F OR P UBLICATION



### UNIT E D ST AT E S CO URT O F APPE AL S FO R T H E NINT H CIRCUIT

J O H N P. L O O S , individually

and on behalf of all others similarly situated, Plaintiffs-Appellants
,

v

.

I M M E R S I O N C O R

P O R A T I O N ; V I C T O R A. V I E G A S ; R A L P H E D W

A R D C L E N T O N R I C H A R

D S O N ; S T E P H E

N A M B L E R ; R I C H A

R D V O G E L , Defendants-Appellees

. N o. 12-15100

D.C. No. 3:09-cv-04073- MMC

OPI NI ON

A ppeal from the United States District Court for the Northern District of California Max ine M. Chesney , Senior District J udg e, Presiding

Arg ued and Submitted F ebruary 12, 2014—San F rancisco, California

F iled Aug ust 7, 2014

B efore: Richard C. Tallman and J ohnnie B . Rawlinson, Circuit J udg es, and Thomas O. Rice, District

J udg e. *

Opinion by

J u dg e Rice

* T h e H o n orab le T h o m as O. Rice, Un ited States D istrict J u d g e f o r th e Eastern District o f

W ash i n g to n , sittin g b y

d esig n atio n

.L O O S V

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SUMMARY * *

Securities F raud

T h e panel affirmed the district court’s dismissal f o r failure to state a claim o f a securities fraud class action alleg ing violations of Sections 10(b), 20(a), and 2 0 A of the Securities Ex chang e Act of 1934 and Rule 10b-5.

Ag reeing with the Eleventh Circuit, the panel held that the
announcement of an investig ation, standing a l o n e , is insuffic i e n t to establish loss causation. I t held that the plaintiff c ould not establish loss causation on the facts alleg ed in the amended c omplaint because h e h a d n ot attempted to correlate h is losses to any thing other than the announcement of an internal investig ation.

COUNSEL

David A.P. B rower a nd Richard H. W eiss (arg ued), B rower Piven, New York, New York; a nd Sanford Svetcov, Susan K

. Alez a nder, and W illow E. Radcliffe, Robbins Geller Rudman & Dowd, L L P, San F rancisco, Cali f o r nia, for PlaintiffsAppellants.

Susan S. Muck, J ennifer C

. B retan (arg ued), and Marie C. B afus, F enwick & W est, L L P, San F r ancisco, California; a nd F elix S. L e e , F enwick & W e st, L L P, Mountain View, California, for Defendants-Appellees.

** T h is su m m ary co n stitu

t es n o p ar t o f t h e o p in io n o f th e co u rt. It h as b een p rep ared b y

co u rt staf

f f o r th e co n v en i en ce o f

th e read er.L O O S V

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OP INION

RI CE, District J udg e :

Plaintiff J ohn L oos appeals the district court’s dism i s sal of his securities fraud class action for failure to state a c laim. Plaintiff arg u es t h at the district court erred by analy z ing his alleg a tions of scienter in isolation rather than “collectively ”

as mandated by Tellabs, Inc. v. Makor Issues & Rights, Ltd.
, 551 U.S. 308 (2007). Plaintiff further challeng es the district court’s conclusion that he failed to establish loss causation b y alleg ing a precipitous decline in I mmersion Corp.’s stock price o n the heels of a J uly 1, 2 009 press release announcing

an inter nal investig ation into the company ’s revenue accountingpractices.

W e hold t h at the announcement of an investig ation, standing alone, is insufficient to establish loss causation. W e further c onclude that Plaintiff cannot e stablish loss causation

on the f acts alleg ed in the amended complaint because h e has
not attempted to correlate his losses to any thing other than the
announcement of an internal investig ation. W e t h e r efore affirm the district court o n t h i s loss causation issue. W e do not reach Plaintiff’s arg

uments reg arding scienter.

I.

