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Liman)(Text Only Order) (wm) (Entered: 02/06/2026)","tags":[]},{"resource_uri":"https://www.courtlistener.com/api/rest/v4/docket-entries/480104125/","id":480104125,"docket":"https://www.courtlistener.com/api/rest/v4/dockets/69373722/","recap_documents":[{"resource_uri":"https://www.courtlistener.com/api/rest/v4/recap-documents/495794481/","id":495794481,"tags":[],"absolute_url":"","date_created":"2026-09-30T23:20:42.700911-07:00","date_modified":"2026-09-30T23:20:42.700926-07:00","sha1":"","page_count":null,"file_size":null,"filepath_local":null,"filepath_ia":"","ia_upload_failure_count":null,"thumbnail":null,"thumbnail_status":0,"plain_text":"","ocr_status":null,"date_upload":null,"document_number":"","attachment_number":null,"pacer_doc_id":"","is_available":false,"is_free_on_pacer":null,"is_sealed":null,"document_type":1,"description":"","acms_document_guid":""}],"date_created":"2026-09-30T23:20:42.689944-07:00","date_modified":"2026-09-30T23:20:42.689962-07:00","date_filed":"2026-02-05","time_filed":null,"entry_number":null,"recap_sequence_number":"2026-02-05.003","pacer_sequence_number":null,"description":">>>NOTICE REGARDING PRO HAC VICE MOTION. Regarding Document No. 72 MOTION for Catherine D. Kevane to Appear Pro Hac Vice . Filing fee $ 200.00, receipt number ANYSDC-32371836. Motion and supporting papers to be reviewed by Clerk's Office staff.. The document has been reviewed and there are no deficiencies. (bc)","tags":[]},{"resource_uri":"https://www.courtlistener.com/api/rest/v4/docket-entries/480104124/","id":480104124,"docket":"https://www.courtlistener.com/api/rest/v4/dockets/69373722/","recap_documents":[{"resource_uri":"https://www.courtlistener.com/api/rest/v4/recap-documents/495794480/","id":495794480,"tags":[],"absolute_url":"/docket/69373722/71/manchin-v-pacs-group-inc/","date_created":"2026-09-30T23:20:42.656828-07:00","date_modified":"2026-09-30T23:20:42.656841-07:00","sha1":"","page_count":null,"file_size":null,"filepath_local":null,"filepath_ia":"","ia_upload_failure_count":null,"thumbnail":null,"thumbnail_status":0,"plain_text":"","ocr_status":null,"date_upload":null,"document_number":"71","attachment_number":null,"pacer_doc_id":"","is_available":false,"is_free_on_pacer":null,"is_sealed":null,"document_type":1,"description":"","acms_document_guid":""}],"date_created":"2026-09-30T23:20:42.635095-07:00","date_modified":"2026-09-30T23:20:42.642641-07:00","date_filed":"2026-02-05","time_filed":null,"entry_number":71,"recap_sequence_number":"2026-02-05.001","pacer_sequence_number":null,"description":"ORDER granting 70 Motion for Michael Dicke to Appear Pro Hac Vice (HEREBY ORDERED by Judge Lewis J. Liman)(Text Only Order) (wm) (Entered: 02/05/2026)","tags":[]},{"resource_uri":"https://www.courtlistener.com/api/rest/v4/docket-entries/480104123/","id":480104123,"docket":"https://www.courtlistener.com/api/rest/v4/dockets/69373722/","recap_documents":[{"resource_uri":"https://www.courtlistener.com/api/rest/v4/recap-documents/495794479/","id":495794479,"tags":[],"absolute_url":"","date_created":"2026-09-30T23:20:42.615638-07:00","date_modified":"2026-09-30T23:20:42.615651-07:00","sha1":"","page_count":null,"file_size":null,"filepath_local":null,"filepath_ia":"","ia_upload_failure_count":null,"thumbnail":null,"thumbnail_status":0,"plain_text":"","ocr_status":null,"date_upload":null,"document_number":"","attachment_number":null,"pacer_doc_id":"","is_available":false,"is_free_on_pacer":null,"is_sealed":null,"document_type":1,"description":"","acms_document_guid":""}],"date_created":"2026-09-30T23:20:42.601951-07:00","date_modified":"2026-09-30T23:20:42.601967-07:00","date_filed":"2026-02-04","time_filed":null,"entry_number":null,"recap_sequence_number":"2026-02-04.002","pacer_sequence_number":null,"description":">>>NOTICE REGARDING PRO HAC VICE MOTION. Regarding Document No. 70 MOTION for Michael Dicke to Appear Pro Hac Vice . Filing fee $ 200.00, receipt number ANYSDC-32363398. Motion and supporting papers to be reviewed by Clerk's Office staff.. The document has been reviewed and there are no deficiencies. (bc)","tags":[]},{"resource_uri":"https://www.courtlistener.com/api/rest/v4/docket-entries/480104122/","id":480104122,"docket":"https://www.courtlistener.com/api/rest/v4/dockets/69373722/","recap_documents":[{"resource_uri":"https://www.courtlistener.com/api/rest/v4/recap-documents/495794478/","id":495794478,"tags":[],"absolute_url":"/docket/69373722/62/manchin-v-pacs-group-inc/","date_created":"2026-09-30T23:20:42.462229-07:00","date_modified":"2026-09-30T23:20:42.462243-07:00","sha1":"","page_count":null,"file_size":null,"filepath_local":null,"filepath_ia":"","ia_upload_failure_count":null,"thumbnail":null,"thumbnail_status":0,"plain_text":"","ocr_status":null,"date_upload":null,"document_number":"62","attachment_number":null,"pacer_doc_id":"","is_available":false,"is_free_on_pacer":null,"is_sealed":null,"document_type":1,"description":"","acms_document_guid":""}],"date_created":"2026-09-30T23:20:42.438497-07:00","date_modified":"2026-09-30T23:20:42.446698-07:00","date_filed":"2025-11-25","time_filed":null,"entry_number":62,"recap_sequence_number":"2025-11-25.001","pacer_sequence_number":null,"description":"ORDER granting 61 Letter Motion for Extension of Time to File (HEREBY ORDERED by Judge Lewis J. Liman)(Text Only Order) (Liman, Lewis) (Entered: 11/25/2025)","tags":[]},{"resource_uri":"https://www.courtlistener.com/api/rest/v4/docket-entries/477996873/","id":477996873,"docket":"https://www.courtlistener.com/api/rest/v4/dockets/69373722/","recap_documents":[{"resource_uri":"https://www.courtlistener.com/api/rest/v4/recap-documents/493610938/","id":493610938,"tags":[],"absolute_url":"","date_created":"2026-09-15T06:10:14.964191-07:00","date_modified":"2026-09-15T06:10:14.964199-07:00","sha1":"","page_count":null,"file_size":null,"filepath_local":null,"filepath_ia":"","ia_upload_failure_count":null,"thumbnail":null,"thumbnail_status":0,"plain_text":"","ocr_status":null,"date_upload":null,"document_number":"","attachment_number":null,"pacer_doc_id":"","is_available":false,"is_free_on_pacer":null,"is_sealed":null,"document_type":1,"description":"Order on Motion for Extension of Time to Answer","acms_document_guid":""}],"date_created":"2026-09-15T06:10:14.945693-07:00","date_modified":"2026-09-15T06:10:14.945707-07:00","date_filed":"2026-09-15","time_filed":"08:07:36","entry_number":null,"recap_sequence_number":"2026-09-15.001","pacer_sequence_number":null,"description":"","tags":[]},{"resource_uri":"https://www.courtlistener.com/api/rest/v4/docket-entries/477962068/","id":477962068,"docket":"https://www.courtlistener.com/api/rest/v4/dockets/69373722/","recap_documents":[{"resource_uri":"https://www.courtlistener.com/api/rest/v4/recap-documents/493574817/","id":493574817,"tags":[],"absolute_url":"/docket/69373722/98/manchin-v-pacs-group-inc/","date_created":"2026-09-14T18:11:07.197642-07:00","date_modified":"2026-09-14T18:11:07.207052-07:00","sha1":"","page_count":null,"file_size":null,"filepath_local":null,"filepath_ia":"","ia_upload_failure_count":null,"thumbnail":null,"thumbnail_status":0,"plain_text":"","ocr_status":null,"date_upload":null,"document_number":"98","attachment_number":null,"pacer_doc_id":"127040343291","is_available":false,"is_free_on_pacer":null,"is_sealed":null,"document_type":1,"description":"Extension of Time to File Answer","acms_document_guid":""}],"date_created":"2026-09-14T18:11:07.174489-07:00","date_modified":"2026-09-30T23:20:43.463326-07:00","date_filed":"2026-09-14","time_filed":"20:24:42","entry_number":98,"recap_sequence_number":"2026-09-14.001","pacer_sequence_number":454,"description":"LETTER MOTION for Extension of Time to File Answer re: 63 Amended Complaint,, // Unopposed Letter Motion for Extension of Time to File Answers addressed to Judge Lewis J. Liman from Colleen C. Smith dated September 14, 2026. Document filed by Derick Apt, Mark Hancock, Joshua Jergensen, Michelle Lewis, Jason Murray, PACS Group, Inc., P.J. Sanford..(Smith, Colleen) (Entered: 09/14/2026)","tags":[]},{"resource_uri":"https://www.courtlistener.com/api/rest/v4/docket-entries/477049310/","id":477049310,"docket":"https://www.courtlistener.com/api/rest/v4/dockets/69373722/","recap_documents":[{"resource_uri":"https://www.courtlistener.com/api/rest/v4/recap-documents/492629482/","id":492629482,"tags":[],"absolute_url":"/docket/69373722/97/manchin-v-pacs-group-inc/","date_created":"2026-09-04T16:12:19.709830-07:00","date_modified":"2026-10-04T03:53:15.062358-07:00","sha1":"b1e09558f3462166f0da1088f3ceffaf362b4f59","page_count":121,"file_size":771793,"filepath_local":"recap/gov.uscourts.nysd.631628/gov.uscourts.nysd.631628.97.0.pdf","filepath_ia":"https://archive.org/download/gov.uscourts.nysd.631628/gov.uscourts.nysd.631628.97.0.pdf","ia_upload_failure_count":null,"thumbnail":null,"thumbnail_status":0,"plain_text":" Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 1 of 121\n\n\n\n\nUNITED STATES DISTRICT COURT\nSOUTHERN DISTRICT OF NEW YORK\n---------------------------------------------------------------------- X 09/04/2026\nCHRISTOPHER MANCHIN, individually and on :\nbehalf of all others similarly situated, :\n :\n Plaintiff, :\n :\n -v- : 24-cv-8636 (LJL)\n :\nPACS GROUP, INC., JASON MURRAY, DERICK : OPINION AND ORDER\nAPT, MARK HANCOCK, JACQUELINE MILLARD, :\nTAYLOR LEAVITT, CITIGROUP GLOBAL :\nMARKETS INC., J.P. MORGAN SECURITIES LLC, :\nTRUIST SECURITIES, INC., RBC CAPITAL :\nMARKETS, LLC, GOLDMAN SACHS & CO. LLC, :\nSTEPHENS INC., KEYBANC CAPITAL MARKETS :\nINC., OPPENHEIMER & CO. INC., and REGIONS :\nSECURITIES LLC, :\n :\n Defendants. :\n---------------------------------------------------------------------- X\nLEWIS J. LIMAN, United States District Judge:\n\n Defendants PACS Group, Inc. (\u201cPACS\u201d or the \u201cCompany\u201d), Jason Murray (\u201cMurray\u201d),\n\nDerick Apt (\u201cApt\u201d), Mark Hancock (\u201cHancock\u201d), Michelle Lewis (\u201cLewis\u201d), Jacqueline Millard\n\n(\u201cMillard\u201d), Taylor Leavitt (\u201cLeavitt\u201d), Evelyn Dilsaver (\u201cDilsaver\u201d), Joshua Jergensen\n\n(\u201cJergensen\u201d), and P.J. Sanford (\u201cSanford\u201d) (collectively the \u201cPACS Defendants\u201d or \u201cExchange\n\nAct Defendants\u201d) and the Underwriter Defendants1 move, pursuant to Federal Rules of Civil\n\nProcedure 9(b) and 12(b)(6) to dismiss the Consolidated Class Action Complaint, Dkt. No. 63\n\n\n\n1\n The Underwriter Defendants can be broken into two groups. The Initial Public Offering\n(\u201cIPO\u201d) Underwriter Defendants are Citigroup Global Markets Inc.; J.P. Morgan Securities LLC;\nTruist Securities, Inc.; RBC Capital Markets, LLC; Goldman Sachs & Co. LLC; Stephens Inc.;\nOppenheimer & Co. Inc.; KeyBanc Capital Markets Inc.; and Regions Securities, LLC (the \u201cIPO\nUnderwriter Defendants\u201d). The Secondary Public Offering (\u201cSPO\u201d) Underwriter Defendants are\nCitigroup Global Markets Inc.; J.P. Morgan Securities LLC; Truist Securities, Inc.; RBC Capital\nMarkets, LLC; Goldman Sachs & Co. LLC; UBS Securities LLC; Stephens Inc.; and\nOppenheimer & Co. Inc., LLC (the \u201cSPO Underwriter Defendants\u201d).\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 2 of 121\n\n\n\n\n(\u201cCCAC\u201d). See Dkt. Nos. 82, 84. For the reasons that follow, the motions to dismiss are granted\n\nin part and denied in part.\n\n BACKGROUND\n\n For purposes of this motion, the Court accepts as true the well-pleaded allegations of the\n\nCCAC as supplemented by the documents incorporated by reference.2\n\nI. Relevant Parties\n\n PACS is a Delaware corporation headquartered in Farmington, Utah. CCAC \u00b6 33. The\n\nCompany was founded by Murray and Hancock in 2013 as a provider of skilled nursing facilities\n\n(\u201cSNF\u201d) to meet the growing demand for long-term care and rehabilitation services across the\n\nUnited States. Id. \u00b6 89. From April 11, 2024 to December 16, 2024 (the \u201cClass Period\u201d), it\n\nserved more than 30,000 patients daily through its network of approximately 212 to 314 facilities\n\nacross seventeen states and employed over 40,000 staff members. Id. \u00b6 90. Its common stock\n\ntrades on the NYSE under the ticker symbol \u201cPACS.\u201d Id. \u00b6 33.\n\n The main operating subsidiary of PACS is Providence Administrative Consulting\n\nServices, Inc. (\u201cPACS Services\u201d). Id. \u00b6 91. During the Class Period, PACS generated revenue\n\nfor patient and resident services, such as skilled nursing services and senior assisted living\n\n\n\n2\n \u201cThe Court may consider documents that are referenced in the complaint, documents that the\nplaintiffs relied on in bringing suit and that are either in the plaintiffs\u2019 possession or that the\nplaintiffs knew of when bringing suit, or matters of which judicial notice may be taken.\u201d Gray v.\nWesco Aircraft Holdings, Inc., 454 F. Supp. 3d 366, 383 (S.D.N.Y. 2020) (quoting In re Bank of\nAm. AIG Disclosure Sec. Litig., 980 F. Supp. 2d 564, 570 (S.D.N.Y. 2013)), aff\u2019d, 847 F. App\u2019x\n35 (2d Cir. 2021) (summary order); see also Chambers v. Time Warner, Inc., 282 F.3d 147, 153\n(2d Cir. 2002) (\u201ca plaintiff\u2019s reliance on the terms and effect of a document in drafting the\ncompliant\u201d permits \u201cthe court\u2019s consideration of the document on a dismissal motion\u201d); Kramer\nv. Time Warner, Inc., 937 F.2d 767, 774 (2d Cir. 1991) (taking judicial notice of securities filings\nand associated documents). The Court considers below whether, and to what extent, certain\nexhibits of the declaration attached to Defendants\u2019 motions to dismiss may be considered. For\nthe purposes of this section, the Court draws from the CCAC with attributions to the underlying\nsources relied on therein.\n\n\n 2\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 3 of 121\n\n\n\n\nservices, through governmental programs including Medicare and Medicaid, patients, and other\n\nthird-party payors. Id. \u00b6 93. Skilled nursing services were a key driver of revenue and profit,\n\ncontributing over 98% of PACS\u2019s revenue in 2023 and 2024. Id. \u00b6 94. In those same years,\n\nMedicare contributed 47% and 37% of the Company\u2019s total revenue respectively. Id. \u00b6 96.\n\n Murray was PACS\u2019s Chief Executive Officer (\u201cCEO\u201d) and Chairman of the Board during\n\nthe Class Period, and Hancock was Director and Executive Chairman of the Board of Directors\n\nduring that same period. Id. \u00b6 42. Apt was PACS\u2019s Chief Financial Officer (\u201cCFO\u201d). Id. \u00b6 43.\n\nJergensen was PACS\u2019s President and Chief Operating Officer. Id. \u00b6 44. P.J. Sanford was\n\nPACS\u2019s Vice-President of Finance and subsequently the President of PACS Services. Id. \u00b6 45.\n\nLewis was PACS\u2019s Chief Accounting Officer during the Class Period. Id. \u00b6 47. Millard, Leavitt,\n\nand Dilsaver were members of PACS\u2019s Board of Directors. Id. \u00b6\u00b6 48\u201350.\n\n Citigroup Global Markets Inc. (\u201cCitigroup\u201d), J.P. Morgan Securities LLC (\u201cJP Morgan\u201d),\n\nTruist Securities, Inc. (\u201cTruist\u201d), RBC Capital Markets, LLC (\u201cRBC\u201d), Goldman Sachs & Co.\n\nLLC (\u201cGoldman Sachs\u201d), Stephens Inc. (\u201cStephens\u201d) and Oppenheimer & Co. Inc.\n\n(\u201cOppenheimer\u201d) are financial institutions that served as underwriters and financial advisors for\n\nPACS\u2019s initial public offering (\u201cIPO\u201d) and secondary public offering (\u201cSPO\u201d). Id. \u00b6\u00b6 59\u201364, 66.\n\nKeyBanc Capital Markets Inc. (\u201cKeyBanc\u201d) and Regions Securities, LLC (\u201cRegions\u201d) are\n\nfinancial institutions that acted as financial advisor and underwriters for PACS\u2019s IPO. Id. \u00b6\u00b6 65,\n\n67. UBS Securities LLC (\u201cUBS\u201d) was an underwriter and financial advisor for PACS\u2019s SPO. Id.\n\n\u00b6 68.\n\n Lead Plaintiff 1199SEIU Health Care Employees Pension Fund (\u201cPension Fund\u201d) is a\n\nmulti-employer Taft-Hartley defined benefit plan. Id. \u00b6 31. It purchased PACS common stock\n\nduring the Class Period traceable to the IPO and the SPO. Id. Additional plaintiff Police and\n\n\n\n\n 3\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 4 of 121\n\n\n\n\nFire Retirement System of the City of Detroit (\u201cDetroit P&F\u201d and, together with Lead Plaintiff,\n\n\u201cPlaintiffs\u201d) purchased shares in the IPO and SPO. Id. \u00b6 32.\n\nII. IPO & Subsequent Developments\n\n The pertinent chronology is as follows: On April 11, 2024, PACS launched its IPO of\n\n24,642,856 shares, including an overallotment of 3,214,284 insider shares that were split evenly\n\nbetween Defendants Murray and Hancock, at $21.00 per share. Id. \u00b6 18. The IPO priced each\n\nshare at $21.000 and generated approximately $423 million in net proceeds for the Company and\n\napproximately $63.4 million for Murray and Hancock together. Id. \u00b6 34.\n\n On September 6, 2024, PACS engaged in a SPO, registering 19,034,482 shares, including\n\nthe overallotment option of 2,482,758, of which 2,777,778 shares were sold by the Company for\n\nnet proceeds of over $94 million, and the other 16,256,704 shares were sold by Murray and\n\nHancock with net proceeds exceeding $564 million. Id. \u00b6\u00b6 5(b), 19.\n\n On November 4, 2024, a report about PACS was published by short seller Hindenburg\n\nResearch LLC (the \u201cHindenburg Report\u201d or \u201cReport\u201d).3 Id. \u00b6 234; see also Dkt. No. 88-10 (copy\n\nof Hindenburg Report). Based on a purported \u201c5-month investigation, including interviews with\n\n18 former employees, competitors, and an analysis of 900+ detailed facility-level cost reports,\u201d\n\nthe Hindenburg Report asserted that \u201cPACS\u2019[s] \u2018turnaround\u2019 strategy largely boils down to\n\nsystematically scamming taxpayer-funded healthcare programs.\u201d Dkt. No. 88-10 at 2; see also\n\nid. at 8.4 The Report posited that PACS\u2019s earnings derived largely if not entirely from schemes\n\nthat improperly took advantage of the COVID-19 waiver program that loosened restrictions for\n\nSNFs to access high-paying skilled-care Medicare benefits for their patients through mid-2023,\n\n\n3\n \u201cA short seller speculates that a particular stock will go down in price and seeks to profit from\nthat drop.\u201d Harris v. AmTrust Fin. Servs., Inc., 135 F. Supp. 3d 155, 159 n.1 (S.D.N.Y. 2015)\n(internal quotation marks omitted), aff\u2019d, 649 F. App\u2019x 7 (2d Cir. 2016) (summary order).\n4\n Citations to Dkt. Nos. 88-3, 88-4, 88-8, 88-10, and 88-12 refer to ECF pagination.\n\n\n 4\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 5 of 121\n\n\n\n\nand after the program\u2019s expiration in May 2023, the Company pivoted towards billing\n\nunnecessary therapies. Id. at 8\u20139, 18\u201319. In the wake of the publication of the Hindenburg\n\nReport, PACS\u2019s share price dropped 27.78% from $42.94 to $31.01, on unusually heavy trading\n\nvolume. CCAC \u00b6 241. The following day, on November 5, 2024, PACS\u2019s share price dropped\n\nanother 4.74%, or $1.47, closing at $29.54 a share, on unusually heavy trading volume. Id.\n\n\u00b6 245.\n\n On November 6, 2024, PACS issued a press release on Form 8-K in which it announced,\n\namong other things, that its Audit Committee had commenced an investigation into the\n\nallegations of the Hindenburg Report. Id. \u00b6 247. That same day, PACS also disclosed that it had\n\nreceived civil investigative demands (\u201cCIDs\u201d) from the federal government regarding the\n\nCompany\u2019s reimbursement and referral practices. Id. PACS\u2019s share price fell $11.45, or\n\n38.76%, to close at $18.09 per share on November 6, 2024, on unusually heavy trading volume.\n\nId. \u00b6 248.\n\n On June 16, 2025, PACS filed a Form 8-K announcing that the Company\u2019s previously\n\nissued financial statements for the first and second quarters in 2024 could no longer be relied upon\n\nand needed to be restated. Id. \u00b6 251; see also Dkt. No. 88-7.\n\n Because the IPO registration statement and prospectus (\u201cIPO Offering Documents\u201d), the\n\nSPO registration statement and prospectus (\u201cSPO Offering Documents\u201d), and the November 2025\n\nrestated annual report for fiscal year 2024 (the \u201cRestatement\u201d) are core to understanding Plaintiffs\u2019\n\nclaims, the Court provides further detail on each below.\n\n A. IPO Offering Documents\n\n The IPO Offering Documents incorporated the audited \u201ccombined/consolidated balance\n\nsheets of PACS Group, Inc. and subsidiaries . . . as of December 31, 2023 and 2022, the related\n\ncombined/consolidated statements of income, stockholders\u2019 equity (deficit) and cash flows for\n\n\n 5\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 6 of 121\n\n\n\n\neach of the three years in the period ended December 31, 2023, and the related notes.\u201d Dkt. No.\n\n88-3 at 180, 182\u201383.\n\n The IPO prospectus makes clear that PACS\u2019s revenue \u201cdepend[s] upon reimbursements\n\nfrom third-party payors,\u201d which refers to \u201cMedicare, Medicaid and other government healthcare\n\nprograms and private insurance organizations.\u201d Id. at 14. In its summary of risk factors, the\n\nprospectus specifically warns, inter alia, that:\n\n If coverage or reimbursement for services are changed, reduced or eliminated,\n including through cost-containment efforts, spending requirements are changed,\n data reporting, measurement and evaluation standards are enhanced and changed,\n our operations, revenue and profitability could be materially and adversely affected.\n\nId.\n\n PACS disclosed that, because it makes money through reimbursements, the Company\n\ncalculates revenue pursuant to generally accepted accounting principles (\u201cGAAP\u201d), \u201cbased on\n\ncontractually agreed-upon amounts or rates, excluding the estimates of variable consideration\n\nunder . . . Financial Accounting Standards (FASB) Accounting Standards Codification (ASC)\n\nTopic 606.\u201d Id. at 83; see also id. at 101 (\u201cRevenue recognized from healthcare services is\n\nadjusted for estimates of variable consideration to arrive at the transaction price.\u201d). To comply\n\nwith GAAP, ASC Topic 606 (\u201cASC 606\u201d) provides a five-step revenue framework for\n\nrecognizing revenue when there are \u201cuncertainties\u201d that will bear on cash collection. See CCAC\n\n\u00b6 258; see also Dkt. No. 90-3 (ASC 606). In other words, PACS adjusts the agreed-upon rate in\n\nits contracts to account for the \u201cvariability relating to the consideration promised by a customer.\u201d\n\nDkt. No. 88-8 at 29 (discussing ASC 606-10-32-7). In the IPO prospectus, PACS described its\n\nrevenue recognition methodology and detailed that it excludes payments for which \u201cit is\n\nprobable that a significant reversal in the amount of cumulative revenue recognized\u201d will occur.\n\nCCAC \u00b6 258 n.15 (quoting Dkt. No. 88-3 at 194).\n\n\n\n 6\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 7 of 121\n\n\n\n\n B. SPO Offering Documents\n\n The SPO Offering Documents contain language nearly identical to the IPO Offering\n\nDocuments with respect to describing PACS\u2019s revenue recognition methodology, risk factors,\n\nand internal compliance. CCAC \u00b6\u00b6 293\u201394, 296\u201397; compare Dkt. No. 88-3 with Dkt. No. 88-4.\n\nIn addition to financial statements for the periods incorporated in the IPO Offering Documents,\n\nthe SPO Offering Documents incorporated financial statements that were current though the six-\n\nmonth period that ended on June 30, 2024, including a quarterly breakdown.5 See Dkt. No. 88-4\n\nat 22, 246.\n\n C. Restatement\n\n On November 19, 2025, PACS issued its 2024 Annual Report (Form 10-K), which\n\nincluded a restatement of its financial results for the first two quarters of 2024. CCAC \u00b6 254; see\n\nDkt. No. 88-12. In its explanatory note, the Company stated that it \u201cdetermined that the revenue\n\nassociated with the provision of respiratory services and other therapy services billed under\n\nMedicare Part B should not have been recognized as revenue in accordance with ASC 606 in the\n\nperiods discussed below.\u201d CCAC \u00b6 254; Dkt. No. 88-12 at 4. After receiving information that\n\n\u201ccertain ancillary services, including respiratory, sensory integration and wound care ultrasound\n\nmist therapy, may not be eligible for reimbursement under Medicare Part B\u201d because there was\n\nrisk of \u201csignificant reversal in the future,\u201d \u201c[i]n accordance with ASC 250,\u201d the financial\n\nstatements for the first two quarters \u201crequired restatement.\u201d CCAC \u00b6 254.\n\n Under GAAP, ASC Topic 250 (\u201cASC 250\u201d) requires that a company report any material\n\nerror in the financial statements of a prior period discovered after the financial statements are\n\n\n\n5\n Though not listed separately, the metrics for the March 31, 2024 quarterly income statement\ncan be calculated from the income statement columns reported for the half-year period and\nquarter period that ended on June 30, 2024. See Dkt. No. 88-4 at 223.\n\n\n 7\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 8 of 121\n\n\n\n\nissued as an error correction by restating the prior-period financial statements, including errors\n\nresulting from mathematical mistakes, mistakes in the application of GAAP, or the oversight or\n\nmisuse of facts that existed at the time the financial statements were prepared. CCAC \u00b6\u00b6 259,\n\n332\u201333; see also Glantz v. James River Grp. Holdings, Ltd., 2025 WL 278440, at *7 (S.D.N.Y.\n\nJan. 23, 2025) (discussing ASC 250).\n\n The explanatory note, in a separate section titled \u201cMaterial Weakness,\u201d discussed that\n\n\u201cmanagement identified control deficiencies that, individually or in the aggregate, constitute\n\nmaterial weaknesses in [the Company\u2019s] internal control over financial reporting.\u201d Dkt. No.\n\n88-12 at 5. The Restatement listed two: first, that the Company had not \u201cdesign[ed] and\n\nmaintain[ed] sufficient processes to identify, assess, and communicate relevant risks to\n\nappropriate levels of the organization, including potential compliance issues received through the\n\nhotline process;\u201d and second, that it had not \u201cdesign[ed] and maintain[ed] adequate controls\n\nwithin the revenue process to appropriately recognize revenue for new services in accordance\n\nwith\u201d ASC 606. Id.\n\n The Restatement reduced the revenue PACS recognized for the first quarter of 2024 by\n\napproximately $14.9 million, and the revenue PACS recognized for the second quarter of the\n\nsame year by approximately $46.1 million. CCAC \u00b6 285. Because PACS\u2019s operating expenses\n\ndid not vary significantly in the restated financials, the contracted revenue led to large changes in\n\npreviously reported bottom-line metrics. For Q1 2024, PACS restated its net income from $49.1\n\nmillion to $34.8 million, decreasing it by over a fourth. Dkt. No. 88-12 at 143. For Q2 2024,\n\nPACS\u2019s restated its net loss of $10.9 million to a loss of nearly $31.9 million, almost tripling in\n\nmagnitude. Id. at 144; see also CCAC \u00b6 317 (chart listing changes between line items as\n\noriginally reported versus restated).\n\n\n\n\n 8\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 9 of 121\n\n\n\n\n Among other revelations, the 2024 Annual Report also disclosed that PACS had been\n\nsubject to multiple federal CIDs and a subpoena concerning its \u201creimbursement and referral\n\npractices.\u201d Dkt. No. 89 at 17 (quoting CCAC \u00b6 569). First, on April 8, 2024, three days before\n\nthe IPO, the Company received a CID from the U.S. Department of Justice (\u201cDOJ\u201d) concerning\n\nboth PACS Services and one facility, Paradise Valley Healthcare Center (\u201cParadise Valley\u201d) and\n\nwhether \u201cParadise Valley and [PACS Services] violated the False Claims Act by submitting false\n\nclaims to Medicare.\u201d Dkt. No. 88-12 at 73. Then on September 11, 2024, five days after the\n\nSPO, PACS received a CID related to the DOJ\u2019s investigation of PACS\u2019s California SNFs to\n\ndetermine if false claims were made under the \u201cpatient-driven payment model for nursing and\n\nrehabilitation services.\u201d Id. On September 30, 2024, PACS received its third CID concerning a\n\nProvidence Group, Inc. (\u201cProvidence Group\u201d) and a specific facility, Bishop Care Center\n\n(\u201cBishop\u201d); the CID concerned whether Providence Group had submitted false claims under the\n\nCOVID-19 waiver, with a specific request for information about the practices at Bishop. Id.\n\nAnd lastly, PACS disclosed that, on February 26, 2025, it had received a subpoena from the DOJ\n\nconcerning PACS\u2019s \u201cCOVID Waiver practices, billing of Medicare Part B for respiratory and\n\nsensory integration therapy services, change of insurance enrollment, cost waivers for co-pays,\n\ndeductibles, and co-insurance, and claim reimbursement from Medicare for bad debt.\u201d Id. at 74.\n\nIII. PACS\u2019s Purported Wrongdoing\n\n According to Plaintiffs, as reported in the Hindenburg Report and substantiated by\n\nseveral former employees, PACS\u2019s fraudulent activities began well before its IPO and continued\n\nbeyond the SPO.\n\n The allegations of wrongdoing begin in March 2020, when the Centers for Medicare &\n\nMedicaid Services (\u201cCMS\u201d) announced a COVID-19 waiver for certain Medicare programs.\n\nCCAC \u00b6 11. Ordinarily, PACS\u2019s skilled nursing care service through its SNFs is covered by\n\n\n 9\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 10 of 121\n\n\n\n\nMedicare Part A only if a patient first spends three days in a hospital before moving to one of\n\nPACS\u2019s facilities.6 Id.; see also 42 U.S.C. \u00a7 1395x(i) (defining \u201cpost-hospital extended care\n\nservices\u201d to require that an individual first be an \u201cinpatient for not less than 3 consecutive days\u201d\n\nat a hospital before discharging to a SNF). To respond to the public health crisis during the\n\nCOVID-19 pandemic, CMS suspended the three-day hospital stay requirement in March 2020\n\npursuant to Sections 1135 and 1812(f) of the Social Security Act. CCAC \u00b6 11; 42 U.S.C.\n\n\u00a7 1320b\u20135 (authorizing the Secretary of Health and Human Services \u201cto temporarily waive or\n\nmodify the application of\u201d requirements under various statutory provisions and regulations); id.\n\n\u00a7 1395d(f) (allowing the agency discretion to \u201cprovide for coverage . . . of extended care services\n\nwhich are not post-hospital extended care services\u201d provided that certain conditions are met).\n\nHowever, facilities still needed to provide sufficient justification for Part A SNF coverage (e.g.,\n\nskilled medical necessity). CCAC \u00b6 118. A positive COVID test alone would not suffice, yet\n\n\u201cPACS facilities would regularly and improperly rely on . . . often just a single positive COVID\n\ntest\u201d in an effort to increase revenues at a facility, at times threefold, \u201cat an extremely high profit\n\nmargin.\u201d Id. \u00b6 119. From 2021 to 2023, the Company\u2019s net income more than doubled, going\n\nfrom $48 million to $113 million. Id. \u00b6 110.\n\n Plaintiffs allege that PACS\u2019s abusive Part A billing created a cliff for when the waiver\n\nprogram ended on May 11, 2023, with a 100-day tapering period, resulting in an impending\n\ncollapse in improperly inflated revenues.7 Id. \u00b6\u00b6 110, 117\u201319, 129. The Hindenburg Report\n\n\n\n\n6\n Generally, Medicare Part A covers hospital and inpatient services whereas Medicare Part B\ncovers outpatient medical services (e.g., preventative care, therapies). See CCAC \u00b6 84.\n7\n Under the COVID-19 waiver program, beneficiaries would be able to receive up to one\nhundred days of reimbursable care at an SNF. PACS could therefore expect to see revenues\nattributable to the waiver program for up to one hundred days after the end of the program on\nMay 11, 2023. CACC \u00b6 117, 124.\n\n\n 10\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 11 of 121\n\n\n\n\ncalculated that \u201cPACS was generating hundreds of millions of dollars a year in Medicare revenue\n\nfrom the COVID waiver scheme, allowing it to go public with the illusion of rapid, legitimate\n\ngrowth and profitability.\u201d Id. \u00b6 128 (quoting Dkt. No. 88-10 at 17). As corroboration, Plaintiffs\n\nprovide allegations from confidential witnesses (\u201cCWs\u201d) who are former PACS employees (each\n\nreferred to as \u201cFE\u201d with a dashed number designation).8 FE-1 and FE-10 noted that PACS\n\nsought to switch patients from private insurers to Medicare and within Medicare to different\n\nsources or coverage types so that the Company could \u201cmaximize billing.\u201d Id. \u00b6 121\u201323.\n\nComparing similar facilities between PACS and its competitor, The Ensign Group, Inc., the\n\nHindenburg Report calculated that PACS\u2019s comparative facilities reported \u201ca 190% growth\u201d\n\nwhile its similarly situated competitor only showed a 23% increase in Medicare revenue. Id.\n\n\u00b6 127.\n\n Plaintiffs assert that although the Part A waiver expired in mid-May 2023, because\n\n\u201cPACS would lose its appearance of profitability and growth right as it was preparing to go\n\n\n\n8\n There are ten CWs that were employed by PACS during some part of the Class Period at one or\nmore of the Company\u2019s facilities. CCAC \u00b6 98\u2013108, nn.7\u20138. Their characteristics are as follows:\n(1) FE-1 was Director of Admissions at a PACS facility (undisclosed location) from November\n2023 to August 2024; (2) FE-2 was Assistant Regional Director of Clinical Services at a\nCalifornia facility for several years during the Class Period, overseeing fifteen facilities and, at\none point, supervising five; (3) FE-3 was Business Office Manager of a California facility from\nOctober 2023 to August 2024, overseeing payments and claims for that facility; (4) FE-4 was\nDirector of Medical Records at an Arizona facility from September 2024 to February 2025,\nallegedly resigning because of PACS\u2019s legal violations; (5) FE-5 is a Licensed Nursing Home\nAdministrator and was Interim Executive Director at a Colorado facility from March to October\n2024; (6) FE-6 was Executive Director of an Arizona facility from April to June 2024; (7) FE-7\nwas a PACS Regional Marketing Director in 2024 for the Southwest region; (8) FE-8 was\nDirector of Business Development at a Colorado facility from April 2024 to April 2025; (9) FE-9\nwas an Administrator at a California facility from the second half of 2023 to 2025 and reported\nto Chad Nielsen, PACS Regional Vice President of Operations; and (10) FE-10 was an\nAdministrator at an Arizona facility from September 2023 to July 2024. Id. \u00b6\u00b6 98\u2013107. The\nCWs worked \u201cat distinct SNFs within PACS covering 28 of PACS\u2019s 212 to 314 SNFs\u201d during\nthe Class Period. Id. \u00b6 108. All CWs are referred to by masculine pronouns to mirror the\nCCAC\u2019s chosen convention. Id. at 32 n.7.\n\n\n 11\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 12 of 121\n\n\n\n\npublic\u201d via its April 2024 IPO, id. \u00b6 129, the Company sought another avenue to inflate revenue\n\nand sustain its growth story in that gap. Plaintiffs allege (and the Hindenburg Report claimed)\n\nthat the Company found that avenue in Medicare Part B which it improperly billed via two\n\nprimary tactics: (1) performing unnecessary respiratory and sensory therapies, and (2)\n\n\u201cregenerating patients,\u201d i.e., cycling patients to a hospital and then the SNF to restart Medicare\n\ncoverage. Id. \u00b6\u00b6 130, 151, 156. Plaintiffs assert that the most significant of these schemes was\n\nimproperly billing respiratory therapies under Medicare Part B, which was referenced explicitly\n\nin the November 2025 Restatement. Id. \u00b6 130 (noting that the Restatement reduced previously\n\nstated \u201crevenue associated with the provision of respiratory services and certain other therapy\n\nservices billed under Medicare Part B\u201d (quoting Dkt. No. 88-12 at 4)).\n\n Allegations from CWs purportedly corroborate the shift to improperly billing Medicare\n\nPart B for respiratory services. Id. \u00b6\u00b6 133\u201345 (recounting statements from and experiences of\n\nFE-1, FE-3, FE-5, FE-6, FE-9, and FE-10). The allegations range from the problematic to the\n\nanodyne. For instance, FE-9, who was an Administrator at a California facility from the second\n\nhalf of 2023 to 2025, characterized PACS\u2019s push for respiratory therapy as a \u201cPonzi scheme,\u201d\n\nwhere respiratory therapists were given bonuses depending on how much revenue they could\n\ncollect by providing additional services, and stated that respiratory therapists were highly\n\nincentivized to get \u201ceveryone\u201d on respiratory therapy. Id. \u00b6 133. FE-3, who was Business Office\n\nManager of a California facility from October 2023 to August 2024, noticed in his role\n\noverseeing accounts receivable, that respiratory therapies were billed separately after PACS\n\n\u201cinitiate[d]\u201d its push of the services. Id. \u00b6 134. FE-3 also noted that the initiative began around\n\nMay 2023 with a regionwide Zoom meeting, led by \u201cCorporate Level Management,\u201d where\n\nquotas were discussed and a regional vice president (\u201cRVP\u201d) instructed the \u201cstaff to perform\n\n\n\n\n 12\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 13 of 121\n\n\n\n\nrespiratory therapy and how to bill for it.