Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-12-15100/USCOURTS-ca9-12-15100-1/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 

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FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

JOHN P. LOOS, individually and on

behalf of all others similarly

situated,

Plaintiffs-Appellants,

v.

IMMERSION CORPORATION; VICTOR

A. VIEGAS; RALPH EDWARD

CLENTON RICHARDSON; STEPHEN

AMBLER; RICHARD VOGEL,

Defendants-Appellees.

No. 12-15100

D.C. No.

3:09-cv-04073-

MMC

ORDER AND

AMENDED

OPINION

Appeal from the United States District Court

for the Northern District of California

Maxine M. Chesney, Senior District Judge, Presiding

Argued and Submitted

February 12, 2014—San Francisco, California

Filed August 7, 2014

Amended September 11, 2014

Before: Richard C. Tallman and Johnnie B. Rawlinson,

Circuit Judges, and Thomas O. Rice, District

Judge.*

 

* The Honorable Thomas O. Rice, United States District Judge for the

Eastern District of Washington, sitting by designation.

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2 LOOS V. IMMERSION CORP.

Order;

Opinion by Judge Rice

SUMMARY**

Securities Fraud

The panel filed (1) an order amending opinion and (2) an

amended opinion in which it affirmed the district court’s

dismissal for failure to state a claim of a securities fraud class

action alleging violations of Sections 10(b), 20(a), and 20A

of the Securities Exchange Act of 1934 and Rule 10b-5.

Agreeingwith the Eleventh Circuit, the panel held that the

announcement of an investigation, standing alone, and

without any disclosure of actual wrongdoing, is insufficient

to establish loss causation. It held that the plaintiff could not

establish loss causation on the facts alleged in the amended

complaint because he had not attempted to correlate his losses

to anything other than the announcement of an internal

investigation.

COUNSEL

David A.P. Brower and Richard H. Weiss (argued), Brower

Piven, New York, New York; and Sanford Svetcov, Susan K.

Alezander, and Willow E. Radcliffe, Robbins Geller Rudman

& Dowd, LLP, San Francisco, California, for PlaintiffsAppellants.

** This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

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LOOS V. IMMERSION CORP. 3

Susan S. Muck, Jennifer C. Bretan (argued), and Marie C.

Bafus, Fenwick & West, LLP, San Francisco, California; and

Felix S. Lee, Fenwick & West, LLP, Mountain View,

California, for Defendants-Appellees.

ORDER

The Opinion filed on August 7, 2014, is hereby amended

as follows: At the end of the final sentence of the first full

paragraph on page 18 (now page 19), the following footnote

3 is appended:

We do not mean to suggest that the

announcement of an investigation can never

form the basis of a viable loss causation

theory. Like the Eleventh Circuit, we merely

hold that the announcement of an

investigation, “standing alone and without any

subsequent disclosure of actual wrongdoing,

does not reveal to the market the pertinent

truth of anything, and therefore does not

qualify as a corrective disclosure.” Meyer,

710 F.3d at 1201 n.13 (internal quotation

marks omitted). To the extent an

announcement contains an express disclosure

of actual wrongdoing, the announcement

alone might suffice.

An amended opinion is filed concurrently with this Order. 

No further petitions for panel rehearing or rehearing en banc

will be entertained.

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4 LOOS V. IMMERSION CORP.

OPINION

RICE, District Judge:

Plaintiff John Loos appeals the district court’s dismissal

of his securities fraud class action for failure to state a claim. 

Plaintiff argues that the district court erred by analyzing his

allegations of scienter in isolation rather than “collectively”

as mandated by Tellabs, Inc. v. Makor Issues & Rights, Ltd.,

551 U.S. 308 (2007). Plaintiff further challenges the district

court’s conclusion that he failed to establish loss causation by

alleging a precipitous decline in Immersion Corp.’s stock

price on the heels of a July 1, 2009 press release announcing

an internal investigation into the company’s revenue

accounting practices.

We hold that the announcement of an investigation,

standing alone, is insufficient to establish loss causation. We

further conclude that Plaintiff cannot establish loss causation

on the facts alleged in the amended complaint because he has

not attempted to correlate his losses to anything other than the

announcement of an internal investigation. We therefore

affirm the district court on this loss causation issue. We do

not reach Plaintiff’s arguments regarding scienter.

