FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT


IN RE BOFI HOLDING, INC.                 No. 18-55415
SECURITIES LITIGATION,
                                            D.C. Nos.
                                         3:15-cv-02324-
HOUSTON MUNICIPAL EMPLOYEES                GPC-KSC
PENSION SYSTEM,                          3:15-cv-02486-
                Plaintiff-Appellant,       GPC-KSC

                 v.
                                           OPINION
BOFI HOLDING, INC.; GREGORY
GARRABRANTS; ANDREW J.
MICHELETTI; PAUL J. GRINBERG;
NICHOLAS A. MOSICH; JAMES S.
ARGALAS,
             Defendants-Appellees.

      Appeal from the United States District Court
        for the Southern District of California
      Gonzalo P. Curiel, District Judge, Presiding

        Argued and Submitted January 7, 2020
                Pasadena, California

                 Filed October 8, 2020
2        IN RE BOFI HOLDING, INC. SECURITIES LITIG.

       Before: Paul J. Watford, Mark J. Bennett, and
              Kenneth K. Lee, Circuit Judges.

                Opinion by Judge Watford;
    Partial Concurrence and Partial Dissent by Judge Lee


                          SUMMARY *


                        Securities Fraud

    The panel reversed the district court’s judgment
dismissing a securities fraud class action brought under
§ 10(b) of the Securities Exchange Act and Rule 10b-5 and
remanded for further proceedings.

    Shareholders alleged that executives of BofI Holding,
Inc., committed securities fraud by falsely portraying the
banking company as a safer investment than it actually was.
In particular, the shareholders alleged that defendants made
false or misleading statements touting the bank’s
conservative loan underwriting standards, its effective
system of internal controls, and its robust compliance
structure. The district court concluded that the shareholders
adequately pleaded the first five elements of their claim, at
least as to some of the challenged misstatements, but failed
to adequately plead loss causation, meaning a causal
connection between defendants’ fraudulent conduct and the
shareholders’ economic loss.



    *
      This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
        IN RE BOFI HOLDING, INC. SECURITIES LITIG.           3

    The panel held that one way to prove loss causation in a
fraud-on-the-market case is to show that the defendant’s
fraud was revealed to the market through one or more
“corrective disclosures” and that the company’s stock price
declined as a result. In Part III.B., the panel agreed with the
district court that a series of blog posts offering negative
reports about the company’s operations did not qualify as a
corrective disclosure. The panel concluded that even if the
posts disclosed information that the market was not
previously aware of, it was not plausible that the market
reasonably perceived the posts as revealing the falsity of
BofI’s prior misstatements, thereby causing the drops in
BofI’s stock price on the days the posts appeared. In Part
III.A., however, the panel held that a whistleblower lawsuit
filed by a former company insider was a potential corrective
disclosure. The panel joined the Sixth Circuit in rejecting a
categorical rule that allegations in a lawsuit, standing alone,
can never qualify as a corrective disclosure.

    Finally, the panel agreed with the district court that the
shareholders failed to plausibly allege the falsity of
statements concerning government and regulatory
investigations.

    Judge Lee concurred in judgment in Part III.B. and
dissented as to Part III.A. Judge Lee wrote that he agreed
with much of the analysis in the majority’s opinion but
would require additional external confirmation of fraud
allegations in a whistleblower lawsuit for them to count as a
corrective disclosure. Accordingly, he dissented from the
majority’s holding that plausible insider allegations,
standing alone, can qualify as a corrective disclosure.
4       IN RE BOFI HOLDING, INC. SECURITIES LITIG.

                         COUNSEL

Michael J. Miarmi (argued) and Daniel P. Chiplock, Lieff
Cabraser Heimann & Bernstein LLP, New York, New York;
Richard M. Heimann, Katherine C. Lubin, and Michael K.
Sheen, Lieff Cabraser Heimann & Bernstein LLP, San
Francisco, California; for Plaintiff-Appellant.

John P. Stigi III (argued), Sheppard Mullin Richter &
Hampton LLP, Los Angeles, California; Polly Towill,
Sheppard Mullin Richter & Hampton LLP, Los Angeles,
California; for Defendants-Appellees.


                         OPINION

WATFORD, Circuit Judge:

    To recover damages in a private securities fraud action,
the plaintiff must establish a causal connection between the
defendant’s fraudulent conduct and the plaintiff’s economic
loss—an element known as loss causation. One way to
prove loss causation is to show that the defendant’s fraud
was revealed to the market through one or more “corrective
disclosures” and that the company’s stock price declined as
a result. In this case, the plaintiff alleged loss causation by
relying on two corrective disclosures: a whistleblower
lawsuit filed by a former company insider and a series of
blog posts offering negative reports about the company’s
operations. The district court dismissed the case after
concluding that neither the whistleblower lawsuit nor the
blog posts could qualify as corrective disclosures. We agree
as to the blog posts but reach a different conclusion with
respect to the whistleblower lawsuit.
        IN RE BOFI HOLDING, INC. SECURITIES LITIG.           5

                               I

    The company sued in this case, BofI Holding, Inc., is the
holding company for BofI Federal Bank, a federally
chartered savings association. (We refer to both entities
collectively as BofI, although they now operate under a
different corporate name.) In the years before this lawsuit
was filed, BofI reported strong earnings growth and its stock
price rose handsomely. Between August 2015 and February
2016, however, the price of the stock dropped by more than
47%. BofI shareholders filed multiple securities fraud suits
against the company and several of its officers and directors.
The suits were consolidated into this class action, brought on
behalf of all BofI shareholders who purchased publicly
traded shares between September 4, 2013, and February 3,
2016. The district court appointed the Houston Municipal
Employees Pension System as lead plaintiff to represent the
class.

    The shareholders allege that BofI executives committed
securities fraud by falsely portraying the company as a safer
investment than it actually was. In particular, as relevant for
this appeal, the shareholders allege that defendants made
false or misleading statements touting the bank’s
conservative loan underwriting standards, its effective
system of internal controls, and its robust compliance
infrastructure.

    The shareholders bring this action under § 10(b) of the
Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and
Rule 10b-5, 17 C.F.R. § 240.10b-5. To state a claim, they
must adequately plead six elements: (1) a material
misrepresentation or omission; (2) made with scienter; (3) in
connection with the purchase or sale of a security;
(4) reliance on the misrepresentation or omission;
(5) economic loss; and (6) loss causation. Halliburton Co.
6       IN RE BOFI HOLDING, INC. SECURITIES LITIG.

v. Erica P. John Fund, Inc., 

, 267 (2014). In a
series of rulings preceding the order on appeal, the district
court held that the shareholders have adequately alleged the
first five elements of their claim, at least as to some of the
challenged misstatements. In the order challenged on
appeal, however, the court ultimately dismissed the
operative Third Amended Complaint on the basis that the
shareholders failed to adequately plead the last element, loss
causation. We summarize the court’s rulings below.

