                            In the
 United States Court of Appeals
              For the Seventh Circuit
                        ____________

No. 06-3898
KENNETH PUGH and CHAD BOYLAN,
                                            Plaintiffs-Appellants,

                               v.

TRIBUNE COMPANY, DENNIS J. FITZSIMONS,
JOHN W. MADIGAN, et al.,
                                  Defendants-Appellees.

No. 06-3909
CITY OF PHILADELPHIA BOARD OF PENSIONS AND
RETIREMENT, individually and on behalf of all
others similarly situated,
                                      Plaintiff-Appellant,
                           v.

TRIBUNE COMPANY, DENNIS J. FITZSIMONS,
DONALD C. GRENESKO, et al.,
                                  Defendants-Appellees.
                  ____________
         Appeals from the United States District Court
     for the Northern District of Illinois, Eastern Division.
     Nos. 05 C 2602 & 05 C 2927—William T. Hart, Judge.
                        ____________
   ARGUED JANUARY 23, 2008—DECIDED APRIL 2, 2008
                  ____________
2                                    Nos. 06-3898 & 06-3909

    Before MANION, ROVNER, and EVANS, Circuit Judges.
   EVANS, Circuit Judge. In this consolidated appeal, we
review two cases arising out of a fraud that occurred at a
New York subsidiary of defendant Tribune Company.
Certain employees at the subsidiary falsely boosted the
circulation figures of two newspapers, Newsday and the
Spanish-language Hoy, increasing the amount that they
were able to charge advertisers and, in turn, inflating
revenues. Tribune, along with an independent auditor,
ultimately discovered and publicly disclosed the fraud,
which resulted in a $90 million charge against earnings.
Our first case is a securities class action brought by pur-
chasers of Tribune common stock against Tribune, four of
its executive officers, and five employees of Newsday and
Hoy. Our second case is an ERISA class action brought by
participants in Tribune’s pension plans that held shares in
an employee stock ownership plan (ESOP) against the
alleged plan fiduciaries. The district court (Judge
William T. Hart) dismissed both cases with prejudice. They
are now before us on the plaintiffs’ appeals.
  Because the same events underlie the allegations in both
complaints, some common facts can be discussed up front.
Tribune is a media and entertainment company engaging
in newspaper publishing (e.g., the Chicago Tribune, the Los
Angeles Times), television and radio broadcasting (e.g.,
Superstation WGN), and other entertainment ventures (e.g.,
the Chicago Cubs—at least for the time being). Tribune’s
publishing segment purportedly generates more than 70
percent of its total revenues, which exceeded $5 billion
annually during the years immediately prior to these
lawsuits. At that time, Newsday operated as a New York
subsidiary of Tribune, and Hoy was a division of Newsday.
These are just 2 of the at least 11 daily newspapers that fall
Nos. 06-3898 & 06-3909                                     3

under Tribune’s umbrella. The Audit Bureau of Circula-
tions (ABC), an independent nonprofit monitoring organi-
zation, conducts annual audits of each newspaper’s paid
circulation figures. The results of its audits are used to
determine how much advertisers pay for their ads to
appear in a newspaper.
  At least as early as 2001, Newsday and Hoy overstated
their circulation figures. Schemes such as phony hawking
programs, false affidavits that understated returns and
overstated net sales, and directions to subordinates to pay
distributors for bogus deliveries of newspapers were
employed. In addition, many copies of the two papers were
merely dumped, or delivered to people who had not paid
for them. The overstated circulation numbers resulted in
Newsday and Hoy charging higher advertising rates than
would have been charged otherwise. The true circulation
of Newsday and Hoy was roughly 80 percent and 50 percent,
respectively, of what was reported.
  Starting in February 2004, advertisers filed lawsuits
alleging that Newsday and Hoy had overstated circulation.
On February 11, 2004, Tribune issued a press release
stating that Raymond Jansen (Newsday’s publisher from
1994 to 2004 and a named defendant in our securities case)
had issued a statement that the lawsuit filed the previous
day against Newsday and Hoy was “completely without
merit,” the allegations contained in it were “false,” and the
source of the allegations was no more than “a disgruntled
former employee.” Notwithstanding Newsday’s denial,
Tribune, together with ABC, started its own internal
investigation of the paid circulation figures. Shortly after
the advertisers’ lawsuit was filed, the SEC, the U.S. Attor-
ney’s Office for the Eastern District of New York, the U.S.
Attorney’s Office for the District of Connecticut, and the
4                                     Nos. 06-3898 & 06-3909

Connecticut Attorney General’s Office began investiga-
tions.1
  In June 2004, Tribune’s investigation revealed that the
circulation figures for Newsday and Hoy had in fact been
inflated. On June 17, 2004, Newsday issued a press release
stating that the September 2003 circulation figures for
Newsday and Hoy were overstated and that both publica-
tions “expect to make significantly smaller adjustments to
their March 2004 circulation figures.” That day, Tribune’s
stock closed at $47.27 per share, up from $46.78 the day
before.2 On June 18, it closed at $46.81.


