Attorneys for Defendant Mark A. Pulido UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA SAN JOSE DIVISION

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1 0 0 New York, NY 000 ( -000 MARK J. STEIN DAVID B. HENNES ERIC A. HIRSCH FRIED, FRANK, HARRIS, SHRIVER & JACOBSON (A Partnership Including Professional Corporations New York, New York 000 Telephone: ( -000 Facsimile: ( -000 JAMES T. FOUSEKIS (Bar No. 00 DAVID J. ROMANSKI (Bar No. 0 RACHEL E. BOEHM (Bar No. STEINHART & FALCONER, LLP Market Street, nd Floor San Francisco, California 0-0 Telephone: ( - Facsimile: ( -0 Attorneys for Defendant Mark A. Pulido IN RE McKESSON HBOC, INC. SECURITIES LITIGATION This Document Relates To: All Actions UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA SAN JOSE DIVISION Master File No.: CV--0 RMW Class Action DEFENDANT MARK A. PULIDO S REPLY MEMORANDUM OF POINTS AND AUTHORITIES IN SUPPORT OF HIS MOTION TO DISMISS THE SECOND AMENDED AND CONSOLIDATED CLASS ACTION COMPLAINT Date: March, 00 Time: :00 a.m. Ctrm:, th Floor The Honorable Ronald M. Whyte Mark A. Pulido s Reply Memorandum in Support of Motion to Dismiss -CV-0-RMW

2 0 0 New York, NY 000 ( -000 INTRODUCTION Plaintiffs opposition to Mark Pulido s Motion to Dismiss the Second Amended and Consolidated Class Action Complaint ( Pulido Br. concedes that the allegations against Mark Pulido rest entirely on two bases: the Atlanta Journal-Constitution article quoting Charles McCall, and the newly cited Bear Stearns memos. The allegations based on the Atlanta Constitution article, which are simply reprinted word-for-word from the original Complaint, have already been explicitly considered, and rejected, by this Court as insufficient to meet the requirements of the Private Securities Litigation Reform Act (the Reform Act. Compare Sept. Order at with Compl.. Plaintiffs now seek to contort the words contained in the Bear Stearns memos in an attempt to convince this Court that they raise a strong inference of scienter against Mr. Pulido. First, they lump Mr. Pulido in with the other McKesson Defendants and suggest that every allegation about accounting at HBOC derived from the Bear Stearns memos was known to Mr. Pulido prior to the merger. Pl. Br. I at -; Compl.,, (d. To the contrary, the memos can only be read to arguably suggest that Mr. Pulido was present on one occasion when the alleged accounting issues were discussed -- at an unspecified McKesson Board meeting. See January, Bear Stearns memo ( January Memo (Stabinsky Decl. Exh. E. The memos make clear that Mr. Pulido was not present for any other conversations that allegedly took place between representatives of Bear Stearns, Deloitte & Touche and McKesson when the details of the Deloitte findings were allegedly discussed. Thus, according to the Bear Stearns memos themselves, with respect to the alleged Deloitte due diligence findings, Mr. Pulido stood in the exact same position as the remaining members of the McKesson Board of Directors -- none of whom are charged with fraud. Plaintiffs brief addressing Mr. Pulido s motion to dismiss their 0(b and (a claims is referred to herein as Pl. Br. I. Plaintiffs brief addressing Mr. Pulido s motion to dismiss their 0(a claim is referred to herein as Pl. Br. II. Unless otherwise noted, emphasis is added and citations and quotations are omitted throughout. - - Mark A. Pulido s Reply Memorandum in Support of Motion to Dismiss -CV-0-RMW

