FOR PUBLICATION
  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT

AMISH DESAI; ELIZABETH LAMB;            
THERESE LONG; CHRISTOPHER LONG,
               Plaintiffs-Appellants,
                                              No. 08-55081
                 v.
DEUTSCHE BANK SECURITIES                       D.C. No.
                                            CV-01-09024-SVW
LIMITED; DEUTSCHE BANK
                                                OPINION
SECURITIES INC.; DEUTSCHE BANK
AG,
             Defendants-Appellees.
                                        
        Appeal from the United States District Court
            for the Central District of California
        Stephen V. Wilson, District Judge, Presiding

                  Argued and Submitted
             May 7, 2009—Pasadena, California

                     Filed July 29, 2009

   Before: John T. Noonan, Diarmuid F. O’Scannlain, and
              Susan P. Graber, Circuit Judges.

                   Per Curiam Opinion;
             Concurrence by Judge O’Scannlain;
               Concurrence by Judge Graber




                             9899
9902          DESAI v. DEUTSCHE BANK SECURITIES




                         COUNSEL

Joseph J. Tabacco, Jr., Berman, DeValerio, Pease, Tabacco
Burt & Pucillo, San Francisco, California, argued the cause
for the appellants and was on the briefs. Nicole Lavallee, Ber-
man, DeValerio, Pease, Tabacco, Burt & Pucillo, San Fran-
cisco, California, filed briefs. James C. Magid, Berman,
DeValerio, Pease, Tabacco, Burt & Pucillo, San Francisco,
California, and Ira M. Press, Kirby, McInerney LLP, New
York, New York, were also on the briefs.

James H.R. Windels, Davis, Polk & Wardwell, New York,
New York, argued the cause for the appellees and filed the
brief.
                DESAI v. DEUTSCHE BANK SECURITIES                   9903
                              OPINION

PER CURIAM:

   We must decide whether a putative class can be certified in
this securities fraud class action.

                                    I

   This appeal stages the last act of a long drama that followed
the collapse of an elaborate stock manipulation scheme.

                                   A

   GenesisIntermedia, Inc. (“GENI”) is a Delaware corpora-
tion with its registered address in California. Its stock once
traded on the NASDAQ, but since late 2001 has traded over
the counter but off the NASDAQ.1 Turmoil in GENI’s stock
price began in the fall of 2001 and continued as the details
emerged of what the plaintiffs allege was a sophisticated
scheme to manipulate the price of the company’s stock.

                                    1

   Appellants—Amish Desai, Christopher and Therese Long,
and Elizabeth Lamb (“Investors”)—allege that Deutsche Bank
Securities Ltd. (“DBSL”), Deutsche Bank Securities, Inc., and
Deutsche Bank AG (collectively, “Deutsche Bank”), through
Wayne Breedon, a vice-president at DBSL, masterminded this
stock price manipulation scheme.2 Breedon and Deutsche
  1
     The National Association of Securities Dealers Automatic Quotation
System, or NASDAQ, is a tool used to report the prices of millions of
stocks not traded on any domestic exchange (so-called “over-the-counter”
stocks). Not every stock traded over the counter is registered to trade on
the NASDAQ.
   2
     Breedon is the main actor in the alleged scheme. He worked for DBSL
in Toronto, Canada, which is a wholly owned subsidiary of Deutsche
9904            DESAI v. DEUTSCHE BANK SECURITIES
Bank, however, played only one part in the plot that Investors
allege. Some background, therefore, is necessary.

   A common way to manipulate the market in a security is
to cause its price to increase by creating the illusion of more
investor interest than really exists. The manipulator acquires
shares of the security before the price increase, then slowly
sells them off and reaps the profit. The problem with this
model, however, is that as the manipulator sells off his shares
he depresses the price, which lessens his profit. Investors here
allege a scheme that varied the theme in a way designed to
cure this problem. It involved a commercial arrangement
known as a securities loan.

   In the typical securities loan, a broker-dealer lends securi-
ties to another broker-dealer, the loan being secured by cash
collateral the borrower gives to the lender. See generally Ste-
phenson v. Deutsche Bank AG, 

, 1044-
45 (D. Minn. 2003). The borrower of the security receives so-
called rebate payments, which are like interest on the cash
collateral he has transferred to the security lender.3 As the
value of the security increases, the amount of cash collateral
and the level of interest also increase. Adjustments—marking
the securities to the market—are made daily.

Bank AG. Breedon’s activities at DBSL were supervised by Deutsche
Bank Securities, also a subsidiary of Deutsche Bank AG. Liability for
Deutsche Bank is premised on one of two theories: that Breedon acted as
the agent of Deutsche Bank or that he acted within the scope of his
employment so as to invoke the doctrine of respondeat superior. The
validity of these theories of recovery is not at issue in this appeal.
  3
    This is not a typical creditor-debtor relationship, for the borrower,
instead of the lender, receives a stream of income that resembles interest
payments. One might be tempted to think of the arrangement as a loan of
money secured by stock, but we adhere to the characterization used in the
industry, as no legal issues before us turn on the question.
                 DESAI v. DEUTSCHE BANK SECURITIES                  9905
                                    2

   According to Investors, a web of schemers (including sev-
eral persons no longer defendants) used securities loans to
profit contemporaneously with the inflation of GENI’s stock
price, rather than by selling the stock after the price rose
(which would have depressed the price). It worked as follows.4

   Officers of GENI first issued themselves unregistered
shares of the company. Such shares may not be publicly
traded, but the GENI officers loaned them to a broker-dealer
called Native Nations Securities, Inc., receiving cash collat-
eral in return. Richard Evangelista, an employee of Native
Nations and apparently a longtime associate of Breedon, falsi-
fied the records of his employer to make it look like the GENI
shares had come from other broker-dealers. Native Nations
then lent the shares (cash collateral coming back) to Deutsche
Bank. Breedon was in charge of this account, which contin-
ued to absorb unregistered shares of GENI stock. Eventually,
Breedon and his associates at GENI developed a chain of
broker-dealers that came between Native Nations and Deut-
sche Bank in order to increase the amount of capital for the
scheme and to insulate Deutsche Bank from any fallout
should the scheme collapse.