1
  Criminal charges were later brought against several Newsday
and Hoy employees. A May 30, 2006, press release from the U.S.
Attorney’s Office for the Eastern District of New York reported
guilty pleas by nine former Newsday and Hoy employees,
including four of the five Newsday and Hoy employees named as
defendants in our securities case (Brennan, Czark, Garcia,
and Sito). U.S. Department of Justice, Nine Former
Employees and Contractors of Newsday and Hoy Plead Guilty
to Scheme to Defraud N e wsp a p e r Ad v e r t isers,
www.usdoj.gov/usao/nye/pr/2006/2006may30.html. The press
release also said that the SEC settled its enforcement action
against Tribune the same day. A December 18, 2007, press
release reported that Newsday and Hoy agreed to forfeit $15
million to the United States pursuant to an agreement that
resolves its criminal investigation. U.S. Department of Justice,
Newsday and Hoy Agree to Resolve Criminal Inquiry into
Scheme to Defraud Newspaper Advertisers,
www.usdoj.gov/usao/nye/pr/2007/2007dec18b.html.
2
   We may take judicial notice of documents in the public
record, including publicly reported stock prices, without
converting a motion to dismiss into a motion for summary
                                             (continued...)
Nos. 06-3898 & 06-3909                                         5

   In a July 14, 2004, press release, Tribune stated that an
investigation revealed that further adjustments would be
made to the September 2003 and March 2004 circulation
figures for Newsday and Hoy and that there were also
misstatements for 2001 and 2002. Tribune also noted that
its second quarter results included a $35 million charge
related to an anticipated settlement of the advertisers’
lawsuits. Dennis FitzSimons (Tribune’s chairman and CEO
since 2003 and a named defendant in both of our cases) is
quoted as saying that “we moved aggressively to address
circulation misstatements at Newsday and Hoy[.]” On July
15, Tribune’s stock closed at $42.00 per share, down from
$43.12 the day before.
  On July 30, 2004, Tribune filed its second quarter 10-Q
report with the SEC. There, Tribune reiterated the results
mentioned in the July 14 press release, including the $35
million charge. Tribune also stated that it would continue
to defend the lawsuits and evaluate the adequacy of the $35
million reserve. Tribune said that Newsday and Hoy had
been censured by ABC, that SEC and criminal investiga-
tions were underway, and that Tribune was cooperating
with the investigations.
  On September 10, 2004, Tribune issued a press release
that disclosed the true circulation numbers. It also stated
that the cost to settle the advertisers’ lawsuits would be
increased by $45 to $60 million, which would be included
in the third quarter results. The same day, ABC announced
that it expected to complete its audit of the circulation
issues in a month. It noted that the audit had taken longer

2
  (...continued)
judgment. See, e.g., Radaszewski v. Maram, 383 F.3d 599, 600 (7th
Cir. 2004).
6                                    Nos. 06-3898 & 06-3909

than expected because of the “depth and complexity of
circulation irregularities identified and quantified by the
audit process[.]” On September 13, Tribune stock closed at
$39.72 per share. On November 30, however, Tribune’s
stock closed at $43.37—$0.25 higher than before the July 15
announcements.
  After similar complaints against Tribune and its employ-
ees based on these events were filed, the district court
consolidated the various cases. Pursuant to the Private
Securities Litigation Reform Act of 1995 (PSLRA), the court
appointed a lead plaintiff and lead counsel in the securities
case. At that point, an amended consolidated class action
complaint was filed. Subsequently, the lead plaintiff filed
a second lawsuit, adding two defendants who had not been
named in the first complaint as well as several allegations.
The district court granted a motion to consolidate the two
suits and for leave to file a second amended complaint. The
proposed plaintiff class consists of people who purchased
Tribune common stock between January 24, 2002, and
September 10, 2004.
  The PSLRA does not apply to the ERISA case, in which a
consolidated amended ERISA complaint was filed. The
proposed plaintiff class there consists of participants in
Tribune’s sponsored retirement plans whose individual
accounts held shares in the ESOP at any time from Decem-
ber 31, 2002, to October 28, 2005 (the date the complaint
was filed).
  In a comprehensive memorandum opinion and order, the
district court dismissed both complaints with prejudice.
Hill v. The Tribune Co., Nos. 05 C 2602, 05 C 2927, 06 C 0741,
2006 WL 2861016 (N.D. Ill. Sept. 29, 2006). As always, we
review a motion to dismiss under Federal Rule of Civil
Procedure 12(b)(6) de novo, taking all factual allegations as
Nos. 06-3898 & 06-3909                                          7

true and drawing all reasonable inferences in favor of the
plaintiffs. Makor Issues & Rights, Ltd. v. Tellabs, Inc., 437 F.3d
588, 594 (7th Cir. 2006), rev’d on other grounds, 127 S. Ct.
2499 (2007) (Makor I). We will address the securities case
and the ERISA case separately, in that order.
  The securities complaint asserts two claims. The first
claim arises under § 10(b) of the Securities Exchange Act of
1934, 15 U.S.C. § 78j(b), and SEC Rule 10b-5, 17 C.F.R.
§ 240.10b-5. It is brought against Tribune, four of its
executive officers (the Tribune individual defendants),3 and
certain employees of Newsday and Hoy (the Newsday-Hoy
individual defendants).4 In a typical § 10(b) private action,
a plaintiff must prove (1) a material misrepresentation or
omission by the defendant; (2) scienter; (3) a connection
between the misrepresentation or omission and the pur-
chase or sale of a security; (4) reliance upon the misrepre-
sentation or omission; (5) economic loss; and (6) loss



