OPINION AND ORDER

SHIRA A. SCHEINDLIN, District Judge:

I. INTRODUCTION

Two institutional investors, King County, Washington and Iowa Student Loan Liquidity Corporation bring this putative class action for common law fraud in connection with the collapse of Rhinebridge, a structured investment vehicle ("SIV"). On June 10, 2010, plaintiffs filed an amended consolidated complaint ("First Amended Complaint" or "FAC") adding Morgan Stanley1 as a defendant to the action and alleging its role as a co-arranger and a placement agent for the Rhinebridge SIV.2 Morgan Stanley now moves to dismiss plaintiffs' claims for (1) common law fraud and (2) aiding and abetting common law fraud pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. Because the motion relies almost entirely on arguments this Court has already considered and rejected—both in this case3 and in Abu Dhabi Commercial Bank v. Morgan Stanley & Co.4—it is denied.

II. BACKGROUND AND APPLICABLE LAW

The facts of this case and applicable legal standards are well-established. I outline here the allegations added against Morgan Stanley in plaintiffs' FAC that are relevant to my disposition of defendant's motion. In brief, plaintiffs allege that Morgan Stanley used the Cheyne SIV at issue in Abu Dhabi as a roadmap for arranging Rhinebridge and for selling its senior debt securities ("Senior Notes" or "Notes").5 Together with IKB6 and the Rating Agencies,7 Morgan Stanley designed, structured, marketed, and maintained Rhinebridge.8 It engaged the Rating Agencies, along with IKB, to rate Rhinebridge, and worked directly with the Rating Agencies and IKB to structure the Senior Notes that, plaintiffs allege, received false and misleading "Top Ratings."9 Morgan Stanley also provided potential investors with the misleading ratings, accompanying definitions of the ratings, and statements regarding the Senior Notes' safety and stability through a commonly used investment platform provided by Bloomberg, "Private Placement Memoranda," "Information Memoranda," and "Selling Documents."10

Plaintiffs also allege that Morgan Stanley "caused"11 Rhinebridge to acquire "hundreds of millions of dollars of poor quality, toxic assets" that it knew IKB was trying to "unload[ ]."12 It "coerced"13 the Rating Agencies to allow risky Home Equity Loans ("HELs") to constitute up to seventy-five percent of Liquid Eligible Assets ("LEAs")14 in the SIV, where most SIVs limit HELs to fifteen to twenty percent of such assets.15 It caused Rhinebridge to acquire approximately two-hundred and fifty million dollars in Countrywide securities—a single obligor exposure approximately three times higher than the four percent limit stipulated in the SIV's operating instructions.16 It knew Rhinebridge had breached its "Major Capital Loss Test"17 ("Capital Test") before Rhinebridge was launched on June 27, 2007, and that its Top Ratings were false.18

Finally, plaintiffs allege that Morgan Stanley, the Rating Agencies, and IKB "knowingly designed models to yield the false and misleading Top Ratings necessary to launch Rhinebridge."19 They used outdated and incorrect models based on "irrelevant historical information preceding 2000"20 that produced inflated ratings, a process known as "grandfathering."21 Knowing that the Senior Notes were unsaleable without Top Ratings, Morgan Stanley stood to earn fifteen million dollars for Rhinebridge's successful launch (its "Base Fee") and a portion of Rhinebridge's net distributable profits (its "Performance Fee").22

On the basis of these allegations, plaintiffs claim that Morgan Stanley (1) committed common law fraud and (2) aided and abetted the Rating Agencies' and IKB's underlying fraud. Morgan Stanley moves to dismiss both claims, arguing plaintiffs have failed to adequately plead (1) a misstatement by Morgan Stanley, (2) reasonable reliance, or (3) scienter, and have failed to state a claim for aiding and abetting. For the reasons stated below, Morgan Stanley's motion is denied in its entirety.

III. DISCUSSION

A. Actionable Misrepresentation

Plaintiffs allege that (1) false and misleading ratings were communicated to investors; (2) by Morgan Stanley; (3) through Bloomberg, "Private Placement Memoranda," "Information Memoranda," and "Selling Documents" on each day throughout the class period23 and (4) that such ratings conveyed false information about Rhinebridge and the Senior Notes. Moreover, plaintiffs allege that Morgan Stanley was intimately involved in creating both (1) the false and misleading ratings and (2) the core deal documents disseminated to private investors. These allegations are sufficient to allege a material misrepresentation24 under the group pleading doctrine25 in compliance with Rule 9(b) of the Federal Rules of Civil Procedure.26

