FI L ED U.S. COURT OF APPEAL S EL EVENTHCI RCUI T SEP 30, 2011 J OHN L EY CL ERK [PUBLIS H] IN THE U

NITED STATE S COURT OF APPEALS FOR THE ELE VENTH CIRCUIT

__ __ __ __ __ __ __ __ __ __ __ __ No. 1 0- 10 10 7

__ __ __ __ __ __ __ __ __ __ __ __ D.C. Dock etNo. 2 :0 5- cv -0 02 01 -J ES-DNF FINDWH AT INVESTOR GROUP, on be ha lf o f it se lf a ndall ot he rs si m il arl y si tu at ed , et al ., Pl ai nt iff s - Ap pe ll an ts , ve rs us FINDWH AT.COM, CRAIG PI SARIS -HENDERSON, PHILLIP R. THUNE, Defen da nt s - Ap pe ll ees .

__ __ __ __ __ __ __ __ __ __ __ __ App eal fro m

th e Uni te d S ta te s Di st ric t Co urt forth e Mi dd le Dis tri ctof F lo rid a

__ __ __ __ __ __ __ __ __ __ __ __ (Sep te m be r 30 , 20 11 ) Befo re HULL andMARCUS , Cir cu itJu dg es , andCOOKE, Dis tri ctJu dg e. *

Honora b l e Marc ia G. Cooke, United States District J udg e for the Southern District of * Florida , sitti ngby

designation.MARC US, Cir cu itJu dg e:

Inth is sec ur it ie s fr au d c la ss act io n, the in ve st orPla in ti ffs su edth e Defen da ntco m

pa ny MIVA, Inc. (“ MIVA”) an d t hr ee o f it s p rin ci pa l o ffi cers , 1 2 al le gi ng th atth ey

ha d m ad e a s eri es of e le ve n fa ls e o r m is le ad in g s ta te m en ts to th e publ ic , invi ol at io n o f § 1 0( b) of t he Secu rit ie s Ex ch an ge Act o f 19 34 (“ th e Exc hang e Act ”) an d R

ul e 1 0b -5 pro m

ul ga te d t he reu nd er. The Pla in ti ffs cla im ed th atth e fal se st at em en ts ha d t he effe ctof arti fic ia ll y in fla ti ng th e p ric e o f MIVA’s st oc k u nt il th e trut h b el at ed ly cam e o ut , at wh ic h t im e th e st oc k p ric e dro pp edan d th e Pl ai nt iff

s s uf fere d s ub st an ti al fin an ci al lo ss es . The di stric t co urt re

jecte d a ll of t he Pla in ti ffs ’ cl ai m s. Itdi sm is se d n in e o f th e el ev enall eg ed ly mis le ad in g s ta te m en ts on th e p le ad in gs forfai lu re t o s ta te a cl ai m . The d is tri ctco urt the n g ran te d s umm ary jud gm en t t o the Defen da nt s wi th
res pe ctto th e rem ai ni ng two st at em en ts , on th e g ro un ds th atth e Pl ai nt iff s h ad fai le d t o d em on st rat e g enui ne is su es of m at eri al factreg ard in g l os s caus at io n a nd da m ag es . The Pl ai nt iff

s h av e ap pe al edbo th of t he se ord ers , pl aci ng be fo re u s

In J une 2 0 0 5 , Fi n d W h at.com, Inc. chang ed its name to MIVA, Inc. MIVA, Inc. then 1 chang ed its name to Ver

tro, Inc. in 2009. This opinion intercha ng eably uses “MIVA,” “F indWhat,” and “the Company” to re fer to the Def

endant c ompany . The three office rs are the Chairman of the Boa rd of Direc tors and Chief Ex ecutive Offic er 2 ( “ CE O ” ) Cra ig Pi s a

ris
- H e n d e r s o n ; Pr esident and Chief Oper ating Offic er (“COO” ) Phill ip R. Thune; and for mer Chief F inancial Of

fice r (“ CFO” ) B renda

Ag ius. (Compl. ¶¶ 19-21). 2to da y

cla im s d eri vi ng fro m

fou r of th e o rig in al ele ve n s ta te m en ts m ad e b y th e Defen da nt s -- two th atwere d is m is se d a s i ns uf fic ie nt ly ple d, an d t wo t ha t wer e reject edat s umm ary jud gm en t. Afte r th or ou ghrev ie w, we ho ldth atth e d is tri ctco urt p ro pe rly dis m is se d t he Pl ai nt iff s’ cla im s ar is in g fr om

th e al le ge d m is st at em en ts m ad e o n M arch 5, 2 00 4
an d J ul y 26 , 20 04 , bec au se th e Pl ai nt iff s h av e in ad equa te ly ple d s ci en te r an d fal si ty, res pe ct iv el y . Howev er, as forth e Pl ai nt iff s’ cla im s ar is in g o utof the Defen da nt s’ Feb ru ary 23 , 20 05 an d M arch 16 , 20 05 st at em en ts , we vac at e th e di st ric t co urt’s en try of s umm ary jud gm en t. We ho ldth atth e se cu rit ie s l aws pr oh ib itco rp or at e rep res en ta ti ve s fr om kn owi ng ly ped dl in g m at eri al
m is rep res en ta ti on s t o t he publ ic -- reg ard le ss of wh ethe r th e st at em en ts in tro du ce a
ne w fal se ho odto th e m ark etor m erel y co nf irm m is in fo rm at io n a lre ady inth e
m ark etpl ace. In ot he r wor ds , a de fen da ntm ay be li ab le forfrau du le ntst at em en ts in te nt io na ll y

m ad e th atha ve th e p ur

po se an d e ffec t o f pr op pi ng up analr eady in fla te d s to ckpri ce i n an e ffi ci en t m ark et . Accor di ng ly, we affi rm inpa rt, v acat e in pa rt, a ndrem an d fo r fu rth er p ro ceed in gs co ns is te ntwith t hi s o pi ni on . I. Fact s an d P ro cedur al His to ry Si nc e we as su m e th e Pl ai nt iff s’ factua l al le ga ti on s t o b e true when
rev ie win g a m ot io n t o d is m is s, Garf ie ldv. NDC Heal th Co rp ., 46 6 F .3d12 55 , 312 61 (11 th Cir . 20 06 ), an d t he Defen dant s d o n otdi sp ut e th e rel ev an t fa ct s fo r

pu rp os es of s umm ary jud gm en t, we t ak e th e rel ev an t fa ct s fr om th e Pl ai nt iff

s’ Firs t Am en de d C on so li da te d C la ss Acti on Co m pl ai nt(“ Co m

pl ai nt ”) an d o th er do cu m en ts subm it te d o r in co rp or at edby referen ce b y th e Pl ai nt iff

s. A. Bac kg ro un d o n M IVA MIVA i s an Int ern etco m m erce co m

pa ny tha t p ro vi de s “pa y -p er-c li ck ” adve rti si ng servi ces . (Co m pl . ¶ 2). M IVA pl aces adve rti se m en ts foron li ne sel le rs
on th e web si te s o f nu m ero us en ti ti es with wh om MIVA co nt ract s (c al le d M IVA’s

“ di strib ut io n p artne rs ” o r “ affi li at es ”). The adve rti se rs pa y MIVA eac h t im e an In te rn etus er “ cl ic ks ” o n t he ir a d. MI VA th ensh ares a po rti on of t ha t re ve nu e with i ts ne two rkof d is tri bu ti on pa rtn ers -- th e web si te s t ha t fi rs t g en erat edth e cl ic k. MIVA co ntract s wi th th e ad ve rti se rs on a ke ywor d- ta rg et ed , bi d- fo rpo si ti on , pay-per -cl ic k b as is . (Id. ¶ 2 3) . Key wor d- ta rg et edadve rti si ng all ows adve rti se rs to reac h atar ge te d aud ie nc e: th e ad ve rti se m en t ap pe ars on th e u se r’s
co m pu te r sc reen on ly if a us er ty pe s a p art ic ul ar k eywor d o r ke ywor d p hr as e in to a
se arch bo x o n awebs it e o f on e o f MIVA’s d is tri bu ti on pa rtn ers . (Id. ¶ 2 3 n .6 (a nd
m at eri al s ci te d t he rei n) ). Bid -fo r-p os it io n m ean s tha t the adve rti se rs bi d a ga in st each ot he r fo r adpl acement. (I d. ¶ 2 3 n .4). Th e h ig he stbi dd er fo r a p art ic ul ar
4ke ywor d re cei ve s t he fir st -p la ce ad ve rti se m en t p os it io n wi th res pe ctto th at

ke ywor d, an d the ot he r adve rti se rs forth atke ywor d a re l is te d i n d es cen di ng bi d
or de r. (Id .) Pay -p er-c li ckm ean s t ha t an adve rti se r on ly pay s wh enanInt ern et
us er cl ic ks on it s adan d g et s t ran sf erre d t o i ts webs it e. (Id . ¶ 23 n.5 ). Thes e cl ic ks are s up po se d t o b e h ig hl y qu al ifi edlea ds li ke ly to co nv ertin to a sa le , si nc e th e u se r in te nt io na ll y

cli ck edon th e adan d, the refo re, p res um ab ly has so m e in te res t i n t he adve rti se d p ro du ct . (Id.) Notsu rp ris in gl y , it ’s very im po rta ntto MIVA to ge ne rat e h ig h- qu al it y In te rn ettra ffi c fo r it s ad ve rti se rs . MIVA’s rev enue is de te rm in edby the pri ce tha t adve rti se rs bi d fo r a cl ic k o n the ir a ds an d t he nu m be r of cli ck s M IVA can ge ne rat e o n t ho se ad s. (Id . ¶ 28 ). The p ric e anadve rti se r is wil li ng to bi d d ep en ds
on th e ad ve rti se m en t’s co nv ers io n ra te , i.e., th e rat e atwhi ch th e se ll er’s adve rti si ng ex pe nd itur e tr an sl at es in to ad di ti on al sal es in co m e. (Id .) The g reat er th e sa le s co nv ers io n ra te , th e m or e th e ad ve rti se r is wil li ng to bi d o n apa rti cu la r ke ywor d. (Id . ¶¶ 25 -2 6, 2 8) . Con ve rs el y , th e m or e adve rti se r-p ai d c li ck s t ha t fa il to tra ns la te in to in co m e fo r th e ad ve rti se r -- i n o th er wo rd s, the lo wer the
co nv ers io n ra te -- th e lo wer the pri ce tha t ad ve rti se rs are wi ll in g t o b id . (Id. ¶¶4, 28 ). Ther efo re, i t i s es se nt ia l t o M IVA’s su cces s t ha t the cli ck s i t d ire ct s t o i ts

5adve rti se rs ha ve a hi gh co nv ers io n ra te , th atis , th atth ey freque nt ly tran sl at e in to actua l s al es . (Id. ¶¶25 -2 6)
. B. The Pla in ti ffs ’ All eg at io ns of C li ck Frau d Withi n M IVA’s Netwo rk

“ Cl ic k fr au d” ge ne ral ly refers to th e p ract ic e o f cl ic ki ng on anInt ern et adve rti se m en t fo r th e so le pu rp os e o f fo rci ng th e ad ve rti se r to pa y forth e cl ic k. (Id . ¶ 43 ). Becaus e ad ve rti se rs on ly pay when so m eo ne cli ck s t hr ou gh to th ei r web si te , art ifi ci al cli ck s ca n b e v ery co st ly to ad ve rti se rs . (Id.) Cli ckfrau d in cl ud es th e u se of i ll ic itpra ct ic es su ch as s pyware, br ows er h ijack in g s of twar e,
an d o th er “bo ts ” o r “ no n- hu m antra ffi c.” (Id . ¶¶ 43 -4 4) . Suc h p ract ic es res ul t i n 3 lo wer s al es co nv ers io n ra te s fo r adve rti se rs be cau se th e le ad s ar e fal se -- th ey do
no t co m e fro m

actua l b uyers i nt eres te d i n p ur ch as in g t he adve rti se d p ro du ct s. (Id
. ¶ 2 6) . Becau se lo wer co nv ers io n ra te s l eadto lo wer ad ve rti se r bi ds an d t hu s t o de crea se d re ve nu e, en su rin g the qu al it y of i ts di st rib ut io n p artne rs an d e li m in at in g im pr op er In te rn ettra ffi c are ex tre m el y im po rta ntfora pa y -p er-c li ckco m pa ny suc h
as MIVA.
Acc ording to the Plaintiffs’ Complaint, “spy war e” is softwar e that sabotag es a computer’ s 3 operation for the benef

it of a third party . (Compl. ¶ 43 n.11). “B ro ws er h i j ac king” occur s when someone “ hijacks” the Interne t browser of an unknow ing c omputer user and automatically direc ts the user to unsolicited adver tisements, there by cre ating a click (or reve nue event) for MIVA and the distribution partne r. (I d. ¶ 45). “B ots” or “spiders” are computer programs that sear ch the Interne t for reve nue o p p o rt u n i t ies and then click on those opportunities. (I d. ¶ 44). “Non- human traff ic” cre ates the appea

ranc e that human users are clicking on an adve rtisement, when in f act, no human prospec tive customer is viewingthe ad. ( I d. ¶ 46). 6Acco rd in g t o t he Pla in ti ffs ’ al le ga ti on s, i n o r aro un d 2 00 3, two o f MIVA’s

to p re ve nu e-g en erat in g d is tri bu ti on pa rtn ers (“ Sav el i” an d “ Dm it ri” ) -- wh o to ge th er g en erat edalm os t o ne -th irdof M IVA’s rev enue du rin g 2 00 3, 2 00 4, an d 20 05 , andrep res en te d abo ut36 pe rcen t o f MIVA’s cl ic k re ve nu e (i d. ¶¶40 -4 1) -- be ga n u si ng cli ckfrau d t o g en erat e rev enue . Sav el i an d Dm it ri’s c li ckfrau d in cl ud edth e u se of s pyware, br ows er h ijack in g s of twar e, an d o th er n on -h um an tra ffi c. (Id . ¶ 43 ). Acco rd in g t o aform er Bu si ne ss Deve lo pm en t M an ag er at MIVA, Sav el i an d Dm it ri we re “ tu rnan d b urn g uys” wh o fo cu se d p rimaril y on dr iv in g i n alo t o f tr affi c, reg ard le ss of i ts qu al it y . (Id. ¶ 3 9) . This lo w-qua li ty tra ffi c cau se d a dv ert is ers to lo wer the ir a dv ert is in g b id s, d ecre as in g C om pa ny
rev enue . A form er MI VA Acco un t M an ag er d es cri be d t he res ul t as “ se rio us , se rio us bi d d efl at io n.” (Id . ¶ 29 ). Due to MIVA’s lo w-qua li ty dis tri bu ti on pa rtn ers , th e Co m pa ny’ s re ve nu e- 4 pe r-cl ic k ra te dro pp edfro m $0 .20 -$ 0.2 1 i n e arl y

20 03 to $0 .12 by Jun e 2 00 5. (Id
. ¶ 3 3) . This de crea se in rev enue ha d ado m in o e ffec t, driv in g a way hi gh -qua li ty di st rib ut io n p artne rs who sh aredinMIVA’s de crea si ng rev enue an d thu s s ou gh t
m or e co m

pe ti ti ve returns fro m

alt ern at iv e p ay -p er-c li ckco m pani es . (Id. ¶ 3 4) . As
Although Saveli and Dmitri g ener ated the most bad-qua lity traff ic, the Plaintiffs alleg e that 4 MIVA’s click fra

ud problems extended to othe r distribution partners in MIVA’s network as well. (Compl. ¶ 37). 7a res ul t, the Pla in ti ffs all eg e th atth e Co m pa ny inc reas in gl y

rel ie d o n g reed y

an d
un sc rupu lo us di st rib ut io n p artne rs who were fo cu se d o n o nl y sh ort-t erm

ga in
. (Id .) By th e su m m er o f 20 05 , an a na lysis of M IVA’s affi li at es rev eal edth atit s
supp os ed ly ext en si ve an d d iv ers ifi edpa rtn er n etwork h adsh ru nk , with 9 5 p erce nt of th e Co m pa ny’ s cl ic k re ve nu e co m in g fr om it s t op fif ty dis tri bu ti onpa rtn ers -- th e to p t wo b ei ng Sav el i an d Dm it ri. (I d. ¶ 3 7) . In s ho rt, a cco rd in g t o t he Pl ai nt iff s’ all eg at io ns , th e Defen da nt s h adcrea te d adi st rib ut io n n etwork tha t was pr im ari ly fuel edby ill ic ittra ffi c-g en erat in g t ech ni qu es , and , acco rd in g t o aform er MIVA Ma rk et in g M an ag er, was be stde sc rib edas a“ ho us e o f car ds
. . . he ld to ge th er b y

a th read .” (Id .) Altho ug h c li ckfrau d i s d el et eri ou s i n t he lo ng term be cau se itdri ve s awa y adve rti se rs , itpro du ces sh ort-t erm rev enue ga in s thr ou gh in crea se d c li ck s. Th e Pl ai nt iff s al le ge th atth e cl ic k fr au d wi th in MIVA’s ne two rken ab le d t he Co m pa ny to rep ort an un in te rrupt edst rin g o f qu art er-b y -qua rte r fi na nc ia l g ai ns . Betwe en 20 03 an d 2 00 5, the Defen da nt s i ss ue d p ub li c st at em en ts rep orti ng see m in gl y
un st op pabl e g ro wth st emm in g fr om it s p rimary

pay -p er-c li ckbu si ne ss . (Id. ¶ 2 ). Infact , pri orto Feb ru ary 23 , 20 05 , th e Co m pa ny m etor e xc eed edan al y stgro wth
ex pe ct at io ns in ev ery si ng le qu art er s in ce 2 00 3. (Id .) Perh ap s d em on st rat in g t he
8Co m

pa ny’ s o bs es si on with m eet in g Wall Str eet ’s for ecas ts , th es e ex pe ct at io ns
were s om et im es m etby as li tt le as ape nn y . (Id.) There fo re, the Pla in ti ffs all eg e th atde sp it e th e b idde fla ti on an d d ecl in in g re ve nu es MIVA was actua ll y
ex pe rie nc in g, the Defen da nt s al lo wedcli ckfrau d t o c on ti nu e withi n i ts ne two rkin
or de r to m eetan al y stgro wth ex pe ct at io ns at t he expe ns e o f th e Co m pa ny’ s l on gte rm he al th . (Id. ¶ 9 ). Dur in g 2 00 4 a nd20 05 , st at e an d fe de ral reg ul at or s’ scrut in y of c li ckfrau d in te ns ifi ed , cau si ng th e Defen da nt s t o fe ar tha t the “ham m er” wo ul d b e co m in g do wn o n t he sp y

ware i ndus try. (Id. ¶¶ 6 1- 62 ). In an e ffo rt t o l ul l i nv es to rs an d adve rti se rs in to be li ev in g t ha t the Co m pa ny was p ro act iv e an d a gg res si ve ab ou t po li ci ng cli ckfrau d, Def

en da ntCEO Pis ari s- Hen de rs oncla im eddu rin g a Co m pa ny con fere nc e cal l o n F eb ru ary 23 , 20 05 th at , inth e fo urth qu art er o f 20 04 , th e Co m pa ny hadvo lu nt ari ly rem ov eddi st rib ut io n p artne rs rep res en ti ng $7 0,0 00 in rev enue pe r da y

be cau se “ ou r fo cu s i s t o d el iv er traff ic th atco nv ert s ra th er tha n jus t cl ic ks alo ne .” (Id . ¶¶ 12 , 87 , 95 ). Howev er, acc or di ng to th e Sen io r Dire ct orof B us in es s Dev el op m en t
res po ns ib le forth e o ve rs ig htan d m an ag em en t o f al l o f MIVA’s aff il ia te s, “ no tra ffi c was tak enoff

li ne in th e fo urth qu art er o f 20 04 .” (Id . ¶ 88 ). Thi s Se ni or Dire ct orals o s ai d t ha t the anno un cem en t i n t he Feb ru ary co nf eren ce ca ll cle arl y 9refe rredto Sav el i an d Dm it ri, wh o e arn eda co m bi ne d a ve rag e o f $7 0,0 00 in
rev enue pe r da y . (Id.) Not ab ly, ho wev er, Sav el i an d Dm it ri we re n otrem ov ed fro m th e n etwork. (Id .) Thi s fa ctwas c orro bo rat edby a form er MI VA Mark et in g Man ag er wh o s ta te d t ha t i t was “ anop ensec retwithi n t he Co m pa ny tha t Dm it ri
an d S av el i wer e n ottak enoff li ne inDecem

be r 20 04 , andne it he r was an y on e el se .” (Id .) On M arch 16 , 20 05 , ina Fo rm 10 -K an nu al rep ort fi le d wi th th e Sec ur it ie s
an d Ex ch an ge Co m

m is si on (“ SEC”), t he Defen da nt s re pe at edth ei r cl ai m th atin th e “ fo urth qu art er o f 20 04 , we ceas eddi sp lay in g a dv ert is em en ts with d is tri bu ti on pa rtn ers . . . who se tra ffi c d idno t ad equa te ly con ve rt t o re ve nu e fo r ou r adve rti se rs ,” an d t ha t “ th e rem ov al of t he se di st rib ut io n p artne rs reduc edou r
av erag e cl ic k- th ro ug h re ve nu e b y ap pr ox im at el y