3
   For the sake of consistency, we will use the district court’s
appellations for groups of defendants. The Tribune individual
defendants are FitzSimons; Donald Grenesko, Tribune’s senior
vice-president of Finance and Administration; Jack Fuller,
president of Tribune Publishing Company; and John Madigan,
chairman and CEO of Tribune immediately before FitzSimons.
4
   The Newsday-Hoy individual defendants are Jansen; Robert
Brennan, Newsday’s vice-president for Circulation until June
2004; Richard Czark, Hoy’s former National Circulation man-
ager; Robert Garcia, a former sales and distribution manager of
Hoy; and Louis Sito. Sito had multiple titles: he was Newsday’s
vice-president for Circulation before Brennan, Hoy’s president,
publisher, and chief executive until his July 2004 retirement, and
Tribune’s vice-president for Hispanic Media, again until his
retirement.
8                                     Nos. 06-3898 & 06-3909

causation. Stoneridge Inv. Partners, LLC v. Scientific-Atlanta,
Inc., 128 S. Ct. 761, 768 (2008).
   The second securities claim arises under § 20(a) of the
Securities Exchange Act of 1934, 15 U.S.C. § 78t(a). It is
brought against all of the individual defendants and
contends that the Tribune individual defendants are
“controlling persons” of the Newsday-Hoy individual
defendants. Section 20(a) states that “[e]very person who,
directly or indirectly, controls any person liable under any
provision of this title or of any rule or regulation thereun-
der shall also be liable jointly and severally with and to the
same extent as such controlled person[.]” Id. Thus, to state
a claim under § 20(a), a plaintiff must first adequately
plead a primary violation of securities laws—here, a
violation of § 10(b) and Rule 10b-5. See Southland Securities
v. INSpire Ins. Solutions, 365 F.3d 353, 383-84 (5th Cir. 2004).
  The PSLRA provides that the complaint in a securities
fraud action must “with respect to each act or omission . . .
state with particularity facts giving rise to a strong infer-
ence that the defendant acted with the required state of
mind.” 15 U.S.C. § 78u-4(b)(2). The “required state of
mind” in a § 10(b) case is scienter, which means “knowl-
edge of the statement’s falsity or reckless disregard of a
substantial risk that the statement is false.” Higginbotham v.
Baxter Int’l, Inc., 495 F.3d 753, 756 (7th Cir. 2007). The
Supreme Court has directed us to dismiss the complaint
unless “a reasonable person would deem the inference of
scienter cogent and at least as compelling as any opposing
inference one could draw from the facts alleged.” Tellabs,
Inc. v. Makor Issues & Rights, Ltd., 127 S. Ct. 2499, 2510
(2007). Accordingly, we must weigh the strength of the
plaintiffs’ inferences in comparison to plausible
nonculpable explanations for the defendants’ conduct. Id.
Nos. 06-3898 & 06-3909                                      9

We have rejected the “group pleading doctrine,” a judicial
presumption that statements in group-published docu-
ments are attributable to officers who have daily involve-
ment in company operations; thus, the plaintiffs must
create a strong inference of scienter with respect to each
individual defendant. Makor Issues & Rights, Ltd. v. Tellabs,
Inc., 513 F.3d 702, 710 (7th Cir. 2008) (Makor II).
  The plaintiffs first allege primary liability on the part of
the Tribune individual defendants. The Tribune individual
defendants argue that, viewed holistically, the allegations
against them do not come close to giving rise to a strong
inference of scienter when viewed against opposing
inferences. The complaint, they say, makes clear that the
circulation fraud was purposely designed to deceive ABC
and Tribune, as well as Newsday and Hoy advertisers. After
the advertisers’ lawsuits were filed, Tribune itself launched
an internal investigation, which ultimately revealed that
circulation figures had been misstated. As more informa-
tion became available, the Tribune individual defendants
publicly disclosed it. The company also disclosed that other
investigations were underway and that certain employees
involved in the wrongdoing had been terminated. The
Tribune individual defendants argue that these facts, at
most, support an inference of internal mismanagement, not
recklessness or knowledge.
  Against these arguments, the plaintiffs offer an assort-
ment of allegations that purportedly lead to an inference
that the Tribune individual defendants were recklessly
indifferent to the quality of their SEC filings and press
releases. For instance, they state that verifying the accuracy
of their newspaper sales would have been “a relatively
easy task.” Therefore, the Tribune individual defendants
“knew or were reckless in not knowing that the sales
10                                    Nos. 06-3898 & 06-3909

revenues received from vendors did not support the
circulation figures being reported to [ABC].” Not only is
this allegation wholly conclusory, but it has also been
expressly criticized. In Higginbotham, the plaintiffs similarly
sought to draw an inference of scienter from the fact that
the individual defendants had access to the subsidiary’s
allegedly fraudulent financial information. We dismissed
this argument, stating that “there is a big difference
between knowing about the reports from [a subsidiary] and
knowing that the reports are false. The complaint docu-
ments the former but not the latter.” Higginbotham, 495 F.3d
at 758. The same rationale applies to our case.
  Moreover, the allegations in the complaint support the
defendants’ contention that the mismatch between circula-
tion figures and revenues may not have been so “obvious.”
Specifically, the complaint states that ABC has elaborate
rules about which newspaper purchases can count toward
reported circulation figures. For example, ABC includes in
paid circulation “bulk” sales (in which a bulk buyer buys
newspapers and gives them away to their customers for
free) as long as the charge to the bulk buyer per copy is at
least 25 percent of the single copy price. And “sampling”
programs (in which newspapers are delivered for free for
a period of time) may or may not count toward circulation
figures, depending on whether an outside sponsor paid at
least 25 percent of the single copy price. Thus, the plaintiffs
do not gain any ground with this argument.
  The plaintiffs also contend that the Tribune individual
defendants intentionally or recklessly created weak
circulation controls. But rather than stating allegations
about the existing or missing controls, the plaintiffs argue
that the controls must have been weak because a fraud
actually occurred. This “fraud by hindsight” argument was
Nos. 06-3898 & 06-3909                                      11