\u201d Id. \u00b6 135. FE-5, who was a Licensed Nursing Home\n\nAdministrator and was Interim Executive Director at a Colorado facility from March to October\n\n2024, recalled a meeting for Colorado administrators by RVPs to ensure billing for respiratory\n\ntherapy would pass audits, including how to bill for additional treatments in excess of the\n\nregulatory cap on treatments per patient per day. Id. \u00b6 139. Specifically, he stated that PACS\n\npushed Administrators to provide ten times the number of treatments per patient per day than\n\npermitted solely to generate profits and that \u201cthose who did not push these treatments were\n\nfired.\u201d Id. \u00b6 142. And FE-10, who was an Administrator at an Arizona facility, recalled a Zoom\n\nmeeting on respiratory training wherein staff were instructed on how to document treatments at a\n\nset rate or that \u201cwere not actually performed.\u201d Id. \u00b6 137. Because FE-3 and FE-10 were located\n\nin distinct PACS regions and reported to different RVPs, Plaintiffs assert that \u201cthe directive to\n\nover-bill Medicare B for respiratory therapies using a centrally-designed and centrally-\n\ndistributed scheme came from above Company\u2019s regional leadership and therefore came from\n\nthe Company\u2019s central leadership.\u201d Id. \u00b6 138. Plaintiffs further assert that given Defendant\n\nSanford\u2019s positionality as the overseer of RVPs, and that Sanford reported directly to Defendants\n\nMurray and Hancock, Sanford must have at least known of the abusive billing tactics if not also\n\nhis supervisors. Id. \u00b6\u00b6 138, 140; see also id. \u00b6 146 (Hindenburg Report indicated the \u201cscheme\n\nbegan with California facilities and then was pushed out to facilities across the PACS network\u201d).\n\n Plaintiffs allege that \u201c[b]eginning in the Company\u2019s first fiscal quarter of 2024 (prior to\n\nthe IPO) and continuing through its second fiscal quarter (including and after the IPO),\u201d the\n\nCompany also boosted revenues by pushing gratuitous sensory therapies. Id. \u00b6 151. Plaintiffs\n\nassert that sensory therapies were among the services for which PACS erroneously recognized\n\nrevenue given that the Restatement\u2019s explanatory note referenced not only respiratory service but\n\n\n\n\n 13\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 14 of 121\n\n\n\n\nalso \u201ccertain other therapy services.\u201d Id. (citing Dkt. No. 88-12 at 4). To bolster these\n\nallegations, Plaintiffs assert that FE-10, an Administrator at an Arizona facility from September\n\n2023 to July 2024, indicated that a RVP told him to bill Medicare for sensory therapies even if a\n\npatient only spent 15 minutes inside of a makeshift mobile cart that served as a \u201csensory\n\nroom[].\u201d Id. \u00b6 152. The Hindenburg Report also quoted a former administrator who said\n\npatients were being \u201cput\u201d on \u201csensory integration, even if it\u2019s not really applicable.\u201d Id. \u00b6 153\n\n(quoting Dkt. No. 88-10 at 19).\n\n FE-9, who was an Administrator at a California facility from the second half of 2023 to\n\n2025, recounted that PACS pushed facilities to cycle patients in and out of facilities (i.e., send a\n\npatient to a hospital for a few days then re-admit into a SNF) to reboot a patient\u2019s Medicare\n\ncoverage, which would pay more than other insurance policies in instances where a patient\n\nreceived over 100 days of skilled therapy coverage. Id. \u00b6\u00b6 155\u201357. If a patient could not be\n\n\u201cregenerated\u201d in this manner, PACS allegedly pressured employees to ensure that stays were\n\nextended without sufficient cause or under manufactured pretenses.9 Id. \u00b6 158. FE-9 indicated\n\nthat he had a direct call with Chad Nielsen, PACS Regional Vice President of Operations, who\n\ninstructed him to \u201c\u2018regenerate\u2019 more patients or offer bonuses to marketers to increase\n\nadmissions.\u201d Id. \u00b6 162. FE-1 \u201cconfirmed that the issues he observed at his facility were\n\nhappening Company-wide and definitely throughout the state of California,\u201d and he left because\n\nof his qualms with PACS\u2019s business practices. Id. \u00b6 161. FE-4, FE-9, and FE-10 generally\n\nsupported FE-1\u2019s allegations, with FE-1 averring that there was \u201cleadership\u201d pressure to keep\n\nSNFs filled at or near max capacity. Id. \u00b6\u00b6 162\u201366.\n\n\n\n9\n As FE-1 explained, \u201cstaff would get Frappuccinos for patients, which would cause the patients\u2019\nblood sugar to spike which gave the facility an excuse to keep the patient longer for monitoring.\u201d\nCCAC \u00b6 159.\n\n\n 14\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 15 of 121\n\n\n\n\n Plaintiffs claim that PACS\u2019s exploitation was not limited to these primary schemes.\n\nOther deceptive or improper practices included: (i) miscellaneous overbilling, (ii) patient neglect,\n\n(iii) skirting licensing requirements; (iv) violating medical records requirements; (v) cheating\n\nstaffing ratio requirements, and (vi) frustrating state audits. See generally id. \u00b6\u00b6 167\u2013200. On\n\nfalse billing, FE-1, FE-2, FE-4, FE-9, and FE-10 recount instances in which PACS would isolate\n\npatients without a medical need due to higher rates, provide physical therapy when unnecessary,\n\nmisleadingly document and overcharge treatments, and bill for unreceived care or prescriptions.\n\nId. \u00b6\u00b6 168\u201373. As for patient neglect, FE-4, a Director of Medical Records at an Arizona\n\nfacility, commented that at times PACS subordinated patient care to profit, mistreating their\n\npatients which sometimes led to preventable harm. Id. \u00b6 174. According to the Hindenburg\n\nReport and FE-2\u2014and as verified by FE-5, FE-6, and FE-9\u2014PACS evaded its licensing\n\nrequirements, including its obligation to ensure each SNF was run by a licensed administrator by,\n\ninter alia, sharing individual administrator licenses across a number of facilities and allowing\n\nunlicensed administrators to oversee facilities in violation of state law, which placed strict\n\nlimitations on how many facilities a licensed administrator may run and in what geographic\n\narea.10 Id. \u00b6\u00b6 176\u201379, 185\u201390. For example, FE-9 allegedly ran a facility for over a year without\n\nhis license, and Nielsen was aware of that fact. Id. \u00b6 185\u201386. With respect to medical record\n\nrequirements, FE-4 observed that over one hundred unsigned consent forms were improperly\n\nplaced in patients\u2019 files, that there were instances in which PACS employees would improperly\n\nsign forms on behalf of patient, and that Medicare and Medicaid reimbursement requests went\n\nunsigned by treating providers in violation of reimbursement requirements. Id. \u00b6\u00b6 192\u201393.\n\n\n\n\n10\n FE-2 identified Chad Nielsen, among others, as an individual whose license was reused\nimproperly across several facilities. CCAC \u00b6 179.\n\n\n 15\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 16 of 121\n\n\n\n\nCiting only the Hindenburg Report, Plaintiffs also allege that PACS misrepresented how many\n\ncertified nursing assistants were employed across its network by counting all nurse aides thereby\n\noverreporting certain staffing-to-patient ratios. Id. \u00b6\u00b6 196\u2013198. PACS was apparently also able\n\nto avoid audits in California by receiving \u201cadvance notice of a state inspection\u201d through personal\n\nrelationships.11 Id. \u00b6\u00b6 199\u2013200.\n\n Based on reports from various CWs, Plaintiffs also contend that PACS\u2019s business did not\n\nutilize a \u201cdecentralized, local operating model.\u201d Id. \u00b6\u00b6 201\u2013403. Instead, corporate leadership\n\nand in particular Defendant Sanford, who ran PACS Services and reported directly to Murray\n\nand Hancock, organized and controlled the company as a top-down pyramid hierarchy. Id.\n\n\u00b6\u00b6 205\u201333. The Company\u2019s culture rewarded wrongdoing, and employees that \u201crefus[ed] to go\n\nalong with the Company\u2019s unethical practices\u201d were fired. See id. \u00b6 227. FE-9 explained that\n\nPACS was singularly focused on maximizing reimbursement and that administrators were\n\ntreated to lavish monthly meetings that centered on discussing money-generating plans, as\n\nindicated from direction and interactions with Nielsen, and permitted to misuse company credit\n\ncards for wasteful expenses.12 Id. \u00b6\u00b6 203\u201304, 216\u201319. FE-2 described a chain of command that\n\nran from PACS\u2019s leadership to Nielsen and from Nielsen to team leaders of the Arizona region.\n\nId. \u00b6 207. FE-10 relayed feelings of pressure to increase revenues both pre- and post-IPO,\n\nincluding emails from Defendant Apt that highlighted lagging facilities. Id. \u00b6\u00b6 209\u201310. The\n\nCWs also reported instances, either experienced firsthand or understood secondhand, where\n\n\n\n\n11\n This allegation is one paragraph in the CCAC, which relies on FE-2\u2019s claim that one\nnutritionist maintained a relationship with a surveyor who provided the tips. CCAC \u00b6 200.\n12\n FE-9 relayed that he spoke with Nielsen around the time that PACS was \u201cin the process of\ngoing public,\u201d where Nielsen told him that \u201cPACS\u2019s current owners had a plan to own the\nCompany for three to four years,\u201d after which the billing practices would change. CCAC \u00b6 204.\n\n\n 16\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 17 of 121\n\n\n\n\nvarious employees were fired if they would not comply with the Company\u2019s improper practices\n\nor sought to report misconduct. See id. \u00b6\u00b6 224\u201333.\n\nIV. Alleged Misstatements13\n\n In the context of PACS\u2019s alleged abuse of the Medicare system, Plaintiffs allege that thirty-\n\none statements by PACS in its IPO and SPO offering documents, as well as Form 10-Q filings,\n\npress releases, earnings call, and presentations concerning their financial performance in the first\n\nand second quarters of 2024, are actionable and give rise to liability under the Exchange Act.14\n\nThe Court provides the list in full below, which contains some statements that are similar if not\n\nidentical across time periods.\n\n \u2022 IPO Offering Documents (April 11, 2024)\n\n 1. \u201cWe rely on payments from third-party payors, including Medicare, Medicaid,\n and other governmental healthcare programs and private insurance organizations.\n If coverage or reimbursement for services are changed, reduced or eliminated,\n including through cost-containment efforts, spending requirements are changed,\n data reporting, measurement and evaluation standards are enhanced and\n changed, our operations, revenue and profitability could be materially and\n adversely affected.\u201d CCAC \u00b6 385.\n\n 2. \u201cWe review and audit the care delivery, recordkeeping and billing processes of\n our operating subsidiaries. These reviews from time to time detect instances of\n noncompliance that we attempt to correct, which in some instances requires\n reduced or repayment of billed amounts or other costs.\u201d Id. \u00b6 389.\n\n 3. \u201cWe operate in a highly regulated industry with stringent regulatory compliance\n obligations, and are subject to extensive and complex laws and government\n regulations. If we are not operating in compliance with these laws and\n regulations or if these laws and regulations change, we could be required to make\n\n\n\n13\n Plaintiffs have indicated in a footnote, see CCAC \u00b6 384 n.21, that the \u201cstatements highlighted\nin bold and italics within\u201d certain paragraphs of the CCAC are alleged to be actionable\nmisstatements under the Exchange Act. The Court has maintained italics to note here which\nexact portions Plaintiffs allege are actionable. Where a statement listed below does not include\nany italics, the whole statement is challenged.\n14\n Plaintiffs separately challenge the financial statements and risk disclosures from the IPO and\nSPO Offering Documents under the Securities Act.\n\n\n 17\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 18 of 121\n\n\n\n\n significant expenditures or change our operations in order to bring our facilities\n and operations into compliance.\u201d Id. \u00b6 393.\n\n 4. \u201cOur significant historical growth has been primarily driven by our expertise in\n acquiring underperforming long-term custodial care skilled nursing facilities and\n transforming them into higher acuity, high value-add short-term transitional care\n skilled nursing facilities.\u201d Id. \u00b6 399.\n\n 5. \u201cWe believe our success is driven in significant part by our decentralized, local\n operating model, through which we empower local leaders at each facility to\n operate their facility autonomously and deliver excellence in clinical quality and a\n superior experience for our patients.\u201d Id. \u00b6 403.\n\n 6. \u201cOur rigorous approach to billing integrity, our independent internal compliance\n function, and our regular facility billing audits are intended to provide a\n foundation of trust and collaboration that makes us a natural choice for payors.\u201d\n Id. \u00b6 407.\n\n\u2022 2024 Q1 10-Q (May 13, 2024)\n\n 7. PACS\u2019s Q1 2024 Quarterly Report\u2019s \u201cCondensed Combined/Consolidated\n Balance Sheets.\u201d Id. \u00b6 412 (emphasis omitted).\n\n 8. PACS\u2019s Q1 2024 Quarterly Report\u2019s \u201cUnaudited Condensed\n Combined/Consolidated Statements of Income and Comprehensive Income.\u201d Id.\n \u00b6 418 (emphasis omitted).\n\n 9. \u201cWe rely on payments from third-party payors, including Medicare, Medicaid,\n and other governmental healthcare programs and private insurance organizations.\n If coverage or reimbursement for services are changed, reduced or eliminated,\n including through cost-containment efforts, spending requirements are changed,\n data reporting, measurement and evaluation standards are enhanced and\n changed, our operations, revenue and profitability could be materially and\n adversely affected.\u201d Id. \u00b6 422.\n\n 10. \u201cWe review and audit the care delivery, recordkeeping and billing processes of\n our operating subsidiaries. These reviews from time to time detect instances of\n noncompliance that we attempt to correct, which in some instances requires\n reduced or repayment of billed amounts or other costs.\u201d Id. \u00b6 426.\n\n 11. \u201cWe are subject to extensive and complex laws and government regulations. If\n we are not operating in compliance with these laws and regulations or if these\n laws and regulations change, we could be required to make significant\n expenditures or change our operations in order to bring our facilities and\n operations into compliance.\u201d Id. \u00b6 430.\n\n\u2022 May 13, 2024 Press Release\n\n\n\n 18\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 19 of 121\n\n\n\n\n 12. The following four sentences, id. \u00b6 437:\n\n i. \u201cGAAP earnings per share for the quarter was $0.38, an increase of 31.0%\n over the prior year quarter.\u201d\n\n ii. \u201cGAAP net income was $49.1 million, an increase of 30.7% over the prior\n year quarter.\u201d\n\n iii. \u201cConsolidated GAAP revenue for the quarter was $934.7 million, an\n increase of 31.9% over the prior year quarter.\u201d\n\n iv. \u201cEBITDA and Adjusted EBITDA for the quarter was $96.3 million and\n $88.5 million, representing increases of 47.0% and 34.0%, respectively,\n over the prior year quarter. Adjusted EBITDAR for the quarter was\n $152.5 million.\u201d\n\n\u2022 May 14, 2024 Earnings Call\n\n 13. Murray stated: \u201c[O]ur average daily Medicare rates increased by 11% for the 3\n months ended March 31, 2024 compared to the first quarter of 2023.\u201d Id. \u00b6 442.\n\n 14. Apt stated: \u201c[O]ur average Medicare revenue per patient day remained strong\n through Q1 at both our ramping and Mature facilities at $969 and $938\n respectively, compared to \u201923 where our average Medicare revenue per patient\n day at Ramping and Mature was [$]836 and [$]846, respectively.\u201d Id. \u00b6 446.\n\n\u2022 Q1 2024 Earnings Presentation (May 14, 2024)\n\n 15. \u201cForward-looking statements are not guarantees of future results and are subject\n to risks, uncertainties and assumptions, which may change over time and many of\n which are beyond the Company\u2019s control, and that could cause the Company\u2019s\n actual results to materially and adversely differ from those expressed in any\n forward-looking statements, including . . . risks associated with our review and\n audit of the care delivery, record keeping and billing processes of our operating\n subsidiaries . . . .\u201d Id. \u00b6 451.\n\n 16. \u201cModel prioritizes local operational autonomy, leveraging robust technology and\n services for responsive decision-making based on community needs, enhancing\n patient care and facility operations.\u201d Id. \u00b6 455.\n\n\u2022 2024 Q2 10-Q (August 12, 2024)\n\n 17. PACS\u2019s Q2 2024 Quarterly Report\u2019s \u201cCondensed Combined/Consolidated\n Balance Sheets.\u201d Id. \u00b6 460 (emphasis omitted).\n\n 18. PACS\u2019s Q2 2024 Quarterly Report\u2019s \u201cUnaudited Condensed\n Combined/Consolidated Statements of Income and Comprehensive Income.\u201d Id.\n \u00b6 465 (emphasis omitted).\n\n\n 19\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 20 of 121\n\n\n\n\n 19. \u201cWe rely on payments from third-party payors, including Medicare, Medicaid,\n and other governmental healthcare programs and private insurance organizations.\n If coverage or reimbursement for services are changed, reduced or eliminated,\n including through cost-containment efforts, spending requirements are changed,\n data reporting, measurement and evaluation standards are enhanced and\n changed, our operations, revenue and profitability could be materially and\n adversely affected.\u201d Id. \u00b6 470.\n\n 20. \u201cWe review and audit the care delivery, recordkeeping and billing processes of\n our operating subsidiaries. These reviews from time to time detect instances of\n noncompliance that we attempt to correct, which in some instances requires\n reduced or repayment of billed amounts or other costs.\u201d Id. \u00b6 474.\n\n 21. \u201cWe are subject to extensive and complex laws and government regulations. If\n we are not operating in compliance with these laws and regulations or if these\n laws and regulations change, we could be required to make significant\n expenditures or change our operations in order to bring our facilities and\n operations into compliance.\u201d Id. \u00b6 478.\n\n\u2022 August 12, 2024 Press Release\n\n 22. The following three sentences, id. \u00b6 485:\n\n i. \u201cGAAP net income (loss) was $38.2 million for the six months ended June\n 30, 2024 and $(10.9) million for the second quarter of 2024 . . . .\u201d\n\n ii. \u201cConsolidated GAAP revenue for the first six months of 2024 was $1.9\n billion, an increase of 31% over the first six months of the prior year,\n driven largely by increased facility count and reimbursement rates, and for\n the second quarter of 2024 was $981.8 million, an increase of 29% over\n the second quarter of 2023 and an increase of 5% over the first quarter of\n 2024.\u201d\n\n iii. \u201cAdjusted EBITDA was $188.2 million and $99.7 million for the first six\n months of 2024 and the second quarter of 2024, respectively. . . .\u201d\n\n\u2022 August 12, 2024 Earnings Call\n\n 23. Murray stated: \u201cIn addition to training new leaders, the PACS leadership model\n allows our local leaders to make operational decisions as close to our patients\n and employees as possible, which is ultimately better for the residents and\n community in which they live.\u201d Id. \u00b6 490.\n\n\u2022 Q2 Earnings Presentation (August 12, 2024)\n\n 24. \u201cForward-looking statements are not guarantees of future results and are subject\n to risks, uncertainties and assumptions, which may change over time and many of\n which are beyond the Company\u2019s control, and that could cause the Company\u2019s\n\n\n 20\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 21 of 121\n\n\n\n\n actual results to materially and adversely differ from those expressed in any\n forward-looking statements, including . . . risks associated with our review and\n audit of the care delivery, record keeping and billing processes of our operating\n subsidiaries . . . .\u201d Id. \u00b6 495.\n\n 25. \u201cModel prioritizes local operational autonomy, leveraging robust technology and\n services for responsive decision-making based on community needs, enhancing\n patient care and facility operations.\u201d Id. \u00b6 499.\n\n \u2022 SPO Offering Documents (September 3\u20136, 2024)15\n\n 26. \u201cWe rely on payments from third-party payors, including Medicare, Medicaid,\n and other governmental healthcare programs and private insurance organizations.\n If coverage or reimbursement for services are changed, reduced or eliminated,\n including through cost-containment efforts, spending requirements are changed,\n data reporting, measurement and evaluation standards are enhanced and\n changed, our operations, revenue and profitability could be materially and\n adversely affected.\u201d Id. \u00b6 504.\n\n 27. \u201cWe review and audit the care delivery, recordkeeping and billing processes of\n our operating subsidiaries. These reviews from time to time detect instances of\n noncompliance that we attempt to correct, which in some instances requires\n reduced or repayment of billed amounts or other costs.\u201d Id. \u00b6 508.\n\n 28. \u201cWe operate in a highly regulated industry with stringent regulatory compliance\n obligations, and are subject to extensive and complex laws and government\n regulations. If we are not operating in compliance with these laws and\n regulations or if these laws and regulations change, we could be required to make\n significant expenditures or change our operations in order to bring our facilities\n and operations into compliance.\u201d Id. \u00b6 512.\n\n 29. \u201cOur significant historical growth has been primarily driven by our expertise in\n acquiring underperforming long-term custodial care skilled nursing facilities and\n transforming them into higher acuity, high value-add short-term transitional care\n skilled nursing facilities.\u201d Id. \u00b6 518.\n\n 30. \u201cWe believe our success is driven in significant part by our decentralized, local\n operating model, through which we empower local leaders at each facility to\n operate their facility autonomously and deliver excellence in clinical quality and a\n superior experience for our patients.\u201d Id. \u00b6 522.\n\n 31. \"Our rigorous approach to billing integrity, our independent internal compliance\n function, and our regular facility billing audits are intended to provide a\n\n\n\n15\n The Form S-1 for the SPO was filed on September 3, 2024, and it was declared effective,\nalongside the prospectus, on September 5, 2025. CCAC \u00b6 35.\n\n\n 21\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 22 of 121\n\n\n\n\n foundation of trust and collaboration that makes us a natural choice for payors.\u201d\n Id. \u00b6 526.\n\n In their briefing on the motions to dismiss, the parties have split these alleged\n\nmisstatements (individually referred to as \u201cStmt.\u201d) into one of two categories: accounting\n\nstatements (Stmts. 7\u20138, 12\u201314, 17\u201318, 22) or narrative statements. See Dkt. No. 89 at 33\u201335\n\n(Plaintiffs accepting Defendants\u2019 framing). Within the set of narrative statements, the parties\n\nhave decided on three mutually exclusive subgroups of the narrative statements by topic: (i)\n\nMedicare risks (Stmts. 1, 9, 19, 26); (ii) compliance and billing practices (Stmts. 2\u20133, 6, 10\u201311,\n\n15, 20\u201321, 24, 27\u201328, 31); and (iii) business model descriptions (Stmts. 4\u20135, 16, 23, 25, 29\u201330).\n\n PROCEDURAL HISTORY\n\n Plaintiffs initiated this case by complaint filed on November 13, 2024. Dkt. No. 1.\n\n On February 11, 2025, the Court issued an order appointing 199SEIU Health Care\n\nEmployees Pension Fund (the \u201cPension Fund\u201d) as lead plaintiff and its counsel, Labaton Keller\n\nSucharow LLP, as class counsel. Dkt. No. 39.\n\n Defendants then moved to transfer venue of this case to the United States District Court\n\nfor the District of Utah. Dkt. Nos. 47, 51. The Court denied that motion by Opinion and Order\n\nof May 1, 2025. Dkt. No. 56.\n\n On December 19, 2025, Plaintiffs filed the Consolidated Amended Class Action\n\nComplaint. Dkt. No. 63. The PACS Defendants moved to dismiss the CCAC on February 17,\n\n2026, filing a memorandum of law and the declaration of Colleen C. Smith in support of that\n\nmotion. Dkt. Nos. 82\u201383, 88. That same day, the Underwriter Defendants also filed their\n\nmotion to dismiss, supported by a memorandum of law in support of the motion and the\n\ndeclaration of Susan L. Saltzstein. Dkt. Nos. 84\u201385, 87. On April 20, 2026, Plaintiffs filed a\n\nmemorandum of law in opposition to the motion to dismiss and the declaration of Alfred L.\n\n\n\n 22\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 23 of 121\n\n\n\n\nFatale III. Dkt. Nos. 89-90. On June 4, 2026, Defendants filed a reply memorandum of law in\n\nfurther support of their respective motions to dismiss. Dkt. No. 91.\n\n LEGAL STANDARD\n\nI. Motion to Dismiss\n\n On a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6), a court must accept as true\n\nall factual allegations in the complaint and draw all possible inferences from those allegations in\n\nfavor of the plaintiff. See Rombach v. Chang, 355 F.3d 164, 169 (2d Cir. 2004). This\n\nrequirement \u201cis inapplicable to legal conclusions.\u201d Ashcroft v. Iqbal, 556 U.S. 662, 678, (2009).\n\nThus, \u201c[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory\n\nstatements, do not suffice.\u201d Id.\n\n A complaint must offer more than \u201clabels and conclusions\u201d or \u201ca formulaic recitation of\n\nthe elements of a cause of action\u201d or \u201cnaked assertion[s]\u201d devoid of \u201cfurther factual\n\nenhancement\u201d in order to survive dismissal. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555\n\n(2007). The ultimate question is whether \u201c[a] claim has facial plausibility, [i.e.,] the plaintiff\n\npleads factual content that allows the court to draw the reasonable inference that the defendant is\n\nliable for the misconduct alleged.\u201d Iqbal, 556 U.S. at 678. \u201cDetermining whether a complaint\n\nstates a plausible claim for relief will . . . be a context-specific task that requires the reviewing\n\ncourt to draw on its judicial experience and common sense.\u201d Id. at 679. Put another way, the\n\nplausibility requirement \u201ccalls for enough fact to raise a reasonable expectation that discovery\n\nwill reveal evidence [supporting the claim].\u201d Twombly, 550 U.S. at 556; see also Matrixx\n\nInitiatives, Inc. v. Siracusano, 563 U.S. 27, 46 (2011) (same).\n\n In adjudicating a motion to dismiss, the Court is permitted to consider certain documents\n\n\u201cthat are not contained within the four corners of the complaint\u201d under \u201c[t]wo separate rules\u201d:\n\nFederal Rule of Evidence 201 and Federal Rule of Civil Procedure 10(c). Gray v. Wesco\n\n\n 23\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 24 of 121\n\n\n\n\nAircraft Holdings, Inc., 454 F. Supp. 3d 366, 383 (S.D.N.Y. 2020), aff\u2019d, 847 F. App\u2019x 35 (2d\n\nCir. 2021) (summary order). First, the Court may take judicial notice of a fact that is \u201cnot\n\nsubject to reasonable dispute because it (1) is generally known within the trial court\u2019s territorial\n\njurisdiction; or (2) can be accurately and readily determined from sources whose accuracy cannot\n\nreasonably be questioned.\u201d Fed. R. Evid. 201. Consequently, courts can consider \u201cpublic\n\ndisclosure documents required by law to be filed, and actually filed, with the SEC.\u201d Kramer v.\n\nTime Warner Inc., 937 F.2d 767, 774 (2d Cir. 1991). The court need not limit itself to\n\n\u201cdocuments attached to the complaint as exhibits or incorporated in the complaint by reference\u201d\n\nin taking judicial notice. Id. at 773. Second, relying on Federal Rule of Civil Procedure Rule\n\n10(c), the Second Circuit has long held that a complaint \u201cis deemed to include any written\n\ninstrument attached to it as an exhibit or any statements or documents incorporated in it by\n\nreference,\u201d and that a court may consider documents incorporated in a complaint by reference on\n\na motion pursuant to Federal Rule of Civil Procedure 12(b)(6) without converting it to a motion\n\nfor summary judgment pursuant to Federal Rule of Civil Procedure 56. Cortec Indus., Inv. v.\n\nSum Holdings, 949 F.2d 42, 47 (2d Cir. 1991).\n\n To the extent Plaintiffs rely on allegations by confidential witnesses, such as the former\n\nPACS employees, the Court \u201cconsider[s] and take[s] as true allegations by CWs at the pleadings\n\nstage so long as the CWs \u2018are described in the complaint with sufficient particularity to support\n\nthe probability that a person in the position occupied by the source would possess the\n\ninformation alleged.\u2019\u201d Gimpel v. The Hain Celestial Grp., Inc., 156 F.4th 121, 129 (2d Cir.\n\n2025) (quoting Emps.\u2019 Ret. Sys. of Gov\u2019t of the Virgin Islands v. Blanford, 794 F.3d 297, 305 (2d\n\nCir. 2015)); see also Sherman v. Abengoa, S.A., 156 F.4th 152, 164 (2d Cir. 2025).\n\n\n\n\n 24\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 25 of 121\n\n\n\n\nII. Securities Act\n\n Section 11 of the Securities Act prohibits materially misleading statements or omissions\n\nin offering documents filed with the SEC. See 15 U.S.C. \u00a7 77k(a). \u201cTo state a claim under\n\nsection 11, the plaintiff must allege that: (1) she purchased a registered security, either directly\n\nfrom the issuer or in the aftermarket following the offering; (2) the defendant participated in the\n\noffering in a manner sufficient to give rise to liability under section 11; and (3) the registration\n\nstatement contained an untrue statement of a material fact or omitted to state a material fact\n\nrequired to be stated therein or necessary to make the statements therein not misleading.\u201d In re\n\nMorgan Stanley Info. Fund Sec. Litig., 592 F.3d 347, 358\u201359 (2d Cir. 2010) (internal quotation\n\nmarks omitted).\n\n Section 12(a)(2) of the Securities Act provides a remedy for a person who purchases a\n\nsecurity from another person who offered or sold such security \u201cby means of a prospectus . . .\n\nwhich includes an untrue statement of material fact\u201d or a material omission. 15 U.S.C.\n\n\u00a7 77l(a)(2). It thus \u201cprovides similar redress where the securities at issue were sold using\n\nprospectuses or oral communications that contain material misstatements or omissions.\u201d In re\n\nMorgan Stanley, 592 F.3d at 358\u201359. \u201c[T]he elements of a prima facie claim under section\n\n12(a)(2) are: (1) the defendant is a \u2018statutory seller\u2019; (2) the sale was effectuated \u2018by means of a\n\nprospectus or oral communication\u2019; and (3) the prospectus or oral communication \u2018include[d] an\n\nuntrue statement of a material fact or omit[ted] to state a material fact necessary in order to make\n\nthe statements, in the light of the circumstances under which they were made, not misleading.\u2019\u201d\n\nId. (quoting 15 U.S.C. \u00a7 77l(a)(2)).\n\n \u201cBecause Sections 11 and 12(a)(2) are \u2018Securities Act siblings with roughly parallel\n\nelements,\u2019 courts typically analyze the two claims together.\u201d City of Omaha Police & Fire Ret.\n\nSys. v. Evoqua Water Techs. Corp., 450 F. Supp. 3d at 401 (S.D.N.Y. 2020) (Nathan, J.) (quoting\n\n\n 25\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 26 of 121\n\n\n\n\nIn re Wachovia Equity Sec. Litig., 753 F. Supp. 2d 326, 368 (S.D.N.Y. 2011)). \u201cSections 11 and\n\n12(a)(2) together create three potential bases for liability based on registration statements and\n\nprospectuses filed with the SEC: (1) a material misrepresentation; (2) a material omission in\n\ncontravention of an affirmative legal disclosure obligation; and (3) a material omission of\n\ninformation that is necessary to prevent existing disclosures from being misleading.\u201d In re\n\nWachovia, 753 F. Supp. 2d at 368 (citing Litwin v. Blackstone Grp., L.P., 634 F.3d 706, 715\u201316\n\n(2d Cir. 2011)). \u201cIssuers are subject to \u2018virtually absolute\u2019 [strict] liability under section 11,\n\nwhile the remaining potential defendants under sections 11 and 12(a)(2) may be held liable for\n\nmere negligence.\u201d In re Morgan Stanley, 592 F.3d at 359. Non-issuer defendants include\n\nauditors \u201cwhose profession gives authority to a statement made by him, who has with his consent\n\nbeen named as having prepared or certified any part of the registration statement, or as having\n\nprepared or certified any report or valuation which is used in connection with the registration\n\nstatement,\u201d 15 U.S.C \u00a7 77k(a)(4); and \u201cevery underwriter with respect to such security,\u201d id.\n\n\u00a7 77k(a)(5). For underwriters and auditors, \u201csection 11 provides several due diligence defenses\n\navailable to non-issuer defendants, see 15 U.S.C. \u00a7 77k(b), and section 12(a)(2) contains a\n\n\u2018reasonable care\u2019 defense, id. \u00a7 77l(a)(2).\u201d In re Morgan Stanley, 592 F.3d at 359 n.7. The\n\nrelevant non-issuer \u201cdefendants bear the burden of demonstrating the applicability of each of\n\nthese defenses, which are therefore unavailing as a means of defeating a motion to dismiss\n\npursuant to Rule 12(b)(6).\u201d Id.\n\n Section 15 of the Securities Act establishes the liability of any individual that \u201cby or\n\nthough stock ownership, agency, or otherwise, controls any person liable under sections 77k or\n\n77l,\u201d i.e., Sections 11 or 12, respectively. 15 U.S.C. \u00a7 77o. Therefore, \u201c[t]o establish control\n\nperson liability under . . . the Securities Act . . . Plaintiffs must show . . . a primary violation by\n\n\n\n\n 26\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 27 of 121\n\n\n\n\nthe controlled person; and . . . control of the primary violator by the defendant.\u201d May v. Barclays\n\nPLC, 2025 WL 887300, at *30 (S.D.N.Y. Mar. 21, 2025), aff\u2019d sub nom. Knapp v. Barclays\n\nPLC, 171 F.4th 166 (2d Cir. 2026); see also Hutchison v. Deutsche Bank Sec. Inc., 647 F.3d 479,\n\n490 (2d Cir. 2011).\n\nIII. Exchange Act\n\n To plead a claim for damages under Section 10(b) of the Exchange Act and Securities\n\nand Exchange Commission Rule 10b-5(b), a plaintiff must satisfy each of the following six\n\nelements: \u201c(1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a\n\nconnection between the misrepresentation or omission and the purchase or sale of a security; (4)\n\nreliance upon the misrepresentation; (5) economic loss; and (6) loss causation.\u201d Halliburton Co.\n\nv. Erica P. John Fund, Inc., 573 U.S. 258, 267 (2014) (internal quotation marks omitted); see\n\nMatrixx, 563 U.S. at 37\u201338; Waggoner v. Barclays PLC, 875 F.3d 79, 93 n.23 (2d Cir. 2017).\n\n For both Section 10(b) of the Exchange Act and Section 11 of the Securities Act, \u201c\u2018[t]he\n\ntest for whether a statement or omission is materially misleading\u2019 . . . is not whether the\n\nstatement is misleading in and of itself, but \u2018whether the defendants\u2019 representations, taken\n\ntogether and in context, would have misled a reasonable investor.\u2019\u201d In re Vivendi S.A. Sec.\n\nLitig., 838 F.3d 223, 250 (2d Cir. 2016) (emphasis omitted) (quoting Rombach, 355 F.3d at 172\n\nn.7 (noting that the \u201ctest for whether a statement is materially misleading under Section 10(b)\n\nand Section 11\u201d is identical)). This test is objective and looks to the understanding of the\n\n\u201cordinary investor.\u201d Omnicare, Inc. v. Laborers Dist. Council Const. Indus. Pension Fund, 575\n\nU.S. 175, 187 (2015). Moreover, under the federal securities laws, \u201cliteral accuracy is not\n\nenough. An issuer must also desist from misleading investors by saying one thing and holding\n\nback another.\u201d Id. at 192. Companies have a duty of disclosure \u201conly when necessary \u2018to make\n\n. . . statements made, in light of the circumstances under which they were made, not\n\n\n 27\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 28 of 121\n\n\n\n\nmisleading.\u2019\u201d Matrixx, 563 U.S. at 44 (quoting 17 C.F.R. \u00a7 240.10b-5(b)). \u201cEven when there is\n\nno existing independent duty to disclose information, once a company speaks on an issue or\n\ntopic, there is a duty to tell the whole truth.\u201d Meyer v. Jinkosolar Holdings Co., Ltd., 761 F.3d\n\n245, 250 (2d Cir. 2014).\n\n To be actionable under the Exchange Act as well as under the Securities Act, a\n\nmisrepresentation or omission also must be material, i.e., a plaintiff must allege facts showing\n\nthat there is \u201ca substantial likelihood that the disclosure of the omitted fact would have been\n\nviewed by the reasonable investor as having significantly altered the \u2018total mix\u2019 of information\n\nmade available.\u201d Ganino v. Citizens Utils. Co., 228 F.3d 154, 162 (2d Cir. 2000) (quoting Basic\n\nInc. v. Levinson, 485 U.S. 224, 231\u201332 (1988)); see also In re ProShares Tr. Sec. Litig., 728 F.3d\n\n96, 102 (2d Cir. 2013) (quoting TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976)).