I.

Immersion Corporation (“Immersion”) is a publiclytraded company listed on the NASDAQ stock exchange.

Immersion develops and licenses “haptics” technology,

which, in broad strokes, allows high-tech electronic devices

to produce tactile feedback to the user. One example of a

haptics-enabled device is a smartphone that produces a

“pulse” or a “pushback” sensation when the user clicks a

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LOOS V. IMMERSION CORP. 5

button on the screen. At the times relevant to this appeal,

Immersion focused primarily on developing haptics

technology for use in handheld electronics and medical

training devices.

Plaintiff John Loos (“Plaintiff”) and several other

purchasers of Immersion stock filed class actions against

Immersion in the Northern District of California in late 2009. 

The district court consolidated the cases and appointed

Plaintiff to represent the putative class. Plaintiff subsequently

filed a consolidated complaint on behalf of himself and a

class of shareholders who purchased Immersion stock

between May 3, 2007, and July 1, 2009 (the “class period”). 

This complaint alleged violations of Sections 10(b), 20(a) and

20A of the Securities Exchange Act of 1934 and Rule 10b-5

of the Securities and Exchange Commission’s implementing

regulations. Named as defendants were Immersion and five

of its top executives, Defendants Victor Viegas, Clent

Richardson, Stephen Ambler, Richard Vogel and Daniel

Chavez.

Defendants moved to dismiss the complaint on June 15,

2010, for failure to state a claim. The district court granted

the motion on March 11, 2011, ruling, inter alia, that Plaintiff

failed to adequately plead the scienter and loss causation

elements of his claims. Finding that these deficiencies could

potentially be cured, the district court granted Plaintiff leave

to amend.

Plaintiff filed an amended complaint asserting the same

causes of action on April 29, 2011.1 Defendants filed a

1 Daniel Chavez was not named as a defendant in Plaintiff’s amended

complaint and is not a party to this appeal.

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6 LOOS V. IMMERSION CORP.

second motion to dismiss on July 1, 2011. The district court

granted the motion on December 16, 2011, concluding, once

again, that Plaintiff failed to plausibly allege the scienter and

loss causation elements of his claims. Because Plaintiff had

failed to correct the deficiencies identified in its prior

dismissal order, the district court dismissed the amended

complaint with prejudice.

Plaintiff now appeals.

II.

From the time it went public in 1999 until the fourth

quarter of 2006 (“4Q06”2), Immersion did not turn a profit. 

Although the company appeared to be poised for growth, it

struggled to control its operating costs. During this period,

Immersion experienced significant pressure from its investors

to “ramp up” to sustained profitability.

Immersion’s fortunes appeared to change in 1Q07, when

the company settled a patent infringement claim against a

large electronics manufacturer for $150 million. With the

receipt of these funds, Immersion was able to report its first

profitable quarter as a publicly traded company. Although

the companywas pleased with the impact of the settlement on

its balance sheet, it recognized that investors would not be

content with a one-time influx of capital. Thus, Immersion

announced during a conference call about 1Q07 earnings that

it would invest the settlement funds in new growth initiatives

that would translate to profitable quarters and sustained

revenue growth for the remainder of 2007.

2 For convenience, we will use this abbreviation format for all financial

quarters throughout our opinion.

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LOOS V. IMMERSION CORP. 7

Immersion disclosed its 2Q07 earnings on August 2,

2007. In a press release, the company’s CEO, Defendant

Victor Viegas, announced that Immersion had achieved

“back-to-back profitable quarters” as a result of strong sales

in its Medical Division. On a subsequent conference call

with investors, Viegas reported that Medical Division

revenues had grown 19% over the second quarter of 2006 and

were poised for further growth. When asked about

Immersion’s prospects for growth internationally, Viegas

stated that the company anticipated considerable success

marketing its medical products in China.

Immersion released its 3Q07 financial results on

November 1, 2007. In a press release announcing the results,

Immersion proclaimed that it had achieved “three consecutive

profitable quarters” and had experienced “very strong yearto-date revenue growth.” On a subsequent earnings call,

Viegas informed investors that the company’s Medical

Division revenues had grown 39% over the third quarter of

2006.