also rejected in Higginbotham, where we explained that “by
definition, all frauds demonstrate the ‘inadequacy’ of
existing controls, just as all bank robberies demonstrate the
failure of bank security and all burglaries demonstrate the
failure of locks and alarm systems.” Id. at 760.
  In their only attempt to allege a specific control defi-
ciency, the plaintiffs point out that, unlike other publishers,
Tribune had not required that its circulation figures be
certified before they were submitted to ABC. This allega-
tion seizes upon Tribune’s disclosure, at the end of its
internal investigation, that in the future it would require
certain executives to certify the accuracy of their newspa-
per’s circulation figures. Once again, we refer to
Higginbotham, where we said that drawing an inference
from such facts does not comport with Federal Rule of
Evidence 407, which provides that subsequent remedial
measures may not be used as evidence of liability. Besides,
adding a certification requirement does not show that
Tribune’s existing controls were insufficient, much less that
any individual defendant knew of or was recklessly
indifferent to an actual, ongoing fraud.
  The plaintiffs also claim that stock sales, exercise of
options, and receipt of bonuses by the Tribune individual
defendants create a strong inference of scienter. Allegedly,
the defendants were motivated to allow “lax” internal
controls to inflate revenues, which would allow them to
receive bonuses and maximize returns from the exercise of
options and sales of Tribune stock. The plaintiffs recognize
that, because executives sell stock all the time, stock sales
must generally be unusual or suspicious to constitute
circumstantial evidence of scienter. See, e.g., Teachers’ Ret.
Sys. of LA v. Hunter, 477 F.3d 162, 184 (4th Cir. 2007). But
they fail to allege any facts that would allow an assessment
12                                  Nos. 06-3898 & 06-3909

of whether the trading during the class period was unusual
or suspicious. Instead, the complaint merely sets forth the
aggregate amount of shares sold during the class period
and the value of those shares. In Higginbotham, we stated
that the failure to provide any context showing that the
applicable time period was unusual undercuts a “strong”
demonstration of scienter. 495 F.3d at 759. Furthermore, the
complaint does not allege that, after exercising their stock
options, the Tribune individual defendants then turned
around and sold those shares, as opposed to retaining
them. Tellabs instructs us to consider all potential infer-
ences, and the fact that the defendants are not alleged to
have sold the stock at the inflated prices meant that they
stood to lose a lot of money if the value of Tribune’s stock
fell.
  The plaintiffs finally contend that, whatever the Tribune
individual defendants knew prior to February 2004, the
lawsuits filed by Newsday and Hoy advertisers that month
demonstrate actual knowledge of the fraud. This argument
completely misses the boat. After the lawsuits were filed,
the defendants had actual knowledge of accusations of
fraud, not fraud itself. In February, they promptly com-
menced an investigation to discover whether the allega-
tions were true. As the investigation continued and more
information became available, the defendants disclosed it
to the public, issuing press releases in June, July, and
September. This is exactly what they should have done,
and they did it within a reasonable time, especially consid-
ering that the perpetrators allegedly took pains to hide the
fraud from both Tribune and ABC. As we explained in
Higginbotham, “[t]aking the time necessary to get things
right is both proper and lawful. Managers cannot tell lies
but are entitled to investigate for a reasonable time, until
Nos. 06-3898 & 06-3909                                     13

they have a full story to reveal.” Id. at 761. For all these
reasons, the complaint as a whole does not establish a
strong inference of scienter as to the Tribune individual
defendants.
  The plaintiffs also allege primary liability on the part of
the Newsday-Hoy individual defendants. In response to the
plaintiffs’ allegations, the Newsday-Hoy individual defen-
dants argue that they cannot be held liable for securities
fraud because they were not alleged to have participated in
the preparation of any of the challenged statements.
Moreover, the section of the complaint entitled “Scienter”
contains no express allegation regarding any of the
Newsday-Hoy individual defendants. Here, as in the district
court, the plaintiffs do not adequately respond to these
arguments as they pertain to Brennan, Czark, and Garcia.
  As for Jansen and Sito, the plaintiffs contend that they
knowingly signed false circulation audits for Newsday and
Hoy that were submitted to ABC and that these submis-
sions were public statements upon which fraud can be
based. For the moment, we will ignore the fact that those
statements were made to a third-party auditor and not to
Tribune investors. A problem still remains that the PSLRA
requires that each statement alleged to be misleading be
specified in the complaint. See 15 U.S.C. § 78u-4(b)(1). Here,
the only misleading statements identified are press releases
and SEC filings, not submissions to ABC. The defendants
raised this point prior to the district court’s judgment, but
the plaintiffs’ second amended complaint failed to make
any changes in this regard.
  In any event, the allegations against Jansen are insuffi-
cient to establish liability. While Jansen is quoted in an
allegedly misleading public statement (the February 11,
14                                   Nos. 06-3898 & 06-3909