\n\nHowever, Section 10(b) and Rule 10b-5(b) \u201cdo not create an affirmative duty to disclose any and\n\nall material information.\u201d Matrixx, 563 U.S. at 44. \u201cMateriality alone does not demand\n\ndisclosure, nor does the duty to disclose encompass non-material information.\u201d In re ProShares,\n\n728 F.3d at 102 (quoting Panther Partners, Inc. v. Ikanos Comm\u2019ns, Inc., 538 F. Supp. 2d 662,\n\n668 (S.D.N.Y. 2008)).\n\n When a claim sounds in fraud, such as claims brought under Section 10(b) and Rule\n\n10b-5, the heightened pleading requirement of Federal Rule of Civil Procedure 9(b) also applies.\n\nThe Rule requires that a \u201cparty must state with particularity the circumstances constituting\n\nfraud.\u201d Fed. R. Civ. P. 9(b). A complaint making such allegations must \u201c(1) specify the\n\nstatements that the plaintiff contends were fraudulent, (2) identify the speaker, (3) state where\n\nand when the statements were made, and (4) explain why the statements were fraudulent.\u201d\n\n\n\n\n 28\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 29 of 121\n\n\n\n\nRombach, 355 F.3d at 170 (quoting Mills v. Polar Molecular Corp., 12 F.3d 1170, 1175 (2d Cir.\n\n1993)).\n\n The Private Securities Litigation Reform Act of 1995 (\u201cPSLRA\u201d) imposes additional\n\nrequirements on a plaintiff bringing a private securities fraud action. See 15 U.S.C. \u00a7 78u-\n\n4(b)(1). The \u201ccomplaint [must] specify each statement alleged to have been misleading, the\n\nreasons or reason why the statement is misleading, and, if an allegation regarding the statement\n\nor omission is made on information and belief, the complaint [must] state with particularity all\n\nfacts on which that belief is formed.\u201d Id. The plaintiff cannot plead \u201cthe materiality of the\n\nalleged misstatements or omissions . . . in a conclusory or general fashion.\u201d In re JP Morgan\n\nChase Sec. Litig., 363 F. Supp. 2d 595, 626 (S.D.N.Y. 2005).\n\n Moreover, under the PSLRA, where the complaint alleges scienter, the plaintiff must\n\n\u201cstate with particularity facts giving rise to a strong inference that the defendant acted with the\n\nrequisite state of mind.\u201d 15 U.S.C. \u00a7 78u-4(b)(2). Under this heightened pleading standard for\n\nscienter, a plaintiff will sufficiently allege scienter and a complaint will survive, \u201conly if a\n\nreasonable person would deem the inference of scienter cogent and at least as compelling as any\n\nopposing inference one could draw from the facts alleged.\u201d Tellabs, Inc. v. Makor Issues &\n\nRights, Ltd., 551 U.S. 308, 324 (2007). In determining whether a strong inference exists, the\n\nallegations are not to be reviewed independently or in isolation, but the facts alleged must be\n\n\u201ctaken collectively,\u201d and \u201cthe court must take into account plausible opposing inferences.\u201d Id. at\n\n323.\n\n Under Section 10(b) and Rule 10b-5(a) and (c), see 17 C.F.R. \u00a7 240.10b-5(a), (c), \u201c[t]o\n\nstate a claim for scheme liability, a plaintiff must present facts showing \u2018(1) that the defendant\n\ncommitted a deceptive or manipulative act, (2) in furtherance of the alleged scheme to defraud,\n\n\n\n\n 29\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 30 of 121\n\n\n\n\n(3) with scienter, and (4) reliance.\u2019\u201d Menaldi v. Och-Ziff Cap. Mgmt. Grp. LLC, 277 F. Supp. 3d\n\n500, 517 (S.D.N.Y. 2017) (quoting In re Alstom SA Sec. Litig., 406 F.Supp.2d 433, 474\n\n(S.D.N.Y. 2005)). With respect to scienter, \u201c[s]cheme liability claims are subject to the PSLRA\n\npleading standard.\u201d In re Turquoise Hill Res. Ltd. Sec. Litig., 625 F. Supp. 3d 164, 247\n\n(S.D.N.Y. 2022) (quoting Menaldi, 277 F. Supp. 3d at 517).\n\n The Exchange Act provides for control person liability. \u201cSection 20A . . . makes\n\nindividuals who violate \u00a7 10(b) and Rule 10b-5 liable to contemporaneous purchasers when they\n\n\u2018purchas[e] or sell[] a security while in possession of material, nonpublic information.\u2019\u201d Evoqua\n\nWater Techs. Corp., 450 F. Supp. 3d at 429 (quoting 15 U.S.C. \u00a7 78t-1(a)). Section 20(a)\n\nestablishes control person liability for \u201c[e]very person who, directly or indirectly, controls any\n\nperson liable under [the Exchange Act] . . . or of any rule or regulation thereunder\u201d and provides\n\nthat such person \u201cshall also be liable jointly and severally with and to the same extent as such\n\ncontrolled person to any person to whom such controlled person is liable.\u201d 15 U.S.C. \u00a7 78t(a).\n\n\u201cIt is axiomatic that liability for a Section 20(a) violation is derivative of liability for a Section\n\n10(b) violation.\u201d Maher v. Glob. Factors LLC, 2024 WL 3356985, at *27 (S.D.N.Y. July 8,\n\n2024) (quoting Special Situations Fund III QP, L.P. v. Deloitte Touche Tohmatsu CPA, Ltd., 33\n\nF. Supp. 3d 401, 437 (S.D.N.Y. 2014)), aff'd, 2025 WL 1554761 (2d Cir. June 2, 2025)\n\n(summary order). Therefore, for \u201ccontrol-person liability under sections 20(a) and 20A of the\n\nSecurities Exchange Act . . . a plaintiff must successfully allege a primary violation.\u201d Tung v.\n\nBristol-Myers Squibb Co., 412 F. Supp. 3d 453, 462 (S.D.N.Y. 2019). Moreover, a \u201c\u00a7 20\n\nplaintiff [must] show that [the] \u2018controlling person was in some meaningful sense a culpable\n\nparticipate in the fraud perpetrated by the controlled person.\u2019\u201d In re Lehman Bros. Mortg.-\n\n\n\n\n 30\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 31 of 121\n\n\n\n\nBacked Sec. Litig., 650 F.3d 167, 186 (2d Cir. 2011) (quoting SEC v. First Jersey Sec., Inc., 101\n\nF.3d 1450, 1472\u201373 (2d Cir. 1996)).16\n\n DISCUSSION\n\n Plaintiffs assert eight claims for relief. Plaintiffs allege that the Securities Act\n\nDefendants violated Section 11 and Section 12(a)(2) of the Securities Act and that the IPO\n\nIndividual Defendants and SPO Individual Defendants violated the control person provision of\n\nthe Securities Act.17 CCAC \u00b6\u00b6 346\u201379. They allege that the PACS Defendants (except Sanford)\n\nviolated Section 10(b) of the Exchange Act and Rule 10b-5(b) promulgated thereunder, id.\n\n\u00b6\u00b6 683\u201392; that the PACS Defendants violated Section 10(b) of the Exchange Act and Rules\n\n\n\n16\n Although Section 20(a) of the Exchange Act and Section 15 of the Securities Act are \u201cparallel\nprovisions,\u201d In re Refco, Inc. Sec. Litig., 503 F. Supp. 2d 611, 660 (S.D.N.Y. 2007), the Second\nCircuit has not \u201cdecide[d] . . . whether \u2018culpable participation\u2019 is a necessary element for \u00a7 15\nliability,\u201d In re Lehman Bros., 650 F.3d at 186. Courts within this District are divided on the\nissue. Compare Nayani v. LifeStance Health Grp., Inc., 2023 WL 3260260, at *4 (S.D.N.Y.\nMay 4, 2023) (holding that plaintiff \u201cmust not only plead a primary violation\u2014such as a\nviolation of section 11\u2014but also must allege meaningful culpable conduct by that individual\nbeyond mere status as a director or officer\u201d (citation modified)) with In re Hub Cyber Sec. Ltd.,\n2025 WL 872078, at *18 (S.D.N.Y. Mar. 20, 2025) (holding that textual distinctions between\nSection 15 and Section 20(a) indicate that there is no \u201cculpable conduct\u201d requirement for Section\n15). This Court agrees with Judge Lynch\u2019s analysis that, despite overlap in statutory text and\npurpose, there is a key difference between the two control person liability provisions. In re\nRefco, 53 F. Supp. 2d at 660 n.43. Section 15 of the Securities Act provides that a \u201ccontrolling\nperson\u201d may not be held liable if they \u201chad no knowledge of or reasonable ground to believe in\nthe existence of the facts by reason of which the liability of the controlled person is alleged to\nexist,\u201d 15 U.S.C. \u00a7 77o(a), whereas Section 20(a) of the Exchange Act provides that the\n\u201ccontrolling person\u201d may not be held liable if they \u201cacted in good faith and did not directly or\nindirectly induce the act . . . constituting the violation,\u201d id. \u00a7 78t(a). Congress\u2019s decision to\nintroduce this distinction and thereby require that there be a lack of good faith for a Section 20(a)\nviolation factored heavily in the Second Circuit\u2019s decision announcing the \u201cculpable\nparticipation\u201d requirement. See Lanza v. Drexel & Co., 479 F.2d 1277, 1299 (2d Cir. 1973)\n(\u201cThe intent of Congress in adding this section, passed at the same time as the amendment to\nSection 15 of the 1933 Act, was obviously to impose liability only on those directors who fall\nwithin its definition of control and who are in some meaningful sense culpable participants in the\nfraud perpetrated by controlled persons.\u201d).\n17\n The \u201cIPO Individual Defendants\u201d are Murray, Hancock, Apt, Lewis, Millar, and Leavitt; the\n\u201cSPO Individual Defendants\u201d are Murray, Hancock, Apt, Lewis, Millar, Leavitt, and Dilsaver.\n\n\n 31\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 32 of 121\n\n\n\n\n10b-5(a) and (c) promulgated thereunder, id. \u00b6\u00b6 693\u2013703; and that PACS, Murray, and Hancock\n\nviolated Section 10(b) and Rules 10b5-(a) and (c) promulgated thereunder, id. \u00b6\u00b6 704\u201313. They\n\nalso allege that PACS, Murray, and Hancock violated Section 20A of the Exchange Act, id.\n\n\u00b6\u00b6 714\u201324, and that Murray and Hancock violated Section 20(a) of the Exchange Act, id.\n\n\u00b6\u00b6 725\u201330.\n\nI. Judicial Notice and Incorporation by Reference\n\n In support of their motion to dismiss, the PACS Defendants attach sixteen exhibits to the\n\ndeclaration of Colleen C. Smith. See Dkt. No. 88-12. The enumerated exhibits include: (1) the\n\nCCAC; (2) an appendix of the challenged statements from the CCAC; (3) the IPO prospectus;\n\n(4) the SPO prospectus; (5) a memorandum regarding the COVID-19 waiver program, published\n\nby the CMS and dated May 1, 2023; (6) an article by Zahida Siddiqi, published on the website\n\nSkilled Nursing News, titled Nursing Homes Face \u2018Sobering Reality\u2019 as PHE Ends Amid\n\nOperational, Financial Challenges; (7) PACS\u2019s Form 8-K filed on June 16, 2025; (8) ASC\n\nSection 606; (9) PACS\u2019s Form 10-Q for Q2 2024; (10) the Hindenburg Report; (11) an article by\n\nHindenburg Research titled A Personal Note from Our Founder, dated January 15, 2025; (12) the\n\nNovember 2025 Form 10-K filed for fiscal year 2024; (13) PACS\u2019s Form 10-Q for Q3 2024;\n\n(14) a graph and chart generated by Factset displaying PACS Group, Inc.\u2019s stock prices for the\n\nperiod of April 11, 2024 through February 17, 2026; (15) PACS\u2019s Form 10-Q for Q1 2024; and\n\n(16) an analyst report by Truist regarding PACS, dated November 5, 2025.\n\n Plaintiffs contend that it would be improper for the Court to consider the Siddiqi article,\n\nwhich is Ex. 6, and that the contents of all other exhibits \u201cmust not be accepted as true.\u201d Dkt.\n\nNo. 89 at 18. Defendants do not respond to Plaintiffs\u2019 contention in their reply. See Dkt. No. 91.\n\nTaking together Federal Rule of Evidence 201 and Federal Rule of Civil Procedure 10(c), \u201cthe\n\nCourt may consider documents that are referenced in the complaint, documents that the plaintiffs\n\n\n 32\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 33 of 121\n\n\n\n\nrelied on in bringing suit and that are either in the plaintiffs\u2019 possession or that the plaintiffs\n\nknew of when bringing suit, or matters of which judicial notice may be taken.\u201d In re Bank of\n\nAm. AIG Disclosure Sec. Litig., 980 F. Supp. 2d 564, 570 (S.D.N.Y. 2013) (citing Chambers,\n\n282 F.3d at 153). \u201c[A] court may take judicial notice of \u2018a fact that is not subject to reasonable\n\ndispute because it . . . can be accurately and readily determined from sources whose accuracy\n\ncannot reasonably be questioned.\u2019\u201d CITGO Petroleum Corp. v. Ascot Underwriting Ltd., 158\n\nF.4th 368, 387 (2d Cir. 2025) (quoting Fed. R. Evid. 201(b)). This principle resolves the issue.\n\nThe Court does not consider Ex. 6, which is a website, unmentioned in the CCAC, that is run by\n\na private party whose accuracy is not reasonably unquestionable as Rule 201(b) requires. The\n\nCourt also does not take judicial notice or otherwise consider Ex. 1 and Ex. 2, referring to the\n\nCCAC as filed instead. However, the Court may and does consider the exhibits that reference\n\nSEC filings (Exs. 3\u20134, 7, 9, 12\u201313, 15), which are referenced in\u2014and at times integral to\u2014the\n\nCCAC. For the same reasons, the Court considers the CMS\u2019s memorandum regarding the\n\nCOVID-19 waiver program\u2019s expiration (Ex. 5) and Hindenburg Report (Ex. 10). As for the\n\nJanuary 15, 2025 article by Hindenburg regarding its founder (Ex. 11), the Factset stock chart\n\n(Ex. 14), and the Truist analyst report (Ex. 16), the Court may consider such documents since\n\nthey were, at the very least, knowable by Plaintiffs at the time of the CCAC, but the Court does\n\nnot rely on any of them in adjudicating the motions.18\n\n\n\n18\n The Underwriter Defendants attached two exhibits to the declaration of Susan L. Saltzstein:\n(1) the IPO registration statement and (2) the IPO prospectus. See Dkt. No. 87. Along with their\nmemorandum of law in opposition, Plaintiffs attached five exhibits to the declaration of Alfred\nL. Fatale III: (1) an appendix of the challenged statements from the CCAC; (2) a copy of ASC\n250; (3) a copy of ASC 606; (4) a reproduction of the About Skilled Nursing News webpage from\nthe website Skilled Nursing News; and (5) a production of the About Us webpage from WTWH\nMedia. See Dkt. No. 90. These exhibits largely overlap with those presented by the PACS\nDefendants. The Court considers the ASC reproductions and the SEC filings but does not\nconsider the webpages.\n\n\n 33\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 34 of 121\n\n\n\n\n Though the Court considers certain exhibits, the Court does not accept the truth of the\n\nmatters asserted therein. See, e.g., Donoghue v. Gad, 2022 WL 3156181, at *5 n.7 (S.D.N.Y.\n\nAug. 8, 2022) (\u201c[W]hether the Court considers the SEC filings attached to Defendant's\n\ndeclaration because they are integral to the Complaint or because it may take judicial notice of\n\nsuch records, its review is limited to determining what the records state, not whether what the\n\ndocuments state is true.\u201d); SEC v. Fiore, 416 F. Supp. 3d 306, 328\u201329 (S.D.N.Y. 2019)\n\n(\u201cAlthough courts may take judicial notice of legally required public disclosure documents filed\n\nwith the SEC, they may not take judicial notice of the documents for the truth of the matters\n\nasserted in them, but rather to establish that the matters had been publicly asserted.\u201d (citation\n\nmodified)). Accordingly, the Court disregards characterizations of the noticed documents and\n\nonly views to \u201cdetermine what statements the documents contained.\u201d Lewis v. M&T Bank, 2022\n\nWL 775758, at *1 (2d Cir. Mar. 15, 2022) (summary order) (citation modified).\n\n A. Short-Seller Report\n\n The reliability and role of the Hindenburg Report in the Court\u2019s analysis warrants further\n\ndiscussion as it is integral to the CCAC in substantiating many of Plaintiffs\u2019 factual allegations.\n\nHindenburg Research is \u201c[a] short-seller, \u2018an entity with an economic interest in driving down\n\nthe company's stock price,\u2019 [that] has the same right to express opinions and analysis as any\n\nother market participant.\u201d Grifols, S.A. v. Yu, 2025 WL 1826611, at *11 (S.D.N.Y. July 2, 2025)\n\n(quoting In re DraftKings Inc. Sec. Litig., 650 F. Supp. 3d 120, 154 (S.D.N.Y. 2023)). But\n\n\u201cunlike the issuer, the short seller is not presumed to have special knowledge or material non-\n\npublic information,\u201d id. at *12, and the short seller has an incentive to skew its reports in its\n\neconomic interests. As a result, courts have considered the information reported in short-seller\n\nreports \u201cwith caution.\u201d DraftKings, 650 F. Supp. 3d at 155. The cases have tended to fall into\n\ntwo different categories.\n\n\n 34\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 35 of 121\n\n\n\n\n First, there is a category of short-seller reports that document firsthand observations by\n\nthe short seller or provide economic analysis of publicly available information. See, e.g., In re\n\nZeta Glob. Holdings Corp. Sec. Litig., 2026 WL 1971169, at *9 (S.D.N.Y. July 8, 2026)\n\n(crediting allegations where plaintiff\u2019s expert \u201cprovided independent corroboration\u201d of the short-\n\nseller report\u2019s findings); zCap Equity Fund LLC v. LuxUrban Hotels Inc., 792 F. Supp. 3d 407,\n\n436 (S.D.N.Y. 2025) (crediting allegations where \u201cwell-pled independent and particularized facts\n\ncorroborate[d] those attributed to\u201d the short-seller report, the report \u201cidentifie[d] its source\n\n. . . rather than terming the source confidential or anonymous,\u201d and the identified source \u201cwas in\n\na position . . . to know the facts attributed to him\u201d (citation modified)); Saskatchewan Healthcare\n\nEmp.\u2019s Pension Plan v. KE Holdings Inc., 718 F. Supp. 3d 344, 382\u201383 (S.D.N.Y. 2024)\n\n(crediting allegations from short-seller report that \u201cdid not rely on confidential sources,\u201d\n\n\u201cexplain[ed] the methodology that it used to calculate the number of stores and agents\u201d at the\n\ncompany discussed, \u201cdeveloped a computer program\u201d for its analysis, and \u201ccorroborate[d] its\n\nanalysis of the Company\u2019s accessible data\u201d through \u201cin-person visits\u201d); In re Hebron Tech. Co.,\n\nLtd. Sec. Litig., 2021 WL 4341500, at *13 (S.D.N.Y. Sept. 22, 2021) (\u201c[W]here there is a basis\n\nto view the short seller\u2019s factual allegations as reliable as opposed to fabricated based on self-\n\ninterest\u2014for example, where facts are cited that tend to substantiate these allegations or reveal\n\nthe basis for the short seller\u2019s factual assertions\u2014those allegations are more apt to be viewed as\n\nreliable.\u201d); In re Longwei Petroleum Inv. Holding Ltd. Sec. Litig., 2014 WL 285103, at *4\n\n(S.D.N.Y. Jan. 27, 2014) (crediting short-seller report where other sources, including \u201cinterviews\n\nwith local residents,\u201d \u201ca failed safety inspection,\u201d and \u201cdiscrepancies in revenues reported to the\n\nSEC and [the Chinese State Administration for Industry & Commerce] for the same operations\n\nduring part of the class period\u201d substantiated allegations when \u201c[t]aken together\u201d). In these\n\n\n\n\n 35\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 36 of 121\n\n\n\n\ninstances, the author of the report has been willing to stake its name and reputation on the\n\nanalysis. The analysis itself can be replicated and flaws identified. The author himself or herself\n\npresumably is subject to deposition or a subpoena for documents if the information is relevant.\n\nIn other words, the defendant will have the opportunity to test the veracity of the allegations\n\nagainst it. The courts have been willing to give some weight to the information contained in\n\nsuch reports.\n\n Second, there are short-seller reports that rely on second-hand information relayed to the\n\nshort seller by confidential witnesses. The short seller has seldom independently confirmed the\n\naccuracy of the statements or even the witness\u2019s a position to have observed what he or she\n\nrecounts. The courts have treated such information in a short-seller report with great skepticism.\n\nSee, e.g., Smith v. PureCycle Techs., Inc., 2024 WL 5186586, at *12 (S.D.N.Y. Dec. 20, 2024)\n\n(\u201c[S]peculative statements [from unnamed sources] in the short-seller report, if not corroborated,\n\nare fairly discounted or put aside altogether as ill-pled.\u201d (internal quotation marks omitted));\n\nDraftKings, 650 F. Supp. 3d at 154\u201355 (not crediting allegations in short-seller report that,\n\n\u201crather than being based on identifiable and/or verifiable sources, [were] based on\n\n\u2018confidential\u2019\u2014that is, unidentified and unspecified\u2014sources\u201d); see also D\u2019Agostino v. Innodata\n\nInc., 2026 WL 1133664, at *15 (D.N.J. Apr. 27, 2026) (not crediting allegations drawn from\n\nshort-seller report that are \u201cattributed to unidentified former employees\u201d but crediting the short\n\nseller\u2019s \u201cindependent research . . . to the extent that the research does in fact support th[e]\n\nclaims\u201d); Ng v. Berkeley Lights, Inc., 2024 WL 695699, at *9 (N.D. Cal. Feb. 20, 2024) (not\n\ncrediting allegations in operative pleadings that \u201crelie[d] on the short-seller\u2019s own assertions that\n\nthe characterizations passed on by the [confidential] witnesses were credible\u201d where \u201cno\n\nparticularized details about the[] former employees\u2019 job titles or period of employment\u201d were\n\n\n\n\n 36\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 37 of 121\n\n\n\n\ndisclosed). When a \u201cshort-seller report relied upon by a securities plaintiff itself relies on\n\n\u2018confidential\u2019 or anonymous sources, without corroboration,\u201d the \u201cthe risk of motivated reporting\n\n. . . is twinned with the reliability concerns presented by anonymous sourcing.\u201d Long Miao v.\n\nFanhua, Inc., 442 F. Supp. 3d 774, 801 (S.D.N.Y. 2020).\n\n There are important differences between a confidential witness upon whom a plaintiff\n\ndirectly relies and the statement of a purported confidential witness as reflected in a short-seller\n\nreport. Courts routinely have permitted a plaintiff to cite and rely upon information provided to\n\ncounsel by a confidential witness without requiring the name of that witness to be disclosed in\n\nthe complaint. See, e.g., Gimpel, 156 F.4th at 129\u201330; Pension Tr. Fund for Operating Eng\u2019rs v.\n\nClarivate Plc, 826 F. Supp. 3d 296, 333 (E.D.N.Y. 2026); Freudenberg v. E*Trade Fin. Corp.,\n\n712 F. Supp. 2d 171, 196 (S.D.N.Y. 2010). Plaintiffs are not required \u201cto reveal confidential\n\nsources at the pleading stage.\u201d Novak v. Kasaks, 216 F.3d 300, 313 (2d Cir. 2000). As long as\n\nfacts are alleged showing that the confidential witness is in a position to have knowledge of the\n\nmatters to which she addresses herself, the court credits such allegations. See In re AppHarvest\n\nSec. Litig., 684 F. Supp. 3d 201, 261\u201363 (S.D.N.Y. 2023) (citing Novak, 216 F.3d at 314)\n\n(parsing through allegations by confidential witnesses to determine whether each was in a\n\nposition to have knowledge of the facts alleged); see also, e.g., Sherman, 156 F.4th at 164\u201365;\n\nBlanford, 794 F.3d at 307. In such a circumstance, counsel for the plaintiff citing confidential\n\nwitnesses with whom she has spoken puts her professional and personal interests at risk. A\n\nlawyer filing a complaint must certify that the pleading is \u201cto the best of the person\u2019s knowledge,\n\ninformation, and belief, formed after an inquiry reasonable under the circumstances.\u201d Fed. R.\n\nCiv. P. 11(b). Counsel cannot lie or mislead about what the witness has said. \u201cWhen citing\n\nalleged confidential witnesses in a complaint, the certification means that counsel has spoken\n\n\n\n\n 37\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 38 of 121\n\n\n\n\nwith these confidential witnesses and knows who they are.\u201d In re Lehman Bros. Sec. & ERISA\n\nLitig., 2013 WL 3989066, at *4 (S.D.N.Y. July 31, 2013). If the complaint misrepresents,\n\ncounsel is subject to sanctions. See Levine v. FDIC, 2 F.3d 476, 479 (2d Cir. 1993) (affirming\n\ndistrict court\u2019s imposition of Rule 11 sanctions on attorney that \u201ccould not substantiate the\n\nallegations contained\u201d in the complaint); see also Maiorino v. N.Y.C. Dep\u2019t of Sanitation, 2026\n\nWL 2098145, at *5 (S.D.N.Y. July 21, 2026) (imposing Rule 11 sanctions where attorney had no\n\nnon-frivolous basis to make a claim given \u201cunrefuted documentary evidence\u201d in attorney\u2019s\n\npossession at the time of filing the complaint). Moreover, a party confronted with allegations\n\nfrom a confidential witness cited in a complaint has a ready mechanism to test the truth of the\n\nallegations against it. While a plaintiff may be able initially to hide the identity of the persons\n\nwho provide the allegation upon which a complaint rests, once the complaint has survived a\n\nmotion to dismiss, that information can no longer be concealed. A defendant can demand that\n\nthe confidential witness\u2019s identity be disclosed and the witness deposed. See, e.g., In re\n\nTurquoise Hill Res. Ltd. Sec. Litig., 2023 WL 4362933, at *2 (S.D.N.Y. July 6, 2023) (\u201cThe\n\nSecond Amended Complaint relies upon Mr. Adams as a confidential witness and Defendants\n\nare entitled to inquire into his role and knowledge as a confidential witness.\u201d); Plumbers &\n\nPipefitters Loc. Union No. 630 Pension-Annuity Tr. Fund v. Arbitron, Inc., 278 F.R.D. 335, 341\n\n(S.D.N.Y. 2011) (\u201cWhere a party has attempted to satisfy the pleading requirements of the\n\nPSLRA by showcasing statements from a limited number of confidential witnesses, it may not\n\nthereafter refuse to disclose who they are on grounds of work product.\u201d (internal quotation marks\n\nomitted)); In re Bear Sterns Co., Inc. Sec., Derivative, & ERISA Litig., 2012 WL 259326, at *3\n\n(S.D.N.Y. Jan. 27, 2012) (granting motion to compel identification of confidential witnesses\n\ncited in complaint); Campo v. Sears Holdings Corp., 371 F. App\u2019x 212, 216 n.4 (2d Cir. 2010)\n\n\n\n\n 38\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 39 of 121\n\n\n\n\n(summary order) (discussing that the district court did not err in \u201corder[ing] that the confidential\n\nwitnesses in the complaint be deposed\u201d at the motion-to-dismiss stage because \u201canonymity of the\n\nsources of plaintiffs\u2019 factual allegations concerning scienter frustrated the requirement\u201d of\n\nPSLRA and because \u201cFed. R. Civ. P. 11 requires that there be a good faith basis for the factual\n\nand legal contentions in a pleading\u201d that the court may justifiably probe when there are disputes\n\nas to the truthfulness of quoted language from confidential witnesses). The statement from the\n\nconfidential witness thus stands on no different footing than any other allegation of fact made by\n\nthe plaintiff\u2014by definition, it will have been supported by a reasonable investigation, and it is\n\nsubject to adversarial testing.\n\n A complaint that rests solely upon a short seller\u2019s report as to what a confidential witness\n\nhas told the reporter stands on entirely different footing. By definition, counsel will not have\n\nspoken with the witness. The most that counsel can say is that he or she has viewed the report\n\nthat contains the information that is reported by the short seller. But that, in and of itself,\n\nprovides no assurance of reliability. The parties and the court system will have no assurance that\n\nthe allegation is based on a reasonable investigation, which allegations of fact in federal court\n\nrequire. A short seller\u2019s statement that he or she has been told \u201cx\u201d or \u201cy\u201d from a witness who is\n\nunwilling to disclose her name does not mean that the witness has said what she was reported to\n\nhave said, much less whether what is said is accurate or taken out of context. By the same token,\n\nthe complaint\u2019s allegation that the confidential witness has said a certain thing to the short seller\n\ndoes not mean that the witness has said any such thing. Equally important, a lawyer who relies\n\nupon a short seller\u2019s report of what a confidential witness has told the short seller has deprived\n\nthe defendant of any real opportunity to confront and to test the evidence against it. It is one\n\nthing for a complaint to rely upon a confidential witness with whom counsel has spoken. It is\n\n\n\n\n 39\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 40 of 121\n\n\n\n\nanother thing entirely for a complaint to rely upon a witness whose identity is shrouded from\n\ndetection both to the plaintiff and to anyone else save the short seller. In the latter instance, the\n\ndefendant cannot through an interrogatory obtain the identity of the witness. The identity will be\n\nin possession of a third party with its own rights and its own interests to protect, including rights\n\nof confidentiality potentially protected by state law. See, e.g., Grifols, S.A. v. Yu, 2026 WL\n\n2445530, at *5 (S.D.N.Y. Aug. 20, 2026) (holding that financial information reported by a short\n\nseller may constitute news protected by New York Shield Law even if the report is subsidized by\n\na short position but rejecting application of the privilege for insufficient showing of editorial\n\njudgment).\n\n Along the same line, courts have declined to give weight to allegations in an operative\n\ncomplaint that are drawn from the confidential witnesses\u2019 statements in another lawsuit\u2019s\n\ncomplaint. A court may rely upon factual allegations or reports incorporated in complaints from\n\nother proceedings where they are detailed and independently corroborated. See Sherman, 156\n\nF.4th at 166. However, where there is not such corroboration or detail, \u201c[a]llowing counsel to\n\nrely on confidential witness statements recounted in a separate complaint would provide the\n\nCourt little assurance that the factual contentions have any evidentiary support.\u201d In re Lehman\n\nBros., 2013 WL 3989066, at *4. In those circumstances, at least, the complaint is drawing from\n\na source that, in turn, is required to be based on reasonable inquiry enforceable by sanctions.\n\nThe short seller, by contrast, is not required to adhere to any defined standards of reliability.\n\nThere is thus even less reason to give weight to statements from confidential witnesses contained\n\nin such reports and merely repeated in the operative complaint.\n\n The Court therefore gives limited and qualified weight to the statements in the\n\nHindenburg Report. It accepts the allegations regarding the Hindenburg Report for the fact of\n\n\n\n\n 40\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 41 of 121\n\n\n\n\nwhat it said, rather than the truth of the allegations. That a report was issued critiquing PACS\u2019s\n\naccounting is relevant, for example, to issues of loss causation. The Court also takes into\n\naccount for their truth the financial analysis and independent research contained in the\n\nHindenburg Report. The short-seller reviewed public filings and data to create charts that\n\ndetailed the growth of PACS\u2019s SNFs and the changes in its revenue in 2023 and the first half of\n\n2024. See, e.g., Dkt. No. 88-10 at 18 (chart titled \u201cMedicare Revenue After the Covid Pandemic:\n\nReported (thousands)\u201d). The Report also situated PACS in industry context, assessing the\n\nCompany\u2019s acquisition of Plum Healthcare in November 2021 and comparing PACS\u2019s skilled\n\ncare Medicare revenue and growth to that of Ensign Group. Id. at 11, 15\u201318. Such information\n\nis no different from independent economic analysis and investigative work that courts also\n\naccept at the pleading stage in other cases. See Carpenters Pension Tr. Fund of St. Louis v.\n\nBarclays PLC, 750 F.3d 227, 234 n.8 (2d Cir. 2014) (crediting allegations of loss causation for a\n\nSection 10(b) claim that relied on \u201can analysis conducted by an economics expert\u201d (internal\n\nquotation marks omitted)); see also In re London Silver Fixing, Ltd., Antitrust Litig., 213 F.\n\nSupp. 3d 530, 563 (S.D.N.Y. 2016) (\u201cThe Court is not, however relying on Plaintiffs\u2019 opinions\n\n(expert or otherwise) but rather on Plaintiffs\u2019 factual assertions regarding pricing and other\n\neconomic data, which courts generally accept at the pleading stage.\u201d). It can be confronted and\n\ntested, and other district courts have considered it. See, e.g., Saskatchewan Healthcare Emp.\u2019s\n\nPension Plan, 718 F. Supp. 3d at 382\u201383; In re EHang Holdings Ltd. Sec. Litig., 646 F. Supp. 3d\n\n443, 459\u201360 (S.D.N.Y. 2022) (crediting report that included \u201cextensive photographic evidence\u201d\n\nand \u201canalyze[d] government records, credit reports, and Mandarin-English translations\u201d of, inter\n\nalia, revenue contracts and regulatory approvals); Ho v. Duoyuan Glob. Water, Inc., 887 F.\n\n\n\n\n 41\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 42 of 121\n\n\n\n\nSupp. 2d 547, 564 (S.D.N.Y. 2012) (permitting reliance on a financial analyst\u2019s report \u201cto\n\nsupport a securities fraud allegation\u201d at the pleadings stage).\n\n The Court does discount the statements from the former PACS employees who allegedly\n\nprovided information to Hindenburg Research. As noted above, courts view confidential\n\nstatements within short-seller reports with skepticism, and the Hindenburg Report\u2019s recital of\n\nstatements from former PACS employees is no exception. Those remarks are attributed to\n\npersons who are described only in general terms alternately as \u201ca former regional clinical\n\nleader,\u201d CCAC \u00b6 113 (quoting Dkt. No. 88-10 at 20); see also id. \u00b6 147 (quoting the same\n\nlanguage), \u201ca regional manager,\u201d id. \u00b6 126 (quoting Dkt. No. 88-10 at 12), \u201cone former\n\nAdministrator,\u201d id. \u00b6 153 (quoting Dkt. No. 88-10 at 19), and a \u201cformer employee,\u201d id. \u00b6 231\n\n(quoting Dkt. No. 88-10 at 25). The attributions lack sufficient indicia of reliability. See\n\nDraftKings, 650 F. Supp. 3d at 155. The Hindenburg Report does not specifically identify each\n\nspeaker by tenure and time period at PACS, location of work, or specific role and reporting\n\nrelationships.19 There is no reason to believe that the witnesses would be in a position to make\n\ncomments about PACS\u2019 practices as a general matter. There is not sufficient information offered\n\nthat Defendants would be able to confront its accusers and test the veracity of the statements they\n\nhave made, including whether what they describe was idiosyncratic and localized or general and\n\ncompany-wide. Moreover, none is alleged to have interacted with the Individual Defendants or\n\nto have a position in management that would buttress claims of company-wide dysfunction.20\n\n\n\n19\n At times, a speaker is attributed with a broad state location (e.g., \u201cformer administrator from\nColorado said the respiratory program was pushed onto their facility by PACS management\u201d),\nbut greater particularity\u2014likely even greater than that of firsthand confidential sources\u2014is\nneeded to overcome skepticism of secondhand confidential sources. See Dkt No. 88-10 at 19.\n20\n Indeed, to the extent the CCAC contends there was top-down coordination of Medicare fraud,\nthe sources of the Hindenburg Report put that allegation into dispute. One former administrator\n\n\n\n 42\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 43 of 121\n\n\n\n\nCf. AppHarvest, 684 F. Supp. 3d 201, 249 (S.D.N.Y. 2023) (\u201c[C]ourts will credit confidential\n\nsources whose positions and/or job responsibilities are described sufficiently to indicate a high\n\nlikelihood that they actually knew facts underlying their allegations.\u201d (quoting In re Weight\n\nWatchers Int\u2019l Inc. Sec. Litig., 504 F. Supp. 3d 224, 246 (S.D.N.Y. 2020)).\n\n With these principles in mind, the Court turns to Plaintiffs\u2019 claims.\n\nII. Allegations of Material Falsity Common to Exchange Act and Securities Act Claims\n\n Plaintiffs allege that a series of materially false and misleading statements runs through\n\nthe IPO Offering Documents, the SPO Offering Documents, and PACS\u2019s filings on Form 10-Q,\n\nas well as its press releases, earnings calls, and presentations. See, e.g., CCAC \u00b6\u00b6 437, 485. The\n\nstandards for falsity and materiality are identical under the Securities Act and Exchange Act and\n\nthe two accordingly are ordinarily analyzed together. See, e.g., Chen v. Missfresh Ltd., 701 F.\n\nSupp. 3d 236, 253 n.7 (S.D.N.Y. 2023) (\u201c[T]he \u2018legal standard for misstatements or omissions of\n\nmaterial fact\u2019 is the same under the Securities Act and Exchange Act.\u201d (quoting In re Teva Sec.\n\nLitig., 671 F.Supp.3d 147, 188 (D. Conn. May 1, 2023))); Weight Watchers, 504 F. Supp. 3d at\n\n247; Rombach, 355 F.3d at 172 n.7.\n\n The Court thus first addresses those statements that are common to Plaintiffs\u2019 Securities\n\nAct and Exchange Act claims and then turns to whether Plaintiffs have satisfied the scienter and\n\nloss causation elements for an Exchange Act claim. After analyzing the Exchange Act, the Court\n\nturns to the additional allegations of falsity that form the basis for Plaintiffs\u2019 Securities Act\n\nclaims. For the reasons that follow, the Court holds that Plaintiffs have stated a claim for a\n\nviolation of Section 11 of the Securities Act with respect to the SPO Offering Documents. It\n\n\n\nnoted that Medicare Part B billing \u201cstarted in California and spread across the PACS network,\njust like the abuse of COVID waivers.\u201d Dkt. No. 88-10 at 19 (\u201cI think it started down in Santa\nMonica with a building that just started blowing this up . . .\u201d (internal quotation marks omitted)).