FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

IN RE BOFI HOLDING, INC.

SECURITIES LITIGATION,

HOUSTON MUNICIPAL EMPLOYEES 

PENSION SYSTEM,

Plaintiff-Appellant,

v.

BOFI HOLDING, INC.; GREGORY 

GARRABRANTS; ANDREW J.

MICHELETTI; PAUL J. GRINBERG;

NICHOLAS A. MOSICH; JAMES S.

ARGALAS,

Defendants-Appellees.

No. 18-55415

D.C. Nos.

3:15-cv-02324-

GPC-KSC

3:15-cv-02486-

GPC-KSC

OPINION

Appeal from the United States District Court

for the Southern District of California

Gonzalo P. Curiel, District Judge, Presiding

Argued and Submitted January 7, 2020

Pasadena, California

Filed October 8, 2020
2 IN RE BOFI HOLDING, INC. SECURITIES LITIG.

Before: Paul J. Watford, Mark J. Bennett, and

Kenneth K. Lee, Circuit Judges.

Opinion by Judge Watford;

Partial Concurrence and Partial Dissent by Judge Lee

SUMMARY*

Securities Fraud

The panel reversed the district court’s judgment 

dismissing a securities fraud class action brought under 

§ 10(b) of the Securities Exchange Act and Rule 10b-5 and 

remanded for further proceedings.

Shareholders alleged that executives of BofI Holding, 

Inc., committed securities fraud by falsely portraying the 

banking company as a safer investment than it actually was. 

In particular, the shareholders alleged that defendants made 

false or misleading statements touting the bank’s 

conservative loan underwriting standards, its effective 

system of internal controls, and its robust compliance 

structure. The district court concluded that the shareholders 

adequately pleaded the first five elements of their claim, at 

least as to some of the challenged misstatements, but failed 

to adequately plead loss causation, meaning a causal 

connection between defendants’ fraudulent conduct and the 

shareholders’ economic loss.

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

has been prepared by court staff for the convenience of the reader.
IN RE BOFI HOLDING, INC. SECURITIES LITIG. 3

The panel held that one way to prove loss causation in a 

fraud-on-the-market case is to show that the defendant’s 

fraud was revealed to the market through one or more 

“corrective disclosures” and that the company’s stock price 

declined as a result. In Part III.B., the panel agreed with the 

district court that a series of blog posts offering negative 

reports about the company’s operations did not qualify as a 

corrective disclosure. The panel concluded that even if the 

posts disclosed information that the market was not 

previously aware of, it was not plausible that the market 

reasonably perceived the posts as revealing the falsity of 

BofI’s prior misstatements, thereby causing the drops in 

BofI’s stock price on the days the posts appeared. In Part 

III.A., however, the panel held that a whistleblower lawsuit 

filed by a former company insider was a potential corrective 

disclosure. The panel joined the Sixth Circuit in rejecting a 

categorical rule that allegations in a lawsuit, standing alone, 

can never qualify as a corrective disclosure.

Finally, the panel agreed with the district court that the 

shareholders failed to plausibly allege the falsity of 

statements concerning government and regulatory 

investigations.

Judge Lee concurred in judgment in Part III.B. and 

dissented as to Part III.A. Judge Lee wrote that he agreed 

with much of the analysis in the majority’s opinion but 

would require additional external confirmation of fraud 

allegations in a whistleblower lawsuit for them to count as a 

corrective disclosure. Accordingly, he dissented from the 

majority’s holding that plausible insider allegations, 

standing alone, can qualify as a corrective disclosure.
4 IN RE BOFI HOLDING, INC. SECURITIES LITIG.

COUNSEL

Michael J. Miarmi (argued) and Daniel P. Chiplock, Lieff 

Cabraser Heimann & Bernstein LLP, New York, New York; 

Richard M. Heimann, Katherine C. Lubin, and Michael K. 

Sheen, Lieff Cabraser Heimann & Bernstein LLP, San 

Francisco, California; for Plaintiff-Appellant.

John P. Stigi III (argued), Sheppard Mullin Richter & 

Hampton LLP, Los Angeles, California; Polly Towill, 

Sheppard Mullin Richter & Hampton LLP, Los Angeles, 

California; for Defendants-Appellees.

OPINION

WATFORD, Circuit Judge:

To recover damages in a private securities fraud action, 

the plaintiff must establish a causal connection between the 

defendant’s fraudulent conduct and the plaintiff’s economic 

loss—an element known as loss causation. One way to 

prove loss causation is to show that the defendant’s fraud 

was revealed to the market through one or more “corrective 

disclosures” and that the company’s stock price declined as 

a result. In this case, the plaintiff alleged loss causation by 

relying on two corrective disclosures: a whistleblower 

lawsuit filed by a former company insider and a series of 

blog posts offering negative reports about the company’s 

operations. The district court dismissed the case after 

concluding that neither the whistleblower lawsuit nor the 

blog posts could qualify as corrective disclosures. We agree 

as to the blog posts but reach a different conclusion with 

respect to the whistleblower lawsuit.
IN RE BOFI HOLDING, INC. SECURITIES LITIG. 5

I

The company sued in this case, BofI Holding, Inc., is the 

holding company for BofI Federal Bank, a federally 

chartered savings association. (We refer to both entities 

collectively as BofI, although they now operate under a 

different corporate name.) In the years before this lawsuit 

was filed, BofI reported strong earnings growth and its stock 

price rose handsomely. Between August 2015 and February 

2016, however, the price of the stock dropped by more than 

47%. BofI shareholders filed multiple securities fraud suits 

against the company and several of its officers and directors. 

The suits were consolidated into this class action, brought on 

behalf of all BofI shareholders who purchased publicly 

traded shares between September 4, 2013, and February 3, 

2016. The district court appointed the Houston Municipal 

Employees Pension System as lead plaintiff to represent the 

class.

The shareholders allege that BofI executives committed 

securities fraud by falsely portraying the company as a safer 

investment than it actually was. In particular, as relevant for 

this appeal, the shareholders allege that defendants made 

false or misleading statements touting the bank’s

conservative loan underwriting standards, its effective 

system of internal controls, and its robust compliance 

infrastructure.