    As to the first element, falsity, the district court
dismissed many of the alleged misstatements as non-
actionable. But the court ruled that the shareholders have
adequately pleaded falsity with respect to two categories of
misstatements, concerning (1) the bank’s underwriting
standards and (2) its system of internal controls and
compliance infrastructure.        Representative of the
misstatements regarding underwriting standards are the
following:

    •   “We continue to maintain our conservative
        underwriting criteria and have not loosened credit
        quality to enhance yields or increase loan volumes.”

    •   “We continue to have an unwavering focus on credit
        quality of the bank and have not sacrificed credit
        quality to increase origination.”

    •   “[W]e continue to originate only full documentation,
        high credit quality, low loan-to-value, jumbo single-
        family mortgages and have not reduced our loan rates
        for these products.”

The court also found actionable two misstatements regarding
internal controls and compliance infrastructure:
          IN RE BOFI HOLDING, INC. SECURITIES LITIG.                         7

    •    “We have made significant investments in our
         overall compliance infrastructure over the past
         several quarters, including BSA [Bank Secrecy Act]
         and AML [anti-money laundering] compliance.”

    •    “We have spent a significant amount of money on
         BSA/AML compliance upgrades and new systems
         and new personnel. We have also been beefing up
         our compliance teams.” 1

    The shareholders predicated their showing of falsity on
allegations attributed to confidential witnesses who used to
work at BofI. The district court concluded that the
witnesses’ allegations were reliable and based on personal
knowledge, as our circuit’s case law requires. See Zucco
Partners, LLC v. Digimarc Corp., 

, 995 (9th
Cir. 2009). Assuming the witnesses’ allegations were true,
the court found “ample evidence,” with respect to
underwriting standards, to suggest that “BofI was not
adhering to high credit quality standards and that it had, in
fact, begun to ‘sacrifice credit quality to increase
origination.’” Likewise, with respect to internal controls and
compliance infrastructure, the witnesses’ allegations
plausibly suggested that “BofI had not adequately staffed its
BSA and AML compliance along with other internal control
departments.”


    1
       In light of its ruling on loss causation, the district court declined to
address whether certain alleged misstatements are actionable. On
remand, the district court will need to determine which of the remaining
misstatements are actionable, but it appears that at least some of them
are, such as BofI’s assertions that its “disclosure controls and procedures
were effective,” and that “[a]ll significant deficiencies and material
weaknesses in the design or operation of internal control over financial
reporting” had been disclosed.
8       IN RE BOFI HOLDING, INC. SECURITIES LITIG.

    As to the second element, scienter, the district court
again ruled partially in the shareholders’ favor. The
shareholders were required to allege facts giving rise to a
strong inference that the defendants acted “either
intentionally or with deliberate recklessness.” In re Verifone
Holdings, Inc. Securities Litigation, 

, 698, 701
(9th Cir. 2012); see also 15 U.S.C. § 78u-4(b)(2). The court
held that the shareholders failed to satisfy this standard for
four of the five individual defendants, but concluded that the
allegations of scienter were adequate as to BofI’s Chief
Executive Officer, Gregory Garrabrants, and thus as to the
company as well. The court based this conclusion on the
confidential witness allegations mentioned above.

    BofI did not contest that the shareholders satisfied the
third, fourth, and fifth elements of their Rule 10b-5 claim.
The alleged misstatements were plainly made in connection
with the purchase or sale of a security, as they were made in
BofI’s public filings and on earnings calls with investors. To
establish reliance, the shareholders invoked the “fraud-on-
the-market” presumption, which is premised on the theory
that “the price of a security traded in an efficient market will
reflect all publicly available information about a company,”
including materially false or misleading statements. Amgen
Inc. v. Connecticut Retirement Plans and Trust Funds,

, 458, 461–62 (2013). As a result, a plaintiff
who purchases shares at an inflated price is presumed to have
done so in reliance on any material misstatements reflected
in the stock’s price.

And with respect to
economic loss, the shareholders indisputably lost money on
their investment when BofI’s stock lost nearly half its value
by the end of the class period.

   That leaves the sixth and final element, loss causation.
After the district court issued the rulings described above,
        IN RE BOFI HOLDING, INC. SECURITIES LITIG.            9

BofI filed a motion for judgment on the pleadings, in which
it argued for the first time that the shareholders had not
adequately alleged loss causation. The district court agreed
and dismissed the shareholders’ Second Amended
Complaint with leave to amend.

    The shareholders filed the operative Third Amended
Complaint in response to the district court’s ruling. To
establish loss causation, the complaint relies on two
corrective disclosures. The shareholders allege that these
disclosures revealed the falsity of the company’s statements
regarding underwriting standards, internal controls, and
compliance infrastructure and that the market reacted by
driving down the price of BofI’s stock.

    The first corrective disclosure is a whistleblower lawsuit
filed against BofI by Charles Erhart, a former mid-level
auditor at the company, on October 13, 2015. See Erhart v.
BofI Holding Inc., No. 15-cv-2287 (S.D. Cal. Oct. 13, 2015).
Erhart’s suit—the details of which were disclosed in a New
York Times article published that same day—alleged
rampant and egregious wrongdoing at the company,
including that BofI had doctored reports submitted to the
bank’s primary regulator, the Office of the Comptroller of
the Currency (OCC), and that BofI had made high-risk and
illegal loans to foreign nationals. Erhart also alleged that his
attempts to raise these compliance issues within the
company led to retaliation and eventually to his termination.
By the close of trading the next day, the price of BofI’s
shares had fallen by 30.2% on extremely high trading
volume.

    The second corrective disclosure consists of a group of
eight blog posts published by anonymous authors on Seeking
Alpha, a crowd-sourced online resource for investors,
between August 2015 and February 2016. The blog posts
10      IN RE BOFI HOLDING, INC. SECURITIES LITIG.

argued that things at BofI were not as rosy as they seemed.
The posts’ specific charges varied, ranging from allegations
of potential regulatory violations to evidence of risky loan
origination partnerships. Each post stated that it was based
on information derived from publicly available sources and
that the author was “short” BofI. According to the
complaint, BofI’s stock price fell on each day that one of the
blog posts appeared.

    BofI filed a motion to dismiss the Third Amended
Complaint, and in the ruling now on appeal, the district court
held that the shareholders failed to plausibly allege loss
causation. The court reasoned that, because the Erhart
lawsuit contained only “unconfirmed accusations of fraud,”
it could not have disclosed to the market that BofI’s alleged
misstatements were actually false. To qualify as a corrective
disclosure, the court held, the Erhart lawsuit had to be
followed by “a subsequent confirmation” of the fraud, which
the shareholders have not alleged.

    As for the Seeking Alpha blog posts, the district court
concluded that they cannot serve as corrective disclosures
because each of them relies entirely on publicly available
information. In the court’s view, the blog posts could not
have “revealed” anything to the market because the
information they disclosed was presumably already known
to market participants and thus reflected in BofI’s stock
price.