I mmersion Corporation (“I mmersion”) is a publicly

t r a d e d company listed o n the NASDAQ stock ex chang e

. I mmersion develops and licenses “haptics” techn o l og y , which, in b road strokes, a llows h ig h-tech electronic devices
to produce tactile feedbac k to the u ser. One ex ample of a haptics-enabled device is a smartphon e t h at produces a “pulse” o r a “pushback” sens a t i o n when the user clicks aL O O S V

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button on the scr een. At the times relevant to this appeal, I mmersion f

o cused primarily o n developing haptics technolog y for use in handheld electronics a n d medical training devices.

Plainti f f J ohn L oos (“Plaintiff”) and several other purchasers of I mmersion st o c k f iled class actions ag ainst I mmersion in the Northern District of California in late 2009. The district court consolidated the c ases a nd a p pointed Plaintif f to represent the p utative class. Plaintiff subsequently filed a consolidated complaint o n b ehalf of himself and a class of shareholders who purchase d I m mersion stock between May

3, 2007, and J u ly

1, 2009 (the “class period”). This complaint alleg ed violations of Sections 10(b), 2 0(a) a nd 20A of the Securities Ex chang e Act of 1934 and Rule 1 0b-5 of the Securities and Ex chang e Commission’s implementing
reg ulations. Named as defendants were I mmersion and five of its top ex ecutives, Defendants Victor Vieg as, Clent Richardson, S t e phen Ambler, Richard Vog el and Daniel Chavez

.

Defendants moved to d ismiss t h e c o mplaint on J u ne 15, 2010, for failure to state a c l a im. The district court g ranted the motion o n March 11, 2011, ruling
, inter alia
, that Plaintiff failed to adequately plead the sc i e n t er and loss causation elements of h is claims. F inding that these deficiencies could potentially be cured, the d istrict court g ranted Plaintiff leave to amend.

Plaintiff filed an amended complaint asser ting the same

causes o f action on April 2 9, 2011. 1 Defendants f iled a

1 Dan iel Ch av e z w a s n ot n am ed as a d ef en d an t in P lain tif

f ’ s am en ded

co m plain t an d is n o t

a p arty to th is ap p eal.L O O S V

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second motion to d ismiss o n J uly 1, 2011. The district court g ranted the motion on December 16, 2011, concluding
, once ag ain, that Plaintiff failed to plausibly alleg e the scienter a nd loss causation elements of his claims. B ecause Plaintiff had f a iled to correct the deficiencies identified in its p r i o r dismissal order, the dist r ict court dismissed the amended complaint with prejudice.

Plaintiff now appeals.

II.

Fr o m the time it went p ublic in 1999 until the fourth quarter of 2006 ( “4Q06” 2 ), I m mersion d id not turn a p rofit. Althoug h the c ompany appeared to b e p o i sed for g rowth, it strug g led to control its ope r at i ng costs. During this period, I mmersi o n e xp erienced sig n ificant pressure from its investors to “ramp up” to sustained profitability

.

I mmersion’s fortunes appeared to chang e in 1Q07, when the company settled a patent infring emen t c l a i m ag a inst a larg e electronics manufacturer for $ 1 5 0 million. W ith the receipt o f these f

unds, I mmersion was able to report its first profitable quarter as a publicly traded c ompany

. Althoug h the c ompany was pleased with the impact of the settlement on its balance s h e e t , it recog niz ed that investors would not be
content with a one

- t i m e influx of capital. Thus, I mmersion announced during a conference c all about 1Q07 earning s that it would invest the settlement funds in new g rowth initiatives that would translate to profitable quarters a nd s u stained
revenue g rowth for the remainder of 2007.

2 Fo r co n v en ien ce, w e w ill u se th is ab b rev iatio n f o rm at f o r all f in an cial
q u arters th ro u g h o u t o u

r o p i n io n

.L O O S V

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I mmersion disclos ed its 2Q07 earning s o n Aug ust 2, 2007. I n a p r e s s release, the company ’s CEO, Defendant Victor Vieg as, announced that I mmersion had a chieved “back-to-back profitable quarters” as a result of strong sales in its Medical Division. On a subsequent conference c all with investors, Vieg as reported that Medica l Division

revenues h ad g rown 19% over the second quarter of 2006 a nd

were p oised f

o r further g rowth. W hen asked about I mmersion ’s prospects for g rowth internationally
, Vieg a s stated that t h e c ompany anticipated considerable success marketing its medical products in China.