$7 0,0 00 pe r da y .” (Id . ¶ 95 ). The Co m pa ny ass ert edth atth e rem ov al was i n c on fo rm it y with i ts “ lo ng -s ta te d go al of p ro vi de d [s ic ] hi gh qu al it y tra ffi c to ou r adve rti se rs .” (Id .) (al te rat io n i n
or ig in al ). In the same 10 -K, th e Co m pa ny als o a ffi rm at iv el y

ass ert edth at“ [w]e do
no t re ly on ‘sp yware’ foran y purp os e an d i t i s n otpa rt o f ou r pr oduc t o ffer in gs ,” th at“ [w]e hav e im

pl em en te d s cree ni ng po li ci es an d p ro cedur es to . . . . det ect [] frau du le ntcli ck -th ro ug hs , whi chare n otbi ll edto ou r adve rti se rs ,” an d t ha t “ [w]e

10ha ve de ve lo pe d aut om at edpro pr ie ta ry scr een in g app li cat io ns an d p ro cedur es to
m in im iz e th e eff

ect s o f . . . fraudul en t cl ic ks .” (Id . ¶¶ 89 , 91 ). Befo re the st oc k m ark et op en edon May 5, 20 05 , th e Co m pa ny iss ue d a 5 pr es s re le as e an no un ci ng di sapp oi nt in g fi rs t qua rte r 20 05 res ul ts an d t he
res ig na ti on of B ren daAgi us as C FO. (Id . ¶ 10 2) . Later t ha t d ay , Defen da nt s Crai g P is ari s- Hen de rs on , th e Co m pa ny’ s C EO, andPh il li p Th un e, th e Co m pa ny’ s COO, rev eal edto th e p ub li c th atcli ckfrau d h adin de edbe enres po ns ib le forso m e of th e Co m pa ny’ s re ve nu es , st at in g i n aco nf eren ce ca ll with ana lysts an d in ve st or s t ha t “ a co up le ” o f MIVA’s d is tri bu ti on pa rtn ers ha d b eenem pl oyin g

“ cap ab il it ie s . . . to ge t ad di ti on al tra ffi c th atjus t s im pl y do n’t ad he re t o o ur st an da rd s.” (I d. ¶ 1 03 ) (al te rat io n i n o rig in al ). W it hi n asi ng le da y of t rad in g o n May 5, 20 05 , MIVA’s sh are p ric e p lu m m et edov er 2 1 p erce ntfro m th e p rev io us da y , fro m a cl os in g p ric e o f $6 .16 on May 4, 20 05 , to a cl os in g p ric e o f $4 .83 on May 5, 20 05 . (Id. ¶ 1 04 ). The s to ckpri ce co nt inue d t o dro p o n F rid ay , May 6,
an d M on da y , May 9, as th e m ark etfurth er d ig es te d t he Co m pa ny’ s cl ic k fr au d
rev el at io ns , clo si ng at $ 4.4 6 o n M ay 9, 2 00 5. (Hak al a Rep ort, at23 & Ex. C- 1)
. C. Pro cedur al His to ry
FindWhat common stock was trade d on the Nasda q Stock Marke t, under the ticker sy mbol 5 “F WHT.” (MIVA 10-K, filed March 16, 2005, at 38). The ti cker sy mbol chang ed to “MIVA” in J une 2005, in conjunction with the company name chang e. (MIVA 8-K, filed J une 16, 2005, at 2). 11The Pla in ti ffs fil edth ei r in it ia l co m pl ai ntag ai ns t the Defen da nt s o n M ay 6, 20 05 , inth e Uni te d S ta te s Di st ric t Co urt fo r th e Mi dd le Dis tri ctof F lo rid a. On Ju ly 27, 2 00 5, the di stric t co urt co ns ol id at edfiv e la wsu it s ag ai ns t Fi nd Wha t (b y th enkn own as “ MIVA”) , andap po in te d t he Fin dWhatInv es to r Gro up as l ead pl ai nt iff . On Ja nu ary 17 , 20 06 , th e Pl ai nt iff s fi le d the ir F irs t Am en de d Co ns ol id at edCla ss Acti on Co m pl ai nt(“ Co m

pl ai nt ”), wh ic h i s t he op erat iv e pl ead in g o n app eal . Styledas aRu le 23 (b )(3 ) cla ss act io n, the Co m pl ai ntna m ed 6 MIVA an d t hr ee i nd iv idua l o ffi cers as d efen da nt s (C EO Crai g P is ari s- Hen de rs on ; COO Ph il li p R . Thu ne ; an d fo rm er CF O Bren daAgi us ), an d i de nt ifi edele ve n 7 al le ge dl y fal se or m is le ad in g s ta te m en ts m ad e b y th e Defen da nt s i n v io la ti on of §

Fe dera l Rule of Civil Procedur e 23 allows a plaintiff to bring litigation on behalf of a class 6 of persons wher e: “(1) the class is so numerous that joinder of all members is impractica ble; (2) there are questions of law or fa ct common to the class; (3) the claims or defe nses of the repr esentative parties are ty

pical of the claims or defe nses of the class; and (4) the repr esentative parties will fairly and adequately protec t the interests of the class.” Fe d. R. Civ. P. 23(a)
. Subsection (b)( 3) authorizes the court to cer

tify a class if “the court finds that the questions of law or fac t co m m o n t o class members predominate over any questions aff ecting only individual members, and that a class action is superior to other available methods for fairly and eff iciently adjudicating the controve rsy .” Fe d. R. Civ. P . 23(b). Def endant Ag ius has since been dismiss ed from the lawsuit in all respe cts. See In re MIVA, 7 Inc., Sec. L itig., 544 F . Supp. 2d 1310, 1318 (M.D. Fla. 2008)
. 1210 (b ) of

th e Exc ha ng e Act , 15 U.S.C. § 7 8j(b ), an d R ul e 1 0b -5 pro m

ul ga te d 8 th ereu nd er, 1 7 C .F.R. § 2 40 .10 b- 5. (Co m pl . ¶¶ 13 4- 42 ). 9 On M arch 15 , 20 07 , th e d is tri ctco urt p art ia ll y gra nt edth e Defen dant s’
m ot io n t o d is m is s, d is m is si ng as i ns uf fic ie nt ly ple d a ll cla im s i n t he Pla in ti ffs ’ Co m pl ai ntex cep t tho se rel at in g t o s ta te m en ts m ad e b y th e Defen da nt s o n Feb ru ary 23 , 20 05 an d M arch 16 , 20 05 . See Inre MI VA, Inc., Se c. Lit ig ., 51 1 F
. Supp . 2d12 42 (M.D. Fl a. 20 07 ). The d is tri ctco urt the n c ert ifi edth e cl as s b ut sh orte ne d t he cla ss pe rio d. Se e Inre MI VA, Inc., Se c. Lit ig ., No. 2: 05 -cv -2 01 , 20 08 W L 68 17 55 (M.D. Fl a. Mar . 12 , 20 08 ). The Pl ai nt iff s h adpro po se d tha t the cl as s co ns is t o f “ al l p ers on s o r en ti ti es who purch as edor o th erwi se acqui redth e
co m m on st oc k o f MIVA b etweenSep te m be r 3, 2 00 3 a ndMay 4, 20 05 , in cl us iv e,
an d wh o wer e d am ag edth ereb y ” (the “ Pro po se d C la ss Peri od ”). (Co m pl . ¶ 15 2)
. The di st ric t co urt s ho rte ne d t he pe rio d t o F eb ru ary 23 , 20 05 th ro ug h M ay 4, 2 00 5, in cl us iv e (the “ Cl as s Pe rio d” ), be cau se , purs ua ntto it s p rio r di sm is sa l o rd er, “ th e Securities Ex chang e Act of 1934, § 10(b), 48 Stat. 891 (1934) (codifie d as amende d at 15 8 U.S.C. § 78j(b)). The Plaintiffs a lso raised c ontrol-per sons claims under § 20( a) of the Exchang e Act. See 9 15 U.S.C. § 78t(a). Section 20(a) provides for joint and sever al liability for “control persons” once a plaintiff has demonstrated a § 10(b) violation. See id. Howeve r, no § 20(a) claim can lie without first establishing a succe ssful § 10(b) claim. See Thompson v. RelationServe Media, Inc., 610 F.3d 628, 635-36 (11th Cir. 2010) (“[A] primary violation of the securities law is an essential element of a § 20(a) derivative claim
. . . . As the
. . . Complaint failed to alleg e primary liability under § 10(b), there can be no seconda

ry liabili t y u n d er § 20(a) .”). Be cause the district court disposed of the Plaintiffs’ claims entirely on § 10(b) grounds, we only addre ss the Plaintiffs’ § 10(b) c laims. 13earl ie stst at em en t o r omiss io n o n wh ic h the pl ai nt iff s co ul d b as e a cl ai m

is Feb ru ary 23 , 20 05 .” Inre MI VA, 20 08 W L 68 17 55 , at * 2. InNov em

be r 20 09 , th e d is tri ctco urt, af te r refe rri ng th e m at te r to a
m ag is tra te jud ge , ado pt edth e m ag is tra te jud ge ’s Rep ort an d R eco m m en da ti on an d gr an te d fi na l s umm ary jud gm en t i n fa vo r of th e Defen dant s o n the two rem ai ni ng
m is rep res en ta ti on s, o n t he gro un ds th atth e Pl ai nt iff s h adfai le d t o d em on st rat e tri ab le is su es of f

actwith re sp ectto lo ss cau sa ti on an d d am ag es . See Inre MI VA, In c., Sec. Li ti g., No . 2: 05 -cv -2 01 , 20 09 W L 38 21 14 6 (M .D. Fla. No v. 1 6, 2 00 9)
. The reaf te r, th e Pl ai nt iff

s t im el y fil edth is ap pe al , cha ll en gi ng bo th th e d is tri ct
co urt’s d is m is sa l o rd er an d t he di st ric t co urt’s fi na l o rd er o f su m m ary jud gm en t. II. Dis m is sa l Ord er W e ad dr es s fi rs t wh ethe r th e Pl ai nt iff s h av e su ffi ci en tl y

pl eda Ru le 10 b- 5 act io n c on cern in g t he Defen da nt s’ st at em en ts m ad e o n M arch 5, 2 00 4 a ndJu ly 26, 20 04
. As fo r th e fi rs t s ta te m en t, we af firm th e d is m is sa l, b ecau se th e Pl ai nt iff s 1 0

Although the Plaintiffs state g ener ally that “[t] he District Court err oneously dismiss ed all 1 0 but two of the st atements in the C omplaint,” and that “it is clea r that t he st atements made prior to 2005 wer e simil arly false and misleading ,” (Appe llant B r. at 16), the Plaintiffs of fer no arguments on t h e m er i t s reg arding any of the dismiss ed statements except for the two we consider here
. There fore , the Plaintiffs have abandon ed any arguments reg arding the other seven dismiss ed statements. See Institut o de Prevision Milit ar v. Merri l l Ly n ch, 546 F.3d 1340, 1353 (11th Cir. 2008) (holding that arguments not made to appellate court are abandone d); Acc ess Now, Inc. v. Sw. Airlines Co., 385 F.3d 1324, 1330 (11th Cir. 2004) (holding that “a leg al claim or argument that has not been briefe d befor e th[is C ]ourt is deeme d abandone d and its merits will not be addresse d”). 14ha ve fai le d t o p le adsci en te r wit h t he requi si te sp eci fic it y ; wi th res pe ctto th e

se co ndst at em en t, we al so affi rm th e d is tri ctco urt’s o rd er, b ecau se th e Pl ai nt iff s ha ve fai le d t o a ll eg e th atth e st at em en t was eit he r fal se or m is le ad in g. A. Leg al Sta nd ard s W e rev ie w a di st ric t co urt’s o rd er d is m is si ng a co m pl ai ntde no vo . Miz zaro v. Ho m e Dep ot , Inc ., 54 4 F .3d12 30 , 12 36 (11 th Cir . 20 08 ). To s ta te a cl ai m

un de r § 1 0( b) an d R

ul e 1 0b -5 , a pl ai nt iff

m us t al le ge : (1 ) a m at eri al m is rep res en ta ti on or o m is si on ; (2 ) m ad e wit h s ci en te r; (3 ) a co nn ect io n wi th th e p ur ch as e o r sa le of asec ur it y ; (4 ) rel ia nc e on th e m is st at em en t o r omiss io n; (5) eco no m ic lo ss [i.e ., dam ag es ]; an d (6 ) a cau sa l co nn ect io n b etweenth e m at eri al m is rep res en ta ti on or om is si on an d t he lo ss , comm on ly call ed“ lo ss cau sa ti on .” Id . at 1 23 6- 37 (ci ti ng DuraPh arm s., In c. v. Br ou do , 54 4 U.S. 3 36 , 34 1- 42 (2 00 5) ). 1 1 Section 10(b) of

the Exchang e Ac t provides: 1 1 It shall be unlawful f

or any person, directly or i ndirec tly , . . . [t ]o use or employ , in connec tion with the purcha se or sale of any security
. . . an y m an ipulative or deceptive device or contrivanc e in contravention of such rules and regulations as the Commi ssion may presc ribe as nece ssary or appropriate in the publ ic i ntere st or for the protec tion of investors. 15 U.S.C. § 78j(b). Rule 10b-5, promulg ated by the SEC pursuant to § 10(b), provides in r eleva nt part: It shall be unlawful for any person, direc tly or indirectly , . . . [t ]o make any untrue statement of a materia l fac t or to omit to state a materia l fa ct nece ssary in order to make the statements made, in the light of the circ umstances under which they wer e made, not misleading
. . . . 15To s urvi ve a m ot io n t o d is m is s, a c la im bro ug htun de r Ru le 10 b- 5 m us t
sa ti sf y (1) th e fed eral no ti ce p le ad in g re qu ire m en ts ; (2 ) th e sp eci al frau d p le ad in g requi rem en ts fou ndin Fed eral Ru le of C iv il Pro cedur e 9 (b ), se e Zie m bav. Cas cad e In t’l, In c., 25 6 F .3d11 94 , 12 02 (11 th Cir . 20 01 ); a nd(3) th e ad di ti on al pl ead in g re qu ire m en ts im po se d b y th e Pri va te Secu rit ie s Li ti ga ti on Refo rm Act o f 19 95 (“ PSLRA”) , see Ph il li ps v. Sc ie nt ifi c-At la nt a, In c., 37 4 F .3d10 15 , 10 16 1 2 (1 1t h C ir. 2 00 4)
. Und er the fed eral no ti ce p le ad in g s ta nd ard s, a c om pl ai ntm us t co nt ai n “ a sh ort an d p la inst at em en t o f th e cl ai m sh owi ng th atth e p le ad er i s en ti tl edto rel ie f.” Fed . R. Civ . P. 8(a )(2 ). Forpu rp os es of t hi s an al y si s, “ al l wel l-p le ad ed fact s ar e acc ep te d a s tru e, an d t he reas on ab le in fere nc es th eref ro m are co ns tru edin th e li gh t m os t fa vo rab le to th e p la in ti ff.” Garf ie ld , 46 6 F .3dat 1 26 1 (quo ti ng Bryantv. Av ad o B ran ds , Inc ., 18 7 F .3d12 71 , 12 73 n.1 (11 th Cir . 19 99 )). Fed eral Ru le of C iv il Pro cedur e 9 (b ) requi res th at , forco m pl ai nt s al le gi ng frau d o r m is ta ke , “ a p arty m us t s ta te with p art ic ul ari ty the cir cu m st an ces
co ns ti tu ti ng frau d o r m is ta ke ,” al th ou gh “ [m ]alic e, in te nt , kn owl ed ge , andot he r

17 C.F.R. § 240.10b-5(b)
. Private Securities L itigation Reform Act of 1995 (“PSL RA”), Pub. L
. No. 10 4
- 6 7 , 1 0 9 St at. 1 2 737 (codifie d as ame nded in scattered se ctions of 15 U.S.C.). 16co nd it io ns of ape rs on ’s m in d m ay be all eg edge ne ral ly.” Fed. R. Ci v. P. 9 (b ). Whi le Ru le 9(b ) do es no t ab ro ga te th e co nc ep t o f no ti ce p le ad in g, i t p la in ly requi res a co m

pl ai ntto setforth (1) pre ci se ly wha t s ta te m en ts or o m is si on s wer e
m ad e in whi chdo cu m en ts or o ral rep res en ta ti on s; (2) th e ti m e an d p la ce o f eac h
su ch st at em en t an d t he pe rs on res po ns ib le form ak in g (o r, in th e cas e o f omiss io ns , no t m ak in g) th em ; (3 ) th e co nt en t o f su ch st at em en ts an d t he m an ne r in whi ch th ey
m is le d t he pl ai nt iff

; an d (4 ) wha t the de fen da ntob ta in edas aco ns eque nc e o f th e frau d. Garf

ie ld , 46 6 F .3dat 1 26 2; Ziem ba , 25 6 F .3dat 1 20 2. No tabl y , th e

“ [f]ail ur e to sat is fy

Ru le 9(b ) is a gr ou ndfor di sm is sa l o f a co m

pl ai nt .” Co rs el lo v. Li nc are, In c., 42 8 F .3d10 08 , 10 12 (11 th Cir . 20 05 ) (p er curia m). The PSLRA impos es ad di ti on al he ig ht en edpl ead in g re qu ire m en ts on Ru le 10 b- 5 a ct io ns . For Rul e 1 0b -5 cla im s p red ic at edon all eg ed ly fals e o r m is le ad in g st at em en ts or o m is si on s, the PSLRA p ro vi de s t ha t “ th e co m pl ai ntsh al l s pe ci fy each st at em en t al le ge d t o h av e b een m is le ad in g, the reas on or r eas on s wh y th e st at em en t i s m is le ad in g, an d, i f anall eg at io n re ga rd in g the st at em en t o r omiss io n is m ad e o n i nf

orm at io n a ndbe li ef, the co m pl ai ntsh al l s ta te with p art ic ul ari ty all fact s o n wh ic h t ha t b el ie f is form ed .” 15 U.S.C. § 7 8u -4 (b )(1 ). Andfor all pri va te Ru le 10 b- 5 a ct io ns requi rin g p ro of of s ci en te r, “ th e co m

pl ai ntsh al l, wi th res pe ct to each actor o m is si onall eg edto vi ol at e th is ch ap te r, st at e wit h p art ic ul ari ty facts
17gi vi ng ris e to a st ro ng in fere nc e th atth e d efen da ntact edwith t he requi redst at e o f

m in d [i .e., sci en te r].” Id. § 7 8u -4 (b )(2 ). Altho ug h fa ctua l al le ga ti on s m ay be ag gr eg at edto in fer s ci en te r, sc ie nt er m us t b e al le ge d wi th res pe ctto each de fen da ntan d wi thres pe ctto each all eg edvi ol at io n o f th e st atut e. Ph il li ps , 37 4 F.3 d a t 1 01 6- 18 . If th es e PSLRA p le ad in g re qu ire m en ts are n otsat is fie d, the co urt