The shareholders bring this action under § 10(b) of the 

Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and 

Rule 10b-5, 17 C.F.R. § 240.10b-5. To state a claim, they 

must adequately plead six elements: (1) a material 

misrepresentation or omission; (2) made with scienter; (3) in 

connection with the purchase or sale of a security; 

(4) reliance on the misrepresentation or omission; 

(5) economic loss; and (6) loss causation. Halliburton Co. 
6 IN RE BOFI HOLDING, INC. SECURITIES LITIG.

v. Erica P. John Fund, Inc., 573 U.S. 258, 267 (2014). In a 

series of rulings preceding the order on appeal, the district 

court held that the shareholders have adequately alleged the 

first five elements of their claim, at least as to some of the 

challenged misstatements. In the order challenged on 

appeal, however, the court ultimately dismissed the 

operative Third Amended Complaint on the basis that the 

shareholders failed to adequately plead the last element, loss 

causation. We summarize the court’s rulings below.

As to the first element, falsity, the district court 

dismissed many of the alleged misstatements as nonactionable. But the court ruled that the shareholders have 

adequately pleaded falsity with respect to two categories of 

misstatements, concerning (1) the bank’s underwriting 

standards and (2) its system of internal controls and 

compliance infrastructure. Representative of the 

misstatements regarding underwriting standards are the 

following:

• “We continue to maintain our conservative 

underwriting criteria and have not loosened credit 

quality to enhance yields or increase loan volumes.”

• “We continue to have an unwavering focus on credit 

quality of the bank and have not sacrificed credit 

quality to increase origination.”

• “[W]e continue to originate only full documentation, 

high credit quality, low loan-to-value, jumbo singlefamily mortgages and have not reduced our loan rates 

for these products.”

The court also found actionable two misstatements regarding 

internal controls and compliance infrastructure:
IN RE BOFI HOLDING, INC. SECURITIES LITIG. 7

• “We have made significant investments in our 

overall compliance infrastructure over the past 

several quarters, including BSA [Bank Secrecy Act] 

and AML [anti-money laundering] compliance.”

• “We have spent a significant amount of money on 

BSA/AML compliance upgrades and new systems 

and new personnel. We have also been beefing up 

our compliance teams.”1

The shareholders predicated their showing of falsity on 

allegations attributed to confidential witnesses who used to 

work at BofI. The district court concluded that the 

witnesses’ allegations were reliable and based on personal 

knowledge, as our circuit’s case law requires. See Zucco 

Partners, LLC v. Digimarc Corp., 552 F.3d 981, 995 (9th 

Cir. 2009). Assuming the witnesses’ allegations were true, 

the court found “ample evidence,” with respect to 

underwriting standards, to suggest that “BofI was not 

adhering to high credit quality standards and that it had, in 

fact, begun to ‘sacrifice credit quality to increase 

origination.’” Likewise, with respect to internal controls and 

compliance infrastructure, the witnesses’ allegations 

plausibly suggested that “BofI had not adequately staffed its 

BSA and AML compliance along with other internal control 

departments.”

1 In light of its ruling on loss causation, the district court declined to 

address whether certain alleged misstatements are actionable. On 

remand, the district court will need to determine which of the remaining 

misstatements are actionable, but it appears that at least some of them 

are, such as BofI’s assertions that its “disclosure controls and procedures 

were effective,” and that “[a]ll significant deficiencies and material 

weaknesses in the design or operation of internal control over financial 

reporting” had been disclosed.
8 IN RE BOFI HOLDING, INC. SECURITIES LITIG.

As to the second element, scienter, the district court 

again ruled partially in the shareholders’ favor. The 

shareholders were required to allege facts giving rise to a 

strong inference that the defendants acted “either 

intentionally or with deliberate recklessness.” In re Verifone 

Holdings, Inc. Securities Litigation, 704 F.3d 694, 698, 701 

(9th Cir. 2012); see also 15 U.S.C. § 78u-4(b)(2). The court 

held that the shareholders failed to satisfy this standard for 

four of the five individual defendants, but concluded that the 

allegations of scienter were adequate as to BofI’s Chief 

Executive Officer, Gregory Garrabrants, and thus as to the 

company as well. The court based this conclusion on the 

confidential witness allegations mentioned above.

BofI did not contest that the shareholders satisfied the 

third, fourth, and fifth elements of their Rule 10b-5 claim. 

The alleged misstatements were plainly made in connection 

with the purchase or sale of a security, as they were made in 

BofI’s public filings and on earnings calls with investors. To 

establish reliance, the shareholders invoked the “fraud-onthe-market” presumption, which is premised on the theory 

that “the price of a security traded in an efficient market will 

reflect all publicly available information about a company,” 

including materially false or misleading statements. Amgen 

Inc. v. Connecticut Retirement Plans and Trust Funds, 

568 U.S. 455, 458, 461–62 (2013). As a result, a plaintiff 

who purchasesshares at an inflated price is presumed to have 

done so in reliance on any material misstatements reflected 

in the stock’s price. Id. at 462. And with respect to 

economic loss, the shareholders indisputably lost money on 

their investment when BofI’s stock lost nearly half its value 

by the end of the class period.

That leaves the sixth and final element, loss causation. 

After the district court issued the rulings described above, 
IN RE BOFI HOLDING, INC. SECURITIES LITIG. 9

BofI filed a motion for judgment on the pleadings, in which 

it argued for the first time that the shareholders had not 

adequately alleged loss causation. The district court agreed 

and dismissed the shareholders’ Second Amended 

Complaint with leave to amend.

The shareholders filed the operative Third Amended 

Complaint in response to the district court’s ruling. To 

establish loss causation, the complaint relies on two 

corrective disclosures. The shareholders allege that these 

disclosures revealed the falsity of the company’s statements 

regarding underwriting standards, internal controls, and 

compliance infrastructure and that the market reacted by 

driving down the price of BofI’s stock.