2004, press release, denying the validity of the advertisers’
lawsuit), the complaint does not allege any facts showing
that he was aware of or recklessly disregarded the im-
proper circulation practices at Newsday and Hoy at the time
(unlike the other Newsday-Hoy individual defendants,
Jansen did not subsequently plead guilty to fraud). Thus,
the plaintiffs fail to plead a strong inference of scienter as
to Jansen.
  Accordingly, the plaintiffs focus on Sito. They emphasize
that he can still be found liable because he participated in
(and was the “mastermind” of) the scheme to defraud the
advertisers. Their theory seems to be that it was “foresee-
able” that this scheme would result in improper revenue
which, in turn, would be reflected in Tribune’s published
financial statements. Although absent from the complaint,
the plaintiffs now point to Sito’s guilty plea—wherein he
reportedly admitted to directing Newsday and Hoy employ-
ees to falsely inflate paid circulation data—to prove his
state of mind. However, even assuming the guilty plea
establishes a strong inference of scienter, the plaintiffs’
allegations of so-called “scheme liability” are insufficient
under the Supreme Court’s recent decision in Stoneridge.
  In Stoneridge, the plaintiffs alleged that business partners
of Charter Communications, Inc. violated § 10(b) by
engaging in sham transactions with Charter, knowing or
recklessly disregarding Charter’s intention to report the
inflated revenue from those transactions in its public
financial statements. While the business partners deliber-
ately engaged in the underlying fraud reflected in Charter’s
published revenue figures, they had no role in preparing or
disseminating Charter’s financial statements containing
those figures, and the public had no knowledge of their
deceptive acts during the relevant times. The plaintiffs
Nos. 06-3898 & 06-3909                                      15

argued, however, that the public disclosure of the false
statements “was a natural and expected consequence of
[the business partners’] deceptive acts” and therefore
sufficient to impose “scheme liability.” Stoneridge, 128 S. Ct.
at 770.
  In its decision, the Court rejected the plaintiffs’ theory as
insufficient to satisfy the reliance requirement of § 10(b):
      In effect petitioner contends that in an efficient
    market investors rely not only upon the public state-
    ments relating to a security but also upon the transac-
    tions those statements reflect. Were this concept of
    reliance to be adopted, the implied cause of action
    would reach the whole marketplace in which the
    issuing company does business; and there is no author-
    ity for this rule.
Id. The Court also discussed the related requirement that
actionable conduct be “in connection with the purchase or
sale of any security.” See id. (quoting 15 U.S.C. § 78j(b)). It
noted that “the emphasis on a purchase or sale of securities
does provide some insight into the deceptive acts that
concerned the enacting Congress,” and cautioned that
“[§ 10(b)] does not reach all commercial transactions that
are fraudulent and affect the price of a security in some
attenuated way.” Id. at 770-71. The Court concluded that
the plaintiffs could not show reliance upon any of the
business partners’ actions “except in an indirect chain that
we find too remote for liability.” Id. at 769.
  Like the defendants in Stoneridge, Sito participated in a
fraudulent scheme but had no role in preparing or dissemi-
nating Tribune’s financial statements or press releases.
Furthermore, as we stated earlier, there is no allegation that
Tribune investors were ever informed of Sito’s false
16                                   Nos. 06-3898 & 06-3909

certifications to ABC. Sito may have foreseen (or even
intended) that the advertising scheme would result in
improper revenue for Newsday and Hoy, which would
eventually be reflected in Tribune’s revenues and finally
published in its financial statements. But Stoneridge indi-
cates that an indirect chain to the contents of false public
statements is too remote to establish primary liability.
Without allegations establishing the requisite proximate
relation between the Newsday and Hoy advertiser fraud and
the Tribune investors’ harm, we cannot uphold the com-
plaint. Thus, the plaintiffs do not satisfy the pleading
requirements as to any of the Newsday-Hoy individual
defendants.
  The plaintiffs finally allege primary liability on the part
of Tribune itself. A corporation may be held liable for
statements by employees who have apparent authority to
make them. See, e.g., Am. Soc’y. of Mech. Eng’rs v. Hydrolevel
Corp., 456 U.S. 556, 568 (1982). Accordingly, the corporate
scienter inquiry must focus on “the state of mind of the
individual corporate official or officials who make or issue
the statement (or order or approve it or its making or
issuance, or who furnish information or language for
inclusion therein, or the like) rather than generally to the
collective knowledge of all the corporation’s officers and
employees acquired in the course of their employment.”
Makor II, 513 F.3d at 708 (internal citation omitted). As we
previously discussed, the complaint fails to plead facts
sufficient to support a strong inference of scienter on the
part of any of the Tribune individual defendants. So,
Tribune’s scienter cannot be based on their state of mind.
Instead, the plaintiffs argue that Sito’s scienter can be
imputed to Tribune under the principles of respondeat
Nos. 06-3898 & 06-3909                                        17