I mmer s i o n released its 3Q07 financial results on November 1
, 2007. I n a press release announcing the results, I mmersi o n proclaimed that it had achieved “three consecutive profitable quarters” and had ex p erienced “very stro n g y e arto-date revenue g rowth.” On a su b s e q uent earning s call, V i eg a s informed investors that the company ’s Medical Division revenues had g rown 39% over t h e t h ird quarter o f 2006.

I mmersion reported its 4Q07 earning s on F ebruary 28, 2008. I n y e t another press release, the company declared that it had a chieved “profitability in each of the four quarters” in 2007. During a conference c all wit h i n vestors, Vieg a s boasted that the company ’s 4Q07 a nd fiscal y ear 2007 r esults

were “ the best in I mmersion’s history .” I mmer sion’s CF O
, Defendant Stephen Ambler, r eiterated that these numbers were “record hig

hs.”

Unfortunately
, I mmersion’s momentum sta l l e d in e arly 2008. On May 1, 2008, I m m e r s ion announced a net loss o f $2.6 million f

or 1Q08. D e s p ite this d isappointing news, Ambler emphasiz ed to investors that Medical D ivisionL O O S V

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revenues had increased by 13% over 1Q07 a n d w ould continue to drive g rowth. W hen q uestioned about the
company ’s prog ress internationally
, Vieg as fore c ast that I m m e rsion would see a “dramatic increase” in Medical Division revenues over the nex t three quarters.

On J uly 31, 2008, I mmersion announced a net loss of $3.1 million for 2Q08. I n an effort to p ut a p o s i tive spin on this disappointing n ews, I mmersion hig h lig hted in a press release
t h a t i ts total revenue h ad g rown by 8 % over 2Q07 and b y 16 % o ver the first six months of 2007. Defendant Clent Richardson, who by that time h ad succeeded Vieg as as CEO, furth er emphasiz ed that I mmersion was beg inning to see sig nificant returns on its investments internationally : “W e a re already seeing positiv e and measurable results from our investments. Second quart er o f international revenues reached $4.5 million, almost 5 0% of total [ company ] reven ue, and an increase of 25% compared to the y ear-ag o quarter.”

I mmersion released its 3Q08 results on O ctober 30, 2008. After adjusting for a one-time charg e related to the settlement of a lawsuit, the c ompany reported a net loss of $4.3 million. Once ag ain, I mmersion at t e m p ted to f ocus investors’ attention o n revenue g rowth. I n a press r elease, the company announced that it h a d ex c e eded $10 million in quarterly

r e venue for the first time in its history

. During an earning s call, Ambler ex plained that $5.6 million of this sum had come from international medical sales, a fig ure that r epresented a 112% y ear-over-y

ear increase. R i chardson f urther r eported that “[ o ] verseas revenue for medical g rew more than 3 times over [ 3Q07] .”

I mmersion announced its 4Q08 earning s on March 2
, 2009. Adjusting for a one-time charg e related to theL O O S V

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divestiture o f a business seg ment, the c ompany reported a net loss of $7.1 million. I n contrast to the re v e n u e g r owth reported for the p rior three quarters, I mmersion’s 4Q08

revenues declined 9% ov er t he prior y ear period. Despite these poor results, I mmersion hig h lig hted to investors that it “continued to see stro n g gr o wth in international sales with [ the] medical lin e of business. Medical international

revenues g rew 135% over the y ear-ag o period, and also g rew 24% sequentially .”

Results for 1Q09 w e r e a nnounced on May 4, 2009. I mmersion reported a net loss of $7.5 million a nd only a 1% increase in revenues over the prior y e ar period. The company also announced a 16% decrease in medical revenues over the prior y ear period. I mmersion conceded that the Medical Division “ha[ d] not met revenue ex p ectations.”