The first corrective disclosure is a whistleblower lawsuit 

filed against BofI by Charles Erhart, a former mid-level 

auditor at the company, on October 13, 2015. See Erhart v. 

BofI Holding Inc., No. 15-cv-2287 (S.D. Cal. Oct. 13, 2015). 

Erhart’s suit—the details of which were disclosed in a New 

York Times article published that same day—alleged 

rampant and egregious wrongdoing at the company, 

including that BofI had doctored reports submitted to the 

bank’s primary regulator, the Office of the Comptroller of 

the Currency (OCC), and that BofI had made high-risk and 

illegal loans to foreign nationals. Erhart also alleged that his 

attempts to raise these compliance issues within the 

company led to retaliation and eventually to his termination. 

By the close of trading the next day, the price of BofI’s 

shares had fallen by 30.2% on extremely high trading 

volume.

The second corrective disclosure consists of a group of 

eight blog posts published by anonymous authors on Seeking 

Alpha, a crowd-sourced online resource for investors, 

between August 2015 and February 2016. The blog posts 
10 IN RE BOFI HOLDING, INC. SECURITIES LITIG.

argued that things at BofI were not as rosy as they seemed. 

The posts’ specific charges varied, ranging from allegations 

of potential regulatory violations to evidence of risky loan 

origination partnerships. Each post stated that it was based 

on information derived from publicly available sources and 

that the author was “short” BofI. According to the 

complaint, BofI’s stock price fell on each day that one of the 

blog posts appeared.

BofI filed a motion to dismiss the Third Amended 

Complaint, and in the ruling now on appeal, the district court 

held that the shareholders failed to plausibly allege loss 

causation. The court reasoned that, because the Erhart 

lawsuit contained only “unconfirmed accusations of fraud,” 

it could not have disclosed to the market that BofI’s alleged 

misstatements were actually false. To qualify as a corrective 

disclosure, the court held, the Erhart lawsuit had to be 

followed by “a subsequent confirmation” of the fraud, which 

the shareholders have not alleged.

As for the Seeking Alpha blog posts, the district court 

concluded that they cannot serve as corrective disclosures 

because each of them relies entirely on publicly available 

information. In the court’s view, the blog posts could not 

have “revealed” anything to the market because the 

information they disclosed was presumably already known 

to market participants and thus reflected in BofI’s stock 

price.

Having identified fatal deficiencies in the shareholders’ 

loss causation allegations, the district court dismissed the 

action with prejudice after concluding that yet another 

opportunity to amend the complaint was unwarranted.
IN RE BOFI HOLDING, INC. SECURITIES LITIG. 11

II

We agree with the district court that the shareholders 

have adequately alleged falsity and scienter with respect to 

misstatements concerning BofI’s underwriting standards, 

internal controls, and compliance infrastructure. The 

dispositive issue on appeal is whether the shareholders have 

also adequately alleged loss causation. Before tackling that 

question, we begin with a brief overview of the loss 

causation requirement, with the aim of illuminating the 

function this element serves in a private securities fraud 

action.

Like any other tort plaintiff who seeks to recover 

damages, a plaintiff in a securities fraud suit must plead and 

ultimately prove that the defendant’s wrongful conduct 

caused the plaintiff’s injury. Congress codified that 

requirement in the Private Securities Litigation Reform Act. 

Under the heading “Loss causation,” the Act provides: “In 

any private action arising under this chapter, the plaintiff 

shall have the burden of proving that the act or omission of 

the defendant alleged to violate this chapter caused the loss 

for which the plaintiff seeks to recover damages.” 15 U.S.C. 

§ 78u-4(b)(4). Courts have likened this requirement to the 

showing of proximate causation required in ordinary tort 

actions. See, e.g., Dura Pharmaceuticals, Inc. v. Broudo, 

544 U.S. 336, 343–46 (2005); Lloyd v. CVB Financial Corp., 

811 F.3d 1200, 1210 (9th Cir. 2016).

In fraud-on-the-market cases like this one, the plaintiff’s 

theory of loss causation begins with the allegation that the 

defendant’s misstatements (or other fraudulent conduct) 

artificially inflated the price at which the plaintiff purchased 

her shares—meaning the price was higher than it would have 

been had the false statements not been made. Merely 

purchasing shares at an inflated price, however, does not 
12 IN RE BOFI HOLDING, INC. SECURITIES LITIG.

cause an investor to suffer economic loss as a result of the 

fraud. Dura Pharmaceuticals, 544 U.S. at 342. If the 

defendant’s fraud remains concealed, the price will usually 

remain inflated, allowing the plaintiff to sell her shares and 

recoup the inflationary component she paid. See id.; 

FindWhat Investor Group v. FindWhat.com, 658 F.3d 1282, 

1315 (11th Cir. 2011).

To establish loss causation in a fraud-on-the-market 

case, the plaintiff must show that after purchasing her shares 

and before selling, the following occurred: (1) “the truth 

became known,” and (2) the revelation caused the fraudinduced inflation in the stock’s price to be reduced or 

eliminated. Dura Pharmaceuticals, 544 U.S. at 347; see 

FindWhat, 658 F.3d at 1310. At that point, the plaintiff has 

suffered an economic loss caused by the misstatements 

because she is no longer able to recoup in the marketplace 

the inflationary component of the price she originally paid. 

FindWhat, 658 F.3d at 1311; Madge S. Thorsen et al., 

Rediscovering the Economics of Loss Causation, 6 J. Bus. & 

Sec. L. 93, 98 (2006).

The most common way for plaintiffs to prove that “the 

truth became known” is to identify one or more corrective 

disclosures. See Mineworkers’ Pension Scheme v. First 

Solar Inc., 881 F.3d 750, 753–54 (9th Cir. 2018) (per 

curiam); Lloyd, 811 F.3d at 1209. A corrective disclosure 

occurs when “information correcting the misstatement or 

omission that is the basis for the action is disseminated to the 

market.” 15 U.S.C. § 78u-4(e)(1) (using that event to 

establish a statutory cap on damages).

Although deciding what qualifies as a corrective 

disclosure has proved more challenging than might have 

been expected, a few basic ground rules can be sketched out. 