\n\n\n 43\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 44 of 121\n\n\n\n\ndismisses for failure to state a claim for relief all other misstatement or material omissions claims\n\nalleged in the CCAC.\n\n Plaintiffs allege that PACS\u2019s report of its revenue and income for its first and second\n\nquarters of 2024, as reported in the SPO Offering Documents and PACS\u2019s reports on Form 10-Q\n\nfor the relevant periods, was false and misleading. They also allege that PACS\u2019s narrative\n\nstatements in both the IPO and SPO Offering Documents, Form 10-Qs, earnings calls, press\n\nreleases, and presentations were false and misleading. The Court starts with PACS\u2019s reports of\n\nits financial results and then turns to the narrative statements.\n\n A. PACS\u2019s Report of Financial Results\n\n Plaintiffs allege that PACS\u2019s report of its revenue, earnings, earnings per share, net\n\nincome, and other revenue-dependent metrics (e.g., Medicare revenue per patient day) were false\n\nand misleading. See Stmts. 7\u20138, 12\u201314, 17\u201318, 22; see also, e.g., Dkt. No. 88-12 at 78\u201379, 139\u2013\n\n48. During the Class Period, PACS reported that its revenue for the first quarter of 2024 was\n\n$934.7 million with a net income of $49.1 million; and for the second quarter, revenue was\n\n$981.8 million and net income was a loss of $10.9 million. CCAC \u00b6\u00b6 437, 485. But in\n\nNovember 2025, PACS restated its financial reports for these quarters, subtracting $14.9 million\n\nfrom its previously reported Q1 2024 revenue and subtracting $46.1 million from Q2 2024\n\nrevenue. While the change in PACS\u2019s revenue may not seem consequential at first blush, it had\n\nan impact on PACS\u2019s bottom line. Net income for the first quarter was restated to be over a\n\nfourth lower, and the loss reported for the second quarter nearly tripled. Dkt. No. 88-12 at 143\u2013\n\n44. Plaintiffs allege that PACS\u2019 report of its revenue and earnings for the first and second\n\nquarters were materially false and actionable misstatements of fact that misled reasonable\n\ninvestors. See CCAC \u00b6 285, 290(d). Because, as the parties agree, the actionability of the\n\nfinancial misstatements turns on one primary legal issue\u2014the legal significance of the\n\n\n 44\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 45 of 121\n\n\n\n\nCompany\u2019s restatement of revenue\u2014the Court considers the accounting statements altogether.21\n\nCompare Dkt. No. 83 at 24\u201331 with Dkt. No. 89 at 33\u201334.\n\n PACS represented to investors\u2014and there is no dispute between the parties\u2014that the\n\nCompany adhered to ASC 606 to recognize revenue, and the Company said that it applied this\n\nsame methodology in both the IPO and SPO Offering Documents and the November 2025\n\nRestatement. ACS 606 requires that when the consideration to be received in exchange for the\n\ntransfer of goods and services is variable, revenue may be recognized only after appropriately\n\naccounting for such variable consideration (i.e., by only attributing the portion for which it is not\n\n\u201cprobable that a significant reversal\u201d of the reported revenue will occur \u201cwhen the uncertainty\n\nassociated with the variable consideration is subsequently resolved\u201d). See Dkt. No. 90-3 at 30\n\n(ASC 606-10-32-11).\n\n The parties disagree whether PACS\u2019s report of its revenue and earnings was an opinion\n\nor a statement of fact. On the one hand, Plaintiffs contend that \u201c[a] company\u2019s report of\n\nobjective, numerical line items as financial results\u201d is a factual statement, and that the\n\nRestatement confirmed that the original financials, as mentioned in the accounting statements\n\nand the SPO Offering Documents, were \u201cobjectively wrong.\u201d Dkt. No. 89 at 24. On the other\n\nhand, Defendants rely on ASC 606 to argue that PACS\u2019s historical reports of its financial results\n\nconstituted \u201caccounting judgments\u201d related to revenue recognition and are therefore inactionable\n\nopinions. Dkt. No. 83 at 24\u201327. Defendants assert that ASC 606 inherently requires subjective\n\njudgment and involves a \u201cnon-exhaustive list of factors\u201d expressed in ASC 606-10-32-12, Dkt.\n\n\n\n21\n The 2024 Annual Report does not explicitly revise the metrics for PACS\u2019s average daily\nMedicare rates and revenue per patient day that Defendants Murray and Apt stated, respectively,\non the May 14, 2024 earnings call. See CCAC \u00b6\u00b6 442, 446. But because those operational\nmetrics require reported revenue as an input, and the relevant revenue numbers were restated,\nthose metrics were necessarily incorrect when told to investors.\n\n\n 45\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 46 of 121\n\n\n\n\nNo. 83 at 25, such as market volatility, actions of third parties, and the company\u2019s \u201cexperience\u201d\n\nor \u201cpractice[s]\u201d with respect to the reimbursement contracts, Dkt. No. 88-8 at 30\u201331. In their\n\nview, PACS\u2019s accounting-related opinions were honestly held at the time of the original financial\n\nreports, and the November 2025 restatement does not \u201csuggest that [PACS] knew at the time of\n\nthe 10-Qs that its earlier judgment was wrong.\u201d Id. at 27. As opinions, Defendants contend the\n\nstatements are not otherwise actionable for containing an embedded misleading fact or for\n\nomitting necessary facts that go to the basis of the Company\u2019s belief in its revenue reporting,\n\ngiven that uncertainty and regulatory risk associated with revenue recognition was disclosed to\n\ninvestors. Id. at 28\u201330.\n\n The appropriate characterization and doctrinal treatment of a company\u2019s reported results\n\nunder GAAP has been the subject of some discussion in the Second Circuit. In Fait v. Regions\n\nFinancial Corp., 655 F.3d 105 (2d Cir. 2011), the plaintiff claimed that the defendants, including\n\nthe issuing company, violated Sections 11 and 12(a)(2) of the Securities Act by failing to write\n\ndown the goodwill and sufficiently increase the loan loss reserves in the financial reports that it\n\nincorporated into its offering documents. The district court dismissed the complaint on grounds\n\nthat the financial reports of goodwill and loan loss reserves were inactionable statements of\n\nopinion, 712 F. Supp. 2d 117 (S.D.N.Y. 2010), and the Second Circuit affirmed, 655 F.3d 105.\n\nExamining first the company\u2019s report of goodwill, the Second Circuit explained that it was\n\n\u201csubjective\u201d and did not involve \u201cmatters of objective fact.\u201d 655 F.3d at 110. \u201cGAAP requires\n\nthat any excess of the purchase price over the fair value of the asset acquired and liabilities\n\nassumed be reported as good will.\u201d Id. at 110; see id. at 108 n.1 (discussing the Financial\n\nAccounting Standard Board (\u201cFASB\u201d) Statement of Financial Accounting Standards (\u201cSFAS\u201d)\n\nNo. 141). But, while the purchase price might be objectively determinable, the court reasoned\n\n\n\n\n 46\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 47 of 121\n\n\n\n\nthat \u201cfair value\u201d ultimately \u201cdepend[s] on management\u2019s determination,\u201d and that any \u201cestimate\n\nof the fair value . . . will vary depending on the particular methodology and assumptions used.\u201d\n\nId. at 110\u201311. The court thus concluded that the defendant\u2019s \u201cstatements regarding goodwill\n\n. . . [were] subjective ones.\u201d Id. at 111. The court\u2019s analysis did not end with the conclusion that\n\nthe reported goodwill was a matter of opinion. It held that such statements would be actionable\n\nif the plaintiff alleged that the defendants did not believe the statements regarding goodwill at the\n\ntime they were made. Id. at 111\u201312 (citing Virginia Bankshares, Inc. v. Sandberg, 501 U.S.\n\n1083, 1091\u201396 (1991)); see also Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1131 (2d Cir.\n\n1994) (\u201cA statement of reasons, opinion or belief . . . can be actionable under the securities laws\n\nif the speaker knows the statement to be false.\u201d). Because the plaintiff relied mainly on\n\nallegations about adverse market conditions and did not allege that the defendants failed to\n\nbelieve the statements when made, the plaintiff did not state a claim under Sections 11 and 12.\n\nThe court also concluded that the plaintiff\u2019s allegations regarding the loan loss reserves\n\n\u201csuffer[ed] from the same deficiencies\u201d as goodwill because \u201cloan loss reserves reflect\n\nmanagement\u2019s opinion or judgment about what, if any, amounts due on loans ultimately might\n\nnot be collectible\u201d\u2014and because the plaintiff did not allege \u201can objective standard for setting\n\nloan loss reserves,\u201d the plaintiff would have to allege \u201cthat defendant\u2019s opinions were both false\n\nand not honestly believed when they were made.\u201d Id. at 113. In sum, because neither metric\n\nwas objectively determinable, they were opinions, and plaintiff was required to plausibly allege\n\nthat the statements were objectively and subjectively false to state a claim. Id. (citing Virginia\n\nBankshares, 501 U.S. at 1095).\n\n The Second Circuit\u2019s holding in Fait thus turned ultimately on the conclusion that in\n\norder for the company\u2019s report of its financial results to be actionable, the plaintiff would have to\n\n\n\n\n 47\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 48 of 121\n\n\n\n\nallege that the defendants did not believe the statements at the time they were made. That\n\nconclusion had critical implications for Securities Act claims. As the district court explained in\n\nFait, an allegation that a defendant did not believe its report of financial results at the time it was\n\nmade would rest upon an allegation of knowing or reckless conduct, thereby \u201ctriggering the\n\nenhanced pleading requirements of the PSLRA.\u201d 712 F. Supp. 2d at 122. And, as the Second\n\nCircuit later observed in Abramson v. Newlink Genetics Corp., under Fait, \u201ca district court\u2019s\n\ncharacterization of a statement as one of opinion rather than one of fact was all but fatal to the\n\nplaintiff\u2019s Rule 10b-5 claim . . . [because] it could be difficult for plaintiffs to locate evidence\n\nsuggesting as plausible that a defendant\u2019s subjective beliefs conflicted with that defendant\u2019s\n\nstated opinion.\u201d 965 F.3d 165, 174\u201375 (2d Cir. 2020) (internal citations omitted).\n\n In Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, 575\n\nU.S. 175 (2015), however, the Supreme Court \u201crejected the proposition that there can be no\n\nliability based on a statement of opinion unless the speaker disbelieved the opinion at the time it\n\nwas made.\u201d Abramson, 965 F.3d at 175. The Omnicare Court \u201cestablished two principal ways\n\nof challenging statements of opinion that do not require plaintiffs to show that the speaker\n\nsubjectively disbelieved the statement.\u201d Id. \u201cFirst, plaintiffs can allege that a statement of\n\nopinion contained one or more embedded factual statements that can be proven false.\u201d Id.\n\n\u201cSecond, . . . plaintiff can allege that a statement of opinion, without providing critical context,\n\nimplied facts that can be proven false.\u201d Id. \u201cBy increasing the ability of plaintiffs to plead\n\nmaterial omissions with respect to statements of opinion . . . , Omnicare reduced the significance\n\nof district courts\u2019 classification of statements as those of fact or opinion.\u201d Id. at 176.\n\n In the wake of Omnicare and Abramson, there are three paths for a statement of opinion\n\nto be actionable in the Second Circuit: \u201cif (1) the speaker did not hold the belief she professed,\n\n\n\n\n 48\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 49 of 121\n\n\n\n\n(2) the supporting facts she supplied were untrue, or (3) the speaker omitted information whose\n\nomission makes the statement misleading to a reasonable investor.\u201d In re Shanda Games Ltd.\n\nSec. Litig., 128 F.4th 26, 43 (2d Cir. 2025), cert. denied sub nom. Shanda Games Ltd. v. Monk,\n\n146 S. Ct. 366 (2025); see also Tongue v. Sanofi, 816 F.3d 199, 210 (2d Cir. 2016).\n\n In New England Carpenters Guaranteed Annuity & Pension Funds v. DeCarlo, 122 F.4th\n\n28 (2d Cir. 2024), cert. denied sub nom. BDO USA, LLP v. New England Carpenters\n\nGuaranteed Annuity & Pension Funds, 146 S. Ct. 261 (2025), the Second Circuit applied those\n\nstandards to the defendant company\u2019s report of its revenue from extended warranty contracts and\n\nits report of compensation-related expenses. The plaintiffs in DeCarlo alleged that the\n\ndefendant, AmTrust Financial Services, Inc., and its officers, directors, auditor, and underwriters,\n\nviolated Sections 11 and 12 of the Securities Act when they offered and sold securities to the\n\npublic pursuant to registration statements and prospectuses that materially misstated the\n\ncompany\u2019s reported revenue from certain extended warranty contracts and that improperly\n\naccounted for certain discretionary bonuses by treating them as expenses in the year they were\n\npaid rather than the year they were earned by employees. Id. at 36. After AmTrust sold the\n\nsecurities to the public, it reported that it had made errors in its financial reports by misreporting\n\nits revenue from extended warranty contracts and its expensing of the employee bonuses. Id. at\n\n38. As a result, it restated its financial results. Id. The district court dismissed plaintiffs\u2019\n\nSecurities Act claims on the basis that \u201cAmTrust\u2019s financial statements reflected the exercise of\n\nsubjective judgment and were thus non-actionable statements of opinion,\u201d id. at 40, but the\n\nCircuit reversed. Considering the question whether the reports of the defendant\u2019s financial\n\nresults constituted opinion or fact, the court stated that its prior decision in Fait \u201ccontinue[d] to\n\nguide [the court] in distinguishing between a statement of fact and a statement of opinion in the\n\n\n\n\n 49\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 50 of 121\n\n\n\n\nfirst place.\u201d Id. at 40. But the court also recognized the sea change in the law that had been\n\naffected by Omnicare. It was no longer necessary for a plaintiff to plead that the defendant did\n\nnot believe its report of its financial results at the time they were issued. \u201cBy pointing out that a\n\nstatement of opinion, even if believed, may nonetheless be actionable if it contains a factual\n\nmisstatement or is rendered misleading by the omission of material facts, Omnicare expanded\n\nthe scope of issuer liability for statements of opinion.\u201d Id.\n\n The court accepted the notion that the company\u2019s report of its revenue from extended\n\nservice contracts could be considered a matter of opinion because it rested in part on a subjective\n\njudgment whether, under the relevant accounting principle, \u201csufficient historical evidence\u201d\n\nexisted to support a particular accounting treatment of that revenue. However, it opined that \u201cthe\n\ndetermination that AmTrust\u2019s statements are opinion, not fact, is not necessarily the end of the\n\nanalysis.\u201d Id. at 44. The company\u2019s report that it earned warranty revenue at the time of sale\n\n\u201cpresuppose[d] the existence of some historical evidence\u201d supporting that accounting treatment.\n\nId. at 45. And plaintiff alleged that such implicit representation that there existed evidence to\n\nsupport the accounting treatment was rendered false by plaintiffs\u2019 allegation that there was no\n\nsuch evidence. Id.\n\n Significantly, moreover, the court also reversed the district court\u2019s judgment that the\n\ncompany\u2019s treatment of the discretionary bonuses was an inactionable matter of opinion. The\n\nrelevant accounting principle required the company to consider whether it was \u201c\u2018probable\u2019 that a\n\nliability ha[d] been incurred\u201d and whether \u201c\u2018the amount of the loss could be reasonably\n\nestimated\u2019 within a range.\u201d Id. at 46 (alteration adopted) (quoting ASC 450-20-25-2). Though\n\nnot explicitly observed by the court, the accounting judgment resembled that in Fait for loan loss\n\nreserves, which also turned upon a judgment whether credit losses were probable and could be\n\n\n\n\n 50\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 51 of 121\n\n\n\n\nestimated. See Fait, 655 F.3d at 112\u201313 (discussing accounting for loan loss reserves).\n\nNotwithstanding that the question of probability could imply the exercise of judgment and the\n\nexpression of an opinion, as determined by the district court, see In re AmTrust Fin. Servs., Inc.\n\nSec. Litig., 2020 WL 2787117, at *3 (S.D.N.Y. Apr. 20, 2020), the Circuit expressed skepticism\n\nthat the report of expenses could be construed to be a statement of opinion. 122 F.4th at 46.\n\nRecognizing that \u201cmultiple accounting standards may have been relevant to determining when to\n\nexpense a bonus,\u201d the court concluded that \u201cthe fact that these GAAP standards, together or\n\nalone, are subject to misreading, misinterpretation, or misapplication . . . does not necessarily\n\nmean that they entail an exercise of subjective judgment.\u201d Id. The court further concluded that\n\neven if the report constituted a statement of opinion on the notion that the determination whether\n\nit was probable that bonuses would be paid involved subjective judgment, it was still actionable\n\nbecause, based on the information reported in the restatement, it was \u201cquite plausible that the\n\nAmTrust Defendants did not base the company\u2019s statements or probability on a \u2018meaningful\n\n. . . inquiry,\u2019 . . . [and] there was no basis for AmTrust to state that the bonuses should be\n\nexpensed in the year they were paid rather than earned.\u201d Id. (quoting Omnicare, 575 U.S. at\n\n188\u201389).\n\n The Circuit Court\u2019s latest word on the accounting treatment of reported financial results\n\nwas in Gimpel, wherein the plaintiffs sued under Sections 10(b) and 20(a) of the Exchange Act\n\nand Rule 10b-5 after the defendant, Hain Celestial Group, Inc., restated its historical financials,\n\ndisclosing that it had overstated its net sales and GAAP earnings per share, and reported a\n\nmaterial weakness in its internal control over financial reporting, including with respect to\n\nrevenue recognition. 156 F.4th at 132\u201333. The court had little difficulty concluding that the\n\ncompany\u2019s incorrect report of its sales and earnings were actionable. It stated, without requiring\n\n\n\n\n 51\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 52 of 121\n\n\n\n\nanything more, that the defendant\u2019s \u201csubsequent restatement of its financial results [for revenue\n\nfrom sales] and disclosure of material weaknesses in its internal controls and financial-reporting\n\nand accounting practices suffice to establish that these statements were in fact false at the time\n\nthey were made.\u201d Id. at 140 (internal citations omitted). The court quoted with approval Judge\n\nKoetlt\u2019s opinion in Fresno County Employees\u2019 Retirement Association v. comScore, Inc., 268 F.\n\nSupp. 3d 526, 544 (S.D.N.Y. 2017), and Judge Conner\u2019s opinion in In re Atlas Air Worldwide\n\nHoldings, Inc. Securities Litigation, 324 F. Supp. 2d 474, 486 (S.D.N.Y. 2004), both of which\n\nheld that \u201cthe mere fact that financial results were restated is sufficient basis for pleading that\n\nthose statements were false when made.\u201d Id. at 140. Although Defendants argue that the Gimpel\n\ncourt\u2019s statement was qualified by footnote 13 to the opinion, see Transcript of August 24, 2026\n\nOral Argument (\u201cOral Arg. Tr.\u201d) at 86:20\u201387:5, Dkt. No. 95, in which the court observed that\n\nplaintiffs alleged that defendants never had an internal auditor or compliance department, 156\n\nF.4th at 140 n.13, that contention is plainly wrong. Footnote 13 addressed a separate alleged\n\nmisstatement\u2014plaintiff\u2019s allegation that defendants\u2019 Sarbanes-Oxley (\u201cSOX\u201d) certifications\n\nwere false\u2014and it concluded that those statements were actionable statements of opinion\n\nbecause \u201cDefendants never had an internal audit or compliance department and documented the\n\nconcessions they personally negotiated in potentially deceptive ways.\u201d Id. It did not qualify the\n\nstatement in the text of the opinion that the fact of a restatement alone was sufficient to establish\n\nthat Hain\u2019s report of its originally reported financial results was false and misleading.\n\n As Plaintiffs point out, Dkt. No. 89 at 24, since Omnicare, courts in this District and\n\ndistrict courts across the Second Circuit have concluded, repeatedly and in a wide range of\n\ncircumstances, that accounting restatements are sufficient to plead falsity of previously reported\n\nfinancial figures. See, e.g., Clarivate Plc, 826 F. Supp. 3d at 319 (finding sufficient for\n\n\n\n\n 52\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 53 of 121\n\n\n\n\nactionability under Section 11 that \u201cthat the registration statements included an untrue statement\n\n(the erroneous financial statements)\u201d because of a restatement of reported expenses); zCap\n\nEquity Fund LLC, 792 F. Supp. 3d at 438\u201339 (\u201cAlthough the Restatement [of rental revenue] did\n\nnot admit wrongdoing, it operated as an admission that earlier statements were false when\n\nmade.\u201d (citation modified)); Eden Alpha CI LLP v. Polished.com Inc., 763 F. Supp. 3d 270, 305\n\n(E.D.N.Y. 2025) (holding that there \u201ccan be no dispute that the Amended Complaint pleads\n\nnumerous false and misleading misstatements with respect to [the company\u2019s]\u201d SEC filings\n\ngiven its restatement of financial results including allowance for sales returns, recognition of\n\nrevenue and increase in bad debt expense); Africa v. Jianpu Tech., Inc., 2022 WL 4537973, at *9\n\n(S.D.N.Y. Sept. 28, 2022) (\u201cmisreported financial data are false statements of fact,\u201d including\n\nrestated revenue from company\u2019s credit card segment (citation modified)); comScore, 268 F.\n\nSupp. 3d at 544 (\u201cIn light of comScore\u2019s admission that it must restate its financial statements\n\n[with respect to the accounting for nonmonetary transactions], there can be no dispute that the\n\nSAC pleads numerous false and misleading misstatements with respect to revenue, revenue\n\nrelated metrics, and comScore\u2019s compliance with GAAP.\u201d).\n\n Plaintiffs have adequately stated a claim based on PACS\u2019s report of its originally\n\nreported financial results for the first and second quarters of 2024 communicated to investors\n\nthrough various press releases, earnings calls, and quarterly reports, see Stmts. 7\u20138, 12\u201314, 17\u2013\n\n18, 22, as well as in the SPO Offering Documents. In those communications, PACS reported\n\nrevenues of approximately $934.7 million for its first quarter of 2024 and $981.8 million for its\n\nsecond quarter of 2024. CCAC \u00b6 317; Dkt. No. 88-4 at 223. The Company also reported for the\n\nfirst quarter of 2024, net income of $49.1 million, net income per common share of $0.38, and\n\naccounts receivable of $622.7 million; for the second quarter, a net loss of negative $10.9\n\n\n\n\n 53\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 54 of 121\n\n\n\n\nmillion, net loss per common share of negative $0.07, and accounts receivable of $610.6 million;\n\nand for both quarters, no refund liability. CCAC \u00b6 317; Dkt. No. 88-4 at 222\u201323. But as PACS\n\nlater acknowledged in the Restatement, those figures were wrong. They were reported as a result\n\nof \u201can error in recognition, measurement, presentation, or disclosure in financial statements\n\nresulting from mathematical mistakes, mistakes in the application of generally accepted\n\naccounting principles (GAAP), or oversight or misuse of facts that existed at the time the\n\nfinancial statements were prepared.\u201d CCAC \u00b6 259 (quoting ASC 250); Dkt. No. 88-12 at 78.\n\nPACS should have reported the restated figures. Information that apparently was available, but\n\nthat PACS apparently ignored due to oversight, \u201cindicated [that] certain ancillary services,\n\nincluding respiratory, sensory integration and wound care ultrasound mist therapy, m[ight] not be\n\neligible for reimbursement under Medicare Part B\u201d and thus revenue for those ancillary services\n\nwere \u201csubject to significant reversal in the future.\u201d Dkt. No. 88-12 at 78. The company also\n\nadmitted that it had an internal weakness in its controls over financial reporting. It \u201cdid not\n\ndesign and maintain adequate controls within the revenue process to appropriately recognize\n\nrevenue for new services in accordance with Financial Accounting Standards Board Accounting\n\nStandards.\u201d Id. at 79. The results that should have been reported for the first and second\n\nquarters of 2024 were dramatically different from the results PACS reported and provided to\n\ninvestors. For the first quarter of 2024, revenue was adjusted down by $14.9 million (1.6%) to\n\n$934.3 million; net income decreased by $14.3 million (29.1%) to $34.8 million; net income per\n\nshare decreased by $0.11 (29%) to $0.27; accounts receivable decreased by $10.9 million (1.8%)\n\nto $611.8 million; and a new refund liability was listed for $3.9 million. See Dkt. No. 88-12 at\n\n141, 143. The changes were even more dramatic for the second quarter, for which revenue was\n\nadjusted down by $46.1 million (4.7%) to $935.3 million; net loss increased by $21 million\n\n\n\n\n 54\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 55 of 121\n\n\n\n\n(192.1%) to negative $31.9 million; net loss per share increased by $0.14 (200%) to negative\n\n$0.21; accounts receivable decreased by $30.4 million (5%) to $580.1 million; and a new refund\n\nliability was listed for $30.6 million.22 See id. at 142, 144.\n\n The Court need not decide whether Defendants\u2019 accounting statements constitute fact or\n\nopinion. See Shanda Games, 128 F.4th at 44 (assuming, without deciding, that a certain\n\nstatement \u201creflects an opinion\u201d); Abramson, 965 F.3d at 176 (same). PACS\u2019s \u201csubsequent\n\nrestatement of its financial results and disclosure of material weaknesses in its internal controls\n\nand financial-reporting and accounting practices, suffice to establish that these statements were\n\nin fact false at the time they were made.\u201d Gimpel, 156 F.4th at 140; In re Lottery.com, Inc. Sec.\n\nLitig., 715 F. Supp. 3d 506, 544 (S.D.N.Y. 2024) (\u201c[T]he mere fact that financial results were\n\nrestated is sufficient basis for pleading that those statements were false when made.\u201d (quoting\n\nSEC v. Espuelas, 908 F. Supp. 2d 402, 410 n.5 (S.D.N.Y. 2012)); comScore, 268 F. Supp. 3d at\n\n544; Atlas Air Worldwide, 324 F. Supp. 2d at 486. Even if the statements could be considered to\n\nbe opinion, Plaintiffs have plausibly alleged that PACS \u201csa[id] one thing and [held] back\n\nanother,\u201d DeCarlo, 122 F.4th at 45 (quoting Omnicare, 575 U.S. at 192). PACS originally stated\n\nthat it earned revenue from respiratory treatment and other ancillary services, but it later\n\nadmitted that information existed that such services were not eligible for reimbursement under\n\nMedicare Part B. In addition, even if the question of whether it was \u201cprobable\u201d that a claim\n\nwould be subject to significant reversal in the future involved the exercise of subjective\n\njudgment, the fact that the GAAP standard was \u201csubject to misreading, misinterpretation, or\n\nmisapplication, as happened here, does not necessarily mean that [it] entail[ed] an exercise of\n\nsubjective judgment.\u201d DeCarlo, 122 F.4th at 46 (addressing accounting standard that involved\n\n\n\n22\n Put simply, for the second quarter of 2024, the net loss was triple the size previously reported.\n\n\n 55\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 56 of 121\n\n\n\n\nconsidering whether it was \u201cprobable\u201d that bonuses would not be paid). At a minimum, PACS\u2019s\n\nstatements that it was reporting revenue in compliance with GAAP would have been understood\n\nthat such judgment was based on a meaningful inquiry. See, e.g., Dkt. No. 88-9 at 8, 13 (Form\n\n10-Q for the quarter ended June 30, 2024); Dkt. No. 88-15 at 8, 13 (Form 10-Q for the quarter\n\nended March 31, 2024). And, as in DeCarlo, that PACS seemingly ignored the evidence that the\n\nancillary services would not be eligible for reimbursement under Medicare Part B, \u201cmakes it\n\nquite plausible\u201d that \u201cthe company\u2019s statements of probability [were not based] on a meaningful\n\ninquiry.\u201d Id. at 46. Therefore, PACS\u2019s financial statements for the first and second quarters of\n\n2024 were necessarily actionable either as false statements of material fact or actionable\n\nomissions,23 and each mention of those figures in the quarterly reports, press releases, and\n\nearnings calls\u2014as well as the SPO Offering Documents\u2014satisfies Plaintiffs\u2019 pleading obligation\n\nas to falsity.24 See Stmts. 7\u20138, 12\u201314, 17\u201318, 22.\n\n Defendants protest that Plaintiffs have not adequately alleged that Defendants had\n\nanything other than an \u201chonest belief\u201d in their initial reporting of Medicare Part B billings nor\n\nthat PACS \u201cknew . . . its earlier judgment was wrong.\u201d Dkt. No. 83 at 27. Defendants also\n\ncontend that, beyond the Restatement itself, Plaintiffs have not identified any specific evidence\n\nor bases that would undermine PACS\u2019s original judgment. See Dkt. No. 83 at 27\u201331; Oral Arg.\n\nTr. at 17:2\u20137 (\u201cAnd they don\u2019t actually identify anything, again other than the [R]estatement,\n\n\n\n23\n Defendants do not dispute materiality, nor could they at this stage. Materiality is established at\nthe pleading stage by the Restatement itself. SEC v. Kelly, 663 F. Supp. 2d 276, 285 (S.D.N.Y.\n2009) (restatement sufficient to establish materiality of misrepresentations, because \u201ca\nrestatement issues only when errors are material\u201d).\n24\n To escape this conclusion, Defendants also rely on the discussion of restatements and opinions\nin Hunt v. Bloom Energy Corp., 2021 WL 4461171 (N.D. Cal. Sept. 29, 2021), aff'd sub nom.\nHunt v. PricewaterhouseCoopers LLP (PwC), 159 F.4th 603 (9th Cir. 2025). It suffices to say\nthat Hunt does not state the law of the Second Circuit.\n\n\n\n 56\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 57 of 121\n\n\n\n\nthat shows that the [C]ompany did not have a basis for making the accounting judgments that it\n\ndid.\u201d). Defendants forewarn that under the standard Plaintiffs advocate and the Court applies,\n\nany restatement would inevitably give rise to a Section 11 claim. See Oral Arg. Tr. at 13:7\u2013\n\n14:12. But, the question of \u201chonest belief\u201d and knowledge goes to scienter and not to material\n\nfalsity\u2014a defendant can innocently make a false statement upon which a reasonable investor\n\nwould rely. By the same token, there is no apparent reason why a defendant, if she had a motive\n\nand an opportunity to defraud in connection with the company\u2019s financial statements, should be\n\nprotected from liability on the theory that the numbers that were reported as results constituted\n\nan opinion. Furthermore, if Plaintiffs have not identified any basis for alleging that PACS\u2019s\n\noriginally reported financials were materially false other than the Restatement and the report of a\n\nmaterial weakness, Gimpel, in particular, does not seem to require more. See 156 F.4th at 140.\n\n It is not obvious, moreover, why a plaintiff should be required to plead more than a\n\nrestatement. The question at the motion to dismiss stage is whether the plaintiff has pleaded\n\nsufficient facts to create \u201ca reasonable expectation that discovery will reveal evidence\u201d that\n\nPACS\u2019s report of its financial results was materially false. See Matrixx, 563 U.S. at 46 (quoting\n\nTwombly, 550 U.S. at 556). While it may be that \u201c[g]enerally accepted accounting principles . . .\n\ntolerate a range of reasonable treatments, leaving the choice among alternatives to management,\u201d\n\nThor Power Tool Co. v. Comm'r, 439 U.S. 522, 544 (1979), it also is correct that management\u2019s\n\ndiscretion is \u201climited to accepted methods,\u201d Shanda Games, 128 F.4th at 45. And from the fact\n\nof a restatement, whereby the company admits that, in reporting its results, it made a\n\nmathematical mistake, erred in the application of GAAP, or ignored or misused facts that existed\n\nat the time, see Dkt. No. 90-2 (ASC 250), it is \u201cquite plausible,\u201d DeCarlo, 122 F.4th at 46, that\n\n\n\n\n 57\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 58 of 121\n\n\n\n\ndiscovery will yield such evidence of material falsity, regardless of whether the report of\n\nhistorical results is characterized as fact or opinion.25\n\n The Securities Act \u201crequires that companies issuing securities make a \u2018full and fair\n\ndisclosure of information\u2019 in connection with a public offering.\u201d Id. at 39 (quoting Pinter v.\n\nDahl, 486 U.S. 622, 646 (1988)). It \u201caims to protect investors and to \u2018achieve a high standard of\n\nbusiness ethics in the securities industry.\u2019\u201d Id. (quoting Lorenzo v. SEC, 587 U.S. 71, 81\n\n(2019)). The standards for material falsity under the Exchange Act are identical. Vivendi S.A.,\n\n838 F.3d at 250; City of Pontiac Policemen\u2019s & Firemen\u2019s Ret. Sys. v. UBS AG, 752 F.3d 173,\n\n188 (2d Cir. 2014) (\u201cWe have held that the definition of \u2018materiality\u2019 under \u00a7 11 of the Securities\n\nAct is the same as under \u00a7 10(b) of the Exchange Act.\u201d); Rombach, 355 F.3d at 172 n.7. And a\n\ncompany\u2019s report of its financial results is among the most important pieces of information it\n\nprovides to investors. United States v. Arthur Young & Co., 465 U.S. 805, 810 (1984)\n\n(\u201cCorporate financial statements are one of the primary sources of information available to guide\n\nthe decisions of the investing public.\u201d); Lottery.com, Inc., 715 F. Supp. 3d at 547 (\u201cIndeed,\n\n\u2018earnings reports are among the pieces of data that investors find most relevant to their\n\ninvestment decisions.\u2019\u201d (quoting Ganino, 228 F.3d at 164)). A director or signer of the\n\nregistration statement concerned about potential liability can protect herself by conducting due\n\ndiligence or, in the case of an expertised statement, if she had \u201cno reasonable ground to believe\n\nand did not believe\u201d that the report contained false statements. 15 U.S.C. \u00a7 77k(b)(3). An\n\n\n\n25\n Courts have held that failure to take an impairment charge may constitute a false and\nmisleading statement when the plaintiff is able to allege the amount by which certain assets\nshould have been written down and when the write-down should have occurred. Turquoise Hill\nRes. Ltd., 625 F. Supp. 3d at 233 (citing City of Sterling Heights Police & Fire Ret. Sys. v.\nVodafone Grp. Pub. Ltd. Co., 655 F. Supp. 2d 262, 268\u201369 (S.D.N.Y. 2009)). In the case of a\nrestatement, however, the defendant has admitted the amount by which the financials have been\nmisstated and when they were misstated.\n\n\n 58\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 59 of 121\n\n\n\n\nunderwriter concerned about its potential liability for misstated financials likewise can protect\n\nitself by conducting sufficient diligence (or relying upon an expertised statement), id., and, as\n\nappropriate, obtaining a comfort letter from the auditor. See Frank Ciatto, Randi Rubinstein &\n\nVikram Suryavanshi, Due Diligence in Corporate Transactions \u00a7 12.01[4][d] (2026) (discussing\n\nthat \u201ccomfort letters do not replace independent diligence by underwriters, [but] provide a crucial\n\nevidentiary component in establishing the due diligence defense with respect to financial\n\ndisclosures\u201d). If management has failed to discharge its obligations or the underwriter has\n\nneglected its responsibilities, it would not seem a sufficient answer for either to later claim that\n\nthe reported result was always an opinion and that no care or diligence was required in the first\n\nplace. And, if the registrant has raised money with a report that contained financials that turned\n\nout to be wrong at the time they were stated, it would seem odd that it would bear no\n\nresponsibility to the person who purchased based on those financials. It would seem stranger\n\nstill that the court would have to delve into the complex question of whether a particular\n\naccounting principle turned on judgment before turning to the question of diligence. Instead, the\n\nrisk of loss might appropriately and straightforwardly be placed on the party responsible for the\n\nfact that financials were reported that later had to be restated rather than on the investor who\n\npurchased in reliance on the fact that the financials were compliant with GAAP.