   The GENI officers used the cash collateral to day-trade in
GENI’s publicly traded shares. This created the appearance of
investor demand. That appearance inflated the stock price,
which in turn required the borrowers of GENI stock, from
Native Nations to Deutsche Bank, to provide more cash col-
lateral to feed the cycle. It also increased the rebate payments
to the borrowers, from Native Nations down the line to Deut-
sche Bank. It seems Deutsche Bank gained the most from the
rebate payments, however, because the intermediary broker-
dealers in the chain paid out a percentage of the rebates they
  4
   We present here a simplified version of the alleged scheme. For further
details, see 

.
9906          DESAI v. DEUTSCHE BANK SECURITIES
received to the next party in the chain. Deutsche Bank, being
the last in line, did not have to do that.

   To ensure that GENI’s price kept climbing, Breedon and
his associates at GENI allegedly paid off two stock analysts
to recommend GENI stock in order to drum up demand. One
of the analysts was Courtney Smith, a one-time defendant in
this litigation; the Longs claim that they purchased GENI
stock in February of 2000 on the basis of Smith’s bogus rec-
ommendations. The secret deal between GENI and Smith
later came to light in the news media.

   As the district court put it, this scheme solved the classic
problem of market manipulators everywhere: it allowed them
to profit from fraudulently inflating a stock’s price without
having to sell the shares.

                               3

   By September 11, 2001, the scheme had driven GENI’s
stock price from $12 per share to over $52 per share. The ter-
rorist attacks that day stopped all trading in the markets until
September 17. When trading resumed, the share price fell dra-
matically for reasons that are unclear. By September 25,
GENI stock was down to $9 per share, at which point trading
in the stock was suspended. GENI delisted its stock from
NASDAQ soon after; it now trades for pennies.

   As the price collapsed in September of 2001, borrowers of
the stock, starting with Deutsche Bank, demanded their cash
collateral back. The cash calls went up the chain to Native
Nations. Though Deutsche Bank was able to recover nearly
all the collateral it had pledged, the intermediary broker-
dealers were not so lucky. GENI had spent the cash collateral,
so it could not return it to Native Nations, which left the
broker-dealer, and many of the other broker-dealers between
it and Deutsche Bank, insolvent. Thus, Deutsche Bank had
profited through the rebate payments it received, but it had
              DESAI v. DEUTSCHE BANK SECURITIES             9907
managed to recover almost of all the cash collateral it had
advanced.

                               B

   Investors seek to represent a class of people who bought
GENI stock in the putative class period, which is December
21, 1999, to September 25, 2001. They sue under §§ 10(b)
and 20(a) of the Securities Exchange Act of 1934 (“the 1934
Act”), codified at 15 U.S.C. §§ 78j(b) and 78t(a), respec-
tively. Desai, the lead plaintiff, purchased 50,000 shares on
the last day of the period. Lamb bought 100 shares on Sep-
tember 20, 2001. The Longs, as mentioned, bought their 100
shares in February of 2000 after seeing analyst Courtney
Smith’s recommendations on television.

                               1

   This case began over seven years ago, but it remains at the
class certification stage. In October of 2001, several parties,
Desai apparently among them, filed putative class actions in
United States District Court for the Central District of Califor-
nia, Judge Stephen V. Wilson presiding. Originally, they
alleged that GENI, its officers, and their associates had made
misrepresentations to the public or paid others to do so to
inflate the price of GENI stock. Deutsche Bank was not
named a defendant.

   After some preliminary wrangling over who would be the
lead plaintiff, the California district court appointed Horizon
International, LLC, an institutional investor, and Desai as lead
plaintiffs. When the Third Amended Complaint, on which the
two district court opinions relevant to this appeal are based,
was filed, Desai and Horizon were the only representative
plaintiffs.

  In June of 2003, the California district court transferred the
case to the United States District Court for the District of
9908             DESAI v. DEUTSCHE BANK SECURITIES
Minnesota, where related proceedings were pending in the
bankruptcy of MJK Clearing Inc., one of the unfortunate
broker-dealers in the chain between Deutsche Bank and
GENI. See In re GenesisIntermedia, Inc. Sec. Litig., 232 F. R.
D. 321 (D. Minn. 2005). Investors’ counsel added Lamb and
the Longs as class representatives, and Horizon withdrew as
lead plaintiff. Then Investors moved for certification of the
class pursuant to Federal Rule of Civil Procedure 23(b)(3). In
December of 2005, the Minnesota district court denied the
motion. The Eighth Circuit denied Investors’ petition for
interlocutory appeal, and the Minnesota district court trans-
ferred the case back to Judge Wilson in California.

