a gamble fails that failure is not inconsistent with it having been considered though because of the risk a reckless gamble that's paraphrasing judge posner from tell abs to in the seventh circuit i think that's an important way to begin our discussion today because these cases at the end of the day whether you're talking about falsity or cyan or the main most fascinating question is why why did somebody mislead investors now the core in this case never reached the issue of cyan or loss causation but dismissed the march third statements with prejudice eighth statements with leave but that question of why is important why what why do companies and their highest ranking officers mislead investors and i started with the gambling analogy because the federal securities laws do not prohibit gambling what they do prohibit however is failing to inform investors when a gamble a in this circuit and in other circuits are robust the p s l array and rule nine demand it accusing someone of fraud is a serious accusation that one should take seriously but our job here in this case was made a little easier because two high ranking individuals with firsthand knowledge of the allegations in this case made the exact same allegation on march fifth two thousand and fifteen dr jenkins the head of the office of new drugs of the f d a characterized publicly in forbes defendant's march third statement as misleading unreliable and likely false i think he was correct then on the last day of the class period may twelfth dr steven nissen of the cleveland clinic who was charged by the f to oversee the light study this heart safety study for can trade no b c d truglio characterized defendant's statements during a may eighth two thousand and fifteen earnings  call and specifically said that investors were misled so what defendants have characterized below in the district court and have continued to characterize here as merely upsetting dr neeson and the executive steering committee and upsetting the f d a we think it demonstrates the same hubris that provides the answer of why defendants applied to the market on march third and why they thought the issue was whether or not it's legally sufficient in the allegation of the complaint as to march three two thousand yes that begins on page thirty five which is the excerpts of record that i believe one forty two and one forty three and one forty four and so i'd like to address judge paine's question about what was misleading about the march third eight k part of it is contained in the complaint part of it is contained outside of the complaint and it was materials that came after the briefing was done and after we had filed a motion to dismiss certainly we would have kon back and use those few materials to amend had be been granted leave but we believe the court violated the general rule particularly in securities cases citing eminence capital that leave to a man should be granted and we think that at a minimum the there should be a remain and on on the court's dismiss with prejudice on my client's first trial and march third i'd like to point out your one forty four and that's the chart and this chart is very important and i was referencing earlier miller versus thane because the context and manner of presentation can mislead investors and here you have a forty one percent reduction in mace based on what defendants claimed was a heart benefit from can trace and if you look at the box in this graph it cites a ninety five percent confidence interval which is another way the other ones can trade and if you go down into the box it's got a ninety five percent c i which is another way of saying chanting as they say that for change is just what they were supposed to be testing for which is  in it's oftentimes the footprints in the snow in these cases which is the market reaction and the market response to this graph this deceptive graph which was a sixty percent jump in the price of the company securities  this these are sophisticated market participants who almost unanimously looked at this data looked at this graph and believed that there was a statistically significant heart benefit for those taking can tra but what we later found out and what the company found out on march twenty sixth two thousand and fifteen and i don't think that they'll dispute that is that at the fifty percent level that heart benefit vanished now did the company before dr neeson finally forced their hand when they finally revealed that information and they could have handled it differently they could have not held in earnings call on may eighth where they fielded specific analyst questions from market participants hark hungry for information about the fifty percent data instead they obfuscated with respect to the fifty percent data on may eighth i'd like to point out another trouble with the f d a for violating the data access plan they'd share the twenty five percent data with over one hundred people with a financial interest in the outcome of this study in the process of doing so they consummated a one hundred million dollar private placement the company undoubtedly wanted to get this twenty five percent data out there they believed and gambled that it would be vindicated at the fifty percent mark they turned out to be wrong there's nothing wrong with gambling when you're the c e o or the c f o of a company but if you make a mistake and you lose that gamble you have a responsibility to the market and the shareholders to come clean about that and they didn't and so we think that it's absolutely critical your honour's that you correct something that the district court held that we view as a significant problem judge zimmer teano held with respect to the eight k that nowhere did the think that that is profoundly troubling in the context of drug cases and f d a with f d a regulatory oversight what the company should have said to the market your honour's on march third two thousand and fifteen in that eight k is the following