FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

BRENT BERSON, individually and on        
behalf of all others similarly
situated,
                            Plaintiff,
                                                 No. 06-15454
                 and
FRANK WHITING,                                   D.C. No.
                                              CV-05-01027-SBA
                 Plaintiff-Appellant,
                                                 OPINION
                  v.
APPLIED SIGNAL TECHNOLOGY, INC.;
GARY YANCEY; JAMES DOYLE,
              Defendants-Appellees.
                                         
        Appeal from the United States District Court
           for the Northern District of California
       Saundra B. Armstrong, District Judge, Presiding

                  Argued and Submitted
        December 6, 2007—San Francisco, California

                       Filed June 5, 2008

Before: Alex Kozinski, Chief Judge, Robert E. Cowen,* and
          Michael Daly Hawkins, Circuit Judges.

               Opinion by Chief Judge Kozinski




   *The Honorable Robert E. Cowen, Senior United States Circuit Judge
for the Third Circuit, sitting by designation.

                               6387
6390        WHITING v. APPLIED SIGNAL TECHNOLOGY


                        COUNSEL

Mark Kindall, Andrew M. Schatz and Jeffrey S. Nobel,
Schatz & Nobel, P.C., Hartford, Connecticut; Alan R. Plutzik,
Kathryn Scholfield, Bramson, Plutzik, Mahler & Birkhaeuser,
LLP, Walnut Creek, California, for the plaintiff-appellant.
            WHITING v. APPLIED SIGNAL TECHNOLOGY          6391
David Priebe, DLA Piper Rudnick Gray Cary US LLP, East
Palo Alto, California; Shirli Fabbri Weiss, DLA Piper Rud-
nick Gray Cary US LLP, San Diego, California; and Kathryn
E. Karcher, DLA Piper Rudnick Gray Cary US LLP, Seattle,
Washington, for the defendants-appellees.


                         OPINION

KOZINSKI, Chief Judge:

  We consider whether plaintiffs adequately pled a claim of
securities fraud—something that is much harder now than in
days gone by.

                            Facts

   Plaintiffs bought stock in Applied Signal Technology, Inc.,
during the six months before the company revealed that its
revenue had fallen 25% from the preceding quarter. Immedi-
ately following this disclosure, the stock price dropped 16%.
Plaintiffs sued the company and two of its officers under
Securities Exchange Act § 10(b), 15 U.S.C. § 78j(b), and Rule
10b-5, 17 C.F.R. § 240.10b-5.

   Applied Signal’s customers are almost all agencies of the
federal government. Two civilian agencies together account
for 80% of the company’s revenue; military agencies account
for most of the rest. According to plaintiffs, these government
customers can, at any time and for any reason, order the com-
pany to stop working on existing contracts for up to 90 days.
Compl. ¶ 26; see 48 C.F.R. § 52.242-15(a) (model contract
provision); 

(agencies “may” use this pro-
vision). The company only gets paid for work it actually per-
forms, so when the government issues a “stop-work order,”
Applied Signal immediately ceases to earn money. And,
because stopped work often is eventually cancelled altogether,
6392         WHITING v. APPLIED SIGNAL TECHNOLOGY
a stop-work order signals a heightened risk that the company
never will earn the money. See Compl. ¶ 26; 48 C.F.R.
§ 52.242-15(a) (after issuing a stop-work order, agencies may
unilaterally modify or cancel the contract). According to
plaintiffs, the precipitous drop in Applied Signal’s revenue
was caused by four stop-work orders the company received,
which halted tens of millions of dollars of work it had con-
tracted to do. Investors were surprised by the drop in revenue,
plaintiffs claim, because Applied Signal continued to count
the stopped work as part of its “backlog”—a term the com-
pany defines as the dollar value of the work it has contracted
to do but hasn’t yet performed. Plaintiffs claim that the com-
pany’s backlog reports misled them into believing that
Applied Signal was likely to perform work that, in reality, had
been halted and was likely to be lost forever.

  The district court dismissed the complaint on several
grounds and plaintiffs, naturally, appeal.

                            Analysis

   We first consider whether plaintiffs have pled with suffi-
cient particularity the existence, content and effect of the stop-
work orders. We then discuss whether defendants’ alleged
practice of counting stopped work as backlog was misleading,
before weighing plaintiffs’ allegations of scienter and loss
causation. Finally, we ponder whether the backlog reports are
immune from liability as “forward-looking” statements.