                                    2

   In March of 2006, the case was reopened in the Central
District of California. A little more than two months later, the
district court allowed Investors to renew their motion for class
certification. Judge Wilson ultimately denied the motion one
day after Investors filed a Fourth Amended Complaint. The
district court’s order denying the motion therefore assumes
that the Third Amended Complaint is the operative complaint,
although it was aware that the Longs and Lamb had been
added as representative plaintiffs.5 After that, default judg-
ment was entered against some of the defendants, including
Breedon, and the claims against the other defendants, except
for Deutsche Bank, were dismissed. The last defendant stand-
ing, and the only one before us, is Deutsche Bank.
  5
   In general, “an amended pleading supersedes the original pleading,”
which is “treated thereafter as non-existent.” Ferdik v. Bonzelet, 

, 1262 (9th Cir. 1992) (internal quotation marks omitted). Thus, at the
time the district court ruled, the Fourth Amended Complaint had super-
seded the Third. It would be pointless to remand for the district court to
consider the Fourth Amended Complaint, however, because the two com-
plaints substantially overlap as far as Deutsche Bank is concerned. We
therefore base our decision on the Fourth Amended Complaint, noting rel-
evant differences between it and the Third.
                DESAI v. DEUTSCHE BANK SECURITIES                9909
   The class representatives then negotiated, as individuals, a
settlement with Deutsche Bank, but explicitly preserved their
rights to appeal the denial of class certification. The district
court entered final judgment and Investors timely appeal.

                                  II

                                  A

   Federal Rule of Civil Procedure 23 governs when a district
court may certify a class. All classes must meet the four pre-
requisites of Rule 23(a) and fall into one of the three catego-
ries of class actions defined in Rule 23(b). The Minnesota
district court addressed the Rule 23(a) prerequisites, but the
California district court ruled only on Rule 23(b) grounds.
Some of our sister circuits have concluded that the interlocu-
tory orders of out-of-circuit district courts that transfer a case
to an in-circuit district court are reviewable on appeal of the
transferee court’s judgment. See, e.g., Chaiken v. VV Publ’g
Corp., 

, 1025 n.2 (2d Cir. 1997) (“We have
jurisdiction to review the interlocutory judgment of the United
States District Court for the District of Massachusetts entered
prior to the transfer of the case to a district court within our
jurisdiction and the issuance by that court of a final order.”).
We need not decide whether to endorse such position, how-
ever, as we can decide this case on Rule 23(b) alone.

   [1] Specifically, Investors seek certification under Rule
23(b)(3). To certify under that provision, the district court
must find, first, “that the questions of law or fact common to
the members of the class predominate over any questions
affecting only individual members,” and, second, “that a class
action is superior to other available methods for the fair and
efficient adjudication of the controversy.” Fed. R. Civ. P.
23(b)(3) (2005).6 The rule also lists the following “matters
pertinent” to the certification decision:
  6
   The Federal Rules have since been amended to make stylistic changes,
but we quote the rules as they were when the complaint was filed.
9910              DESAI v. DEUTSCHE BANK SECURITIES
      (A) the interests of members of the class in individu-
      ally controlling the prosecution or defense of sepa-
      rate actions; (B) the extent and nature of any
      litigation concerning the controversy already com-
      menced by or against members of the class; (C) the
      desirability or undesirability of concentrating the liti-
      gation of the claims in the particular forum; (D) the
      difficulties likely to be encountered in the manage-
      ment of a class action.

district court concluded that individual
questions of law or fact predominated over common ones,
which sufficed to take the putative class outside of Rule
23(b)(3). The district court focused on the element of reliance,7
which is required to prove a violation of § 10(b) of the 1934
Act. The district court’s denial of class certification depended
on its belief that Investors would have to prove reliance on an
individual basis because they could not prove it class-wide.8
See Basic Inc. v. Levinson, 

, 242 (1988) (recog-
nizing that such individualized proof of reliance effectively
makes it impossible to proceed as a class, because “individual
issues then would . . . overwhelm[ ] the common ones”).

   A ruling on class certification “is subject to a very limited
review and will be reversed only upon a strong showing that
the district court’s decision was a clear abuse of discretion.”
In re Mego Fin. Corp. Sec. Litig., 

, 461 (9th Cir.
2000) (internal quotation marks omitted). The inquiry turns
on whether the district court faithfully applied the require-
  7
    We discuss reliance in detail infra, at 9914.
  8
    The district court also ruled that a class action was not superior to other
methods of adjudicating this controversy, but only because individual
issues of law and fact predominated over common ones. As it would be
duplicative, we do not analyze that portion of the district court’s Rule
23(b)(3) analysis.
                 DESAI v. DEUTSCHE BANK SECURITIES                    9911
ments of Rule 23(b)(3). See, e.g., Armstrong v. Davis, 

, 867-68 (9th Cir. 2001). To review the district
court’s decision, we must understand the underlying causes of
action.

                                    B

   Investors bring two claims against Deutsche Bank. First,
they allege a violation of § 10(b) of the 1934 Act and Rule
10b-5, promulgated thereunder.9 They also allege a violation
of § 20(a). Section 20(a) extends liability for violations of
other provisions of the 1934 Act, including § 10(b), to certain
so-called “controlling persons.” Thus, in this case liability
under § 20(a) turns on a violation of § 10(b). The district
court evaluated the questions of law or fact with respect to the
underlying liability for a violation of § 10(b), not with respect
to § 20(a). We therefore put § 20(a) aside.

   Section 10(b) makes it “unlawful for any person, directly
or indirectly . . . (b) [t]o use or employ, in connection with the
purchase or sale of any security registered on a national secur-
ities exchange or any security not so registered . . . any
manipulative or deceptive device or contrivance in contraven-
tion of [the SEC’s rules and regulations].” 15 U.S.C. § 78j.
Rule 10b-5 categorizes violations of the statute into three cat-
egories:

      (a) [t]o employ any device, scheme, or artifice to
      defraud[;]

      (b) [t]o make any untrue statement of a material fact
      or omit to state a material fact necessary in order to
      make the statements made, in the light of the circum-
  9
    The Supreme Court has long inferred a private cause of action from the
statute. See Superintendent of Ins. of N.Y. v. Bankers Life & Cas. Co., 

, 13 n.9 (1971) (“It is now established that a private right of action
is implied under § 10(b).”).
9912          DESAI v. DEUTSCHE BANK SECURITIES
    stances under which they were made, not mislead-
    ing[;] or

    (c) [t]o engage in any act, practice, or course of busi-
    ness which operates or would operate as a fraud or
    deceit upon any person, in connection with the pur-
    chase or sale of any security.