Morgan Stanley argues that because (1) the credit ratings are the only alleged misstatements in this case, (2) the ratings were statements of the Rating Agencies and not of Morgan Stanley, (3) Morgan Stanley neither issued the ratings nor rated the SIV and (4) the FAC pleads no direct communication between Morgan Stanley and plaintiffs,27 plaintiffs have not pled a misstatement on the part of Morgan Stanley.28 Relying on a recent Second Circuit case, Pacific Investment Management Co. LLC v. Mayer Brown LLP ("PIMCO"),29 as applied by this Court in In re Tronox, Inc. Securities Litigation,30 Morgan Stanley argues that plaintiffs have pled, at most, that it was a secondary actor in the perpetuation of the Rating Agencies' and/or IKB's primary fraud.31 Defendant essentially argues that because secondary actors can be held liable for fraud "only for false statements attributed to the secondary actor defendant at the time of dissemination,"32 and because plaintiffs have failed to plead that they attributed the false and misleading Top Ratings to Morgan Stanley, they have failed to state a claim for primary fraud against Morgan Stanley.33

Defendant's argument fails.34 The FAC's allegations as to Morgan Stanley's involvement in the fraud are sufficient to render it an "insider"35 for the purposes of the group pleading doctrine. Plaintiffs allege that Morgan Stanley worked directly with IKB and the Rating Agencies to design, structure, market and maintain the SIV;36 caused the Rating Agencies to issue false and misleading ratings;37 was "the point-of-contact for the Rating Agencies and IKB in ... drafting and circulating documents required to launch and maintain Rhinebridge;"38 and "distributed [integral deal documents] to investors"39 through "private information services, Information Memoranda, and the Selling Documents."40 Through these allegations, plaintiffs have sufficiently pled that both (1) the ratings and (2) the core deal documents containing the ratings were "the collective work of those individuals with direct involvement in the everyday business of the [SIV]"41—namely, IKB, the Rating Agencies, and Morgan Stanley.42 Morgan Stanley's alleged role far exceeded merely "providing or distributing the ratings" as defendant suggests.43 As in In re Health Management, Inc. Securities Litigation,

Having sufficiently alleged that Morgan Stanley was an "insider[] or affiliate[ ] participating in the offer of [the SIV]," plaintiffs' reference to (1) the ratings and (2) the core deal documents "satisfies [Rule] 9(b)'s requirement of identifying time, place, speaker, and content of representation."45 In such instances, "no specific connection between fraudulent representations in [an] Offering Memorandum and particular defendants is necessary...."46 Therefore, plaintiffs' failure to allege "that [they] had any oral or written communications of any kind with Morgan Stanley concerning the [Private Placement Memorandum], or that [they] received the allegedly false credit ratings from Morgan Stanley"47 is not fatal to their claim.

To the extent Morgan Stanley suggests that Central Bank's rule precluding secondary liability for aiding and abetting federal securities fraud somehow undermines the group pleading doctrine, it is mistaken. While I acknowledge that there is some tension between the group pleading doctrine and the "attribution requirement" of Central Bank and PIMCO, courts have consistently held, in the federal securities litigation context, that "neither the [Private Securities Litigation Reform Act] nor Central Bank preclude group pleading or require[] that each individual defendant actually make the representation."48 Moreover, courts in this district have continued to apply the group pleading doctrine since PIMCO was decided in April of 2010.49

Finally, for the same reasons I found little support in J & R Marketing, SEP v. General Motors Corp.50 for defendant IKB's motion to dismiss,51 Morgan Stanley's reliance on the same case is misplaced. In J & R Marketing, the Sixth Circuit granted defendant's motion to dismiss a fraud claim alleging that GMAC was liable for its corporate ratings, but noted that the claim may have been sustained if it had been alleged that GMAC deceived the rating agencies to obtain those ratings.52 The fact that the Rating Agencies in this case were allegedly working in conjunction with Morgan Stanley to deceive investors—rather than being duped by them—falls squarely within the bounds of the Sixth Circuit's hypothetical,

B. Reasonable Reliance

Plaintiffs allege (1) that they relied on the Rhinebridge SIV's Top Ratings in purchasing Senior Notes and (2) that Morgan Stanley had access to non-public information showing that the credit ratings were false.53 Accordingly, as in Abu Dhabi, the FAC sufficiently alleges that plaintiffs' reliance on the Top Ratings was neither unreasonable nor foolish,54 and therefore adequately pleads reasonable reliance.55

Morgan Stanley challenges the FAC's reliance allegations on grounds virtually identical to those it asserted—and I rejected—in Abu Dhabi. It argues that plaintiffs acted unreasonably in relying on the allegedly false and misleading ratings because (1) plaintiffs do not allege they understood the ratings to be the statements of Morgan Stanley; (2) any reliance on the ratings was unreasonable in light of express disclaimers of liability contained in the Information Memoranda; and (3) plaintiffs failed to conduct their own due diligence in the face of "red flags" contained in the Information Memoranda.56 In particular, defendant argues that, because plaintiffs could have requested a list of the SIV's constituent assets, and because the Information Memoranda disclosed that the Senior Notes would be backed by some non-prime assets, plaintiffs "are foreclosed from arguing that their failure to possess such information voids the disclaimer."57