First, a corrective disclosure need not consist of an 
IN RE BOFI HOLDING, INC. SECURITIES LITIG. 13

admission of fraud by the defendant or a formal finding of 

fraud by a government agency. See Metzler Investment 

GMBH v. Corinthian Colleges, Inc., 540 F.3d 1049, 1064 

(9th Cir. 2008). A corrective disclosure can instead come 

from any source, including knowledgeable third parties such 

as whistleblowers, analysts, or investigative reporters. 

Norfolk County Retirement System v. Community Health 

Systems, Inc., 877 F.3d 687, 695 (6th Cir. 2017); Public 

Employees’ Retirement System of Mississippi v. Amedisys, 

Inc., 769 F.3d 313, 322 (5th Cir. 2014). Second, a corrective 

disclosure need not reveal the full scope of the defendant’s 

fraud in one fell swoop; the true facts concealed by the 

defendant’s misstatements may be revealed over time 

through a series of partial disclosures. Amedisys, 769 F.3d 

at 322–24; In re Williams Securities Litigation—WCG 

Subclass, 558 F.3d 1130, 1137–38 (10th Cir. 2009). Third, 

to be corrective, a disclosure “need not precisely mirror the 

earlier misrepresentation.” Williams, 558 F.3d at 1140. It is 

enough if the disclosure reveals new facts that, taken as true, 

render some aspect of the defendant’s prior statements false 

or misleading. Amedisys, 769 F.3d at 321–22.

Even if the true facts concealed by the fraud are revealed 

to the market, the plaintiff must still show that the disclosure 

of the truth caused the company’s stock price to decline. For 

a subsequent decline in price could be attributable to factors 

unrelated to the fraud, such as a change in economic 

circumstances or investor expectations. Dura 

Pharmaceuticals, 544 U.S. at 343. The securities laws do 

not protect against ordinary investment losses of that sort. 

See id. at 345. We have explained that loss causation does 

not require a showing “that a misrepresentation was the sole

reason for the investment’s decline in value.” In re Daou 

Systems, Inc., 411 F.3d 1006, 1025 (9th Cir. 2005). Rather, 

“as long as the misrepresentation is one substantial cause of 
14 IN RE BOFI HOLDING, INC. SECURITIES LITIG.

the investment’s decline in value, other contributing forces 

will not bar recovery under the loss causation requirement.” 

Id. The determination of whether there is a causal link 

includes a temporal component—a disclosure followed by 

an immediate drop in stock price is more likely to have 

caused the decline—but timing is not dispositive. See In re 

Gilead Sciences Securities Litigation, 536 F.3d 1049, 1058 

(9th Cir. 2008) (“A limited temporal gap between the time a 

misrepresentation is publicly revealed and the subsequent 

decline in stock value does not render a plaintiff’s theory of 

loss causation per se implausible.”).

III

With that background in mind, we turn to the specific 

corrective disclosures at issue in this case. We address the 

Erhart lawsuit first, followed by the Seeking Alpha blog 

posts.

A

As discussed above, to prove loss causation by relying 

on one or more corrective disclosures, a plaintiff must show 

that: (1) a corrective disclosure revealed, in whole or in part, 

the truth concealed by the defendant’s misstatements; and 

(2) disclosure of the truth caused the company’s stock price 

to decline and the inflation attributable to the misstatements 

to dissipate. At the pleading stage, the plaintiff’s task is to 

allege with particularity facts “plausibly suggesting” that 

both showings can be made. Bell Atlantic Corp. v. Twombly, 

550 U.S. 544, 557 (2007); see Oregon Public Employees 

Retirement Fund v. Apollo Group, Inc., 774 F.3d 598, 605 

(9th Cir. 2014) (holding that allegations of loss causation 

must satisfy Federal Rule of Civil Procedure 9(b)’s 

heightened “particularity” requirement).
IN RE BOFI HOLDING, INC. SECURITIES LITIG. 15

The shareholders pleaded facts with particularity that 

plausibly suggest they can make the first showing. The 

allegations of egregious wrongdoing in the Erhart lawsuit, if 

accepted as true, unquestionably revealed to the market that 

at least some of BofI’s alleged misstatements were false.2

 

For example, Erhart recounted an instance in which he 

relayed to his superiors a third-party vendor’s report on 

BofI’s operations. Erhart alleged that he personally prepared 

a memorandum summarizing the vendor’s findings, which 

identified roughly 30% of BofI’s customers as “bad,” 

meaning the customers had red flags such as suspiciously 

high cash balances, social security numbers that did not 

match any public records, and, in one instance, the social

security number of a dead person. Erhart further alleged that 

when he gave the list to his superior, Senior Vice President 

John Tolla, Tolla demanded that the audit committee alter 

the list and give the altered version to the OCC. Erhart also 

claims that his thorough work and his attempts to report 

potential compliance violations earned him retaliation rather 

than praise. These and other similar allegations, if true, 

render BofI’s prior assertions about the strength of its 

underwriting standards, internal controls, and compliance 

infrastructure false or misleading.3

2 We take judicial notice of the contents of the complaint filed in 

Erhart v. BofI Holding Inc., No. 15-cv-2287 (S.D. Cal. Oct. 13, 2015), 

but not of the truth of the allegations asserted therein, which BofI 

vigorously contests. See Lee v. City of Los Angeles, 250 F.3d 668, 689–

90 (9th Cir. 2001).

3 The district court held in its order dismissing the Second Amended 

Complaint that none of the allegations in the Erhart lawsuit relate back 

to the subject matter of the specific misstatements the court had found 

actionable. We disagree with that ruling. As noted above, a corrective 
16 IN RE BOFI HOLDING, INC. SECURITIES LITIG.

As to the second showing, the shareholders allege that 

BofI’s stock price fell by more than 30% on extremely high 

trading volume immediately after the market learned of 

Erhart’s allegations. The shareholders have plausibly 

alleged that this drop constituted a dissipation of the inflation 

attributable to BofI’s misstatements instead of a reaction to 

some other negative news unrelated to the alleged fraud.