Shortly thereafter, on J uly 1, 2009, I mmersion disclosed

a potential problem w ith its previously reported revenues. I n

a press release issued before the stoc k market opened, the
company r evealed that it had launched a n internal investig ation into revenue r e c og n ition p ractices in its Medical Division:

[ T] he Audit Commit tee of the B oard o f D i r e c t o r s o f I m m e r s i o n C o r p o r a t i o n (“I mmersion”) is condu c ting an internal investig ation into ce r tain previous revenue transactions i n its Medical line of business. The investig ation is being c o n ducted with the assist a n c e of outside counsel. The Audit Committee has not y e t determined the impact, if any , to I mmersion’s historical fin ancial

s t a t ements. A s a result of this investig ation,L O O S V

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I mmersion may discover information that could raise issues with respect to i t s previously -reported financial information, which could be material. I mmersion will not be able to evaluate the full impact of the af o rementioned matters until the Audit Committee completes its re view and f urther analy sis is completed.

I mmersion’s stock price dropped over 23% to close at $3.80 per share on this news.

On A ug ust 10, 2009, I mmersion advised investors that its prior financial statements “should no long er be relied upon” due to irreg ularities with “certain revenue transactions” in the Medical Division. The company further disclosed th a t , a s a result of these irreg ularities, it would restate its financials for fiscal y ear 2008 at a later date.

I mmersion disclosed the finding s o f its in t e r n al investig ation on F ebruary 8, 2010. I n an amended F orm 10- K/A filed w ith the Securitie s a n d Ex c hang e Commission (“SEC”), the c ompany admitted to having made “errors in

. . . the recording of revenue transactions from [ its] Medical line of business.” Mo r e s pecifically
, I mmersion revealed that it had recog niz ed sales revenue prematurely
, in v iolation o f
g enerally accepted accounting principles (“GAA P ” ) a nd its

own internal policies, in three main areas: (1) o n o r d ers shipped to a Chinese c u stomer pursuant to a “side ag reement” that g r anted the customer unauthoriz ed shipping and pay ment terms; (2) on orders of p roducts that were either “ not available” or “not fully developed” when sold; and (3 ) o n

o r ders that were not promptly delivered, that included nonstandard t e rm s, or that lacked probable collectability

. As aL O O S V

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result of these errors, I mmersion restated its e arning s for 2006, 2007, 2008 and 1Q09. The most sig nificant impact o f the restatement was on fiscal y ear 2008, in which I mmersion reversed $623,000 in m e d ical sales revenue and deferred another $3 million to later periods.

III.

W e have jurisdiction over this appeal pursuant to 28 U.S.C. § 1291. W e review the dismissal o f a s e c u rities fraud claim under F ederal Rule of Civil Procedu r e 1 2(b)(6) de novo. Zucco Partners, LLC v. Digimarc Corp. , 552 F .3d 9 8 1
, 989 (9th Cir. 2009). T h e scope of our review is “g enerally limited to the face of the complaint, materials incorporated into the complaint by r e f erence, and matters o f which we may take judicial notice.” Id. Dismissal w ithout leave to amend is reviewed for abuse of discretion. Id.

IV.

Section 1 0(b) of the Securities E x c hang e Act o f 1934 makes it unlawful to “use or employ
, in connection with the purchase or sale of any security

. . . an y m anipulative o r deceptive device or contrivance in c o n travention of such rules and reg u lations as the Comm ission may prescribe a s necessary or appropriate in the p ublic interest or f or the protection o f investors.” 15 U.S.C. § 78j(b). SEC Rule 10b-5, w hi c h implements § 10(b), prohibits the following practices “ in connection with the p urchase or sa le of any security ”:

(a) To employ a

ny device, scheme, or artifice to defraud,L O O S V

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(b) To make any u ntrue statement o f a material fact or to omit to state a material fact
necessary in order to mak e the statements made, in the lig ht of the circumstances under which they

were made, not misleading , or
(c) To eng ag e in any act, p ractice, or course o f b usiness 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 g ive rise to a cause of action in favor of a

ny purchaser or seller of securities w ho has been injured b y a company ’s fraudulent practices. Tellabs, Inc. v. Makor Issues & Rights, Ltd.
, 551 U