3 0 0 New York, NY 000 ( -000 Second, plaintiffs exaggerate the import of the only document that even suggests that the alleged accounting issues were discussed with the McKesson Board. The only memo that references the McKesson Board is dated January, -- over two months after the Joint Proxy Statement was issued. Nothing in this memo suggests that the McKesson Board was informed of material misrepresentations in HBOC s financial statements or of outright fraud at HBOC. The memo provides no specific information about what was told to the McKesson Board, and no basis to conclude that the information that was presented would have provided a reason for concern that there was fraud at HBOC. The memo does not even suggest when the McKesson Board was allegedly presented with this information, or whether Mr. Pulido was even present. Finally, plaintiffs ask this Court to ignore the context in which the McKesson Board was allegedly presented with this information about HBOC accounting issues. Specifically, plaintiffs allege that the McKesson Board was aware that these issues were known to Deloitte, Bear Stearns and Arthur Andersen, all of whom gave their approval to the transaction. Under these circumstances, and absent specific allegations that Mr. Pulido was presented with facts indicating fraud at HBOC -- and there are none, plaintiffs generalized allegations of knowledge must fail. Because none of plaintiffs three remaining claims against Mr. Pulido have merit, they should be dismissed with prejudice. Mr. Pulido continues to join in its entirety the McKesson Outside Directors Motion to Dismiss plaintiffs (a claim on the grounds that: (i plaintiffs own allegations negate any inference that Mr. Pulido negligently failed to detect the fraud at HBOC; and (ii plaintiffs have failed to plead with particularity facts demonstrating a strong inference of negligence. Likewise, Mr. Pulido continues to join in McKesson HBOC s Motion to Dismiss plaintiffs 0(b & (a claims. - - Mark A. Pulido s Reply Memorandum in Support of Motion to Dismiss -CV-0-RMW

4 0 0 New York, NY 000 ( -000 ARGUMENT A. The Complaint Contains No Particularized Allegation That Mr. Pulido Was Advised Of Accounting Problems At HBOC In his opening memorandum, Mr. Pulido demonstrated that plaintiffs allegations regarding the purported communication of Deloitte s due diligence findings to the McKesson Board contain none of the specificity mandated by the Reform Act. See Pulido Br. at 0-. In their opposition, plaintiffs do not dispute that: (i Mr. Pulido did not participate in the July accounting due diligence conference call (July, Bear Stearns Memo, at ( July Memo (Stabinsky Decl. Exh. B (listing call participants; (ii Mr. Pulido did not participate in the October due diligence calls referenced in the November, Bear Stearns memo ( November Memo (Stabinsky Decl. Exh. D; and (iii Mr. Pulido never received the Bear Stearns memos. Likewise, plaintiffs do not dispute that they have not identified who, if anyone, made a presentation to the McKesson Board or what, if anything, that person said about the HBOC accounting issues. Instead, plaintiffs claim that the January Memo and a letter from a lawyer representing a party litigating against McKesson and HBOC in a separate suit provide the requisite detail. Pl. Br. I at n.0. They do not, and plaintiffs 0(b claim must be dismissed as to Mr. Pulido.. The January, Memo Initially, plaintiffs argue that because the Bear Stearns memos exist, they therefore are not speculative. Pl. Br. I at n., n.0. This entirely misses the point. There is no dispute that the Bear Stearns memos exist. However, it is also true that the Bear Stearns memos are not summaries of a Deloitte presentation to the McKesson Board, nor do they purport to detail what, if anything, the Board was told. Thus, it is the substance of the memos that makes plaintiffs allegations speculative, not the existence of the memos. Only the January Memo -- written two months after the Joint Proxy was issued and weeks after the merger closed -- mentions a discussion of accounting at a McKesson Board meeting. The July and November Memos do not mention any communication - - Mark A. Pulido s Reply Memorandum in Support of Motion to Dismiss -CV-0-RMW