we saw we we blew it with the f d a before the class period and the f d a made a sign an agreement never to disclose information again there are risks associated with us doing so here which would have enabled many investors to stay on the sidelines and not buy the company securities starting on in danger in the study and finally the study right that certainly part of it the f d a was was concerned not only that they were endangering the study but that they were using the twenty five percent data in a manner that was highly inappropriate which was sharing it with members of the board of directors and sharing it with was reason that was all inappropriate just because it was endangering their violently the study that's certainly a big part of it from the f d a is point of view and seem to be basically all of it that was what they were concerned about ok and so the the question is how does that hook up well whatever and also i gather at that back in the fall it was already public that this study was going to have to be region that is that is correct but aren't so so what exactly is the relevance to investors the f d a has met them essentially i'll tell you why and all we need to do and it's in the complaint is is quote dr jenkins who a the head of the o n t the office of new drugs specifically said if you do this again there are going to be consequences regulatory fines and potentially the withdrawal of can trace from the market right so there was some and should have been accepted as true judge payne i believe it was a case involving wilko via said you know rule nine and the rule nine doesn't require a dissertation it requires the who what when where and why what of the accusation of misleading statements or fraud and we have done that here right and so if you were going to the district court denied your request to america what would you say question i appreciate it your honor a couple of things one we discovered after the briefing that dr neeson and his colleagues had published an article about this entire affair in that or in that article and i believe it's exhibit two to our request for judicial notice we learned that the company had what's called on treatment analysis so the information that was presented in the eight k was the intention to treat analysis which is different from the on treatment an on treatment analysis made clear that there was no heart benefit at the twenty five percent level in other words they concealed the on treatment and malice is from the eight k to make it appear as though under the intention to treat analysis that that that the twenty five percent data had my misstep do you want to talk for two minutes about the other set of statements sure and here we and i'd like to correct an important misstatement i don't accuse my colleague of doing it intentionally but nevertheless it's important thing to point out we have pointed out in our reply in a footnote but they say that neither the may eighth eight k or ten q ever discussed the status of the light study that is incorrect the ten q on may eighth specifically says on a quickly that the light study was ongoing we know that as of may eighth the company had known for at least six weeks on march twenty sixth dr nissen told them that the executive steering committee had voted to halt the light study and they said weeks later that it your complaint and that there were just it was recommended to be terminated but it wasn't terminated so i guess my question is are you saying well that was enough that that that was still a misrepresentation if it was recommended to be terminated absolutely i think that they role in making a decision about terminations i don't think anywhere in the record do defendants say or deny that they were told by by dr nissen on march twenty sixth that the e s c had voted to terminate the study when you want to characterize it as a recommendation or not they can see that on may eighth and there's no dispute that as of march twenty sixth they were shown the fifty percent data right and then have an earnings call six weeks later where they field specific analysts questions about those two subject matters and misleading but what could the security he was asked flat out about the fifty percent who said i'm not essentially i'm going to tell you he says we have seen it right  d i'm not going to discuss it but the question your honor though is that is your you regarding that as a misleading omission or something of the obligation why i'm saying it's actionable how are you want to characterize it when  business days later to issue his own press release that all sounds very sensible but they but the state of the law under this statute is pretty tough as to what your obligation is to the l information if you haven't discussed anything about it so the question is i mean maybe simply the fact that they've already revealed a twenty five percent debt is enough to make them responsible for a villain the fifty percent data but what is it that makes them responsible for revealing the fifty percent data the fact that they held an earnings conference call where they fielded specific questions about that judge to shima in matrix penned the decision for the panel there were virtually the same issue arose the eight k in that case in matrix that the ninth circuit decision ultimately affirmed by the united states supreme court didn't specifically mention the issue about zajac ham in that case the safety and efficacy what the eight k did was touted the sales that they were going to generate from site him and nevertheless judge to she must said that that's actionable it doesn't have to be near image the question your honor is i think that the court should should consider but do we have to identify what statement that the district court you can tell me whether this is right reliant on either incorporated are just a notice documents to say that that in fact they didn't that the study had not been terminated and that doesn't seem right ok