. S

. 3 0 8, 318 (2007). T here are six elements to a securities fraud claim unde r § 1 0 ( b ) a n d R u l e 1 0 b

- 5 : (1) a material misrepresentation or omission; (2) scienter ( i.e.
, a w ro n g f ul

s t a t e o f m i n d ) ; ( 3 ) a c o n n e c t i o n b e t w e e n t h e misrepresentation and the purchase or sa l e 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 s e curities reflects all information in the public domain); (5) economic loss ; a nd (6) loss causation. Dura Pharmaceuticals, Inc. v. Broudo
, 544 U.S. 336, 341–42 (2005).

At issue here i s the element of loss causation. B roadly speaking
, loss causation ref e r s to the causal relationship between a material misrepresentation and the e conomic loss suffered by an investor. Id. a t 3 4 2. Ultimately
, a secu r ities f r a u d p l a i n t i f

f m u s t p r o v e t h a t t h e d e f e n d a n t ’ s misrepresentation w as a “substantial cause” of his or herL O O S V

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financial loss. In re Daou Sys., I n c

. , 411 F .3d 1006, 1025 (9th Cir. 2005). At the pleading stag e, however, the p laintiff

n eed o nly alleg e that the decline in the defendant’s st o c k
p rice was prox imately caused by a r evelation of fraudu l e n t activity rather than by chang ing market conditions, chang ing investor e x pectations, or other unrelated factors. Metzler Inv. GMBH v. Corinthian Colls., I n c

. , 540 F .3d 1049, 1062 (9th Cir. 2008). I n other words, the plaintiff must plausibly a lleg e that the defendant’s f

raud was “ revealed to the m a rket a nd caused the resulting losses.” Id. at 1063 (emphasis added).

Plaintiff’s overarching theory of l i a bility is that I mmersion “cooked the b ooks” in response to mount ing
pressure fro m investors to become p rofitable. Specifically
, Plaintiff alleg e s that I mmersion sy stematic a lly recog niz ed medical sales revenue earlier than permitted under G AAP in order to mislead investors into believing t h a t the company

was on the cusp of finally achieving sustained profitability

. A s a result of this practice, Plaintiff contends, I mmersion’s stock price remained artificially “infl ated” throug hout the class period.

W ith reg ard to loss causation, Plaintiff alleg es that I mmersion’s fraudulent accounting was revealed t o the market throug h a series of “partial disclosures” consisting o f (1) disappointing earning s results for 1 Q08, 2Q08, 4 Q08 a nd 1Q09; a n d (2) the subsequent a nnouncement of an internal investig ation into prior r evenue transactions. T he g ravamen of Plaintiff’ s l o s s c ausation theory is that I mmersion’s disappointing financial results sig naled that the c ompany lacked the “ g rowth drivers and profitability ” that it h ad previously claimed, and that the subsequent a nnouncement o f

an investig ation into pri o r revenue transactions confirmed that I mmersion had fraudulently overstated its h istor icalL O O S V

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revenues. Most nota b ly f or purposes of the instant c ase, Plaintiff alleg es that I mmersion’s J uly 1
, 2009 announcement of an internal investig ation completed the revelation of fraud
t o the market a

nd r emoved a ll inflation from the compa n y ’s stock price:

As a d irect res u l t of [D] efendants’ J uly 1, 2009 disclosure, I mmersion’s stock price fell 23% in one day ...to close at $3.80 per share[

. ] This drop r esulted in a market c a p i t aliz ation los s o f $31.9 million and removed the inflation f

r om I mmersion’s publicly traded securities, causing real ec o n omic loss to investors who had p urchased the securities during the Class Period.

A.