\n\n B. Narrative Statements\n\n Plaintiffs also challenge narrative statements made by the Company in the IPO and SPO\n\nOffering Documents, which were repeated in quarterly filings with the SEC on Form 10-Q and\n\nearnings presentations. These statements concern (1) the Company\u2019s risk disclosure regarding\n\npotential changes to coverage or reimbursements under, inter alia, Medicare; (2) the Company\u2019s\n\nrisk disclosures regarding its internal audits and controls for legal compliance; (3) a general\n\ndisclaimer regarding forward-looking statements from earnings presentations; and (4) the\n\n\n 59\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 60 of 121\n\n\n\n\nCompany\u2019s characterizations of its business model. See Dkt. No. 89 at 35. Defendants move to\n\ndismiss each set of challenged non-accounting statements because they are either true, opinions,\n\nor inactionable as a matter of law and would not mislead a reasonable investor. Dkt. No. 83 at\n\n10\u201324. To the extent Plaintiffs rely on CWs to bolster the falsity contentions, Defendants ask the\n\nCourt to scrutinize the allegations and ignore those that are either unjustified or do not relate to\n\nthe challenged statements. See id. at 17\u201319.\n\n 1. Medicare Coverage Change Risk Disclosure\n\n Plaintiffs challenge the italicized language in the following risk disclosure made in the\n\nIPO and SPO Offering Documents, and repeated verbatim in the Company\u2019s Form 10-Q filings:\n\n We rely on payments from third-party payors, including Medicare, Medicaid, and\n other governmental healthcare programs and private insurance organizations. If\n coverage or reimbursement for services are changed, reduced or eliminated,\n including through cost-containment efforts, spending requirements are changed,\n data reporting, measurement and evaluation standards are enhanced and changed,\n our operations, revenue and profitability could be materially and adversely\n affected.\n\nCCAC \u00b6\u00b6 385, 422, 470, 504 (Stmts. 1, 9, 19, 26); Dkt. No. 89 at 35.\n\n Plaintiffs argue that the conditional statement was false and misleading when made\n\nbecause the PACS Defendants \u201cknew, or at a minimum were deliberately reckless, in claiming\n\nthat a change in reimbursement was a mere potentiality (\u2018if\u2019)\u201d given that the COVID-19 waiver\n\nhad ended 11 months before the IPO, its expiration had an \u201coutsized impact on PACS due to the\n\ninappropriate and concealed extent to which PACS had been over-using and taking advantage of\n\nthe COVID-19 Waiver,\u201d and the change \u201cwas already materially and adversely affecting PACS\u2019s\n\n\u2018revenue and profitability.\u2019\u201d Id. \u00b6 386(a), (b). Plaintiffs also allege that the statement was false\n\nand misleading because the PACS Defendants knew that PACS\u2019s financial results were \u201cbeing\n\ninflated by reimbursement for Medicare Part B,\u201d considering \u201cPACS\u2019s own acknowledgment of\n\nthen-existing \u2018billing uncertainties\u2019 . . . rather than changes Medicare might make\u201d and the\n\n\n 60\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 61 of 121\n\n\n\n\nforeseeable material impact of the Medicare overbilling schemes on PACS\u2019s financial results.\n\nId. \u00b6 386(c), (d); see also id. \u00b6 387.\n\n \u201c[A] risk disclosure can itself constitute a material misrepresentation when it presents as\n\na risk an event that has already transpired.\u201d Chapman v. Mueller Water Prods., Inc., 466 F.\n\nSupp. 3d 382, 405\u201306 (S.D.N.Y. 2020) (citing cases). \u201cOnce a company has chosen to speak on\n\nan issue\u2014even an issue it had no independent obligation to address\u2014it cannot omit material\n\nfacts related to that issue so as to make its disclosure misleading.\u201d Williams v. Globus Med.,\n\nInc., 869 F.3d 235, 241 (3d Cir. 2017); In re Mobileye Glob. Sec. Litig., 2025 WL 3640904, at *2\n\n(2d Cir. Dec. 16, 2025) (summary order) (\u201cOnce a company speaks on a topic, it must \u2018tell the\n\nwhole truth,\u2019 meaning that it may not \u2018omit material facts\u2019 necessary to make its statement not\n\nmisleading, not that it must \u2018disclose all the facts that pertain to a subject.\u2019\u201d (quoting Setzer v.\n\nOmega Healthcare Invs., Inc., 968 F.3d 204, 214 n.15 (2d Cir. 2020))). Thus, \u201ca company may\n\nbe liable under Section 10b for misleading investors when it describes as hypothetical a risk that\n\nhas already come to fruition.\u201d Williams, 869 F.3d at 242; see also Turquoise Hill Res. Ltd., 625\n\nF. Supp. 3d at 230 (\u201c[A] risk disclosure can itself be a material misrepresentation . . . where the\n\ncompany warns only that a risk may impact its business when that risk has already materialized.\u201d\n\n(internal quotation marks omitted)). \u201cThe classic statement is that it is not sufficient for\n\n\u2018someone to warn his hiking companion to walk slowly because there might be a ditch ahead\n\nwhen he knows with near certainty that the Grand Canyon lies one foot away.\u2019\u201d Chapman, 466\n\nF. Supp. 3d at 405 (alterations adopted) (quoting In re Prudential Sec. Inc. P\u2019ships Litig., 930 F.\n\nSupp. 68, 72 (S.D.N.Y. 1996)). If the risk that the company warns might be coming down the\n\nroad is already impacting the company, its risk disclosure may be misleading. See City of\n\nHialeah Emps.\u2019 Ret. Sys. v. Peloton Interactive, Inc., 153 F.4th 288, 301 (2d Cir. 2025)\n\n\n\n\n 61\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 62 of 121\n\n\n\n\n(explaining that \u201cwhen the [risk] warnings [about potential impacts] remained unchanged after\n\n\u2018market volatility put to rest any uncertainty as to the price-impact,\u2019 those warnings became\n\nactionable misstatements\u201d (alteration adopted) (quoting Set Cap. LLC v. Credit Suisse Grp. AG,\n\n996 F.3d 64, 86 (2d Cir. 2021))).\n\n The analysis\u2019s touchstone is whether the \u201cfailure to disclose that the risks warned against\n\nhad actually materialized rendered the seemingly hypothetical disclosures misleading\u201d to a\n\nreasonable investor at the moment of the disclosure, in view of \u201cthe totality of the\n\ncircumstances\u201d in each specific case. Smith v. Gap, Inc., 177 F.4th 405, 410\u201311 (2d Cir. 2026).\n\n\u201c[T]he inquiry must focus not on whether \u2018particular statements, taken separately, were literally\n\ntrue, but whether defendants\u2019 representations, taken together and in context, would have misled a\n\nreasonable investor about the nature of the securities.\u2019\u201d In re WorldCom, Inc. Sec. Litig., 346 F.\n\nSupp. 2d 628, 658 (S.D.N.Y. 2004) (quoting DeMaria v. Anderson, 318 F.3d 170, 180 (2d Cir.\n\n2003)). The Second Circuit has rejected the rule \u201cthat a risk disclosure is actionable whenever a\n\ncompany fails to disclose that the risk already materialized in some way.\u201d Smith, 177 F.4th at\n\n410. In considering the views of an objective reasonable investor, the Supreme Court has\n\nexplained that such an investor \u201creads each statement . . . whether of fact or of opinion, in light\n\nof all its surrounding text, including hedges, disclaimers, and apparently conflicting\n\ninformation.\u201d Omnicare, 575 U.S. at 190.\n\n PACS\u2019s risk disclosure regarding changes in coverage or reimbursement is not actionable\n\nfor misrepresenting an actualized risk as an unrealized hypothetical. Plaintiffs do not dispute\n\nDefendants cannot be held liable for the failure to disclose that the COVID-19 waiver had\n\nlapsed, which constitutes at the very least a change in \u201ccoverage or reimbursement for services\u201d\n\nunder Medicare. Defendants disclosed that fact in the offering documents and the Form 10-Q\n\n\n\n\n 62\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 63 of 121\n\n\n\n\nfilings. See Dkt. No. 88-3 at 14, 29; Dkt. No. 88-4 at 15, 28; Dkt. No. 88-9 at 56; Dkt. No. 88-15\n\nat 49. All SEC filings included identical language that that the COVID-19 waiver program had\n\nexpired as of May 11, 2023, which \u201crequired, and may continue to require, operational changes,\u201d\n\nand that the Company faced \u201cnumerous risks\u201d related to its expiration. Id. PACS disclosed the\n\nwaiver\u2019s expiration and that the expiration required operational changes. See Rice as Tr. of\n\nRichard E. & Melinda Rice Revocable Fam. Tr. 5/9/90 v. Intercept Pharms., Inc., 2022 WL\n\n837114, at *18 (S.D.N.Y. Mar. 21, 2022) (\u201cThe defendants cannot be held liable for failing to\n\ndisclose something that they disclosed.\u201d (quoting Altayyar v. Etsy, Inc., 242 F. Supp. 3d 161, 180\n\n(E.D.N.Y. 2017)); see also In re Aratana Therapeutics Inc. Sec. Litig., 315 F. Supp. 3d 737, 760\n\n(S.D.N.Y. 2018) (\u201c[D]efendants cannot be said to have concealed a risk that had already\n\nmetastasized into reality.\u201d). Plaintiffs\u2019 claim with respect to the waiver, instead, rests on the\n\ncontention that its expiration had materially and adversely affected the Company\u2019s revenue and\n\nprofitability\u2014a purported fact that the Defendants did not disclose.\n\n That contention fails because the risk disclosure\u2019s language does not assure reasonable\n\ninvestors that there were no revenue impacts from historical changes to Medicare services or\n\nreimbursements prior to when the first statement was made in in the IPO Offering Documents.\n\nWith respect to risk disclosures and cautionary language, the Second Circuit has explained that\n\n\u201ca complaint fails to state a claim of securities fraud if no reasonable investor could have been\n\nmisled about the nature of the risk when he invested.\u201d Halperin v. eBanker USA.com, Inc., 295\n\nF.3d 352, 359 (2d Cir. 2002) (second emphasis added). By the time of the IPO on April 11,\n\n2024\u2014the start of the Class Period\u2014the waiver and its effect were in the past. The waiver had\n\nalready been discontinued for nearly eleven months. The IPO was also approximately eight\n\nmonths after the end of \u201c100-day benefit period,\u201d which started after Medicare Part A coverage\n\n\n\n\n 63\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 64 of 121\n\n\n\n\nwas \u201ctriggered.\u201d CCAC \u00b6 124. Not only was all of that information explicitly disclosed in the\n\nIPO Offering Documents, but it was also available publicly through CMS. As this Court has\n\npreviously explained:\n\n [N]ot every . . . risk disclosure[] necessarily implies that the event which could\n create a risk has not occurred to any extent. A risk disclosure may just be what it\n purports to be\u2014an identification by the issuer of the type of facts and events that\n could make the investment risky and not necessarily a representation one way or\n the other regarding whether the event has occurred to the extent that it presents a\n risk. Instead, the potential for the disclosure to mislead often turns on the\n specificity of the disclosure. The more specific the caution, the closer it comes to\n an implied representation of fact and the more likely it is to mislead.\n\nAppHarvest, 684 F. Supp. 3d at 267\u201368; see also Smith, 177 F.4th at 410\u2013411. PACS\u2019s risk\n\ndisclosure regarding policy changes operated to warn an investor of risks to their investment on a\n\ngoing-forward basis. As a historical matter, Medicare and Medicaid may have made any number\n\nof changes to their coverage requirements in the past. The risk disclosure, in order not to be\n\nmisleading, would not have imposed on PACS a duty to survey all of those past changes and to\n\nindicate the magnitude of their impact. For the same reason, by disclosing the fact that Medicare\n\nand Medicaid might change their requirements in the future and that such changes could impact\n\nPACS\u2019 operations, PACS did not impose on itself a duty to reveal the precise impact that the end\n\nof the COVID-19 waiver had had on its business. At the time of IPO in April 2024, the end of\n\nthe COVID-19 waiver was in the past. It had ended 11 months earlier and its impact on revenue\n\nhad ended eight months earlier. It was sufficient for PACS to disclose that it had ended and that\n\nits end created numerous risks, and to disclose the financial results that included the impact of\n\nthat end.26\n\n\n26\n The financial statements showed that, by year end 2023, which would incorporate the impact\nof COVID-19 waiver\u2019s expiration in May 2023 (and the 100-day rollover period), PACS\u2019s\nMedicare-associated revenue had increased from $1.1 billion in 2022 to $1.2 billion\u2014a smaller\npercentage change than for total patient service revenue, which increased from $2.4 billion to\n\n\n\n 64\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 65 of 121\n\n\n\n\n Plaintiffs\u2019 contentions also independently fail because there are no well-pleaded\n\nallegations that plausibly link the waiver\u2019s expiration to the Company\u2019s performance. Where\n\nplaintiffs do not allege that \u201cconditional statements are false\u201d but rather that \u201cthey present risk as\n\nconditional, when in fact the risk had already materialized,\u201d courts evaluate whether there are\n\n\u201csufficient [allegations] to demonstrate\u201d that the risk had come to pass \u201cat the time that the\n\nCompany\u2019s risk disclosures were presented.\u201d In re Vroom, Inc. Sec. Litig., 2025 WL 862125, at\n\n*21 (S.D.N.Y. Mar. 18, 2025). In Vroom, the court considered risk disclosures by a company\n\nthat offered a platform to buy and sell used cars, which read that \u201cif Vroom fails to correct or\n\nmitigate misinformation or negative information . . . it could materially and adversely affect [its]\n\nbusiness.\u201d Id. (alterations adopted) (internal quotation marks omitted). The court held that even\n\nthough events had transpired that might constitute some materialization of risk covered by a\n\nconditional risk disclosure\u2014there, that consumer complaints to the Better Business Bureau had\n\ndiminished consumer confidence in the company\u2019s platform for the sale and purchase of used\n\ncars\u2014the pleadings failed to \u201cadequately allege\u201d that the complaints had diminished consumer\n\nconfidence and adversely impacted the company \u201cat the time of the Company\u2019s disclosures\u201d\n\nbecause \u201cPlaintiffs\u2019 core factual allegation\u2014that the BBB complaints are evidence of an\n\nundisclosed \u2018logistical bottleneck\u2019 within Vroom\u2014is speculative.\u201d Id. at *16.\n\n Likewise here, Plaintiffs do not offer enough factual allegations to shore up their\n\nspeculation. Their theory is that PACS\u2019s growth up to mid-2023 was fueled by abusing the\n\nCOVID-19 waiver to overcharge Medicare, and once the waiver expired in May 2023, PACS\n\nfaced significantly lower quarterly revenue in the third and fourth quarters of 2023. Plaintiffs\n\n\n\n\n$3.1 billion in the same span. See Dkt. No. 88-3 at 183 (reporting a decline in net income from\n$150.5 million in 2022 to $112.9 million in 2023).\n\n\n 65\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 66 of 121\n\n\n\n\ncontend the IPO Offering Documents and subsequent communications were materially\n\nmisleading because the COVID waiver\u2019s expiration was omitted as the cause of the Company\u2019s\n\n$90 million quarterly revenue declines in the third and fourth quarters of 2023. See CCAC\n\n\u00b6 387(e); Dkt. No. 88-10 at 18. Echoing the Hindenburg Report, Plaintiffs also hypothesize that\n\nbecause PACS\u2019s revenue declined precipitously through the end of 2023, PACS was driven to\n\nabuse Medicare Part B in 2024 to plug the gap in its story of continued growth prior to its IPO.\n\nSee CCAC \u00b6 12 (\u201cPACS\u2019s revenue from Medicare for skilled care declined at least $90 million\n\nin each of the two quarters after expiration of the waiver\u201d); Dkt. No. 88-10 at 17\u201318 (asserting\n\nthat after \u201caccounting for and removing the impact of newly acquired facilities, the fall-off in\n\nMedicare revenue was an estimate ~$90 million per quarter\u201d in 2023 for PACS). But the sources\n\nPlaintiffs cite for corroboration\u2014the Hindenburg Report, the Restatement, and firsthand CWs\n\n(whether considered together or alone)\u2014are unable to carry Plaintiffs\u2019 burden on a motion to\n\ndismiss. The Hindenburg Report does verify the fall in revenues through a replicable analysis\n\nbut its second step is less persuasive: the short seller posits that \u201cthis decline indicates PACS was\n\ngenerating hundreds of millions of dollars a year in Medicare revenue from the COVID waiver\n\nscheme,\u201d and to buttress this conjecture, it cites the performance of another company and\n\nunidentified former employees, including a \u201cformer PACS administrator that agreed with [their]\n\ntheory.\u201d Dkt. No. 88-10 at 18\u201319. But PACS\u2019s performance with respect to Part A might have\n\nbeen better than a peer company for any number of reasons, including the reason that it offered,\n\nwhich was that its business model was different from and better than that of others. Plaintiffs\n\nacknowledge that, at most, the Report provides an \u201cimplication\u201d\u2014one that is cabined to one\n\n\n\n\n 66\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 67 of 121\n\n\n\n\ncompetitor for a fraction of PACS\u2019s facilities and is not alleged to be across the Company.27\n\nAnd, for the reasons stated above as well as others, the Court does not give any weight with\n\nrespect to this issue to the allegations of embedded CWs in the Hindenburg Report. Among\n\nother things, Plaintiffs cite the Hindenburg Report\u2019s representation that it spoke with \u201cmore than\n\na dozen former PACS employees,\u201d but neither Plaintiffs nor Hindenburg Report provide\n\nparticularized facts that would support that the Report\u2019s unidentified employees were in\n\npossession of the relevant information about the company as a whole or the magnitude of the\n\nbenefit from the waiver. CCAC \u00b6 125; Dkt. No. 88-10 at 2. The Report\u2019s CWs are not listed\n\nwith time period of work at PACS or identified by facility; at most, the Report notes the state\n\nidentification of a few former employees, and the Report\u2019s quoted language from these\n\nemployees often reflects a focus on paradigmatic corporate concerns. See Dkt. No. 88-10 at 9\n\n(\u201cA former PACS administrator from California estimated that a Medicare beneficiary drives 3\u2013\n\n3.5x more revenue per day than a Medi-Cal beneficiary\u201d (internal citation omitted)). The Report\n\nattempted to establish a company-wide inference and noted that the short seller \u201cshared [its\n\nfindings of COVID waiver] conduct with another former PACS administrator of a facility and\n\nasked if it was isolated conduct of certain facilities,\u201d and that nondescript confidential witness\n\nsimply responded: \u201cI don\u2019t think that this is an isolated thing,\u201d along with an anecdote of his\n\npersonal experience. Id. at 13. Similar statements are cobbled together to claim that \u201ca dozen\n\nformer employees [Hindenburg Research] interviewed corroborated the existence of the COVID\n\nwaiver scheme.\u201d Even if the Court were to credit these amorphous CWs\u2014not attested to by\n\n\n\n27\n The Hindenburg Report provides the following uncontroversial conclusion from its number-\ncrunching: \u201cThis analysis indicates that PACS\u2019 triple-digit growth in skilled care Medicare\nrevenue while the COVID waiver was in place wasn\u2019t an industry trend experienced by its\nlargest key competitor\u201d\u2014not that there was no industry trend or that PACS had allegedly\nengaged in nefarious conduct. Dkt. No. 88-10 at 15.\n\n\n 67\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 68 of 121\n\n\n\n\nPlaintiffs or their counsel\u2014their allegations only prove that the COVID waiver incentivized Part\n\nA billing because of the unit economics. The Report bolsters Plaintiffs\u2019 allegations about the\n\nexistence of a downward quarterly trend in 2023 and PACS\u2019s growth in the era of the COVID\n\nwaiver, but not the speculation as to its cause or unlawful abuse of Medicare Part A. The\n\nRestatement, alone, provides no insight on what occurred in 2023 or the reasons for quarterly\n\ndeclines in that year. Only financial figures for the first two quarters of 2024 were restated.\n\n The CWs who actually provided information to Plaintiff provide no independent support\n\nfor the proposition that the extent of the decline in revenue was caused by the waiver\u2019s\n\nexpiration. \u201c[T]o credit the allegations of confidential witnesses, the witnesses must be\n\n\u2018described in the complaint with sufficient particularity to support the probability that a person in\n\nthe position occupied by the source would possess the information alleged.\u2019\u201d Schiro v. Cemex,\n\nS.A.B. de C.V., 396 F. Supp. 3d 283, 305 (S.D.N.Y. 2019) (quoting Novak, 216 F.3d at 314).\n\nPlaintiff relies on only two CWs for the allegation regarding COVID-19 and the relevant CWs,\n\nFE-1 and FE-10, are mentioned across three paragraphs in the section titled, \u201cCOVID-19 Waiver\n\nScheme,\u201d see CCAC \u00b6\u00b6 119\u2013129. FE-1 speaks only to PACS\u2019s practice of \u201c\u2018flipping\u2019 patients to\n\nMedicare\u201d without any reference to the COVID waiver, and FE-10 only notes that \u201cpatients\n\nadmitted under Medicare Part A would be switched to Part B when their Part A coverage\n\nexpired.\u201d Id. \u00b6\u00b6 122\u201323. Those allegations say nothing as to the waiver expiration\u2019s effect on\n\nPACS\u2019s revenues and do not provide any corroboration for the Hindenburg Report\u2019s\n\nimplication\u2014or that of the Report\u2019s CWs\u2014that PACS may have been taking advantage of the\n\nwaiver when viewed against other industry participants. Contra Dkt. No. 88-10 at 11\u201312\n\n(discussing allegations from former PACS employees that PACS was engaged in conduct that\n\nmirrored that of competitor ReNew Healthcare, which had purportedly settled with federal and\n\n\n\n\n 68\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 69 of 121\n\n\n\n\nstate authorities for misuse of the COVID waiver). Moreover, neither FE is alleged to have been\n\nin a position to understand how the waiver would have impacted company-wide revenues in\n\n2023. Both began their roles not only after the expiration of the waiver in May 2023, but also\n\nany 100-day grace period that would have expired at the end of August, seeing as FE-1 is alleged\n\nto have been employed from November 2023 through August 2024 and FE-10 was employed\n\nfrom September 2023 through July 2024. CCAC \u00b6\u00b6 98, 107. FE-1 worked at an unspecified\n\nSNF as Director of Admissions, whereas FE-10 worked in an Arizona facility as an\n\nAdministrator. Id. Ultimately, Plaintiffs\u2019 assertion is \u201cprecisely the sort of speculative leaps of\n\nlogic [from CWs] that courts have rejected.\u201d Schiro, 396 F. Supp. 3d at 305 (citation modified).\n\n Plaintiffs\u2019 alternative theory is that the risk disclosure was rendered materially misleading\n\nby virtue of PACS\u2019s policy of recording revenue for respiratory therapies when such treatments\n\nwere not eligible for reimbursement under Medicare Part B. CCAC \u00b6 386(c). Plaintiffs allege,\n\nin effect, that the determination that respiratory, sensory integration and wound care ultrasound\n\nmist therapy may not be eligible for reimbursement under Medicare Part B qualifies as a\n\n\u201cchange, reduction or elimination of coverage for services,\u201d and that such change had already\n\nmaterially and adversely affected PACS\u2019s operations, revenue, and profitability by April 2024.\n\n Plaintiffs\u2019 argument runs up against the primary basis of their claims. Plaintiffs do not\n\nallege that Medicare changed its rules or regulations for coverage of ancillary services. They\n\nallege, to the contrary, that Medicare Part B revenues should never have been reported because\n\nof then-existing facts. A risk disclosure is not misleading on its own terms when the risk it\n\ndiscusses is not alleged to have materialized, resulting in \u201ca mismatch in terms of both subject\n\nmatter and specificity.\u201d Lian v. Tuya Inc., 2025 WL 733253, at *9 (S.D.N.Y. Mar. 7, 2025); see\n\nalso Rein v. Dutch Bros, Inc., 2024 WL 3105004, at *15 (S.D.N.Y. June 24, 2024) (noting \u201ca\n\n\n\n\n 69\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 70 of 121\n\n\n\n\nmismatch between the fact the [complaint] faults [the company] for omitting . . . and the\n\nstatements it challenges\u201d). The policy change risk disclosure concerns the risk from an external\n\nevent\u2014a change by Medicare or Medicaid or another governmental program to their rules\n\nregarding coverage and that such change, were it to occur, could result in hits to profitability\n\n(i.e., changes to \u201ccoverage or reimbursement\u201d). It does not provide assurance that PACS, in all\n\ninstances, was correctly interpreting and applying Medicare\u2019s current rules regarding\n\nreimbursements. Moreover, Plaintiffs do not allege that Medicare or Medicaid implemented any\n\nchanges that were kept hidden from investors. Instead, the core allegations are that PACS\n\nviolated the policies as they existed before and throughout the Class Period by accounting for\n\nrevenues that should not have been recognized under static policies. The risk disclosure might\n\nhave been false if Plaintiffs adequately pled that Medicare Part B once allowed reimbursements\n\nfor respiratory, sensory, and wound care ultrasound therapies but that policy had changed and\n\nPACS overbilled for those treatments anyways. But Plaintiffs make no such allegation; they\n\nexplicitly contend that \u201crevenue levels [were] being inflated by reimbursements for Medicare\n\nPart B that PACS now admits were improper\u2014due to PACS\u2019s own acknowledgment of then-\n\nexisting \u2018billing uncertainties,\u2019 as admitted in the Restatement, rather than changes to\n\nMedicare.\u201d CCAC \u00b6 386(c) (emphasis added). The risk factor does not cover misinterpretations\n\nof coverage and reimbursement policies or related accounting standards or impose on PACS an\n\nobligation to disclose on a continuing basis outside its quarterly reporting the impact of such\n\nmisinterpretations on its financial results, only objective changes to said policies.\n\n 2. Compliance & Review Risk Disclosures\n\n Plaintiffs also challenge two other risk disclosures from the IPO and SPO Offering\n\nDocuments and the Form 10-Q filings for the first two quarters of 2024. These risk disclosures\n\nshare a common theme. The first addresses the risk of non-compliance with health care rules\n\n\n 70\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 71 of 121\n\n\n\n\nand regulations or a change in those rules and regulations and the possibility that it could cause\n\nsignificant expenditures or a change in operations. The second warns that while PACS has an\n\ninternal review system, if PACS does not detect all instances of noncompliance, it might be\n\nrequired to repay billed amounts. As elaborated on below, Plaintiffs plead no facts that either\n\ndisclosure is false or misleading.\n\n a. Legal Compliance\n\n The risk disclosure concerning legal compliance reads:\n\n We operate in a highly regulated industry with stringent regulatory compliance\n obligations, and are subject to extensive and complex laws and government\n regulations. If we are not operating in compliance with these laws and regulations\n or if these laws and regulations change, we could be required to make significant\n expenditures or change our operations in order to bring our facilities and\n operations into compliance.\n\nId. \u00b6 393, 430, 478, 512 (Stmts. 3, 11, 21, 28).\n\n Plaintiffs allege that this disclosure was false and misleading because the Company was\n\nnot operating in compliance with regulations, starting from the time of the IPO and through the\n\nClass Period, and because changes in law or regulations were not a mere \u201cpotentiality\u201d but had\n\noccurred with the end of the COVID-19 waiver\u2014and the end of that waiver already had an\n\n\u201coutsized impact on PACS\u2019s operations, revenue and profitability.\u201d Id. \u00b6 394(a), (b).\n\nDefendants allegedly knew or were reckless in not knowing that PACS\u2019s revenue levels were\n\ninflated by overbilling for Medicare Part B services and so would foreseeably result in a material\n\nimpact to PACS\u2019s financial results. Id. \u00b6 394(c). To plead sufficient facts, in addition to the\n\nallegations from CWs and the Hindenburg Report, Plaintiffs point to the Restatement, in\n\nparticular its disclosure of a material weakness regarding the Company\u2019s whistleblower hotline\n\nand its report of governmental investigative action, including an April 8, 2024 CID requesting\n\n\n\n\n 71\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 72 of 121\n\n\n\n\ninformation regarding PACS Services and Paradise Valley days before the IPO. See, e.g., id.\n\n\u00b6\u00b6 395, 397, 480, 482.\n\n Plaintiffs have failed to plead facts that this disclosure was false when made. PACS\n\nwarned that if it did not act in compliance with the \u201cextensive and complex laws and government\n\nregulations\u201d that governed its business, or if those laws and regulations changed, it could be\n\nrequired to make significant expenditures or to change its operations to become compliant. Id.\n\n\u00b6 393, 430, 478, 512. The risk that PACS thus warned against was that it \u201ccould be required to\n\nmake significant expenditures or change [its] operations in order to bring [its] facilities and\n\noperations into compliance.\u201d It did not warrant that there would be no instances in which an\n\nemployee violated one of more of the laws and regulations that governed PACS\u2019s business.\n\nPACS had 212 to 314 facilities during the Class Period. It did not guarantee that every employee\n\nin each one of those facilities was always in compliance with the law.\n\n Plaintiffs do allege instances of non-compliance by PACS employees. The CWs allege a\n\nhodge-podge of unlawful behaviors: FE-9 alleges the Company incentivized lavish gifts and\n\nparties, and FE-4 alleges patient neglect and forging medical records. Additionally, FE-2, FE-5,\n\nFE-6, FE-9, and FE-10 also alleged various PACS facilities skirted licensing requirements in\n\nCalifornia, Arizona, and Colorado by misusing an administrator\u2019s license across more facilities\n\nthan permitted or falsely representing a facility had a specifically named licensed administrator\n\non site. CCAC \u00b6\u00b6 176\u2013191. But PACS was not required to disclose scattershot instances of\n\nwrongdoing that these CWs identify in order to render its disclosure not misleading. It was\n\nrequired to identify instances of wrongdoing that would or did have an operational impact. It is\n\nthere that Plaintiffs\u2019 allegations fall short. The CCAC does not plead facts to establish that the\n\ninstances of non-compliance were systematic or that they would cause any undisclosed\n\n\n\n\n 72\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 73 of 121\n\n\n\n\nsignificant expenditures or operational changes. Cf. Plumbers & Pipefitters Nat\u2019l Pension Fund\n\nv. Tableau Software, Inc., 2019 WL 2360942, at *4 (S.D.N.Y. Mar. 4, 2019) (holding that risk\n\ndisclosures were misleading where \u201cthe company was already experiencing significant setbacks\n\n[from the disclosed risk] . . . at the time the 10-K was issued\u201d without also disclosing that the\n\nsetback had occurred). Likewise, the Restatement\u2019s acknowledgement that a material weakness\n\nexisted with respect to PACS\u2019s hotline does not suffice to make the risk disclosure false. PACS\n\nnoted that the Company \u201cdid not design and maintain sufficient processes to identify, assess, and\n\ncommunicate relevant risks to appropriate levels of the organization, including potential\n\ncompliance issues received through the hotline process.\u201d Dkt. No. 88-12 at 5. But Plaintiffs do\n\nnot identify what those compliance issues were or that they had any impact on operations or\n\nresults.\n\n The Restatement\u2019s changes to 2024 financial statements do not bear on the legal\n\ncompliance risk disclosure. The risk disclosure speaks to compliance with the laws and\n\nregulations of the healthcare industry, not the accuracy of PACS\u2019 reported financial results. The\n\nRestatement speaks to the latter and not to the former. It may have been (as Plaintiffs allege)\n\nthat there were episodic instances of billing for services that were not necessary, but Plaintiffs do\n\nnot allege that those caused significant expenditures or operational changes and those were not\n\nthe basis for the Restatement. The Restatement was based on a conclusion that the Company had\n\n\u201creceived information that indicated certain ancillary services, including respiratory [therapy]\n\n. . . may not be eligible for reimbursement\u201d and that such revenue should not be recognized \u201cuntil\n\ndefinitive conclusions regarding eligibility for billing.\u201d Dkt. No. 88-12 at 78 (emphasis added).\n\nIn other words, the level of uncertainty had reached the point that revenue recognition was not\n\npermitted. The Restatement did not admit, and Plaintiffs have not alleged facts to support, that\n\n\n\n\n 73\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 74 of 121\n\n\n\n\nDefendants were acting unlawfully in the submission of claims. Plaintiffs do not allege that\n\nDefendants violated the False Claims Act or any other law or regulation.\n\n Instead of well-pled allegations of company-wide illegality, Plaintiffs reason that because\n\n\u201cthe Company would need to return to Medicare . . . millions of dollars from the Company\u2019s\n\nwidespread overbilling,\u201d PACS\u2019s billing was illegal. CCAC \u00b6\u00b6 396(c), 397. But the best\n\nPlaintiffs allege to draw the bridge from \u201coverbilling\u201d (i.e., charging for respiratory therapies to\n\nmaximize revenue that PACS thought was recognizable) to unlawful is that PACS received CIDs\n\nand a subpoena in the period from April 2024 to February 2025. Id. \u00b6\u00b6 264(a)\u2013(d). The first\n\nCID from April 8, 2024, is alleged to have concerned PACS Services and one facility (Paradise\n\nValley) and to have concerned allegations of a violation of the False Claims Act. Id. \u00b6 264(a).\n\nPlaintiffs make no allegation that the CID inquired about anything other than conduct at that\n\nsingle facility or that PACS in fact committed violations of the False Claims Act. PACS\n\nreceived two CIDs in September 2024, and a subpoena in February 2025. Dkt. No. 88-12 at 73\u2013\n\n74. Those demands obviously could not have rendered false and misleading statements by\n\nPACS that preceded them, including the September 6, 2024 SPO. They also do not call the risk\n\ndisclosure into question. One of the September CIDs concerned \u201cCalifornia-based\u201d SNFs and an\n\nallegation that PACS violated the False Claims Act by submitting false claims to Medicare for\n\nreimbursement under the patient-driven payment model for skilled services and rehabilitation\n\nservices, and the other concerned a single facility (Bishop) and sought information regarding\n\nclaims submitted to Medicare for reimbursement under the COVID-19 waiver\u2014in other words,\n\nthey were localized and did not seek information about the same practices. CCAC \u00b6\u00b6 264(b)\u2013\n\n(c); Dkt. No. 88-12 at 73. There is no allegation that either CID progressed beyond the\n\nGovernment asking for information. The subpoena was issued after publication of the short-\n\n\n\n\n 74\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 75 of 121\n\n\n\n\nseller report; it inquired into the alleged practices mentioned in that report. CCAC \u00b6 264(d). But\n\nwhat is telling is the absence of any allegation that, after the subpoena was issued, the\n\nGovernment felt the need\u2014or the basis\u2014to take any action against PACS. The Government\n\nmay issue a civil investigative demand so long as it has \u201creason to believe\u201d that there might be\n\n\u201cinformation relevant to a false claims law investigation.\u201d See 31 U.S.C. \u00a7 3733(a)(1). It may\n\nserve a subpoena on a showing of relevance and \u201creasonableness related to a defined\n\ninvestigative scope,\u201d without any conclusion of probable cause. See ACLU v. Clapper, 785 F.3d\n\n787, 811\u201315 (2d Cir. 2015) (discussing the \u201caccepted standard of relevance\u201d for grand jury and\n\nadministrative subpoenas); see also 31 U.S.C. \u00a7 3733(b)(1)(A). That the Government asked\n\nwhether PACS was complying with the law absent any allegation that it concluded that PACS\n\nwas failing to comply with the law thus tends to undermine rather than support Plaintiffs\u2019\n\nallegation that the risk disclosure was false.\n\n The allegations here may be helpfully contrasted with those in In re BioScrip, Inc.\n\nSecurities Litigation, 95 F. Supp. 3d 711 (S.D.N.Y. 2015) (Nathan, J.). There, Judge Nathan\n\nconsidered risk disclosures that expressly said that the issuer, BioScrip, \u201cperiodically respond[s]\n\nto subpoenas and requests for information [and] . . . cannot predict with certainty . . . whether we\n\nmay in the future become a target or potential target of an investigation.