  1. Fed. R. Civ. P. 9(b) and the requirement of
  particularity

   Defendants claim that plaintiffs haven’t alleged sufficient
facts to show that the company ever received three of the four
stop-work orders, or that these orders halted any work that
was later reported as backlog, and that plaintiffs therefore
haven’t pled with “particularity” the “reasons” why the back-
               WHITING v. APPLIED SIGNAL TECHNOLOGY                     6393
log figures were misleading. 15 U.S.C. § 78u-4(b)(1); Fed. R.
Civ. P. 9(b).

   [1] But the complaint identifies four confidential witnesses
who worked for Applied Signal and who allegedly will testify
to the existence and effect of the stop-work orders. Defen-
dants quibble that these witnesses weren’t in a position to see
the stop-work orders first-hand because they were “engineers
or technical editors” rather than managers. But any number of
company employees would be in a position to infer the issu-
ance of stop-work orders, which would have had the very
obvious effect of putting numerous employees out of work.
It’s entirely plausible that “engineers or technical editors”
would know, or could reasonably deduce, that the company
had suffered such setbacks. See In re Daou Sys., Inc., 

, 1015-16 (9th Cir. 2005) (complaint described con-
fidential witnesses “with sufficient particularity to support the
probability” that they knew about the fraud).

  [2] The complaint also alleges with particularity that defen-
dants counted stopped work as backlog. Defendants admitted
as much in two conference calls with analysts (transcripts of
which were included in the company’s SEC filings). See
pp.6395-96 infra. And the complaint alleges that the stop-
work orders were still in effect when defendants touted the
company’s backlog; defendants’ arguments to the contrary
simply misread the complaint.1 Defendants suggest that the
  1
   The complaint alleges that in January 2005, defendants’ backlog figure
included work that “probably would not be realized as a result of Stop-
Work Order No. 1.” Compl. ¶ 34. That is just another way of saying that
the order was still in effect. The complaint also alleges that the third stop-
work order removed “customer funding” from a “major project” that was
“abandoned” several months later. 

Again, this is a more detailed
and powerful way of making the same point. And the complaint alleges
that the fourth stop-work order was received in December 2004. 

Because the default duration of stop-work orders is 90 days, see
48 C.F.R. § 52.242-15(a), this order was likely still in effect in January
2005. For the same reason, the second stop-work order, which was
received in “late May or early June,” Compl. ¶ 30, was likely still in effect
when defendants announced their backlog figure on August 25.
6394          WHITING v. APPLIED SIGNAL TECHNOLOGY
stop-work orders may have expired (and work may have
resumed) before they announced the backlog, and they specu-
late that two of the orders may have actually been “renewals”
of an earlier order. But plaintiffs’ confidential witnesses sug-
gest otherwise, so these disputes must at least await discov-
ery.

  2.     Ruminations on “misleading”

   [3] Defendants argue that, even if they did count stopped
work as backlog, this couldn’t have misled reasonable inves-
tors, who would have understood that this was just what
defendants were doing. See Brody v. Transitional Hospitals
Corp., 

, 1006 (9th Cir. 2002) (a statement is mis-
leading if it would give a reasonable investor the “impression
of a state of affairs that differs in a material way from the one
that actually exists”). Reasonable investors, defendants claim,
would grasp that stopped work was included in backlog upon
reading the following paragraph in the company’s SEC fil-
ings:

       Our backlog . . . consists of anticipated revenues
       from the uncompleted portions of existing contracts
       . . . . Anticipated revenues included in backlog may
       be realized over a multi-year period. We include a
       contract in backlog when the contract is signed by us
       and by our customer. We believe the backlog figures
       are firm, subject only to the cancellation and modifi-
       cation provisions contained in our contracts. . . .
       Because of possible future changes in delivery
       schedules and cancellations of orders, backlog at any
       particular date is not necessarily representative of
       actual sales to be expected for any succeeding
       period, and actual sales for the year may not meet or
       exceed the backlog represented. We may experience
       significant contract cancellations that were previ-
       ously booked and included in backlog.
              WHITING v. APPLIED SIGNAL TECHNOLOGY                  6395
(Emphasis added.) According to defendants, reasonable inves-
tors would interpret the underlined phrase to mean that back-
log includes stopped work: Because a stop-work order doesn’t
actually cancel the contract, the contract continues to
“exist[ ]”; and because stopped work is perforce “uncomplet-
ed,” it still counts as backlog, even though Applied Signal
may never get to complete it.