“ sh al l” di sm is s t he co m

pl ai nt . 15 U.S.C. § 7 8u -4 (b )(3 )(A). B. Ana lysis 1. Mar ch 5, 2 00 4 F orm 10 -K Fil in g On M arch 5, 2 00 4, M IVA fil edit s Fo rm 10 -K an nu al rep ort wi th th e SEC fo r th e fi sc al y ear e nd in g Dec em be r 31 , 20 03 . Bot h Def

en dant s Pi sa ris -Hen de rs on (CEO) an d Th un e (COO) si gn edth e fo rm an d c ert ifi edit s ac cu racy purs ua ntto 1 3 th e Sar ba ne s- Oxl ey

Act o f 20 02 (“ Sarb an es -Ox le y ”). (See M IVA 10 -K, fil ed 1 4
Appar ently Def

endant Thune was both the Chief Ope ra t i n g Of fice r (COO) and Chief 1 3 Financ ial Offic er ( CFO) at the time. (See MIVA 10-K , filed Mar . 5, 2004, Ex s. 31.2, 32.2). See Sarbane s-Oxley Act of 2002, Pub. L
. No. 107-204, § 302, 116 Stat. 745, 777 (codifie d 1 4 at 15 U.S.C. § 7241) (re quiring that “the principal executive office r or office rs and the principal financ ial office r or office rs . . . cer tify in eac h annual or quarte rly repor t,” inter alia, that “the signing office r has revie wed the repor t,” that “base d on the office r’s knowledg e, the repor t does not contain any untrue statement of a materia l fac t or omit to state a materia l fac t nece ssary in order to make the statements made, in light of the circ umstance s u n d er which such statements wer e made, not mis l ea d i n g, ” and that “base d on such office r’s knowledg e, the financ ial statements, and other financ ial information included in the repor t, fa i rl y prese nt in all materia l respe cts the financ ial condition and results of operations of the [company]”); id. § 906, 116 Stat. 745, 806 (codifie d at 18 U.S.C. § 1350) ( requiring the chief executive offic er a

nd chief financ ial office r to “c ertify that the periodic repor

t c ontaining the financ ial statements fully complies with the require ments of section 13(a) or 15(d) of the S ec u ri t ies Ex chang e Act [o] f 1934
. . . and that information contained in the 18Mar . 5, 2 00 4, at41 & Exs . 31 .1-3 2.2 ). The Pl ai nt iff s p oi ntto th e fo ll owi ng rel ev an t s ta te m en ts fou ndin th e 1 0- K: The Fin dWhat .co m

Netwo rkis de di cat edto de li ve rin g h ig h- qu al it y ke ywor d a ds as ares ul t o f anInt ern etus er’s s earc h que ry . As su ch , we ha ve writ te n andst ric tl y en fo rce a dv ert is in g g ui de li ne s t o t ry to en su re h ig h re le vanc y

st an da rd s.

. . . .

. . . W e are de di cat edto de li ve rin g h ig h- qu al it y tra ffi c to ou r adve rti se rs ’ web si te s. We em pl oy an i nt eg rat edsyste m of n um ero us au to m at edan d h um anpro ces se s tha t co nt inua ll y m on it or tra ffi c qu al ity , oft eneli m in at in g a ny char ge s fo r lo w qu al ity tra ffi c pr oa ct iv el y

fro m th e ad ve rti se rs ’ acco un ts . W e en fo rce s tri ct gu id el in es with o urNetwo rkpa rtn ers to en su re the qu al it y of t raff ic on th e syst em .

. . . . Bu si ne ss with Th irdPart ie s: W e ex pe ctth atou r co ns ul tant s, ag en ts , res el le rs , di strib ut or s, s ub co ntract or s, an d o th er b us in es s pa rtn ers wil l ad he re t o l awfu l an d e th ic al bu si ne ss pra ct ic es . It i s im po rta ntto our co m

pa ny’ s re pu ta ti on th atwe av oi d d oi ng bu si ne ss with c om pa ni es whi ch vi ol at e ap pl ic ab le laws or h av e rep ut at io ns whi ch co ul d h arm

ou r bu si ne ss . Our p ol ic y pro hi bi ts en ga gi ng ag en ts orot he r th irdpa rti es to do in di rect ly wha t we as a co m pa ny sho ul d no t d o u nd er o ur

own po li ci es ou tl in edinth is co de
. (MI VA 10 -K, Mar. 5 , 20 04 , at 5 , 6 & Ex . 14 .2) ( em ph as is ad de d) (qu ot edin Co m pl . ¶¶ 75 , 73 ). 1 5 periodic repor

t fairly p re s en t s , in all materia l respe cts, the financ ial condition and results of operations of the [company]”). We are permitted to revie w the Def endants’ SEC filings ourselves in evaluating the 1 5 sufficie ncy

of the Plaintiffs’ a lleg ations. See S FM Holdings, Ltd. v. Ba nc of Am. Sec., L L C, 600 F.3d 1334, 1337 (11th Cir. 2010) (“In ruling upon a motion to dismiss , the dis tri ct court may consider a

n extrinsi c docume nt if it is (1) centra l to the plaintiff’s claim, and ( 2) its authenticity is not challeng ed.”) ; Maxcess, Inc. v. L ucent Techs., Inc. , 4 3 3 F.3d 1337, 1340 n.3 (11th Cir. 2005)

19The Co m pl ai ntall eg es th atth es e st at em en ts are fa ls e o r m is le ad in g fo r two
reas on s: fir st , th e Pl ai nt iff s cl ai m th atth e Defen da nt s v io la te d t he st at edCo m pa ny

“po li cy ” b y

all owi ng it s t wo l arg es t d is tri bu ti on pa rtn ers -- Sav el i an d Dm it ri - - to ge ne rat e cl ic k t raff

ic th ro ug h fr au du le ntm etho ds (Co m pl . ¶ 74 ); a nd , sec on d, the Pl ai nt iff s al le ge th atth e Defen da nt s d idno t en fo rce a ny “ stric t g ui de li ne s” to
en su re h ig h- qu al it y

tra ffi c -- ra th er, acc or di ng to th e Pl ai nt iff s, the Defen da nt s in te nt io na ll y

ig no redan d e ve n e nc ou rag edil li ci t p ract ic es to ge ne rat e cl ic k t raff ic (id . ¶ 76 ). The di stric t co urt co nc lu de d t ha t the se Fo rm 10 -K st at em en ts were n ot act io nabl e b ecau se th ey

were n otm is le ad in g. In parti cu la r, th e co urt d et erm in ed th at“ [s ]tate m en ts expr es si ng anex pe ct at io n o f as so ci at in g wi th eth ic al an d l awfu l th ird -p art ie s d oe s n otm eanth atFin dWhatwarran ts th atitdo es no t h av e cu rren t qu es ti on ab le ass oc ia ti on s.” In re MI VA, 51 1 F . Sup p. 2 d a t 1 25 4. Th e co urt al so
co nc lu de d t ha t “ a d ed ic at io n t o h ig h- qu al it y ke ywor d a ds an d t raff

ic is no t in co ns is te ntwith t he ex is te nc e o f lo w-qua li ty keywor d a ds an d traff ic .” Id
. (“[A] document outs ide t he four corne rs of the complaint may s t i l l b e co nsidered [ on a mot ion to dismiss ] if it is centr al to the plaintiff’s claims and is undisp u t ed i n terms of authenticity .”); Hoffma n-Pug h v. Ramsey , 312 F.3d 1222, 1225 (11th Cir. 2002) (holding in libel case that the entire alleg edly defa matory book “wa s proper ly

befor e the court on the motion to dis miss,” even though it had not been attache d to the complaint, “bec ause [the plaintiff] ref err ed to it in her complaint and it [was] centr al to her claims”). Moreove r, in securities fra ud actions, a court may t ak e j u d icial notice of the content of documents filed with the SEC. See Kramer v. Time Warner Inc., 937 F.2d 767, 774 (2d Cir. 1991); Fe d. R. Evid. 201(b)(2). 20Mo reo ve r, th e co urt fo un d t ha t “ th e Fo rm co ns is ts of m os tl y

forward -lo ok in g st at em en ts , [whi ch are] pro te ct edby the saf e h arb or pro vi si on s o f Sec ti on 78 u5( c), [b ecau se ] . . . the st at em en ts are ac co m pa ni edby caut io na ry

st at em en ts .” Id .;
se e 1 5 U.S.C. § 78 u- 5( c)(1 )(A)(I ), (i) (1 ) (d efi ni ng “ fo rward -lo ok in g s ta te m en ts ” as
en co m pa ss in g, i nt er al ia , pro

jecti on s o f rev enue s, s ta te m en ts reg ard in g
m an ag em en t’s fu ture p la ns an d o bjec ti ve s, an d s ta te m en ts reg ard in g fu tu re
eco no m ic pe rfo rm an ce, an d p ro vi di ng a “ sa fe h arb or ” fo r su chst at em en ts to th e
ex te ntth atth ey

are i de nt ifi edas f

orward -lo ok in g a ndare ac co m pa ni edby

“ m ean in gf

ul cau ti on ary st at em en ts id en ti fy in g i m po rta ntfact or s t ha t co ul d c au se actua l re su lt s t o d iff

er m at eri al ly from

th os e in th e fo rward -lo ok in g s ta te m en t” );
se e g en eral ly Bry an t, 1 87 F.3dat 1 27 6 n .7 (d es cri bi ng th e PSLRA’s s afe- ha rb or pr ov is io n)
. W e d is ag ree, h owe ve r, with t he di stric t co urt’s v ie w th atno po rti on of t he Fo rm 10 -K co ul d b e co ns id eredm at eri al ly mis le ad in g. Th e Fo rm 10 -K co nt ai ns affi rm at iv e st at em en ts of p res en t fa ct-- “ [w]e em pl oy an i nt eg rat edsyste m . . . th at
co nt in ua ll y

m on it or [s ] tra ffi c qua li ty,” and“ [w]e enfo rce s tri ctgu id el in es . . . to
en su re the qu al it y

of t raff ic ,” (Co m pl . ¶ 75 ) (em

ph as es ad de d) -- th at
un qu es ti on ab ly creat e th e im pr es si on th atMIVA m ai nt ai ns anact iv e an d
so ph is ti cat edm on it or in g s y st em forscr een in g fr au du le nttra ffi c. Accep ti ng th e
21Pl ai nt iff

s’ all eg at io ns as t ru e, th es e st at em en ts are m is le ad in g b ecau se th ey co ul d
m is le ada reas on ab le in ve st orin to be li ev in g t ha t the Defen da nt s h adsyste m s i n pl ace t ha t wo ul d d et ectan d re m ov e d is tri bu ti on pa rtn ers en ga ge d i n e xt en si ve frau du le ntrev enue -g en erat in g p ract ic es , when intru th an d i n fa ctth ey di d n ot . See S EC v. Tex as Gul f Su lp hu r Co ., 40 1 F .2d83 3, 8 63 (2dCir . 19 68 ) (enba nc ) (h ol di ng th ata st at em en t i s m is le ad in g i f “ in th e li gh t o f th e fac ts ex is ti ng at t he ti m e o f th e [s ta te m en t] . . . [a] reas on ab le in ve st or , inth e ex erci se of due care , wou ldha ve be enm is le d b y it ”). To av oi d b ei ng m is le ad in g, the Defen da nt s’ st at em en ts tri gg ereda du ty to d is cl os e th e g rav e d efec ts th atex is te d wi th in th e

“ en fo rce[ m en t]” syste m

th ey vo lu nt ari ly tou te d. Se e SEC v . Merc ha ntCap it al , LLC, 48 3 F .3d74 7, 7 70 -7 1 (1 1th C ir. 2 00 7) (ho ld in g t ha t a dut y to di sc lo se all
m at eri al in fo rm at io n re la ti ng to a pa rti cu la r subjec t ar is es by vol un ta ril y “ to ut in g” th e subjec t t o i nv es to rs ); s ee al so Ru do lp h v . Arth urAnd ers en& Co ., 80 0 F .2d 10 40 , 10 43 (11 th Cir . 19 86 ) (“ A du ty to d is cl os e m ay . . . be crea te d b y

a de fen da nt ’s pre vi ou s d eci si on to sp eakvo lu nt ari ly.”); Fi rs t Va. Ba nk sh ares v. Ben so n, 5 59 F.2d13 07 , 13 17 (5t h C ir. 1 97 7) (“ [A] dut y to sp eakth e fu ll tru th ari se s wh ena de fen da ntun de rta ke s t o s ay an yth in g.” ). 1 6

Be cause this former Fifth Circu i t opinion was issued befor e the close of business on 1 6 September 30, 1981, it is binding prec edent. See Bonne r v. City of Prichard, 661 F.2d 1206, 1207 (11th Cir. 1981) (e n banc)
. 22The Defen da nt s’ fai lu re t o d is cl os e th es e d efec ts ren de redth ei r st at em en ts

m at eri al ly mis le ad in g, wh ic h was no t cu redby any ge ne ral cau ti on ary orris kdi sc lo si ng lan gu ag e. See M erch an t Capi ta l, 4 83 F.3dat 7 69 . The Fo rm 10 -K’s
cau ti on ary la ng ua ge co ns is te d o nl y of g en eral warn in gs ab ou t ri sk s i nh eren t t o t he Co m pa ny’ s b us in es s m od el , andwas n ot“ sp eci fic al ly tail or ed ” to ris ks fro m cli ck frau d. Se e id . at 7 68 . Ind eed , th e 1 0- K di sc lo se d n ot hi ng to in di cat e ev en po te nt ia l wea kn es se s i n t he Co m pa ny’ s cl ic k- frau d m on it or in g s y st em s, m uc h l es s
an y in fo rm at io n re ga rd in g a ctua l kno wn b reac he s o f th os e syst em s. As th is 1 7 Ci rcu itha s h el d, “ to warnth atth e u nt owa rdm ay oc cu r whe n t he ev en t i s
co nt in ge ntis pru de nt , to cau ti on th atitis on ly pos si bl e fo r th e u nf av or ab le ev en ts to happ enwhen th ey

ha ve alr eady

oc cu rredis de cei t.” Id . at 7 69 (qu ot in g Rubi ns te in v. Co ll in s, 2 0 F .3d16 0, 1 71 (5t h C ir. 1 99 4) ) (b rack etom it te d) ; s ee al so Rubi ns te in , 20 F.3dat 1 71 (“ [T]he in cl us io n o f ge ne ral cau ti on ary lang ua ge reg ard in g apre di ct io n [d oe s] no t ex cu se th e al le ge d fa il ur e to rev eal kn own
The 10-K g ener ally war

ned about incre ased competition in the marke t f or Interne t-based 1 7 marke ting service s and g ener ally cautioned that the Company ’s succe ss d ep e n d e d o n it s r e la ti o nships with its distribution partne rs and ad vertiser s. In particula r, the latter war

nings stated that “any adver se chang es in our rela tionship with key distribution partne rs could have a mat er ial adver se impact on our reve nue and results of operations,” and “[i] f we are un ab l e to attrac t additional adver tisers to use our service s or fail to maintain relationships with our curr ent adver tisers, it could have a materia l adver se eff ect on our business, prospe ct s , fi n an cial condition and results of operations.” (M I VA 1 0 -K , filed Mar. 5, 2004, at 14-15). Such statements clea rly fail to provide meaning ful cautionar

y languag e reg arding the ineffe ctiveness of the click-f raud monitoring sy stems the Company

purported to e mploy

and voluntarily

touted. 23m at eri al , adv ers e fac ts .”). Inad di ti on , bec au se th e Defen da nt s’ st at em en ts pu rp ort

to rep res en t p res en t fa ct s, the Defen da nt s ca nn otcla im pro te ct io n u nd er the PSLRA’s s afe- ha rb orpro vi si on forforward -lo ok in g s ta te m en ts . See 1 5 U.S.C. § 78 u- 5( c)(1 )(A)(I ), (i) (1 ). Non ethe le ss , alt ho ug h we d is ag ree wi thth e g ro un d o n wh ic h t he di st ric t
co urt fo un d t ha t the Marc h 5 , 20 04 Fo rm 10 -K fil in g was no n- act io nabl e --
na m el y , th atth e st at em en ts were n otm is le ad in g -- we affi rm th e d is tri ctco urt’s di sm is sa l o f th e Ma rch 5, 2 00 4 F orm 10 -K st at em en ts on th e al te rn at iv e g ro un d th atth e Pl ai nt iff

s h av e fai le d t o p le adsci en te r ad equa te ly w it h re sp ectto th es e st at em en ts . Ru le 10 b- 5 re qu ire s a p la in ti ff t o s ho w th atth e d efen dantm ad e th e m at eri al
m is st at em en t o r omiss io n wi th th e requi si te cu lp ab le st at e o f m in d, o r sc ie nt er. In th is Cir cu it , “ sc ie nt er co ns is ts of i nt en t t o d efraudor s ev ere r eck le ss ne ss onth e pa rt o f th e d efen da nt .” Edwar d J . Goo dm anLife I nc om e Tru stv. J ab il Cir cu it , In c., 59 4 F .3d78 3, 7 90 (11 th Cir . 20 10 ) (i nt ern al qu ot at io n m ark s o m it te d) . As we ha ve ex pl ai ne d, [s ]evere reck le ss ne ss is li m it edto th os e h ig hl y un reas on ab le om is si on s o r m is rep res en ta ti on s t ha t i nv ol ve . . . anex tre m e d ep artur e fro m th e st an da rd s o f or di na ry care , andth atpre se nta dang er o f m is le ad in g b uyers o r se ll ers whi ch is eit he r kn ownto th e d efen da ntor is so ob vi ou s t ha t the de fen da ntm us t h av e b een aware o f it
. 24Mi zzar o, 5 44 F.3dat 1 23 8 (quo ti ng Bry an t, 1 87 F.3dat 1 28 2 n .18 ).

As we’ve no te d, the PSLRA ex pl ic it ly requ ire s t ha t the co m pl ai nt ’s al le ga ti on s cr eat e “ a st ro ng in fere nc e” o f sc ie nt er. 1 5 U.S.C. § 78 u- 4( b) (2 ) (em ph as is ad de d) . “ To qua li fy as ‘st ro ng ’ . . . an in fere nc e o f sc ie nt er m us t b e
m or e th anm erel y

pl au si bl e o r rea so nabl e -- i t m us t b e co ge ntan d a t l eas t as
co m pe ll in g a s an y

op po si ng in fere nc e o f no nf rau du le ntin te nt .” Tell ab s, In c. v. Mak orIss ue s & Rig ht s, Lt d., 5 51 U.S. 30 8, 3 14 (20 07 ). “ The in qu iry is i nh eren tl y
co m pa rat iv e,” as “ th e co urt m us t t ak e in to acco un t p laus ib le op po si ng in fere nc es .” Id . at 3 23 . The PSLRA als o m an da te s t ha t the co urt as se ss sci en te r “ with re sp ect to each actor o m is si onall eg edto vi ol at e th is ch ap te r.” 1 5 U.S.C. § 78 u- 4( b) (2 );
acco rdPh il li ps , 37 4 F .3dat 1 01 6 (“ [Sci en te r] m us t b e in ferr edforeach de fen da nt with re sp ectto each vi ol at io n.” (em ph as is ad de d) ). “ Insu m , th e rev ie win g c ou rt 1 8
m us t as k: Whe n t he all eg at io ns are ac cep te d a s t ru e an d t ak enco ll ect iv el y , wou ld
a rea so nabl e p ers onde em th e in fere nc e o f sc ie nt er atlea stas s tro ng as any op po si ng in fere nc e? ” Mi zzar o, 5 44 F.3dat 1 23 9 (quo ti ng Tell ab s, 5 51 U.S. at 32 6)
.