\u201d Id. at 726 (internal\n\nquotation marks omitted). However, BioScrip had been served with a CID\u2014as PACS had\u2014\n\nprior to when the statement was made, rendering the risk disclosure misleading for a material\n\nomission. Id. at 727. But the risk disclosure here does not suggest to a reasonable investor that\n\nPACS is not subject to a government investigation because it does not speak to the risk of a civil\n\ninvestigation at all, unlike the risk disclosure in BioScrip. The nexus between the language of\n\n\n\n\n 75\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 76 of 121\n\n\n\n\nthe risk disclosure and Plaintiffs\u2019 allegations for why it is rendered misleading or materially false\n\nis too attenuated.\n\n b. Compliance Review\n\n The risk disclosure concerning PACS\u2019s instances of noncompliance warns that there are\n\ninstances of non-compliance that sometimes affect PACS\u2019s billing. It reads:\n\n We review and audit the care delivery, recordkeeping and billing processes of our\n operating subsidiaries. These reviews from time to time detect instances of\n noncompliance that we attempt to correct, which in some instances requires\n reduced or repayment of billed amounts or other costs.\n\nCCAC \u00b6\u00b6 389, 426, 474, 508 (Stmts. 2, 10, 20, 27).\n\n Plaintiffs allege that this statement was false and misleading because \u201cinstances of\n\nnoncompliance\u201d did not occur \u201ctime to time\u201d but were instead pervasive, pushed by PACS\n\nleadership \u201cacross the Company\u201d who were urging facilities \u201cto perform unnecessary respiratory\n\ntherapies on thousands of patients, to drive up revenue at each facility from $150,000 to $1\n\nmillion per month\u201d and yet the statement did not disclose that PACS leadership \u201chad been\n\norchestrating the use of sensory rooms, devoid of actual therapeutic tools, to overbill Medicare\n\nPart B for their treatments,\u201d thus rendering this disclosure misleading. Id. \u00b6 390(a), (b).\n\nPlaintiffs also allege that PACS did not audit and correct these practices even though the\n\n\u201cinternal investigation found at least $61 million in noncompliance, requiring Restatement.\u201d Id.\n\n\u00b6 390(e). Plaintiffs assert that \u201cPACS was directing\u2014through quotas, training sessions on how\n\nto maximize overbilling while evading detection, and terminating employees who objected\u2014the\n\nvery noncompliance such procedures were meant to prevent.\u201d Dkt. No. 89 at 37.\n\n Plaintiffs\u2019 allegations fail for reasons similar to the reasons that undermine Plaintiffs\u2019\n\nclaims with respect to legal compliance. The allegations fail to establish a widespread practice\n\nof billing for unnecessary respiratory therapies or other ancillary services. Plaintiffs rely on the\n\n\n\n 76\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 77 of 121\n\n\n\n\nHindenburg Report, firsthand CWs, and the Restatement. See, e.g., CCAC \u00b6\u00b6 7, 13, 154, 391,\n\n404.\n\n The Hindenburg Report fails to provide evidence of widespread and improper\n\noverbilling. Even if the confidential sources quoted in the report could be credited, they do not\n\nsupport the contention that instances of noncompliance leading to reduced billing was anything\n\nother than episodic. One source says that \u201c[overbilling Medicare Part B] started down in Santa\n\nMonica\u201d and then spread organically across PACS\u2019s network once others caught on that that\n\nfacility was experiencing strong performance after overcharging Part B, but provides no specifics\n\nwith respect to such supposed organic growth, while another \u201cfrom Colorado said that the\n\nrespiratory program was pushed onto their facility by PACS management,\u201d without indicating\n\nthat the billing was non-compliant. There is no suggestion from either of a top-down effort to\n\noverbill. Dkt. No. 88-10 at 19. Some CWs in the Report simply attest to PACS\u2019s focus on\n\n\u201cprofitability,\u201d without suggesting that such focus resulted in non-compliance. Id. (former\n\nadministrator explaining that PACS is \u201cmaximizing\u201d Medicare Part B, and another relaying that\n\nthe \u201cprogram equals dollars\u201d). Others provide allegations of wrongful document practices such\n\nas falsifying documents, but the Hindenburg Report does not clarify which facility the CW is\n\nspeaking to, in what capacity, or for which time period. As for economic analysis conducted by\n\nHindenburg Research, the Report does not posit a cause for PACS\u2019s V-shaped revenue from the\n\nfirst quarter of 2023 to the second quarter of 2024, and instead only relies on unspecified former\n\nemployees to suppose the cause was overbilling. Id. at 18\u201319.\n\n Plaintiffs\u2019 firsthand CWs do not provide corroboration of a coordinated, management-\n\ndriven scheme of non-compliance and to abuse Medicare. \u201c[C]ourts have found at the pleading\n\nstage that the accounts of confidential witnesses support a company-wide inference where, for\n\n\n\n\n 77\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 78 of 121\n\n\n\n\nexample, they emanate from several geographic areas; (2) span different levels of the Company\n\nhierarchy; and (3) remain consistent across different time period[s].\u201d AppHarvest, 684 F. Supp.\n\n3d at 262\u201363 (S.D.N.Y. 2023) (citation modified). Here, none of the CWs are purported to have\n\nworked at headquarters and altogether they provide a vantage into only a small fraction of\n\nPACS\u2019s SNFs\u201428 of 212 to 314 facilities during the Class Period\u2014at positions below the RVP\n\nlevel. CCAC \u00b6 116. Three of the CWs worked in California (FE-2, FE-3, FE-9), three in\n\nArizona (FE-4, FE-6, FE-10), and two in Colorado (FE-5, FE-8). Id. \u00b6\u00b6 98\u2013108. Two of the\n\nFEs, FE-1 and FE-7, do not have fully disclosed locations, though FE-7 is attributed as a\n\nRegional Marketing Director in 2024 for the Southwest region. Id. \u00b6 104. PACS had fourteen\n\nRVPs at the time of the IPO, but only three are mentioned in the CCAC (Nielsen, Smitty, and\n\nMcLane) as interacting with the FEs. CCAC \u00b6 139 n.11. To be sure, \u201c[a] comprehensive survey\n\nof employees is not needed at the pleading stage,\u201d Freudenberg, 712 F. Supp. 2d at 197, but the\n\nlack of a more comprehensive geographic span and the unrepresentative reflection of the\n\ncorporate hierarchy is coupled with insufficiency of the FEs\u2019 allegations themselves.\n\n More significantly, the CWs do not support the claim that leadership of PACS was\n\ndriving an effort to conduct and bill for unnecessary procedures. With respect to Medicare Part\n\nB overbilling specifically, only six are even alleged to corroborate the scheme: FE-1, FE-3, FE-\n\n5, FE-6, FE-9, and FE-10. But many of these FEs\u2019 allegations, taken as true, do not plausibly\n\nplead routine noncompliance to which the Company turned a blind eye: FE-1 and FE-10 noted\n\nthat the Company sought to \u201cmaximize billing,\u201d CCAC \u00b6\u00b6 121\u201323; FE-5 discussed a meeting\n\nwhere an administrator \u201cgave a four-hour lecture on how to bill more for respiratory therapy,\u201d id.\n\n\u00b6 139; and FE-9 recalled how respiratory therapists were given bonuses based on revenue and\n\n\u201chow Chad Nielsen and other Administrators encouraged facilities to enroll as many patients as\n\n\n\n\n 78\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 79 of 121\n\n\n\n\npossible\u201d in respiratory therapy, id. \u00b6\u00b6 131, 141. But these allegations do not indicate a\n\nsystematic plan to overbill Medicare Part B or to perform unnecessary services. So long as the\n\npatients needed the services, there is nothing non-compliant about an effort to maximize billing\n\nor to incent employees to perform. While the CWs are \u201ccertainly able to muster a litany of\n\ncriticisms, [the CWs\u2019] allegations at most only support an inference of an oversight failure of\n\nmanagement.\u201d Burns v. UP Fintech Holding Ltd., 2026 WL 834387, at *8 (S.D.N.Y. Mar. 26,\n\n2026) (citation modified); see also Police & Fire Ret. Sys. City of Detroit v. Argo Grp. Int\u2019l\n\nHoldings, Ltd., 2024 WL 5089970, at *13 (S.D.N.Y. Dec. 12, 2024) (\u201c[M]any of the confidential\n\nwitness allegations actually do not suggest what Lead Plaintiffs contend they suggest.\u201d); In re\n\nMagnum Hunter Res. Corp. Sec. Litig., 26 F. Supp. 3d 278, 295 (S.D.N.Y. 2014) (\u201cHowever,\n\nplaintiffs\u2019 use of confidential witnesses does not rectify the fact that they do not adequately plead\n\nfalsity.\u201d), aff\u2019d, 616 F. App\u2019x 442 (2d Cir. 2015) (summary order). Of the more direct\n\nallegations linking Part B abuses to Part A, FE-3 indicated that \u201cquotas were discussed on a\n\nvideo call in or shortly before May 2023\u201d\u2014the time that the COVID waiver expired\u2014and\n\nsuggested that a RVP named Eric Felton \u201cinstructed how to perform respiratory therapy and how\n\nto bill for it,\u201d and that this \u201cZoom meeting was for his whole region.\u201d CCAC \u00b6 135 (FE-3 stating\n\nthat video conference meetings during this time were led by \u201cCorporate Level Management\u201d).\n\nPlaintiffs do not explain how an instruction to perform respiratory therapy and to bill for it would\n\nbe non-compliant or provide evidence that unnecessary services were performed. This allegation\n\nis innocuous on its face. As critically, FE-3 is alleged to have started working at PACS in\n\nOctober 2023 and so could not possibly have been in the position to possess knowledge about a\n\ntransition of services occurring in May 2023. Id. \u00b6 100 (\u201cFE-3 was a Business Officer Manager\n\nfor a California SNF from October 2023 to August 2024.\u201d). A few allegations, read most\n\n\n\n\n 79\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 80 of 121\n\n\n\n\ngenerously, might provide support of episodic noncompliance. For instance, FE-1 indicated that\n\na \u201ctherapist was pushed to perform treatments on 12 to 15 patients a day\u201d even when not needed,\n\nid. \u00b6 143. But those stray assertions do not disprove the risk disclosure and only prove that there\n\nmight \u201ctime to time\u201d be noncompliance. See, e.g., id. \u00b6\u00b6 389, 426. FE-1 also claimed that there\n\nwas leadership pressure to keep SNFs filled, and that such initiative was indicative of a\n\ncompany-wide overbilling scheme. However, such \u201crumors cannot reasonably satisfy the\n\nrequirement that the facts alleged \u2018provide an adequate basis for believing that the defendants\u2019\n\nstatements were false.\u2019\u201d In re Vertex Pharms., Inc., Sec. Litig., 357 F. Supp. 2d 343, 354 (D.\n\nMass. 2005) (quoting Novak, 216 F.3d at 314). As to the assertion that PACS was not\n\nconducting audits, Plaintiffs fail to allege facts that such statement was false and rely in\n\nconclusory fashion on the Restatement itself, which did not speak to audits and care delivery but\n\nthat a whole category of services were mistaken to be reimbursable, resulting in a mismatch\n\nbetween the Restatement and the risk factor. See Lian, 2025 WL 733253, at *9.\n\n Plaintiffs do not push the assertion that the Restatement could indicate non-compliance,\n\nand for good reason. The Restatement acknowledged that certain revenues should not have been\n\nrecognized because it was \u201cprobable that a significant reversal in the amount of cumulative\n\nrevenue recognized\u201d would occur, see CCAC \u00b6 258 n.15 (quoting Dkt. No. 88-3 at 194).\n\nPlaintiffs extrapolate, in conclusory fashion, that because there was a Restatement, PACS\n\nleadership must have \u201calready known that the Company would need to refund Medicare\u201d for all\n\nof respiratory, sensory, and other therapy services during the Class Period. Id. \u00b6 391(a)\u2013(b). But\n\nthat is not what ASC 250 requires nor what the Restatement signaled and it is not evidence of\n\nnon-compliance. The Restatement signaled that PACS had submitted bills (and been paid on\n\nsome) and recorded revenue when there was a risk that such revenue would not be reimbursable\n\n\n\n\n 80\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 81 of 121\n\n\n\n\nor would be subject to refund or recoupment.28 It did not reflect that PACS was non-compliant\n\nwith the rules and regulations of the healthcare industry.\n\n 3. Disclaimer in Earnings Presentations\n\n Plaintiffs challenge a disclaimer from PACS\u2019s earnings presentations for the first two\n\nquarters of 2024 that speaks to the same subject matter as the risk factor statements from the\n\nSEC filings and represents that there \u201ccould\u201d be adverse effects from \u201crisks associated\u201d with\n\nPACS\u2019s internal review process:\n\n Forward-looking statements are not guarantees of future results and are subject to\n risks, uncertainties and assumptions, which may change over time and many of\n which are beyond the Company\u2019s control, and that could cause the Company\u2019s\n actual results to materially and adversely differ from those expressed in any\n forward-looking statements, including . . . risks associated with our review and\n audit of the care delivery, record keeping and billing processes of our operating\n subsidiaries . . . .\n\nId. \u00b6\u00b6 451, 495.\n\n Plaintiffs allege that this statement was false and misleading because at the time the\n\nstatement was made, the \u201cPACS Defendants knew, or at minimum were deliberately reckless,\n\nthat it was committing widespread misconduct in record keeping and billing processes,\u201d\n\nincluding by reporting revenue that would have to be restated. Id. \u00b6 452(a)\u2013(c). The Court has\n\nconcluded that Plaintiffs have alleged a false and material misstatement in connection with\n\nDefendants\u2019 report of revenue and earnings for the first and second quarters of 2024. The\n\nallegation regarding PACS\u2019s forward-looking statement adds nothing and does not state a claim\n\nfor relief. PACS\u2019s statement related to its forward-looking statements told investors that such\n\n\n28\n At oral argument, Plaintiffs mistakenly suggested that the information was learned prior to the\nSPO, see Oral Arg. Tr. 60:24\u201361:8, reasoning that the Restatement states that information\nreceived \u201c[s]ubsequent to the issuance of the Company\u2019s Quarter Report on Form 10-Q filed on\nAugust 12, 2024\u201d revealed that certain services \u201cmay not be eligible\u201d for Medicare Part B\nreimbursement. Dkt. No. 88-12 at 78. That contention rests on conjecture: \u201csubsequent\u201d could\nrefer to any time between August 12, 2024, and the Restatement\u2019s issuance in November 2025.\n\n\n 81\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 82 of 121\n\n\n\n\nstatements were subject to uncertainties and that future results could differ from those expressed\n\nin any forward-looking statement. In order for such statements to be ensured safe-harbor\n\nprotection under the PSLRA, 15 U.S.C. \u00a7 78u-5, PACS was required to include such cautionary\n\nlanguage. See Slayton v. Am. Exp. Co., 604 F.3d 758, 766 (2d Cir. 2010).\n\n Plaintiffs have not challenged any forward-looking statement by Defendants.29 It follows\n\nthat the language caveating forward-looking statements generally cannot itself be false or\n\nmisleading.\n\n 4. Business Model Representations\n\n Plaintiffs further allege that Defendants made materially false and misleading statements\n\nthat optimistically described PACS\u2019s business model and its positive attributes throughout the\n\nClass Period, including in SEC filings and communications with investors, including:\n\n Our rigorous approach to billing integrity, our independent internal compliance\n function, and our regular facility billing audits are intended to provide a foundation\n of trust and collaboration that makes us a natural choice for payors.\n\nCCAC \u00b6\u00b6 407, 526 (Stmts. 6, 31) (emphasis omitted).\n\n Our significant historical growth has been primarily driven by our expertise in\n acquiring underperforming long-term custodial care skilled nursing facilities and\n transforming them into higher acuity, high value-add short-term transitional care\n skilled nursing facilities.\n\nId. \u00b6\u00b6 399, 518 (Stmts. 4, 29) (emphasis omitted).\n\n We believe our success is driven in significant part by our decentralized, local\n operating model, through which we empower local leaders at each facility to\n operate their facility autonomously and deliver excellence in clinical quality and a\n superior experience for our patients.\n\nId. \u00b6\u00b6 403, 522 (Stmts. 5, 30) (emphasis omitted).\n\n\n\n\n29\n Defendants clarified at oral argument that they are not relying upon the safe harbor for\nforward-looking statements. See Oral Arg. Tr. at 26:15\u201327:18\n\n\n 82\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 83 of 121\n\n\n\n\n Model prioritizes local operational autonomy, leveraging robust technology and\n services for responsive decision-making based on community needs, enhancing\n patient care and facility operations.\n\nId. \u00b6\u00b6 455, 499 (Stmts. 16, 25) (emphasis omitted).\n\n In addition to training new leaders, the PACS leadership model allows our local\n leaders to make operational decisions as close to our patients and employees as\n possible, which is ultimately better for the residents and community in which they\n live.\n\nId. \u00b6 490 (Stmt. 23) (emphasis omitted).\n\n PACS\u2019 statements regarding \u201cbilling integrity\u201d, \u201crobust controls\u201d and \u201c[r]obust culture of\n\ncompliance\u201d are inactionable puffery.30 \u201c[A]lleged statements [that] are nothing more than\n\n\u2018milquetoast corporate-speak\u2019 . . . fail to provide any description of specific initiatives or\n\nassurances of efficacy upon which a reasonable investor could have relied,\u201d particularly those\n\nthat address \u201cnon-specific internal controls.\u201d Puchtler v. Barclays PLC, 2025 WL 887502, at\n\n*11\u201312 (S.D.N.Y. Mar. 21, 2025) (quoting Menaldi, 277 F. Supp. 3d at 513), aff\u2019d, 2025 WL\n\n3495490 (2d Cir. Dec. 5, 2025) (summary order). \u201cStatements that a company has implemented\n\ninternal controls do not . . . \u2018constitute assertions that the controls are adequate, nor does a\n\nsubsequent circumvention of such controls support an inference that the descriptive statements\n\nabout the implementation of such controls were false.\u2019\u201d In re Block, Inc. Sec. Litig., 2025 WL\n\n2607890, at *9 (S.D.N.Y. Sept. 9, 2025) (quoting Barilli v. Sky Solar Holdings, Ltd., 389 F.\n\nSupp. 3d 232, 253 (S.D.N.Y. 2019)). Plaintiffs allege that PACS\u2019 statements mislead because\n\nPACS \u201ctouted\u201d the effectiveness of its audits even though noncompliant practices (e.g.,\n\noverbilling) were running rampant in the Company. See CCAC \u00b6\u00b6 17, 312, 407; Dkt. No. 89 at\n\n36. However, PACS\u2019s statements provided \u201cno assurance to investors\u201d that its procedures would\n\n\n30\n For the same reasons that follow, allegations concerning PACS\u2019s statements regarding \u201crobust\ncontrols\u201d and \u201c[r]obust culture of compliance\u201d in the IPO Offering Documents are also\ninactionable. CCAC \u00b6\u00b6 307(e), 331.\n\n\n 83\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 84 of 121\n\n\n\n\nbe sufficient to prevent overbilling. Luo v. Sogou, Inc., 465 F. Supp. 3d 393, 409 (S.D.N.Y.\n\n2020). And, for the reasons already discussed, Plaintiffs do not allege facts supporting\n\nwidespread overbilling. Unlike the disclosures found actionable in Jinkosolar, PACS did not\n\ndescribe its \u201ccompliance measures in confident detail,\u201d Luo, 465 F. Supp. 3d at 409 (quoting\n\nSingh v. Cigna Corp., 918 F.3d 57, 63 (2d Cir. 2019)). Its disclosures were more \u201ctentative and\n\ngeneric.\u201d Id.\n\n Thus, these statements constitute inactionable puffery. \u201c[E]xpressions of puffery and\n\ncorporate optimism do not give rise to securities violations.\u201d Rombach, 355 F.3d at 174; see also\n\nNovak, 216 F.3d at 309. With regard to PACS\u2019s billing integrity, statements concerning\n\n\u201ccommitments or values . . . [are] \u2018simple and generic assertions\u2019 regarding Defendants\u2019\n\ncommitment to compliance [and] are \u2018not materially misleading absent significantly more\n\ndetailed assurances of compliance.\u2019\u201d Puchtler, 2025 WL 887502, at *10 (quoting In re\n\nCitigroup Sec. Litig., 2023 WL 2632258, at *14 (S.D.N.Y. Mar. 24, 2023)); Singh, 918 F.3d at\n\n63 (\u201cgeneral declarations about the importance of acting . . . with integrity\u201d are puffery). As to\n\ngeneric descriptions of PACS\u2019s business model, they also are inactionable opinions as they do\n\nnot rest on any objective elements, despite Plaintiffs\u2019 arguments to the contrary, see Dkt. No. 89\n\nat 38. The \u201cchallenged statements regarding the Company\u2019s focus and strategy are a set of\n\naspirational generalizations, which are precisely the type of puffery that the Second Circuit has\n\nconsistently held to be inactionable.\u201d Diabat v. Credit Suisse Grp. AG, 2024 WL 4252502, at\n\n*102 (S.D.N.Y. Sept. 19, 2024).\n\n Two of the statements explain PACS\u2019s success\u2014that \u201csignificant historical growth has\n\nbeen primarily driven by . . . expertise in acquiring underperforming [SNFs] . . . and\n\ntransforming them,\u201d as well as that the Company\u2019s success is \u201cdriven in significant part by [its]\n\n\n\n\n 84\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 85 of 121\n\n\n\n\ndecentralized\u201d operating model\u2014but are, Plaintiffs allege, misleading because they leave out\n\nthat the real reason for success was overbilling Medicare pursuant to a top-down directive, as\n\nconfirmed by the Restatement. CCAC \u00b6\u00b6 400, 404. These statements describe PACS\u2019s \u201csuccess\n\nin general terms\u201d and are \u201cnot specific enough to put the reason for [its] success at issue,\n\ntriggering a duty to disclose.\u201d Africa, 2022 WL 4537973, at *9. Moreover, there are no well-\n\npled allegations that PACS\u2019s success was not driven by the acquisition of underperforming SNFs\n\nor by its decentralized business model. Indeed, certain of Plaintiffs\u2019 allegations suggest precisely\n\nthat PACS success was driven by its ability\u2014through the focus on profit and billing\u2014to acquire\n\nand turn around underperforming SNFs. The disclosure does not speak in specific terms as to\n\nhow PACS was able to turn around the underperforming SNFs. As for Medicare Part B services,\n\nthe statements are not incompatible with the delivery of those services as an engine for PACS\u2019s\n\ngrowth: the first speaks to \u201chistorical growth\u201d and ascribes it to the acquisition of\n\nunderperforming SNFs; Plaintiffs\u2019 allegation relates to how the SNFs were able to perform in\n\n2024, months before the IPO. The second does not speak to which services are offered but\n\nPACS\u2019s choice of operating model. On the latter, Plaintiffs quote the Company\u2019s language of\n\ndescribing the operating model as \u201clocally led, centrally supported\u201d on \u201cthe latest earnings call\n\non November 19, 2025\u201d versus the language of \u201cdecentralized, local operating model\u201d during the\n\nClass Period, but even if those two statements were incompatible, how PACS described its\n\noperating model in November 2025 does not bear on the truth of its statements during the Class\n\nPeriod. CCAC \u00b6 404.\n\n To support their arguments that the business model statements are false, Plaintiffs rely on\n\nIn re Moody\u2019s Corp. Securities Litigation, 599 F. Supp. 2d 493 (S.D.N.Y. 2009), but that case\n\nundermines their claim. In Moody, the court focused on \u201cverifiable actions\u201d that Moody\u2019s was\n\n\n\n\n 85\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 86 of 121\n\n\n\n\n\u201ctaking to ensure its independence,\u201d which it claimed were \u201cthe \u2018raw materials\u2019 of its business.\u201d\n\nId. at 509. Moody\u2019s statements included detailing \u201cspecific steps.\u201d Id. Instead, PACS\u2019s\n\nstatements are readily analogous to broad corporate-speak statements district courts have\n\nregularly found inactionable when describing a company\u2019s value proposition and operations, in\n\npart because they are near impossible to empirically disprove. See, e.g., Applied Minds, LLC v.\n\nGuild Hall of E. Hampton, Inc., 2025 WL 4072652, at *6 (S.D.N.Y. Sept. 22, 2025)\n\n(\u201c[S]tatements about a company\u2019s experience or expertise constitute mere opinion or puffery and\n\nare not actionable as fraud.\u201d) (collecting cases), report and recommendation adopted, 2026 WL\n\n775622 (S.D.N.Y. Mar. 19, 2026).\n\nIII. Allegations of Scienter under the Exchange Act Claims\n\n Even if Plaintiffs had alleged a false and misleading narrative statement under the\n\nExchange Act (and notwithstanding that they have alleged that PACS\u2019s reports of its financial\n\nresults were false and misleading), Plaintiffs have not adequately alleged scienter for purposes of\n\ntheir Section 10(b) claims under the Exchange Act.\n\n A. Scienter\n\n To plead scienter sufficiently under the PSLRA, a plaintiff must allege \u201cwith particularity\n\nfacts giving rise to a strong inference that the defendant acted with the required state of mind.\u201d\n\nJP Morgan Chase Co., 553 F.3d at 198 (quoting 15 U.S.C. \u00a7 78u\u20134(b)(2)). The scienter required\n\nunder Section 10(b) and Rule 10b-5 to sustain a private civil claim is an \u201can intent to deceive,\n\nmanipulate or defraud.\u201d Kalnit v. Eichler, 264 F.3d 131, 138 (2d Cir. 2001) (quoting Ganino,\n\n228 F.3d at 168). Recklessness may also suffice to plead scienter for securities fraud in the\n\nSecond Circuit. See JP Morgan Chase Co., 553 F.3d at 198.\n\n To survive a motion to dismiss, \u201cthe inference of scienter must be more than merely\n\nplausible or reasonable\u2014it must be cogent and at least as compelling as any opposing inference\n\n\n 86\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 87 of 121\n\n\n\n\nof nonfraudulent intent.\u201d Id. (internal quotation marks omitted). In assessing whether such an\n\ninference exists, courts consider both the inferences urged by plaintiffs as well as any reasonable\n\ncompeting inferences \u201crationally drawn from all the facts alleged, taken collectively.\u201d Id. The\n\ninference of scienter, however, \u201cneed not be \u201cirrefutable,\u2019 of the \u2018smoking-gun genre,\u2019 or even\n\nthe \u2018most plausible of competing inferences.\u2019\u201d Gimpel, 156 F.4th at 143\u201344 (quoting Tellabs,\n\n551 U.S. at 324). The court takes \u201cinto account inferences favoring both the plaintiff and the\n\ndefendant.\u201d Id.\n\n \u201cA plaintiff may establish scienter by alleging facts that either (1) show that the\n\ndefendant had both the \u2018motive and opportunity\u2019 to commit the alleged fraud, or (2) constitute\n\n\u2018strong circumstantial evidence of conscious misbehavior or recklessness.\u2019\u201d Francisco v.\n\nAbengoa, S.A., 559 F. Supp. 3d 286, 317 (S.D.N.Y. 2021) (quoting JP Morgan Chase Co., 553\n\nF.3d at 198). To raise a strong inference of scienter through \u201cmotive and opportunity\u201d to\n\ndefraud, plaintiffs must allege that defendants \u201cbenefitted in some concrete and personal way\n\nfrom the purported fraud.\u201d JP Morgan Chase Co., 553 F.3d at 198 (quoting Novak, 216 F.3d at\n\n307\u201308). \u201cMotives that are common to most corporate officers, such as the desire for the\n\ncorporation to appear profitable and the desire to keep stock prices high to increase officer\n\ncompensation, do not constitute \u2018motive\u2019 for purposes of this inquiry.\u201d Id. (quoting Novak, 216\n\nF.3d at 307). If plaintiffs do not make this showing of \u201cmotive and opportunity,\u201d they may\n\nadequately allege scienter through the circumstantial evidence prong \u201c\u2018though the strength of the\n\ncircumstantial allegations must be correspondingly greater\u2019 if there is no motive.\u201d Id. (quoting\n\nKalnit, 264 F.3d at 142). The court may also consider whether the combination of motive and\n\nopportunity and circumstantial evidence of knowledge together create an inference of scienter.\n\nGimpel, 155 F.4th at 145\u201346 (\u201cBecause we conclude that the Plaintiffs\u2019 motive allegations weigh\n\n\n\n\n 87\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 88 of 121\n\n\n\n\nin favor of scienter, the circumstantial evidence need not be as great, although it must still be\n\nstrong\u201d).31\n\n It is not sufficient under the PSLRA that any company employee knew that its statements\n\nwere false or intended to commit fraud. \u201c[T]he pleaded facts must create a strong inference that\n\nsomeone whose intent could be imputed to the corporation acted with the requisite scienter.\u201d\n\nTeamsters Loc. 445 Freight Div. Pension Fund v. Dynex Cap. Inc., 531 F.3d 190, 195 (2d Cir.\n\n2008). \u201cIn most cases, the most straightforward way to raise such an inference for a corporate\n\ndefendant will be to plead it for an individual defendant.\u201d Id. In \u201cexceedingly rare instances,\u201d\n\nJackson v. Abernathy, 960 F.3d 94, 99 (2d Cir. 2020), a plaintiff may be able to allege a strong\n\ninference of corporate scienter \u201cwithout being able to name the individuals who concocted and\n\ndisseminated the fraud\u201d such as when a statement is \u201cso dramatic [that it] . . . would have been\n\napproved by corporate officials sufficiently knowledgeable about the company to know that the\n\nannouncement was false.\u201d Id. at 195\u201396 (internal quotation marks omitted).\n\n 1. Motive and Opportunity\n\n Plaintiffs argue that they have alleged scienter through the motive and opportunity of\n\nPACS\u2019s senior executives. For Murray and Hancock, Plaintiffs contend their stock sales in the\n\nIPO and SPO led to extraordinary profits, totaling nearly $657 million between the two of them\n\nacross both offerings, and should be viewed with suspicion. CCAC \u00b6 536. Plaintiffs do not\n\ncontend that Apt, Sanford, and Jergensen made any suspicious stock sales, but rather contend\n\nthat each had motive and opportunity to defraud investors because of their compensation\n\n\n\n31\n Gimpel did not purport to change the law of the Circuit that motive and opportunity alone can\ngive rise to a strong inference of scienter. As the Smith court noted after Gimpel, \u201cPlaintiffs may\nsatisfy this requirement by alleging facts (1) showing that the defendants had both motive and\nopportunity to commit the fraud or (2) constituting strong circumstantial evidence of conscious\nmisbehavior or recklessness.\u201d 177 F.4th at 413 (internal quotation marks omitted).\n\n\n 88\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 89 of 121\n\n\n\n\nschemes. Id. \u00b6 546. Defendants do not dispute that the Individual Defendants would have had\n\nthe opportunity to commit fraud, but they vigorously dispute motive. They contend that\n\nPlaintiffs fail to state, with particularity, how stock sales by Defendant Murray and Hancock\n\nduring the offerings are unusual or suspicious, nor how Defendants Apt, Sanford, and Jergensen\n\nbenefited in a concrete and personal way. Dkt. No. 83 at 35\u201337.\n\n Plaintiffs\u2019 allegations regarding Murray\u2019s and Hancock\u2019s stock sales do not establish a\n\nstrong inference of scienter. Murray and Hancock sold stock in the IPO and the SPO, but not in\n\nthe open market. The sales happened within PACS\u2019s first half-year as a public company and less\n\nthan two months after the release of the Hindenburg Report. See Dkt. No. 89 at 40. They netted\n\nnearly $34 million each from the IPO and $295 million each from the SPO, a change in\n\nownership from 50% of the company to just over 35% for Murray and Hancock each. See\n\nCCAC \u00b6\u00b6 536\u201337, 649. Plaintiffs thus contend that collectively and individually, Murray and\n\nHancock \u201cunloaded approximately 30% of the Company\u2019s entire supply of stock.\u201d Id. \u00b6 538. In\n\ncalculating this change in ownership, Plaintiffs include shares that Murray and Hancock had\n\n\u201cgifted\u201d PACS to sell in the SPO and calculate their change in ownership based on their holdings\n\nrelative to the stock\u2019s total float. Id. \u00b6 41; Dkt. No. 89 at 40; Dkt. No. 91 at 15. In terms of\n\nabsolute number of shares, Murray and Hancock each started with 64,361,693 shares before the\n\nIPO and ended with 54,626,199 shares after the SPO, indicating a reduction of approximately\n\n15.1% for each. See Dkt. No. 88-3 at 153; Dkt. No. 88-4 at 160.\n\n Unusual insider sales immediately before and during the class period may permit an\n\ninference of scienter. See, e.g., In re Scholastic Corp. Sec. Litig., 252 F.3d 63, 74 (2d Cir. 2001);\n\nStevelman v. Alias Research, Inc., 174 F.3d 79, 86 (2d Cir. 1999). Courts consider a number of\n\nfactors to determine if a sale was \u201cunusual or suspicious\u201d: \u201c(1) the amount of net profits realized\n\n\n\n\n 89\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 90 of 121\n\n\n\n\nfrom the sales; (2) the percentages of holdings sold; (3) the change in volume of insider\n\ndefendant\u2019s sales; (4) the number of insider defendants[] selling; (5) whether sales occurred soon\n\nafter statements defendants are alleged to know to be misleading; (6) whether sales occurred\n\nshortly before corrective disclosures or materialization of the alleged risk; and (7) whether sales\n\nwere made pursuant to trading plans such as Rule 10b5-1 plans.\u201d Glaser v. The9, Ltd., 772 F.\n\nSupp. 2d 573, 587 (S.D.N.Y. 2011).\n\n In this instance, however, the Individual Defendants\u2019 stock sales fail to support an\n\ninference of scienter. Murray and Hancock\u2019s sales generated large proceeds, but that is a\n\nfunction of the size of their holdings. Murray and Hancock only sold 15% of their respective\n\nstakes in the Company through the offerings\u2014significantly less than the reduction of ownership\n\ncourts have found probative of scienter. See Zornberg v. NAPCO Sec. Techs., Inc., 778 F. Supp.\n\n3d 516, 526 (E.D.N.Y. 2025) (\u201cThe Second Circuit has held that stock sales of more than 40% of\n\nholdings are sufficient to establish a motive.\u201d). Plaintiffs insist that the Court consider a 28.8%\n\nreduction in ownership for Murray and Hancock but cite no authority for the proposition that\n\nfounders\u2019 shares gifted to the issuer for an offering are to be included in calculations of holdings\n\nchanges. See Dkt. No. 89 at 40. That gift is most naturally considered a further investment in\n\nkind by the two in the company or contribution to the company; through it, the company would\n\nbe able to raise additional proceeds on behalf of all investors, with Murray and Hancock able to\n\nshare in the benefit (and take the risk) of that corporate activity through their (now reduced)\n\nshare ownership. It thus bespeaks a motive, common to most corporate officers, to benefit the\n\ncorporation, and not to benefit themselves individually. See JP Morgan Chase Co., 553 F.3d at\n\n198; cf. In re Complete Mgmt. Inc. Sec. Litig., 153 F. Supp. 2d 314, 328 n.8 (S.D.N.Y. 2001)\n\n\n\n\n 90\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 91 of 121\n\n\n\n\n(noting that individual \u201cdisposed of her CMI shares by gift, and thus we do not consider that\n\nactivity to be improper insider trading\u201d).\n\n Even if the Court credited Plaintiffs\u2019 assertion that the correct figure is 28.8%, that would\n\nnot make Murray and Hancock\u2019s transactions suspicious. Plaintiffs cite to In re Weight\n\nWatchers Securities Litigation to indicate that the magnitude of the change in holdings is\n\nactionable, but that case reveals that Plaintiffs\u2019 arguments are weak on their own terms because\n\nthere, the court considered a change in ownership of 44% to 22%. See 504 F. Supp. 3d. at 256\u2013\n\n57. That 50% \u201creduction in ownership\u201d is patently more suspicious than the sub-30% change\n\nthat Plaintiffs point to for Murray and Hancock. Cf. In re SLM Corp. Sec. Litig., 740 F. Supp. 2d\n\n542, 558 (S.D.N.Y. 2010) (discussing that the inquiry turns on whether a \u201csale amount[s] to a\n\nlarge percentage of an individual\u2019s holdings,\u201d and finding that defendant\u2019s \u201cliquidation of 97%\n\nof his Sallie Mae holdings\u201d is probative of scienter).\n\n The magnitude of Murray and Hancock\u2019s proceeds does not make their stock transactions\n\nsuspicious. It is a function solely of the valuation of PACS. The two generated substantial\n\nproceeds, measured in absolute dollars. But they started with stock, that if valued at the IPO\n\noffering price, had far greater worth. And they held onto most of that stock. If the two had sold\n\neven a smaller percentage of their holdings, the sale would have generated substantial proceeds\n\nbut that does not make the transactions suspicious. Plaintiffs cite to various cases to draw a\n\ndistinction on the basis of dollar amount of proceeds, see Dkt. No. 89 at 39, but those\n\ncomparisons are unpersuasive in context. In Gimpel and comScore, the individual defendants\n\nsold over half of their holdings and generated more from their sales than they continued to hold\n\nin the company. See Gimpel, 156 F.4th at 144 (individual defendants each sold two-thirds or\n\nmore of their shares); comScore, 268 F. Supp. 3d at 554\u201355 (three individual defendants each\n\n\n\n\n 91\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 92 of 121\n\n\n\n\nsold between 57% to 83% of their holdings). And, while Plaintiffs contend that in Blanford, the\n\n\u201ctwo defendants profiting $49 million [was deemed] suspicious,\u201d Dkt. No. 89 at 49 (citing 794\n\nF.3d at 308\u201309), the Second Circuit has since made clear that to allege unusual stock trades it is\n\nnot enough that the trades \u201cgenerated significant net profits,\u201d but plaintiffs must also allege other\n\ncircumstances making the transactions suspect including \u201cthe proportion of individual\n\ndefendants\u2019 stockholdings involved in the sales compared to their overall holdings\u201d and whether\n\nthe transactions were \u201ctimed suspiciously.