   [4] While this is a conceivable interpretation of this para-
graph, it is hardly the only—or even the most plausible—one.
It is just as likely that investors would interpret the underlined
phrase as limited to work still in progress or work yet to be
started on ongoing contracts. And, though the paragraph
refers to customers’ rights to “cancel[ ]” or “modif[y]” exist-
ing contracts, it says nothing about the right to simply stop
work and thus immediately interrupt the company’s revenue
stream. The passage, moreover, speaks entirely of as-yet-
unrealized risks and contingencies. Nothing alerts the reader
that some of these risks may already have come to fruition,
and that what the company refers to as backlog includes work
that is substantially delayed and at serious risk of being can-
celled altogether.

   [5] In ruling otherwise, the district court thought it signifi-
cant that in a conference call with analysts,2 one defendant
hinted that stopped work counted as backlog. (As discussed
above, see 

, this conversation supports plaintiffs’
allegation that Applied Signal did count stopped work as
backlog.) The brief exchange went as follows:

      Q.   [O]ne more question for you . . . please. Does
           the $143 million [of backlog] include—is that
           net of any potential debooking?
  2
   The district court’s memorandum cites two conference calls, but the
second call occurred on the final day of the period in which plaintiffs
bought stock, so this call cannot have had any effect on what a reasonable
investor would have thought during that period.
6396          WHITING v. APPLIED SIGNAL TECHNOLOGY
      A.   That includes the $12 million that has not been
           debooked.

      Q.   So it’s not net of any potential debooking?
           Includes?

      A.   That’s right.

With the benefit of hindsight and some help from the briefs,3
we can see how this exchange might be interpreted to commu-
nicate that defendants counted stopped work as backlog. The
$12 million figure matches the amount of work halted by the
first stop-work order (which the company had disclosed some
three months earlier) and the company representative (who
was one of the two individual defendants) admits that backlog
still “[i]ncludes” this stopped work. But it’s far from clear that
a reasonable investor could have decoded this meaning at the
time. Neither speaker made clear what $12 million was being
referred to, nor said anything about stop-work orders, nor
explained what the words “debook” and “potential debook-
ing” mean. Absent undisputed evidence that these were terms
of art that investors would have understood to refer to stop-
work orders, we cannot find, as a matter of law, that defen-
dants disclosed that backlog included a significant amount of
work that had been halted by the company’s customers.

   Defendants also argue that reasonable investors wouldn’t
have been misled because federal regulations warned them
that Applied Signal’s customers might issue stop-work orders.
See 48 C.F.R. § 52.242-15(a) (agencies may contract for this
authority); Whirlpool Fin. Corp. v. GN Holdings, Inc., 67
  3
   Plaintiffs cite this conversation as proof that defendants counted
stopped work as backlog. See 

. Defendants mention the con-
versation in passing, see Appellees’ Br. at 8 n.4, but do not rely on it to
argue that their backlog statements weren’t misleading, see 

We discuss the phone call here because the district court relied on it in
finding that the backlog statements weren’t misleading.
              WHITING v. APPLIED SIGNAL TECHNOLOGY                  

, 609 (7th Cir. 1995) (investors are presumed to
know the law under which companies operate). But learning
that stop-work orders might be issued is quite different from
knowing they were in fact issued. One indicates a risk, the
other a certainty. It goes without saying that investors would
treat the two differently.

   [6] None of this means that defendants had an affirmative
duty to disclose the stop-work orders. See Gallagher v. Abbott
Labs., Inc., 

, 808-09 (7th Cir. 2001) (the securi-
ties laws don’t require firms to disclose all information). Had
defendants released no backlog reports, their failure to men-
tion the stop-work orders might not have misled anyone. But
once defendants chose to tout the company’s backlog, they
were bound to do so in a manner that wouldn’t mislead inves-
tors as to what that backlog consisted of. We cannot say, as
a matter of law, that defendants fulfilled this duty.

  3.   Mental states and strong inferences

   [7] Plaintiffs must “state with particularity facts giving rise
to a strong inference” that defendants acted with the intent to
deceive or with deliberate recklessness as to the possibility of
misleading investors. 15 U.S.C. § 78u-4(b)(2); In re Silicon
Graphics, Inc. Sec. Litig., 

, 983 (9th Cir. 1999).
Plaintiffs have done so by alleging that defendants Gary
Yancey and James Doyle (Applied Signal’s CEO and CFO)
were aware that stop-work orders had halted significant
amounts of work, yet counted the stopped work as backlog
anyway.