17 C.F.R. § 240.10b-5.

   [2] The words are capacious, to be sure, and “[w]hen we
deal with private actions under Rule 10b-5, we deal with a
judicial oak which has grown from little more than a legisla-
tive acorn.” Blue Chip Stamps v. Manor Drug Stores, 

, 737 (1975). All the same, “Rule 10b-5 encompasses
only conduct already prohibited by § 10(b).” Stoneridge Inv.
Partners, LLC v. Scientific-Atlanta, Inc., 

, 768
(2008). Thus, the cause of action must be based either on a
“manipulative” device or contrivance or on a “deceptive” one.
See 15 U.S.C. § 78j(b); ATSI Commc’ns, Inc. v. Shaar Fund,
Ltd., 

, 99 (2d Cir. 2007).

    [3] Courts have generally categorized deceptive and manip-
ulative devices into misrepresentations, omissions by those
with a duty to disclose, or manipulative acts. See, e.g., Ganino
v. Citizens Utils. Co., 

, 161 (2d Cir. 2000)
(“Section 10(b) of the Exchange Act bars conduct involving
manipulation or deception, manipulation being practices that
are intended to mislead investors by artificially affecting mar-
ket activity, and deception being misrepresentation, or nondis-
closure intended to deceive.” (internal quotation marks and
alteration omitted)); see also 

;
Cent. Bank of Denver v. First Interstate Bank of Denver,
N.A., 

, 177 (1994). Misrepresentations and most
omissions fall under the prohibition of Rule 10b-5(b),
whereas manipulative conduct typically constitutes “a scheme
. . . to defraud” in violation of Rule 10b-5(a) or a “course of
business which operates . . . as a fraud or deceit upon any per-
                DESAI v. DEUTSCHE BANK SECURITIES             9913
son” in violation of Rule 10b-5(c). See, e.g., In re Initial Pub.
Offering Sec. Litig., 

, 335 (S.D.N.Y.
2003) (treating manipulation as a violation of Rule 10b-5(a)
or (c) and misrepresentations and omissions as violations of
Rule 10b-5(b)).

   [4] Here, Investors allege manipulative conduct and omis-
sions by Deutsche Bank.10 “Manipulation,” the Supreme
Court has recognized, “is virtually a term of art when used in
connection with securities markets. The term refers generally
to practices, such as wash sales, matched orders, or rigged
prices, that are intended to mislead investors by artificially
affecting market activity.” Santa Fe Indus., Inc. v. Green, 

, 476 (1977) (internal quotation marks and citation
omitted). As for omissions, the term generally refers to the
failure to disclose material information about a company, as
opposed to affirmative manipulation. See 

. The person who omitted the material information must
have had a duty to disclose it to the person supposedly
harmed by the omission. See Paracor Fin., Inc. v. Gen. Elec.
Capital Corp., 

, 1157 (9th Cir. 1996) (“Rule
10b-5 is violated by nondisclosure only when there is a duty
to disclose.” (internal quotation marks omitted)). Such a duty
may arise “from a relationship of trust and confidence
between parties to a transaction.” Chiarella v. United States,

, 230 (1980).

  [5] Regardless of whether a § 10(b) plaintiff alleges a mis-
representation, omission, or manipulation, he must plead and
prove the following elements:

       (1) . . . use or employ[ment of] any manipulative or
       deceptive device or contrivance; (2) scienter, i.e.
       wrongful state of mind; (3) a connection with the
       purchase or sale of a security; (4) reliance, often
  10
  As Investors concede, any misrepresentations alleged in the Third
Amended Complaint did not pertain to Deutsche Bank.
9914           DESAI v. DEUTSCHE BANK SECURITIES
    referred to . . . as “transaction causation;” (5) eco-
    nomic loss; and (6) loss causation, i.e. a causal con-
    nection between the manipulative or deceptive
    device or contrivance and the loss.

Simpson v. AOL Time Warner Inc., 

, 1047 (9th
Cir. 2006), vacated on other grounds by Avis Budget Group,
Inc. v. Cal. State Teachers’ Ret. Sys., 

(2008).

   Reliance establishes the causal connection between the
alleged fraud and the securities transaction. See 

(citing 

). To say that
a plaintiff relied on a defendant’s bad act is to say that the
defendant’s actions “played a substantial part in the plaintiff’s
investment decision.” Rowe v. Maremont Corp., 

, 1233 (7th Cir. 1988). It is thus “often referred to in
cases involving the public securities markets . . . as ‘transac-
tion causation,’ ” Dura Pharms., Inc. v. Broudo, 

, 341 (2005), presumably because reliance requires an
investor-plaintiff to show that he would not have engaged in
the transaction in question had he known about the fraud.

   [6] Reliance can be presumed in two situations. In omission
cases, courts can presume reliance when the information with-
held is material pursuant to Affiliated Ute Citizens v. United
States, 

, 153-54 (1972). Reliance can also be pre-
sumed in certain circumstances under the so-called “fraud on
the market theory.” 

. Precisely to
which cases this presumption applies—that is, to misrepresen-
tation, to omission, to manipulation cases, or to some combi-
nation of the three—is an issue the parties contest on appeal.
The two presumptions are conceptually distinct.