Immersion reported its 4Q07 earnings on February 28,

2008. In yet another press release, the company declared that

it had achieved “profitability in each of the four quarters” in

2007. During a conference call with investors, Viegas

boasted that the company’s 4Q07 and fiscal year 2007 results

were “the best in Immersion’s history.” Immersion’s CFO,

Defendant Stephen Ambler, reiterated that these numbers

were “record highs.”

Unfortunately, Immersion’s momentum stalled in early

2008. On May 1, 2008, Immersion announced a net loss of

$2.6 million for 1Q08. Despite this disappointing news,

Ambler emphasized to investors that Medical Division

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8 LOOS V. IMMERSION CORP.

revenues had increased by 13% over 1Q07 and would

continue to drive growth. When questioned about the

company’s progress internationally, Viegas forecast that

Immersion would see a “dramatic increase” in Medical

Division revenues over the next three quarters.

On July 31, 2008, Immersion announced a net loss of $3.1

million for 2Q08. In an effort to put a positive spin on this

disappointing news, Immersion highlighted in a press release

that its total revenue had grown by 8% over 2Q07 and by

16% over the first six months of 2007. Defendant Clent

Richardson, who by that time had succeeded Viegas as CEO,

further emphasized that Immersion was beginning to see

significant returns on its investments internationally: “We are

already seeing positive and measurable results from our

investments. Second quarter of international revenues

reached $4.5 million, almost 50% of total [company]revenue,

and an increase of 25% compared to the year-ago quarter.”

Immersion released its 3Q08 results on October 30, 2008. 

After adjusting for a one-time charge related to the settlement

of a lawsuit, the company reported a net loss of $4.3 million. 

Once again, Immersion attempted to focus investors’

attention on revenue growth. In a press release, the company

announced that it had exceeded $10 million in quarterly

revenue for the first time in its history. During an earnings

call, Ambler explained that $5.6 million of this sum had come

from international medical sales, a figure that represented a

112% year-over-year increase. Richardson further reported

that “[o]verseas revenue for medical grew more than 3 times

over [3Q07].”

Immersion announced its 4Q08 earnings on March 2,

2009. Adjusting for a one-time charge related to the

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LOOS V. IMMERSION CORP. 9

divestiture of a business segment, the company reported a net

loss of $7.1 million. In contrast to the revenue growth

reported for the prior three quarters, Immersion’s 4Q08

revenues declined 9% over the prior year period. Despite

these poor results, Immersion highlighted to investors that it

“continued to see strong growth in international sales with

[the] medical line of business. Medical international

revenues grew 135% over the year-ago period, and also grew

24% sequentially.”

Results for 1Q09 were announced on May 4, 2009. 

Immersion reported a net loss of $7.5 million and only a 1%

increase in revenues over the prior year period. The company

also announced a 16% decrease in medical revenues over the

prior year period. Immersion conceded that the Medical

Division “ha[d] not met revenue expectations.”

Shortly thereafter, on July 1, 2009, Immersion disclosed

a potential problem with its previously reported revenues. In

a press release issued before the stock market opened, the

company revealed that it had launched an internal

investigation into revenue recognition practices in its Medical

Division:

[T]he Audit Committee of the Board of

Directors of Immersion Corporation

(“Immersion”) is conducting an internal

investigation into certain previous revenue

transactions in its Medical line of business. 

The investigation is being conducted with the

assistance of outside counsel. The Audit

Committee has not yet determined the impact,

if any, to Immersion’s historical financial

statements. As a result of this investigation,

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10 LOOS V. IMMERSION CORP.

Immersion may discover information that

could raise issues with respect to its

previously-reported financial information,

which could be material. Immersion will not

be able to evaluate the full impact of the

aforementioned matters until the Audit

Committee completes its review and further

analysis is completed.

Immersion’s stock price dropped over 23% to close at $3.80

per share on this news.

On August 10, 2009, Immersion advised investors that its

prior financial statements “should no longer be relied upon”

due to irregularities with “certain revenue transactions” in the

Medical Division. The company further disclosed that, as a

result of these irregularities, it would restate its financials for

fiscal year 2008 at a later date.

