id. at *4, but instead on the audit itself. The audit

opinion recognizes the audit—not the financial statements—as the “reasonable basis” on which

the opinion sits, Am. Compl. ¶ 246, which is why it is unsurprising that Petrobras’ reasoning has

been repeatedly (and roundly) rejected by courts. See, e.g., Johnson, 2016 WL 3654657, at *12

(noting Petrobras “misreads the ‘embedded statement of fact’ concept discussed in Omnicare”

and that the “[t]he numbers in CBD’s financial statements … do not appear in the audit report and

are not ‘embedded’ in a subordinate clause in any of PwC Australia’s sentences in the way the

Omnicare Court set out.”); see also Hunt, 2021 WL 4461171, at *15; Levy v. Luo, 2025 WL

437022, at *10 (D. Del. Feb. 7, 2025) (both rejecting Petrobras). Indeed, even the case Plaintiffs


                                                 4


     Case 8:24-cv-02900-DKC            Document 102        Filed 10/22/25       Page 10 of 22


cite as their preeminent authority on Omnicare—Special Situations Fund III QP, L.P. v. Marrone

Bio Innovations, Inc.—rejected the notion that financial statements are embedded in audit

opinions. See 243 F. Supp. 3d 1109, 1119 (E.D. Cal. 2017). And the Marrone court was

unequivocal: “This Court … disagrees [with Petrobras] that financial statements are embedded in

audit opinions under Omnicare.” Id. Like the auditor in Marrone, Marcum’s “audit opinion

provide[d] an opinion on the accuracy of the financial statements; it did not use the facts of the

financial statements to opine on something else.” Id.

       C.      Plaintiffs’ Strict Liability Theory Under Section 11 Is Novel, and, Like The
               Embedded Facts Theory, Wrong.

       Unable to satisfy the pleading standards articulated by Omnicare, Plaintiffs attempt to

impose strict liability on Marcum for alleged misstatements in iLearningEngines’ financial

statements by virtue of Marcum’s role as iLearningEngines’ auditor and certifier. According to

Plaintiffs, the “legal effect of [Marcum’s] certification” is that Marcum is liable for the falsity of

the company’s financial statements. Opp. at 12. This attempt to skirt Omnicare is an outlier and

fundamentally misconstrues both Section 11 and the caselaw.

       Plaintiffs’ theory of auditor liability has been rejected by the only appellate court to

consider it and by the overwhelming majority of district courts. The Second Circuit in Querub

addressed the very question presented to this Court. Indeed, the investors in Querub made the

exact argument Plaintiffs advance here: that auditors are liable for “false statements contained in

the financial statements [they] certified.” Brief for Plaintiffs-Appellants at 46, No. 15-2100 (2d

Cir. 2016). The Second Circuit rejected that argument and analyzed the Section 11 claim

exclusively under Omnicare’s framework. Querub, 649 F. App’x at 58 (“Audit reports, labeled

‘opinions’ and involving considerable subjective judgment, are statements of opinion subject to

the Omnicare standard for Section 11 claims”). The Second Circuit then affirmed the district


                                                  5


       Case 8:24-cv-02900-DKC                   Document 102             Filed 10/22/25           Page 11 of 22


court’s dismissal of the Section 11 claim because there was “no evidence that [the auditor] did not

believe its ‘clean audit opinions’ for [the] financial statements. Nor is there evidence that [the

auditor] omitted material facts about the basis for its audit reports.” Id. The Second Circuit, as

the only appellate court in the country to consider Plaintiffs’ theory, rejected it. 3

         The weight of authority agrees, with courts holding over and over that Section 11 claims

against auditors must be analyzed under Omnicare’s opinion liability framework and not under a

strict liability regime. Hunt, 2021 WL 4461171, at *15 (“the Omnicare framework applies to

PwC’s statements in its audit report and the 2017 financial statements.”); Johnson, 2016 WL

3654657, at *11 (same); 4 In re Velti PLC Sec. Litig., 2015 WL 5736589, at *14–24 (N.D. Cal. Oct.