To plead loss causation here, the shareholders did not 

have to establish that the allegations in Erhart’s lawsuit are 

in fact true. Falsity and loss causation are separate elements 

of a Rule 10b-5 claim. The shareholders adequately alleged 

that BofI’s misstatements were false through the allegations 

attributed to confidential witnesses. In analyzing loss 

causation, we therefore begin with the premise that BofI’s 

misstatements were false and ask whether the market at 

some point learned of their falsity—through whatever 

means. Viewed through that prism, the relevant question for 

loss causation purposes is whether the market reasonably 

perceived Erhart’s allegations as true and acted upon them 

accordingly. See Norfolk County, 877 F.3d at 696 (inquiry 

when evaluating an alleged corrective disclosure is “whether 

the market could have perceived it as true”). If the market 

recalibrated BofI’s stock price on the assumption that 

Erhart’s allegations are true—and thus that BofI’s prior 

misstatements were false—then the drop in BofI’s stock 

price represented dissipation of inflation rather than a 

reaction to other non-fraud-related news.

The shareholders alleged facts with particularity that 

plausibly suggest the market perceived Erhart’s allegations 

as credible and acted upon them on the assumption that they 

disclosure need not be a mirror image of the prior misstatement. See

Williams, 558 F.3d at 1140.
IN RE BOFI HOLDING, INC. SECURITIES LITIG. 17

were true. Erhart’s descriptions of wrongdoing are highly 

detailed and specific, and they are based on firsthand 

knowledge that he could reasonably be expected to possess 

by virtue of his position as a mid-level auditor at the 

company. True, Erhart’s motivations for coming forward 

may not have been entirely pure, as he lodged his allegations 

in a lawsuit seeking money from BofI. But that is just one 

factor among many that market participants would have 

weighed in deciding how much credence his claims 

deserved. The fact that BofI’s stock price plunged by more 

than 30% on extremely high trading volume immediately 

after the market learned of Erhart’s allegations bolsters the 

inference that the market regarded his allegations as 

credible. A price drop of that magnitude would not be 

expected in response to whistleblower allegations perceived 

as unworthy of belief, and the drop is not readily attributable 

to non-fraud-related factors that might have moved BofI’s 

stock price that day.

The district court nonetheless held that allegations in a 

lawsuit, standing alone, can never qualify as a corrective 

disclosure because they are just that—allegations, as 

opposed to “truth.” The court concluded that, to adequately 

plead loss causation, the shareholders had to identify an 

additional disclosure that confirmed the truth of Erhart’s 

allegations.

We join the Sixth Circuit in rejecting any such 

categorical rule. Norfolk County, 877 F.3d at 696. To be 

sure, allegations in a lawsuit do not provide definitive 

confirmation that fraud occurred. But short of an admission 

by the defendant or a formal finding of fraud—neither of 

which is required, see Amedisys, 769 F.3d at 324–25; 

Metzler, 540 F.3d at 1064—any corrective disclosure will 

necessarily take the form of contestable allegations of 
18 IN RE BOFI HOLDING, INC. SECURITIES LITIG.

wrongdoing. As the Sixth Circuit observed, “every 

representation of fact is in a sense an allegation, whether 

made in a complaint, newspaper report, press release, or 

under oath in a courtroom.” Norfolk County, 877 F.3d 

at 696. What matters for loss causation purposes “is that 

some [representations] are more credible than others and 

thus more likely to be acted upon as truth.” Id. If the market 

treats allegations in a lawsuit as sufficiently credible to be 

acted upon as truth, and the inflation in the stock price 

attributable to the defendant’s misstatements is dissipated as 

a result, then the allegations can serve as a corrective 

disclosure. The plaintiff must, of course, prove that the 

defendant’s misstatements were false, but that can be done 

through proof other than the corrective disclosure itself.

The two cases on which the district court relied most 

heavily are not to the contrary. In Loos v. Immersion Corp., 

762 F.3d 880 (9th Cir. 2014), the defendant company 

announced that it was conducting “an internal investigation 

into certain previous revenue transactions in its Medical line 

of business.” Id. at 885 (quoting the company’s press 

release). We held that the plaintiff could not rest his theory 

of loss causation on the announcement of this investigation 

standing alone. Quoting the Eleventh Circuit’s decision in 

Meyer v. Greene, 710 F.3d 1189 (11th Cir. 2013), we noted 

that “[t]he announcement of an investigation reveals just 

that—an investigation—and nothing more.” Loos, 762 F.3d 

at 890. Such an announcement does not reveal to the market 

any facts that could call into question the veracity of the 

company’s prior statements; all the market could react to 

was “speculation” about “what the investigation will 

ultimately reveal.” Id.

Our case presents a different situation. Erhart’s lawsuit 

disclosed facts that, if true, rendered false BofI’s prior 
IN RE BOFI HOLDING, INC. SECURITIES LITIG. 19

statements about its underwriting standards, internal 

controls, and compliance infrastructure. No speculation on 

that score was required.

The second case on which the district court relied, Curry 

v. Yelp Inc., 875 F.3d 1219 (9th Cir. 2017), is also 

distinguishable. There, the plaintiffs accused Yelp of falsely 

representing that the reviews it posted were authentic and 

independent. Id. at 1222. The plaintiffs alleged that the 

falsity of this representation was revealed to the market 

when the Federal Trade Commission disclosed some 2,000 

complaints the agency had received “from businesses 

claiming that Yelp had manipulated reviews of their 

services” in various ways. Id.

We rejected the plaintiffs’ loss causation allegations as 

inadequate. Id. at 1225. Critically for our purposes, the 

customers who filed complaints in Curry were outsiders who 

lacked any firsthand knowledge of Yelp’s practices. Thus, 

they could not attest to whether Yelp was actually engaged 

in manipulating reviews, nor to whether the reviews the 

company posted were authentic and independent. See id. at 

1223. We refused to allow the plaintiffs to allege loss 

causation “merely by resting on a number of customer 

complaints and asserting that where there is smoke, there 

must be fire.” Id. at 1225.