    Having identified fatal deficiencies in the shareholders’
loss causation allegations, the district court dismissed the
action with prejudice after concluding that yet another
opportunity to amend the complaint was unwarranted.
        IN RE BOFI HOLDING, INC. SECURITIES LITIG.           11

                               II

    We agree with the district court that the shareholders
have adequately alleged falsity and scienter with respect to
misstatements concerning BofI’s underwriting standards,
internal controls, and compliance infrastructure. The
dispositive issue on appeal is whether the shareholders have
also adequately alleged loss causation. Before tackling that
question, we begin with a brief overview of the loss
causation requirement, with the aim of illuminating the
function this element serves in a private securities fraud
action.

    Like any other tort plaintiff who seeks to recover
damages, a plaintiff in a securities fraud suit must plead and
ultimately prove that the defendant’s wrongful conduct
caused the plaintiff’s injury. Congress codified that
requirement in the Private Securities Litigation Reform Act.
Under the heading “Loss causation,” the Act provides: “In
any private action arising under this chapter, the plaintiff
shall have the burden of proving that the act or omission of
the defendant alleged to violate this chapter caused the loss
for which the plaintiff seeks to recover damages.” 15 U.S.C.
§ 78u-4(b)(4). Courts have likened this requirement to the
showing of proximate causation required in ordinary tort
actions. See, e.g., Dura Pharmaceuticals, Inc. v. Broudo,

, 343–46 (2005); Lloyd v. CVB Financial Corp.,

, 1210 (9th Cir. 2016).

     In fraud-on-the-market cases like this one, the plaintiff’s
theory of loss causation begins with the allegation that the
defendant’s misstatements (or other fraudulent conduct)
artificially inflated the price at which the plaintiff purchased
her shares—meaning the price was higher than it would have
been had the false statements not been made. Merely
purchasing shares at an inflated price, however, does not
12      IN RE BOFI HOLDING, INC. SECURITIES LITIG.

cause an investor to suffer economic loss as a result of the
fraud. Dura 

. If the
defendant’s fraud remains concealed, the price will usually
remain inflated, allowing the plaintiff to sell her shares and
recoup the inflationary component she paid. See id.;
FindWhat Investor Group v. FindWhat.com, 

,
1315 (11th Cir. 2011).

    To establish loss causation in a fraud-on-the-market
case, the plaintiff must show that after purchasing her shares
and before selling, the following occurred: (1) “the truth
became known,” and (2) the revelation caused the fraud-
induced inflation in the stock’s price to be reduced or
eliminated. Dura 

; see

. At that point, the plaintiff has
suffered an economic loss caused by the misstatements
because she is no longer able to recoup in the marketplace
the inflationary component of the price she originally paid.

; Madge S. Thorsen et al.,
Rediscovering the Economics of Loss Causation, 6 J. Bus. &
Sec. L. 93, 98 (2006).

    The most common way for plaintiffs to prove that “the
truth became known” is to identify one or more corrective
disclosures. See Mineworkers’ Pension Scheme v. First
Solar Inc., 

, 753–54 (9th Cir. 2018) (per
curiam); 

. A corrective disclosure
occurs when “information correcting the misstatement or
omission that is the basis for the action is disseminated to the
market.” 15 U.S.C. § 78u-4(e)(1) (using that event to
establish a statutory cap on damages).

    Although deciding what qualifies as a corrective
disclosure has proved more challenging than might have
been expected, a few basic ground rules can be sketched out.
First, a corrective disclosure need not consist of an
        IN RE BOFI HOLDING, INC. SECURITIES LITIG.           13

admission of fraud by the defendant or a formal finding of
fraud by a government agency. See Metzler Investment
GMBH v. Corinthian Colleges, Inc., 

, 1064
(9th Cir. 2008). A corrective disclosure can instead come
from any source, including knowledgeable third parties such
as whistleblowers, analysts, or investigative reporters.
Norfolk County Retirement System v. Community Health
Systems, Inc., 

, 695 (6th Cir. 2017); Public
Employees’ Retirement System of Mississippi v. Amedisys,
Inc., 

, 322 (5th Cir. 2014). Second, a corrective
disclosure need not reveal the full scope of the defendant’s
fraud in one fell swoop; the true facts concealed by the
defendant’s misstatements may be revealed over time
through a series of partial disclosures. 

–24; In re Williams Securities Litigation—WCG
Subclass, 

, 1137–38 (10th Cir. 2009). Third,
to be corrective, a disclosure “need not precisely mirror the
earlier misrepresentation.” 

. It is
enough if the disclosure reveals new facts that, taken as true,
render some aspect of the defendant’s prior statements false
or misleading. 

–22.

    Even if the true facts concealed by the fraud are revealed
to the market, the plaintiff must still show that the disclosure
of the truth caused the company’s stock price to decline. For
a subsequent decline in price could be attributable to factors
unrelated to the fraud, such as a change in economic
circumstances or investor expectations.                    Dura

. The securities laws do
not protect against ordinary investment losses of that sort.
See

We have explained that loss causation does
not require a showing “that a misrepresentation was the sole
reason for the investment’s decline in value.” In re Daou
Systems, Inc., 

, 1025 (9th Cir. 2005). Rather,
“as long as the misrepresentation is one substantial cause of
14      IN RE BOFI HOLDING, INC. SECURITIES LITIG.

the investment’s decline in value, other contributing forces
will not bar recovery under the loss causation requirement.”

whether there is a causal link
includes a temporal component—a disclosure followed by
an immediate drop in stock price is more likely to have
caused the decline—but timing is not dispositive. See In re
Gilead Sciences Securities Litigation, 

, 1058
(9th Cir. 2008) (“A limited temporal gap between the time a
misrepresentation is publicly revealed and the subsequent
decline in stock value does not render a plaintiff’s theory of
loss causation per se implausible.”).

                              III

    With that background in mind, we turn to the specific
corrective disclosures at issue in this case. We address the
Erhart lawsuit first, followed by the Seeking Alpha blog
posts.