Thus, although the Pla i n t i ff s are corr ect that the court’s inquiry is a “holistic[] ” one, 1 8 Tellabs, 551 U.S. at 325, and that “fa ctual alleg ations may be ag greg ated to infer scienter ,” Phill ips, 374 F.3d at 1016, the di strict court was co rr ec t t o analy ze scienter separ ately with respe ct t o eac h alleg edly false statement. 25The ful l ex te ntof t he Pla in ti ffs ’ al le ga ti on s t ha t co ul d p ot en ti al ly con tri bu te

to anin fere nc e o f sc ie nt er b y th e ti m e o f th e Defen da nt s’ Marc h 5 , 20 04 10 -K st at em en ts are the se : 1 9

• So m et im e dur in g t he Pro po se d C la ss Peri od-- th atis , bet weenSep te m be r 3, 20 03 an d M ay

4, 2 00 5, i nc lu si ve -- Defen da ntPis ari s- Hen de rs on(CEO) at te nd eda m eet in g i n t he Co m pa ny’ s fi fth flo orExec ut iv e Co nf eren ce Ro om , inwhi chgro win g i nt ern al co nc ernov er Sa ve li an d Dm it ri’s i ll ic it rev enue -g en erat in g p ract ic es was d is cu ss ed . (Co m pl . ¶ 54 ). (The Co m pl ai ntpro vi de s n o fu rth er i nf orm at io n abo utth is m eet in g.)

• Bet weenSep te m

be r 20 03 an d M ay

20 04 , th e Co m

pa ny ann ou nc edva rio us pl an s tha t t og ethe r wou ldres ul t i n t he acqui si ti on of f ou r ot he r co m

pa ni es , fo r a t ot al pri ce o f $2 23 .5 m il li on , pai d fo r in pa rt b y MIVA’s in fla te d s to ck
. (Id . ¶ 12 9- 30 ).

• Ina Ju ne 20 04 m eet in g, ce rta inm em be rs of the m an ag em en t t eam de ci de d to term in at e th e Co m

pa ny’ s re la ti on sh ip with S av el i an d Dm it ri b ecau se th ey were “ba se m en t o pe rat or s” who em pl oyed s pyware. Howev er, Defen da nt s Pi sa ris -Hen de rs on (CEO) an d Th un e (COO) u lt im at el y di sa ll owe d the term in at io n b ecau se of t he ne ga ti ve im pa ctitwou ldha ve ha d on rev enue . (Id. ¶¶55 -5 7)
.

• At s om e p oi nt , a fo rm er Di rect or of B us in es s Dev el op m en t atMIVA di sc us se d t he ne edto ne go ti at e rel at io ns hi ps with h ig he r-qua li ty affil ia te s by inc reas in g d is tri bu ti on pa rtn ers ’ rev enue sh are f ro m 50 pe rcen t t o 6 0 pe rcen t, b utDefen da nt s Pi sa ris -Hen de rs on an d Th un e ref us edto lethi m

go fo rwardwith t hi s p la n. (Id . ¶¶ 34 -3 5) . (No d at es or f urth er i nf orm at io n a re pr ov id ed .)

• Inor a ro un d No ve m be r 20 04 , Defen da nt s Pi saris -Hen de rs on an d Thun e ap pr ov edanin crea se in th e p erce nt ag e o f rev enue pa idto partn ers ot he r
We adopt both the Plaintiffs’ fac tual alleg ations and the Plainti f f s ’ c h a r a c terization of those 1 9 fac ts for purpose s of this analy sis. Garfie ld, 466 F.3d at 1261. 26th anSav el i an d Dm it ri f ro m 50 pe rcen t t o 7 0 p erce nt , inanatt em ptto di lu te th e b adtra ffi c co m in g fr om Sav el i an d Dm it ri. (I d. ¶ 5 7)
.

• Dur in g aon e-o n- on e m eet in g i n Dec em be r 20 04 or J anua ry

20 05 , Defen da ntPis ari s- Hen de rs on ask edth e fo rm er Di rect or of B us in es s Dev el op m en t wh ethe r he th ou gh t the Co m pa ny’ s t raff

ic qu al ity pro bl em s ha d t o d o wi thSav el i an d Dm it ri, a ndth e fo rm er Di rect oran swe red affi rm at iv el y . (Id. ¶ 5 8)
.

• Inth e fo urth qu art er o f 20 04 , th ree c om pa ny ins id ers (in cl ud in g Def en da nt s Pi sa ris -Hen de rs onan d Th un e) s ol d s om e o f th ei r Co m pa ny sto ck , to ta li ng ro ug hl y $7 m il li on in sal es . (Id. ¶¶11 7- 20 ). Non e o f th es e in di vi du al s s ol d an y st oc k i n 2 00 3 o r 20 05 . (Id. ¶ 1 19 ).

• On Fe brua ry

21 , 20 05 , an i nt ern al co m pa ny e-m ai l was sen t s ay in g, “ The re was a la rg e in crea se in tra ffi c co m in g t hru S av el i, [Dm it ri], [an d two o th er di st rib ut io n p artne rs ] -- Ca n we m ak e su re tha t thi s ad di ti on al tra ffi c was va li d? ” The e-m ai l al so in di cat edth atm uc h o f th e tr affi c was be in g ge ne rat edth ro ug h p orno gr ap hi c web si te s, wh ic h i s an in di cat orof c li ck frau d. (Id . ¶¶ 47 -4 8)
.

2 0

• Eve ry

Thurs da y , th e Co m

pa ny’ s ex ecu ti ve m an ag em en t t eam rece iv ed“ W ar Rep orts ” fro m

th e Co m pa ny’ s B us in es s Dev el op m en t u ni t. (Id . ¶ 51 ). The Bu si ne ss Deve lo pm en t uni t the n m etev ery Fri day at 1 0: 00 a.m . to di sc us s ex ecu ti ve m an ag em en t’s re sp on se to th e War Rep orts , as wel l as pe nd in g de al s, p ro sp ect iv e d eal s, an d c urren t re la ti on sh ip is su es , su ch as un sc rupu lo us Int ern ettra ffi c. (Id .) (No d at es or f urth er d et ai ls reg ard in g th e War Rep orts are p ro vi de d.)

• The Defen da nt s m ai nt ai ne d a n i nt ern al co m pu te r syste m

cal le d t he “ In te rfac e” fr om

whi ch ex ecu ti ve m an ag em en t co ul d v ie w th e Co m pa ny’ s In te rn ettra ffi c in “ real -ti m e.” (Id . ¶ 52 ). The In te rfac e d is pl ay edleg it im at e The entities that run pornographic websites sometimes hide maligna nt programs, such as 2 0 spy war e, behind the pictures displayed on the site. W h en a user clicks on a picture, the user’ s browser or computer is infec ted and used to drive traff ic to aff iliates of pay-per -click service s, such as MIVA. Thus, it is a red flag signa ling click fra ud when pornog raphic websites g ener ate a high volume of click tra ffic f

or non-a dult key

words. (Compl. ¶¶ 47, 49)
. 27In te rn ettra ffi c in bl ue an d i ll eg it im at e tr affi c in red . (Id. ¶ 5 3) . (No fu rth er

de ta il s ar e p ro vi de d re ga rd in g t he “ In te rfac e” s y st em .)

• At s om e p oi nt , Sav el i an d Dm it ri we re g en erat in g re ve nu e-p er-c li ckrat es in ex ces s o f $0 .40 , when th e Co m pany’ s av erag e rat e was ap pr ox im at el y $0 .12 . (Id. ¶ 5 9) . Ind eed , at l eas t twen ty-sev enot he r di strib ut io n p artne rs were g en erat in g ra te s t ha t wer e si m il arl y “ ou ts id e th e ex pe ct edor n orm al ran ge ” an d i nd ic at iv e o f “ su rrep ti ti ou s t raff ic .” (Id . ¶ 60 ). Suc h h ig h rev enue -p er-c li ckrat es su gg es te d t ha t the affi li at es were u si ng sp yware pr og ram s t o g en erat e cl ic ks on on ly the hi gh es t-b idke ywor ds
. (Id . ¶ 59 ). 2 1

• It wa s “ co m

m on ly kno wn” withi n t he Co m pa ny tha t Sa ve li an d Dm it ri rel ie d o n c li ckfrau d, s uc h a s b ro wse r hi jack in g. (Id . ¶ 45 ).

• The Defen da nt s wer e h ig hl y m ot iv at edto hi de th ei r rel ianc e o n fr au du le nt , lo w-qua li ty clic k t raff

ic be cau se th ey

de sp erat el y

ne ed edth e fu nd s fr om Sav el i an d Dm it ri i n o rd er t o m eetW al l Street ’s dem an di ng rev enue go al s. (Id . ¶¶ 32 , 35 , 38 , 57 , 12 3- 31 ). Afte r rev ie win g a ll of t he Pla in ti ffs ’ al le ga ti on s re la ti ng to sci en te r, we ag ree wi th th e d is tri ctco urt tha t “ [t]he earl ie stpo ss ib le da te whi ch canbe
as cert ai ne d fr om

th e Am en de d C om

pl ai nt[on whi chth e Defen dant s kne w, or wer e
se ve rel y reck le ss in no t kno win g, o f th e al le ge d fr au du le ntrev enue -g en erat in g
sc he m e] was Ju ne 20 04 , whena m eet in g t oo k p la ce t o d is cu ss th e te rm in at io n o f Sav el i an d Dm it ri.” In re MIVA, 51 1 F . Sup p. 2 d a t 1 25 2. Ev envi ewin g a ll of t he Pl ai nt iff s’ all eg at io ns in co nc ert , th e Co m pl ai ntco nt ai ns no all eg at io ns fro m

Be cause MIVA uses a bidding model, differ ent key words produce differ ent reve nue-pe r- 2 1 click rate s. When a distribution partne r uses cl i ck fra ud, it can “che rry pick” the highe st-value key words. (Compl. ¶ 59). There fore , excessively high reve nue-pe r-c lick rate s are an immediate red flagsigna ling c lick fra

ud to anyone monitoringthe traf fic. (I d.) 28whi chwe canin fer tha t an y on e in MIVA’s m an ag em en t kne w or “ m us t h av e” kn own ab ou t the cli ckfrau d b efo re J un e 2 00 4. Se e Mi zzar o, 5 44 F.3dat 1 23 8. Noton ly do t he Pla in ti ffs fai l t o a ll eg e an y di rectev id en ce tha t the Defen da nt s kne w abo utMIVA’s cl ic k fr au d p ro bl em s b efo re the Ju ne 20 04
m eet in g, b utno ne of t he Pla in ti ffs ’ ci rcu m st an ti al all eg at io ns of kno wled ge rel at e to th e ti m e p eri odbe fo re J un e 2 00 4 e it he r. The i nt ern al e-m ai l re ga rd in g po rn og rap hi c web si te s was no t s en t u nt il Feb ru ary 20 05 . (Co m pl . ¶¶ 47 -4 8) . The al le ge d i ns id er trad in g d idno t o ccu r un ti l the fou rth qu art er o f 20 04 . (Id. ¶¶11 7- 20 ). The re ve nu e-s pl itin crea se fro m 50 pe rcen t t o 7 0 p erce ntin te nd edto di lu te il li ci t traff

ic di d n otoc cu r un ti l ro ug hl y Nov em be r 20 04 . (Id. ¶ 5 7) . Andot he r al le ga ti on s, i nc lu di ng th os e reg ard in g t he “ In te rfac e” co m pu te r syste m , (id . ¶¶ 52
- 53 ), Sav el i an d Dm it ri’s e xc es si ve ly hig h re ve nu e-p er-c li ck rat es , (id . ¶¶ 59 -6 0) , an d t he week ly W ar Re po rts , (id . ¶ 51 ), are u nd at eden ti rel y . The Pla in ti ffs adm itth atth e Co m pl ai nton ly pro vi de s d at es forrel ev an t
ev en ts oc cu rri ng in Ju ne 20 04 or t he reaf te r. (App el la ntBr. at34 ). Howev er, the Pl ai nt iff s ar gu e th at“ th os e in te ract io ns with Def en dant s d et ai l the ir ackno wled gm en t o f anon go in g p ro bl em , no t o ne th atha d s ud de nl y su rfac ed .” (Id .) The Pl ai nt iff

s as se rt t ha t, “ if ade ci si on ha d a lre ady be enm ad e in Ju ne 20 04

29to rem ov e Sav el i an d Dm it ri a s d is tri bu ti on pa rtn ers be cau se of t he ir r el ia nc e o n

cl ic k fr au d,” th e Defen da nt s m us t h av e kno wn o f th e p ro bl em be fo re tha t. (Id .) Thi s cl ai m

is who ll y sp ecu la ti ve . It i s equa ll y pl au si bl e th atm an ag em en t
m ad e th e d eci si on to term in at e Sav el i an d Dm itri i m m ed ia te ly upo n l earn in g o f th ei r rel ia nc e o n c li ckfrau d. Inad di ti on , th e Pl ai nt iff s ar e n eces sa ril y

ask in g t he
co urt t o p ro

ject t he Defen da nt s’ pre su m edkn owl ed ge of c li ckfrau d aful l thr ee
m on th s i nt o t he pa st , to th e ti m e o f th e Ma rch 5, 2 00 4 F orm 10 -K fil in g. Ev enif th e Defen da nt s’ in te ract io ns su gg es t tha t the Ju ne 20 04 m eet in g was no t the fir st ti m e m an ag em en t l earn edof M IVA’s cli ck frau d p ro bl em s, the re ar e n o fa ct s,
m uc h l es s an y

th atare p le d wi th pa rti cu la rit y , dem on st rat in g t ha t the Defen da nt s ha d s uc h kno wled ge a fu ll th ree m on th s ea rli er. Cf. Mi zzar o, 5 44 F.3dat 1 25 0- 51 (“ [W] e in du lg e atlea stso m e sk ep ti ci sm ab ou t al le ga ti on s t ha t h in ge en ti rel y on a th eo ry th atsen io r m an ag em en t ‘m us t h av e kno wn’ eve ryth in g t ha t was happ en in g

. . . . The . . . com

pl ai nt. . . m

us t atlea stall eg e so m e fac ts sh owi ng ho w kn owl ed ge of t he frau d wo ul d o r sh ou ldha ve pe rco la te d up t o s en io r
m an ag em en t.”)
. The Pla in ti ffs ’ ot he r al le ga ti on s ar e si m pl y in su ffi ci en t t o s up po rt ast ro ng in fere nc e o f sc ie nt er. The ir a ll eg at io ns reg ard in g t he “ In te rfac e” co m pu te r syste m are i ns uf fic ie nt ly part ic ul ari zed , bec au se th ey fai l t o i nd ic at e whe n t he co m pu te r 30syste m

be cam e av ai labl e; whi ch ex ecu ti ve s ac ces se d i t; ho w th ey acce ss editan d ho w oft en ; wh ethe r itwas i ns ta ll edon a si ng le co m pu te r orwas a va il ab le on a
ne two rk ; wh ethe r th ere wer e an y po li ci es reg ard in g i ts us e; or e ve n wh atit s pu rp os e was . Cf. id . at 1 24 2 (f in di ng all eg at io ns reg ard in g astrat eg ic op erat in g pl anin su ffi ci en tl y

pa rti cu lariz edwher e th e co m pl ai nt“ [d id ] no t ex pl ai n wh o
wro te it , ho w itwas d is tri bu te d t o e m pl oyees, o r who rece iv edit ”); Garfi el d, 4 66 F.3 d a t 1 26 5 (c on cl ud in g t ha t al le ga ti on s ab ou t wh atwas s ai d a t a m eet in g in vo lv in g s en io r ex ecu ti ve s was in su ffi ci en tl y parti cu la riz edwher e th e co m pl ai nt

“ fai le d t o a ll eg e wha t was sai d a t the m eet in g, t o wh om itwas s ai d, o r inwhat
co nt ex t” ). W it ho utan y

all eg at io ns th atth e Defen dant s co ul d a nddi d a cces s t he

“ In te rfac e” s y st em

be fo re March 20 04 , andin di cat in g wh atth ey wou ldhave see n ha d t he y do ne so , itis im

po ss ib le to dra w th e requi si te “ st ro ng in fere nc e” o f
sc ie nt er, 1 5 U.S.C. § 78 u- 4( b) (2 ) -- tha t i s, o ne th atis “ co ge nt ” an d “ co m pe ll in g,” Tell ab s, 5 51 U.S. at 3 14
. Si m il arl y , th e Pl ai nt iff

s’ all eg at io n t ha t i t was “ co m m on ly kno wn” withi n th e Co m pa ny tha t Sa ve li an d Dm it ri r el ie d o n c li ckfrau d, (C om pl . ¶ 45 ), is
co nc lu so ry

an d p la in ly lack s s uf

fic ie ntpa rti cu la rity

to crea te a st ro ng in fere nc e o f
sc ie nt er. See Tho m

ps on , 61 0 F .3dat 6 34 (“ [C]on cl us ory all eg at io ns are

31in su ffi ci en t t o e st ab li sh a ‘stro ng in fere nc e th atth e d efen dant s ac te d wi th th e

requi redst at e o f m in d.’” (quo ti ng Tell ab s, 5 51 U.S. at 3 14 )). The Defen da nt s’ all eg edm ot iv es to m eetW al l St reet ’s rev enue ex pe ct at io ns
are a ls o i ns uf

fic ie ntto est ab li sh sci en te r. W e h av e reject edth e n ot io n tha t

“ al le ga ti on s o f m ot iv e an d o pp ortu ni ty to co m m itfrau d, s tand in g a lo ne , are
su ffi ci en t t o e st ab li shsci en te r in th is Cir cu it .” Bry an t, 1 87 F.3dat 1 28 5; see als o Tho m ps on , 61 0 F .3dat 6 89 (Tjofl at , J., co nc urrin g i n t he ap pe al an d d is se nt in g i n th e cro ss -ap pe al ) (“ It s tand s t o re as on , of c ou rs e, th ata co m pa ny’ s o ffi cers an d di rect or s h av e a m ot iv e to co m m itsec ur it ie s fr au d. Bu t tha t co ul d b e sa idof a ny publ ic co m

pa ny’ s o ffi cers an d d ire ct or s, wh ic h i s wh y th e p rece de ntof t hi s ci rcu it squa rel y for ecl os es any

arg um en t tha t s ta nd -al on e al le ga ti on s o f ‘m ot iv e an d op po rtu ni ty’ wil l s at is fy