Here, by contrast, Erhart is a former insider of the 

company who had personal knowledge of the facts he 

alleged. Those facts revealed that a number of BofI’s 

alleged misstatements were false. If the market regarded his 

factual allegations as credible and acted upon them on the 

assumption that they were true, as the shareholders have 
20 IN RE BOFI HOLDING, INC. SECURITIES LITIG.

plausibly alleged here, Erhart’s allegations established fire 

and not just smoke.4

One final point bears mentioning. In ruling against the 

shareholders, the district court emphasized that a plaintiff in 

a securities fraud action must plead loss causation “with 

particularity” under Rule 9(b). See Apollo Group, 774 F.3d 

at 605. When applied to allegations of loss causation, 

however, Rule 9(b)’s particularity requirement usually adds 

little to the plaintiff’s burden. The plaintiff must plausibly 

allege a causal connection between the defendant’s 

misstatements and the plaintiff’s economic loss, and to 

succeed in doing so the plaintiff will always need to provide 

enough factual content to give the defendant “some 

indication of the loss and the causal connection that the 

plaintiff has in mind.” Dura Pharmaceuticals, 544 U.S. 

at 347. That effort “should not prove burdensome,” id., for 

even under Rule 9(b) the plaintiff’s allegations will suffice 

so long as they give the defendant “notice of plaintiffs’ loss 

causation theory” and provide the court “some assurance that 

the theory has a basis in fact.” Berson v. Applied Signal 

4 BofI contends that the shareholders cannot plead loss causation 

because they cannot plausibly allege that the bank ever suffered an 

adverse financial event, such as losses from its loan portfolio or a spike 

in its reserves. But this misconstrues the significance of BofI’s alleged 

misstatements. According to the shareholders, BofI misrepresented 

itself as a safe investment when in fact it was far riskier. The 

shareholders contend that, before the corrective disclosures, the price of 

BofI’s stock was inflated by the market’s belief that the company’s 

statements were true, and that the price declined when the market learned 

that BofI’s statements were false. On this account, the shareholders 

suffered an economic loss caused by the misstatements because they 

purchased their shares at an inflated price and are now unable to recoup 

the inflationary component in the market. That remains true regardless 

of whether the risks concealed by BofI’s misstatements ever materialized 

and harmed the bank’s bottom line.
IN RE BOFI HOLDING, INC. SECURITIES LITIG. 21

Technology, Inc., 527 F.3d 982, 989–90 (9th Cir. 2008). The 

shareholders pleaded loss causation here with sufficient 

particularity to accomplish those twin aims.

B

We turn next to the Seeking Alpha blog posts. We agree 

with the district court that the shareholders failed to 

plausibly allege that these posts constituted corrective 

disclosures, although we disagree somewhat with the district 

court’s rationale.

As noted earlier, each of the blog posts asserts that the 

information it discloses was derived from publicly available 

sources. Because this is a fraud-on-the-market case, that 

assertion makes it more difficult for the shareholders to rely 

on the posts as corrective disclosures. BofI’s stock is 

deemed to trade in an efficient market in which all publicly 

available information about the company, both positive and 

negative, is quickly incorporated into the stock price. See 

Amgen, 568 U.S. at 461–62. So its stock price should 

already reflect whatever public information a blog post 

might be based upon. A corrective disclosure, though, must 

by definition reveal new information to the market that has 

not yet been incorporated into the price.

To rely on a corrective disclosure that is based on 

publicly available information, a plaintiff must plead with 

particularity facts plausibly explaining why the information 

was not yet reflected in the company’s stock price. The 

district court interpreted this requirement to mean that the 

shareholders had to allege facts explaining why “other 

market participants could not have done the same analysis 

and reached the same conclusion” as the authors of the blog 

posts. (Emphasis added.) We think that sets the bar too high. 

For pleading purposes, the shareholders needed to allege 
22 IN RE BOFI HOLDING, INC. SECURITIES LITIG.

particular facts plausibly suggesting that other market 

participants had not done the same analysis, rather than 

“could not.” If other market participants had not done the 

same analysis, then it is plausible that the blog posts 

disclosed new information that the market had not yet 

incorporated into BofI’s stock price.

Prior cases reflect the understanding that some 

information, although nominally available to the public, can 

still be “new” if the market has not previously understood its 

significance. For example, in In re Gilead Sciences 

Securities Litigation, 536 F.3d 1049 (9th Cir. 2008), a 

pharmaceutical company represented that demand for an 

HIV drug was strong and that the company complied with 

federal and state regulations, despite knowing that unlawful 

off-label marketing was the reason for strong demand. Id. at 

1051. The company then received a warning letter from the 

Food and Drug Administration (FDA) about its off-label 

marketing of the drug. Id. at 1052–53. The company’s stock 

price did not incorporate the information disclosed in the 

letter until three months after the letter had been publicly 

released, when the company reported a major earnings miss 

attributable to decreased demand for the HIV drug. Id.

at 1053–54. We concluded that the plaintiffs plausibly 

alleged the drop in stock price was caused by the FDA 

warning letter. Id. at 1058. Given the letter’s subtle 

relationship to the company’s alleged misstatements—“it 

did not contain enough information to significantly 

undermine [the company’s] pronouncements concerning 

demand”—the letter itself “would not necessarily trigger a 

market reaction.” Id. Thus, it was “not unreasonable that 

physicians . . . would respond to the Warning Letter” by 

issuing fewer prescriptions and lowering demand for the 

drug, “while the public failed to appreciate its significance” 

until its impact on revenue was made plain from the earnings 
IN RE BOFI HOLDING, INC. SECURITIES LITIG. 23

release. Id. Despite the three-month gap between the FDA 

letter and the drop in stock price, the plaintiffs’ allegations 

were enough to plead loss causation.

Similarly, in Public Employees’ Retirement System v. 