5 0 0 New York, NY 000 ( -000 to the McKesson Board. The January Memo consists of two paragraphs, the second of which states: Deloitte raised questions regarding trends in Apollo s [HBOC s] accounts receivable balances and aging, reserves taken on acquisitions and certain revenue recognition policies. All of these items were presented to McKesson s board of directors during their review of the Transaction. McKesson s board discussed these issues with McKesson s management team and Deloitte and decided to proceed with the transaction. Compl. (d; Pl. Br. I at. This statement says nothing about fraud or accounting machinations. The memo does not state that HBOC s financials were misstated or were otherwise incorrect. To the contrary, it says that Deloitte raised questions regarding trends, but does not state what those trends were. Significantly, the memo does not reveal when this discussion occurred, who at Deloitte spoke, or who attended on behalf of the McKesson Board. There is simply no mention of Mr. Pulido. Therefore, the January Memo cannot serve as a basis to conclude that Mr. Pulido knew anything about problems of any kind at HBOC. See U.S.C. u-(b((b (Reform Act mandates that plaintiffs state with particularity all facts on which their allegations are formed; In re Galileo Corp. Shareholders Litig., 00 WL 0, at * (D. Mass. Jan., 00 (finding scienter allegations based on meeting with government officials vague and conclusory absent... any specific allegation concerning the identity of the government officials with whom [defendant] met, when he met with those officials and what was said during those meetings. The January Memo also asserts that the McKesson Board was aware of an instruction to Bear Stearns to ignore Deloitte s findings in issuing its fairness opinion. There is not a single allegation in the Complaint -- or a single statement in plaintiffs opposition -- which specifically links Mr. Pulido to this alleged instruction. See Compl. ; (d. The Complaint does not allege that Mr. Pulido gave this instruction, ordered this instruction be given, or heard this instruction. The Complaint contains no facts detailing the substance of the alleged communication, the reason for this communication, or when it purportedly occurred. Moreover, the memo provides no information about when the McKesson Board was told of this instruction, - - Mark A. Pulido s Reply Memorandum in Support of Motion to Dismiss -CV-0-RMW

6 0 0 New York, NY 000 ( -000 or what the Board was told about it. There is nothing to even suggest that the McKesson Board was informed that anything about this alleged instruction was improper. Most significantly, there is no basis to assert that this information suggested fraud at HBOC or that the Bear Stearns fairness opinion could not be relied upon. The only allegation that speaks to the McKesson Board s awareness of the instruction -- taken from the January Memo -- makes no specific mention of Mr. Pulido. Thus, this allegation does not meet the standards imposed for pleading fraud under Rule (b -- let alone the heightened standards of the Reform Act -- and cannot serve as the basis for a 0(b claim against Mr. Pulido. See In re Silicon Graphics, F.d 0, (th Cir. ; In re Segue Software, Inc. Secs. Litig., 0 F. Supp. d, (D. Mass. 000 (Rule (b requires that the particular times, dates, places or other details of the alleged fraudulent involvement of the actors be alleged ; In re FVC.com Secs. Litig., 000 WL 00, at * (N.D. Cal. Feb., 000 (rejecting allegation based on an alleged communication between FVC and Nortel, finding [t]he Complaint does not identify who at Nortel communicated the information to FVC, and more importantly, to whom at FVC the information was communicated. Nor does the Complaint identify when during the fourth quarter the information was communicated to FVC, or even how the information was communicated.. The Cravath Letter The only other allegation that purports to describe what transpired at a McKesson Board meeting is based on a portion of a quotation from an August, letter from an attorney at Cravath, Swaine & Moore -- the lawyers for Salomon Smith Barney in a lawsuit brought against McKesson and HBOC -- to Judge Kaplan, which is set forth as follows in the Complaint: Upon information and belief, after Deloitte s presentation, McKesson s directors raised questions about HBOC s ability to support certain of its accounting practices and the likely scenario should those practices result in an SEC review. (This information and belief is based on an August, letter from Cravath, Swaine and Moore to the United States District Court for the Southern District of New York which purports to quote from minutes of a meeting of McKesson s Board. - - Mark A. Pulido s Reply Memorandum in Support of Motion to Dismiss -CV-0-RMW