The district court concluded that the a lleg ations reg arding I mmersion’s d isappointing financial results were insufficient
to establish loss causation as a matter o f law. W e ag ree. A s the d istrict court correctly recog niz ed, our precedent requires

a securities fraud plaintiff t o alleg e that the market “learned of and reacted to th[ e] fraud, as opposed to merely reacting to reports of the de f

e n dant’s poor financial health g e nerally

. ” 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 earning s 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 practic e s )

. I mmersion’s disappointing earning s f

or 1Q08, 2Q08, 4Q08 a n d 1Q09 are merely indicative of poor financial health; they do not tend to sug g e st that the company had eng ag ed i n f raudulent accountingL O O S V

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practices. At bottom, these disclosu r e s simply reveal that I mmersion failed to meet its revenue g oals.

Our d ecision in Daou d o e s n o t d ictate a different r esult. L ike Plaintiff, the investors in Daou alleg ed that their losses

were caused, at least in par t , by the defendant’s

ann o u n ce m ent of “dismal” financial results. 411 F .3d at 1025–26. According to the i n v estors, these disappointing results were the direct resul t of the defendant sy stematically
recog niz ing revenue prematurely in violation of G A A P

. Id.
at 1026. The district cour t d i s missed the complaint, ruling that the investors had not adequately linked the disappointing earning s (and the ensuing drop in the defendant’s share price) to the alleg ed accounting

fraud. Id.

W e reversed, holding that the investors had a lleg ed a plausible connection between the disappointing earning s a nd the a lleg ed fraud. Id. at 1026–27. Crucial to our holding was the fact that the defendant’s earning s statement revealed more t h a n $ 1 0 million in unbilled r eceivables in a “work in
prog r ess” account. Id. a t 1026. Having p reviously taken n ote of a l leg a tions that the defendant recog niz ed revenue on contracts for which “ little or no labor had y et taken place” (including one anticipated c o ntract that the defendant ultimately lost to a competitor), id. at 1019–20, we concluded that $10 mi l l i o n in unbilled revenue was sufficiently
sug g estive of accounting f raud to survive a motion to dismiss. Id. at 1026–27.

Unlike the disappointing e a rning s disclosure in D a o u , I mmersion’s 1Q08, 2Q08, 4Q08 and 1Q09 r e s u l t s do not reveal a ny information from which revenue accounting fraud mig ht reasonably be inferred. I n fact, the only disclosure that mig ht arg uably support an inference of fraud is theL O O S V

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company ’s statement d u r i n g a 1Q09 earning s call that “pay ments [ w ere] not taking place on a timel y b asis from

some of [ its] o verseas customers.” B ut this revelation comes

n o w h ere c lose to the circumstances presented in Daou

. Fo r

one thing
, the missing revenue at issue here had a ctually been billed to a client. More importantly
, however, this statement reveals very little about the reason for the underly ing proble m

. W hereas a “rapidly escalating work in prog ress account represent[ ing ] over $10 million in unb i l led receivables” supports an inference of premature reve n u e recog nition on a monumental s c a l e , see id. at 1026, a sing le offhand r eference to slower than normal coll e c t ion o f
accounts r eceivable does not. According ly
, we find no error i n t he d istrict court’s analy sis of I mmersion’s 1Q08, 2Q0 8
, 4Q08 and 1Q09 financial results.

B.

W ith reg ard to the J uly 1, 2009 announcement, the district
court ruled that “the announcement of an invest i gation, standing a lone, does not g ive rise to a v i a b l e loss causation alleg ation.” We have never squarely a ddressed whether the disclosure of an internal i n v estig ation can satisfy the loss causation element of a § 10(b) and Rule 10b-5 claim. On o ne hand, we hav e s t a ted that a securities f raud plaintiff is not required to alleg e an outrig ht admission of fraud to survive a motion to dismiss. See Metzler
, 5 40 F .3d at 1064 ( “ [ N] either Da ou nor D ura require an admission or finding o f fraud before loss causation can be properly pled.”). This statement supports Plaintiff’s arg ument that the dis c l o sure of an investig ation, wh i c h r aises the prospect of fraud, is relevant
to e s t a blishing loss c ausation. On the other hand, we have stated in t h e very same breath that a mere “ risk” o r “potential” f

or fraud is insufficient to establish loss causation.L O O S V

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

c a u sation is pled where a defendant’s disclosure reveals a ‘risk’ or ‘potential’ for wides p r e ad fraudulent conduct.”). This statement supports th e district court’s conclusion that the

mere announcement of an investig ation is not enoug h to establish loss causation.

