hart who continued continuously misappropriated corporate funds by making improper claims for reimbursement of personal expenses in so doing defendants falsely reported hearts executive compensation for fiscal years twenty thirteen and twenty fourteen to conceal his corporate abuse now the dish of courts dismissal of the complaint should be ver should be reversed particularly with respect to its ruling on have we have sufficiently pled a strong inference that defendants deliberately acted deliberately reckless in misrepresenting harts compensation and i'd like to speak for a moment on the deliberate recklessness standard that  there was some misunderstanding about that standard by the district court and how to apply it as this court has held in in the arena arena pharmaceutical case as well as very phone holdings deliberate recklessness means a  standard extreme departure from the ordinary standards of care such that it would present an obvious danger of misleading investors and that is what we have here and that is what we have pled but instead of applying that standard accord applied a much more stringent standard it relied on an older supreme court case the case of earned severe ernst v hawk filter and applying that case the lower court said must plead quote an intentional or willful conduct designed to deceive or defraud investors by controlling or artificially affecting the price of securities and that's on page twenty of the dismissal order that is not the standard we've played here and that's not the standard that we that we need to demonstrate we don't have to allege a specific intent to defraud investors nor do we have to show an intent or effect to control or artificially affect the price of securities as this court has held in in the decide versus george being case that standard articulated in the manipulated the intentional w conduct standard that only applies to manipulative conduct cases under rule ten b five this is not a manipulative conduct case this is a case involving false and misleading statements concerning hart's compensation so so particularly applying to deliberate recklessness standard that i just articulated i think it's important to consider what what the company was going through at the time it's not exist an exaggeration to say that the company was in dire straits it was in terrible financial condition identified was suffering suffering severe operating losses and bleeding cash in an alarming rate such that that it faced delisting from the nasdaq market obviously that would have been a catastrophe catastrophe for its business so in this context against that backdrop we have the individual defendants the c e o jason hart and the c f o brian nelson they're making specific assurances to the market assuring the market that they are specifically focused on monitoring and cutting costs specifically their laser focus on operating expenses or what the company  optics why is that important operating expenses specifically by definition includes executive compensation payroll expenses reimbursement charges just so the individual defendants had their eye specifically on that stuff and they're telling the market they're making point representation to the market that they're focused significantly on cost reductions we have our eyes on optics we will not we will not let up on optics so based on those allegations your honor it's clear that the individual defendants had direct access knowledge and insight to sort of the underlying cause company fraud particularly the reimbursement issues and the ultimate false reporting of hearts executive compensation and to be clear we are not just alleging direct access here we are alleging the individuals defendants direct involvement in the underlying fraud hard was the source of the corporate fraud and nelson was his willing accomplice was a willing participant a fraud we have we have alle direct witness to cooperate sources which point to mr hart flagrantly disregarding corporate policy in and you know systematically using corporate funds for his own personal benefits he buys a person he buys a flying drone worth five hundred five thousand dollars for his own benefit he he takes two trips to las vegas in july fourth two thousand and eleven and september eleventh september eleventh  interrupt you for just seconds sure that all sounds you know pretty improper to me ok i certainly would not want to own stock in the company were a director or the executive was was was spending money like and and there was a direct relationship or generic direct connection between hearts practice of seeking and reimbursement for personal expenses and the false reporting  of his executive compensation as a public as a public company identify is required by the f c c to fully and accurately report executive compensation harts executive compensation that includes any financial benefit he received from the company including those improper reimbursements but rather than report that defenses did not do that and thus concealed his improper reimbursement practices and the company actually confirms that there is that bit that interconnectivity between his improper reimbursement practices and the false reporting in the may fourth in the may first r reimbursement practices and in that in that that that statement  and i'm sorry the i'm sorry the company actually confirms the link between improper reimbursement practices and the false reporting in the november thirty disclosure and  the company is actually cooking the books just for misleading investors yes that way and i'm sorry it's actually the may first disclosure and maybe the company announces that it's going to file an amendment to its twenty fourteen ten k this is the same twenty fourteen ten k that false reports false reports hearts executive compensation and the reason why it's following that amendment is because of this  complaint regarding hart's executive compensation prior i'm sorry for his his improper reimbursement practices so that is the link the company says we have to amend our ten k reporting parts executive compensation due to the fact that there's this civil complaint out there regarding his in improper reimbursement practices and the fact that there's a special committee investigation into those practices so that's the link between the conduct your honor on terms of this loss issue what the district court said was something to the effect that the court had basically searched all of the allegations front to back in kind can't find of accounting fraud or manipulation in the financial statements what's wrong with that statement with yes your honor and say and i think the lower court made a glaring error in that conclusion to the extent that i as i mentioned the company has an obligation to report his executive compensation they could have done so in the ten case but rather than report his executive compensation ten case they direct investors attention to the proxy statements and the twenty thirteen and twenty fourteen can't twenty case specifically incorporate