Amedisys, Inc., 769 F.3d 313 (5th Cir. 2014), a Wall Street 

Journal article analyzed publicly available Medicare records 

to conclude that Amedisys, a home health services company, 

was engaging in Medicare fraud. Id. at 318. The defendant 

unsuccessfully pressed the same argument that BofI 

advances here: “[B]ecause the article proclaims on its face 

that its analysis was ‘based on publicly available Medicare 

records,’ . . . [it] does not reveal any new information to the 

marketplace.” Id. at 323. The Fifth Circuit rejected such a 

rule, holding instead that “it is plausible that complex 

economic data understandable only through expert analysis 

may not be readily digestible by the marketplace.” Id. The 

underlying information, although publicly available, “had 

little to no probative value in its native state”; someone 

needed to put the pieces together before the market could 

appreciate its import. Id.

Contrary to the bright-line rule BofI urges us to adopt, 

these cases endorse a flexible approach to evaluating 

corrective disclosures. A disclosure based on publicly 

available information can, in certain circumstances, 

constitute a corrective disclosure. The ultimate question is 

again one of plausibility: Based on plaintiffs’ particularized 

allegations, can we plausibly infer that the alleged corrective 

disclosure provided new information to the market that was 

not yet reflected in the company’s stock price? The fact that 

the underlying data was publicly available is certainly one 

factor to consider. But other factors include the complexity 

of the data and its relationship to the alleged misstatements, 

as in Amedisys and Gilead, and the great effort needed to 
24 IN RE BOFI HOLDING, INC. SECURITIES LITIG.

locate and analyze it, as the shareholders allege here. Courts 

must assess these and other factors on a case-by-case basis. 

We therefore decline to categorically disqualify the Seeking 

Alpha blog posts as potential corrective disclosures.5

Even judged against this more forgiving standard, the 

shareholders’ allegations concerning the eight blog posts do 

not pass muster. We address each of the eight posts that were 

followed by a decline in stock price.

The August 28, 2015, blog post. The author of this post 

claimed to have “analyzed hundreds of BofI’s loans,” and on 

the basis of that review the author levied a host of allegations 

against BofI: that its loan-to-value ratios were often higher 

than advertised; that the bank faced personnel turnover in the 

audit department; that it made risky loans to foreign 

nationals; and that the Securities and Exchange Commission 

(SEC) was possibly investigating the company.

The October 29, 2015, blog post. This post compared 

BofI’s transcript of an earnings call with the transcripts 

prepared by news agencies, and it noted potentially 

important discrepancies. The shareholders claim that the 

discrepancies show BofI’s “lack of internal controls over 

financial reporting and risk management.”

5 We acknowledge that the Eleventh Circuit has adopted the brightline rule BofI advocates. See Meyer, 710 F.3d at 1198 (“[T]he fact that 

the sources used in the Einhorn Presentation were already public is fatal 

to the Investors’ claim of loss causation.”). And it is true that we cited 

Meyer approvingly when we held that the mere announcement of an 

investigation is insufficient to plead loss causation. See Loos, 762 F.3d 

at 889–90. But the Loos court had no occasion to adopt Meyer’s holding 

about public information, and its discussion of that portion of Meyer is 

therefore dicta. We decline to extend it here.
IN RE BOFI HOLDING, INC. SECURITIES LITIG. 25

The November 10, 2015, blog post. This post chronicles 

BofI’s alleged relationships with two risky lenders, Quick 

Bridge and OnDeck Capital. According to the author, 

through these relationships, BofI originated bad loans, 

reaped the origination fees, and then sold the loans to its 

partner to keep the loans off its books. The author asserts 

that the loans involved are frequently the subjects of 

collection actions and bankruptcy proceedings, and points to 

court filings suggesting that “many borrowers appear to have 

never been capable of” repaying the loans. This information 

potentially undermines the veracity of BofI’s statements 

regarding its conservative underwriting standards, 

particularly the statement that BofI had “not sacrificed credit 

quality to increase origination.”

The November 18, 2015, blog post. This post states that 

the author’s “research suggests that [BofI] has employed a 

former felon for over 5 years in a very senior and pivotal 

role,” but does not name the individual. The author 

postulates that BofI “had to have known of the executive’s 

prior criminality” and therefore was probably “in violation 

of Section 19 of the Federal Deposit Insurance Act.” The 

author concedes he is not “100% certain” that BofI’s 

executive is the former felon, but states his analysis—which 

included comparing a mugshot photo to a LinkedIn photo, 

and comparing signatures and birth dates on public 

documents—was fairly rigorous. The author comments on 

the regulatory penalties BofI could face if it did not obtain a 

waiver from the Federal Deposit Insurance Corporation 

before employing a convicted felon. The post also notes that 

BofI made loans to the same executive shortly after he filed 

for bankruptcy.

The November 19, 2015, blog post. In this post, the 

author claims to have uncovered evidence that BofI provides 
26 IN RE BOFI HOLDING, INC. SECURITIES LITIG.

financing to a “Special Purpose Entity” called Center Street 

Lending Fund IV, LLC. According to the author, Center 

Street offers “no doc” and “no FICO” loans and is a named 

defendant in litigation alleging that it participated in a Ponzi 

scheme. These alleged facts, documenting BofI’s indirect 

financing of “no doc” loans, potentially contradict the 

company’s claim to “originate only full documentation” 

loans.

The December 8, 2015, blog post. This post asserts that 

BofI is financing another Special Purpose Entity, WCL 

Holdings I, LLC, that was first mentioned in the post of 

November 10. In the earlier post, the author claimed that 

BofI assigned the loans it originated with Quick Bridge to 

WCL, although it was unclear at that point whether BofI was 

also financing WCL. This post purports to show that BofI is 

indeed lending to WCL. BofI’s alleged financing of an offbook entity to buy back BofI’s own risky loans potentially 

contradicts BofI’s statement that it achieved “strong loan 

growth . . . while maintaining high credit quality standards.”

The January 6, 2016, blog post. This post unearths 

evidence that BofI made a roughly $32 million loan to 

Encore Capital, a San Diego-based debt collector. Encore’s 

then-Chief Financial Officer, Paul Grinberg, was also the 

Chair of BofI’s Audit Committee. The loans allegedly 

allowed Encore to make a major acquisition, which led to 

Grinberg’s promotion. According to the author, BofI never 

disclosed this loan, as the SEC requires for related-party 

transactions, and indeed omitted the loan from the bank’s 

2014 disclosures of loans made to board members. These 

revelations potentially contradict BofI’s statements about 

the robustness of its compliance infrastructure.