Our decision in Metzler
, w hile r elevant, is not p a rticularly i n s tructive here. I n that case, the plaintiff’s theory of l o s s causation relied, in part, on a newspaper article wh i ch disclosed that the d e f

endant, a nationwide f

or-profit c olleg e , had been investig ated and sanct i oned by the Department o f Education for facilitating financial aid fraud. Althoug h only

one of th e d efendant’s eig hty

- eig ht campuses h ad been investig ated, the plaintiff arg ued that the resulting s an c tions revealed a “

potential but real risk

” that other campuses h ad
eng ag ed in similar misconduct. Id. a t 1055, 1063 (emphasis in orig inal). W e rejected this arg ument , h o l d i ng that the sanctions i mposed ag ainst the sing le campus were not indicative o f f

raud on a company -wide scale. I d. at 1063–64. W e f urther noted that, in any event, t he defendant’s stock price made a full recovery within t h r e e day s of the article being published. Id. at 1063–65. Given the limited scope o f the investig ation a t i s s ue in Metzler
, the most we can say is that the a nnouncement of an investig ation can potentially be relevant to a securities fraud plaintiff’s th e o r y of loss causation.

The Eleventh Circuit has ex amined the d i s c l osure o f a f r a u d i n v e s t i g a t i o n u n d e r m u c h m o r e a n a l o g o u s circumstances. I n Meyer v. G reene , the plaintiff alleg ed that the defendant, a developer of commercial and industrial real estate, committed fraud by failing to d epreciate the value o f its real estate holding s in the wake o f a sig nificant depressionL O O S V

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of the real estate market from 2008 to 2010. 710 F .3d 1189, 1192–93 (11th Cir. 2 013). F ollowing a prese n t ation by a prominent stock market analy st sug g esting that t he defendant’s real e state holding s w e r e s u b s t a n t i a l l y 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 va l u a t ion practices. I d

. The defendant’s stock price dropped an additional 7% on t h i s n e w s

. Id. at 1201. Six months later, the defendant announced that the SEC’s inquiry had ripened into a “order o f p r i v a te investig ation.” Id. at 1193. The defendant’s stock price dropped another 9 % as a result of this d isclosure. I d. at 1201. The plaintiff attempted
t o e stablish loss causation by arg uing that the defendant ’s accounting fraud was revealed to the market throug h (1 ) the analy st’s p resentation; ( 2) the d isclosure o f the SEC’s informal inquiry ; and (3) the an n o u n cement of the SEC’s private order of investig ation. Id. at 1197. T he Eleventh Circuit rejected this theory

. A s to the presentation, the court

ex p lained that the analy st’s informatio n h ad been derived “entirely from public filing s and o th e r p u blicly available [ s o u rces] ” of which the stock market was presumed to be

aware. Id. a t 1198. W ith re ga r d to the SEC investig ations, the c ourt reasoned that the r e h ad been n o “revelation” of a prior false statement to the market:

I n our view, the commencement of an SEC in v estig ation, without more, is insufficient
to constitute a corrective disclosure for
purposes of § 1 0 ( b )

. The announcement o f

an invest i ga t i o n re v e a l s j u st that—an investig ation—and nothing more. To be sure, stock prices may f

all upon the announcement of an SEC investig ation, but that is becauseL O O S V

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the investiga t ion can b e seen to portend an added risk o f future corrective action. That does not mean that the investig ations
, in a nd of themselves, r e v eal to the market that a company ’s previous statements were false o r fraudulent.

Id. at 1201 (emphasis in o rig inal) (internal citations omitted).