by reference those proxy statements and so hard as the sum i'm just trying to get we have a couple of bad apples here and it is your point that you can't and once you figure out that you've made a mistake or were unable to sneak by a mistake you can amend it and then disclose it to investors trying to understand exactly where the fraud is here as it matched and i'm sorry your honor i think it was more than a mistake we demonstrated deliberate recklessness on the part of hart and nelson and i think if you take a look at the the scienter allegations holistically from their direct involvement in the fraud and  the fact that they had direct responsibility over the financial statements heart was a principal signatory as a c e o of the company he signed off and ten k s and the and the proxy statements but that would make every company president  securities fraud any time there had been some problem with the financial statements and that can't be the case right i mean because everybody alternately has to everybody meaning the c e o or whomever ultimately signs t statements and the company ultimately admits it at the end that that the parts compensation compensation was false reported but simply because they admit that it was falsely reported doesn't mean that they intended to defraud investors at the time they made the disclosures does it yes or on and i think again i think the standard is deliberate recklessness did they show a callous disregard for the falsity of those statements may please the court chris mcgrath appall these things for defendant and happily identifying i'm also going to attempt to manage my time and preserve some for my colleagues here could you give us a clue about your plan my individually to the allegations and an overall holistic picture but what you ultimately concluded was although the s a c the second a minute complaint alleges corporate wrongdoing it's not alleged securities claim and that goes to your point just beneath us and in doing so he was following the u s supreme court's holding and santa fe versus green which held that the securities laws do not create a federal remedy for corporate misconduct and a plaintiff may not be a claim for internal corporate mismanagement or breach of produce yury duty by alleging a failure to disclose that mismanagement or breach and that's in fact what this case is all about we're talking about expense reimbursements for the c e o and whether proper procedures were followed or they were full properly documented and as your question earlier raised your honor who is that conduct even if you assume it's all true as we would in a motion to dismiss who is that conduct directed towards a directed toward investors are directed towards getting reimbursed and that is where i think counsel's argument got the realtor earlier that there was no failure by judge prior to understand deliberateness a standard but what he was looking at was who's the conduct directed toward and what he concluded correctly was the scienter that the  required to allege isn't sent to defraud investors not an intent to get reimbursed and even if you gave credit to these allegations from the riviera complaint which uncorroborated plaintiff doesn't pass counsel doesn't represent gero but nonetheless piggyback those allegations into this complaint and the confidential witness that was only there for eight months of the class period it was in the h r group what you come away with is the understanding that they paint a picture of a o impatient to be reimbursed for personal expenses without following the necessary proces and a c f o more interested in granting reimbursements than in following the necessary processes i'm not saying that's what occurred i'm saying that's what on the best case the plane of the complaint alleges and that is the the fundamental problem with this lawsuit is it was dismissed by judge barnes to independently sufficient grounds absence of cyan or and failure to demonstrate loss causation and the real failure in the science or region is they haven't shown any conduct erected towards investors plaintiffs counsel when arguing argued more generically that hardin know some were involved are responsible for the company's overall financial statements and therefore improper reimbursements would constitute an effort to defraud investors through that extrapolation and what the court recognizes and carefully parsing the complaint was that there are no allegations as just mccown pointed out of any accounting fraud or manipulation of identities financial statements in fact those compensation lines the other compensation lines statement are not technically part of the financial statements you want to get in right of course but they're not technically part of the financial statements and there's never been a restatement of any of identity as financial statements  addition there's no allegations that heart and the complainant is riviera conceded did not prepare his own expenses much less prepare the other compensation lines of the relevant proxy statements therefore that nexus between his conduct and understanding that it would necessarily also be directed at investors is not there that link is not there those allegations are not there and that's why the complaint was dismissed in santa grounds in addition to all the other holistic factors that judge bryer thoroughly evaluated which included the absence of any stock sales by any of the individual defendants the relatively minimal amounts in the grand scheme of hart's compensation that these ultimate adjustments constituted which were ninety seven thousand dollars for the year two thousand and fourteen and thirteen thousand dollars for the year two thousand and thirteen in those combined years mr hard earned over three million dollars so those those amounts were not its real money to most of  but they were not material to him and it's understandable why judge briar would conclude those are minor variances in the other compensation lines and it's understandable harwood under not believe that those would mislead investors position front and that is that the series of disclosures that they point to don't satisfy the requirements of the loose case the lloyd case or ninth circuit precedent requiring that regime aereo complaint comes out and then it's acknowledged that there was some this statement with respect to the compensation so then again there's a restatement at that point yet there was never suppose a truth and all we have in the intervening in the expense that they referenced in the complaint are just further delay no new information subsequently had already basically given up the ship  acknowledging that they had some financial difficulties and problems in their financial controls right it's certainly been internal control disclosures previously although i would note for the record the plaintiff abandoned the internal controls misstatement allegations for the purposes of this appeal but i would also note that unlike newson lloyd which had dramatic stock drops when