Immersion disclosed the findings of its internal

investigation on February 8, 2010. In an amended Form 10-

K/A filed with the Securities and Exchange Commission

(“SEC”), the company admitted to having made “errors in . . .

the recording of revenue transactions from [its] Medical line

of business.” More specifically, Immersion revealed that it

had recognized sales revenue prematurely, in violation of

generally accepted accounting principles (“GAAP”) and its

own internal policies, in three main areas: (1) on orders

shipped to a Chinese customer pursuant to a “side agreement”

that granted the customer unauthorized shipping and payment

terms; (2) on orders of products that were either “not

available” or “not fully developed” when sold; and (3) on

orders that were not promptly delivered, that included nonstandard terms, or that lacked probable collectability. As a

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LOOS V. IMMERSION CORP. 11

result of these errors, Immersion restated its earnings for

2006, 2007, 2008 and 1Q09. The most significant impact of

the restatement was on fiscal year 2008, in which Immersion

reversed $623,000 in medical sales revenue and deferred

another $3 million to later periods.

III.

We have jurisdiction over this appeal pursuant to

28 U.S.C. § 1291. We review the dismissal of a securities

fraud claim under Federal Rule of Civil Procedure 12(b)(6)

de novo. Zucco Partners, LLC v. Digimarc Corp., 552 F.3d

981, 989 (9th Cir. 2009). The scope of our review is

“generally limited to the face of the complaint, materials

incorporated into the complaint by reference, and matters of

which we may take judicial notice.” Id. Dismissal without

leave to amend is reviewed for abuse of discretion. Id.

IV.

Section 10(b) of the Securities Exchange Act of 1934

makes it unlawful to “use or employ, in connection with the

purchase or sale of any security . . . any manipulative or

deceptive device or contrivance in contravention of such rules

and regulations as the Commission may prescribe as

necessary or appropriate in the public interest or for the

protection of investors.” 15 U.S.C. § 78j(b). SEC Rule

10b-5, which implements § 10(b), prohibits the following

practices “in connection with the purchase or sale of any

security”:

(a) To employ any device, scheme, or artifice

to defraud,

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12 LOOS V. IMMERSION CORP.

(b) To make any untrue statement of a

material fact or to omit to state a material fact

necessary in order to make the statements

made, in the light of the circumstances under

which they were made, not misleading, or

(c) To engage in any act, practice, or course of

business which operates or would operate as

a fraud or deceit upon any person[.]

17 C.F.R. § 240.10b-5.

Violations of § 10(b) and Rule 10b-5 give rise to a cause

of action in favor of any purchaser or seller of securities who

has been injured by a company’s fraudulent practices. 

Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308,

318 (2007). There are six elements to a securities fraud claim

under § 10(b) and Rule 10b-5: (1) a material

misrepresentation or omission; (2) scienter (i.e., a wrongful

state of mind); (3) a connection between the

misrepresentation and the purchase or sale of a security;

(4) reliance upon the misrepresentation (often established in

“fraud-on-the-market” cases via a presumption that the price

of publicly-traded securities reflects all information in the

public domain); (5) economic loss; and (6) loss causation. 

Dura Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 341–42

(2005).

At issue here is the element of loss causation. Broadly

speaking, loss causation refers to the causal relationship

between a material misrepresentation and the economic loss

suffered by an investor. Id. at 342. Ultimately, a securities

fraud plaintiff must prove that the defendant’s

misrepresentation was a “substantial cause” of his or her

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LOOS V. IMMERSION CORP. 13

financial loss. In re Daou Sys., Inc., 411 F.3d 1006, 1025

(9th Cir. 2005). At the pleading stage, however, the plaintiff

need only allege that the decline in the defendant’s stock

price was proximately caused by a revelation of fraudulent

activity rather than by changing market conditions, changing

investor expectations, or other unrelated factors. Metzler Inv.

GMBH v. Corinthian Colls., Inc., 540 F.3d 1049, 1062 (9th

Cir. 2008). In other words, the plaintiff must plausibly allege

that the defendant’s fraud was “revealed to the market and

caused the resulting losses.” Id. at 1063 (emphasis added).

Plaintiff’s overarching theory of liability is that

Immersion “cooked the books” in response to mounting

pressure from investors to become profitable. Specifically,

Plaintiff alleges that Immersion systematically recognized

medical sales revenue earlier than permitted under GAAP in

order to mislead investors into believing that the company

was on the cusp of finally achieving sustained profitability. 

As a result of this practice, Plaintiff contends, Immersion’s

stock price remained artificially “inflated” throughout the

class period.