   [7] The fraud on the market theory bears some additional
explanation. It is a way to show “the requisite causal connec-
tion between a defendant’s [bad act] and a plaintiff’s injury,”

that lies at the heart of the element of reliance. The
theory allows plaintiffs to rely on a “rebuttable presumption
               DESAI v. DEUTSCHE BANK SECURITIES             9915
of investor reliance based on the theory that investors presum-
ably rely on the market price, which typically reflects the mis-
representation or omission.” No. 84 Employer-Teamster Joint
Council Pension Trust Fund v. Am. W. Holding Corp., 

, 934 n.12 (9th Cir. 2003). The presumption is “based
on the hypothesis that, in an open and developed securities
market, the price of a company’s stock is determined by the
available material information regarding the company and its
business.” 

(internal quotation marks
omitted). Therefore, the presumption is usually available
“only when a plaintiff alleges that a defendant made material
representations or omissions concerning a security that is
actively traded in an ‘efficient market.’ ” Binder v. Gillespie,

, 1064 (9th Cir. 1999). In other words, the the-
ory allows the plaintiff to connect causally the defendant’s
bad act with the plaintiff’s decision to buy or sell the security,
by presuming that the plaintiff based his decision on the price
of the security and that such price reflects the defendant’s bad
act.

                               III

   The district court concluded that neither the Affiliated Ute
presumption of reliance nor the fraud on the market presump-
tion of reliance applied in this case. The Affiliated Ute pre-
sumption did not apply, according to the court, because this
was not primarily an omissions case. The district court
rejected the application of the fraud on the market presump-
tion because, by their own admission, Investors could not
show an efficient market. Finally, the court rejected their invi-
tation to create a novel presumption of reliance on “the integ-
rity of the market” in the context of manipulation cases.
Whether or not they can rely on a presumption of reliance
determines whether their putative class can meet the require-
ments of Rule 23(b)(3). For without a class-wide presump-
tion, Investors would have to prove reliance as to each class
member individually.
9916          DESAI v. DEUTSCHE BANK SECURITIES
                               A

   The presumption of reliance under Affiliated Ute is limited
to cases that “can be characterized as . . . primarily alleg[ing]
omissions.” 

Therefore, if Investors’ putative class
action is not such a case, they cannot avail themselves of the
Affiliated Ute presumption.

   Investors allege that this is an omissions case because “the
case as a whole is . . . overwhelmingly non-statement based—
in other words, omission-based.” In other words, they seem to
assume that as long as liability is not based on misrepresenta-
tions, then it must be based on omissions. Relatedly, they
argue that because Deutsche Bank and the other former defen-
dants “failed to disclose their active manipulation of GENI
stock,” they have made an actionable omission. This approach
would collapse manipulative conduct claims and omission
claims.

  [8] We must recognize, however, that manipulative conduct
has always been distinct from actionable omissions.

   Omissions are generally actionable under Rule 10b-5(b).
As we explained above, they stem from the failure to disclose
accurate information relating to the value of a security where
one has a duty to disclose it. Paracor 

.
Insider trading cases are a notorious example: the insider who
knows nonpublic information and trades on the basis of it has
committed an actionable omission. See, e.g., United States v.
O’Hagan, 

, 651-52 (1997); 

.

   [9] Manipulative conduct, by contrast, is actionable under
Rule 10b-5(a) or (c) and includes activities designed to affect
the price of a security artificially by simulating market activ-
ity that does not reflect genuine investor demand. See Santa

; Ernst & Ernst v. Hochfelder, 

, 199 (1976) (“[Manipulation] connotes intentional or
               DESAI v. DEUTSCHE BANK SECURITIES               9917
willful conduct designed to deceive or defraud investors by
controlling or artificially affecting the price of securities.”). In
order to succeed, manipulative schemes must usually remain
undisclosed to the general public. See Santa 

. If such nondisclosure of a defendant’s fraud was an
actionable omission, then every manipulative conduct case
would become an omissions case. If that were so, then all of
the Supreme Court’s discussion of what constitutes manipula-
tive activity would be redundant. We decline to read the
Supreme Court’s case law on manipulative conduct as little
more than an entertaining, but completely superfluous, intel-
lectual exercise. See 

(listing the
three types of § 10(b) actions); Cent. 

(same).

   [10] One of our sister circuits has recently come to a simi-
lar conclusion. In Joseph v. Wiles, 

(10th Cir.
2000), the Tenth Circuit held the Affiliated Ute presumption
inapplicable in a case involving some omissions, but also mis-
representations and secret manipulation.

       Any fraudulent scheme requires some degree of
    concealment, both of the truth and of the scheme
    itself. We cannot allow the mere fact of this conceal-
    ment to transform the alleged malfeasance into an
    omission rather than an affirmative act. To do other-
    wise would permit the Affiliated Ute presumption to
    swallow the reliance requirement almost completely.
    Moreover, it would fail to serve the Affiliated Ute
    presumption’s purpose since this is not a case where
    reliance would be difficult to prove because it was
    based on a negative. We therefore hold the Affiliated
    Ute presumption of reliance inapplicable . . . .

We agree with the Tenth Circuit’s approach,
which carefully maintained the well-established distinction,
for purposes of the Affiliated Ute presumption, between omis-
9918             DESAI v. DEUTSCHE BANK SECURITIES
sion claims, on the one hand, and misrepresentation and
manipulation claims, on the other.

   [11] Investors also alleged, and the district court addressed,
some omissions in their Third Amended Complaint that do
not appear in their Fourth Amended Complaint. As we indi-
cated above, see supra, note 5, where the latter complaint dif-
fers from the former, we take the latter as operative because
it supersedes the prior complaint. Thus, Investors have alleged
no actionable omissions and so the Affiliated Ute presumption
of reliance does not apply.11

                                   B

                                   1

  [12] “’The fraud on the market theory,’ ” as the Supreme
Court has adopted it,

       “is based on the hypothesis that, in an open and
       developed securities market, the price of a compa-
       ny’s stock is determined by the available material
       information regarding the company and its business.
       . . . Misleading statements will therefore defraud
       purchasers of stock even if the purchasers do not
       directly rely on the misstatements. . . . The causal
       connection between the defendants’ fraud and the
       plaintiffs’ purchase of stock in such a case is no less
       significant than in a case of direct reliance on mis-
       representations.”