7 0 0 New York, NY 000 ( -000 Compl. ( August Letter ; Pl. Br. I at n.0. This allegation is even less particular than the allegation based on the January Memo. Again, this allegation says nothing about fraud or accounting manipulations. Merely rais[ing] questions does not support any inference -- let alone a strong inference -- that the McKesson Board knew that HBOC s financials were misstated, or were otherwise incorrect in any fashion. Moreover, the quoted phrase does not reveal: (i at which McKesson Board meeting questions were raised; (ii which McKesson directors attended; (iii any details regarding the substance of Deloitte s purported presentation; (iv which accounting practices were discussed; (v what questions were raised by the McKesson directors; or (vi Deloitte s response to these questions. See In re Allied Products Corp. Inc. Secs. Litig., 000 WL, at * (N.D. Ill. Mar., 000 (finding scienter not pled where [m]eetings were allegedly held and memoranda were allegedly passed around without any indication of the time frame of such communications or their contents. In addition, the source of this allegation -- coupled with the manner in which it is quoted -- make clear that it is wholly speculative. First, the quotation is taken from a letter written by counsel for an entity antagonistic to McKesson and HBOC. Thus, not only does the author lack firsthand knowledge of what occurred at the meeting, but it is an advocacy piece written to persuade Judge Kaplan to take action against McKesson s interest. Second, the purported quotation from the letter, and its purported quotation of McKesson Board minutes, are both clipped entirely out of their contexts. Although plaintiffs represent to this Court that the sources for its allegations are before the Court for its review (Pl. Br. I at n.0, this representation is not accurate. Plaintiffs submitted the only the first page of the August Letter, which does not contain the language purportedly quoted by plaintiffs. See January, 00, Hansen Decl. Exh. B. Moreover, the relevant Board minutes are not attached to the Complaint. - - Mark A. Pulido s Reply Memorandum in Support of Motion to Dismiss -CV-0-RMW

8 0 0 New York, NY 000 ( Plaintiffs Unsupported Mischaracterizations Left with nothing to demonstrate that Mr. Pulido knew anything about problems with HBOC s accounting practices at any point in time, plaintiffs repeatedly, and without support, misrepresent Mr. Pulido s role in the transaction in an attempt to create the illusion that Mr. Pulido was involved in the financial due diligence of HBOC. See, e.g., Pl. Br. I at ( defendants Hawkins, Yodowitz, and Pulido... were the officers of McKesson most heavily involved in the due diligence for the HBOC merger ; id. at (misidentifying Mr. Pulido as one of McKesson s senior financial officers. ; Pl. Br. II at ( Defendants Pulido, Hawkins, and Yodowitz... had key roles in evaluating HBOC from a financial point of view. These statements are simply not true, and there no allegation in the Complaint that Mr. Pulido was a member of McKesson s financial due diligence team or otherwise had anything to do with reviewing HBOC s accounting practices. Plaintiffs attempt to salvage their 0(b claim by mischaracterizing Mr. Pulido s role in the Merger should be rejected. Because plaintiffs have failed to plead particularized facts that demonstrate Mr. Pulido was ever aware of accounting issues at HBOC, their 0(b claim should be dismissed. B. The Accounting Issues Do Not Generate A Strong Inference Of Scienter In response to Mr. Pulido s argument that even had knowledge of the accounting issues been properly pleaded, it would not give rise to a strong inference of scienter (Pulido Br. at - 0, plaintiffs claim that the accounting issues were clearly red flags that HBOC s management were [sic] manipulating numbers. Pl. Br. I at -. However, the contents of the July and November Memos, now before the Court, confirm that the four accounting issues identified in the Complaint could not constitute red flags which, if disregarded, give rise to a strong inference of deliberate recklessness. See Silicon Graphics, F.d at ( recklessness only satisfies scienter under 0(b to the extent that it reflects some degree of intentional or conscious misconduct ; In re Splash Techs. Secs. Litig., 000 WL, at * (N.D. Cal. Sept., 000 ( In this circuit, this heightened scienter pleading standard requires plaintiffs to - - Mark A. Pulido s Reply Memorandum in Support of Motion to Dismiss -CV-0-RMW