superior.5
  Even if we assume arguendo that the plaintiffs had
established Sito’s primary liability, there are still two major
problems with this argument. First, it is based on the
incorrect premise that Sito was a “senior-level” officer of
Tribune. The plaintiffs contend that Sito was assigned
(among others) the title of “Vice President for Hispanic
media at Tribune,” but Tribune’s SEC filings show that Sito
was not an executive officer of Tribune. More importantly,
the only fraudulent conduct described in the complaint
was not undertaken in his Tribune capacity; the allegations
state that (1) Sito was “Publisher” of Hoy and (2) “Publish-
ers are required to certify their paid circulation figures to
ABC every six months.” This is damaging to the plaintiffs
because misconduct of employees at a corporate subsidiary
is not normally attributed to its corporate parent, absent
grounds for piercing the corporate veil. See, e.g., United
States v. Bestfoods, 524 U.S. 51, 63-64 (1998); IDS Life Ins. Co.
v. SunAmerica Life Ins. Co., 136 F.3d 537, 540 (7th Cir. 1998).
  Second, and relatedly, the allegations do not show that
Sito knowingly overstated circulation figures intending to
benefit Tribune. Rather, the complaint demonstrates that
the objective of Sito and the other perpetrators in falsely
boosting the circulation figures of the two newspapers was
to increase the amount that they were able to charge
advertisers of Newsday and Hoy. After this came to light,
Tribune was exposed to significant damage claims by its
advertisers and regulators. Indeed, Sito and the other


5
   While “it is possible to draw a strong inference of corporate
scienter without being able to name the individuals who
concocted and disseminated the fraud,” id. at 710, the plaintiffs
do not make that argument here.
18                                     Nos. 06-3898 & 06-3909

perpetrators allegedly took pains to conceal the scheme
from Tribune, and the Newsday and Hoy employees run-
ning the scheme are alleged to have bilked the newspapers
to pay off the vendors and hawkers with whom they
colluded. Sito may have known that, as a result of the
scheme, Tribune would misrepresent its assets to investors,
but this is not enough; “deliberate wrongs by an employee
are not imputed to his employer unless they are not only
within the scope of his employment but in attempted
furtherance of the employer’s goals.” Makor II, 513 F.3d
at 708.
   In sum, the plaintiffs fail to establish the primary liability
of any individual defendant, and the alleged misconduct is
not imputable to Tribune by the doctrine of respondeat
superior. Accordingly, the plaintiffs’ § 10(b) and Rule 10b-5
claim was correctly dismissed in its entirety. And, because
the plaintiffs have not adequately alleged the direct
liability of any defendant, their § 20(a) claim was also
correctly dismissed.
   Finally, we review the district court’s decision to deny
leave to amend for an abuse of discretion. See, e.g., King v.
E. St. Louis Sch. Dist. 189, 496 F.3d 812, 819 (7th Cir. 2007).
The plaintiffs propose to amend their complaint to plead
the circulation audit certifications submitted to ABC as
actionable statements. As we stated earlier, the defendants
pointed out this deficiency before the plaintiffs filed their
second amended complaint, but they chose not to remedy
it. Courts have rejected the argument that the plaintiffs
now make—namely, that they were entitled to wait and see
what the district court said before making any changes to
the complaint—because it would impose unnecessary costs
and inefficiencies on both the courts and party opponents.
See, e.g., ACA Fin. Guar. Corp. v. Advest, Inc., 512 F.3d 46, 57
(1st Cir. 2008) (“The plaintiffs do not get leisurely repeated
Nos. 06-3898 & 06-3909                                     19

bites at the apple, forcing a district judge to decide whether
each successive complaint was adequate under the
PSLRA.”). Moreover, our discussion took this and other
“curable” defects into consideration and found that they
would not change our ruling; thus, the proposed amend-
ment would be futile.
  Our second case concerns investments in Tribune stock
by two ERISA benefit plans that are offered to certain
Tribune employees. Both are defined contribution plans
that assign each participant a personal account, within
which the participant may direct his contributions among
10 different funds. Nine of the funds are third-party,
publicly traded mutual funds. The other fund—which both
plans required be available to participants—is the company
stock fund, an ESOP investing almost entirely in Tribune
common stock. The proposed plaintiff class consists of
participants in the two plans whose individual accounts
held shares in the ESOP at any time from December 2002 to
the date the complaint was filed.
   The defendants are Tribune’s Employee Benefits Com-
mittee (the EBC), 11 current or former members of the EBC
(the Committee defendants), 13 members of Tribune’s
board of directors (the board defendants), and Tribune
itself. The EBC is a named fiduciary of each plan and is
empowered to administer it. The board is a named fidu-
ciary of one of the two plans; under both plans, however,
the board’s only assigned duty is to appoint members of
the EBC. Tribune is alleged to be a de facto fiduciary based
on its sponsorship of the plans.
  In this case, the plaintiffs do not allege fraud, only
breaches of fiduciary duties and ERISA violations. As such,
we apply the more lenient pleading standard of Federal
Rule of Civil Procedure 8(a)(2), which requires only “a
20                                     Nos. 06-3898 & 06-3909