1, 2015) (same); Orient Plus Int’l Ltd. v. Baosheng Media Grp. Holdings Ltd., --- F. Supp. 3d ---,

2025 WL 2613530, at *28–29 (S.D.N.Y. Sept. 10, 2025) (same). This Court should follow suit

and reject Plaintiffs’ strict liability theory.

         Plaintiffs are left with citation to only one post-Omnicare district court decision in support

of their theory. See Marrone, 243 F. Supp. 3d at 1118 n.6 (acknowledging Querub, 649 F. App’x

55 and Johnson, 2016 WL 3654657 as contrary authority). The more recent, Omnicare-faithful

decisions have rejected Marrone. See Hunt, 2021 WL 4461171, at *14 (rejecting Marrone’s

“auditor exception” to Omnicare because “[t]he Supreme Court did not recognize any ‘auditor’

exception to its holding [in Omnicare], and the Court finds no basis for creating such an


         3
           While the Second Circuit’s decision in Querub is not controlling, it stands as the only appellate decision to
address Plaintiffs’ theory, and at the very least calls into question earlier authorities Plaintiffs cite in that circuit. See
Opp. at 4, 12, 13, and 19 (citing In re OSG Sec. Litig., 971 F. Supp. 2d 387 (S.D.N.Y. 2013) and In re Lehman Bros.
Sec. & ERISA Litig., 131 F. Supp. 3d 241 (S.D.N.Y. 2015)). In any event, none of the cases cited by Plaintiffs on this
question are binding law on this Court—save Omnicare itself.
         4
            The Johnson court treated the Second Circuit’s decision in Querub as superseding the cases on which
Plaintiffs rely (such as OSG) and observed that, since Omnicare, district courts have applied Querub to dismiss claims
against auditors in the absence of allegations that the auditor did not sincerely hold its opinion. 2016 WL 3654657,
at *10-11.

                                                              6


      Case 8:24-cv-02900-DKC                  Document 102            Filed 10/22/25          Page 12 of 22


exception.”); cf. Orient Plus, 2025 WL 2613530 at *27–28 (dismissing Section 11 claim against

auditor and rejecting argument that auditors may be liable for financial statements because audit

opinion did not embed those statements as facts). And for good reason: Marrone demonstrates a

fundamental misunderstanding of audit reports, saying that the auditor was “couching” them “as

an opinion.” Marrone, 243 F. Supp. 3d at 1116. But audit reports are, by definition, opinions.

See Querub, 649 F. App’x at 58 (“Audit reports, labeled ‘opinions’ and involving considerable

subjective judgment, are statements of opinion.”); 17 C.F.R. § 210.1-02(f) (“The term certified,

when used in regard to financial statements, means examined and reported upon with an opinion

expressed by an independent public or certified public accountant”); Opp. at 7 (quoting id.,

classifying Marcum’s audit report as an opinion). And on the ultimate question, even Marrone

punted, saying that it did “not need to determine exactly the nature of audit opinions in relation to

the kinds of opinions addressed in Omnicare.” Marrone, 243 F. Supp. 3d at 1118.

         Plaintiffs’ other cited authorities are equally misplaced. None of those cases addressed the

strict liability theory Plaintiffs now advance. Instead, they involved questions about traceability, 5

loss causation, 6 statute of limitations, 7 and whether an audit opinion constitutes a certification for

the purposes of Section 11, 8 questions not at issue here. Imposition of strict liability on auditors


         5
           Plaintiffs curiously cite Lee v. Ernst & Young LLP, 294 F.3d 969, 973–78 (8th Cir. 2002), a case concerning
only traceability, for the proposition that auditors are “subject to [a] § 11 claim based on misrepresentations contained
in audited financial statements.” Opp. at 13 (citing Lee, 294 F.3d at 978). Plaintiffs’ proposed theory is nowhere to
be found in the Eighth Circuit’s opinion, which—in any event—came down before Omnicare.
         6
           In re Worlds of Wonder Securities Litig., another pre-Omnicare case, concerned an interpretation of the loss
causation element of Section 11. The Ninth Circuit there did not even consider whether or on what bases an auditor
can be liable for errors in a client’s financial statement. 35 F.3d 1407, 1421–23 (9th Cir. 1994).
         7
           The sole Section 11 issue in SEC v. Seaboard (yet another pre-Omnicare case) was whether the statute of
limitations barred the claim. 677 F.2d 1301, 1308 (9th Cir. 1982). Plaintiffs’ citation to a passing reference—in the
background section—to the auditor as having “certified the financial statements” does nothing to support the
proposition that auditors are somehow broadly liable for alleged misstatements in others’ financials. Opp. at 12 (citing
id. at 1305).
         8
             Though In re Lehman Brothers Sec. and ERISA Litig., 131 F. Supp. 3d 241, 259–60 (S.D.N.Y. 2015) was