9 0 0 New York, NY 000 ( -000 plead, at a minimum, particular facts giving rise to a strong inference of deliberate or conscious recklessness--a degree of recklessness strongly suggesting actual intent. As an initial matter, plaintiffs do not dispute that because they have alleged that Arthur Andersen passed on one of the four issues as immaterial -- recognition of revenue prior to full approval (Compl. (a -- they have negated any inference of scienter that could have been derived from knowledge of that issue. See Pulido Br. at ; Sept. Order, at ( Courts have routinely held that complaints disclosing facts negating an inference of scienter must, at the very least, explain such facts in order to support their claims of fraudulent intent ; Reiger v. Price Waterhouse Coopers LLP, F. Supp. d 00, 0 (S.D. Cal. 000 ( The Reform Act does not permit district courts to speculate as to the existence of unpled and unidentified facts that could raise a strong inference of scienter. This makes perfect sense; if an issue is deemed to be immaterial during due diligence, it cannot provide the basis for further inquiry. Moreover, it is now clear that plaintiffs selective quotations of the Bear Stearns memos in the Complaint omitted critical facts that demonstrate that the remaining three issues likewise could not have triggered a duty on McKesson s part to further investigate HBOC s financials: Recording of Maintenance Contract Revenue: Once again, immateriality was given as Arthur Andersen s reason for not challenging [HBOC] on this practice. July Memo at. Plaintiffs attempt to distinguish Carter-Wallace -- which holds that plaintiffs must plead an awareness of the actual magnitude of the problems giving rise to the fraud claim -- actually proves Mr. Pulido s argument. Plaintiffs argue that Carter Wallace is inapposite because that decision turned on the finding that the reported deaths in Felbatol users was not statistically significant. Pl. Br. I at 0- n.. That is precisely the case here. Taking plaintiffs allegations in the Complaint and the Bear Stearns memos in their entirety, plaintiffs allege the existence of minor accounting issues the awareness of which do not constitute knowledge that HBOC s financials were misstated or that its executives were engaged in fraud. See In re Carter-Wallace Secs. Litig., 0 F.d, (d Cir. 000 ( Carter-Wallace s actual awareness of adverse reports while touting Felbatol s safety does not, on its own, constitute strong circumstantial evidence of conscious misbehavior or recklessness ; Galileo, 00 WL 0, at * ( Recklessness... involves more than a failure to investigate even in the face of warning signs of trouble. - - Mark A. Pulido s Reply Memorandum in Support of Motion to Dismiss -CV-0-RMW

10 0 0 New York, NY 000 ( -000 Aging of Accounts Receivable: Mr. Gilbertson gave Deloitte specific and detailed examples of how HBOC had implemented policy changes since July to address this issue. For example, Mr. Gilbertson informed Deloitte that HBOC had hired 0 additional collections specialists to perform collection activities and were also considering outsourcing the collection effort for small accounts.... the additional people had helped improve the collection of these A/R. [Mr. Gilbertson] also stated that [HBOC] had retained Nationwide Credit, an outside collection agency, and that while Nationwide was just getting started, they were doing a good job with the smaller accounts. November Memo at. Acquisition Reserves: Gilbertson noted that all acquisition-related charges and reserve adjustments were reviewed by Arthur Andersen at the time they were taken and again every quarter going forward. Id. at. Furthermore, Deloitte commented to [Bear Stearns, Mr. Hawkins, and Ms. Yodowitz] that despite the above issues, [HBOC s] financial reporting system is impressive. July Memo at. Thus, the documents incorporated by reference into the Complaint make clear that all of the issues discussed in the Bear Stearns memos had been raised by Deloitte and satisfactorily answered by Arthur Andersen and HBOC. Therefore, they could not have been considered red flags by the McKesson Board. The reply memorandum of McKesson HBOC further explains that, because the Complaint alleges facts which negate the required strong inferences of scienter and negligence, plaintiffs cannot meet the pleading burdens imposed by the Reform Act and their red flag argument must fail. Accordingly, even if the substance of the Bear Stearns memos was reported to the McKesson Board -- and there is no particularized allegation that it was -- these issues cannot form the basis of a 0(b claim against Mr. Pulido. Any intentional deception on the part of HBOC executives related to the issues discovered by Deloitte cannot be considered a red flag overlooked by McKesson executives. The Indictment and SEC Complaint reveal that Mr. Gilbertson consistently and successfully deceived Arthur Andersen, HBOC s outside auditor, for years during full audits of HBOC. See Pulido Br. at Mark A. Pulido s Reply Memorandum in Support of Motion to Dismiss -CV-0-RMW

