Grigsby v. BofI Holding, Inc., No. 19-55042 (9th Cir. 2020)
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Plaintiffs, who represent a putative shareholder class, filed suit alleging that BofI and its senior executives violated sections 10(b) and 20(a) of the Securities Exchange Act by denying that BofI was the subject of a money laundering investigation. The complaint also alleged that BofI falsely stated that a whistleblower's separate allegations that BofI made undisclosed loans to criminals were "disconnected from the reality of BofI's highly compliant and top-performing business."
The panel held that plaintiffs may rely on a corrective disclosure derived from a Freedom of Information Act (FOIA) response by plausibly alleging that the FOIA information had not been previously disclosed. If a plaintiff relies on information obtained via a FOIA request, the pleading burden to allege loss causation is no different from the pleading burden for other types of corrective disclosures. Therefore, the panel reversed the district court's loss causation ruling to the extent it deemed information obtained via a FOIA request to be publicly available prior to its disclosure. The panel also held that the district court correctly ruled that the Seeking Alpha article at issue did not constitute a corrective disclosure, in part because it was written by an anonymous short-seller with no expertise beyond that of a typical market participant who based the article solely on information found in public sources. Accordingly, the panel affirmed in part, reversed in part, and remanded.
Court Description: Securities Fraud. The panel affirmed in part and reversed in part the district court’s order dismissing, for failure adequately to plead loss causation, a securities fraud action alleging that defendant BofI Holding, Inc., and its senior executives violated §§ 10(b) and 20(a) of the Securities Exchange Act. * The Honorable Alvin K. Hellerstein, United States District Judge for the Southern District of New York, sitting by designation. GRIGSBY V. BOFI HOLDING 3 Plaintiffs alleged that defendants denied that BofI was the subject of a money laundering investigation and falsely stated that a whistleblower’s separate allegations that BofI made undisclosed loans to criminals were “disconnected from the reality of BofI’s highly compliant and top-performing business.” To establish a causal connection between BofI’s two statements and declines in BofI’s stock price, plaintiffs pointed to two articles that allegedly revealed the falsity of BofI’s statements immediately prior to drops in BofI’s stock price. One of the articles relied on information obtained through a Freedom of Information Act request to the Securities and Exchange Commission; the other appeared on a website called Seeking Alpha. The district court determined that the article premised on information from a FOIA request did not reveal new information to the market, and thus could not be a corrective disclosure of any misrepresentation. The panel held that plaintiffs can satisfy the loss- causation pleading burden by alleging that a corrective disclosure revealed the truth of a defendant’s misrepresentation to the market and thereby caused the company’s stock price to drop and investors to lose money. The panel held that plaintiffs may rely on a corrective disclosure derived from a FOIA response by plausibly alleging that the FOIA information had not been previously disclosed. The panel therefore reversed the district court’s loss causation ruling to the extent it deemed information obtained via a FOIA request to be publicly available prior to its disclosure. Affirming in part, the panel concluded that the district court correctly ruled that the Seeking Alpha article did not constitute a corrective disclosure, in part because it was written by an anonymous short-seller with no expertise 4 GRIGSBY V. BOFI HOLDING beyond that of a typical market participant who based the article solely on information found in public sources. The panel remanded the case to the district court.
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