                                                           7


      Case 8:24-cv-02900-DKC                Document 102            Filed 10/22/25         Page 13 of 22


for the content of financial statements prepared by others is, charitably speaking, an outlier

approach, and it should be rejected by this Court.

        D.       Plaintiffs’ Attacks on the Majority Interpretation Are Unfounded.

        Plaintiffs’ criticisms of Marcum’s reliance on the majority position are meritless.

Marcum’s interpretation faithfully applies the falsity requirement of Section 11 as interpreted by

Omnicare, preserves the statutory distinction between preparers and certifiers, and leaves intact

the due diligence defense for both factual and opinion statements. Plaintiffs’ real quarrel is with

the Supreme Court’s decision in Omnicare, not with Marcum’s—or, for that matter, the weight of

the authorities’—reading of the law.

        First, Marcum does not seek to impose a scienter requirement on Section 11 liability.

Marcum seeks to enforce the text’s falsity requirement as it relates to statements of opinion.

Section 11(a) requires a plaintiff to show an “untrue statement of a material fact.” 15 U.S.C.

§ 77k(a) (emphasis added). And as the Supreme Court explained in Omnicare, an opinion can be

an untrue statement of fact only when there are specific allegations going to the speaker’s

subjective belief, embedding of facts within the opinion, or material omission(s) from the opinion

that would render the statement capable of being false or misleading. See Omnicare, 575 U.S. at

182–90. Plaintiffs concede they do not “base liability under § 11(a)(4) on any misrepresentation

or omission contained within Marcum’s opinion itself.” Opp. at 3.

        Second, Marcum’s interpretation is faithful to Section 11(a)(4) as a whole. Section 11

allows investors to sue both preparers and certifiers of financial statements but requires that any

such suit be “with respect to” the statements prepared or certified. “With respect to” merely


issued post-Omnicare, and though Omnicare is cited elsewhere in the opinion, the court did not consider—and indeed
was not prompted to consider—the argument presented squarely to this Court. See Webster v. Fall, 266 U.S. 507, 511
(1925) (“Questions which merely lurk in the record, neither brought to the attention of the court nor ruled upon, are
not to be considered as having been so decided as to constitute precedents.”).

                                                         8


     Case 8:24-cv-02900-DKC               Document 102        Filed 10/22/25       Page 14 of 22


connotes    a   relationship.       See    Merriam-Webster’s       Online    Dictionary,     Respecting,

https://www.merriam-webster.com/dictionary/respecting (“with respect to: concerning.”).                 It

requires that any lawsuit relate to the auditor’s role in the securities registration process. But

Plaintiffs take Section 11(a)(4)’s language one step further. They assume that Section 11’s

requirement that a suit must relate to the underlying financial statements provides a rule of liability:

that a plaintiff need only show that a line item in a financial statement is wrong to make an auditor

liable, regardless of whether the auditor issued a separate and distinct opinion about that statement.