                               A

    As discussed above, to prove loss causation by relying
on one or more corrective disclosures, a plaintiff must show
that: (1) a corrective disclosure revealed, in whole or in part,
the truth concealed by the defendant’s misstatements; and
(2) disclosure of the truth caused the company’s stock price
to decline and the inflation attributable to the misstatements
to dissipate. At the pleading stage, the plaintiff’s task is to
allege with particularity facts “plausibly suggesting” that
both showings can be made. Bell Atlantic Corp. v. Twombly,

, 557 (2007); see Oregon Public Employees
Retirement Fund v. Apollo Group, Inc., 

, 605
(9th Cir. 2014) (holding that allegations of loss causation
must satisfy Federal Rule of Civil Procedure 9(b)’s
heightened “particularity” requirement).
         IN RE BOFI HOLDING, INC. SECURITIES LITIG.                  15

    The shareholders pleaded facts with particularity that
plausibly suggest they can make the first showing. The
allegations of egregious wrongdoing in the Erhart lawsuit, if
accepted as true, unquestionably revealed to the market that
at least some of BofI’s alleged misstatements were false. 2
For example, Erhart recounted an instance in which he
relayed to his superiors a third-party vendor’s report on
BofI’s operations. Erhart alleged that he personally prepared
a memorandum summarizing the vendor’s findings, which
identified roughly 30% of BofI’s customers as “bad,”
meaning the customers had red flags such as suspiciously
high cash balances, social security numbers that did not
match any public records, and, in one instance, the social
security number of a dead person. Erhart further alleged that
when he gave the list to his superior, Senior Vice President
John Tolla, Tolla demanded that the audit committee alter
the list and give the altered version to the OCC. Erhart also
claims that his thorough work and his attempts to report
potential compliance violations earned him retaliation rather
than praise. These and other similar allegations, if true,
render BofI’s prior assertions about the strength of its
underwriting standards, internal controls, and compliance
infrastructure false or misleading. 3



    2
      We take judicial notice of the contents of the complaint filed in
Erhart v. BofI Holding Inc., No. 15-cv-2287 (S.D. Cal. Oct. 13, 2015),
but not of the truth of the allegations asserted therein, which BofI
vigorously contests. See Lee v. City of Los Angeles, 

, 689–
90 (9th Cir. 2001).

     3
       The district court held in its order dismissing the Second Amended
Complaint that none of the allegations in the Erhart lawsuit relate back
to the subject matter of the specific misstatements the court had found
actionable. We disagree with that ruling. As noted above, a corrective
16      IN RE BOFI HOLDING, INC. SECURITIES LITIG.

     As to the second showing, the shareholders allege that
BofI’s stock price fell by more than 30% on extremely high
trading volume immediately after the market learned of
Erhart’s allegations. The shareholders have plausibly
alleged that this drop constituted a dissipation of the inflation
attributable to BofI’s misstatements instead of a reaction to
some other negative news unrelated to the alleged fraud.

     To plead loss causation here, the shareholders did not
have to establish that the allegations in Erhart’s lawsuit are
in fact true. Falsity and loss causation are separate elements
of a Rule 10b-5 claim. The shareholders adequately alleged
that BofI’s misstatements were false through the allegations
attributed to confidential witnesses. In analyzing loss
causation, we therefore begin with the premise that BofI’s
misstatements were false and ask whether the market at
some point learned of their falsity—through whatever
means. Viewed through that prism, the relevant question for
loss causation purposes is whether the market reasonably
perceived Erhart’s allegations as true and acted upon them
accordingly. See Norfolk 

(inquiry
when evaluating an alleged corrective disclosure is “whether
the market could have perceived it as true”). If the market
recalibrated BofI’s stock price on the assumption that
Erhart’s allegations are true—and thus that BofI’s prior
misstatements were false—then the drop in BofI’s stock
price represented dissipation of inflation rather than a
reaction to other non-fraud-related news.

    The shareholders alleged facts with particularity that
plausibly suggest the market perceived Erhart’s allegations
as credible and acted upon them on the assumption that they

disclosure need not be a mirror image of the prior misstatement. See

.
        IN RE BOFI HOLDING, INC. SECURITIES LITIG.          17

were true. Erhart’s descriptions of wrongdoing are highly
detailed and specific, and they are based on firsthand
knowledge that he could reasonably be expected to possess
by virtue of his position as a mid-level auditor at the
company. True, Erhart’s motivations for coming forward
may not have been entirely pure, as he lodged his allegations
in a lawsuit seeking money from BofI. But that is just one
factor among many that market participants would have
weighed in deciding how much credence his claims
deserved. The fact that BofI’s stock price plunged by more
than 30% on extremely high trading volume immediately
after the market learned of Erhart’s allegations bolsters the
inference that the market regarded his allegations as
credible. A price drop of that magnitude would not be
expected in response to whistleblower allegations perceived
as unworthy of belief, and the drop is not readily attributable
to non-fraud-related factors that might have moved BofI’s
stock price that day.

    The district court nonetheless held that allegations in a
lawsuit, standing alone, can never qualify as a corrective
disclosure because they are just that—allegations, as
opposed to “truth.” The court concluded that, to adequately
plead loss causation, the shareholders had to identify an
additional disclosure that confirmed the truth of Erhart’s
allegations.

    We join the Sixth Circuit in rejecting any such
categorical rule. Norfolk 

. To be
sure, allegations in a lawsuit do not provide definitive
confirmation that fraud occurred. But short of an admission
by the defendant or a formal finding of fraud—neither of
which is required, see 

–25;

—any corrective disclosure will
necessarily take the form of contestable allegations of
18      IN RE BOFI HOLDING, INC. SECURITIES LITIG.

wrongdoing. As the Sixth Circuit observed, “every
representation of fact is in a sense an allegation, whether
made in a complaint, newspaper report, press release, or
under oath in a courtroom.” Norfolk 

. What matters for loss causation purposes “is that
some [representations] are more credible than others and
thus more likely to be acted upon as truth.”

treats allegations in a lawsuit as sufficiently credible to be
acted upon as truth, and the inflation in the stock price
attributable to the defendant’s misstatements is dissipated as
a result, then the allegations can serve as a corrective
disclosure. The plaintiff must, of course, prove that the
defendant’s misstatements were false, but that can be done
through proof other than the corrective disclosure itself.

    The two cases on which the district court relied most
heavily are not to the contrary. In Loos v. Immersion Corp.,

(9th Cir. 2014), the defendant company
announced that it was conducting “an internal investigation
into certain previous revenue transactions in its Medical line
of business.”

(quoting the company’s press
release). We held that the plaintiff could not rest his theory
of loss causation on the announcement of this investigation
standing alone. Quoting the Eleventh Circuit’s decision in
Meyer v. Greene, 

(11th Cir. 2013), we noted
that “[t]he announcement of an investigation reveals just
that—an investigation—and nothing more.” 

. Such an announcement does not reveal to the market
any facts that could call into question the veracity of the
company’s prior statements; all the market could react to
was “speculation” about “what the investigation will
ultimately reveal.”

a different situation. Erhart’s lawsuit
disclosed facts that, if true, rendered false BofI’s prior
        IN RE BOFI HOLDING, INC. SECURITIES LITIG.         19

statements about its underwriting standards, internal
controls, and compliance infrastructure. No speculation on
that score was required.

    The second case on which the district court relied, Curry
v. Yelp Inc., 

(9th Cir. 2017), is also
distinguishable. There, the plaintiffs accused Yelp of falsely
representing that the reviews it posted were authentic and
independent.

The plaintiffs alleged that the
falsity of this representation was revealed to the market
when the Federal Trade Commission disclosed some 2,000
complaints the agency had received “from businesses
claiming that Yelp had manipulated reviews of their
services” in various ways.

plaintiffs’ loss causation allegations as
inadequate.