-42 (quoting Peil v. Speiser, 

     We add that, even if Investors had alleged omissions, they would not
be actionable without a duty to disclose the information omitted. Paracor

. Because there are no true omissions alleged, how-
ever, we do not reach the question whether Deutsche Bank had such a duty
in this case.
              DESAI v. DEUTSCHE BANK SECURITIES             9919
1154, 1160-61 (3d Cir. 1986) (alteration in original)). Thus,
the theory presumes first that “[a]n investor who buys or sells
stock at the price set by the market does so in reliance on the
integrity of that price.” 

Second, “[b]ecause most
publicly available information is reflected in market price, an
investor’s reliance on any public material misrepresentations
. . . may be presumed for purposes of a Rule 10b-5 action.”

element of the presumption depends upon the
efficiency of the market in which the security trades. See

; see also 

n.27
(listing as an element of the presumption as “that the shares
were traded on an efficient market”); Oscar Private Equity
Invs. v. Allegiance Telecom, Inc., 

, 264 (5th Cir.
2007) (listing an efficient market as a prerequisite for applica-
tion of the fraud on the market theory); In re PolyMedica
Corp. Sec. Litig., 

, 7 (1st Cir. 2005) (“Before an
investor can be presumed to have relied upon the integrity of
the market price, however, the market must be ‘efficient.’ ”);
Hayes v. Gross, 

, 106 (3d Cir. 1992) (“Where the
security involved is traded in an open and efficient market,
[the plaintiff] may . . . rely on the ‘fraud-on-the-market the-
ory’ . . . . ”); Freeman v. Laventhol & Horwath, 

,
198 (6th Cir. 1990) (“[T]he presumption of reliance arising
from the fraud on the market theory is only supported by
common sense and probability as applied to efficient mar-
kets.” (internal quotation marks and citation omitted)). Inves-
tors acknowledge that the market for GENI’s shares was not
efficient. Normally, that would amount to a fatal concession.

                               2

   Investors, however, ask us to recognize a new presumption
for manipulative conduct cases. Investors, they argue, typi-
cally rely on the “integrity of the market,” that is, that no one
has destroyed its efficiency by manipulation. This consider-
ation justifies a presumption of reliance, according to Inves-
9920          DESAI v. DEUTSCHE BANK SECURITIES
tors, when manipulation allegedly destroys the efficiency of
the market, and with it the reliability of the market’s price.

   We are chary. No authority required the district court to
adopt Investors’ integrity of the market presumption. Indeed,
the Supreme Court has adopted a rather restrictive view of
private suits under § 10(b), noting that, “[t]hough it remains
the law, the § 10(b) private right should not be extended
beyond its present boundaries.” 

.
In Stoneridge, the Court listed the Affiliated Ute presumption
and the fraud on the market presumption as the two reliance
presumptions it has recognized. 

After concluding
that “[n]either presumption appli[ed],” it did not inquire into
any other presumption that seemed appropriate, but simply
analyzed whether the plaintiffs could prove reliance directly.

may not forbid the recognition of new pre-
sumptions, but they do illustrate that the district court did not
have to recognize this one.

   [13] We therefore conclude that the district court did not
abuse its discretion in refusing to adopt the integrity of the
market presumption. On the contrary, it permissibly declined
to certify the class under Rule 23(b)(3) on the ground that
individual issues pertaining to the issue of reliance predomi-
nate over common ones.

                               IV

  For the foregoing reasons, we AFFIRM the district court’s
denial of the motion for class certification. Each party shall
bear its own costs on appeal.



O’SCANNLAIN, Circuit Judge, concurring:

   My colleagues and I agree that the district court did not err
in rejecting the integrity of the market presumption that Inves-
               DESAI v. DEUTSCHE BANK SECURITIES             9921
tors proffered in this case. I therefore join the court’s opinion
affirming the district court’s refusal to certify the class.
Unfortunately, however, we are left to conclude abruptly with
a declaration of the result, for we cannot agree on the correct
approach. I believe that, because the validity of a presumption
of reliance in securities class actions is a matter of law and
because errors of law are per se abuses of discretion, we must
explicitly decide whether Investors are entitled to this novel
presumption as a matter of law. I write separately to explain
my view.

                                I

   We review class certification decisions for abuse of discre-
tion, but errors of law constitute per se abuses of discretion.
Cooter & Gell v. Hartmax Corp., 

, 405 (1990)
(“A district court would necessarily abuse its discretion if it
based its ruling on an erroneous view of the law.”). Here,
Investors squarely raised and the district court forthrightly
rejected a new legal theory—the “integrity of the market” pre-
sumption. This presumption, as described by Investors, would
apply in this case. Therefore, if the presumption is legally
valid, then Investors are entitled to plead it. If not, then they
are not.

   Consider the situation in reverse: suppose the district court
had adopted the integrity of the market presumption and
granted class certification. In such case, I believe we would
be bound to reverse even if existing law did not squarely fore-
close such a theory because we would have to decide whether
the presumption was legally valid. The same is true here. The
district court held that there is no integrity of the market pre-
sumption as a matter of law. We must decide whether that
legal conclusion was correct.