        But that interpretation would completely erase the distinction between preparers and

certifiers. Under Plaintiffs’ view, the content of an audit opinion is utterly irrelevant because a

certification functions like a checkbox: so long as it exists, the auditor is liable. Their interpretation

assumes, despite the textual distinction in the statute between preparers and certifiers, that there is

always only one statement at issue—the financial statements. But SEC regulations say otherwise,

categorizing a certification as its own distinct opinion. See 17 C.F.R. § 210.1-02(f) (emphasis

added) (“The term certified … means examined and reported upon with an opinion”). Section

11(a)(4), as it relates to a certifying auditor, deals with two statements: the issuer’s financial

statement, and the auditor’s opinion about those statements. Marcum’s position gives effect to

this distinction. A suit against a preparer is predicated on one statement. A suit against a certifier

is predicated on two distinct statements. And because Plaintiffs’ suit is in part predicated on the

Marcum Opinion, Omnicare requires that Plaintiffs allege the Marcum Opinion is false. See, e.g.,

Johnson, 2016 WL 3654657, at *12 (rejecting analogous Section 11 claim where “Plaintiffs do

not allege that PwC Australia did not subjectively believe any of the opinions it provided in its

report, and PwC Australia’s opinions do not contain any embedded statements of fact that are

untrue”).


                                                    9


     Case 8:24-cv-02900-DKC            Document 102        Filed 10/22/25       Page 15 of 22


       Plaintiffs’ strained interpretation would transform auditors into guarantors of the accuracy

of every fact in the financial statements they audit—a result that is not only unsupported by the

statutory text, but also contrary to the established role of the independent auditor and the

professional standards governing their work. See MTD at 11. See also Deephaven Private

Placement Trading, Ltd. v. Grant Thornton & Co., 454 F.3d 1168, 1174 (10th Cir. 2006) (Auditors

do not, “by virtue of auditing a company’s financial statements, somehow make, own or adopt the

assertions contained therein.”). Auditors are required to exercise “due professional care” and to

provide “reasonable assurance” that financial statements are free of material misstatement, not to

guarantee accuracy. PCAOB AS 1000.14. This is neither what auditors do nor what they should

be forced to do. See In re Ikon Off. Sols., Inc., 277 F.3d 658, 673 (3d Cir. 2002) (affirming

dismissal of securities action; explaining that audits require “only due professional care” rather

than flawlessness); United States v. Weiner, 578 F.2d 757, 786 (9th Cir. 1978) (quotation marks

omitted) (“[T]he auditor is not responsible for fraud that has gone undetected despite his utilization

of generally accepted auditing standards.”).

       Third, the due diligence defense in Section 11(b) has not been rendered null by Omnicare.

The due diligence defense is a fact-intensive defense generally invoked after an unsuccessful

motion to dismiss, see, e.g., Orient Plus, 2025 WL 2613530, at *21 (collecting cases), while

Omnicare imposes a pleading requirement interpreting the statutory language with reference to

opinions, see Omnicare, 575 U.S. at 196 (discussing the sufficiency of allegations in the relevant

complaint). That a defendant, at the discovery and, if necessary, trial stage, can defend itself by

demonstrating due diligence in no way excuses a plaintiff’s failure to allege in the first instance

that the statement of opinion “contained an untrue statement of a material fact or omitted to state

a material fact,” as required by Section 11. See 15 U.S.C. § 77k(a)(4). Plaintiffs fail to meet that


                                                 10


      Case 8:24-cv-02900-DKC          Document 102          Filed 10/22/25   Page 16 of 22


pleading requirement here. Plaintiffs’ strict liability theory should be rejected, and the Amended

Complaint should be dismissed for failure to state a Section 11 claim as to Marcum.

II.    THE AMENDED              COMPLAINT            DOES     NOT    ADEQUATELY           PLEAD
       TRACEABILITY.

       The Section 11 claim should be dismissed for another, independent reason: Plaintiffs have

not plausibly alleged traceability of their shares to the allegedly defective iLearningEngines

registration statements. Slack, 598 U.S. at 770; see Opp. at 25 (recognizing that Section 11

plaintiffs must “plausibly allege that [p]laintiffs[’] shares are traceable to [the allegedly

misleading] offering documents”). That burden is exacting and cannot be met where, as here,

Plaintiffs allege aftermarket purchases in a market with commingled shares issued at various times.

See Am. Compl. ¶¶ 423–24.