. 
Critically for our purposes, the
customers who filed complaints in Curry were outsiders who
lacked any firsthand knowledge of Yelp’s practices. Thus,
they could not attest to whether Yelp was actually engaged
in manipulating reviews, nor to whether the reviews the
company posted were authentic and independent. See
 id. at
1223. 
We refused to allow the plaintiffs to allege loss
causation “merely by resting on a number of customer
complaints and asserting that where there is smoke, there
must be fire.”
 

.
    Here, by contrast, Erhart is a former insider of the
company who had personal knowledge of the facts he
alleged. Those facts revealed that a number of BofI’s
alleged misstatements were false. If the market regarded his
factual allegations as credible and acted upon them on the
assumption that they were true, as the shareholders have
20       IN RE BOFI HOLDING, INC. SECURITIES LITIG.

plausibly alleged here, Erhart’s allegations established fire
and not just smoke. 4

     One final point bears mentioning. In ruling against the
shareholders, the district court emphasized that a plaintiff in
a securities fraud action must plead loss causation “with
particularity” under Rule 9(b). See Apollo 
Group, 774 F.3d
at 605
. When applied to allegations of loss causation,
however, Rule 9(b)’s particularity requirement usually adds
little to the plaintiff’s burden. The plaintiff must plausibly
allege a causal connection between the defendant’s
misstatements and the plaintiff’s economic loss, and to
succeed in doing so the plaintiff will always need to provide
enough factual content to give the defendant “some
indication of the loss and the causal connection that the
plaintiff has in mind.” Dura 
Pharmaceuticals, 544 U.S.
at 347
. That effort “should not prove burdensome,”
 id., for
even under 
Rule 9(b) the plaintiff’s allegations will suffice
so long as they give the defendant “notice of plaintiffs’ loss
causation theory” and provide the court “some assurance that
the theory has a basis in fact.” Berson v. Applied Signal

     4
        BofI contends that the shareholders cannot plead loss causation
because they cannot plausibly allege that the bank ever suffered an
adverse financial event, such as losses from its loan portfolio or a spike
in its reserves. But this misconstrues the significance of BofI’s alleged
misstatements. According to the shareholders, BofI misrepresented
itself as a safe investment when in fact it was far riskier. The
shareholders contend that, before the corrective disclosures, the price of
BofI’s stock was inflated by the market’s belief that the company’s
statements were true, and that the price declined when the market learned
that BofI’s statements were false. On this account, the shareholders
suffered an economic loss caused by the misstatements because they
purchased their shares at an inflated price and are now unable to recoup
the inflationary component in the market. That remains true regardless
of whether the risks concealed by BofI’s misstatements ever materialized
and harmed the bank’s bottom line.
        IN RE BOFI HOLDING, INC. SECURITIES LITIG.         21

Technology, Inc., 
527 F.3d 982
, 989–90 (9th Cir. 2008). The
shareholders pleaded loss causation here with sufficient
particularity to accomplish those twin aims.

                              B

    We turn next to the Seeking Alpha blog posts. We agree
with the district court that the shareholders failed to
plausibly allege that these posts constituted corrective
disclosures, although we disagree somewhat with the district
court’s rationale.

    As noted earlier, each of the blog posts asserts that the
information it discloses was derived from publicly available
sources. Because this is a fraud-on-the-market case, that
assertion makes it more difficult for the shareholders to rely
on the posts as corrective disclosures. BofI’s stock is
deemed to trade in an efficient market in which all publicly
available information about the company, both positive and
negative, is quickly incorporated into the stock price. See
Amgen, 568 U.S. at 461
–62. So its stock price should
already reflect whatever public information a blog post
might be based upon. A corrective disclosure, though, must
by definition reveal new information to the market that has
not yet been incorporated into the price.

    To rely on a corrective disclosure that is based on
publicly available information, a plaintiff must plead with
particularity facts plausibly explaining why the information
was not yet reflected in the company’s stock price. The
district court interpreted this requirement to mean that the
shareholders had to allege facts explaining why “other
market participants could not have done the same analysis
and reached the same conclusion” as the authors of the blog
posts. (Emphasis added.) We think that sets the bar too high.
For pleading purposes, the shareholders needed to allege
22      IN RE BOFI HOLDING, INC. SECURITIES LITIG.

particular facts plausibly suggesting that other market
participants had not done the same analysis, rather than
“could not.” If other market participants had not done the
same analysis, then it is plausible that the blog posts
disclosed new information that the market had not yet
incorporated into BofI’s stock price.

     Prior cases reflect the understanding that some
information, although nominally available to the public, can
still be “new” if the market has not previously understood its
significance. For example, in In re Gilead Sciences
Securities Litigation, 
536 F.3d 1049 
(9th Cir. 2008), a
pharmaceutical company represented that demand for an
HIV drug was strong and that the company complied with
federal and state regulations, despite knowing that unlawful
off-label marketing was the reason for strong demand.
 Id. at
1051. 
The company then received a warning letter from the
Food and Drug Administration (FDA) about its off-label
marketing of the drug.
 Id. at 1052–53. 
The company’s stock
price did not incorporate the information disclosed in the
letter until three months after the letter had been publicly
released, when the company reported a major earnings miss
attributable to decreased demand for the HIV drug.
 Id.
at 1053–54. 
We concluded that the plaintiffs plausibly
alleged the drop in stock price was caused by the FDA
warning letter.
 Id. at 1058. 
Given the letter’s subtle
relationship to the company’s alleged misstatements—“it
did not contain enough information to significantly
undermine [the company’s] pronouncements concerning
demand”—the letter itself “would not necessarily trigger a
market reaction.”
 Id. Thus, it was 
“not unreasonable that
physicians . . . would respond to the Warning Letter” by
issuing fewer prescriptions and lowering demand for the
drug, “while the public failed to appreciate its significance”
until its impact on revenue was made plain from the earnings
        IN RE BOFI HOLDING, INC. SECURITIES LITIG.          23

release.
 Id. Despite the three-month 
gap between the FDA
letter and the drop in stock price, the plaintiffs’ allegations
were enough to plead loss causation.

     Similarly, in Public Employees’ Retirement System v.
Amedisys, Inc., 
769 F.3d 313 
(5th Cir. 2014), a Wall Street
Journal article analyzed publicly available Medicare records
to conclude that Amedisys, a home health services company,
was engaging in Medicare fraud.
 Id. at 318. 
The defendant
unsuccessfully pressed the same argument that BofI
advances here: “[B]ecause the article proclaims on its face
that its analysis was ‘based on publicly available Medicare
records,’ . . . [it] does not reveal any new information to the
marketplace.”
 Id. at 323. 
The Fifth Circuit rejected such a
rule, holding instead that “it is plausible that complex
economic data understandable only through expert analysis
may not be readily digestible by the marketplace.”
 Id. The
underlying information, 
although publicly available, “had
little to no probative value in its native state”; someone
needed to put the pieces together before the market could
appreciate its import.
 Id.