11 0 0 New York, NY 000 ( -000 C. Mr. Pulido s October, Statement Is Not Actionable Plaintiffs also claim that an opinion offered by Mr. Pulido during an October, conference call was knowingly false. Pl. Br. I at. On that conference call, Mr. Pulido stated that as a result of the due diligence process, McKesson was very comfortable with their [HBOC s] revenue recognition, expense recognition policies, which is, in my opinion, conservative relative to other companies that we ve looked at. Comp. 0. Any claim of fraud based on this allegation fails for two reasons. First, there are no particularized allegations that this statement was actually false when made. In re GlenFed Inc. Secs. Litig., F. d, - (th Cir. ( a plaintiff must set forth, as part of the circumstances constituting fraud, an explanation as to why the disputed statement was untrue or misleading when made (emphasis in original. There are no allegations in the Complaint identifying the other companies that McKesson looked at prior to deciding to acquire HBOC, or what their accounting practices were relative to those of HBOC. Thus, in light of the comparative nature of Mr. Pulido s opinion, plaintiffs have not properly pleaded that it was false. Second, the words in my opinion clearly denote that Mr. Pulido s statement was one of subjective belief, and thus not actionable if: ( the statement is genuinely believed; (... there is a reasonable basis for that belief; and... ( [Mr. Pulido was] not aware of undisclosed facts tending to seriously undermine the accuracy of the statement. In re Apple Computer Secs. Litig., F.d 0, (th Cir. ; In re Sybase, Inc. Secs. Litig., F. Supp. d, 0 (N.D. Cal. (same. Not only are there no allegations that Mr. Pulido did not genuinely believe his statement, but for all the reasons set forth above, plaintiffs have not properly alleged that Mr. Pulido was aware of any undisclosed facts undermining the accuracy of his opinion. In fact, Mr. Pulido s belief was entirely consistent with Deloitte s conclusion that HBOC s financial reporting system was impressive. July Memo at. D. Mr. Pulido s Actions Negate Any Inference Of Scienter In dismissing plaintiffs original complaint, this Court held that plaintiffs [did] not even provide a plausible motive for Pulido s interest in inflating revenue, for instance, insider Mark A. Pulido s Reply Memorandum in Support of Motion to Dismiss -CV-0-RMW

12 0 0 New York, NY 000 ( -000 trading. Sept. Order, at. Plaintiffs are again wholly incapable of explaining why Mr. Pulido would engage in fraud where: (i from the beginning of his tenure as CEO of McKesson until the Merger, McKesson s stock price increased by over 00%; (ii there is no allegation that McKesson was facing an imminent business contraction, or that Mr. Pulido believed that conditions in the future would alter this trend; (iii after the Merger and during the class period, Mr. Pulido purchased an additional 0,000 shares of Company stock, increasing his ownership to over 0,000 shares; and (iv Mr. Pulido did not sell a single share of McKesson or McKesson HBOC stock during the class period. That is because they cannot. These facts destroy any claim that Mr. Pulido associated himself with a fraud. See Pulido Br. at -; In re Dura Pharmaceuticals Inc. Secs. Litig., 000 WL 0, at *-0 (S.D. Cal. Jul., 000 (finding scienter is negated because [defendants] failed to exercise significant numbers of vested options before [the company s] stock price dropped, causing them to lose millions of dollars ; Schuster v. Symmetricon, 000 WL 0 (N.D. Cal. Aug., 000 ( undisputed evidence that defendants were actually harmed by their alleged fraud often negates an inference of scienter and supports entry of summary judgment for defendants (emphasis in original (Whyte, J.. Instead, plaintiffs argue that facts negating motive are irrelevant, as they claim to have alleged scienter through evidence of conscious misbehavior and recklessness. Pl. Br. I at. This is not the law. As this Court has already recognized, judicially noticeable facts which demonstrate that an individual defendant had no motive to defraud operate to negate an inference of scienter. See Sept. Order at ( courts do not presume that corporate officers make false statements simply out of spite or to impress others. Whether a plaintiff is permitted to plead scienter based on allegations of motive and opportunity alone -- which the Ninth Circuit prohibits -- is an entirely different legal doctrine. The question plaintiffs have Thus, Ganino v. Citizens Utilities Co., F.d, 0 (d Cir. 000, is of no help, as in that case the Second Circuit merely stated that scienter can be pleaded through either - - Footnote continued Mark A. Pulido s Reply Memorandum in Support of Motion to Dismiss -CV-0-RMW