With regard to loss causation, Plaintiff alleges that

Immersion’s fraudulent accounting was revealed to the

market through a series of “partial disclosures” consisting of

(1) disappointing earnings results for 1Q08, 2Q08, 4Q08 and

1Q09; and (2) the subsequent announcement of an internal

investigation into prior revenue transactions. The gravamen

of Plaintiff’s loss causation theory is that Immersion’s

disappointing financial results signaled that the company

lacked the “growth drivers and profitability” that it had

previously claimed, and that the subsequent announcement of

an investigation into prior revenue transactions confirmed

that Immersion had fraudulently overstated its historical

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14 LOOS V. IMMERSION CORP.

revenues. Most notably for purposes of the instant case,

Plaintiff alleges that Immersion’s July 1, 2009 announcement

of an internal investigation completed the revelation of fraud

to the market and removed all inflation from the company’s

stock price:

As a direct result of [D]efendants’ July 1,

2009 disclosure, Immersion’s stock price fell

23% in one day...to close at $3.80 per share[.]

This drop resulted in a market capitalization

loss of $31.9 million and removed the

inflation from Immersion’s publicly traded

securities, causing real economic loss to

investors who had purchased the securities

during the Class Period.

A.

The district court concluded that the allegations regarding

Immersion’s disappointing financial results were insufficient

to establish loss causation as a matter of law. We agree. As

the district court correctly recognized, our precedent requires

a securities fraud plaintiff to allege that the market “learned

of and reacted to th[e] fraud, as opposed to merely reacting to

reports of the defendant’s poor financial health generally.” 

Metzler, 540 F.3d at 1063; see also In re Oracle Corp. Sec.

Litig., 627 F.3d 376, 392, 394 (9th Cir. 2010) (holding that an

earnings miss, standing alone, is insufficient to establish loss

causation; the market must have learned of and reacted to the

company’s fraudulent practices as opposed to the financial

impact of those practices). Immersion’s disappointing

earnings for 1Q08, 2Q08, 4Q08 and 1Q09 are merely

indicative of poor financial health; they do not tend to suggest

that the company had engaged in fraudulent accounting

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LOOS V. IMMERSION CORP. 15

practices. At bottom, these disclosures simply reveal that

Immersion failed to meet its revenue goals.

Our decision in Daou does not dictate a different result. 

Like Plaintiff, the investors in Daou alleged that their losses

were caused, at least in part, by the defendant’s

announcement of “dismal” financial results. 411 F.3d at

1025–26. According to the investors, these disappointing

results were the direct result of the defendant systematically

recognizing revenue prematurely in violation of GAAP. Id.

at 1026. The district court dismissed the complaint, ruling

that the investors had not adequately linked the disappointing

earnings (and the ensuing drop in the defendant’s share price)

to the alleged accounting fraud. Id.

We reversed, holding that the investors had alleged a

plausible connection between the disappointing earnings and

the alleged fraud. Id. at 1026–27. Crucial to our holding was

the fact that the defendant’s earnings statement revealed more

than $10 million in unbilled receivables in a “work in

progress” account. Id. at 1026. Having previously taken note

of allegations that the defendant recognized revenue on

contracts for which “little or no labor had yet taken place”

(including one anticipated contract that the defendant

ultimately lost to a competitor), id. at 1019–20, we concluded

that $10 million in unbilled revenue was sufficiently

suggestive of accounting fraud to survive a motion to dismiss. 

Id. at 1026–27.

Unlike the disappointing earnings disclosure in Daou,

Immersion’s 1Q08, 2Q08, 4Q08 and 1Q09 results do not

reveal any information from which revenue accounting fraud

might reasonably be inferred. In fact, the only disclosure that

might arguably support an inference of fraud is the

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16 LOOS V. IMMERSION CORP.

company’s statement during a 1Q09 earnings call that

“payments [were] not taking place on a timely basis from

some of [its] overseas customers.” But this revelation comes

nowhere close to the circumstances presented in Daou. For

one thing, the missing revenue at issue here had actually been

billed to a client. More importantly, however, this statement

reveals very little about the reason for the underlying

problem. Whereas a “rapidly escalating work in progress

account represent[ing] over $10 million in unbilled

receivables” supports an inference of premature revenue

recognition on a monumental scale, see id. at 1026, a single

offhand reference to slower than normal collection of

accounts receivable does not. Accordingly, we find no error

in the district court’s analysis of Immersion’s 1Q08, 2Q08,

4Q08 and 1Q09 financial results.