\u201d Ark. Pub. Emps. Ret. Sys. v. Bristol-Myers Squibb\n\nCo., 28 F.4th 343, 355 (2d Cir. 2022); see also N.Y.C. Pub. Pension Funds v. Coupang, Inc.,\n\n2025 WL 2613650, at *25 (S.D.N.Y. Sept. 10, 2025) (\u201cThough the proceeds of the alleged stock\n\nsales are, by any measure, considerable, more is required in order for these trades to give rise to a\n\nstrong inference [of scienter].\u201d (quoting In re Lululemon Sec. Litig., 14 F. Supp. 3d 553, 585\n\n(S.D.N.Y. 2014), aff\u2019d, 604 F. App\u2019x 62 (2d Cir. 2015) (summary order))). It is not unusual for\n\na founder who has devoted time and capital in a start-up to wish to monetize some of the value of\n\nher investment when the company is able to go public. Nor is it unusual for the privately held\n\nshares to have increased in value. The proceeds received by Murray and Hancock in the IPO and\n\nSPO cannot alone establish scienter without establishing a virtual per se rule\u2014a founder who\n\nsells stock in the IPO of a previously privately held company will strictly be liable for any\n\nmistakes in the offering documents, regardless of whether he or she knew or was reckless as to\n\nthe mistakes.\n\n When the remainder of the factors are considered, they tend to refute scienter. As noted,\n\nthe two sold only a small percentage of their holdings in PACS. That means that they continued\n\nto hold a substantial stake in the company and were themselves among the largest losers (if not\n\nthe largest losers) when the misstatements were disclosed. See Menora Mivtachim Ins. Ltd. v.\n\n\n\n\n 92\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 93 of 121\n\n\n\n\nInt\u2019l Flavors & Fragrances Inc., 2021 WL 1199035, at *27 (S.D.N.Y. Mar. 30, 2021) (rejecting\n\ntheory of scienter where defendants allegedly \u201csuddenly decided ten months later that it would\n\nbe prudent to disclose for the first time the previously secret scheme to both investors and the\n\nDepartment of Justice, knowing full well that it would almost certainly lead to this very lawsuit\n\nand possibly other legal ramifications\u201d); City of Monroe Emps.\u2019 Ret. Sys. v. Hartford Fin. Servs.\n\nGrp., Inc., 2011 WL 4357368, at *17 (S.D.N.Y. Sept. 19, 2011) (rejecting a theory of scienter\n\nthat defendants knew of a fraudulent scheme and made several misrepresentations about the\n\nscheme \u201conly to reveal [the scheme] to the world a few months later\u201d as \u201cillogical\u201d and\n\n\u201cbizarre\u201d).\n\n Murray and Hancock sold their shares in the IPO and SPO respectively, and not on the\n\nopen market. While Plaintiffs allege a class period from April 11, 2024, to December 16, 2024,\n\nand alleged misstatements throughout that period, they do not allege any sales by either Murray\n\nor Hancock after the early September 2024 SPO. \u201c[T]he fact that the Individual Defendants sold\n\nonly in public offerings cuts against an inference of scienter, because it suggests a motive that is\n\n\u2018generally possessed by most corporate directors and officers.\u2019\u201d Evoqua Water Techs. Corp.,\n\n450 F. Supp. 3d at 420 (S.D.N.Y. 2020) (quoting Kalnit, 264 F.3d at 139); id. at 419 (noting that\n\nstock sales were not unusual given that there were \u201cno allegations that any Executive Defendant\n\nsold shares at any time other than in connection with the IPO and SPO\u201d); see also DraftKings,\n\n650 F. Supp. 3d at 177. Additionally, \u201cdistrict courts in our Circuit are \u2018frequently skeptical that\n\nstock sales are indicative of scienter where no trades occur in the months immediately prior to a\n\nnegative disclosure.\u2019\u201d Gimpel, 156 F.4th at 145 (quoting Chapman, 466 F. Supp. 3d at 412).\n\nLastly, CFO Apt and Chief Accounting Officer Lewis\u2014the persons who allegedly would have\n\nbeen responsible for PACS\u2019s financial statements\u2014are not alleged to have sold any shares\n\n\n\n\n 93\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 94 of 121\n\n\n\n\nduring the Class Period and thus to have profited at all from the supposed fraud. To accept\n\nPlaintiffs\u2019 theory then the Court would have to accept either one of two implausible conclusions\n\n(i) Apt and Lewis were complicit in PACS\u2019s improper accounting and other alleged false\n\nstatements and took the risk while allowing Murray and Hancock to enjoy all the benefit of stock\n\nsales; or (ii) Apt and Lewis did not believe that the accounting for which they were responsible\n\nwas improper but Murray and Hancock (who are not alleged to have any unique accounting\n\nknowledge) somehow did believe that the financials were false.\n\n Taken altogether, Plaintiffs have failed to raise a strong inference of scienter based on\n\nMurray\u2019s and Hancock\u2019s stock sales.\n\n As for the motive and opportunity of Defendants Apt, Sanford, and Jergensen, the\n\npleadings are weaker still.32 Plaintiffs point out these Defendants benefited from the 2024\n\nManagement Bonus Program, because \u201can aggregate bonus pool equal to 8% of the Company\u2019s\n\nAdjusted EBITDA\u201d would be doled out amongst them depending on quarterly performance in\n\nfiscal year 2024, as well as grants of restricted stock units (\u201cRSUs\u201d) in the IPO that vested over\n\nfive years. CCAC \u00b6\u00b6 546, 612\u201314. In other words, the value of their bonuses and RSUs were\n\ntied to PACS\u2019s reported EBITDA. But the allegation that Apt, Sanford, and Jergensen had a\n\nmotive to defraud because the effect of the alleged fraud was to increase the value of their RSUs\n\npositions them no differently (and maybe worse) than the ordinary shareholder. If the fraud\n\nraised the price of PACS\u2019 stock price, they would benefit\u2014save that, in the case of Apt, Sanford,\n\nand Jergensen, they would be able to realize that benefit only ratably over a period of five years\n\nand not immediately. The RSUs with an elongated vesting schedule could only align these\n\nDefendants with ordinary corporate motives, not incentivize fraudulent activity given that their\n\n\n\n32\n Plaintiffs allege no motive for Lewis.\n\n\n 94\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 95 of 121\n\n\n\n\nassets would be equally hurt if the fraud were exposed. In re Adobe Inc. Sec. Litig., 2025 WL\n\n3124312, at *14 (S.D.N.Y. Nov. 7, 2025) (discussing, with respect to RSUs, that the \u201callegations\n\nfail to allege motive because the Individual Defendants would not benefit from an inflated stock\n\nprice unless they sold their shares before the alleged corrective disclosure decreased the value of\n\nthe stock and there is no allegation that they did\u201d). And the bonus allegation is generic to every\n\ncorporate officer whose performance is judged on the basis of the performance of the company.\n\nNeither of these incentives are dissimilar from generic incentives that every corporate officer\n\nhas, which are insufficient to create a strong inference of scienter. In re Pareteum Sec. Litig.,\n\n2021 WL 3540779, at *16 (S.D.N.Y. Aug. 11, 2021) (\u201cThese allegations alone are not sufficient\n\nto give rise to a strong inference of scienter, because motives that are common to most corporate\n\nofficers, such as the desire . . . to increase officer compensation, do not constitute \u2018motive\u2019 for\n\npurposes of this inquiry.\u201d (citation modified)). Accordingly, Plaintiffs have failed to adequately\n\nsuggest a strong inference of scienter through these Defendants\u2019 motive and opportunity.\n\n Although Plaintiffs cite to Gimpel, that case cuts against the allegations here. There, one\n\nof the individual defendants met their bonus target by \u201conly 0.1%\u2014and would not have hit that\n\nmetric\u201d but for the fraudulently accounted revenue. 156 F.4th at 145. Here, Plaintiffs do not\n\nallege the purportedly inflated revenue was consequential for a tiered incentive plan and that the\n\nmisstatement indicated a particular incentive to meet a certain threshold. Instead, the bonus\n\nprogram here was standard fare: the better the company performs, the more of a bonus each\n\nrelevant Defendant receives. See In re Skechers USA, Inc. Sec. Litig., 444 F. Supp. 3d 498, 526\n\n(S.D.N.Y. 2020) (\u201cWholly apart from the flawed logic of plaintiffs\u2019 argument, it must be\n\nevaluated in the context of the Second Circuit\u2019s case law, which clearly provides that an\n\n\n\n\n 95\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 96 of 121\n\n\n\n\nincentive-based compensation system is generally insufficient to support a strong inference of\n\nscienter.\u201d).\n\n 2. Circumstantial Evidence of Conscious Misbehavior or Recklessness\n\n Because Plaintiffs have failed to plead motive and opportunity, they \u201cbear[] a\n\n\u2018correspondingly greater\u2019 burden in alleging conscious misbehavior or recklessness.\u201d In re\n\nCheckpoint Therapeutics Sec. Litig., 2025 WL 1434400, at *23 (S.D.N.Y. May 19, 2025)\n\n(quoting JP Morgan Chase Co., 553 F.3d at 198\u201399). Plaintiffs offer an amalgamation of\n\ncircumstantial evidence to meet this burden: (1) top-down directives implemented through RVPs,\n\n(2) unusual executive departures, (3) delayed financial reporting, and (4) SOX certifications by\n\nDefendants Murray and Apt. Individually and taken together, these allegations do not suffice for\n\nPlaintiffs to clear the hurdle.\n\n \u201cWhere the defendant at issue is a corporation, it is possible to plead corporate scienter\n\nby pleading facts sufficient to create a strong inference either (1) that \u2018someone whose intent\n\ncould be imputed to the corporation acted with the requisite scienter\u2019 or (2) that the statements\n\n\u2018would have been approved by corporate officials sufficiently knowledgeable about the company\n\nto know\u2019 that those statements were misleading.\u201d Loreley Fin. (Jersey) No. 3 Ltd. v. Wells\n\nFargo Sec., LLC, 797 F.3d 160, 177 (2d Cir. 2015) (quoting Dynex, 531 F.3d at 195\u201396). To\n\nestablish conscious misbehavior or recklessness, Plaintiffs must allege that a corporate defendant\n\nor other person who approved or was responsible for the statements \u201chad access to non-public\n\ninformation contradicting their public statements.\u201d Wilbush v. Ambac Fin. Grp., Inc., 271 F.\n\nSupp. 3d 473, 485 (S.D.N.Y. 2017) (quoting In re Scholastic Corp., 252 F.3d at 76). \u201c[W]here\n\nplaintiffs contend defendants had access to contrary facts, they must specifically identify the\n\nreports or statements containing this information.\u201d Dynex, 531 F.3d at 196 (quoting Novak, 216\n\nF.3d at 309); see In re Adient plc Sec. Litig., 2020 WL 1644018, at *27 (S.D.N.Y. Apr. 2, 2020)\n\n\n 96\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 97 of 121\n\n\n\n\n(concluding that scienter was insufficiently pled where plaintiffs \u201cfail to show what specific\n\ncontradictory information was available to any Defendant at the time they made any alleged false\n\nor misleading statement\u201d (internal quotation marks omitted)). \u201c[C]ontrary facts may also be\n\nlearned in other ways, including through observation.\u201d Turquoise Hill Res. Ltd., 625 F. Supp. 3d\n\nat 237.\n\n Plaintiffs argue initially that the Restatement pursuant to solely ASC 250 constitutes\n\n\u201cpowerful, direct evidence of scienter\u201d that, independently, can satisfy the PSLRA\u2019s scienter\n\nrequirement.33 But that is plainly wrong. While a restatement can constitute evidence\n\nsupporting an inference of scienter, it \u201ccannot alone establish scienter.\u201d Glantz, 2025 WL\n\n278440, at *7 (collecting cases); see also zCap, 792 F. Supp. 3d at 438 (regardless of\n\n\u201cmagnitude,\u201d a restatement \u201cdoes not by itself prove\u201d scienter).\n\n Resting on allegations from FEs, Plaintiffs next contend that Defendants Murray and\n\nHancock gave a top-down directive to overbill Medicare Part B by performing unnecessary\n\ntherapies. CCAC \u00b6\u00b6 133\u2013150; Dkt. No. 89 at 43. Plaintiffs do not do any better with this theory.\n\nPlaintiffs rely on supposition from the fact that Defendant Sanford oversaw the RVPs and sat in\n\nbetween the RVPs and Murray and Hancock, that the cofounders must have known of the\n\nimproper accounting. CCAC \u00b6 140. Scienter cannot be established by \u201cbare assertions that\n\ndefendants, due to their high-level positions in the Company, had access to adverse undisclosed\n\nfinancial information through internal corporate documents, meetings, and reports, without any\n\n\n\n33\n Despite Defendants\u2019 protestations that this theory of scienter was not pleaded, the CCAC fairly\nencompasses the argument that the Restatement is sufficient evidence of \u201cPACS Defendants\u2019\nknowledge of . . . wrongdoing.\u201d CACC \u00b6 533 (asserting that knowledge was \u201cconfirmed when\nthe more-than-year-long investigation concluded that the Company would need to materially\nrestate at least $61 million revenue due to improper recognition\u201d). The theory is discussed first,\nbefore turning to motive and opportunity, which is claimed to \u201c[i]ndependently establish[] a\nstrong inference of scienter,\u201d and then circumstantial evidence. Id. \u00b6 535.\n\n\n 97\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 98 of 121\n\n\n\n\nfurther facts or details.\u201d AppHarvest, 684 F. Supp. 3d at 247 (citation modified). Plaintiffs cite\n\nthe statement from FE-10 that he attended annual and monthly meetings at which financial\n\ndisclosure was discussed and that PACS RVPs and \u201cC-suite executives, including Senior Vice\n\nPresident of Operations for the Western States Clark Nelson,\u201d attended these meetings, and,\n\nseparately, that after \u201cPACS went public, the pressure from the C suite increased\u201d and Apt sent\n\nemails highlighting which facilities needed to improve their revenue. CCAC \u00b6\u00b6 209\u201310. It may\n\nbe that the CFO pushed the facilities to increase their revenue, but that is a far cry from alleging\n\nthat he (or anyone else in a position to approve the financial statements) knew or were reckless in\n\nnot knowing that the billings for respiratory and other ancillary services should not have been\n\nrecorded. As to Defendant Sanford and any relationship he may have had with Defendants\n\nMurray and Hancock, the conclusory allegations that information traveled \u201cthrough the corporate\n\nhierarchy\u201d does not suffice. Loc. No. 38 Int\u2019l Bhd. of Elec. Workers Pension Fund v. Am. Exp.\n\nCo., 724 F. Supp. 2d 447, 462 (S.D.N.Y. 2010), aff\u2019d, 430 F. App\u2019x 63 (2d Cir. 2011) (summary\n\norder).\n\n Plaintiffs further rely on a purported \u201ccompany-wide policy of firing employees who\n\nobjected to its improper directives.\u201d CCAC \u00b6\u00b6 224\u201330. Plaintiffs\u2019 factual allegations do not live\n\nup to the heading in their complaint. FE-1 told Plaintiffs\u2019 counsel simply that \u201c\u2018pressure\u2019 from\n\nthe top made other employees scared to refuse questionable instructions,\u201d id. \u00b6 225, without\n\nidentifying what the instructions were, whether they had any relation to the alleged fraud, and\n\neven whether the instructions were improper rather than just \u201cquestionable.\u201d FE-8 stated that\n\n\u201cPACS employees were treated as \u2018disposable\u201d if they were not part of the \u2018clique\u2019 . . .\n\nconsist[ing] of those employees who were close to the Administrator\u201d and that \u201csince the\n\nAdministrator started in his role,\u201d \u201cthere had been \u2018a lot\u2019 of terminations\u201d including terminations\n\n\n\n\n 98\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 99 of 121\n\n\n\n\nof some who later filed complaints for wrongful termination. Id. \u00b6 226. But it is not unusual and\n\ncertainly not indicative of fraud that an employee whose employment was terminated might\n\nchallenge that termination. Plaintiffs do not allege anything from FE-8 that would suggest that\n\nPACS gave improper directive or that those who failed to follow them were terminated. FE-6\n\ntold counsel he was fired after he told a RVP that he would provide therapy for patients who\n\nneeded it but not for all patients, but Plaintiffs do not allege that the RVP asked FE-6 to provide\n\ntherapy for patients who did not need it or that his firing had anything to do with his statement.\n\nPlaintiffs provide the most detailed allegations with respect to FE-7. FE-7 knew of an\n\nadministrator who was fired and replaced by persons who were personal friends of the RVP and\n\nnot licensed, id. \u00b6 230, that another employee was fired after the employee complained about the\n\nlength to which an administrator was going to get patients and generate revenue, id. \u00b6 228, and\n\nthat the RVP pressured an administrator to fire a respiratory director because he was not billing\n\nenough respiratory therapies, id. \u00b6 229. FE-7 supposes that the RVP was pressuring the\n\nadministrator and his respiratory director \u201cto provide unnecessary respiratory therapies solely to\n\ngenerate revenue,\u201d id. \u00b6 229, but Plaintiffs offer no facts to support such supposition. Taken\n\ntogether, as in Jackson, even if some employees knew of scattered operational \u201cproblems\u201d at\n\nPACS, a complaint does not sufficiently raise a strong inference of scienter if there \u201cis no\n\nconnective tissue between those employees and the alleged misstatements,\u201d which Plaintiffs\n\ncontend relate to financial accounting, billing reviews, and legal compliance\u2014not personnel\n\npolicies. 960 F.3d at 99.\n\n The remaining three indicia of scienter\u2014executive departures, delayed financial\n\nreporting, and SOX certifications\u2014do not move the needle.\n\n\n\n\n 99\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 100 of 121\n\n\n\n\n \u201c[K]ey personnel changes\u2014while not sufficient to establish scienter\u2014may add to the\n\ntotal mix of circumstantial evidence of fraud when those changes are \u2018highly unusual and\n\nsuspicious,\u2019 especially \u2018when independent facts indicate that the resignation was somehow tied\n\nto the fraud alleged.\u2019\u201d Gimpel, 156 F.4th at 149 (quoting AppHarvest, 684 F. Supp. 3d at 245);\n\naccord In re BISYS Sec. Litig., 397 F. Supp. 2d 430, 446\u201347 (S.D.N.Y. 2005) (resignations\n\nshortly before or coterminous with defendant\u2019s disclosures of improper accounting and financial\n\nrestatements did not support inference of scienter where plaintiffs alleged no facts linking the\n\nresignations to the accounting improprieties). Here, Sanford was kept on as a consultant, CCAC\n\n\u00b6 252, which is inconsistent with an inference of scienter. And Apt was fired not for improper\n\naccounting or for anything else related to the alleged fraud but for accepting improper gifts, id.\n\n\u00b6 550. Plaintiffs rely on In re Salix Pharmaceuticals, Ltd, but that case is readily distinguishable\n\nbecause the court reasoned that the \u201cresignations of the Individual Defendants were highly\n\nunusual or suspicious because the Board exercised the clawback provisions in their resignation\n\nagreements.\u201d 2016 WL 1629341, at *16 (S.D.N.Y. Apr. 22, 2016). There are no such\n\nallegations here.\n\n Second, Plaintiffs argue that an inference of fraud should be drawn because Defendants\n\ndid not immediately denounce the Hindenburg report and instead PACS announced that it was\n\npostponing the release of its third quarter financial statements and launching an audit committee\n\ninvestigation. Dkt. No. 63 \u00b6 247. But Defendants did immediately assert that \u201crecent third-party\n\nallegations are misleading.\u201d Id. Public companies faced with allegations of internal wrongdoing\n\nare advised to conduct an investigation before a regulator begins investigating rather than issue a\n\nprecipitous blanket denial, lest the allegations\u2014no matter how ill-supported at the outset \u2014ripen\n\ninto a chargeable violation. See Rep. of Investigation Pursuant to Section 21(a) of the Sec. Exch.\n\n\n\n\n 100\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 101 of 121\n\n\n\n\nAct of 1934 & Comm\u2019n Statement on the Relationship of Coop. to Agency Enf\u2019t Decisions\n\n(\u201cSeaboard Report\u201d), Exch. Act Release No. 44,969, 76 SEC Docket 220 (Oct. 23, 2001)\n\n(describing the SEC\u2019s willingness to consider a company\u2019s internal attempts to rectify\n\nmisconduct as a mitigating factor); SEC, Benefits of Coop. with the Div. of Enf\u2019t (Sept, 15,\n\n2025) (SEC takes into account \u201c[s]elf-reporting of misconduct when it is discovered, including\n\nconducting a thorough review of the nature, extent, origins, and consequences of the\n\nmisconduct\u201d); U.S. Dep\u2019t of Just., Principles of Fed. Prosecution of Bus. Orgs., Just. Manual \u00a7 9-\n\n28.300 (listing a \u201ccooperation\u2019s willingness to cooperate,\u201d \u201ccompliance program,\u201d and \u201ctimely\n\nand voluntary self-disclosure of wrongdoing\u201d as factors to be considered in a charging decision);\n\nid. \u00a7 9-28.700 (discussing internal investigations). Plaintiffs cite no authority for the proposition\n\nthat a public company that follows that advice and prudently investigates before speaking should\n\nsomehow be charged with acting with scienter or deemed to have adopted the allegations made\n\nagainst it. A company\u2019s decision to investigate does not mean that it credits the allegations that\n\nare being investigated. Silence may safely be considered an adoptive admission \u201conly when no\n\nother explanation is equally consistent with silence.\u201d United States v. Flecha, 539 F.2d 874, 877\n\n(2d Cir. 1976) (Friendly, J.) (quoting 4 Wigmore, Evidence \u00a7 1071, at 102 (Chadbourn rev.\n\n1971)).\n\n Third, the SOX certifications \u201cadd nothing substantial to the scienter calculus.\u201d Puchtler,\n\n2025 WL 887502, at *16 (quoting Reilly v. U.S. Physical Therapy, Inc., 2018 WL 3559089, at\n\n*18 (S.D.N.Y. July 23, 2018)). Corporate officers are required to make SOX certifications.\n\n\u201c[P]ermitting those certifications to create an inference of scienter in every case where there was\n\nan accounting error would eviscerate the pleading requirements for scienter set forth in the\n\nPSLRA.\u201d In re Diebold Nixdorf, Inc., Sec. Litig., 2021 WL 1226627, at *14 (S.D.N.Y. Mar. 30,\n\n\n\n\n 101\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 102 of 121\n\n\n\n\n2021) (citation modified). Because Plaintiffs \u201ccannot raise an inference of fraudulent intent\n\nbased on the signing of a certification without alleging any facts to show a concomitant\n\nawareness of or recklessness to the materially misleading nature of the statement,\u201d and Plaintiffs\n\nhave failed to do so, the SOX certifications are of little to no value in the Court\u2019s analysis.\n\nPlumbers & Pipefitters Nat. Pension Fund v. Orthofix Int\u2019l N.V., 89 F. Supp. 3d 602, 615\n\n(S.D.N.Y. 2015)\n\n 3. Non-Fraudulent Inference\n\n Not only have Plaintiffs failed to make any positive allegations supporting scienter but\n\nthe \u201copposing inference one could draw from the facts alleged,\u201d Tellabs, 551 U.S. at 324, is\n\ninconsistent with scienter. Plaintiffs would have the Court infer that Defendants who helped\n\nestablish the Audit Committee to investigate the Hindenburg Report allegations and then\n\nengaged in no trades thereafter, all the while knowing that the company had engaged in\n\nwrongdoing and might be required to restate nonetheless were the masterminds of the fraud that\n\nthe Hindenburg Report exposed. See CCAC \u00b6 24 (Audit Committee announced on November 6,\n\n2024). Such an inference is wholly implausible and undermines Plaintiffs\u2019 allegation of scienter.\n\nSee Saskatchewan Healthcare Emp.\u2019s Pension Plan, 718 F. Supp. at 389\u201390 (\u201cthe undertaking of\n\nan internal investigation shortly after the short-seller report was issued to the public undermines\n\nthe . . . allegations\u201d of scienter.); see Slayton, 604 F.3d at 777 (finding that scienter not\n\nsufficiently pled where the \u201cfacts [did] not support an inference that [the defendant] was trying to\n\nhide anything from its investors. Rather, they suggest[ed] that [the defendant] . . . was\n\nendeavoring in good faith to ascertain and disclose future losses.\u201d); City of Brockton Ret. Sys. v.\n\nAvon Prod., Inc., 2014 WL 4832321, at *24 (S.D.N.Y. Sept. 29, 2014) (holding that \u201cthe fact\n\nthat [the defendant] commenced an internal investigation tends to undermine any inference of\n\nscienter\u201d). The more plausible inference is that, as PACS disclosed, the Hindenburg Report\n\n\n 102\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 103 of 121\n\n\n\n\nprecipitated a deeper review of PACS\u2019s accounting treatments and information discovered later\n\ncalled into question financial statements for the first two quarters of 2024, only after those\n\nstatements had already been reported and repeated in the Form 10-Qs and the SPO Offering\n\nDocuments. See In re New Oriental Educ. & Tech. Grp. Sec. Litig., 988 F. Supp. 2d 406, 426\u2013\n\n27 (S.D.N.Y. 2013) (\u201cOrdinarily, [a company\u2019s] formation of an independent committee to\n\ninvestigate potential defects . . . would provide some evidence of non-fraudulent intent.\u201d).\n\n B. Loss Causation\n\n Defendants further challenge Plaintiffs\u2019 allegations of loss causation. Defendants do not\n\ncontend that Plaintiffs have failed to allege any loss caused by the disclosure of previously\n\nundisclosed negative information regarding PACS. Plaintiffs allege four loss causation dates: (1)\n\nNovember 4, 2024, when the Hindenburg report was released; (2) November 5, 2024, the day\n\nfollowing the report when analysts discussed the report and PACS remained silent; (3)\n\nNovember 6, 2024, when PACS announced that it will be postponing its Q3 2024 earnings\n\nrelease and launching the Audit Committee; and (4) December 17, 2024, when J.P. Morgan\n\ndowngraded the Company\u2019s stock rating. CCAC \u00b6\u00b6 563\u201376. Defendants challenge only the\n\nNovember 5 and December 17 dates. They do not challenge that November 4 and November 6\n\ncorrective disclosures are pled sufficiently. The Court declines to decide in this case and at the\n\nmotion to dismiss stage whether Plaintiffs\u2019 allegations regarding November 5 and December 17\n\nalone and without any further factual development would establish loss causation.\n\n To sufficiently plead the loss causation element of Section 10(b) claim, a plaintiff must\n\nshow that a \u201cshare\u2019s price fell significantly after the truth became known through an express,\n\ncorrective disclosure or through events constructively disclosing the fraud like the\n\nmaterialization of the risk concealed.\u201d Abramson, 965 F.3d at 179 (citation modified); see also\n\n\n\n\n 103\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 104 of 121\n\n\n\n\nPuchtler, 2025 WL 887502, at *20. \u201c[L]oss-causation pleadings are not subject to th[e]\n\nheightened pleading requirements\u201d and \u201callegations [are to be viewed] under the default pleading\n\nstandard of Rule 8(a)(2).\u201d Huey v. Anavex Life Scis. Corp., 180 F.4th 56, 71\u201372 (2d Cir. 2026);\n\nsee also Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 346\u201347 (2005) (\u201c[N]either the [Federal]\n\nRules [of Civil Procedure] nor the securities statutes impose any special further requirement in\n\nrespect to the pleading of proximate causation or economic loss.\u201d). The burden of pleading loss\n\ncausation is \u201cnot a heavy one,\u201d and the complaint \u201cmust simply give Defendants \u2018some\n\nindication\u2019 of the actual loss suffered and of a plausible causal link between the loss and the\n\nalleged misrepresentations.\u201d Loreley Fin. (Jersey) No. 3 Ltd., 797 F.3d at 187 (quoting Dura\n\nPharms., 544 U.S. at 347). It is undisputed here that Plaintiffs have satisfied Rule 8. They have\n\npleaded that PACS\u2019s share price fell significantly after a corrective disclosure.\n\n The question of whether each of the alleged corrective disclosures establishes loss\n\ncausation may go to the measure of damages and may be appropriately addressed either at\n\nsummary judgment or in a Daubert motion or motion in limine. Cf. Omnicom Grp., Inc. Sec.\n\nLitig., 597 F.3d 501, 512\u201314 (2d Cir. 2010) (affirming the district court\u2019s decision on summary\n\njudgment that \u201cappellant failed to raise a material issue of fact that would support a finding of\n\nloss causation\u201d after considering expert testimony); Cent. States, Se. & Sw. Areas Pension Fund\n\nv. Fed. Home Loan Mortg. Corp., 543 F. App\u2019x 72, 77 (2d Cir. 2013) (summary order)\n\n(affirming dismissal of a securities fraud action because plaintiffs had \u201cfail[ed] to allege the\n\nexistence of any corrective disclosures during the class period\u201d that would satisfy their burden on\n\nloss causation (emphasis added)); Janbay v. Canadian Solar, Inc., 2012 WL 1080306, at *16\u201317\n\n(S.D.N.Y. Mar. 30, 2012) (dismissing complaint for, inter alia, failure to plead any \u201cpartial\n\ndisclosures\u201d that would satisfy the element). The Court need not address it at this stage in order\n\n\n\n\n 104\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 105 of 121\n\n\n\n\nto resolve the pending motions. \u201cGiven the light burden for pleading loss causation, and the\n\npotential factual disputes inherent in [the loss causation] analysis,\u201d Defendants\u2019 \u201carguments\n\n[would be] better suited for summary judgment or trial.\u201d Mullen Auto., Inc. v. IMC Fin.\n\nMarkets, 2025 WL 951501, at *6 (S.D.N.Y. Mar. 28, 2025).\n\nIV. Plaintiffs\u2019 Securities Act Claims\n\n Plaintiffs allege that the Offering Documents Defendants used in connection with the IPO\n\nand SPO violated the Securities Act. Plaintiffs\u2019 IPO Securities Act claims are based on PACS\u2019\n\nfinancial reports, the risk factor statements, the business model statements and an alleged\n\nviolation of Item 303. Plaintiffs\u2019 SPO Securities Act claims are based on Defendants\u2019 financial\n\nreports for the first and second quarters of 2024, the risk factor statements, the business model\n\nstatements, and Item 303. The Court already has discussed the reports of PACS\u2019s results for the\n\nfirst and second quarters of 2024, the risk factor statements, and business model statements.\n\nThat analysis applies here. See In re Pretium Res. Inc. Sec. Litig., 256 F. Supp. 3d 459, 472\n\n(S.D.N.Y. 2017) (\u201cThe test for whether a statement is materially misleading under Section 11 [of\n\nthe Securities Act] is the same as the test under Section 10(b) [of the Exchange Act].\u201d (citing\n\nRombach, 355 F.3d at 178 n.11)), aff\u2019d sub nom. Martin v. Quartermain, 732 F. App\u2019x 37 (2d\n\nCir. 2018) (summary order). Accordingly, the Court confines its analysis to Plaintiffs\u2019\n\nallegations regarding the financial results reported in the IPO and their allegations regarding Item\n\n303.\n\n A. Pleading Standard\n\n As a threshold matter, the parties dispute which pleading standard applies to Plaintiffs\u2019\n\nSecurities Act claims. Defendants ask the Court to analyze the Securities Act allegations under\n\nRule 9(b) of the Federal Rules of Civil Procedure, which requires particularity for fraud claims,\n\nrather than Rule 8. Dkt. No. 83 at 47\u201348. The Court declines to do so.\n\n\n 105\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 106 of 121\n\n\n\n\n To determine which pleading standard to apply\u2014Rule 8 or Rule 9(b)\u2014the Court must\n\nundertake a \u201cpreliminary inquiry into the nature of the plaintiff\u2019s allegations.\u201d In re Morgan\n\nStanley, 592 F.3d at 358.34 Although \u201ca plaintiff need allege no more than negligence to proceed\n\nunder Section 11 and Section 12(a)(2), claims that do rely upon averments of fraud are subject to\n\nthe test of Rule 9(b).\u201d Rombach, 355 F.3d at 171. \u201cAt the same time, however, the Rule 8 notice\n\npleading standard applies where the \u2018plaintiff alleges negligent preparation of the registration\n\nstatement and prospectus, rather than fraudulent preparation,\u2019 . . . or where the complaint\n\n\u2018explicitly does not allege fraud.\u2019\u201d Pappas v. Qutoutiao Inc., 2024 WL 4588491, at *1 (2d Cir.\n\nOct. 28, 2024) (summary order) (first quoting Panther Partners Inc. v. Ikanos Commc\u2019ns, Inc.,\n\n347 F. App\u2019x 617, 620\u201321 (2d Cir. 2009) (summary order); and then quoting Litwin, 634 F.3d at\n\n715). The inquiry does not require that a plaintiff plead only Securities Act or Exchange Act\n\nclaims lest a court collapse all claims because of dispersed references to fraud. Instead,\n\n\u201c[n]othing in Rule 9 or in this Court\u2019s prior decision[s] . . . forecloses pleading Section 10(b)\n\nfraud and Section 11 negligence as alternatives with the former claim to be governed by Rule\n\n9(b) and the latter by Rule 8.\u201d Id.; see also Van v. Bright Health Grp., Inc., 2025 WL 3171688,\n\nat *2 (2d Cir. Nov. 13, 2025) (summary order). \u201cA plaintiff may retain the application of the\n\nRule 8 notice pleading standard by expressly pleading negligence, disclaiming fraud, eschewing\n\nlanguage in its Section 11 and Section 12(a)(2) claims implying fraud or the elements thereof,\n\nand separating allegations supporting fraud claims from allegations supporting negligence\n\nclaims.\u201d Pappas, 2024 WL 4588491, at *2.\n\n\n\n34\n Unlike the bright-line rule adopted in the Eighth Circuit, the Second Circuit has rejected the\nargument that Section 11 and Section 12(a) are exempt from \u201cthe particularity requirement of\nRule 9(b) . . . because proof of fraud or mistake is not a prerequisite to establishing liability.\u201d\nRombach, 355 F.3d at 170\u201371 (quoting In re NationsMart Corp. Sec. Litig., 130 F.3d 309, 314\n(8th Cir. 1997)).\n\n\n 106\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 107 of 121\n\n\n\n\n In Pappas, the Second Circuit reversed the district court for improperly applying Rule\n\n9(b) to the plaintiff\u2019s Securities Act claims. The plaintiff framed his Securities Act claims \u201cin\n\nthe class language of negligence and strict liability\u201d and \u201cmade more than nominal efforts to\n\ndistinguish the negligence-based claims from the fraud-based claims\u201d in the complaint. Id.\n\nBecause the plaintiff\u2019s \u201callegations would be evaluated under Rule 8 if contained in a stand-\n\nalone complaint alleging violations only of the Securities Act,\u201d the court concluded that they\n\nshould not \u201cbe held to a higher standard because Plaintiff also exercised his right to sue\n\nDefendants for securities fraud under the Exchange Act.\u201d Id. In Van, the Second Circuit\n\nconcluded that the district court \u201ccorrectly determined that the plausibility standard under Rule 8,\n\nrather than the heightened pleading standard under Rule 9(b), applie[d] to [plaintiff\u2019s]Securities\n\nAct claims,\u201d because, in advancing the Securities Act claims, the complaint explicitly disclaimed\n\nfraud and alleged negligence and described separately the Securities Act and Exchange Act\n\nclaims.\u201d35 See Van, 2025 WL 3171688, at *2.\n\n Here, Plaintiffs have fastidiously distinguished their strict-liability and negligence-based\n\nSecurities Act claims from their fraud-based Exchange Act allegations. CCAC \u00b6\u00b6 348, 361\n\n(expressly disclaiming \u201cany allegations of scienter or fraudulent intent in this non-fraud claim\n\n\n\n\n35\n The court also noted that the \u201cExchange Act claims contain[ed] additional alleged\nmisrepresentations.\u201d Van, 2025 WL 3171688, at *2. But such statement appears to be one of\nfact and not an independent requirement for a plaintiff to be able simultaneously to plead\nSecurities Act and Exchange Act claims without foregoing the more relaxed pleading standard\nunder Rule 8. The court in Pappas did not impose any such requirement which would be\nperverse in any event. If a Securities Act claim relies upon allegations of fraud, it is subject to\nRule 9(b) even if it is joined by Exchange Act claims that asserted additional misrepresentations.\nAnd if the Securities Act claim does not rest upon allegations of fraud but instead on allegations\nof negligence and is clearly distinguished from the Exchange Act claims then it is judged under\nthe standards of Rule 8 even if the Exchange Act claims rely on the identical misstatements. The\nfact that plaintiff alleges additional statements in violation of the Exchange Act is neither\nnecessary nor sufficient for the Securities Act claim to be evaluated on its own under Rule 8.\n\n\n 107\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 108 of 121\n\n\n\n\nexcept that any challenge statement of opinion or belief made in connection with the Offerings\n\nare alleged to have been materially misstated statements of opinions or belief when made\u201d); id.