13 0 0 New York, NY 000 ( -000 failed to answer is: whether, in the vast majority of circumstances, a complaint can satisfy the PSLRA s strong inference of scienter requirement without containing allegations that support a plausible motive. In re Green Tree Fin. Corp. Stock Litig., F. Supp. d 0, (D. Minn.. They cannot. See In re First Union Secs. Litig., 00 WL, at * (W.D.N.C. Jan. 0, 00 (rejecting counterintuitive scienter allegations. The only explanation plaintiffs offer for Mr. Pulido s massive stock purchase is the gross speculation that Mr. Pulido s actions are consistent with a belief that his alleged wrongdoing would not be discovered as a result of the plan to sweep HBOC s improper accounting under the rug. Pl. Br. I at. This is ludicrous, and the boilerplate allegation that defendants were motivated by the belief that they could perpetually conceal an ongoing fraud has been repeatedly rejected. See Segue, 0 F. Supp.d at 0 n. ( Plaintiffs suggestion that the defendants may have chosen to postpone the day of reckoning in the hopes that fortune might smile in the interval is unsubstantiated speculation ; Green Tree, F. Supp. d at - (rejecting allegations that defendants would undertake a scheme to defraud premised on [the] mere hope... that a later turnaround could have been used to conceal past poor performance. Furthermore, even if this absurd theory was alleged in the Complaint -- it is not -- it does not explain Mr. Pulido s motivation for engaging in fraud in the first place, thereby risking his job, personal wealth, and McKesson s well-being. See Securities & Exch. Comm n v. Steadman, F.d, (D.C. Cir. ( If we were to conclude that the [defendant] Footnote continued from previous page circumstantial evidence of conscious misbehavior or evidence of motive and opportunity. That decision did not discuss the impact of objective facts which operate to negate an inference of scienter. Plaintiffs citation to AUSA Life Ins. Co. v. Ernst & Young, 0 F.d 0, (d Cir. 000, which held that a presumption of scienter is appropriate where a large entity, firm, institution, or corporation is acting in a manner that easily can be foreseen to result in harm, is unavailing. There is no basis for applying this presumption to an individual defendant such as Mr. Pulido. - - Mark A. Pulido s Reply Memorandum in Support of Motion to Dismiss -CV-0-RMW

14 0 0 New York, NY 000 ( -000 meant to defraud investors, we would have to believe that they did so for the sheer joy of it rather than for profit. Mr. Pulido s actions destroy any claim that he knew of any problems at HBOC prior to April. E. Plaintiffs Control Person Claim Must Fail Because plaintiffs 0(a claim sounds in fraud, the mere statement that Mr. Pulido was a control person by virtue of his position as former CEO of McKesson must be rejected. Moreover, it is clear that plaintiffs have failed to plead and prove[] that [Mr. Pulido] exercised a significant degree of day-to-day operational control, amounting to the power to dictate another party s conduct or operations. Sept. Order at. See also Arthur Children s Trust v. Keim, F.d 0, (th Cir. ( a person s being an officer or director does not create any presumption of control. Plaintiffs do not allege that Mr. Pulido had any day-to-day operational control over any individuals, let alone the HBOC individual defendants alleged to be responsible for the fraud. Rather, plaintiffs argument that Mr. Pulido was a control person is parroted from their allegations that he: (i signed the Registration Statement; (ii participated in the decision to merge McKesson and HBOC; and (iii spoke for the Company in press releases (Compl. ; Pl. Br. II at -. However, these allegations simply evidence participation in discrete corporate events, and in no way satisfy this Court s requirement for pleading day-to-day operational control. Plaintiffs 0(a claim should be dismissed. Plaintiffs do not dispute that, for the reasons set forth above and in Mr. Pulido s moving brief (Pulido Br. at, their 0(a claim sounds in fraud. - - Mark A. Pulido s Reply Memorandum in Support of Motion to Dismiss -CV-0-RMW

15 0 0 New York, NY 000 ( -000 CONCLUSION For the reasons set forth above, in his moving memorandum, and in the moving and reply memoranda of the McKesson Outside Directors and McKesson HBOC, Mr. Pulido respectfully requests that this Court dismiss counts two, five, and ten of the Complaint as to him with prejudice. Dated: March, 00 FRIED, FRANK, HARRIS, SHRIVER, & JACOBSON (A Partnership Including Professional Corporations By: Mark J. Stein Attorneys for Defendant Mark A. Pulido - - Mark A. Pulido s Reply Memorandum in Support of Motion to Dismiss -CV-0-RMW