B.

With regard to the July 1, 2009 announcement, the district

court ruled that “the announcement of an investigation,

standing alone, does not give rise to a viable loss causation

allegation.” We have never squarely addressed whether the

disclosure of an internal investigation can satisfy the loss

causation element of a § 10(b) and Rule 10b-5 claim. On one

hand, we have stated that a securities fraud plaintiff is not

required to allege an outright admission of fraud to survive a

motion to dismiss. See Metzler, 540 F.3d at 1064 (“[N]either

Daou nor Dura require an admission or finding of fraud

before loss causation can be properly pled.”). This statement

supports Plaintiff’s argument that the disclosure of an

investigation, which raises the prospect of fraud, is relevant

to establishing loss causation. On the other hand, we have

stated in the very same breath that a mere “risk” or

“potential” for fraud is insufficient to establish loss causation. 

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LOOS V. IMMERSION CORP. 17

See id.(“[N]either Daou nor Dura support the notion that loss

causation is pled where a defendant’s disclosure reveals a

‘risk’ or ‘potential’ for widespread fraudulent conduct.”). 

This statement supports the district court’s conclusion that the

mere announcement of an investigation is not enough to

establish loss causation.

Our decision in Metzler, while relevant, is not particularly

instructive here. In that case, the plaintiff’s theory of loss

causation relied, in part, on a newspaper article which

disclosed that the defendant, a nationwide for-profit college,

had been investigated and sanctioned by the Department of

Education for facilitating financial aid fraud. Although only

one of the defendant’s eighty-eight campuses had been

investigated, the plaintiff argued that the resulting sanctions

revealed a “potential but real risk” that other campuses had

engaged in similar misconduct. Id. at 1055, 1063 (emphasis

in original). We rejected this argument, holding that the

sanctions imposed against the single campus were not

indicative of fraud on a company-wide scale. Id. at 1063–64. 

We further noted that, in any event, the defendant’s stock

price made a full recovery within three days of the article

being published. Id. at 1063–65. Given the limited scope of

the investigation at issue in Metzler, the most we can say is

that the announcement of an investigation can potentially be

relevant to a securities fraud plaintiff’s theory of loss

causation.

The Eleventh Circuit has examined the disclosure of a

fraud investigation under much more analogous

circumstances. In Meyer v. Greene, the plaintiff alleged that

the defendant, a developer of commercial and industrial real

estate, committed fraud by failing to depreciate the value of

its real estate holdings in the wake of a significant depression

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18 LOOS V. IMMERSION CORP.

of the real estate market from 2008 to 2010. 710 F.3d 1189,

1192–93 (11th Cir. 2013). Following a presentation by a

prominent stock market analyst suggesting that the

defendant’s real estate holdings were substantially

overvalued, the company’s stock price dropped by 20%. Id.

at 1193. Three months later, the defendant disclosed that the

SEC had initiated an informal inquiry into the company’s real

estate valuation practices. Id. The defendant’s stock price

dropped an additional 7% on this news. Id. at 1201. Six

months later, the defendant announced that the SEC’s inquiry

had ripened into a “order of private investigation.” Id. at

1193. The defendant’s stock price dropped another 9% as a

result of this disclosure. Id. at 1201. The plaintiff attempted

to establish loss causation by arguing that the defendant’s

accounting fraud was revealed to the market through (1) the

analyst’s presentation; (2) the disclosure of the SEC’s

informal inquiry; and (3) the announcement of the SEC’s

private order of investigation. Id. at 1197. The Eleventh

Circuit rejected this theory. As to the presentation, the court

explained that the analyst’s information had been derived

“entirely from public filings and other publicly available

[sources]” of which the stock market was presumed to be

aware. Id. at 1198. With regard to the SEC investigations,

the court reasoned that there had been no “revelation” of a

prior false statement to the market:

In our view, the commencement of an SEC

investigation, without more, is insufficient

to constitute a corrective disclosure for

purposes of § 10(b). The announcement of

an investigation reveals just that—an

investigation—and nothing more. To be sure,

stock prices may fall upon the announcement

of an SEC investigation, but that is because

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LOOS V. IMMERSION CORP. 19

the investigation can be seen to portend an

added risk of future corrective action. That

does not mean that the investigations, in and

of themselves, reveal to the market that a

company’s previous statements were false or

fraudulent.