short and plain statement of the claim showing that the
pleader is entitled to relief[.]” However, surviving a Rule
12(b)(6) motion “requires more than labels and
conclusions . . . . Factual allegations must be enough to
raise a right to relief above the speculative level[.]” Bell Atl.
Corp. v. Twombly, 127 S. Ct. 1955, 1965 (2007). In addition,
a plaintiff can plead himself out of court by alleging facts
that show there is no viable claim. McCready v. eBay, Inc.,
453 F.3d 882, 888 (7th Cir. 2006).
  The complaint alleges three somewhat overlapping
claims. The first contends that the defendants violated
§ 404 of ERISA, 29 U.S.C. § 1104, by failing to prudently
and loyally manage assets held by the plans. The second
alleges that the defendants violated §§ 404 and 405 of
ERISA, 29 U.S.C. §§ 1104, 1105, by failing to provide
complete and accurate information to the participants in
the plans. The third also alleges violations of §§ 404 and
405 of ERISA and asserts that Tribune and its board failed
to properly appoint, monitor, and inform the EBC.
  Section 404 of ERISA imposes a “prudent man” standard
of care on plan fiduciaries. They discharge their obligations
to plan participants by acting “with the care, skill, pru-
dence, and diligence under the circumstances then prevail-
ing that a prudent man acting in a like capacity and
familiar with such matters would use in the conduct of an
enterprise of a like character and with like aims[.]” 29
U.S.C. § 1104(a)(1)(B). Section 404 also imposes a duty to
diversify investments, id. § 1104(a)(1)(C), but the defen-
dants were exempt from this obligation because both plans
required that an available investment option be a fund
consisting primarily of Tribune stock. See id. § 1104(a)(2).
However, there are some situations in which the duty of
prudence could require diversification of an ESOP’s
Nos. 06-3898 & 06-3909                                     21

holdings. Summers v. State St. Bank & Trust Co., 453 F.3d
404, 410 (7th Cir. 2006).
  The thrust of the plaintiffs’ allegations is that the defen-
dants breached their fiduciary duties by continuing to offer
and maintain Tribune stock in the plans at a time when it
was imprudent to do so. They do not contend that the
defendants actually knew about the underlying circulation
fraud being perpetrated by Newsday and Hoy employees;
on the contrary, this would have been tantamount to a
claim of fraud against the defendants themselves, subject-
ing the complaint to the stricter pleading standards of Rule
9(b). Instead, the plaintiffs argue that the defendants had a
duty to investigate and uncover the wrongdoing at an
earlier time. ERISA imposes no duty on plan fiduciaries to
continuously audit operational affairs. Rather, courts have
held that a duty to investigate only arises when there is
some reason to suspect that investing in company stock
may be imprudent—that is, there must be something akin
to a “red flag” of misconduct. See, e.g., Barker v. American
Mobil Power Corp., 64 F.3d 1397, 1403 & n.4 (9th Cir. 1995);
In re Dynegy, Inc. ERISA Litigation, 309 F. Supp. 2d 861, 882
(S.D. Tex. 2004). This is essentially the plaintiffs’ theory,
and they propose two such red flags.
  The plaintiffs first contend that the February 2004
advertisers’ lawsuit constituted a red flag. An initial
problem with this argument is that it does not explain why
the plaintiff class includes participants whose accounts
held shares in the ESOP as far back as December 2002.
More importantly, however, the advertisers’ lawsuit cannot
be a basis for liability because, when it was filed, Tribune
and ABC did commence an investigation into the accuracy
of the circulation figures. This investigation eventually
ferreted out the circulation fraud, which was purposely
22                                    Nos. 06-3898 & 06-3909

designed to be concealed from Tribune and its auditor. It
would have made little sense for the plan fiduciaries to
commence an independent investigation at the same time.
And, as we discussed in the context of our securities case,
Tribune was entitled to a reasonable amount of time to
investigate until it had a full story to disclose.
  The other red flag the plaintiffs identify is the purported
inadequacy of Tribune’s internal controls. However, the
only control deficiency specified in the complaint is the
absence of a requirement that circulation managers certify
their figures. To this, we again refer to our discussion of the
securities case, in which we criticized the attempt to use
subsequent remedial actions as a basis for allegations of
this kind. Furthermore, there is no reason to infer that the
absence of this additional procedure should have alerted
the defendants to the misconduct at Newsday and Hoy,
especially because Tribune’s circulation figures were
already being audited by a third party. Indeed, it seems
that such a requirement would have been futile in this case
because the same individuals who, as the complaint makes
clear, concocted an elaborate scheme to overstate circula-
tion would likely have no objection to certifying their
fraudulent figures. And, for all the reasons we alluded to
earlier in conjunction with our securities case, the fact that
a fraud occurred and was eventually discovered says
nothing about whether the defendants were on notice of
potential problems beforehand. With nothing but pure
speculation to support them, the plaintiffs’ alleged red
flags fail as a matter of law.
  Nevertheless, the plaintiffs argue that the individual
defendants’ positions at Tribune are alone sufficient to
support the contention that they knew or should have
known about the circulation overstatements. The plaintiffs’
Nos. 06-3898 & 06-3909                                     23