    Contrary to the 
bright-line rule BofI urges us to adopt,
these cases endorse a flexible approach to evaluating
corrective disclosures. A disclosure based on publicly
available information can, in certain circumstances,
constitute a corrective disclosure. The ultimate question is
again one of plausibility: Based on plaintiffs’ particularized
allegations, can we plausibly infer that the alleged corrective
disclosure provided new information to the market that was
not yet reflected in the company’s stock price? The fact that
the underlying data was publicly available is certainly one
factor to consider. But other factors include the complexity
of the data and its relationship to the alleged misstatements,
as in Amedisys and Gilead, and the great effort needed to
24       IN RE BOFI HOLDING, INC. SECURITIES LITIG.

locate and analyze it, as the shareholders allege here. Courts
must assess these and other factors on a case-by-case basis.
We therefore decline to categorically disqualify the Seeking
Alpha blog posts as potential corrective disclosures. 5

    Even judged against this more forgiving standard, the
shareholders’ allegations concerning the eight blog posts do
not pass muster. We address each of the eight posts that were
followed by a decline in stock price.

    The August 28, 2015, blog post. The author of this post
claimed to have “analyzed hundreds of BofI’s loans,” and on
the basis of that review the author levied a host of allegations
against BofI: that its loan-to-value ratios were often higher
than advertised; that the bank faced personnel turnover in the
audit department; that it made risky loans to foreign
nationals; and that the Securities and Exchange Commission
(SEC) was possibly investigating the company.

    The October 29, 2015, blog post. This post compared
BofI’s transcript of an earnings call with the transcripts
prepared by news agencies, and it noted potentially
important discrepancies. The shareholders claim that the
discrepancies show BofI’s “lack of internal controls over
financial reporting and risk management.”


     5 We acknowledge that the Eleventh Circuit has adopted the bright-

line rule BofI advocates. See 
Meyer, 710 F.3d at 1198 
(“[T]he fact that
the sources used in the Einhorn Presentation were already public is fatal
to the Investors’ claim of loss causation.”). And it is true that we cited
Meyer approvingly when we held that the mere announcement of an
investigation is insufficient to plead loss causation. See 
Loos, 762 F.3d
at 889
–90. But the Loos court had no occasion to adopt Meyer’s holding
about public information, and its discussion of that portion of Meyer is
therefore dicta. We decline to extend it here.
        IN RE BOFI HOLDING, INC. SECURITIES LITIG.          25

    The November 10, 2015, blog post. This post chronicles
BofI’s alleged relationships with two risky lenders, Quick
Bridge and OnDeck Capital. According to the author,
through these relationships, BofI originated bad loans,
reaped the origination fees, and then sold the loans to its
partner to keep the loans off its books. The author asserts
that the loans involved are frequently the subjects of
collection actions and bankruptcy proceedings, and points to
court filings suggesting that “many borrowers appear to have
never been capable of” repaying the loans. This information
potentially undermines the veracity of BofI’s statements
regarding its conservative underwriting standards,
particularly the statement that BofI had “not sacrificed credit
quality to increase origination.”

    The November 18, 2015, blog post. This post states that
the author’s “research suggests that [BofI] has employed a
former felon for over 5 years in a very senior and pivotal
role,” but does not name the individual. The author
postulates that BofI “had to have known of the executive’s
prior criminality” and therefore was probably “in violation
of Section 19 of the Federal Deposit Insurance Act.” The
author concedes he is not “100% certain” that BofI’s
executive is the former felon, but states his analysis—which
included comparing a mugshot photo to a LinkedIn photo,
and comparing signatures and birth dates on public
documents—was fairly rigorous. The author comments on
the regulatory penalties BofI could face if it did not obtain a
waiver from the Federal Deposit Insurance Corporation
before employing a convicted felon. The post also notes that
BofI made loans to the same executive shortly after he filed
for bankruptcy.

    The November 19, 2015, blog post. In this post, the
author claims to have uncovered evidence that BofI provides
26      IN RE BOFI HOLDING, INC. SECURITIES LITIG.

financing to a “Special Purpose Entity” called Center Street
Lending Fund IV, LLC. According to the author, Center
Street offers “no doc” and “no FICO” loans and is a named
defendant in litigation alleging that it participated in a Ponzi
scheme. These alleged facts, documenting BofI’s indirect
financing of “no doc” loans, potentially contradict the
company’s claim to “originate only full documentation”
loans.

    The December 8, 2015, blog post. This post asserts that
BofI is financing another Special Purpose Entity, WCL
Holdings I, LLC, that was first mentioned in the post of
November 10. In the earlier post, the author claimed that
BofI assigned the loans it originated with Quick Bridge to
WCL, although it was unclear at that point whether BofI was
also financing WCL. This post purports to show that BofI is
indeed lending to WCL. BofI’s alleged financing of an off-
book entity to buy back BofI’s own risky loans potentially
contradicts BofI’s statement that it achieved “strong loan
growth . . . while maintaining high credit quality standards.”

    The January 6, 2016, blog post. This post unearths
evidence that BofI made a roughly $32 million loan to
Encore Capital, a San Diego-based debt collector. Encore’s
then-Chief Financial Officer, Paul Grinberg, was also the
Chair of BofI’s Audit Committee. The loans allegedly
allowed Encore to make a major acquisition, which led to
Grinberg’s promotion. According to the author, BofI never
disclosed this loan, as the SEC requires for related-party
transactions, and indeed omitted the loan from the bank’s
2014 disclosures of loans made to board members. These
revelations potentially contradict BofI’s statements about
the robustness of its compliance infrastructure.

   The February 3, 2016, blog post. This post details BofI’s
opening of a new Nevada branch and links it to BofI’s
        IN RE BOFI HOLDING, INC. SECURITIES LITIG.         27

acquisition of H&R Block’s lending products.           The
shareholders imply that the post contradicts BofI’s
statements about its underwriting standards and compliance
infrastructure.

    The fact that each of these blog posts relied on nominally
public information does not, on its own, preclude them from
qualifying as corrective disclosures. Some of the posts
required extensive and tedious research involving the
analysis of far-flung bits and pieces of data. The authors
arrived at their conclusions after scouring through hundreds
of Uniform Commercial Code filings, bankruptcy court
documents, and other companies’ registration documents.
While other investors undoubtedly could have reviewed
registration documents, they likely would not have known to
investigate Quick Bridge, On Deck, or Encore precisely
because BofI had hidden its relationships with those entities.
Cf. Norfolk 
County, 877 F.3d at 697
. The time and effort it
took to compile this information make it plausible that the
posts provided new information to the market, even though
all of the underlying data was publicly available. Cf.
Amedisys, 769 F.3d at 323
.