but what exact difference does it make to the market or to the investors whether the study was terminated just to everybody knows the study is not going all ready knows that the study is not going to suffice it's going to have to be done study and to finish it to completion and this costs money and the market and investors are reasonably concerned with questions like that which is why they asked about the status of the light keda and that relationship was very important to the commercialization of contract when when dr neeson finally came out and revealed himself the fifty percent data on may twelfth the company minutes beforehand had revealed that the late study had been terminated something they say they've been advocating all along which begs the question why didn't they reveal it on march twenty sixth why didn't they reveal it on march twenty sixth when they found out that the e s e had voted to terminate it if that's what they had been advocating all along it's because they knew that they were going to be consequences associated with that on the company's share price that the companies executives covered it and what it took a to do it initiated a two hundred million dollars lawsuit against the company exigence decisions about what to do with the interim data from the twenty five percent interim analysis of the light study and we've seen in the complaint and in the documents that the court took judicial notice of  significant criticism of the company by the clinicians who were part of the light study and by f d a representatives but the question here isn't directed to make the right business decision with respect to filing for a patent application and disclosing the data the question here is does the consolidated complaint allege with particularity sufficient facts to state a claim for securities fraud and the answer to that question is clear it did not in th but those documents i mean it seems to me that the judgment somewhat overboard in taking judicial notice incorporating documents i mean both as to what incorporated but also by relying on the actually is is that we're turning these things and just look into summary judgment proceed and why don't we just stick with a complaint i understand about having to have the actual statements and context but beyond that why are we looking at anything else we don't patent and that the twenty five percent interim result supported that there's also the may statements about the status of the light study so if we look just at the march third statements and take those first what we have are the allegations in the complaint and the eight k itself and i would note for the court that in their opening brief the plaintiffs can see that there's nothing false or inaccurate about the march third eight k and that's in footnote fifteen of their opening brief well that should be the end of the analysis there was nothing false or misleading about those statements at all what the company did was simply share  and if we look at the document from just a little what does it mean it means that essentially there's a ninety five percent likelihood that those results could not be achieved by chance and it's simply a standard marker for what the results show and as your honor pointed out previously it has nothing to do with whether or not there's a benefit a c v benefit it's looking at what the no hypothesis was that was tested what us want to be but how would one know that if you look at it i mentioned that you don't need to look at the analyst reports to determine what that means but i want to know the people who wrote the reports on it and read it that way they thought it was a kind of statistical significance with regard to the benefit that's how they interpreted it have what the case says specifically and there are multiple statements in there that make it clear to investors or anybody looking at the eight k that this was not a definitive conclusion it says and i quote the effect of sure let me pull that there are several statements there one is in bold in the fourth paragraph you and it says importantly the us package insert for contrail states that the effect of countries on cd morbidity and mortality has not been established if you go to this the next paragraph down the last sentence there reads a larger number of mace are required to precisely determine the effect of con if you turn a couple pages on an excerpt of record eighty one there are a couple bullet points there under the chart the first repeats the prior statement that was in bold the second says the twenty five percent interim analysis was prospectively designed to enable and early and pullin in the assessment of safety to support regulatory approval a larger number of mace are required to precisely determine the effect of judicially notice documents that you have you say the district court arrogant considering we don't take that position we believe that the district court appropriately considered the documents under judicial notice like analyst reports and news articles and because those are incorporated by reference and did not prevent shrinks just for the fact that people said this that's right that's right your honor and it well it seems like the district judge got a little lost in that particular was her card to the terminations of the strategy where he seemed to rely on the statements in the corporator documents and said that it wasn't terminated we don't have the complaint alleges that it was we don't need to look at any of those what we can look at again is the complaint and there's a documented journal of the american medical association that's the subject of plaintiff's motion for judicial notice here we don't dispute that this court can take judicial notice of that document so if you look at the statements in there and you look at the allegations in the complaint the plaintiffs have not played with particularity that the e s c actually terminated the trial as of march twenty sixth as opposed to