   [8] As described above, plaintiffs allege the existence and
effect of the stop-work orders with particularity. See 

. But plaintiffs allege no particular facts indicating
that Yancey and Doyle actually knew about the stop-work
orders.4 Instead, plaintiffs infer that these high-level managers
  4
   It’s undisputed that defendants knew about the first stop-work order by
September 9, 2004 at the latest—that’s the day they disclosed the order in
6398           WHITING v. APPLIED SIGNAL TECHNOLOGY
must have known about the orders because of their devastat-
ing effect on the corporation’s revenue. We approved a simi-
lar inference in No. 84 Employer-Teamster Joint Council
Pension Trust Fund v. America West, 

(9th Cir.
2003). In America West, as here, plaintiffs alleged no particu-
lar facts to show that certain defendants knew about mainte-
nance problems at America West or about the government’s
investigation of those problems. In place of particularized
allegations, plaintiffs relied on an inference based on defen-
dants’ position as outside directors on America West’s board:
The company’s maintenance problems, and the government’s
investigation into them, were so important to the company
that it was “absurd to suggest that the Board of Directors
would not discuss” them. 

n.21.

   [9] Plaintiffs’ inference here is far stronger than the one we
approved in America West. Defendants in America West were
outside directors who did no more for the company than
attend board meetings and serve on a board committee. 

. Here, by contrast, Yancey and Doyle were directly
responsible for Applied Signal’s day-to-day operations, see
Compl. ¶¶ 8-10, 13, so it is hard to believe that they would
not have known about stop-work orders that allegedly halted
tens of millions of dollars of the company’s work.5 If plain-

a filing with the SEC. They also referred to it, rather obliquely, in a con-
ference call with investors three months later. See 

. The
relevant question is whether defendants knew about this order on August
24, 2004, when they announced their backlog to investors in a conference
call without disclosing the order.
   5
     The first stop-work order halted between $10 and $15 million of work
on the company’s largest contract with one of its most important custom-
ers. Compl. ¶ 29. The size of the contract and the prominence of the client
raise a strong inference that defendants would be aware of this order. And
defendants clearly did know about it later, when they disclosed it in an
SEC filing. That disclosure occurred just two weeks after defendants’
allegedly misleading backlog statement, and the “temporal proximity” of
the misleading statement and the subsequent disclosure “bolster[s]” the
               WHITING v. APPLIED SIGNAL TECHNOLOGY                      6399
tiffs in America West could rely on an inference that outside
directors were aware of maintenance problems over which
they had no direct management responsibility, then plaintiffs
here are entitled to rely on a similar inference as to the four
stop-work orders.

  Defendants argue that America West conflicts with our later
decision in In re Read-Rite Corp., 

(9th Cir.
2003), where we said:

     Plaintiffs also rely upon Epstein v. Itron, Inc., in
     which a district court held, “facts critical to a busi-
     ness’s core operations or an important transaction
     generally are so apparent that their knowledge may
     be attributed to the company and its key officers.”
     . . . . Epstein, however, predates Silicon Graphics,

inference that defendants knew about the order when they made the state-
ment. Ronconi v. Larkin, 

, 437 (9th Cir. 2001).
   The second stop-work order halted $8 million of work. Compl. ¶ 30(b).
According to a confidential witness, the order followed a “series” of client
meetings where “management” tried unsuccessfully to “negotiate away”
certain contract requirements. 

meetings raise a strong
inference that defendants were aware of this client’s dissatisfaction and
thus also aware of the stop-work order that resulted from it.
   A different confidential witness will allegedly testify that the third stop-
work order caused the company to reassign “50-75 employees,” with the
result that one of the company’s facilities became a “ghost town.” 

The magnitude of this reallocation of personnel raises a strong inference
that defendants were aware of it, and thus also aware of the stop-work
order that caused it.
   The fourth stop-work order came from a difficult client, an agency that
required Applied Signal to “complete massive volumes of paperwork” to
meet the agency’s reporting requirements. 

Applied Signal was
“unable to comply” with the agency’s demands and, apparently as a result,
the head of the project was “demoted.” 

make it highly
likely that defendants were aware of this customer’s problems; this cus-
tomer in particular would be on defendants’ radar screen because it had
previously canceled other large contracts with Applied Signal. 

v. APPLIED SIGNAL TECHNOLOGY
    which clarified the requirement that a plaintiff must
    plead with particularity . . . .

    ...

       Plaintiffs may have established a “reasonable
    inference” that, based upon their job duties at Read-
    Rite, [defendant officers] “would be aware of the fal-
    sity of some or all of the statements” regarding the
    [company’s] products. The existence of a “reason-
    able inference,” however, does not satisfy the
    PSLRA’s requirement that Plaintiffs allege particular
    facts . . . .