th e PSLRA’s s ta nd ard .”). Inad di ti on , bec au se sci en te r an al y si s i s co m pa rat iv e, we no te th e al te rn at iv e in fere nc es th atari se fro m th e Co m pl ai nt ’s all eg at io ns (an d app aren t o m is si on s)
. Fi rs t, i f cl ic k fr au d wer e so dra m at ic al ly driv in g d own tra ffi c qua li ty in ea rly 20 04 , itmig htbe ex pe ct edth atadve rti se rs wou ldha ve co m pl ai ne d t o M IVA ab ou t the di m in is hi ng co nv ers io n ra te s t he y were ex pe rie nc in g, the reb y bri ng in g t he pr ob le m to m an ag em en t’s at te nt io n. Ho wev er, d es pi te th e Pl ai nt iff s’ acce ss to
nu m ero us m an ag em en t-l ev el em pl oyees, i nc lu di ng a fo rm er Di rect orof B us in es s 32Dev el op m en t “pr im ari ly resp on si bl e fo r th e d ev el op m en t an d m ai nt en an ce o f

di st rib ut io n p artne r rel at io ns hi ps ,” (Co m pl . ¶ 40 ), th e Co m

pl ai ntm ak es no
m en ti on of e ve n asi ng le adve rti se r who co m pl ai ne d abo utlo w con ve rs io n ra te s. Cf. Mi zzar o, 5 44 F.3dat 1 25 3 (“ [T]he . . . com pl ai ntm ak es no m en ti on of e ve n a si ng le ve nd orwho co m

pl ai ne d t o a nyon e atHom e Dep ot[ab ou t al le ge dl y wid es pr eadreturn- to -v en do r frau d], letalo ne co m pl ai ne d t o s en io r
m an ag em en t.”)
. Seco nd , th e Pl ai nt iff

s n eg le ctto pro vi de ev enap pr ox im at e d at es for
nu m ero us all eg at io ns , des pi te th e al le ga ti on s’ ot he rwis e d et ai le d n atur e. Thu s, fo r
ex am pl e, no ap pr ox im at e d at e is off eredforth e al le ga ti onth atSav el i an d Dm it ri -
- an d a t l eas t twen ty-sev enot he r di st rib ut io n p artne rs -- were g en erat in g e xc es si ve ly hi gh rev enue -p er-c li ck

rat es , eve n t ho ug h t he da tais ot he rwis e co m pr eh en si ve , in cl ud in g e ach affi li at e’s na m e, Fi nd Wha t ID n um be r, an d p reci se rev enue -p ercl ic k am ou nt . (Co m

pl . ¶¶ 59 -6 0) . Sim il arl y , th e Pl ai nt iff s d o n otin di cat e ev enan ap pr ox im at e d at e (ap artfro m all eg in g t ha t i t o ccurredso m et im e wit hi n t he twen ty
m on th s co ns ti tu ti ng th e Pro po se d C la ss Peri od ) fo r th e m eet in g Def en da ntPis ari sHen de rs on att en de d i n t he fif th flo orExec ut iv e Co nf

eren ce Ro om

inwhi ch gr owi ng in te rn al co nc ernov er Sa ve li an d Dm it ri’s i ll ic itrev enue -g en erat in g pr act ic es was d is cu ss ed . (Id. ¶ 5 4) . The i nf eren ce tha t the Pla in ti ffs ’ so ur ces were 33who ll y

un ab le to rem em

be r ev enap pr ox im at e d at es forth es e ev en ts , des pi te
reca ll in g o th erwi se de ta il edco nt en t, i s l es s s tro ng th anth e in fere nc e th atth e Pl ai nt iff s o r th ei r so ur ces om it te d s uc h d at es st rat eg ic al ly after c on cl ud in g t ha t the in fo rm at io n wo ul d n otbe he lp fu l t o t he ir a ll eg at io ns . “ [O]mis si on s an d
am bi gu it ie s co un t ag ai ns t i nf erri ng sci en te r.” Tell ab s, 5 51 U.S. at 3 26
. Fi na ll y , des pi te ha vi ng acce ss to a fo rm er Ma na ge r of Bu si ne ss Dev el op m en t wh o was all eg ed ly inv ol ve d i n p ro vi di ng th e week ly W ar Re po rts to th e ex ecu ti ve m an ag em en t t eam , th e Pl ai nt iff s h av e fai le d t o a ll eg e ev ena si ng le in st an ce i n wh ic h c li ckfrau d was di sc us se d i n t he W ar Re po rts . (See Co m pl . ¶ 51 ). Thi s g la rin g o m is si on rai se s an in fere nc e th atsu ch frau d was no t i n fa ct di sc us se d. The refo re, ev enth ou gh th e Ma rch 5, 2 00 4 s ta te m en ts m ay ha ve be en
m at eri al ly mis le ad in g, the Pla in ti ffs ha ve no t al le ge d s uf fic ie ntfact s t o yiel d a st ro ng in fere nc e o f sc ie nt er o n o r be fo re tha t d at e. W e, th eref or e, affi rm

th e di st ric t co urt’s d is m is sa l o f al l cl ai m s p red ic at edon th is st at em en t.

2. Ju ly 26, 2 00 4 C on fere nc e Cal l

34On J ul y 26 , 20 04 , MIVA he lda publ ic co nf eren ce ca ll to di sc us s fi na nc ia l
res ul ts forth e se co ndqu art er o f 20 04
. On the cal l, Defe nd an t Th un e (COO) 2 2
co m m en te d o n re ve nu e tr en ds for th e Co m pany thi s way: Whi le bo th ou r rev enue an d Es po tt in g’s re ve nu e in Apri l was do wn ve rs us Janua ry , by Ju ne rev enue was i nc reas in g. An d we b el ie ve th at ev ery on e o f ou r di vi si on s ca n g ro w rev enue fro m Q2 t o Q3 , des pi te th e se as on al so ftn es s t y

pi cal inth e su m

m er m on th s, wh enin di vi du al In te rn etus ag e u su al ly decl in es . In p art , th is rev enue gro wth wil l co m e fro m

ex ecu ti ng on op po rtu ni ti es crea te d b y th e fo urtra ns act io ns we ha ve co m

pl et edth is y ear. (Co m pl . ¶ 78 ) (s om e em

ph as is om it te d)
. To b eg in with, Th un e’s st at em en t tha t “ we be li ev e th atev ery on e o f ou r di vi si on s ca n g ro w rev enue fro m Q2 t o Q3 ” is no n- act io nabl e. Sta te m en ts reg ard in g fu ture p erfo rm an ce ar e act io nabl e o nl y if “ th ey are wo rd edas g uaran te es
orare s up po rte d b y

sp eci fic st at em en ts of f

actor i f th e sp eak er d oe s n otge nu in el y
orreas on ab ly bel ie ve th em .” Merc ha ntCap it al , 48 3 F .3dat 7 67 (in te rn al qu ot at io n m ark s an d a lt erat io n o m it te d) . There are n o a ll eg at io ns inth e Co m pl ai nt
su gg es ti ng an y

of t he se po ss ib il it ie s. The refo re, the on ly pot en ti al ly acti on ab le pa rt o f Thu ne ’s st at em en t i s t he factua l cl ai m

th at“by Jun e rev enue was i nc reas in g.” (Co m pl . ¶ 78 ). Nowh ere i n
The Plaintiffs do not individually name the office rs who participa ted in the J uly 26, 2004 2 2 confe renc e call except for Defe ndant Thune. See In re MIVA, 511 F. S up p . 2d at 1254; (see also Compl. ¶ 78). 35th e Co m

pl ai nt , ho wev er, d o t he Pla in ti ffs all eg e th atth is st at em en t was in accu rat e, i.e., tha t re ve nu e was no t i nc reas in g b y Ju ne 20 04 . Ind eed , on ap pe al , th e Pl ai nt iff s ef fect iv el y co nc ed e th atth is st at em en t was no t fa ls e. In st ead , th e Pl ai nt iff s ar gu e th atth e st at em en t was m is le ad in g b ecau se itwas o nl y a ha lf- tru th , su gg es ti ng th at“ [t]he po rtr ay al of M IVA as agro wth co m pany with in crea si ng
rev enue was h ig hl y

m is le ad in g b ecau se [th e] Defend an ts kn ew th ei r rev enue st ream in cl ud edth e il li ci t cl ic k- frau d o pe rat or s wh o c ou nt edfora si gn ifi can t po rti onof t he Co m

pany’ s p ur

po rte d fi na nc ia l g ro wth .” (App el la ntRep ly Br. at 2 3 6)
. Ru le 10 b- 5 p ro hi bi ts no t o nl y li te ral ly fals e st at em en ts , bu t al so an y
om is si on s o f m at eri al fact“ ne ces sa ry inord er t o m ak e th e st at em en ts m ad e, in th e li gh t o f th e ci rcu m st an ces un de r whi ch th ey were m ad e, no t m is le ad in g.” 17 C.F.R. § 24 0.1 0b -5 (b ). By vo lu nt ari ly revea li ng on e fac t ab ou t i ts op erat io ns , a du ty aris es forth e co rp or at io n t o d is cl os e su ch othe r fac ts , if an y , as a re n eces sa ry to en su re tha t wh atwas re ve al edis no t “ so in co m pl et e as to m is le ad .” Back m anv.
The Plaintiffs appea

r to have abandone d the argument they made to the district court that 2 3 the Def endants wer e oblige d to disclose the bid deflation trend pursuant to the SEC Staff Acc ounting Bulletin (“SAB ”) 101. The district court reje cted this arg ument, observing that, “[w]hi le disclosure of the bid deflation trend may have been require d in filings with the SEC under SAB 101
. . . , there is no mandatory obligation to disclose such a trend in a confe renc e call.” In re MIVA, 511 F. Supp. 2d at 1255. The Plaintiffs ha ve not r aised this a

rgument ag ain in their brief s to this C ourt, and we do not consider it. See Institut o de Prevision Milit ar, 546 F.3d at 1353 (holding that arguments not made to appe llate cour

t are abandone d). 36Po la ro idCo rp ., 91 0 F .2d10 , 16 (1s t Ci r. 19 90 ) (en banc ) (quo ti ng Texa s Gu lf

Su lp hu r, 40 1 F .2dat 8 62 ); a cco rdRu do lp h, 8 00 F.2dat 1 04 3 (“ Whe re a de fen da nt ’s fai lu re t o s pe akwou ldren de r th e d efen da nt ’s ownpri orsp eech
m is le ad in g o r de cep ti ve , a du ty to d is cl os e ari se s.”) ; Lo rm an d v . US Unwi red , In c., 56 5 F .3d22 8, 2 48 (5t h C ir. 2 00 9) (“ [T]he d is cl os ur e requi redby the
se cu rit ie s l aws is m eas ur edno t b y li te ral tru th , bu t b y

th e ab il it y

of t he st at em en ts to accu rat el y

in fo rm rathe r th anm is le adpro sp ect iv e b uyers.”) . “ [E]venab se nta du ty to s pe ak , a pa rty who d is cl os es m at eri al fact s i n c on ne ct io n wi th sec ur it ie s tra ns act io ns ass um es a du ty to s pe akful ly andtru th fu ll y on th os e subjec ts .” Inre K-te l In te rn ., Inc . Sec. Lit ig ., 30 0 F .3d88 1, 8 98 (8t h C ir. 2 00 2) (in te rn al qu ot at io n
m ark s an d a lt erat io n o m it te d) . In s um , “ a d efen dantm ay no t d eal inha lf- tru th s.” Fi rs t Va. Ba nk sh ares , 55 9 F .2dat 1 31 4. A st at em en t i s m is le ad in g i f “ in th e li gh t o f th e fac ts ex is ti ng at t he ti m e o f th e [s ta te m en t] . . . [a] reas on ab le in ve st or , inth e ex erci se of due care , wou ldha ve be enmis le d b y

it .” Texa s Gu lf S ul ph ur , 40 1 F .2dat 8 63 . Thu s, the “ ap pr op ria te pr im ary in qu iry” is “ in to th e m ean in g o f th e st at em en t t o t he reas on ab le in ve st or
an d i ts rel at io ns hi p t o tru th .” Id . at 8 62
. Acco rd in g t o t he Pla in ti ffs , bec au se th e Defen da nt s “ fai le d t o d is cl os e th at th e o nl y reas on forth e p ur

po rte d ‘in crea se ’ [in rev enue ] was th e in cl us io n o f

37il le gi ti m at e tr affi c, whi ch wou ldin ev it ab ly hav e to be rem ov ed ,” Defen da nt

Thu ne ’s st at em en t was fat al ly mis le ad in g. (Ap pe ll an t Br . at 2 4) . Howev er, the Pl ai nt iff s’ arg um en t fa il s. Re qu iri ng th atdi sc lo su res be “ ‘com pl et e an d a ccurat e’ . . . do es no t m ean th atby revea li ng on e fac t ab ou t a p ro du ct , on e m us t re ve al all ot he rs th at , to o, wo ul d b e in te res ti ng , m ark et -wis e.” Bac km an , 91 0 F .2dat 1 6. A
co rp or at io n h as a du ty to n eu tra li ze o nl y th e “ na tu ral an d n orm al im pl ic at io n” of it s s ta te m en ts . See Do na ldC. Lang ev oo rt, Hal f-Tru th s: Pro te ct in g M is ta ke n In fere nc es by Inv es to rs an d Ot he rs , 52 Sta n. L. Rev . 87 , 94 (19 99 ). Defen da ntThu ne ’s st at em en t wo ul d b e m is le ad in g o nl y if i t “ co nv ey edto th e p ub li c a fal se im

pr es si on ” o f th e qua li ty of th e Co m pa ny’ s cl ic k t raff

ic . See Tex as Gul f Su lp hu r, 40 1 F .2dat 8 62 . Howev er, Defe nd an t Th un e’s st at em en t -- a ge ne ral rep ort ab ou t an actua l i nc reas e in to ta l re ve nu e in th e p rece di ng m on th
acro ss th e Co m

pa ny as a wh ol e, whi ch at t ha t t im e in cl ud edMIVA’s rece nt ly acqui redco m

pa ni es , as wel l -- co nv ey edno m es sa ge reg ard in g t he un de rlyin g qu al it y of M IVA’s cli cktra ffi c. Thu ne ’s st at em en t d idno t ev enm en ti onMIVA’s cl ic k traff ic or c li ck rev enue . No rea so nabl e in ve st orwou ldbe li ev e th ata
co nc lu so ry , bu t ap pa ren tl y accu rat e, rep ort o f co m

pa ny-wid e rev enue gro wth
na tu ral ly im

pl ie d t ha t al l was well withi n e ve ry co m po ne ntof the co m

pa ny tha t
co ul d p os si bl y

affe ctrev enue in th e fu tu re. Oth erwi se , factua l re po rti ng of p as t
38earn in gs -- d is cl os ur e o f whi ch th e se curit ie s l aws alwa y s en co ur ag e an d

freque nt ly requ ire -- wou ldbe co m e a treac he ro us en de av orin de ed . Und er the 2 4 Pl ai nt iff s’ pre ferr edrul e, co m

pa ny repo rts of r ev enue gro wth -- n o m at te r ho w factua ll y accu rat e an d n o m at te r th e le ve l o f ge ne ral it y -- wou ldbe m ad e atth e
co m pa ny’ s p eri l, ca rry in g aco nc om it an t o bl ig at io n t o re ve al a de ta il edpi ctur e o f
ev ery as pe ctof t he co m

pa ny’ s o pe rat io ns th atco ul d p os si bl y be ar o n fu tu re
rev enue . This is no t the rul e. “ Factua l re ci ta ti on s o f pa stearn in gs , so lo ng as t he y
are a ccu rat e, do no t cr eat e li ab il it y un de r Sec ti on 10 (b ).” Inre Adva nt a Co rp . Sec. Lit ig ., 18 0 F .3d52 5, 5 38 (3dCir . 19 99 ); s ee al so Serabi anv. Am os ke ag Ban k Sh ares , Inc ., 24 F.3d35 7, 3 61 (1s t Ci r. 19 94 ) (“ [D]efend an ts m ay no t b e h el d li ab le un de r th e se cu rit ie s l aws foraccu rat e rep orts of p as t s uc ces se s, ev enif pr es en t ci rcu m st an ces are l es s ro sy . . . .”). Defen da ntThu ne ’s st at em en t -- a factua ll y accu rat e rep ort re ga rd in g t ot al rev enue gro wth acro ss th e Co m pa ny as a who le -- d idno t cr eat e a fal se im pr es si on ab ou t M IVA’s cli ckfrau d p ro bl em s an d, th eref or e, was no t m is le ad in g u nd er the cir cu m st an ces . See 1 7 C .F.R. § 24 0.1 0b -5 (b ).

See, e.g ., Santa Fe Ind., Inc. v. Gre en, 430 U.S. 462, 477-78 (1977) (“[T]he f undamental 2 4 purpose of the 1934 Act [was] ‘to substitut e a p h i l o s o p hy of full disclosure for the philosophy of cave at empt o r. ’” (quoting Affiliated Ute Citi zens v. United States, 406 U.S. 128, 151 (1972)) (alter ation omitted)). 39Bec au se Thu ne ’s st at em en t m ad e dur in g t he Ju ly 26, 2 00 4 c on fere nc e cal l

was ne it he r fal se no r m is le ad in g, the di st ric t co urt was co rrec t t o c on cl ud e th atth e st at em en t co ul d n otsupp ly a bas is forli ab il it y , andth us to di sm is s as no nact io nabl e al l cl ai m s re lying on it
. III. Su m m ary Ju dg m en t Ord er The Defen da nt s’ su m

m ary jud gm en t m ot io n ra is edth e is su e o f whe th er, th ro ug h t he rep ort o f th ei r ex pe rt, e co no m is t Sc ot t D. Hak al a, Ph .D., C.F.A., the Pl ai nt iff s h av e d em on st rat edge nu in e is su es of m at eri al factas t o l os s caus at io n
an d d am ag es -- two ne ces sa ry ele m en ts of aRu le 10 b- 5 a ct io n. Th e d is tri ctco urt
co nc lu de d a s a m at te r of

law t ha t Dr. Hak al a’s rep ort d idno t cr eat e tr iabl e is su es of factco nc ern in g e it he r lo ss cau sa ti on or d am ag es be cau se Haka lahi m se lf ackno wled ge d t ha t M IVA’s st oc k p ric e was in fla te d b y 26 .44 pe rcen t b efo re the Defen da nt s’ firs t ac ti on ab le m is rep res en ta ti on , andrem ai ne d i nf la te d a t tha t s am e le ve l af te r th e Defen da nt s m ad e th e two all eg ed ly acti on ab le m is st at em en ts on Feb ru ary 23 , 20 05 an d M arch 16 , 20 05 . The co urt re as on edth atbe cau se th e in fla ti on lev el in MIVA’s st oc k p ric e d idno t ch an ge as ares ul t o f th e al le ge d
m is rep res en ta ti on s, the se ot he rwis e act io nabl e st at em en ts by the Defen da nt s co ul d
no t h av e “ cau se d” th e Pl ai nt iff s’ lo ss es .