the investigations were announced of i believe twelve and or twenty three percent and twenty percent twenty three and loose twenty and lloyd there was a one point four percent drop when i den of announced the receipt regime complain of the commitments commence an investigation so the market did not perceive it that way there's no allegations that analysts in the market perceive it that way which is clear in newsome lloyd and ultimately when the tank eight was announced with the adjustment the compensation line the stock price of identified actually increased didn't decrease and so on the basis of all of those statements including the ones reflecting p t o the auditing firms resignation but judge pryor correctly determined that their resignation was not linked to any wrongdoing associated with hearts f noted or complains that the district court did not examine the case you don't have that you don't have to get to a holistic analysis under tellabs because it's this case is essentially a mismanagement case trying to trying to be converted into securities case it's the planners have attempted to fit a square peg in a drought not incorporate into tank a there's no allegation that mr hart had any involvement in preparation of these tables much less that he had any awareness understanding between the relationship between his submission of expense reports and any impact that that would have on this other compensation table that he's not obliged have prepared much less that that would have any impact on what investors would do in connection with the purchase or sale of security which is what ten section time bees grounded on  the court asked the plaintiffs counsel a moment ago what is the best allegation and the response was that mr hart and mr nelson were directly involved in the financial reporting so they must have been aware  of the misleading nature of finance reporting was the district court noted below that argument ring rings hollow because there was no revision to the financial statements no much less a restatement so the notion that mr hart would have must labels about accounting fraud accounting manipulation financial manipulation of financial statements that's not tethered to anything in the complaint much less reality i mean there's no accounting issue here there's no mistake or a financial restatement or a revision of any impact on the company's bottom line and so even if you credit the rouge year old complaints unverified and contested allegations which is what that is a best formed under those unverified and contested allegations is a center going to want to get reimbursed for personal expenses it has nothing to do with what the cause of action here is a federal securities fraud claim thank you  it please the court brody on behalf of defendant brian nelson mr nelson was the c f o of excuse me of identify in the time period in question i will try not to repeat arguments you've already heard but focus specifically on mr nelson the statements at issue in this case that are alleged to be false and misleading in our statements with respect to mr hart's compensation that were disclosed to them  to disclosed in the proxy statements there are no allegations that mr nelson participated in the proxy statements or sign the proxy statements or those are statements that he made instead the allegations with respect to mr nelson are that in the company's ten k s for two thousand and thirteen and two thousand and fourteen both of which were issued in advance of the proxy statement mr nelson is a signatory and he and the and the ten  state that for executive compensation see the proxy statements which will be filed subsequently the plaintiffs don't tie this those two statements up with respect to mr nelson there are no allegations to suggest the time that mr nelson signed the to ten days he had knowledge or awareness of what was going to be released in the proxy statements or that he had any knowledge or awareness that those anything in those proxy statements would be misleading or there would be any omissions in them so there's no connection there and that goes to a point which as this court is reviewing the underlying the underlying case to novo goes actually to whether there is even a material  he said his best fact was the direct participation that the defendants including mr nelson had with respect to the expenses what you have in the record in the complaint alleged by mr cunningham with respect to mr nelson's participation expenses is our allegations that when expense reports were given to him that weren't complete he asked for more information that's the allegations made by misstated are not applicable to this case because this isn't a financial statement case this is this this is a case about whether executive compensation in amounts of of  total around one hundred thousand dollars over the course of two years were properly disclosed in a proxy statement so the issues here just simply do not match up when you go through this i enter elements what you see instead are two executives very busy with a lot of aspects of a company that is struggling that doesn't tell you that they're in the weeds with respect to expense reports you see that they are trying very hard to get to get the information on the expense reports and then you can go through all the other elements none of which show specific scienter here all of which if you listen take the allegations by mr cunningham really prove too much because they would mean in every case there would be santer with respect to the c f o and finally there were no stock that they alter and you think covers that point exactly zuko covers all of that and so there's nothing to show anything unusual or specific that would give you give rise to scienter here thank you your honor thank you you have some time have the advantage of getting guidance from that so first solar really took a back to basics approach and just confirmed the basic lost causation principles articulated by the supreme court in dura and this court in dell and all the first solar says is to allege loss causation you just need to demonstrate a cause a causal connection between the alleged fraud and the lawsuit and that is what we have pledged here and allow allegations that only possible plausible so our allegations of last causations fall squarely within first solar as well as the paradigm established in lloyd and law as lloyd lloyd holds that you can prove loss causation by showing  by alleging that announcement of investigation negative stock price reaction and then a corrective disclosure and we have shown that we we have shown lost causation through three investigation announcement in may and we have a subsequent partial can disclosure in november november fourteenth twenty fourteen which is the announcement of b t o his resignation the independent auditor and then we have that final book corrective disclosure in december eighteenth when the company admits that it has a false report improperly reported parts executive compensation due to it due to