The first argument simply repackages Morgan Stanley's argument that it made no material misstatement, an argument I have already rejected.58 The second and third arguments are unavailing for the same reasons I ruled in Abu Dhabi, under analogous circumstances, that plaintiffs' reliance on credit ratings was reasonable despite liability disclaimers and due diligence requirements contained in the Information Memorandum.59 As Morgan Stanley acknowledges, such disclaimers and due diligence "requirements" are invalid if "`the information required to confirm or disprove the validity of the [ratings] was peculiarly within [Morgan Stanley's] knowledge.'"60 Here, plaintiffs have alleged a great deal of such peculiarly-held knowledge on Morgan Stanley's part. The FAC alleges not only that Morgan Stanley knew (1) that the Rated Notes were neither safe nor stable, but also (2) that the ratings process was flawed and (3) that the Rating Agencies could not issue objective ratings—none of which was disclosed to investors or discoverable through reasonable diligence.61

First, plaintiffs allege that Morgan Stanley knew the Senior Notes were not the safe, secure, and reliable investment the Top Ratings conveyed. Like IKB, Morgan Stanley knew that Rhinebridge had violated at least two operating instructions prior to issuing the Senior Notes because it held approximately three times more than its single obligor limit in Countrywide62 and had violated its Capital Test.63 Morgan Stanley also knew that the Rating Agencies had bent to its pressure to accept large concentrations of risky HELs as LEAs as late as August 2007 (when the subprime market was severely depressed and illiquid)64 so that Rhinebridge would pass important liquidity tests.65 In short, "[w]hatever the exact true values of Rhinebridge's constituent assets were on or about June 27, 2007, they were well below the value necessary to generate Top Ratings or satisfy the `Capital Test,'"66 and Morgan Stanley knew it.

Second, plaintiffs allege that Morgan Stanley knew the ratings process was flawed. Morgan Stanley knowingly designed and manipulated ratings models to yield the false and misleading Top Ratings,67 including using old models based on inaccurate and stale data, false assumptions, and irrelevant historical data preceding 2000 ("grandfathering").68 Accessing a list of the SIV's constituent assets and asking a bank to value them would not have revealed to plaintiffs that the Rating Agencies' valuation methodologies were deeply flawed—information peculiarly within Morgan Stanley's knowledge.

Third, plaintiffs have plausibly alleged that Morgan Stanley knew the ratings were issued based on inherent conflicts of interest arising from a situation IKB and Morgan Stanley had created.69 Morgan Stanley was "the point-of-contact for the Rating Agencies and IKB in ... negotiating the parties' fees for their involvement in Rhinebridge"70—fees that amounted to three times the Rating Agencies' compensation for rating traditional municipal or corporate bonds.71 Again, no diligence by investors would have revealed the extent to which these conflicts of interest warped the Rating Agencies' objectivity—objectivity Morgan Stanley knew had been compromised and on which investors relied.

Finally, defendant suggests that this Court's denial of class certification in Abu Dhabi72 somehow undermined its determination that reliance was properly pled in that case.73 Of course, the reliance inquiry at the motion to dismiss stage pursuant to Rule 12(b)(6) is completely different from the reliance inquiry at the class certification stage, when the court must inquire whether individualized issues pertaining to reliance predominate over other issues common to the class. Therefore, this argument also fails.

C. Scienter

The FAC sufficiently pleads both (1) that Morgan Stanley had the motive and opportunity to commit fraud74 and (2) strong circumstantial evidence of Morgan Stanley's conscious misbehavior or recklessness.75 Therefore, plaintiffs have adequately pled scienter.

First, Morgan Stanley had the same alleged motive and opportunity to commit fraud in this case that it had in Abu Dhabi. It received fifteen million dollars for launching Rhinebridge—five million dollars more than it received for its work on the Cheyne SIV at issue in Abu Dhabi—and was entitled to a Performance Fee equal to a portion of Rhinebridge's net distributable profits.76 Moreover, it knew that the Rated Notes would not sell without the Rating Agencies' highest ratings.77 Morgan Stanley also had the opportunity to commit fraud by virtue of its alleged influence over the Rating Agencies and their issuance of the false and misleading ratings, as well as its distribution of the Selling Documents.78

Second, plaintiffs have sufficiently alleged conscious misbehavior or recklessness by Morgan Stanley.79 As I explained above, plaintiffs sufficiently alleged that Morgan Stanley knew (1) the portfolio was not a safe, stable investment; (2) the ratings process was flawed; and (3) the Rating Agencies could not issue an objective rating. Just as those allegations rendered moot the Information Memoranda's disclaimers and diligence requirements, they render plausible plaintiffs' claim that Morgan Stanley engaged in conscious misbehavior or recklessness.80 Accordingly, plaintiffs have alleged an inference of scienter that is "cogent and at least as compelling as any opposing inference of nonfraudulent intent."81