40Thi s ru li ng co ns ti tu te d l eg al erro r. The Def en da nt s m ay

be he ldli ab le for kn owi ng ly m ak in g m at eri al ly fals e st at em en ts th atco nt in ue d t o p ro p up t he al read y in fla te d p ric e o f MIVA’s s to ckan d the reb y cau se d l os se s t o i nv es to rs , reg ard le ss of wh ethe r MIVA’s s to ckpri ce was alr eady in fla te d b efo re the act io nabl e st at em en ts were m ad e. In ve st or s wh o p ur ch as edMIVA s to ckat in fla te d p ric es du rin g t he Cla ss Peri od-- an d, n ot ab ly, aft er the pu rp orte dl y frau du le ntst at em en ts were m ad e -- m ay ha ve su st ai ne d s ub st an ti al lo ss es th atth ey
wou ldno t h av e su ffer edha d t he Defen da nt s re ve al edth e trut h a t the st artof t he Cl as s Pe rio d. As a res ul t o f it s i nc orrectleg al pre m is e ab ou t the si gn ifi can ce o f pr e-Cl as s Pe rio d i nf

la ti on , th e d is tri ctco urt d idno t at te m ptto ev al ua te th e Pl ai nt iff s’ evi de nc e to de te rm in e whe th er i t cr eat edqu es ti on s o f fac t n eces si ta ti ng a tr ia l. Acco rd in gl y , we vac at e th e d is tri ctco urt’s s umm ary jud gm en t ru li ng an d
rem an d fo r th e d is tri ctco urt t o a dd res s t he m ot io n m eas ur edag ai ns t the co rrec t le ga l s tand ard
. A. St an dardof R ev ie w W e rev ie w th e d is tri ctco urt’s g ran t o f su m m ary jud gm en t d e n ov o. No rfo lk S. Ry . Co. v . Grov es , 58 6 F .3d12 73 , 12 77 (11 th Cir . 20 09 ). Summary jud gm en t is pro pe r if

“ th ere i s n o g enui ne di sp ut e as to any m at eri al factan d t he m ov an t i s
en ti tl edto jud gm en t as a m at te r of law.” Fe d. R. C iv . P. 56 (a). Th e m ov in g p arty 41be ars th e in it ia l b ur de n o f de m on st rat in g t he ab se nc e o f a g enui ne di sp ut e o f

m at eri al fact . Celo te x C or p. v . Catrett, 4 77 U.S. 31 7, 3 23 (19 86 ). A factis

“ m at eri al ” if

it“ m ig htaffe ctth e o ut co m e o f th e su itun de r th e g ov ern in g l aw.” And ers onv. Lib erty

Lob by, Inc., 4 77 U.S. 24 2, 2 48 (19 86 ). A di sp ut e o ve r su cha factis “ ge nu in e” i f “ th e ev id en ce i s s uc h tha t a r eas on ab le jury co ul d re tu rna
ve rd ic t fo r th e n on m ov in g p arty .” Id
. Inm ak in g t hi s d et erm in at io n, we v ie w all of t he ev id en ce i n t he li gh t m os t fav or ab le to th e n on m ov in g p arty an d d raw al l re as on ab le in fere nc es inth at pa rty’ s fa vo r. Jo hn so n v . Boo ke r T. W as hi ng to n B ro ad . Serv ., Inc ., 23 4 F .3d50 1, 50 7 (1 1th C ir. 2 00 0) . On su m m ary jud gm en t, a co urt m ay no t wei ghco nf

li ct in g
ev id en ce o r m ak e cre di bi li ty det erm in at io ns of i ts own . Hilb urn v . Murat a Ele cs . N. Am ., Inc ., 18 1 F .3d12 20 , 12 25 (11 thCir . 19 99 ). If th e rec or d p res en ts di sp ut edis su es of f

act , th e co urt m ay

no t d eci de th em ; ra th er, i t m us t d en y th e
m ot io n a ndpro ceedto tri al . Tull iu s v . Alb rig ht , 24 0 F .3d13 17 , 13 20 (11 th Cir
. 20 01 ). B. St at em en ts at I ss ue Onl y two of t he Defen dant s’ all eg ed ly fals e o r m is le ad in g s ta te m en ts were fo un d o n t he pl ead in gs to be act io nabl e b y th e d is tri ctco urt s o a s t o s urvi ve th e

42Defen da nt s’ m ot io n t o d is m is s: (1) a Feb ru ary 23 , 20 05 co nf eren ce ca ll , and(2) a Mar ch16 , 20 05 Fo rm

10 -K fil in g. The fir stall eg ed ly acti on ab le m is st at em en t o ccu rredon Feb ru ary 23 , 20 05 , whe n Def en da ntPis ari s- Hen de rs on (CEO) p art ic ip at edina publ ic co nf eren ce ca ll
an d s ai d t he fol lo win g:

Infact , durin g Q4 , we in te nt io na ll y rem ov ednu m ero us tra ffi c so ur ces th atwou ldothe rwis e h av e p ro du cedap pr ox im at el y $7 0K rev enue pe r da y . . . . Let m e rep eat , we hav e in te nt io na ll y rem ov edtra ffi c so ur ces fro m ou r di strib ut io n n etwork t ha t wo ul d o th erwi se ha ve pro du ced ap pr ox im at el y

$7 0K p er d ay

into p l in e rev enue . Agai n, o urfoc us is to de li ve r tr affi c th atco nv ert s ra th er tha n ju stcli ck s al on e. (Dkt. 3 9- 9, Ex . F, at 1 7- 18 ) (quo te d i n C om pl . ¶ 87 ). The Pl ai nt iff

s al le ge th at , in fact , no di st rib ut io n p artne rs were re m ov edfro m th e MIVA n etwork i n t he fou rth qu art er o f 20 04 . (Co m

pl . ¶ 88 ). The sec on d o f th e al le ge dl y act io nabl e fraudul en t s ta te m en ts was m ad e in MIVA’s Fo rm

10 -K an nu al rep ort fi le d wi th th e SEC o n M arch 16 , 20 05 . The 1 0- K was s ig ne d b y

Defen da nt s Pi sa ris -Hen de rs on (CEO) an d Th un e (COO), an d i ts
accu racy was certi fie d p ur su an t t o S arb an es -Ox le y by Pisa ris -Hen de rs on an d t he nCFO Bre nd a Agi us . (See M IVA 10 -K, fil edMar. 1 6, 2 00 5, at64 & Exs . 31 .1- 32 .2). In th e 1 0- K, th e Co m pa ny m ad e th e fo ll owi ng rel ev an t s ta te m en ts ab ou t cl ic k fr au d:
43W e d o n otrel y on “ sp yware” foran y

pu rp os e an d i t i s n otpa rt o f ou r pr oduc t o ffer in gs . . . .

. . . . Fro m ti m e to ti m e, we rece iv e fraudul en t cl ic ks on ou r ad s . . . . W e h av e im

pl em en te d s cree ni ng po li ci es an d p ro cedur es to m in im iz e th e eff ect s o f th es e fraudul en t cl ic ks . W e b el ie ve th atth es e p ol ic ie s an d p ro cedur es ass is t u s i n d et ect in g fr au du le ntcli ck -th ro ug hs , whi ch are n otbi ll edto ou r adve rti se rs .

. . . . . . . W e h av e d ev el op edau to m at edpro pr ie ta ry scr een in g ap pl ic at io ns an d p ro cedur es to m in im iz e th e eff ect s o f th es e frau du le ntcli ck s. (MI VA 10 -K, fil edMar. 1 6, 2 00 5, at17 , 20 , 44 ) (quo te d i n C om pl . ¶¶ 89 , 91 ). The Fo rm 10 -K al so m ad e th e fo ll owi ng rep res en ta ti on s re ga rd in g M IVA’s di st rib ut io n p artne rs : Exp res se d a s a p erce nt ag e o f rev enue , no ne of t he tra ffi c p ur ch as ed fro m an y of [ MIVA’s] dis tri bu ti on pa rtn ers rep res en te d o ve r 10 % of co ns ol id at edrev enue in 20 04
. . . . Inth e se co ndha lf o f th e fo urth qu art er o f 20 04 , we ceas ed di sp la y in g a dv ert is em en ts with d is tri bu ti on pa rtn ers an d a ffi li at es of di st rib ut io n p artne rs who se tra ffi c d idno t ad equa te ly con ve rt t o rev enue forou r adve rti se rs . . . . Meas ur edat t he en d o f th e fo urth qu art er, the rem ov al of t he se di st rib ut io n p artne rs reduc edou r av erag e cl ic k- th ro ug h re ve nu e b y ap pr ox im at el y

$7 0,0 00 pe r da y

. . . . W e p la n t o c on ti nu e o ureffo rts to pro vi de ou r adve rti se rs with h ig h qu al ity Int ern ettra ffi c . . . . W e co ns id er the rem ov al of t he se di st rib ut io n p artne rs in th e se co ndha lf o f th e fo urth qu art er as or di nary to ou r bu si ne ss an d i n c on fo rm it y with o ur lo ng -s ta te d g oa l of pro vi de d [s ic ] hi gh qu al it y tra ffi c to ou r adve rti se rs . (MI VA 10 -K, fil edMar. 1 6, 2 00 5, at43 -4 4) (qu ot edinCo m pl . ¶¶ 93 , 95 ). The Pl ai nt iff s al le ge th at , infact , MIVA’s ne two rkhe av il y rel ie d o n s pyware an d o th er
44fo rm s o f cl ic k fr au d t o g en erat e rev enue s, tha t al m os t o ne -th irdof M IVA’s 20 04

rev enue cam e fro m

th e il le gi ti m at e tr affi c g en erat edby Savel i an d Dm it ri, a nd , ag ai n, tha t M IVA di d n otrem ov e an y di st rib ut io n p artne rs fro m it s n etwork i n t he fo urth qu art er o f 20 04 . (Co m pl . ¶¶ 90 , 92 , 94 , 96 ). Und er the Pla in ti ffs ’ th eo ry of t he cas e, th e Defen dant s’ st at em en ts on Feb ru ary 23 , 20 05 an d a ga in onMarc h 1 6, 2 00 5 wer e m at eri al ly mis le ad in g be cau se th e Defen da nt s kno win gl y om it te d i nf

orm at io n re gard in g t he Co m pa ny’ s si gn ifi can t cl ic k fr au d p ro bl em s an d re su lt an t b idde fla ti on (i.e ., th atMIVA’s adve rti se rs were b id di ng les s an d l es s fo r cl ic ks on th ei r ad s) , anddi sc lo su re o f th is om it te d i nf

orm at io n was “ ne ces sa ry

inord er t o m ak e th e st at em en ts m ad e, in th e li gh t o f th e ci rcu m st an ces un de r whi ch th ey were m ad e, no t m is le ad in g.” 17 C.F.R. § 24 0.1 0b -5 (b ); c f. Sch le ic he r v. Wend t, 6 18 F.3d67 9, 6 84 (7t h C ir. 2 01 0) (“ [T]he [al le ge d] frau d . . . was t he om is si on fro m publ ic [di sc lo su res ] of in fo rm at io n . . . , at a t im e whe n t he om is si on of t hi s n ews m ad e o th er s ta te m en ts
m is le ad in g o r in co m

pl et e . . . .”). The Pl ai nt iff s cl ai m th atth e Defen dant s kn owi ng ly andin te nt io na ll y co nt in ue d t o wi th ho ldfro m th e m ark etth e trut h abo ut cl ic k fr au d u nt il May 5, 20 05 , when th e Defen da nt s fi na ll y rev eal edina
co nf eren ce ca ll th at“ a co up le ” o f MIVA’s d is tri bu ti onpa rtn ers ha d b een
em pl oyin g “ cap ab il it ie s . . . to ge t ad di ti on al tra ffi c th atjus t s im pl y do n’t ad he re t o 45ou r st an da rd s” (Co m pl . ¶ 10 3) , at wh ic h t im e MIVA’s s ha re p ric e p reci pi to us ly dr op pe d. Bec au se th e Defen da nt s’ su m m ary jud gm en t m ot io n c on te st edon ly the el em en ts of l os s caus at io n a ndda m ag es , we acce pt(fo r pr es en t p ur po se s o nl y ) th e Pl ai nt iff s’ all eg at io ns co nc ern in g t he ot he r el em en ts of t he ir Rul e 1 0b -5 cla im -- th atis , th atth e Defen da nt s m ad e (1 ) m at eri al ly fals e o r m is le ad in g s ta te m en ts or
om is si on s (2 ) wit h s ci en te r, (3 ) up on whi ch th e Pl ai nt iff s re li ed(4) inpu rch as in g
se cu rit ie s. Thus , forpre se ntpu rp os es , ou r lo ss cau sa ti on an al y si s as su m es th atth e Defen da nt s h ada du ty to re ve al th e trut h abo utMIVA’s cl ic k fr au d a s ea rly as Feb ru ary 23 , 20 05 in ord er t o p rev en t the st at em en ts th ey m ad e dur in g t he Cla ss Peri odfro m

be in g m at eri al ly mis le ad in g. 2 5 C. Los s C au sa ti on in a Frau d- on -th e-M ark etCas e

Of course , if the Def

endants’ statements on Fe bruar y 23, 2005 (or on M ar ch 16, 2005) 2 5 trig g ere d no such disclosure obliga tion (an issue not raised in the summary judgme nt motion and not properly befor e us) -- for example, beca use disclosure of MIVA’s cl i ck fr aud problems was not nece ssary to preve nt the statement s m ad e on that day from being materia lly misleading -- then, natura lly , any loss resulting from the Def endants’ omission on that date will no t b e co gn i zable. Omissions, absent a duty to disclose, are not actionable
. Ba sic, Inc. v. L evinson, 485 U.S. 224, 239 n.17 (1988) (“Silence , absent a duty to disclose, is not misleading under Rule 10b-5.”) ; Thompson, 610 F.3d at 681 (“Under the plain languag e of Rule 10b-5, for the omission of a materia l fac t to be ac t i o n ab l e, there must have been a duty to disclose the fac t.”); Z iemba, 256 F.3d at 1206 (“[ A] defe ndant’s omission to state a materia l fac t is proscribed only when the defe ndant has a duty to disclose.” (alteration in orig inal) (inter nal quotation marks omi tted)); see also Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. --, 131 S. Ct. 1309, 1322 (2011) (“[C] ompanies can control what they have to disclose . . . by

controllingwhat they

say to the marke t.”). 46The lo ss cau sa ti onele m en t o f a Ru le 10 b- 5 c la im requi res th atth e de fen da nt ’s frau d b e b oth t he bu t-f oran d p ro xi m at e cau se of t he pl ai nt iff’s lat er lo ss es . In re Om

ni co m Group, In c. Sec. Li ti g., 5 97 F.3d50 1, 5 10 (2dCir . 20 10 );
se e al so Bas ti anv. Pe tre n R es ou rces Co rp ., 89 2 F .2d68 0, 6 83 , 68 5 (7 th Cir . 19 90 ) (cal li ng lo ss cau sa ti on si m pl y “ anex ot ic na m e” fo r “ th e st an da rdco m m on law frau d ru le ” requi rin g t he pl ai nt iff to pro ve bo th factua l an d l eg al cau sa ti on ); 4 Tho m as Lee Hazen , Law of Se cu rit ie s R eg ul at io n § 12 .11 (6t h e d. 2 00 9) (se ct io n ci te d wi th ap pr ov al inDura , 54 4 U.S. at34 2) (“ Cau sa ti oninsec ur it ie s l aw in vo lv es th e sa m e an al y si s o f cau se infactan d l eg al cau se th atwas d ev el op ed
un de r th e co m

m on law.”) ; cf

. Dura , 54 4 U.S. at34 4- 45 (no ti ng “ co m m on -la w
ro ot s o f th e se cu rit ie s fr au d a ct io n” an d b as in g l os s caus at io n a na lysis on
co m m on -law to rt c au sa ti on ). The p la in ti ff m us t s ho w th atth e d efen da nt ’s frau d --
as op po se d t o s om e o th er fa ct or-- p ro xi m at el y cau se d h is cla im edlo ss es . Dura, 54 4 U.S. at34 2- 43 ; Brus ch i v . Bro wn, 8 76 F.2d15 26 , 15 30 (11 th Cir . 19 89 ). Howev er, the pl ai nt iff

ne edno t s ho w th atth e d efen da nt ’s m is co nduc t was th e

“ so le an d e xc lu si ve cau se ” o f hi s i nju ry ; h e n eedon ly sho w th atth e d efen da nt ’s actwas a“ subs ta nt ia l” or “ si gn ifi can t co nt rib ut in g c au se .” Ro bb in s v . Kog er Pro pe rti es , Inc ., 11 6 F .3d14 41 , 14 47 (11 th Cir . 19 97 ) (quo ti ng Bru sc hi , 87 6 F .2d at15 31 ).
47The Pla in ti ffs ’ cl ai m s h ere r el y ona frau d- on -th e-m ark etth eo ry of
cau sa ti on . Frau d- on -th e-m ark etcla im s d eri ve fro m th e so -cal le d e ffi ci en t m ark et hypo th es is , whi ch pro vi de s, i n t he word s o f th e Supr em e Co urt, tha t “ in anop en
an d d ev el op edsec ur it ie s m ark et , th e p ric e o f a co m pa ny’ s s to ckis de te rm in edby th e av ai labl e m at eri al in fo rm at io n re ga rd in g t he co m pa ny andit s b us in es s.” Se e Bas ic , 48 5 U.S. at24 1 (quo ti ng Pei l v . Spe is er, 8 06 F.2d11 54 , 11 60 (3dCir
. 19 86 )). Bec au se “ m il li on s o f sh ares ch an g[ e] han ds da il y ,” id . at 2 43 , anda cri ti cal m as s o f “ m ark etm ak ers ” stud y th e av ai labl e in fo rm at io n a ndin flu en ce the st oc k p ric e th ro ug h t rad es an d re co m m en da ti on s, i d. at24 8, an effi ci en t capi ta l
m ark etrap id ly andeffi ci en tl y di ge st s al l av ai labl e in fo rm at io n a ndtra ns la te s t ha t in fo rm at io n i nt o “ th e p ro ces se d fo rm of am ark etpri ce,” i d. at24 4. A co ro ll ary of th e eff ic ie ntm ark ethypo th es is is th atdi sc lo su re o f co nf irmatory in fo rm at io n -- or in fo rm at io n a lre ady

kn own by the m ark et-- wil l n otcau se a ch an ge inth e st oc k pr ic e. Thi s i s s o b ecau se th e m ark etha s al read y di ge st edth atin fo rm at io n a nd in co rp or at editin to th e p ric e. See Gre enbe rg v. Cr os sr oa ds Sy s., In c., 36 4 F .3d 65 7, 6 65 -6 6 (5 th Cir . 20 04 ) (“ [C]on firm at ory in fo rm at io n h as alr eady

be en di ge st edby the m ark etan d wi ll no t caus e a ch an ge inst oc k p ric e.”). A “ frau d o n t he m ark et ” o ccu rs when a m at eri al m is rep res en ta ti on is kn owi ng ly dis se m in at edto anin fo rm at io na ll y effi ci en t m ark et . Basi c, 48 5 U.S. at
4824 7. J us t as aneffi ci en t m ark ettra ns la te s al l av ai labl e trut hf ul in fo rm at io n i nt o th e st oc k p ric e, th e m ark etpro ces se s t he publ ic ly dis se m in at edfal se ho odan d pr ic es itin to th e st oc k a s wel l. See id . at 2 41 -4 2, 2 43 -4 4, 2 46 -4 7. Th e m ark et pr ic e o f th e st oc k wi ll th enin cl ud e anart ifi ci al “ in fla ti on ary” val ue -- th e am ou nt th atth e m ark etm is ta ke nl y att rib ut es to th e st oc k b as edon th e fraudul en t
m is in fo rm at io n. So lo ng as t he fal se ho odrem ai ns un co rrec te d, i t wi ll co nt in ue to ta in t the to ta l m ix of a va il ab le publ ic in fo rm at io n, an d t he m ark etwil l co nt in ue to at tri bu te th e art ifi ci al in fla ti on to th e st oc k, d ay aft er d ay . If an d wh enth e
m is in fo rm at io n i s fi na ll y

co rrec te d b y

th e rel eas e o f tr

ut hf ul in fo rm at io n (o fte n cal le d a“ co rrec ti ve di sc lo su re”) , th e m ark etwil l re cal ib rat e th e st oc k p ric e to
acco un t fo r th is ch an ge in in fo rm at io n, el im in at in g wh at ev er arti fic ia l v al ue itha d at tri bu te d t o t he pri ce. Tha t i s, the in fla ti on withi n t he st oc k p ric e wil l “ di ss ip at e.” Ina frau d- on -th e-m ark etcas e, th e Supr em e Co urt al lo ws the rel ia nc e el em en t o f a Ru le 10 b- 5 c la im to be reb ut tabl y

pre su m ed , so lo ng as t he de fen da nt ’s frau du le ntm is st at em en t was m at eri al an d t he m ark etwas in fo rm at io na ll y

effi ci en t. See id . at 2 47 (“ Bec au se m os t p ub li cl y av ai labl e in fo rm at io n i s re fle ct edinm ark etpri ce, an in ve st or ’s rel ianc e o n a ny publ ic
m at eri al m is rep res en ta ti on s . . . m ay be pre su m edforpu rp os es of aRu le 10 b- 5 act io n.” ). Thi s p res um

pt io n fo ll ows di rect ly from th e eff ic ie ntm ark ethypo th es is
. 49Bec au se anin fo rm at io na ll y effi ci en t m ark etrap id ly andeffi ci en tl y tra ns la te s publ ic in fo rm at io n i nt o the sec ur it y ’s pri ce, the m ark etpri ce wi ll refl ectth e de fen da nt ’s frau du le ntst at em en t, an d e ve ry on e who rel ie s o n the m ark etpri ce as a refl ect io n o f th e st oc k’s v al ue in effe ctrel ie s o n t he de fen da nt ’s
m is rep res en ta ti on . Id. at24 1; see als o P ei l, 8 06 F.2dat 1 16 1. “ Mi sl ead in g 2 6 st at em en ts wil l the refo re d efraudpu rch as ers of s to ckev enif t he pu rch as ers do no t

The Supreme Court expl ained the r easoningthis way in Ba sic: 2 6 T h e mo d e r

n securities marke ts, literally involving milli o n s o f s h a r e s c h a n g in g h ands daily , differ from the fac e-to-f ace transac tions contemplated by early fr au d case s, and our understanding of Rule 10b-5’s relianc e require ment must encompa ss these diff ere nces. In fac e-to-f

ace transac tions, the inquiry into an i n v estor’s relianc e upon information is into the subjective pricing of that information by that investor. Wit h the prese nce of a marke t, the marke t is interposed betwee n seller and buy er and, ideally , transmits information to the investor in the proce ssed form of a marke t price
. Thus the marke t is perf

orming a substantial part of the valuation proce ss perf ormed by the investor in a fac e-to-f ace transac tion. The marke t is acting as the unpaid ag ent of the investor, informing him that g iven all the information available to it, the value of the stock is worth the ma rket pric e. Ba sic, 485 U.S. at 243-44 (f ootnotes and interna l quotation marks omitted).