   In short, to reach the integrity of the market presumption on
its merits is not a matter of choice. We must decide its valid-
ity. It was raised in the district court and addressed by the dis-
9922          DESAI v. DEUTSCHE BANK SECURITIES
trict court; it was raised and fully briefed on appeal. Where
the district court “based its ruling on an erroneous view of the
law,” then it “necessarily abuse[d] its discretion.” 

at
a loss as to how this case compels variation from this clear
rule.

                               II

   As explained, I would address the integrity of the market
presumption on the merits. In my view, the presumption is
legally unsupported and logically inadvisable. As presented to
us, the integrity of the market presumption works in the fol-
lowing way. The average investor in securities typically relies
on the “integrity of the market,” that is, that no one has
destroyed its efficiency by manipulation. This consideration
justifies a presumption of reliance, according to Investors,
when manipulation allegedly destroys the efficiency of the
market, and with it the reliability of the market’s price.

                               A

  First, the cases from which Investors purport to have
derived their theory do not support it.

   Investors initially point to Gurary v. Winehouse, 

(2d Cir. 1999), for support. But Gurary did not recognize
any new presumption of reliance. It merely held that, to make
out a manipulation claim, a plaintiff must show that he did not
know “that the price was affected by the alleged manipula-
tion.” 

To be sure, the Second Circuit also noted that
“[t]he gravamen of manipulation is deception of investors into
believing that prices at which they purchase and sell securities
are determined by the natural interplay of supply and demand,
not rigged by manipulators.” 

language merely
summarizes the essence of a manipulation claim. It does not
purport to go beyond the fraud on the market presumption.

   Sticking with the Second Circuit, Investors also cite Schlick
v. Penn-Dixie Cement Corp., 

(2d Cir. 1974).
              DESAI v. DEUTSCHE BANK SECURITIES             9923
Such case does indeed offer support, for the opinion held that
“proof of transaction causation is unnecessary by virtue of the
allegations as to the effectuation of a scheme to defraud which
includes market manipulation.” 

This seems to say
that there is no need to prove reliance to make out a manipula-
tive conduct claim. But even Investors do not take that posi-
tion. In any event, the Second Circuit has reversed itself on
this point. See, e.g., ATSI 

(listing
reliance as an element in a manipulative conduct claim). And
In re Blech Securities Litigation, 

(S.D.N.Y.
1997), another case on which they rely, reiterated the reliance
element, even to make out a claim for manipulative conduct.
See 

Furthermore, Blech applied the fraud on the
market presumption without recognizing any other presump-
tion unique to manipulative conduct cases. 

Sklar, 

(5th Cir. 1981) (en banc),
does not help Investors either. In Shores, the Fifth Circuit
concluded that, although the plaintiff could not show reliance
on the specific misrepresentation, he could nonetheless show
reliance because he was entitled to assume that an issued
security was legally issued. See 

As the Fifth Circuit
later described the case, Shores embraced a presumption of
reliance where alleged fraud created the market for a security,
insofar as “actors who introduced an otherwise unmarketable
security into the market by means of fraud are deemed guilty
of manipulation, and a plaintiff can plead that he relied on the
integrity of the market rather than on individual fraudulent
disclosures.” Regents of Univ. of Calif. v. Credit Suisse First
Boston (USA), Inc., 

, 391 (5th Cir. 2007).

   This “fraud created the market” theory, even were it viable,
would not help Investors. They do not allege that the manipu-
lative scheme of Deutsche Bank and others created the market
for GENI’s stock. GENI’s shares traded publicly before the
date the scheme allegedly began. Furthermore, they did not
purchase the unregistered shares that the GENI insiders had
9924          DESAI v. DEUTSCHE BANK SECURITIES
lent down the chain of broker-dealers. Thus the theory of
Shores would not apply to this case.

                               B

   Beside being virtually unknown, an integrity of the market
presumption is inadvisable because it would swallow the reli-
ance requirement. Most investors do, I think it fair to say,
assume that the markets are not corrupt. Cf. 

(“It has been noted that ‘it is hard to imagine that
there ever is a buyer or seller who does not rely on market
integrity. Who would knowingly roll the dice in a crooked
crap game?’ ” (quoting Schlanger v. Four-Phase Sys. Inc.,

, 538 (S.D.N.Y. 1982))). But if that hypothe-
sis sufficed to presume reliance, then no plaintiff would ever
have to prove reliance. That might not worry me if this novel
presumption made “the requisite causal connection,” which
lies at the heart of the reliance element, “between a defen-
dant’s [bad act] and a plaintiff’s injury.” 

. But Investors’ integrity of the market presumption only
connects the buyer or seller of securities with the market
price; it does not connect the price to the defendant’s manipu-
lative conduct. Unlike the fraud on the market presumption,
this theory would permit a presumption of reliance no matter
how unlikely it is that the market price in question would
actually reflect the alleged manipulation.

   The integrity of the market presumption that Investors prof-
fer, then, would prove too much while doing too little. Prove
too much, because it would obviate the need for plaintiffs in
manipulative conduct cases to prove reliance; do too little,
because it does not complete the causal connection between
a plaintiff’s transaction in securities and a defendant’s manip-
ulation. Therefore, I would reject the invitation to recognize
this new presumption of reliance.

                               C

   Investors make a final argument for a new presumption of
reliance that deserves separate discussion. They contend that
              DESAI v. DEUTSCHE BANK SECURITIES            9925
allegations of manipulative conduct warrant distinctive treat-
ment because the fraud on the market presumption does not
apply to them.

   It is true that the fraud on the market theory is normally
phrased in terms of misrepresentations or omissions. See, e.g.,

the fraud on the market theory “provides
the requisite causal connection between a defendant’s misrep-
resentation and a plaintiff’s injury.” (emphasis added)); No.
84 Employer-Teamster Joint Council Pension Trust 

n.12 (noting that the theory creates a “rebutta-
ble presumption of investor reliance based on the theory that
investors presumably rely on the market price, which typi-
cally reflects the misrepresentation or omission” (emphasis
added)).