recommending term that's that's correct and i will the difference i will notice with them what they voted to end it is what he's facing they voted to end the complaint i think this is important to note never actually alleges that the e s c had the authority to terminate the can the clinical trial there are a number of entities here who are involved in the running of that clinical trial including at that point was the trial sponsor you also have the executive steering committee and you have the f d a there are a number of entities who are as as the company correctly said on may eighth that they were dragging out the declaration for their own purposes but there was just no chance was going forward was there at that point at that point either it's what we're kind of hanging on technicalities at hand mission that made a statement that was otherwise made misleading and your honor i think to a certain degree that's correct everybody knew that this study was essentially dead including investors they knew at that point that erects again was advocating if you look at paragraph one ten of the complaint which is excerpt of record one fifty four and one fifty five mr an iraqi tells investors that iraq's agenda had been advocating to terminate the trial early investors also knew at this point and they knew back in september of two thousand and fourteen when the drug was approved by the f d a that the light study didn't matter anymore it was not going to qualified to satisfy the company's post marketing requirement that was done a new cardiovascular outcomes trial would be necessary so at this point investors knew the light study was ongoing it was on the side or rex a gent had been advocating for it to be terminated there were ongoing active discussions about its fate if it was going to be terminated early at that point the company might consider disclosing the results and they knew that a new trial at that point had already been underway and was one of the not know that the u that the e s a had voted to terminate the study which makes it necessary which should have been added to make understandable and accurate all of the other statements you just pointed to i don't agree with that your honor because investors knew that iraq's agent had been advocating for its termination and it doesn't make sense it's not plausible that the company would be trying to mislead investors if what it ultimately wanted was to terminate the study itself it simply doesn't make sense i understand your point is that but to get there you have to first accept the premise that his argument is that the single thing that made that statement accurate was the failure to already voted to terminate it so why isn't it terminated in other words the implication of this is somebody else is not taking our recommendation to terminate it per haps that or that there are other considerations that need to be taken into account like communicating with the trial sites making sure that patients are at a point in their treatment where the clinical trial can be stopped it's an incredibly vivid is there anything in the record that tells us what is the consequence of what c had the authority to terminate at all there aren't allegations in the complaint about what happened in that interim period other than the the company was an active ongoing discussions and there are some some allegations about draft press releases around an announcement about the terminations but in terms of what happened between may march twenty sixth and may twelfth when the termination was actually disclosed we know th terminated it also alleges elsewhere in the complaint and i'll point you to paragraph one twenty seven which is an excerpt of record one sixty five that the e s e voted unanimously to recommend that the trial be stopped and  however it happened the allocation of the complaint is that it was terminated finished on that happening if you look at the journal of american medical association but that's how we can tell you sing for the truth of something the complaint is stating that it was done why isn't that the end of the matter it's inconsistent the allegations in the complaint are inconsistent on that point how they consist of the fact that somebody recommended is not inconsistent the fact that it then happened it is inconsistent when there are no allegations that that was the entity that actually had the authority to know what terminal the state doesn't matter who has the authority the allegation is that it was done it was finished wasn't happening the may twelfth press release if you look at the language  say it happened somewhere in the middle what they recommended happened regardless even if you were to accept the premise that the complaint adequately alleges that the trial had been terminated it's not material to investors at that point because the light study was not something that was needed as a regulatory requirement it was no longer going to satisfy the post marketing requirement the f d a had imposed on contra if and investors knew that the they decided that there was no false statement that's correct so what should we be deciding that i understand the court should we be deciding i'm not sure reality well the court could also remained to the district court for briefing in consideration of that issue and others  because of course while we brief the issue of say enter on at the lower court that was not something that the court decided and was not something that had been briefed here on appeal issue with a k is did a rex a gene mislead investors by claiming that can trade provided a heart benefit the question isn't whether it killed people or harmed people the question is did it mislead investors by critical and that's a statement and a great great citation there's no everything where the context and presentation the context and manner of presentation is absolutely important if you bury something in it you know in a in a thousand page document this court has said we're going to