D. Aiding and Abetting Common Law Fraud

Plaintiffs have pled (1) facts showing the existence of fraud on the part of both the Rating Agencies and IKB; (2) Morgan Stanley's knowledge of that underlying fraud; (3) that Morgan Stanley provided substantial assistance to advance the fraud's commission; and (4) damages.82 Accordingly, they have stated a claim for aiding and abetting common law fraud against Morgan Stanley under Rule 9(b).83 Again, the factual allegations supporting plaintiffs' aiding and abetting claim are virtually identical to those pled against Morgan Stanley in Abu Dhabi, where I found plaintiffs had adequately stated such a claim.84

First, as I ruled earlier in this case, plaintiffs have adequately stated primary causes of action for common law fraud against both the Rating Agencies and IKB.85 Second, the FAC sufficiently alleges that Morgan Stanley had actual knowledge of IKB's and the Rating Agencies' underlying fraud.86 In reinstating plaintiffs' aiding and abetting claims in Abu Dhabi, I found sufficient allegations of Morgan Stanley's actual knowledge of the underlying fraud where plaintiffs pled that Morgan Stanley: knew the credit ratings were false; possessed actual information that contradicted the high ratings that the SIV had received; knew the ratings process was flawed; knew the portfolio was not a safe, stable investment; and knew the Rating Agencies could not issue an objective rating because of the effect it would have on their compensation.87

Plaintiffs make the same allegations in this case.88 Their reliance and scienter allegations, discussed above, not only "`constitute strong circumstantial evidence of [Morgan Stanley's] recklessness'" (as required to plead common law fraud); but also create "a reasonable inference of [Morgan Stanley's] actual knowledge"89 of IKB's and the Rating Agencies' underlying fraud—the higher threshold required to state a claim for aiding and abetting.

Defendant argues that plaintiffs must plead that Morgan Stanley had actual knowledge "that the [R]ating [A]gencies did not hold the opinions expressed by the ratings and were issuing those ratings fraudulently."90 I find defendant's semantic argument unpersuasive. I have already ruled that plaintiffs stated a claim for fraud against Fitch,91 which means plaintiffs have adequately pled that (1) Fitch did not "`genuinely and reasonably believe'" the ratings it issued or that (2) those ratings were "`without basis in fact'"92—i.e., that they did not "hold the opinions expressed by the ratings,"93 The FAC also alleges that Morgan Stanley worked in tandem with IKB and the Rating Agencies to construct an investment vehicle whose junk assets (supported by junk equity)94 belied its high ratings— ratings that were achieved in part by Morgan Stanley's actively assisting the Rating Agencies by (1) manipulating its models and (2) convincing them to "grandfather" the Rhinebridge SIV.95 A defendant's active participation in fraud creates more than a reasonable inference that it had knowledge of it.

Third, plaintiffs have adequately alleged "substantial assistance by [Morgan Stanley] in the achievement of the primary violation."96 "A defendant provides substantial assistance only if it `affirmatively assists, helps conceal, or by virtue of failing to act when required to do so enables the fraud to proceed'"97 and proximately causes the harm on which the primary liability is predicated.98

In reinstating plaintiffs' aiding and abetting claims in Abu Dhabi, I found sufficient allegations of Morgan Stanley's substantial assistance where plaintiffs pled that: Morgan Stanley and the Rating Agencies together designed, structured, marketed and maintained the Cheyne SIV; Morgan Stanley disseminated the false and misleading ratings with the knowledge, participation, and approval of the Rating Agencies; and the Rating Agencies issued the false and misleading ratings with the assistance of Morgan Stanley.99

Again, plaintiffs have made the same allegations in this case, all of which are noted above.100 Thus, their allegations are sufficient to support the claim that Morgan Stanley substantially assisted its co-defendants in defrauding plaintiffs. These allegations also sufficiently plead proximate causation.101

Fourth, plaintiffs adequately allege that, as investors who purchased interests in the Rhinebridge SIV in reliance on the false and misleading ratings, they were harmed by Morgan Stanley's aiding and abetting of the primary fraud.102

Accordingly, plaintiffs state a claim for aiding and abetting common law fraud against Morgan Stanley. Moreover, plaintiffs may plead both primary fraud and aiding and abetting; such a pleading strategy is legally permissible, as plaintiffs need not, at the motion to dismiss stage, choose amongst alternative theories of relief.103

IV. CONCLUSION

For the reasons discussed above, defendant's motion to dismiss plaintiffs' claims for common law fraud and for aiding and abetting common law fraud is denied. The Clerk of the Court is directed to close this motion (Docket no. 132).

SO ORDERED.