   But these statements do not foreclose the application of the
fraud on the market theory to manipulative conduct cases.
They simply reflect the relative rarity of such cases. Indeed,
courts have applied the fraud on the market theory in the con-
text of manipulation. 

(concluding
that the fraud on the market theory pertains to claims brought
under clauses (a), (b), and (c) of Rule 10b-5); Scone Invs.,
L.P. v. Am. Third Market Corp., No. 97 CIV. 3802, 

, *5 (S.D.N.Y. Apr. 28, 1998) (“The fraud on the mar-
ket theory is especially applicable in the market manipulation
context. Market manipulation schemes which are intended to
distort the price of a security, if successful, necessarily
defraud investors who purchase the security in reliance on the
market’s integrity.”).

   As a matter of logic, too, the fraud on the market theory is
not limited to cases of misrepresentation and omission. Recall
that it is “based on the hypothesis that, in an open and devel-
oped securities market, the price of a company’s stock is
determined by the available material information regarding
the company and its business.” 

(inter-
nal quotation marks omitted). The artificial market activity
9926             DESAI v. DEUTSCHE BANK SECURITIES
that constitutes manipulative conduct, no less than misrepre-
sentations of, or misleadingly incomplete statements about, a
company’s earnings, is also information that the market price
either does or does not reflect. The fraud on the market theory
is one way courts can presume such a reflection, but Investors
have chosen not to rely on it.1 They have also chosen not to
argue for direct reliance. In other words, Investors have aban-
doned two well-worn paths to relief. There is no reason, then,
to blaze a third, for the law does not let market manipulators
off the hook.

                                    III

   In summary, it seems to me we must reach the validity of
the integrity of the market presumption, for it is at the heart
of the legal error Investors claim the district court made in the
class certification ruling. I therefore concur in the court’s
opinion so far as it goes, but write separately to address the
legal issue that, in my view, drives this appeal. Doing so, I
would conclude that the integrity of the market presumption
Investors proffered is not legally valid, so the district court
did not err in refusing to recognize it. Thus, where a putative
class alleges manipulative conduct as a violation of § 10(b),
it must either prove reliance directly or invoke its presump-
tion pursuant to the fraud on the market theory.




  1
    I recognize the possibility that certain allegations of manipulative con-
duct might change the application of the fraud on the market theory. This
is because the plaintiff in manipulation cases often alleges that a defendant
directly manipulated the price. Certainly, a plaintiff must still show that
the market in question could absorb into the price the misinformation
communicated by the alleged manipulation. But need a plaintiff show the
same type of proof of an efficient market in a manipulation case as is
required in a misrepresentation case? Although I note the doctrinal wrin-
kle, this is a question I would agree we actually do not need to reach,
because Investors forsook the fraud on the market theory.
               DESAI v. DEUTSCHE BANK SECURITIES             9927
GRABER, Circuit Judge, concurring:

   I concur fully in the court’s opinion but write to respond to
Judge O’Scannlain’s assertion that we must decide defini-
tively, one way or the other, whether Investors are entitled to
plead a novel “integrity of the market” presumption. Concur-
rence at 9920-21. Neither logic nor precedent requires us to
reach that question in the circumstances presented here.

   The district court denied class certification because individ-
ual questions, rather than class-wide questions, predominated
within the meaning of Rule 23(b). The court reached that con-
clusion by analyzing the two existing exceptions to the
requirement to prove individual reliance and by declining to
recognize a third proposed exception. We review for abuse of
discretion, Dunleavy v. Nadler (In re Mego Fin. Corp. Sec.
Litig.), 

, 461 (9th Cir. 2000), so the only ques-
tion we must answer is whether the district court’s refusal to
recognize a new exception amounted to an abuse of discre-
tion. The district court did not abuse its discretion even if the
third exception turns out to be valid, so long as existing law
did not compel the court to recognize the third exception in
this case.

   The presumption of reliance under Affiliated Ute Citizens
v. United States, 

, 153-54 (1972), does not apply
because it is limited to cases that “can be characterized as . . .
primarily alleg[ing] omissions.” Binder v. Gillespie, 

, 1064 (9th Cir. 1999). The complaint primarily alleges
acts (manipulation) rather than omissions. The fraud-on-the-
market presumption does not apply because it establishes reli-
ance “when the statements at issue become public” and the
“public information is reflected in the market price of the
security.” Stoneridge Inv. Partners, LLC v. Scientific-Atlanta,
Inc., 

, 769 (2008). As Investors acknowledge in
their bid to create a new exception, those conditions do not
exist here.
9928          DESAI v. DEUTSCHE BANK SECURITIES
  The reason why the new exception is not compelled by
existing law can be found quite simply in the Supreme
Court’s cautionary statement that “the § 10(b) private right
should not be extended beyond its present boundaries.” 

We need say no more than that to hold that the district
court permissibly denied class certification.

   To summarize, the district court declined as a matter of law
to recognize a new version of the fraud-on-the market pre-
sumption, which we refer to as an “integrity of the market”
presumption. All we have to decide is whether the district
court had to recognize that new theory. If so, then the court
made a mistake of law (and hence abused its discretion, see
Koon v. United States, 

, 100 (1996) (“A district
court by definition abuses its discretion when it makes an
error of law.”)). But if the court did not have to recognize the
investors’ proposed new theory, there is no abuse of discre-
tion; that result could occur either because there is no such
theory as a matter of law or because it is unclear whether such
a theory ought to be recognized or not. We properly have
opted for the final formulation and have found no abuse of
discretion.