       A.      Slack Demands That Actual, Not Hypothetical, Traceability be Pled.

       The Supreme Court and, consequently, every circuit to consider the issue have concluded

that Section 11 standing is strictly limited to plaintiffs who can plausibly allege at the pleading

stage that their shares are directly traceable to the specific registration statement alleged to be

defective. See Slack, 598 U.S. at 770; Krim v. pcOrder.com, Inc., 402 F.3d 489, 498 (5th Cir.

2005); In re Century Aluminum Co. Sec. Litig., 729 F.3d 1104, 1107 (9th Cir. 2013). This

requirement is straightforward for plaintiffs who purchased shares directly in the offering or at a

time when only registered shares were available for purchase. However, where, as here, Plaintiffs

purchased shares in the aftermarket (see Am. Compl. ¶¶ 423–24)—after commingling with other

shares has occurred—traceability becomes not only difficult, but, as courts have repeatedly

recognized, “virtually impossible.” See Krim, 402 F.3d at 498; Century Aluminum, 729 F.3d at

1107. The realities of modern securities markets, where shares are held in fungible bulk and traded

through intermediaries, preclude any meaningful ability to trace the origin of specific shares. As


                                                11


      Case 8:24-cv-02900-DKC                   Document 102             Filed 10/22/25           Page 17 of 22


the Ninth Circuit observed, “most trading is done through brokers who neither know nor care

whether they are getting newly registered or old shares,” and “many brokerage houses do not

identify specific shares with particular accounts but instead treat the account as having an

undivided interest in the house’s position.” Century Aluminum, 729 F.3d at 1107 (quoting Barnes

v. Osofsky, 373 F.2d 269, 271–72 (2d Cir. 1967)). Once shares are commingled, their origin is

“effectively impossible to determine.” In re Honest Co. Sec. Litig., 2023 WL 3190506, at *4 (C.D.

Cal. May 1, 2023). See also Dkt. 90 (“Indep. Dir. Opp.”) at 10 (quoting Pirani v. Slack Techs.,

Inc., 127 F.4th 1183, 1190 (9th Cir. 2025)) (acknowledging that Plaintiffs must “trace the chain of

title for their shares back to the secondary offering”).

         B.        Plaintiffs’ “Statistical Probability” Approach is Legally Deficient.

         Plaintiffs attempt to circumvent the traceability requirement by pointing to statistical

probability 9—arguing that, because a large portion of shares in the market were issued under the

challenged registration statement, it is likely that their shares were as well. E.g. Opp. at 25. As

explained in Marcum’s opening brief—and as Plaintiffs cannot dispute—every court of appeals to

have addressed this issue has deemed such probabilistic pleading insufficient as a matter of law.

See MTD at 21–24; see also Krim, 402 F.3d at 496 (“accepting such ‘statistical tracing’ would

impermissibly expand the statute’s standing requirement”); In re Ariad Pharms., Inc. Sec. Litig.,

842 F.3d 744, 755–56 (1st Cir. 2016); Century Aluminum, 729 F.3d at 1106–09 (rejecting

arguments based on numbers of shares outstanding). Deeming the statistical tracing theory

Plaintiffs promote as “good enough” would impermissibly expand Section 11’s actual standing

requirement and render the Supreme Court’s traceability mandate meaningless.


         9
           Though Plaintiffs now seek to relabel it, Plaintiffs are effectively pursuing a statistical probability argument.
Specifically, Plaintiffs claim that because they do not intend to “prove their Section 11 standing through statistical
principles,” their allegations based on statistical claims are not claims of “statistical proof.” Opp. at 27. In either
event: Plaintiffs need to plausibly allege traceability. They do not. See MTD at 20.