W e ag ree with th e E l eventh Circuit’s reasoning

. The
announcement of a n investig ation does not “reveal” fraudulent practices to the market. I ndeed, at the moment an investig ation is announced, the market c annot possibly know what the investig ation will ultim a t e l y reveal. W hile the disclosure of an inve stig ation is certainly an ominous event, it simply puts investors on no t i c e of a potential future disclosure of fraudulent conduct. Consequently
, any decline in a corporation’s share price f ollowing the announcement o f

an investig ation can only be attributed to market speculation about whether fraud has occurred. This t y pe of speculation
cannot form the basis of a viable loss c ausat i o n theory

. According ly
, we hold that the an n ouncement of an investig ation, without more, is insufficient to establish loss causation.

Plaintiff attempts to save his loss causation theory b y arg uing that two post-class period d isclosures “ s o l i d i f [ i e d ] the

ca u s a t i v e l ink” between the fraud and his loss. The crux o f this arg ument i s t h at fears prompted by the J uly 1, 2009
announcement wer e l a t e r confirmed by (1) an Aug ust 10, 200 9 disclosure that I mmersion’s financial statements “should no long e r be relie d u p o n ”; and (2) the F ebruary 8, 2010 restatement itself. This arg u me n t f ails for the simple

r e ason that the impact of these events on I mmersion’s st o c kL O O S V

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price was n o t alleg ed in the TAC. 3 Plaintiff’s omission o f this information is fatal to his ability to plausibly alleg e loss causati on. W e therefore affirm the dismissal of Plaintiff’s § 10(b) and Rule 10b-5 claims for failure to state a claim.

C.

The di s trict court dismissed Plaintiff’s amended complaint without leave to a mend because Plaintiff failed to correct the deficien c i es identified in his orig inal complaint. W e find no abuse of discretion in that decision. The district
court g ave Plaintiff a detailed e x planation of why his orig inal theory of loss ca u s ation was deficient. Despite having this

ex p lanation, Plaintiff persisted in attempting to establish loss causati o n t

h r o ug h I mmersion’s disappointing earning s r esults and the J uly 1
, 2 0 0 9 a nnouncement of an internal investig ation. B ecause Plaintiff “essentially re-pled the same facts and leg al theories” in his amen d e d complaint, the district c ourt did not abuse its discr e t i o n in dismissing Plaintiff’s claims with p rejudice. U.S. Mortg., I nc. v. Saxton
, 494 F .3d 833, 843 n.11 (9th Cir. 2007 )
, a b rogated on other grounds by Proctor v

. V

ishay Intertechnology Inc.
, 584 F .3d 1208 (9th Cir. 2009); see also Zucco Partners
, 552 F .3d at 1 0 0 7 (“[ W ] here the plaintiff has p reviously been g rant e d le a ve to amend a

nd has subsequently failed to add the requi s i t e particularity to [ his] claims, the district c ourt' s discretion to deny

leave to amend is particularly broad.”).

3 W e f u rth er n o te th at P l ain t if

f d i d n o t ad v an ce th is arg u m en t i n t h e d istrict co u rt. T h e arg u m en t is th er e fo r e w aiv ed

. In re: Mercu r y In tera ctive Co rp . S ec. Litig

. , 6 18 F.3 d 9 88 , 9 9 2 (9 th Cir. 2 01 0 ).L O O S V

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D.

Plaintiff also appeals the d ismissal of his c l a i ms for failure to plausibly alleg e scienter under the Private Securities L itig ation Reform Act’s heig htened pleading standards. I n view of our h olding a

bove, we decline to address Pla i n t i f f ’s scienter arg

uments.

E.

Plainti ff ’ s final contention on appeal is that the district
court erred in dis m i ssing his control person and insider
t r a d ing claims for failure to properly a lleg e an underly ing

v i o l a tion of § 10(b) a

nd Rule 10b-5. B ecause we ag ree th at Plainti ff lacks a viable claim under § 10(b) and Rule 10b-5,

we affirm the district c o urt’s dismissal of these derivative claims.

AF F IRMED.