(citations omitted). Defendants misread Read-
Rite. In that case, plaintiffs hadn’t even alleged that defen-
dants’ optimistic statements were false or misleading when
made. (Plaintiffs tried to show that these statements were
inconsistent with defendants’ later admissions, but on close
inspection, it turned out that there wasn’t any inconsistency at
all—and therefore no support for the proposition that the ear-
lier optimistic statements were false. See 

So
plaintiffs in Read-Rite were drawing a different inference
from the kind at issue here and in America West. The Read-
Rite plaintiffs were trying to show that defendants ought to
have discovered as-yet-unalleged facts that would have con-
vinced defendants that their optimism was unfounded. We
held that this was an inference too far: Where defendants
make cheerful predictions that do not come to pass, plaintiffs
may not argue, based only on defendants’ prominent positions
in the company, that they ought to have known better. Instead,
the PSLRA requires “particular allegations which strongly
imply Defendant[s’] contemporaneous knowledge that the
statement was false when made.” 

   [10] Here, unlike Read-Rite, plaintiffs alleged particular
facts (the stop-work orders) that support the inference that the
backlog statements were misleading when made. These facts
            WHITING v. APPLIED SIGNAL TECHNOLOGY            6401
were prominent enough that it would be “absurd to suggest”
that top management was unaware of them. America 

n.21.

  4.   Particular causes of loss

   Plaintiffs must allege that defendants’ misleading backlog
statements caused them a “later economic loss.” Dura
Pharm., Inc. v. Broudo, 

, 343 (2005); see 15
U.S.C. § 78u-4(b)(4) (at trial, plaintiff must prove that defen-
dant “caused the loss”).

   The parties dispute the standard for pleading loss causation.
Plaintiffs claim that Rule 8(a)(2) applies, and that they need
only provide a “short and plain statement” of their loss causa-
tion theory. Fed. R. Civ. P. 8(a)(2). Defendants argue that
plaintiffs must satisfy Rule 9(b), which requires them to “state
with particularity the circumstances constituting fraud.” Fed.
R. Civ. P. 9(b). We have not yet answered this question; nor
has the Supreme Court. 

(assuming,
but not deciding, that Rule 8 governs the pleading of loss cau-
sation).

   [11] We need not decide the question here. Assuming—
without deciding—that Rule 9(b) governs, such that plaintiffs
bringing a 10b-5 securities fraud claim must plead the ele-
ment of loss causation with particularity, plaintiffs have done
so here by alleging particular facts indicating that “but for the
circumstances that the fraud concealed”—namely, the fact
that much of Applied Signal’s backlog had been halted by
stop-work orders—“[plaintiffs’] investment . . . would not
have lost its value.” Caremark, Inc. v. Coram Healthcare
Corp., 

, 648-49 (7th Cir. 1997). The complaint
describes the stop-work orders in detail, explains that the
orders halted a significant amount of work, alleges that the
reduced workload caused revenue to fall by 25%, and claims
that this revenue reduction caused the stock price to drop by
16%. It’s true, as defendants point out, that plaintiffs haven’t
6402        WHITING v. APPLIED SIGNAL TECHNOLOGY
alleged precisely which parts of which contracts three of the
stop-work orders affected. But the complaint describes the
orders in sufficient detail to give defendants ample notice of
plaintiffs’ loss causation theory, and to give us some assur-
ance that the theory has a basis in fact. See 5A Charles Alan
Wright & Arthur R. Miller, Federal Practice and Procedure
§ 1297 (3d ed. 2004) (one reason for Rule 9(b)’s heightened
pleading standard is to prevent baseless claims). Rule 9(b)
requires no more. See 

(where
defendants overstated the firm’s revenues, and where stock
prices dropped immediately after defendants revealed the
firm’s “true financial condition,” plaintiffs adequately pled
loss causation) (citing Broudo).

  5.   Backlog doesn’t look forward

   [12] Defendants argue that the PSLRA bars liability for
their statements about backlog because those statements were
“forward-looking.” 15 U.S.C. § 78u-5(c). But, as Applied Sig-
nal uses the term, “backlog” isn’t a “projection” of earnings
or a “statement” about “future economic performance.” 

Applied Signal’s backlog is, instead, a snapshot
of how much work the company has under contract right now,
and descriptions of the present aren’t forward-looking. See
America 

(defendant’s statements
weren’t forward-looking because they described the “present
effects” of a settlement agreement). Backlog is much like
accounts receivable: It represents Applied Signal’s contractual
entitlement to perform certain work, just like accounts receiv-
able represents the company’s contractual entitlement to be
paid for work already performed. See In re Complete Mgmt.
Inc. Sec. Litig., 

, 340 (S.D.N.Y. 2001)
(accounts receivable is not forward-looking).

  REVERSED and REMANDED.