                                                            12


       Case 8:24-cv-02900-DKC                 Document 102            Filed 10/22/25          Page 18 of 22


         Plaintiffs’ efforts to distinguish Krim are unavailing. Plaintiffs argue against Krim and

Century Aluminum, urging that their shares are statistically “more likely” to have been registered

than those in Krim and Century Aluminum. Opp. at 26. But even if “there is a 99.83% chance” of

traceability, it would be insufficient to plead standing, because “general statistics say nothing about

the shares that a specific person actually owns and have no ability to separate those shares upon

which standing can be based from those for which standing is improper.” Krim, 402 F.3d at 497,

501.    Century Aluminum expeditiously dispensed with Plaintiffs’ same argument: “when a

company has offered shares under more than one registration statement, aftermarket purchasers

usually will not be able to trace their shares back to a particular offering. Thus, … plaintiffs had

to allege facts from which we can reasonably infer that their situation is different.” 729 F.3d at

1107–08 (emphasis added). These Plaintiffs, like those in Krim and Century Aluminum, have pled

nothing to show that their particular shares are plausibly within the category of shares whose

holders Congress has allowed access to Section 11 claims.

         Plaintiffs rely on a handful of district court cases with unique factual allegations in asking

the Court to bless their statistical probability pleading theory; their attempt should fail. In In re

EveryWare Glob., Inc. Sec. Litig., plaintiffs alleged that they had “purchased 15% of the shares

traded on the first day of the Secondary Offering” and “that they paid a uniform price through their

broker of just four cents above the asking price” in the offering. 175 F. Supp. 3d 837, 866 (S.D.

Ohio 2016). 10 The same is true of In re Ubiquiti Networks, Inc. Sec. Litig., where all of the

company’s shares were either released in the allegedly defective registration statement or subject

to a lock-up period at the time of plaintiffs’ purchases. 33 F. Supp. 3d 1107, 1118 (N.D. Cal.


         10
            On appeal, the Sixth Circuit affirmed dismissal of the case and, “accordingly,” did not address the question
of standing. IBEW Loc. No. 58 Annuity Fund v. EveryWare Glob., Inc., 849 F.3d 325, 328 n.3 (6th Cir. 2017).

                                                          13


      Case 8:24-cv-02900-DKC                 Document 102            Filed 10/22/25          Page 19 of 22


2014). And In re Coinbase Glob., Inc. Sec. Litig., where the court relied in part on allegations that

one plaintiff had purchased shares “on the first day of the defendant company’s secondary offering

at prices near the opening price” provides Plaintiffs no cover. 2024 WL 4053009, at *19 (D.N.J.

Sept. 5, 2024). Plaintiffs here allege no analogous facts. Indeed, the named Plaintiff who signed

the certification needed to file this complaint affirmatively swore that he bought shares in a series

of transactions which all took place well after the offering was issued and were conducted at

various prices. See Dkt. 41-1 at 2. Left without any plausible facts to establish traceability, and

having admitted that their shares were purchased in the aftermarket (Am. Compl. ¶¶ 423–24),

Plaintiffs can do no more than offer precisely the kind of statistics that have been repeatedly held

to be insufficient, see Krim, 402 F.3d at 497. That is not enough to clear the traceability hurdle.

         C.       Speculation About Discovery Cannot Cure Plaintiffs’ Pleading Defect.

         Plaintiffs’ final argument—that discovery may reveal facts supporting traceability—is no

salvation. See Dkt. 94 at 13–15. Section 11 requires Plaintiffs to “plead ... that [they] purchased

shares traceable to the allegedly defective registration statement.”                    Slack, 598 U.S. at 770

(emphasis added). Courts have consistently rejected the notion that a plaintiff may proceed to

discovery in the mere hope of uncovering facts necessary to establish standing. See, e.g., Cupat v.

Palantir Techs., Inc., 2025 WL 1141534, at *16 (D. Colo. Apr. 4, 2025) (rejecting “a plea to let

the case proceed to discovery so that the plaintiff may locate the documents that may establish

standing”); McCaffery v. Cnty., 2024 WL 4045450, at *12 (E.D. Va. Sept. 4, 2024) (plaintiffs may

not rely on “hopes” of what discovery will show to plead a sufficient case). 11


         11
             Nor can Plaintiffs look to discovery now. Cognizant of the strength of the traceability argument set forth
in the opening brief in support of Marcum’s motion to dismiss the Section 11 claim against it (MTD at 21–24),
Plaintiffs filed a motion to lift the PSLRA’s discovery stay (Dkt. 93). That motion should be denied for the reasons
set forth in Marcum’s opposition (Dkt. 94). Plaintiffs should not be permitted to begin a scavenger hunt now—in
violation of the automatic stay under the PSLRA—for facts that might allow them someday to sufficiently plead
traceability. The Amended Complaint against Marcum should stand or fall on the allegations contained within it. On