50di rect ly rely on th e m is st at em en ts .” Bas ic , 48 5 U.S. at24 1- 42 (qu ot in g P ei l, 8 06 2 7 F.2 d a t 1 16 0)
. Whi le rel ianc e fo cu se s o n t he fro nt -en d c au sa ti on qu es ti onof wh ethe r th e de fen da nt ’s frau d i nduc edor i nf lu en cedth e p la in ti ff’s s to ckpu rch as e, lo ss
cau sa ti on pro vi de s t he “br id ge be twee n re li an ce an d a ctua l d am ag es .” Inre Co op er Co s. Se c. Lit ig ., 25 4 F .R.D. 62 8, 6 38 (C.D. Cal . 20 09 ). In afrau d- on -th em ark etcas e -- wh ere t he pl ai nt iff’s cla im is ge ne ral ly notth atth e in it ia l in ve st m en t tran sa ct io n wo ul d n otha ve oc curredat a ll witho utth e fraudul en t
m is rep res en ta ti on , bu t o nl y “ th atitwou ldhave oc cu rredat adi ffer en t p ric e,” Hazen , supr a, § 1 2.1 1 -- lo ss cau sa ti on requi res pro of th atth e fraud -in du ced in fla ti on th atwas b ak edin to th e p la in ti ff’s p ur ch as e p ric e was subs eque nt ly
rem ov edfro m

th e st oc k’s p ric e, th ereb y cau si ng lo ss es to th e p la in ti ff. See Ro bb in s, 1 16 F.3dat 1 44 8 (h ol di ng th atlo ss cau sa ti on requi res pl ai nt iff s t o s ho w th atth e “pr ic e in fla ti on was re m ov edfro m th e m ark etpri ce o f [the ] st oc k, caus in g

The fr aud-on- the-mar

ket presumption can be rebutted by “[a]ny showing that sever s the 2 7 link betwee n the allege d misrepre sentation and either the price . . . paid .
. . by the pl aintiff, or his decision to trade at a fair marke t price .” Ba sic, 485 U.S. at 248-49. For example, the defe ndant can rebut the presumption of relianc e by prese nting evidenc e that the marke t price did not in fac t ref lect the misrepre sentation, or that the particula r plaintiff knew about the fra ud but bought the stock at that price any way for independe nt r easons. I d. The relianc e element of a Rule 10b-5 action, there fore , patrols the question of whether the defe ndant’s fra ud in fac t aff

ecte d (or inflated) the purcha se price that investors paid. See id. at 2 4 7 -4 8 ; L i p t o n v. Documation, Inc., 734 F.2d 740, 745 (11th Cir. 1984); Peil, 806 F.2d at 1161. 51pl ai nt iff

s a l os s” ). In o th er wo rd s, p ro of of afrau du le nt ly infl at edpu rch as e p ric e
on ly sati sf

ie s re li an ce; lo ss cau sa ti on requi res go in g ast ep furth er t o s up pl y “ th e lo gi cal li nkbe twee n t he in fla te d s ha re p ur ch as e p ric e an d a ny lat er ec on om ic lo ss .” Dura , 54 4 U.S. at34 2; see als o R ob bi ns , 11 6 F .3dat 1 44 8- 49 (expl ai ni ng th atanin fla te d p ur ch as e p ric e supp orts a fi nd in g o f rel ia nc e, bu t n otlo ss
cau sa ti on ). Pl ai nt iff s fr eque nt ly dem on st rat e lo ss cau sa ti on infrau d- on -th e-m ark et
cas es cir cum st an ti al ly, by: (1 ) id en ti fy in g a“ co rrec ti ve di sc lo su re” ( a rel eas e o f in fo rm at io n t ha t re ve al s t o the m ark etth e p ert in en t tru th th atwas p rev io us ly
co nc eal edor o bs curedby the co m pa ny’ s fr au d) ; (2) sh owi ng th atth e st oc k p ric e

2 8

See In re REMEC Inc. S ec. L itig., 702 F. Supp. 2d 1202, 1 2 6 6 -6 7 (S
. D. Cal. 2010) (“A 2 8 ‘cor rec tive disclosure’ is a disclosure that reve als the fra ud, or at least some aspec t of the fra ud, to the marke t.” (interna l quotation marks omitted)). A corr ective disclosure can come from any source , and can “take any form from which the marke t can absorb [the information] and rea ct,” Matthew L
. Fr y , Pleading and Proving L oss Causation in Fr aud-on- the-Mar ket-B ased Securities Suits Post-Dura Pharmac euticals, 36 Sec. Reg
. L .J
. 31, 64-71 (2008), so long as it “re veal[s] to the marke t the falsity” of the prior

misstatements, L entell v. Merrill Ly nch & Co., 396 F.3d 161, 175 n.4 (2d Cir. 2005). In order to quali fy as corr ective, the disclosure must share the same subject matter as the prior misstatement; only then can the disclosure be said to have a “cor rec tive eff

ect,” rathe r than mere ly a “neg ative eff

ect.” In re Initial Public Offe rin g S ec . L itig., 399 F. Supp. 2d 261, 266 (S.D.N.Y. 2005); see also In re Williams S ec. L itig. -- WC G Subclass, 558 F.3d 1130, 1140 (10th Cir. 2009) (“To be corr ective, the disclosur e n ee d not prec isely mirror the earlier misrepre sentation, but [i ts subject matter] must at l ea s t relate back to the misrepre sentation and not to some other neg ative in f o r ma tion about the company .”); L entell, 396 F.3d at 173 (“[T]o establish loss causation, a plaintiff must alleg e that the subject of the fra udulent statement or omission was the cause of the actua l loss suffe red . . . .” (interna l quotation marks and a lteration omitted)). More over, be cause a cor rec tive disclosure must reve al a previously conce aled truth, it obviously must disclose new information, and cannot be mere ly confirmatory . See C atog as v. Cy beronic s, Inc., 292 F . App’x 311, 314 (5th Ci r. 2008). 52dr op pe d s oo n a fte r th e co rrec ti ve di sc lo su re; an d (3 ) el im in at in g o th er p os si bl e

ex pl an at io ns forth is pri ce dro p, s o t ha t the fact fin de r can in fer t ha t i t i s m or e pr ob ab le th anno t tha t i t was th e co rrec ti ve di sc lo su re -- a s o pp os edto othe r po ss ib le de pr es si ve fact or s -- th atcau se d a t l eas t a “ subs ta nt ia l” am ou ntof the pr ic e dro p. Se e Inre Will ia m s, 5 58 F.3dat 1 13 7 (“ Los s caus at io n i s ea si es t t o sh ow wh ena co rrec ti ve di sc lo su re re ve al s t he frau d t o t he publ ic an d t he pri ce
subs eque nt ly dro ps -- as su m in g, o f co ur se , th atth e p la in ti ff co ul d i so la te th e effe ct s fr om

an y othe r in te rv en in g c au se s t ha t co ul d h av e co nt rib ut edto th e de cl in e.”); Lent el l, 3 96 F.3dat 1 75 (“ [Los s caus at io n i s ad equa te ly ple d b y al le gi ng ] th atth e m ark etreac te d n eg at iv el y to a co rrec ti ve di sc lo su re re ga rd in g t he fal si ty of [the de fen da nt ’s pri orst at em en ts ]. ”). Thu s, l os s caus at io n a na lysis ina 2 9 frau d- on -th e-m ark etcas e fo cu se s o n t he fol lo win g que st io n: ev enif t he pl ai nt iff s
See al s o Ar ch d i ocese of Mi lwaukee Supporting Fund, Inc. v. Halliburton Co., 597 F.3d 2 9 330, 336-37 (5th Cir. 2010) (“Causa tion ther efor e require s the Plaintiff to demonstrate the joinder betw ee n an ea rl ier false or deceptive statement, for which the defe ndant was responsible, and a subsequent co rrective disclosure that reve als the truth of the matter, and that the subsequent loss could not otherwise be explained by some additional fac tors reve aled then to the marke t.”); Glaser v. Enzo Bioc hem, Inc., 464 F.3d 474, 477 (4th Cir. 2006) (“Dura require s plaintiffs to plead loss causation by alleg ing that the stock price fell afte r the truth of a misrepre sentation about the stocks was reve aled
. . . . ”); In re REMEC Inc., 702 F. Supp. 2d at 1266 (“Price inflation alone is insufficient [t o establish loss causation] ; rathe r, a plaintiff must show that an economic loss occur red afte r th e t ru t h behind the misrepre sentation or omission beca me known to the marke t.”); In re Intelligr oup Sec. L itig., 527 F. Supp. 2d 262, 295 (D.N.J. 2007) (“[T]he holding of Dur a makes it clea r that, in order to establish loss causation, a plaintiff must alleg e that the subject of the fra udulent statement or omission was the cause of the ac tu al l oss suffe red, i.e., that the misstatement or omission conce aled something from the marke t that, when disclosed, neg atively aff ecte d the value of the sec urity .” (inter

nal quotation marks and a lterations omitted)). 53pa idanin fla te d p ric e fo r th e st oc k a s a r es ul t o f th e fraud(i.e ., eve n i f th e

pl ai nt iff s re li ed ), di d t he rel ev an t tru th ev en tu al ly com e o utan d t he reb y cau se th e pl ai nt iff s t o s uf fer l os se s? See Du ra, 5 44 U.S. at 3 47 (in di cat in g t ha t the pl ai nt iff s -- wh o a ll eg edth atth ey

ha d p ur ch as edst oc k a t an in fla te d p ric e -- wo ul d h av e
su cces sf ul ly alle ge d l os s caus at io n i f th ei r pl ead in g h adals o c la im edth at“ [th e
co m pa ny] ’s sh are p ric e fel l s ig ni fic an tl y aft er the tru th be cam e kno wn” ). D. App li cat io n t o t he Pla in ti ffs ’ Evi de nc e Inop po si ng su m

m ary jud gm en t, the Pla in ti ffs rel ie d o n t he ex pe rt r ep ort o f Dr. Haka laas e vi de nt ia ry supp ort fo r bo th lo ss cau sa ti on an d d am ag es . The Defen da nt s ex pr es sl y

ass um edth e ad m is si bi li ty of Dr. Haka la ’s rep ort fo r pu rp os es of t he ir s umm ary jud gm en t m ot io n. (Dkt . 15 5, at6). Dr. Hak al a 3 0
co nduc te d a n “ ev en t s tu dy” to de m on st rat e lo ss cau sa ti on an d t o e st im at e da m ag es . (Haka laRep ort, at5-6 , 10 -1 1) . “ An ev en t s tu dy . . . is ast at is ti cal Although the Def

endants moved in a separate motion to exclude Dr. Hak al a’ s repor t on 3 0 the ground that his rea soning and methodology failed to comply with Fe dera l Rule of Evidence 702 and Da ubert v. Mer

rell Dow Phar

mace uticals., Inc., 509 U.S. 579 (1993), thedistrict c ourt denied the Def endants’ D a

u b e r t mo ti o n as moot upon granting summary judgme nt in the Def endants’ favor
. See In re MIVA, 2009 WL 3821146, at *5. Notably , the district court never purported to reje ct Dr. Haka la’s repor

t by finding that Haka la was not qualified by background and training to opine about loss causation or damag es, or that his methodology was not sufficie ntly reliable , or that his testimony would not be helpful to the trier of fac t. See United States v. Fr azier, 387 F.3d 1244, 1260 (11th Cir. 2004) (en banc) (desc ribing three -par t inquiry a district court must conduct to admit expert testimony under Rule 702). Indeed, t h e d i s t ri ct court did not even hold a hearing reg arding Haka la’s ex pert qualifications. I f the Def

endants choose to rene w their Daube rt motion in light of this rema nd order , the district c ourt must c onduct the requisite Rule 702 inquiry befor e it may

disreg ard the evidenc e offe red by

Dr. Ha kala. 54reg res si onan al y si s t ha t ex am in es th e effe ctof a n e ve nt [, su ch as t he rel eas e o f

in fo rm at io n,] ona de pe nd en t v ari ab le , su ch as aco rp or at io n’s s to ckpri ce.” 3 1 Uni te d S ta te s v . Sch iff

, 60 2 F .3d15 2, 1 73 n.2 9 (3 d C ir. 2 01 0) (in te rn al qu ot at io n
m ark s an d a lt erat io n o m it te d) . As ackno wled ge d b y th e Defen da nt s’ exp ert , eve nt stud ie s ar e a “ co m

m on m etho d” of e st ab li sh in g l os s caus at io n, “ us edrou ti ne ly in th e aca de m ic li te ratur e to de te rm in e whe th er the rel eas e o f pa rti cu lar in fo rm at io n ha s a s ig ni fic an t ef

fecton a co m

pa ny’ s s to ckpri ce.” (Dk t. 1 53 -7 , at 3 -5 , ¶¶ 9- 11 ). Thro ug h h is ev en t s tu dy, D r. Hak al a co nc lu de d t ha t M IVA’s st oc k p ric e
was in fla te d b y

26 .44 pe rcen t b efo re an d t hr ou gh ou t the Cla ss Peri oddu e to th e fal se in fo rm at io n i n t he m ark etpl ace t ha t M IVA di d n otrel y on cli ckfrau d t o bo os t re ve nu es . Dr. Hakal a al so co nc lu de d t hr ou ghhi s ev en t s tu dy tha t imm ed ia te ly after t he Co m pa ny fin al ly revea le d t he tru th ab ou t i ts he av y rel ia nc e

Event studies can be used to determ i n e re t rospec tively the cause of a stock price 3 1 mov em ent. The analy st first estimates a “pre dicted return,” based on the firm’s aver ag e return during a con t ro l p er i o d as well as on marke t and indus try fac tors. I f the actual s tock price moves differ ently

than the pre dicted re turn, the ana ly st the n deter mines whether such “a

bnormal re turns” are the result of chanc e or are instead statistically attributable to the information rele ase. See In re Wil liams Sec. L itig., 496 F . Supp. 2d 1195, 1272 (N.D. O kla. 2007); Allen F err ell & Atanu Saha, The L oss Causation Requirement for Rule 10b-5 Causes of Action: The Implicati o n s o f Dura Pharmac euticals, Inc. v. Br oudo, 63 Bus. L aw. 163, 167 (2007). The methodology of event studies has been sustained by many circ uits. See, e.g ., Arc hdiocese of Milwaukee , 597 F.3d at 341 (noting t h at event studies “demonstrate[] a linkag e betwee n the culpable disclosure and the stock-pri ce movement”) ; Schiff, 602 F.3d at 173-74 & nn.29-31 (ac cepting as reliable under Daube rt, 509 U.S. 579, an event study that linked a stock price drop with the reve lation of fr au d , fo r p u rp oses of establishing materia lity); Schleicher , 618 F.3d at 684 (af firming class cer

tification based on expert’s event study

). 55on cli ckfrau d o n M ay 5, 2 00 5 -- adm it ti ng inanin ve st orco nf eren ce ca ll th at“ a
co up le ” o f MIVA’s d is tri bu ti on pa rtn ers ha d b een em pl oyin g “ cap ab il it ie s . . . to ge t ad di ti on al tra ffi c th atjus t s im pl y do n’t ad he re t o o urst an da rd s” (Co m pl . ¶ 10 3) -- th e in fla ti onin MIVA’s st oc k p ric e d is si pa te d, caus in g s ub st an ti al lo ss es to Cl as s Pe rio d i nv es to rs . (Haka laRep ort, at7, 2 3- 24 , 29 , Ex. B-1 at 9 -1 0; Haka la Dep ., at 5 8: 2- 4; Haka laDec., Dkt . 17 2- 1, at3). Dr. Hak al a ex cl ud edot he r po ss ib le ex pl an at io ns forth e p ric e dro p fo ll owi ng th e Ma y 5, 2 00 5 d is cl os ur e,
co nc lu di ng th at“ th e p rimary if n otex cl us iv e rea so n fo r th e [p ric e] dro p [o n M ay 5- 9, 2 00 5] was re la te d t o . . . th e subjec t m at te r of th e fraud
. . . . [T] he
co nf ou nd in g i nf

orm at io n i n my

an al y si s co ul d n otacco un t fo r th e dro p -- di d n ot
acco un t fo r th e dro p . . . .” (Dkt . 15 3- 6, at17 (Hak al a Dep ., at 5 8: 2- 19 )). Rea so ni ng th atCla ss Peri odin ve st or s wo ul d n otha ve su ffer edth os e lo ss es if t he Co m pa ny haddi sc lo se d t he tru th at t he be gi nn in g o f th e Cl as s Pe rio d i ns te adof a t th e en d, Dr. Hak al a es ti m at edto ta l Cl as s Pe rio d d am ag es to be $2 2.2 4 m il li on . (Hak al a Rep ort, at28 -3 1)
. Eve n t ho ug h t he Pla in ti ffs pu rp orte d t o d em on st rat e th atth e m ark et
subs ta nt ia ll y

de va lu edMIVA s to ckup on lea rn in g t he tru th ab ou t the Co m pa ny’ s cl ic k fr au d wo es on May 5, 20 05 -- a d ev al ua ti on th atth e Pl ai nt iff s cl ai m wou ld ha ve oc cu rredat t he st artof t he Cla ss Peri odif o nl y th e trut h h adbe enrev eal ed
56th en-- th e d is tri ctco urt co nc lu de d t ha t the Pla in ti ffs ’ ev id en ce was in su ffi ci en t as

a m atte r of

law t o d em on st rat e lo ss cau sa ti on an d d am ag es . The d is tri ctco urt
ex pl ai ne d i ts reas on in g thi s way: “ Dr. Haka lates ti fie d t ha t the ful l am ou ntof t he al le ge d p ric e in fla ti onof t he st oc k -- 26 .44 % -- ex is te d . . . m or e th ana y ear b efo re ei th er o f th e[s e] sta te m en ts . . . , andrem ai ne d a t tha t l ev el aft er the st at em en ts at is su e. Thu s, the ev id en ce fr om pl ai nt iff est ab li sh es th atth e in fla ti on inth e st oc k pr ic e was cau se d b y

st at em en ts m ad e p rio r to th e cl as s p eri odinth is cas e.” Inre MIVA, 2 00 9 WL 38 21 14 6, at*5 . In o th er wo rd s, the ba si c lo gi c u nd erl y in g t he di st ric t co urt’s g ran t o f su m m ary jud gm en t i s t ha t, b ecau se th e in fla ti on in MIVA’s s to ckpri ce p red at edth e Cl as s Pe rio d, the st at em en ts m ad e b y th e Defen da nt s dur in g t he Cla ss Peri od-- ev enif kno win gl y an d m at eri al ly fals e o r
m is le ad in g -- co ul d n otha ve “ cau se d” th e in fla ti on , andth eref or e co ul d n otha ve