own disclaimer states that the defendants lacked actual
knowledge of the underlying circulation fraud. So their
argument becomes that the defendants, by virtue of their
positions alone, should have possessed information that
disclosed the misconduct. A conclusory statement that all
defendants should have known specific facts about a
company is generally insufficient to state a claim; it must
be alleged that each defendant was in a position to know or
learn of the information. See, e.g., Howell v. Motorola, Inc.,
337 F. Supp. 2d 1079, 1089-92 (N.D. Ill. 2004) (collecting
cases finding that allegations that a defendant was a
member of a plan’s investment committee is, without more,
an insufficient basis for inferring that he should have been
privy to certain company information).
  The Committee defendants are all alleged to be “senior
Tribune management personnel who should have been
intimately aware of” Tribune’s inadequate controls and the
circulation scandal. But only four of these defendants are
alleged to have held senior positions at Tribune, some are
simply called “Senior Vice President” with no description
of their job responsibilities, and two only held positions
relating to benefits and human resources. Most of the
board defendants were directors of Tribune during the
class period, but they are not alleged to have been involved
with the day-to-day operations and internal controls at
Newsday or Hoy. Tribune is alleged to be one of the largest
media and entertainment companies in the country. But
even with its income inflated, Newsday’s revenues for 2002
represented only a small percentage of Tribune’s total
revenues, and Hoy’s percentage is even smaller. Previous
to the advertisers’ accusations, ABC had audited the
Newsday and Hoy circulation reports without finding any
irregularities, which refutes the suggestion that the fraud
24                                    Nos. 06-3898 & 06-3909

should have been obvious to Tribune’s senior management.
The facts alleged are therefore inconsistent with any
individual defendant having the knowledge necessary to
have been alerted to the purportedly deficient controls and
circulation fraud at the two newspapers.
  Thus, the allegations do not support that the defendants
should have known—either because they had a duty to
investigate or by virtue of their positions at Tribune—about
the circulation overstatements at Newsday and Hoy. How-
ever, even assuming arguendo that the defendants should
have known about the misconduct, there is still an issue of
whether they acted imprudently by continuing to offer and
maintain Tribune stock in the plans. Here, we must be
mindful of the delicate balance an ESOP fiduciary must
achieve: he risks being sued for violating the plan if he
diversifies but may impose unwanted risk on the partici-
pants if he doesn’t. Summers, 453 F.3d at 410. As a result,
“the plaintiff must show that the ERISA fiduciary could not
have reasonably believed that the plan’s drafters would
have intended under the circumstances that he continue to
comply with the ESOP’s direction that he invest exclusively
in employer securities.” Id. (quoting Kuper v. Iovenko, 66
F.3d 1447, 1459 (6th Cir. 1995)); see also Moench v. Robertson,
62 F.3d 553, 571-72 (3rd Cir. 1995).
  Comparing publicly available stock prices to the allega-
tions in the complaint allows us to conduct a hindsight
analysis of whether it was in fact imprudent to continue to
invest in Tribune stock. The complaint alleges that Tribune
stock was selling for about $52.00 per share in February
2004, when the first advertisers’ lawsuits were filed. But
the plaintiffs do not allege that the lawsuits drew much
public attention or affected the stock’s value. Instead, they
argue that the truth began to emerge in June 2004. After
Nos. 06-3898 & 06-3909                                     25

Tribune’s first announcement regarding the overstatements
on June 17, however, Tribune’s stock closed, as we previ-
ously noted, at $47.27, up from $46.78 the day before. On
June 18, it closed at $46.81, nearly the same level as the day
before the announcement. The plaintiffs also focus on July
15 as the date Tribune began to more fully disclose the
inflation, including an expected charge of $35 million. That
day, the stock price dropped just 2.6 percent, from $43.12
to $42.00.
  On September 10, another announcement was made,
indicating there would be a total charge of up to $95
million against earnings. Three days later, Tribune stock
closed at $39.72. The drop in price from July 15 to Septem-
ber 13 was $3.40, representing 7.9 percent of the July 15
price. As of November 30, however, the stock price had
risen to $43.37—$0.25 above the July 15 price—even though
there had been additional disclosures regarding circulation
adjustments, but no additional reports of charges to
income. Notably, the plaintiffs do not allege any disclo-
sures in December 2004 that would have tied the $8.37
drop during that month to the circulation overstatements.
This data refutes the plaintiffs’ allegation that the disclo-
sures regarding the overstated circulation figures caused a
25 percent drop in the value of Tribune’s stock.
  As Judge Hart correctly observed, even if the defendants
possessed the power of clairvoyance, they would have
foreseen a $90-$95 million charge against earnings due to
the circulation fraud, representing less than 2 percent of
one year’s revenues for Tribune. Such circumstances would
not cause a reasonable fiduciary to believe that the plan’s
drafters would have intended that he cease compliance
with the ESOP’s direction to invest exclusively in Tribune
securities. Accordingly, if it were necessary to resolve this
26                                  Nos. 06-3898 & 06-3909

issue, we would likely find that the complaint fails to
adequately allege that the defendants acted imprudently by
not discontinuing the company stock fund.
  In sum, the allegations are insufficient as to all three
claims. The first claim was correctly dismissed because the
facts alleged do not support that the defendants should
have been aware of obvious control deficiencies; thus, no
duty to investigate was triggered. The second claim was
also correctly dismissed because the facts alleged do not
support that the defendants should have been aware of the
circulation fraud; thus, they were not negligent in the
allegedly inaccurate statements they made to plan partici-
pants. The third claim was correctly dismissed because it
is premised on the first two rejected claims that the ap-
pointed fiduciaries breached their duties. Finally, we
decline to discuss the plaintiffs’ argument that they be
granted leave to amend their complaint because they first
voiced it at oral argument.
  Accordingly, the judgment of the district court in both
cases is AFFIRMED.




                   USCA-02-C-0072—4-2-08