    We nonetheless conclude that the shareholders have not
plausibly alleged that these posts constituted corrective
disclosures. Even if the posts disclosed information that the
market was not previously aware of, it is not plausible that
the market reasonably perceived these posts as revealing the
falsity of BofI’s prior misstatements, thereby causing the
drops in BofI’s stock price on the days the posts appeared.
The posts were authored by anonymous short-sellers who
had a financial incentive to convince others to sell, and the
posts included disclaimers from the authors stating that they
made “no representation as to the accuracy or completeness
of the information set forth in this article.” A reasonable
28       IN RE BOFI HOLDING, INC. SECURITIES LITIG.

investor reading these posts would likely have taken their
contents with a healthy grain of salt. 6

    Therefore, the shareholders have not plausibly alleged
that any of the Seeking Alpha blog posts constituted a
corrective disclosure. The district court did not abuse its
discretion in denying further leave to amend, as the court had
already pointed out the deficiencies in the shareholders’ loss
causation allegations concerning the blog posts and had
given them an opportunity to correct those deficiencies. See
Loos, 762 F.3d at 890
–91.

                                  IV

    Finally, we take up the new category of misstatements
that the shareholders alleged for the first time in the Third
Amended Complaint, concerning government and
regulatory investigations. We agree with the district court
that the shareholders failed to plausibly allege the falsity of
any of the alleged misstatements in this new category. All
but three of the challenged statements are expressions of
opinion, not statements of fact “capable of objective
verification.” Apollo 
Group, 774 F.3d at 606
. For example,
Garrabrants told investors that regulatory review “is beyond
a nonissue” and that “[w]e have great regulatory relations.”
These vague assurances reflect Garrabrants’s opinions and
predictions, which are not actionable. See In re Cutera
Securities Litigation, 
610 F.3d 1103
, 1111 (9th Cir. 2010).



     6
      Some of the posts suffer from other deficiencies. For example, the
October 29, 2015, post, comparing transcripts, did not require any
special expertise or effort. And most of the misdeeds alleged in the
August 28, 2015, and February 3, 2016, posts are not tethered to any
actionable misstatements.
         IN RE BOFI HOLDING, INC. SECURITIES LITIG.                  29

     The shareholders have not plausibly alleged falsity with
respect to the three remaining statements. On an earnings
call, Garrabrants told investors that: (1) there was “nothing
ongoing” with the OCC; (2) there was “no continuity” to any
of Erhart’s complaints submitted to the OCC; and (3) there
were no “regulatory issues of any kind that have arisen from
Mr. Erhart’s contact with the OCC.” These statements were
accurate. Although the SEC was investigating BofI at the
time, it is unclear whether anyone at BofI was aware of that
fact when Garrabrants spoke, and his statements were
specifically limited to the OCC in any event. The
shareholders do not argue that Garrabrants had an
independent duty to disclose the SEC investigation. Without
such a duty, Garrabrants was under no obligation to mention
it. See Basic Inc. v. Levinson, 
485 U.S. 224
, 239 n.17 (1988);
Retail Wholesale & Department Store Union Local 338
Retirement Fund v. Hewlett-Packard Co., 
845 F.3d 1268
,
1278 (9th Cir. 2017).

                          *        *        *

    The shareholders have adequately pleaded a viable claim
under § 10(b) and Rule 10b-5 for the two categories of
misstatements the district court found actionable, with the
Erhart lawsuit serving as a potential corrective disclosure.
We reverse the district court’s judgment dismissing the
action with prejudice and remand for further proceedings
consistent with this opinion. 7




    7
      Because the shareholders have alleged a viable claim under
§ 10(b), the district court on remand should reinstate their claims under
§ 20(a) against the individual defendants.
30      IN RE BOFI HOLDING, INC. SECURITIES LITIG.

  Appellant’s Motion for Judicial Notice (Dkt. No. 12) is
GRANTED.

     REVERSED and REMANDED.



LEE, Circuit Judge, concurring in part III.B. in judgment and
dissenting in part III.A.:

    Philosophers have long debated the question, “If a tree
falls in the forest but no one is around to hear it, does it make
a sound?” This case perhaps presents the converse of that
conundrum: If there is no fraud, can a securities fraud
lawsuit still proceed?

    The majority holds that a former employee’s allegations
of fraud in a whistleblower lawsuit may count as a
“corrective disclosure” under Rule 10b-5’s loss causation
requirement as long as they are plausible — even if there is
no additional evidence or disclosure corroborating them. I
agree with much of the analysis in the majority’s thoughtful
opinion, which attempts to balance carefully competing
concerns on a very difficult issue.

    But I still fear that the decision will have the unintended
effect of giving the greenlight for securities fraud lawsuits
based on unsubstantiated assertions that may turn out to be
nothing more than wisps of innuendo and speculation. And
even meritless securities fraud lawsuits impose an exorbitant
cost on companies. I would thus require additional external
confirmation of fraud allegations in a whistleblower lawsuit
for them to count as a “corrective disclosure.” Doing so
comports with our case law and common sense. I thus
respectfully dissent from the majority’s holding that
        IN RE BOFI HOLDING, INC. SECURITIES LITIG.            31

plausible insider allegations, standing alone, can qualify as a
corrective disclosure (part III.A.).

                          * * * *

    Charles Erhart, a mid-level auditor at BofI, sued his
former employer after being terminated, claiming that it was
retaliation for whistleblowing. His lawsuit against BofI will
go to trial sometime next year.

    The majority believes that Erhart’s allegations in his
separate whistleblower lawsuit against BofI are plausible
enough to constitute a “corrective disclosure” under Rule
10b-5’s loss causation requirement. The majority opinion
thus allows shareholders in this lawsuit to piggyback off of
Erhart’s whistleblower lawsuit against his former employer.
It may well be that Erhart’s allegations in his lawsuit are true.
His allegations, if true, paint a company rife with corruption
and mismanagement. And many corporate schemes of
malfeasance have unraveled after a whistleblower exposed
the wrongdoing.

    But what if it turns out that Erhart’s allegations in his
lawsuit are bunk? What if he is mistaken? Perhaps he
misconstrued certain information because, as a fairly junior-
level employee, he did not understand or have access to all
the facts. Or what if (as BofI suggests) he is a loose cannon
who has a messianic zeal for seeing wrongdoing where none
exists? At this point, we simply do not know, especially with
no other evidence or disclosure to corroborate Erhart’s
claims in his lawsuit.

     But we do know that BofI has not issued any financial
disclosures that would confirm Erhart’s allegations that he
first aired in 2015. BofI has not done so, even though the
U.S. Department of Justice, the Securities and Exchange
32      IN RE BOFI HOLDING, INC. SECURITIES LITIG.

Commission, and the Treasury Department have reportedly
investigated BofI. And apparently at least one SEC
investigation that began in 2015 has already closed with no
action.