\n\n\u00b6 350 (\u201cNone of the Securities Act Defendants made a reasonable investigation or possessed\n\nreasonable grounds for belief that the statements in the IPO Registration Statement or SPO\n\nRegistration Statement were true and without omissions of material fact required to be stated\n\ntherein or necessary to make the statement therein not false and misleading.\u201d); id. \u00b6 351\n\n(\u201cDefendants each had a duty to make a reasonable and diligent investigation of the truthfulness\n\nand accuracy of the statements contained in the IPO Registration Statement and SPO\n\nRegistration Statement, respectively.\u201d). Plaintiffs have expressly pled negligence and strict\n\nliability, disclaimed fraud, eschewed language in its Section 11 and Section 12(a)(2) claims\n\nimplying fraud or the elements thereof, and separated allegations supporting the fraud claims\n\nfrom allegations supporting the negligence claims. As in Pappas, \u201c[e]ach claim is set forth under\n\nits own heading and incorporates only certain factual allegations such that, although all claims\n\nfollow a general recitation of the factual background, the Securities Act claims expressly do not\n\nincorporate the allegations supposedly supporting a finding of scienter and reliance.\u201d 2024 WL\n\n4588491, at *2 (reversing dismissal of Section 11 claims because the district court applied the\n\nheightened pleading standards of Rule 9(b) and not Rule 8).\n\n There is admittedly some overlap between the Securities Act and Exchange Act claims.\n\nThough the averments selectively incorporate references from the general background, some\n\nsubstantive allegations do run across both claims. See, e.g., CCAC \u00b6 346 (incorporating, under\n\nCount I for a violation of Section 11, CCAC \u00b6\u00b6 5, 8\u201310, and 27\u2013345 and separately cataloging\n\nallegations regarding scienter and fraud in Section X (Exchange Act Allegations) of the CCAC);\n\nsee also id. \u00b6 359 (doing similar under Count II for a violation of Section 12(a)(2)). But\n\n\n\n\n 108\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 109 of 121\n\n\n\n\n\u201ccomplete isolation of Securities Act claims is not necessary to allow plaintiffs to plead a theory\n\nof negligence,\u201d seeing as \u201cplaintiffs must be allowed leeway to draft their complaint in a\n\ncomprehensible narrative form.\u201d City of Roseville Emps.\u2019 Ret. Sys. v. EnergySolutions, Inc., 814\n\nF. Supp. 2d 395, 424 n.12 (S.D.N.Y. 2011). Accordingly, Rule 8 applies to Plaintiffs\u2019 Securities\n\nAct claims. Fed. R. Civ. P. 8(a); see also Orient Plus Int\u2019l Ltd. v. Baosheng Media Grp.\n\nHoldings Ltd., 799 F. Supp. 3d 310, 338\u201342 (S.D.N.Y. 2025) (determining that Rule 8 applied to\n\nSecurities Act claims).\n\n Plaintiffs\u2019 claim pursuant to Item 303 \u201cdoes not require a different conclusion\u201d as to the\n\noperative pleading standard. In re Grab Holdings Ltd. Sec. Litig., 2024 WL 1076277, at *14\n\n(S.D.N.Y. Mar. 12, 2024). To plead an Item 303 violation, as discussed below, Plaintiffs must\n\nplead facts establishing actual knowledge of an unreported trend or uncertainty with some\n\nspecificity. See Sun v. TAL Educ. Grp., 2023 WL 6394413, at *33 (S.D.N.Y. Sept. 29, 2023).\n\nThus, Item 303 does require \u201c\u2018the registrant\u2019s actual knowledge of the relevant trend or\n\nuncertainty,\u2019 [b]ut just because \u2018a fact was known and not disclosed does not mean, as a matter\n\nof law, that the circumstances of the resulting omission sound in fraud\u2019\u201d such that Rule 9(b) is\n\ntriggered. In re Grab Holdings Ltd., 2024 WL 1076277, at *14 (first quoting Ind. Pub. Ret. Sys.\n\nv. SAIC, Inc., 818 F.3d 85, 95 (2d Cir. 2016); and then quoting Wallace v. IntraLinks, 2013 WL\n\n1907685, at *12 (S.D.N.Y. May 8, 2013)).\n\n B. Financial Statements in IPO Offering Documents\n\n Plaintiffs contend that the IPO Offering Documents were \u201cfalse and misleading\u201d because\n\nat the time of the IPO in April 2024, revenues were being recognized in quarterly reporting for\n\nFY 2024 that would then need to be restated, and improper Medicare Part B billing allegedly\n\nhappening during the time of the IPO rendered risk disclosures false. See CCAC \u00b6\u00b6 309, 312. In\n\nessence, Plaintiffs reason backwards and assert that because Plaintiffs incorrectly reported\n\n\n 109\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 110 of 121\n\n\n\n\nrevenue for the first and second quarters of 2024 it must also have incorrectly reported the\n\nrevenue for FY 2023 that was reported in the IPO Offering Documents.\n\n Plaintiffs\u2019 argument is fallacious. Plaintiffs alleged and the Court has held that PACS\n\nincorrectly reported its revenue and earnings for the first two quarters of 2024 because the\n\ncompany admitted in the Restatement that it reported its revenue and earnings incorrectly for\n\nthose quarters. But that PACS reported its revenue incorrectly in the first two quarters of 2024\n\ndoes not mean that it reported its revenue incorrectly before those time periods. Plaintiffs\u2019\n\ntheory is that PACS began emphasizing respiratory treatment and other ancillary services only\n\nafter the COVID-19 waiver and its effect had expired. Its allegations center on 2024. There is\n\nthus no reason to presume that the errors in the first two quarters of 2024 also infected the prior\n\nperiods in 2023. See Eden Alpha CI LLP, 763 F. Supp. 3d at 301 (holding that plaintiff had not\n\nmet \u201cits burden of showing\u201d that \u201cfinancial metrics\u201d for non-restated time periods were \u201cfalse\u201d\n\nbecause \u201c[w]hile the . . . Restatement did restate [the company\u2019s] financials for fiscal year 2021\n\nand Q1 of 2022, it did not restate the company\u2019s financials for Q2 or Q3 of 2021,\u201d and so the\n\nrestatement \u201cdoes not prove or indicate\u201d falsity as to those periods).\n\n C. Item 303\n\n Plaintiffs next allege that the IPO and SPO Offering Documents violate Regulation S-K,\n\nItem 303 because Defendants failed to disclose: (1) the significant change in PACS\u2019s Medicare\n\nreimbursement conditions with the termination of the COVID-19 waiver program, CCAC\n\n\u00b6 290(a); (2) the elevated risk of reversal for respiratory and sensory therapies and other ancillary\n\nservices under Medicare Part B, id. \u00b6 290(b); and (3) that PACS\u2019 internal controls and\n\ncompliance processes were inadequate, which was a \u201cknown certainty,\u201d id. \u00b6 290(c). Plaintiffs\n\nalso allege that Defendants violated Item 303 in the SPO Offering Documents by failing to\n\n\n\n\n 110\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 111 of 121\n\n\n\n\ndisclose the \u201cknown trend in declining revenue quality and increasing exposure to refund\n\nliabilities\u201d as reflected by the Restatement, id. \u00b6 290(d).\n\n \u201cItem 303 . . . requires companies to \u2018[d]escribe any known trends or uncertainties that\n\nhave had or that are reasonably likely to have a materially favorable or unfavorable impact on net\n\nsales or revenues or incomes from continuing operations.\u2019\u201d Macquarie Infrastructure Corp. v.\n\nMoab Partners, L.P., 601 U.S. 257, 260 (2024) (quoting 17 C.F.R. \u00a7 229.303(b)(2)(ii)).36 Item\n\n303 requires that a registrant must make disclosure \u201cwhere a trend, demand, commitment, event\n\nor uncertainty is both presently known to management and reasonably likely to have material\n\neffects on the registrant\u2019s financial conditions or results of operations.\u201d Stratte-McClure v.\n\nMorgan Stanley, 776 F.3d 94, 101 (2d Cir. 2015) (quoting Mgmt\u2019s Discussion & Analysis of\n\nFin. Condition & Results of Operations, Exch. Act Release No. 6,835, 43 SEC Docket 1330\n\n(May 18, 1989)). For a trend to be disclosable, it must be \u201cboth [1] presently known to\n\nmanagement and [2] reasonably likely to have material effects on the registrant\u2019s financial\n\nconditions or results of operations.\u201d Litwin, 634 F.3d at 716 (internal quotation marks omitted)\n\n(Item 303 disclosure required when, at time of IPO, management knew of downward trend in\n\nreal estate market and that the trend was reasonably likely to have a material impact on\n\nregistrant\u2019s financial condition); see Panther Partners Inc. v. Ikanos Commc\u2019ns Inc., 681 F.3d\n\n\n\n\n36\n In Macquarie, the Supreme Court held that a free-standing claim of failure to disclose\ninformation required by Item 303 does not give rise to a claim under Section 10(b) of the\nExchange Act or Rule 10b-5(b) promulgated thereunder. But the Court specifically\ndistinguished Section 11(a) of the Securities Act from Section 10(b) of the Exchange Act.\n\u201cCongress imposed liability for pure omissions in \u00a7 11(a) of the Securities Act of 1933. . . . By\nits terms, in addition to proscribing lies and half-truths, this section also creates liability for\nfailure to speak on a subject at all.\u201d Macquarie, 601 U.S. at 891. Thus, the failure to disclose\ninformation required by Item 303 can give rise to liability under the Securities Act. See Orient\nPlus, 799 F. Supp. 3d at 344 (denying motion to dismiss certain Securities Act claims because\nthe complaint \u201cplausibly alleges that disclosure was required under Item 303\u201d).\n\n\n 111\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 112 of 121\n\n\n\n\n114, 121\u201322 (2d Cir. 2012) (Item 303 disclosure required where chip defect issue and its\n\npotential impact on registrant\u2019s business was known and registrant reasonably expected it would\n\nhave a material unfavorable impact on revenues or income from continuing operations); Stratte-\n\nMcClure, 776 F.3d at 104\u201305 (Item 303 disclosure required where soaring default rate on\n\nsubprime mortgage lending was known and reasonably expected to have material effects on the\n\ncompany\u2019s financial position). Actual knowledge is required. For purposes of Item 303,\n\n\u201cknowledge\u201d refers to what the \u201cregistrant . . . actually knows of when it files the relevant report\n\nwith the SEC,\u201d and it is \u201cnot enough that it should have known of the existing trend, event, or\n\nuncertainty.\u201d SAIC, Inc., 818 F.3d at 95 (noting that \u201cthe trends or uncertainties must be\n\npresently known to management\u201d (emphasis omitted)). \u201cAlthough \u2018Section 11 claims generally\n\ndo not require pleading scienter, Item 303\u2019s requirement of knowledge requires that a plaintiff\n\nplead, with some specificity, facts establishing that the defendant had actual knowledge of the\n\npurported trend.\u2019\u201d In re Hut 8 Corp. Sec. Litig., 2025 WL 2636150, at *17 (S.D.N.Y. Sept. 12,\n\n2025) (quoting Blackmoss Invs. Inc. v. ACA Cap. Holdings, Inc., 2010 WL 148617, at *9\n\n(S.D.N.Y. Jan. 14, 2010); see Medina v. Tremor Video, Inc., 640 F. App\u2019x 45, 48 (2d Cir. 2016)\n\n(summary order) (\u201cOur precedents require allegations of specific facts from which we could\n\ndraw the \u2018plausible inference\u2019 that defendants had actual knowledge of the trends or uncertainties\n\nat the time the registration statement was issued\u201d); In re Jumei Int\u2019l Holding Ltd. Sec. Litig.,\n\n2017 WL 95176, at *4 (S.D.N.Y. Jan. 10, 2017) (\u201cA plaintiff relying on Item 303 to establish a \u00a7\n\n11 claim must plead, with some specificity, facts establishing that defendant had actual\n\nknowledge of the purported trend.\u201d (internal quotation marks omitted)).37\n\n\n\n37\n Plaintiffs do not elaborate on their allegations of a violation of Rule 408 or Item 105, which\nare not incorporated explicitly in the causes of action. In their motion to dismiss, Defendants call\n\n\n\n 112\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 113 of 121\n\n\n\n\n Plaintiffs\u2019 claim founders on the obligation to plead the omission of a trend of which\n\nmanagement had knowledge.\n\n PACS cannot be faulted for failing to disclose the expiration of the COVID waiver and\n\nthat it would have an impact on PACS\u2019s business because PACS disclosed in both the IPO and\n\nthe SPO Offering Documents that the COVID waiver had expired and that it would require\n\noperational changes. See, e.g., Dkt. No. 88-3 at 14 (\u201cWe face numerous risks related to the\n\nexpiration of the COVID-19 public health emergency (PHE) expiration and surrounding wind\n\ndown and uncertainty, which could . . . have a materially adverse effect on our business,\n\nfinancial condition, liquidity, results of operations and prospects.\u201d); id. at 93 (acknowledging that\n\n\u201cEmergency Waivers under the COVID-19 PHE\u201d had led to skilled nursing services revenue);\n\nid. at 29 (noting that the \u201cexpiration of Emergency Waivers . . . have required and may continue\n\nto require, operational changes\u201d); see also Dkt. No. 88-4 at 15, 93 (identical statements in the\n\nSPO prospectus). To the extent that Plaintiffs criticize Defendants for failing to disclose the\n\nmagnitude of the impact from the end of the COVID-19 waiver, that claim is not cognizable both\n\nbecause Plaintiffs fail to make any well-pleaded allegations regarding the magnitude of that\n\nimpact and fail to allege knowledge by management of the impact at the time of the IPO and\n\nSPO. Thus, to the extent that the end of the COVID-19 waiver and its impact could even be\n\nconsidered to be a trend at the time of the IPO and SPO (when the waiver and its impact ended\n\nlong before both events),38 Plaintiffs still have not stated a claim under Item 303.\n\n\n\nthese allegations \u201cderivative\u201d and not \u201celaborate[d]\u201d on in the CCAC. Dkt. No. 83 at 54 n.10.\nPlaintiffs offered no response. Accordingly, the claims are deemed abandoned. See Dkt. No. 89\nat 26\u201328; Dkt. No. 91 at 23; see also Ross v. Port Chester Hous. Auth., 2019 WL 4738941, at *7\n(S.D.N.Y. Sept. 27, 2019) (\u201cIt is well-settled that the failure to oppose an argument raised in a\nmotion to dismiss is deemed a concession of the argument and abandonment of the claims.\u201d).\n38\n Defendants assume and therefore so does the Court (without affirmatively holding) that the\nend of the COVID-19 program could constitute a trend when that end was in the past.\n\n\n 113\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 114 of 121\n\n\n\n\n Plaintiffs also allege that PACS should have disclosed the elevated risk of reversal for\n\nrespiratory and sensory therapies and other ancillary services under Medicare Part B. CCAC\n\n\u00b6 290(b). That allegation is based on the Restatement. Plaintiffs assert that since the\n\nRestatement acknowledged that PACS applied ASC 606, which directs how revenue is to be\n\nrecorded in instances where there is any uncertainty regarding collection, there was a known\n\ntrend of a risk of reversal for ancillary services that PACS failed to disclose. In essence,\n\nPlaintiffs attempt to read into Item 303 a requirement that PACS disclose the facts it later\n\ndisclosed in the Restatement. Plaintiffs, however, plead no specific facts to assert that PACS\n\nwas aware at the time of the IPO and SPO that it was \u201cprobable that a significant reversal\u201d of the\n\nbillings that PACS had made for ancillary services would occur. Dkt. No. 88-8 at 30 (ASC 606-\n\n10-32-11). PACS later disclosed that it learned of the information giving rise to the Restatement\n\nonly after the IPO and SPO. See Dkt. No. 88-7 (June 12, 2025 Form 8-K announcing that PACS\n\nhad \u201clearned\u201d \u201cadditional facts\u201d through \u201cAudit Committee\u2019s internal investigation\u201d and that the\n\nCompany is \u201cdiligently working to restate\u201d the financial statements for the first half of fiscal year\n\n2024). PACS had no obligation to disclose something that it did not then know. Plaintiffs\u2019\n\nargument to the contrary rests on a mistaken conflation of the \u201cuncertainty\u201d that gives rise to an\n\nobligation to apply ASC 606 and the uncertainty that precludes a registrant from reporting\n\nrevenue where a reversal is possible. PACS disclosed the \u201cuncertainty\u201d from Medicare Part B in\n\nthe Offering Documents and explained why PACS had chosen the revenue recognition standard\n\nit did. See, e.g., Dkt. No. 88-3 at 83, 194\u201395; Dkt. No. 88-4 at 79\u201380, 196\u201397. PACS also\n\ndisclosed that it may be subject to \u201can obligation to refund amounts previously paid to [the\n\nCompany] pursuant to the Medicare or Medicare programs.\u201d Id. at 49. PACS did not disclose\n\nthat there would be a $61 million adjustment in revenue for the first half of 2024 and a new line\n\n\n\n\n 114\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 115 of 121\n\n\n\n\nitem for refund liability during the Class Period\u2014and, as discussed throughout, there are no\n\nwell-pleaded allegations that PACS knew of its accounting issues before the moment it disclosed\n\nthem.39\n\n The third pleaded \u201cknown uncertainty\u201d is regarding internal controls and the fourth\n\n\u201cknown trend\u201d is regarding declining revenue quality. The two are interrelated and stem from\n\nthe Restatement, including its acknowledgment of material weaknesses to PACS\u2019s compliance\n\nand audit regime. They fail for similar reasons and similar reasons to why Plaintiffs\u2019 other Item\n\n303 claims fail. There are no allegations that connect management-level employees such as\n\nIndividual Defendants to on-the-ground allegations of compliance infractions at select facilities\n\nreferenced by the firsthand CWs.\n\n D. Statutory Sellers\n\n Individual Defendants Millard, Leavitt, Dilsaver, Lewis, and Apt argue that even if there\n\nis an actionable Securities Act claim, they do not fall within Section 12(a)(2)\u2019s definition of a\n\nliable \u201cstatutory seller\u201d as defined in 15 U.S.C \u00a7 77l(a)(2) and elaborated in Pinter v. Dahl, 486\n\nU.S. 622 (1988).\n\n \u201cAn individual is a \u2018statutory seller\u2019\u2014and therefore a potential section 12(a)(2)\n\ndefendant\u2014if he (1) \u2018passed title, or other interest in the security, to the buyer for value\u2019 or (2)\n\n\u2018successfully solicited the purchase [of a security], motivated at least in part by a desire to serve\n\n\n\n39\n The November 2025 Restatement listed the refund liability as $3.9 million for Q1 2024, $30.6\nmillion for Q2 2024, $84.0 million for Q3 2024, and $145.8 million for Q4 2024. CCAC \u00b6 265.\nRefund liabilities were not listed prior to the Restatement. See Dkt. No. 88-3; Dkt. No. 88-4.\nThough Plaintiffs argue that, by \u201cthe month of the SPO,\u201d the refund liabilities were at $84\nmillion, Dkt. No. 89 at 28, that was unknown at the time. There are no allegations regarding\nPACS\u2019s internal financial planning and analysis, let alone any that PACS had completed its\ninternal reporting to know what its third quarter refund liability would be during the middle of\nthe period and prior to its Restatement. Cf. Willard v. UP Fintech Holding Ltd., 527 F. Supp. 3d\n609, 620 (S.D.N.Y. 2021) (\u201cItem 303, however, does not require such real-time disclosures.\u201d).\n\n\n 115\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 116 of 121\n\n\n\n\nhis own financial interests or those of the securities\u2019 owner.\u2019\u201d In re Morgan Stanley, 592 F.3d\n\n347, 359 (2d Cir. 2010) (quoting Pinter, 486 U.S. at 642, 647). \u201cThe Second Circuit has yet to\n\ndefine the activities that constitute successful solicitation, but it has advised that an individual\n\nmust have done more than engage in activities that were preliminary to the offering.\u201d Alpha\n\nCapital Anstalt v. Intellipharmaceutics Int\u2019l Inc., 2020 WL 3318029, at *4 (S.D.N.Y. June 18,\n\n2020). It does not include lawyers or other professionals \u201cwho have performed their usual\n\nprofessional functions in preparing documents for an offering,\u201d Wilson v. Santine Exploration &\n\nDrilling Corp., 872 F.2d 1124, 1126 (2d Cir. 1989), or someone who is a mere director, Royal\n\nAm. Managers, Inc. v. IRC Holding Corp., 885 F.2d 1011, 1017 (2d Cir. 1989). \u201cRather, to\n\nsatisfy Pinter\u2019s solicitation prong, a plaintiff must show that a defendant had \u2018direct and active\n\nparticipation in the solicitation of the immediate sale.\u2019\u201d Underwood v. Coinbase Glob., Inc.,\n\n2026 WL 2198774, at *24 (S.D.N.Y. July 30, 2026) (quoting Underwood v. Coinbase Glob.,\n\nInc., 654 F. Supp. 3d 224, 238 (S.D.N.Y. 2023), aff\u2019d in part, rev\u2019d in part and remanded sub\n\nnom. Oberlander v. Coinbase Glob. Inc., 2024 WL 1478773 (2d Cir. Apr. 5, 2024) (summary\n\norder)); cf. Weight Watchers, 504 F. Supp. 3d at 259\u201361 (finding that individual was not a\n\nstatutory seller because the allegations only corroborated assistance with another\u2019s solicitation\n\nefforts and did not plead active participation in direct or indirect marketing or promotional\n\nactivities). However, courts have held that \u201can allegation that an individual participated in a\n\n\u2018road show\u2019 to sell the securities is sufficient to plead that a defendant is a statutory seller.\u201d\n\nAlpha Cap., 2020 WL 3318029, at *4 (citing In re WorldCom, Inc. Sec. Litig., 294 F. Supp. 2d\n\n392, 423 (S.D.N.Y. 2003)); accord Lozada, 710 F. Supp. at 316 n.25 (S.D.N.Y. 2024) (\u201c[A]\n\ndefendant may be alleged to have engaged in sufficient active solicitation by participating in a\n\n\u2018road show\u2019 to market the securities to potential investors.\u201d); Hardin v. TRON Found., 2024 WL\n\n\n\n\n 116\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 117 of 121\n\n\n\n\n4555629, at *13 (S.D.N.Y. Oct. 23, 2024); Sharma v. Rent the Runway, Inc., 751 F. Supp. 3d 82,\n\n119 (E.D.N.Y. 2024).\n\n Defendants Millard, Leavitt, and Dilsaver were members of PACS\u2019s Board of Directors\n\nand the Audit Committee. CCAC \u00b6 48\u201350. Defendant Apt was PACS\u2019s CFO and received\n\n1,313,830 restricted stock units (\u201cRSUs\u201d) worth over $27.5 million at the time of the IPO, id.\n\n\u00b6 43, and Defendant Lewis was PACS\u2019s Chief Accounting Officer and received an award of\n\n374,380 RSUs worth over $7.8 million at the time of the IPO, id. \u00b6 47. None of these five\n\ndefendants is alleged to have sold stock in any offering or directly participated in solicitation\n\nactivities. However, Plaintiffs affirmative allege that \u201c[e]ach of the IPO Individual Defendants\u201d\n\nand \u201c[e]ach of the SPO Individual Defendants reviewed, edited and approved the \u2026 roadshow\n\npresentation, talking points, and script for presentation to investors: and \u201cconducted the\n\nroadshow along with the . . . Underwriter Defendants.\u201d Id. \u00b6\u00b6 55, 57. Those allegations pass\n\nmuster at this stage.\n\n E. Control Person Liability\n\n Plaintiffs bring claims of control person liability under Section 15 of the Securities Act,\n\n15 U.S.C. \u00a7 77o, against the IPO Individual Defendants and SPO Individual Defendants. CCAC\n\n\u00b6\u00b6 371\u201379. Defendants argue that any control person liability claim be dismissed because there\n\nis no primary violation. See Dkt. No. 83 at 56; see Wong v. Hesai Grp., 821 F. Supp. 3d 445,\n\n460 (S.D.N.Y. 2026) (\u201cSection 15 liability is derivative; absent a primary violation, there can be\n\nno control-person liability.\u201d). As Plaintiffs point out, \u201c[t]hey do not dispute the relevant actual\n\ncontrol.\u201d Dkt. No. 89 at 32. Because the Plaintiffs have sufficiently alleged primary liability\n\nwith respect to the accounting statements in connection with the SPO, the Section 15 claims may\n\n\n\n\n 117\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 118 of 121\n\n\n\n\nproceed against the SPO Individual Defendants (Murray, Hancock, Apt, Lewis, Millar, Leavitt,\n\nand Dilsaver).40\n\nV. Plaintiffs\u2019 Remaining Exchange Act Claims\n\n Under the Exchange Act, Plaintiffs also bring a scheme liability claim under Section\n\n10(b) against the PACS Defendants; insider selling claims against PACS, Murray, and Hancock\n\nunder both Section 10(b) and Section 20A, and a claim for control person liability against\n\nMurray and Hancock under Section 20(a). In their motion to dismiss, Defendants argue that\n\nPlaintiffs have failed to state a claim for scheme liability, failed to plead that Defendants engaged\n\nin insider trading, with scienter, on material, nonpublic information, and that without a primary\n\nviolation, Plaintiffs have no viable claim for control person liability.\n\n A. Scheme Liability\n\n Plaintiffs allege three sets of purportedly deceptive acts by the PACS Defendants: (1)\n\ndissemination of the challenged statements, (2) Medicare overbilling, and (3) PACS\u2019s \u201cdeceitful\u201d\n\nbusiness model. See Dkt. No. 89 at 53\u201355. To sufficiently plead a claim for scheme liability, in\n\naddition to a deceptive or manipulative act, a plaintiff must present facts showing furtherance of\n\nthe alleged scheme to defraud, scienter, and reliance. Menaldi, 277 F. Supp. 3d at 517. The\n\nelement of scienter must be evaluated under the PSLRA. Turquoise Hill Res. Ltd., 625 F. Supp.\n\n3d at 247. For the reasons that follow, Plaintiffs have failed to state a plausible claim for scheme\n\nliability under any of their three theories.\n\n Plaintiffs\u2019 first deceptive act\u2014that \u201cPACS Defendants disseminated\u201d the \u201cthirty-one\n\nfalse and misleading statements,\u201d CCAC \u00b6\u00b6 588\u201390\u2014cannot form the basis of a successful\n\n\n\n40\n The Underwriter Defendants raise no independent arguments. See Dkt. No. 85. Because the\nCourt rules that the Securities Act claim survives with respect to the SPO, the SPO Underwriter\nDefendants remain in the case with respect to Counts I and II. CCAC \u00b6\u00b6 346\u201370.\n\n\n 118\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 119 of 121\n\n\n\n\nscheme liability claim. \u201cMisstatements alone are insufficient for scheme liability\u201d under a theory\n\nof dissemination. Milne v. Project Primus, Inc., 2026 WL 670322, at *7 (S.D.N.Y. Mar. 10,\n\n2026). \u201cPlaintiffs must allege \u2018something extra\u2019 in order to bring a scheme liability claim\u201d\n\nagainst the PACS Defendants but have failed to do so. Turquoise Hill Res. Ltd., 625 F. Supp. 3d\n\nat 251. The three paragraphs devoted to this deceptive act in the pleadings are conclusory and do\n\nnot provide any details on what, beyond making the statements themselves, would qualify as\n\n\u201cdissemination.\u201d CCAC \u00b6\u00b6 588\u201390; see also Dkt. No. 89 at 53\u201354 (providing no examples of\n\ndisseminating activity in opposition to the motion to dismiss).\n\n Similarly, as to deceptive acts that stem from Medicare overbilling itself or PACS\u2019s\n\nbusiness model, Plaintiffs \u201cdo not adequately allege that [the named Defendants] actively\n\nparticipated in\u201d the underlying schemes. In re Eletrobras Sec. Litig., 245 F. Supp. 3d 450, 471\n\n(S.D.N.Y. 2017). At most, Plaintiffs rely on conclusory allegations that are not plausibly\n\ncorroborated by CWs or other well-pleaded. facts. See, e.g., CCAC \u00b6 112 (\u201cPACS employees\n\ncompany-wide began to receive top-down directives from the PACS Defendants to perform\n\nunnecessary respiratory therapies on thousands of patients, regardless of clinical need or\n\noutcome\u201d and that \u201cPACS Defendants coordinated this effort all Class Period.\u201d). To the extent\n\nthat Defendants encouraged SNFs to prioritize certain therapies and provide additional care to\n\nincrease revenues, there are no particular allegations that specific Defendants \u201cknew or had\n\nreason to believe (or willfully disregarded the risk) that high [targets] were causing . . . associates\n\nto engage in . . . fraudulent practices.\u201d In re AT&T/DirecTV Now Sec. Litig., 480 F. Supp. 3d\n\n507, 534\u201335 (S.D.N.Y. 2020) (\u201cAlthough Plaintiffs argue in their brief that Rule 10b\u20135(c) is\n\nexpansive, they have failed to identify any case holding that setting aggressive sales targets is a\n\ndeceptive act.\u201d (internal citation and quotation markets omitted)), aff\u2019d sub nom. Steamfitters\n\n\n\n\n 119\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 120 of 121\n\n\n\n\nLoc. 449 Pension Plan v. AT&T Inc., 2022 WL 17587853 (2d Cir. Dec. 13, 2022) (summary\n\norder).\n\n Plaintiffs\u2019 claims also fail for the independent reason that Plaintiffs fail to adequately\n\nplead scienter. As discussed infra, the CCAC contains insufficient allegations, under the PSLRA\n\nand Rule 9(b), that create a strong inference of scienter under either motive and opportunity or\n\ncircumstantial evidence of conscious misbehavior or recklessness. The PACS Defendants were\n\nmotivated by generic corporate incentives\u2014either cashing out stock in a public offering or\n\nensuring the company performs better because of a standard performance-based incentive\n\nprogram\u2014and such alignments of interest are not indicia of fraudulent intent.\n\n B. Control Person & Insider Selling Liability\n\n Claims under Section 20A and 20(a) require a primary violation of the Exchange Act.\n\nSee Feiner Fam. Tr. v. VBI Corp., 352 F. App\u2019x 461, 464 (2d Cir. 2009) (summary order)\n\n(holding that because \u201cderivative control person and insider trading liability under sections 20(a)\n\nand 20A(a) of the Exchange Act, 15 U.S.C. \u00a7\u00a7 78t(a) and 78t\u20131(a) . . . require [plaintiff] to\n\nestablish a primary violation of the Exchange Act, [the] conclusion that [plaintiff] has not stated\n\na claim under section 10(b) precludes relief under these sections\u201d). Accordingly, Plaintiffs have\n\nfailed to state a claim under either Section 20(a) or Section 20A.41\n\n CONCLUSION\n\n In sum, Plaintiffs have plausibly stated a claim for violations of the Securities Act under\n\nSections 11 and 12 against the PACS, Individual Defendants, and SPO Underwriter Defendants\n\n\n\n41\n Because the Court determines that there is no predicate violation of the Exchange Act\u2014\nincluding for lack of scienter\u2014to sustain a claim under Section 20A, it does not reach the\nparties\u2019 arguments concerning whether Plaintiffs sufficiently pled that the relevant Defendants\nhad material, nonpublic information at the time of trades. See Dkt. No. 83 at 46\u201347; Dkt. No. 89\nat 59\u201360.\n\n\n 120\n\f Case 1:24-cv-08636-LJL Document 97 Filed 09/04/26 Page 121 of 121\n\n\n\n\nand under Section 15 as to the SPO Individual Defendants based on PACS\u2019 financial reporting.\n\nPlaintiffs have failed to state a claim for relief under the Exchange Act, and such claims are\n\ndismissed without prejudice. The motions to dismiss are accordingly GRANTED IN PART and\n\nDENIED IN PART.\n\n The Clerk of Court is respectfully directed to close Dkt. Nos. 82, 84.\n\n\n SO ORDERED.\n\n\nDated: September 4, 2026 __________________________________\n New York, New York LEWIS J. LIMAN\n United States District Judge\n\n\n\n\n 121\n\f","ocr_status":2,"date_upload":"2026-09-23T16:04:53.185428-07:00","document_number":"97","attachment_number":null,"pacer_doc_id":"127040289996","is_available":true,"is_free_on_pacer":true,"is_sealed":null,"document_type":1,"description":"Memorandum & Opinion","acms_document_guid":""}],"date_created":"2026-09-04T16:12:19.688833-07:00","date_modified":"2026-10-08T18:05:39.861900-07:00","date_filed":"2026-09-04","time_filed":"18:31:37","entry_number":97,"recap_sequence_number":"2026-09-04.001","pacer_sequence_number":450,"description":"OPINION AND ORDER re: 82 MOTION to Dismiss Consolidated Class Action Complaint. filed by P.J. Sanford, Jason Murray, Mark Hancock, Evelyn Dilsaver, Michelle Lewis, PACS Group, Inc., Taylor Leavitt, Joshua Jergensen, Derick Apt, Jacqueline Millard, 84 MOTION to Dismiss the Consolidated Class Action Complaint. filed by UBS Securities, LLC, Regions Securities LLC, RBC Capital Markets, LLC, KeyBanc Capital Markets Inc., Citigroup Global Markets Inc., Stephens Inc., J.P. Morgan Securities LLC, Oppenheimer & Co. Inc., Truist Securities, Inc., Goldman Sachs & Co. LLC. Accordingly, Plaintiffs have failed to state a claim under either Section 20(a) or Section 20A. In sum, Plaintiffs have plausibly stated a claim for violations of the Securities Act under Sections 11 and 12 against the PACS, Individual Defendants, and SPO Underwriter Defendants and under Section 15 as to the SPO Individual Defendants based on PACS' financial reporting. Plaintiffs have failed to state a claim for relief under the Exchange Act, and such claims are dismissed without prejudice. The motions to dismiss are accordingly GRANTED IN PART and DENIED IN PART. The Clerk of Court is respectfully directed to close Dkt. Nos. 82, 84. SO ORDERED. (Signed by Judge Lewis J. Liman on 9/4/2026) (jca) (Entered: 09/04/2026)","tags":[]},{"resource_uri":"https://www.courtlistener.com/api/rest/v4/docket-entries/476377892/","id":476377892,"docket":"https://www.courtlistener.com/api/rest/v4/dockets/69373722/","recap_documents":[{"resource_uri":"https://www.courtlistener.com/api/rest/v4/recap-documents/491938770/","id":491938770,"tags":[],"absolute_url":"","date_created":"2026-08-31T10:10:27.975418-07:00","date_modified":"2026-08-31T10:10:27.975438-07:00","sha1":"","page_count":null,"file_size":null,"filepath_local":null,"filepath_ia":"","ia_upload_failure_count":null,"thumbnail":null,"thumbnail_status":0,"plain_text":"","ocr_status":null,"date_upload":null,"document_number":"","attachment_number":null,"pacer_doc_id":"","is_available":false,"is_free_on_pacer":null,"is_sealed":null,"document_type":1,"description":"Oral Argument","acms_document_guid":""}],"date_created":"2026-08-31T10:10:27.962567-07:00","date_modified":"2026-08-31T10:10:27.962579-07:00","date_filed":"2026-08-31","time_filed":"12:33:36","entry_number":null,"recap_sequence_number":"2026-08-31.001","pacer_sequence_number":null,"description":"","tags":[]},{"resource_uri":"https://www.courtlistener.com/api/rest/v4/docket-entries/476107905/","id":476107905,"docket":"https://www.courtlistener.com/api/rest/v4/dockets/69373722/","recap_documents":[{"resource_uri":"https://www.courtlistener.com/api/rest/v4/recap-documents/491660990/","id":491660990,"tags":[],"absolute_url":"/docket/69373722/95/manchin-v-pacs-group-inc/","date_created":"2026-08-27T20:08:27.018581-07:00","date_modified":"2026-08-27T20:08:27.027862-07:00","sha1":"","page_count":null,"file_size":null,"filepath_local":null,"filepath_ia":"","ia_upload_failure_count":null,"thumbnail":null,"thumbnail_status":0,"plain_text":"","ocr_status":null,"date_upload":null,"document_number":"95","attachment_number":null,"pacer_doc_id":"127040237692","is_available":false,"is_free_on_pacer":null,"is_sealed":null,"document_type":1,"description":"Transcript","acms_document_guid":""}],"date_created":"2026-08-27T20:08:26.992945-07:00","date_modified":"2026-09-30T23:20:43.393935-07:00","date_filed":"2026-08-27","time_filed":"21:35:16","entry_number":95,"recap_sequence_number":"2026-08-27.001","pacer_sequence_number":442,"description":"TRANSCRIPT of Proceedings re: conference held on 8/24/2026 before Judge Lewis J. Liman. Court Reporter/Transcriber: Nicole DIMasi, (212) 805-0320. Transcript may be viewed at the court public terminal or purchased through the Court Reporter/Transcriber before the deadline for Release of Transcript Restriction. After that date it may be obtained through PACER. Redaction Request due 9/17/2026. Redacted Transcript Deadline set for 9/28/2026. Release of Transcript Restriction set for 11/25/2026.Filed In Associated Cases: 1:24-cv-08636-LJL, 1:24-cv-08882-LJL.(Moya, Goretti) (Entered: 08/27/2026)","tags":[]},{"resource_uri":"https://www.courtlistener.com/api/rest/v4/docket-entries/476107903/","id":476107903,"docket":"https://www.courtlistener.com/api/rest/v4/dockets/69373722/","recap_documents":[{"resource_uri":"https://www.courtlistener.com/api/rest/v4/recap-documents/491660988/","id":491660988,"tags":[],"absolute_url":"/docket/69373722/96/manchin-v-pacs-group-inc/","date_created":"2026-08-27T20:08:26.736424-07:00","date_modified":"2026-08-27T20:08:26.746989-07:00","sha1":"","page_count":null,"file_size":null,"filepath_local":null,"filepath_ia":"","ia_upload_failure_count":null,"thumbnail":null,"thumbnail_status":0,"plain_text":"","ocr_status":null,"date_upload":null,"document_number":"96","attachment_number":null,"pacer_doc_id":"127040237695","is_available":false,"is_free_on_pacer":null,"is_sealed":null,"document_type":1,"description":"Notice of Filing Transcript","acms_document_guid":""}],"date_created":"2026-08-27T20:08:26.708165-07:00","date_modified":"2026-09-30T23:20:43.411554-07:00","date_filed":"2026-08-27","time_filed":"21:36:46","entry_number":96,"recap_sequence_number":"2026-08-27.002","pacer_sequence_number":444,"description":"NOTICE OF FILING OF OFFICIAL TRANSCRIPT Notice is hereby given that an official transcript of a conference proceeding held on 8/24/26 has been filed by the court reporter/transcriber in the above-captioned matter. The parties have seven (7) calendar days to file with the court a Notice of Intent to Request Redaction of this transcript. If no such Notice is filed, the transcript may be made remotely electronically available to the public without redaction after 90 calendar days...Filed In Associated Cases: 1:24-cv-08636-LJL, 1:24-cv-08882-LJL.(Moya, Goretti) (Entered: 08/27/2026)","tags":[]}],"entries_total":"https://www.courtlistener.com/api/rest/v4/docket-entries/?count=on&docket=69373722&page_size=40"}