Id. at 1201 (emphasis in original) (internal citations omitted).

We agree with the Eleventh Circuit’s reasoning. The

announcement of an investigation does not “reveal”

fraudulent practices to the market. Indeed, at the moment an

investigation is announced, the market cannot possibly know

what the investigation will ultimately reveal. While the

disclosure of an investigation is certainly an ominous event,

it simply puts investors on notice of a potential future

disclosure of fraudulent conduct. Consequently, any decline

in a corporation’s share price following the announcement of

an investigation can only be attributed to market speculation

about whether fraud has occurred. This type of speculation

cannot form the basis of a viable loss causation theory. 

Accordingly, we hold that the announcement of an

investigation, without more, is insufficient to establish loss

causation.3

3 We do not mean to suggest that the announcement of an investigation

can never form the basis of a viable loss causation theory. Like the

Eleventh Circuit, we merely hold that the announcement of an

investigation, “standing alone and without any subsequent disclosure of

actual wrongdoing, does not reveal to the market the pertinent truth of

anything, and therefore does not qualify as a corrective disclosure.” 

Meyer, 710 F.3d at 1201 n.13 (internal quotation marks omitted). To the

extent an announcement contains an express disclosure of actual

wrongdoing, the announcement alone might suffice.

 Case: 12-15100, 09/11/2014, ID: 9236274, DktEntry: 42, Page 19 of 21
20 LOOS V. IMMERSION CORP.

Plaintiff attempts to save his loss causation theory by

arguing that two post-class period disclosures “solidif[ied] the

causative link” between the fraud and his loss. The crux of

this argument is that fears prompted by the July 1, 2009

announcement were later confirmed by (1) an August 10,

2009 disclosure that Immersion’s financial statements

“should no longer be relied upon”; and (2) the February 8,

2010 restatement itself. This argument fails for the simple

reason that the impact of these events on Immersion’s stock

price was not alleged in the TAC.4 Plaintiff’s omission of

this information is fatal to his ability to plausibly allege loss

causation. We therefore affirm the dismissal of Plaintiff’s

§ 10(b) and Rule 10b-5 claims for failure to state a claim.

C.

The district court dismissed Plaintiff’s amended

complaint without leave to amend because Plaintiff failed to

correct the deficiencies identified in his original complaint. 

We find no abuse of discretion in that decision. The district

court gave Plaintiff a detailed explanation of why his original

theory of loss causation was deficient. Despite having this

explanation, Plaintiff persisted in attempting to establish loss

causation through Immersion’s disappointing earnings results

and the July 1, 2009 announcement of an internal

investigation. Because Plaintiff “essentially re-pled the same

facts and legal theories” in his amended complaint, the

district court did not abuse its discretion in dismissing

Plaintiff’s claims with prejudice. U.S. Mortg., Inc. v. Saxton,

494 F.3d 833, 843 n.11 (9th Cir. 2007), abrogated on other

4 We further note that Plaintiff did not advance this argument in the

district court. The argument is therefore waived. In re: Mercury

Interactive Corp. Sec. Litig., 618 F.3d 988, 992 (9th Cir. 2010).

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LOOS V. IMMERSION CORP. 21

grounds by Proctor v. Vishay Intertechnology Inc., 584 F.3d

1208 (9th Cir. 2009); see also Zucco Partners, 552 F.3d at

1007 (“[W]here the plaintiff has previously been granted

leave to amend and has subsequently failed to add the

requisite particularity to [his] claims, the district court's

discretion to deny leave to amend is particularly broad.”).

D.

Plaintiff also appeals the dismissal of his claims for

failure to plausibly allege scienter under the Private Securities

Litigation Reform Act’s heightened pleading standards. In

view of our holding above, we decline to address Plaintiff’s

scienter arguments.

E.

Plaintiff’s final contention on appeal is that the district

court erred in dismissing his control person and insider

trading claims for failure to properly allege an underlying

violation of § 10(b) and Rule 10b-5. Because we agree that

Plaintiff lacks a viable claim under § 10(b) and Rule 10b-5,

we affirm the district court’s dismissal of these derivative

claims.

AFFIRMED.

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