                                                         14


      Case 8:24-cv-02900-DKC                   Document 102             Filed 10/22/25              Page 20 of 22


         Plaintiffs argue that the question of traceability is “a factual one, to be resolved through

discovery,” Indep. Dir. Opp. at 12 (quoting In re Suprema Specialties, Inc. Sec. Litig., 438 F.3d

256, 274 n.7 (3d Cir. 2006)). But plaintiffs in In re Suprema Specialties plausibly alleged

traceability in the first instance: in their complaint, plaintiffs alleged that they purchased their

shares in the relevant offerings (exactly what is required to plausibly plead traceability). See 438

F.3d at 274 n.7 (emphasis in original; record citation omitted). Here, in contrast, Plaintiffs allege

affirmatively that they purchased their shares in the open market. See Am. Compl. ¶¶ 423–24. To

survive Marcum’s Motion to Dismiss, Plaintiffs need something more than speculation about to

what discovery “may” show, see Dkt. 93-1 at 5, to “nudg[e] the[ir] claims across the line from

conceivable to plausible,” Indep. Dir. Opp. at 14 (quoting Barbour v. Garland, 105 F.4th 579, 589

(4th Cir. 2024)). They do not have it.

                                                   CONCLUSION

         For these reasons, and those set forth in Marcum’s Memorandum of Law in Support of its

Motion to Dismiss, Marcum respectfully requests that the Court dismiss with prejudice 12 Count

One of Plaintiffs’ Amended Complaint. 13


the question of whether Plaintiffs sufficiently pled traceability (supra at pp. 11–15), it falls.
         12
            Dismissal with prejudice is warranted because of the “fundamental deficiencies” in Plaintiffs’ claims,
including that they purchased their shares on the open market and that they have demonstrated no means of pleading
liability under Omnicare. See Cozzarelli v. Inspire Pharms. Inc., 549 F.3d 618, 630 (4th Cir. 2008). It is likewise
warranted because Plaintiffs have not represented, in their oppositions or otherwise, that they possess facts which
could cure their pleading deficiencies. See id.
         As Marcum argues neither the question of materiality nor falsity in its MTD, Plaintiffs’ recent Notice of
         13

Supplemental Authority (Dkt. 97) is of no moment to Marcum’s Motion.

                                                            15


    Case 8:24-cv-02900-DKC   Document 102   Filed 10/22/25        Page 21 of 22


Dated: October 22, 2025                 Respectfully submitted,

                                        /s/ Shirlethia V. Franklin
                                        Shirlethia V. Franklin
                                        D. Md. Bar No. 28662
                                        JONES DAY
                                        51 Louisiana Avenue, N.W.
                                        Washington, D.C. 20001
                                        T: 202.879.3892
                                        E: [email protected]

                                        Adrienne Ferraro Mueller
                                        Jacob J. Thackston
                                        Admitted Pro Hac Vice
                                        JONES DAY
                                        901 Lakeside Ave.
                                        Cleveland, OH 44114
                                        T: 216.586.3939
                                        E: [email protected]
                                           [email protected]

                                        Samir Kaushik
                                        Admitted Pro Hac Vice
                                        JONES DAY
                                        2727 North Harwood Street, Suite 500
                                        Dallas, Texas 75201-1515
                                        T: 214.220.3939
                                        E: [email protected]

                                        Attorneys for Defendant Marcum LLP


                                    1


     Case 8:24-cv-02900-DKC             Document 102         Filed 10/22/25     Page 22 of 22


                                  CERTIFICATE OF SERVICE

        I hereby certify that on October 22, 2025, I electronically filed the foregoing Reply in

Support of Defendant Marcum LLP’s Motion to Dismiss by using the CM/ECF system which will

send a notice of electronic filing to all counsel or parties of record.

                                                          /s/ Shirlethia V. Franklin
                                                          Shirlethia V. Franklin


                                                   1