    Put another way, five years have passed since Erhart first
disclosed allegations of misconduct at BofI, and multiple
government agencies commenced investigations into BofI.
Yet so far, we have not seen any external evidence
corroborating Erhart’s allegations. So it may turn out that
there may be smoke but no fire. But based solely on a mid-
level employee’s self-interested allegations in a separate
lawsuit, we are allowing a securities fraud lawsuit to move
forward. It is premature to do so. Erhart may ultimately be
vindicated, and perhaps the government investigations will
eventually expose fraud, but we should not let a securities
fraud lawsuit proceed when, at this point, there may no there
there. We may end up with a scenario in which Erhart loses
his whistleblower trial, and the government agencies end
their investigations without any action — and yet BofI may
end up settling a securities fraud case for millions of dollars
to avoid litigation costs.

    The majority notes that not every insider allegation in a
lawsuit will count as a corrective disclosure; only
“plausible” ones will survive a dismissal. While the
plausibility standard under Iqbal/Twombly has rooted out
many meritless cases at the pleading stage, such a standard
will likely be less useful in a securities fraud lawsuit based
on insider allegations in a whistleblower lawsuit. An insider
account will almost always have a patina of plausibility
because it will likely be based on some non-public allegation
that cannot be easily disputed or rebutted at the pleading
stage. Indeed, like any good conspiracy theory, an insider’s
story often has some element of truth to it, even if it is largely
        IN RE BOFI HOLDING, INC. SECURITIES LITIG.         33

mistaken or misguided. In the end, the plausibility standard
will likely stave off only lawsuits based on insider accounts
that even Mulder and Scully would find unbelievable. In
short, the plausibility standard provides little comfort to
companies that may face securities fraud lawsuits based on
unsubstantiated insider allegations.

     What’s the harm of letting a securities fraud lawsuit go
forward if the company can eventually vindicate itself at
trial?    Plenty.    According to Cornerstone Research,
approximately 8.9% of all public companies listed on a U.S.
securities exchange were the target of a securities class
action in 2019. See Cornerstone Research, Securities Class
Action Filings: 2019 Year in Review, 11 (Jan. 29, 2020),
https://bit.ly/2TpajjY. And in 2018, the median cost of a
securities class-action settlement was $13 million, according
to one estimate. See Chubb, From Nuisance to Menace: The
Rising Tide of Securities Class Action Litigation (June
2019), https://bit.ly/3cvbIx4. If a securities fraud lawsuit
survives a motion to dismiss, it likely will lead to a
settlement to the tune of millions of dollars. In the past
quarter-century or so, only six securities fraud cases
apparently have been tried to verdict. See Jeffrey A. Barrack,
A Primer on Taking A Securities Fraud Class Action to
Trial, 31 Am. J. Trial Advoc. 471, 476 (2008). In a time
when trials are rare, securities fraud trials are virtually
extinct. That is why the loss causation requirement acts as a
critical bulwark against frivolous securities fraud lawsuits.
It guards against lawsuits being used as an “in terrorem
device” to bludgeon companies into settling claims to “avoid
the cost and burden of litigation.” Meyer v. Greene, 
710 F.3d
1189
, 1196 (11th Cir. 2013) (citing Dura Pharms., Inc. v.
Broudo, 
544 U.S. 336
, 347–48 (2005)).
34      IN RE BOFI HOLDING, INC. SECURITIES LITIG.

    It is true that BofI’s shares plummeted 30% after Erhart
publicly accused his former employer of fraud. But that does
not necessarily mean Erhart’s allegations revealed the
“truth” and acted as a corrective disclosure. Rather, it is
better construed as a disclosure of “an added risk of future
corrective action.” 
Meyer, 710 F.3d at 1201 
(ruling that an
announcement of an SEC investigation by itself is not a
corrective disclosure but signals an added risk of it).

    Our decision in Loos v. Immersion Corp. is instructive.
There, Immersion announced an internal investigation into
revenue recognition practices of its medical line of business.
Loos, 
762 F.3d 880
, 885 (9th Cir. 2014). The company’s
stock price plummeted 23% after this disclosure.
 Id. A
shareholder lawsuit 
inevitably followed. We affirmed the
district court’s dismissal of the securities fraud lawsuit,
ruling that the company’s announcement of potential
problems with revenue recognition was not a corrective
disclosure. While the disclosure was “ominous,” it “simply
put[] investors on notice of a potential future disclosure of
fraudulent conduct.”
 Id. at 890.
    Similarly, in Curry v. Yelp Inc., Yelp’s stock price
dropped after the FTC disclosed more than 2,000 complaints
from businesses alleging that Yelp had manipulated reviews.
875 F.3d 1219
, 1222 (9th Cir. 2017). We acknowledged that
a plaintiff “need not allege an outright admission of fraud,”
but we affirmed the dismissal of the lawsuit because the
“mere ‘risk’ or ‘potential’ for fraud is insufficient to
establish loss causation.”
 Id. at 1225 
(quoting 
Loos,
762 F.3d at 889
).

   Likewise here, Erhart’s allegations are certainly
“ominous,” and may in fact be true. But at this time, the drop
in BofI’s share price “can only be attributed to market
speculation about whether fraud has occurred.” Loos,
         IN RE BOFI HOLDING, INC. SECURITIES LITIG.                 
35

762 F.3d at 890
. And this “type of speculation cannot form
the basis of a viable loss causation theory.”
 Id. Before
plaintiffs can 
establish loss causation based on an
unsubstantiated whistleblower complaint, another shoe has
to drop. It has not yet.

    In short, if a securities fraud lawsuit turns on insider
allegations of wrongdoing in a whistleblower lawsuit, I
would prefer a bright-line rule that requires an external
disclosure or evidence that confirms those allegations. It
need not be a mea culpa from the company, but perhaps a
surprise restatement of earnings, an unexplained
announcement about an increase in reserves, or some other
information that confirms those allegations and thus acts as
a corrective disclosure. 1

    Finally, I agree with the majority that the anonymous
Seeking Alpha posts are not corrective disclosures. I would,
however, base our decision on the grounds that the Seeking
Alpha posts contain public information only, and that we
should not credit anonymous posts on a website notorious
for self-interested short-sellers trafficking in rumors for their
own pecuniary gain. See, e.g., Jeff Katz & Annie Hancock,
Short Activism: The Rise of Anonymous Online Short
Attacks, Harvard Law School Forum on Corporate
Governance (Nov. 27, 2017), https://bit.ly/3kqF3fi (noting
the rise of short shellers engaging in anonymous attacks and
explaining that a “short seller need only prove that a fraction


    1
       Some may argue that such a requirement may create perverse
incentives for a company not to make a corrective disclosure. Perhaps it
might in the short run, but a wrongdoer can balance its house of cards
for only so long until it ultimately collapses. Insider allegations of
wrongdoing almost always lead to governmental investigations, and the
truth ultimately comes out under scrutiny.
36     IN RE BOFI HOLDING, INC. SECURITIES LITIG.

of the allegations is true, while the company must disprove
each and every allegation”).

    I thus concur in judgment in part III.B. and respectfully
dissent as to part III.A.