“ cau se d” th e Pl ai nt iff

s’ lo ss es . This reas on in g m is ap pr eh en ds th e n atur e o f m ark et frau d. 3 2
The analy sis also appea rs to conflate the concepts of relianc e and loss causatio n -- two 3 2 distinct elements of a Rule 10b-5 claim. As noted above, relianc e poli ces the front-e nd causation question of whether the de fenda nt’s fra ud in fac t inflated the plaintiff’ s purcha se price, whil e los s causation polices the b ac k -end causation question of whether the fra ud-induce d inflation in the plaintiff’s purcha se price ultimately cause d financ ial losses. To the extent the d i s t ri ct co urt conclude d that the Def

endants’ fra

ud did not aff

ect the purcha se price the Plaintiffs paid -- beca use the inflation in the price predated the fra udulent statements -- this appea rs to be a conclusion drawn about reliance, not loss causation. Indeed, the Court in Ba sic presa g ed the Def endants’ ar gu m ent here and expressly place d it under the rubric of relianc e, saying that fra ud-on-the- marke t defe ndants may rebut the presumption of reli an ce by showing that “the mis repr esenta tion in fac t did not lead to a distortion of price .” 485 U.S. at 248. This appea rs to be essentially what the Def endants argued 57The di stric t co urt erro ne ou sl y ass um edth atsi m

pl y be cau se co nf

irmatory fal se st at em en ts have no imm ed ia te effec t o n a n a lre ady in fla te d s to ckpri ce i n a n effi ci en t m ark et , th es e st at em en ts can no t caus e h arm . Butth e in fla ti on lev el ne ed
no t ch an ge forne w in ve st or s t o b e in jure d b y a fal se st at em en t. Fraudul en t st at em en ts th atpre ve nta st oc k p ric e fro m fal li ng cancau se harm

by pro lo ng in g th e p eri oddu rin g wh ic h t he st oc k i s t rad edat i nf la te d p ric es . W e th eref

or e h ol d th atco nf irmatory in fo rm at io n t ha t wro ng fu ll y pro lo ng s a p eri odof i nf

la ti on -- ev enwitho utin crea si ng th e le ve l o f in fla ti on-- m ay be act io nabl e u nd er the
se cu rit ie s l aws . Thatis , def en da nt s ca n b e li ab le forkn owi ng ly andin te nt io na ll y 3 3

and the district c ourt acc epted, albeit using the languag e of loss causation. On rema nd, the parties should clarify their causation arguments, and specify whether their dispute actua lly g oes to relianc e or loss causation. The Fifth Circuit appea

rs to have reje cted this view, holding that confirma tory information 3 3 cannot be actionable
. See Gre enberg , 364 F.3d at 665 (stating that “conf irmatory information cannot be the basis for a fra

ud-on-the- marke t claim”) ; see also Arc hdiocese of Milwaukee , 597 F.3d at 337 (explaining Gre enberg as holding that confirm atory statements are not actionable beca use “[c]onfirmatory information i s alre ady known t o the m arke t and, having been previously dige sted by the m arke t, will not aff ect the stock pri ce ”) , ce rt . gra nted s ub nom. Erica P. J ohn Fund, Inc. v. Halliburton Co., 131 S. Ct. 856 (2011) (addr essing differ ent issue). No other circ uit has embra ced this view. The rule also appe ars to conf lict with the Fifth Ci rcuit’s own recognition in Nathenson v. Z onag en Inc., 267 F.3d 400 (5th Cir. 2001), that fraudul en t i n formation that confirms what the marke t alre ady believes is actionable if it preve nts the stock price fr o m droppi ng to the level the marke t would set if the truth wer e re veale d. In Nathenson, the court said: We also rea liz e that in cer tain specia l circ umstances public statements falsely stating information which is import ant to the value of a company ’s stock trade d on an eff icient marke t may aff

ect the price of the stock even though the s t o ck ’s m arke t price does not soon there af t er change
. For example, if the marke t believes the company will ear

n $1.00 per share and this belief is ref lected in the share price , then the share price may well not chang e when the company repor ts that it has indeed 58cau si ng a st oc k p ric e to rem ai n i nf la te d b y pre ve nt in g p reex is ti ng in fla ti on fro m di ss ip at in g fr om

th e st oc k p ric e. See Sc hl ei ch er, 6 18 F.3dat 6 83 -8 4 (“ [Defe nd an ts are l iabl e fo r se curit ie s fr au d re gard le ss of wh ethe r th ei r] fals e st at em en ts (or
. . . m at eri al om is si on s) pro pe l the st oc k’s p ric e upward
. . . [o r] were d es ig ne d t o s lo w th e rat e o f fal l.”)
. At b ot to m , itis irr el ev an t t o s ecu rit ie s fr au d l iabi li ty tha t the st oc k p ric e was al read y in fla te d b efo re a d efen dant ’s firs t ac ti on ab le m is rep res en ta ti on ; fr au du le nt
m is st at em en ts th atpro lo ng in fla ti on canbe jus t as ha rm fu l t o s ub se qu en t i nv es to rs
as st at em en ts th atcrea te in fla ti on inth e fi rs t i ns ta nc e. In fla ti on crea te s an on go in g ris k o f ha rm . Every inv es to r who pu rch as es at a n i nf la te d p ric e -- wh ethe r atth e

ear ned $1.00 a share even though the repor t is false in that the company has actua lly lost money

(pre sumably

when that loss is disclosed the shar e pric e will fall). I d. at 419; see also Reg ents of Univ. of Cal. v. Credit Suisse First Boston (USA), Inc., 482 F.3d 372, 403 n.14 (5th Cir. 2007) (Dennis, J ., concur ringin the judgme nt) (“[T]here a ppear s to be no basis in Nathenson or otherwise for Gre enberg ’s conclusion that false ‘conf irmatory ’ statements can never support a cla im procee ding unde r a f raud- on-the-ma

rket theor y .”). Whil e we agree with the Fifth Circuit that confirmatory information will not likely move the marke t price at the time of its re lease -- be causethe marke t a lrea dy dige sted the information when it was fi rs t re lease d -- we do not agree that such confirmatory information can there fore never be ac t i o n ab l e. I f a company knowing ly makes materia lly false repr esentations with the purpose and eff ect of preve nting the stock price from falling to the level that the truth would yield, the company is responsible for perpe tuating inflation within the stock price
. See Schleicher , 618 F.3d at 683-84 (holding that companies are liable for “stop[ ping] a price from declining ” because , “the fraud lies in an intentionally false or misleading statement, and the loss is rea liz ed when the truth turns out to be worse than the statement implied”); In re Cooper Sec. L itig., 691 F. Supp. 2d 1105, 1116 (C.D. Cal. 2010) (holding that a company can be liable for “ca us[i ng ] artificia l inflation to continue to be i n co rporated into the stock price , as opposed to reve aling the truth, which alleg edly would have cause d the stock price to fall”). 59be gi nn in g, m id dl e, oren d o f th e in fla ti on ary pe rio d -- is at r is k o f lo si ng th e

in fla ti on ary co m

po ne ntof h is in ve st m en t wh enth e trut h u nd erl y in g t he
m is rep res en ta ti on co m es to li gh t. In ve st or s wh o qui ck ly resel l the ir s to ckdu rin g th e in fla ti on ary pe rio d g en eral ly w il l n otsu fferan y eco no m ic lo ss fro m

th e fraud , be cau se , altho ug h t he y

ov erp ai d fo r th ei r st oc k, the y canreco up th e am ou ntth ey
ov erp ai d b y

sel li ng at the same inf

la te d p ric e. See Du ra, 5 44 U.S. at 3 42 (“ [I]f . . . [a] pu rch as er s el ls th e sh ares . . . be fo re the rel ev an t tru th be gi ns to lea k o ut , th e
m is rep res en ta ti on wil l n otha ve ledto an y lo ss .”). Whe n t he tru th un de rlyin g t he fal se ho odis fin al ly revea le d, h owe ve r, th e m ark etwil l d ig es t the ne w in fo rm at io n
an d c eas e attri bu ti ng th e art ifi ci al in fla ti on to th e p ric e. At tha t t im e, in ve st or s who pu rch as edat i nf

la te d p ric es (an d wh o s ti ll ho ldth ei r st oc k) wil l s uf fer
eco no m ic lo ss , bec au se th ey wil l n o l on ge r be ab le to reco up th e in fla ti on ary
co m po ne ntof t he ir p ur ch as e p ric e b y res el li ng th ei r st oc k i n t he ne wly cal ib rat ed
m ark etpl ace. Se e Sch le ic he r, 61 8 F .3dat 6 84 (“ Peo pl e who buy th e st oc k a fte r th e [fraudul en t] ann ou nc em en t, an d b efo re the tru th co m es ou t, p ay to o m uc h; th ey wil l l os e m on ey

when th e [co nc eal ed ] ba d n ews em erg es .”). Bec au se th ou sa nd s o f sh ares of s to ckare p ur ch as edeach da y , th e lo ng er th atin fla ti on rem ai ns withi n ast oc k p ric e, th e m or e sh ares th atare p ur ch as edat in fla te d p ric es , andth e m or e sh ares th atst an d t o l os e whe n t he in fla ti on
60subs eque nt ly dis si pa te s fr om th e p ric e. Cle arl y

th en , a fal se ho odth aten du res withi n t he m ark etpl ace f

ora lo ng er p eri odof t im e, al l el se be in g e qu al , wil l caus e gr eat er h arm

th anon e th aten du res fora sh orte r pe rio d o f ti m e. Ther e is no reas on to dra w any leg al di st in ct io n b etweenfrau du le ntst at em en ts th atwron gf ul ly pr ol on g t he pre se nc e o f in fla ti on ina st oc k p ric e an d fr au du le ntst at em en ts th at in it ia ll y in tro du ce tha t i nf

la ti on . See Inre Co op er, 6 91 F. Sup p. 2 d a t 1 11 6 (d en y in g s umm ary jud gm en t t o d efen da nt s o n l os s caus at io n g ro un ds on th e b as is th at“ it[was ] di sp ut edas t o wh ethe r th e [d efen da nt s’] st at em en ts cau se d a rti fic ia l in fla ti on to co nt inue to be in co rp or at edin to th e st oc k p ric e, as op po se d t o
rev eal in g the tru th , whi ch all eg ed ly w ou ldha ve cau se d t he st oc k p ric e to fal l” (em ph as is ad de d) ); I n re Sci en ti fic Atl an ta , Inc . Sec. Lit ig ., 75 4 F . Sup p. 2 d 1 33 9, 13 80 n.1 2 (N.D. Ga. 2 01 0) (“ Pl ai nt iff s ar gu e p ers ua si ve ly tha t the cla ss pe rio d in fla ti on in cl ud es . . . th e p re-c la ss pe rio d i nf la ti on th atwou ldha ve be enrem ov ed fro m th e st oc k p ric e h ad[th e co m pa ny] accu rat el y

pro vi de d i nf

orm at io n abo ut[th e rel ev an t tru th at t he st artof t he cla ss pe rio d].”); In r e Bri st ol -Myers Squi bb Sec. Lit ig ., No. Ci v.A. 0 0- 19 90 (SRC ), 20 05 W L 20 07 00 4, at*1 7 (D.N.J . Aug . 17 , 20 05 ) (s ta ti ng , inth e m at eri al it y co nt ex t, tha t “ itis co nc ei vabl e th at[an

61affi rm at iv e] mis st at em en t co ul d s erv e to m ai nt ai n t he st oc k p ric e atanart ifi ci al ly

in fla te d l ev el witho utals o c au si ng th e p ric e to in crea se furth er”)
. 3 4 Acco rd in g t o t he Pla in ti ffs , MIVA’s st oc k p ric e was alr eady in fla te d b efo re th e Cl as s Pe rio d b ecau se th e m ark eterro ne ou sl y be li ev edth atMIVA d idno t re ly
on cli ckfrau d t o b oo strev enue s. Th e Pl ai nt iff s al le ge th atth is in fo rm at io n was
m at eri al ly fals e; in fact , MIVA su ffer edfro m ram pantcli ckfrau d. Acco rd in g t o th e Pl ai nt iff

s, the Defen da nt s h ada du ty to d is cl os e th e co rrec ti ve tru th ab ou t MIVA’s cl ic k fr au d p ro bl em s atth e st artof the Cla ss Peri od . If th e Defen da nt s ha d re ve al edth e trut h t he n, the m ark etwou ldha ve di ge st edth is in fo rm at io n a nd th e art ifi ci al in fla ti on withi n M IVA’s st oc k p ric e wou ldha ve di ss ip at ed . Ins te ad , th e Pl ai nt iff

s al le ge , th e Defen da nt s wro ng fu ll y co nt inue d t o wi th ho ldth is
m at eri al tru th fro m

th e m ark etby m ak in g kno win gl y fal se or m is le ad in g st at em en ts to th e p ub li c o n F eb ru ary 23 , 20 05 an d M arch 16 , 20 05 , inwhi ch th ey fai le d t o d is cl os e th e ex te ntof M IVA’s reli an ce o n c li ckfrau d a ndev en affi rm at iv el y

m is rep res en te d tha t M IVA act iv el y po li cedcli ck

frau d a nd“ d[ id ] no t

Cf. Matrixx Initiatives, 131 S. Ct. at 1313-16 (holding that plaintiffs had adequately pled 3 4 a Rule 10b-5 c laim -- whe re de fenda nt had disputed the sufficie ncy of the alleg ations with r espec t to the elements of scienter and materia lity -- by alleg ing that defe ndant had fore stalled a stock price drop by making aff

irmative statements confirming the marke t’s impression that defe ndant’s leading product was safe , despite defendant’ s awa rene ss o f ev i d en ce sugg esting a si gnificant risk that the nasal spra y led t o loss of sense of sm ell; when the risk was finally (belatedly ) di sclosed, the stock price plummeted). 62rel y

on ‘ sp yware’ foran y

pu rp os e.” (Se e Co m

pl . ¶¶ 89 , 91 ). Acco rd in g t o the Pl ai nt iff s, i n s o d oi ng , th e Defen da nt s’ st at em en ts cau se d t he m ark etto co nt in ue to
ov erv al ue MIVA’s st oc k, b as edon it s m is ta ke n b el ie f th atMIVA d idno t re ly on cl ic k fr au d. 3 5 Mea nwh il e, eac h d ay

th atMIVA’s st oc k p ric e rem ai ne d p ur po rte dl y in fla te d, i nv es to rs pu rch as edth ou sa nd s o f sh ares of M IVA st oc k a t i nf la te d p ric es . The se in ve st or s t hu s “ ov erp ai d” forMIVA s to ck ba se d o n t he fal se in fo rm at io n th atMIVA d idno t re ly on c li ckfrau d t o g en erat e In te rn ettra ffi c. Whe n t he al le ge d t ru th ab ou t M IVA’s cli ckfrau d was rev eal edto th e m ark eton May 5, 20 05 , each of tho se in ve st or s wh o s ti ll he ldhi s s to cklo stth e in fla ti on ary
co m po ne ntof h is pu rch as e p ric e -- atth atti m e, th e m ark etceas edatt rib ut in g in fla ti on to th e st oc k, an d i nv es to rs who ha d p ur ch as edat i nf la te d p ric es were n o lo ng er ab le to reco up th ei r ov erp aym en t b y res el li ng th ei r st oc k i n t he
m ark etpl ace. Th eref

or e, in ve st or s wh o p ur ch as edMIVA s to ckdu rin g t he Cla ss Peri odan d s ti ll he ldth ei r st oc k wh enth e trut h c am e o utat the en d o f th e Cl as s Peri odpa idin fla te d p ric es forth ei r in ve stm en t -- pri ces th ey wou ldno t h av e p ai d bu t fo r th e d efen da nt ’s purp orte d fr au d -- an d l os t thi s i nf la ti on ary ov erp aym en t
When a defe ndant issues an intentionally false statement, “the purpose and eff ect is to 3 5 cause the mar k et to attribute artificia l inflated value to the stock. That marke t rea ction is by definition a fore seea

ble conseque nce of fra

ud.” Madg e S. Thorsen, Richard A. Kaplan & Scott Haka la, Rediscovering the Economics of L oss Causation, 6 J . Bus. & Sec. L . 93, 99 (2006). 63whe n the rev el at io n o f th e trut h c au se d t he m ark etto dra inth e in fla ti onfro m th e st oc k p ric e. The sec ur it ie s l aws do no t i m m un iz e d efen da nt s wh o kno win gl y di ss em in at e m at eri al ly fals e o r m is le ad in g i nf orm at io n s im

pl y be cau se th ei r frau d
co nc ern s fa ls e in fo rm at io n a lre ady be li ev edby the m ark et . Defen da nt s wh os e frau d p rev en ts pre ex is ti ng in fla ti on ina st oc k p ric e fro m di ss ip at in g a re jus t as li ab le as d efen da nt s wh os e fraudin tro du ces in fla ti on in to th e st oc k p ric e in th e fir stin st an ce. We decl in e to erec t a p er s e ru le th at , on ce a m ark etis alr eady
m is in fo rm edab ou t a p art ic ul ar tru th , cor po rat io ns are fr ee t o kno win gl y an d in te nt io na ll y

rei nf or ce m at eri al m is co nc ep ti on s b y rep eat in g fa ls eh oo ds with im pu ni ty. Defen da nt s wh o c omm itfrau d t o p ro p up a n a lre ady in fla te d s to ckpri ce do no t g etanau to m at ic free pa ss un de r th e se cu rit ie s l aws . IV. Con cl us io n Insh ort, we af

firm th e d is tri ctco urt’s o rd er d is m is si ng th e Pl ai nt iff s’ cla im s reg ard in g t he Defen da nt s’ Marc h 5 , 20 04 an d J ul y 26 , 20 04 st at em en ts . Howev er,
as forth e Pl ai nt iff

s’ cla im s ar is in g fr om

th e Defen da nt s’ Feb ru ary 23 , 20 05 an d Mar ch16 , 20 05 st at em en ts , we vac at e th e d is tri ctco urt’s o rd er g ran ti ng su m m ary jud gm en t t o t he Defen dant s, an d re m an d t he cas e fo r th e d is tri ctco urt t o c on si de r

64in th e fi rs t i ns ta nc e whe th er the Pla in ti ffs ha ve de m on strat edtri ab le is su es of f act reg ard in g l os s caus at io n a ndda m ag es . AFFIRMED in pa rt, VACATED in pa rt, a nd REMANDED fo r fur ther pro ceed in gs co ns is tent w ith thi s o pi ni on .

65