The February 3, 2016, blog post. This post details BofI’s 

opening of a new Nevada branch and links it to BofI’s 
IN RE BOFI HOLDING, INC. SECURITIES LITIG. 27

acquisition of H&R Block’s lending products. The 

shareholders imply that the post contradicts BofI’s 

statements about its underwriting standards and compliance 

infrastructure.

The fact that each of these blog posts relied on nominally 

public information does not, on its own, preclude them from 

qualifying as corrective disclosures. Some of the posts 

required extensive and tedious research involving the 

analysis of far-flung bits and pieces of data. The authors 

arrived at their conclusions after scouring through hundreds 

of Uniform Commercial Code filings, bankruptcy court 

documents, and other companies’ registration documents. 

While other investors undoubtedly could have reviewed 

registration documents, they likely would not have known to 

investigate Quick Bridge, On Deck, or Encore precisely 

because BofI had hidden its relationships with those entities. 

Cf. Norfolk County, 877 F.3d at 697. The time and effort it 

took to compile this information make it plausible that the 

posts provided new information to the market, even though 

all of the underlying data was publicly available. Cf. 

Amedisys, 769 F.3d at 323.

We nonetheless conclude that the shareholders have not 

plausibly alleged that these posts constituted corrective 

disclosures. Even if the posts disclosed information that the 

market was not previously aware of, it is not plausible that 

the market reasonably perceived these posts as revealing the 

falsity of BofI’s prior misstatements, thereby causing the 

drops in BofI’s stock price on the days the posts appeared. 

The posts were authored by anonymous short-sellers who 

had a financial incentive to convince others to sell, and the 

posts included disclaimers from the authors stating that they 

made “no representation as to the accuracy or completeness 

of the information set forth in this article.” A reasonable 
28 IN RE BOFI HOLDING, INC. SECURITIES LITIG.

investor reading these posts would likely have taken their 

contents with a healthy grain of salt.6

Therefore, the shareholders have not plausibly alleged 

that any of the Seeking Alpha blog posts constituted a 

corrective disclosure. The district court did not abuse its 

discretion in denying further leave to amend, as the court had 

already pointed out the deficiencies in the shareholders’ loss 

causation allegations concerning the blog posts and had 

given them an opportunity to correct those deficiencies. See 

Loos, 762 F.3d at 890–91.

IV

Finally, we take up the new category of misstatements 

that the shareholders alleged for the first time in the Third 

Amended Complaint, concerning government and 

regulatory investigations. We agree with the district court 

that the shareholders failed to plausibly allege the falsity of 

any of the alleged misstatements in this new category. All 

but three of the challenged statements are expressions of 

opinion, not statements of fact “capable of objective 

verification.” Apollo Group, 774 F.3d at 606. For example, 

Garrabrants told investors that regulatory review “is beyond 

a nonissue” and that “[w]e have great regulatory relations.” 

These vague assurances reflect Garrabrants’s opinions and 

predictions, which are not actionable. See In re Cutera 

Securities Litigation, 610 F.3d 1103, 1111 (9th Cir. 2010).

6 Some of the posts suffer from other deficiencies. For example, the 

October 29, 2015, post, comparing transcripts, did not require any 

special expertise or effort. And most of the misdeeds alleged in the 

August 28, 2015, and February 3, 2016, posts are not tethered to any 

actionable misstatements.
IN RE BOFI HOLDING, INC. SECURITIES LITIG. 29

The shareholders have not plausibly alleged falsity with 

respect to the three remaining statements. On an earnings 

call, Garrabrants told investors that: (1) there was “nothing 

ongoing” with the OCC; (2) there was “no continuity” to any 

of Erhart’s complaints submitted to the OCC; and (3) there 

were no “regulatory issues of any kind that have arisen from 

Mr. Erhart’s contact with the OCC.” These statements were 

accurate. Although the SEC was investigating BofI at the 

time, it is unclear whether anyone at BofI was aware of that 

fact when Garrabrants spoke, and his statements were 

specifically limited to the OCC in any event. The 

shareholders do not argue that Garrabrants had an 

independent duty to disclose the SEC investigation. Without 

such a duty, Garrabrants was under no obligation to mention 

it. See Basic Inc. v. Levinson, 485 U.S. 224, 239 n.17 (1988); 

Retail Wholesale & Department Store Union Local 338 

Retirement Fund v. Hewlett-Packard Co., 845 F.3d 1268, 

1278 (9th Cir. 2017).

* * *

The shareholders have adequately pleaded a viable claim 

under § 10(b) and Rule 10b-5 for the two categories of 

misstatements the district court found actionable, with the 

Erhart lawsuit serving as a potential corrective disclosure. 

We reverse the district court’s judgment dismissing the 

action with prejudice and remand for further proceedings 

consistent with this opinion.7

7 Because the shareholders have alleged a viable claim under 

§ 10(b), the district court on remand should reinstate their claims under 

§ 20(a) against the individual defendants.
30 IN RE BOFI HOLDING, INC. SECURITIES LITIG.

Appellant’s Motion for Judicial Notice (Dkt. No. 12) is 

GRANTED.

REVERSED and REMANDED.

LEE, Circuit Judge, concurring in part III.B. in judgment and 

dissenting in part III.A.:

Philosophers have long debated the question, “If a tree 

falls in the forest but no one is around to hear it, does it make 

a sound?” This case perhaps presents the converse of that 

conundrum: If there is no fraud, can a securities fraud 

lawsuit still proceed?

The majority holds that a former employee’s allegations 

of fraud in a whistleblower lawsuit may count as a 

“corrective disclosure” under Rule 10b-5’s loss causation 

requirement as long as they are plausible — even if there is 

no additional evidence or disclosure corroborating them. I 

agree with much of the analysis in the majority’s thoughtful 

opinion, which attempts to balance carefully competing 

concerns on a very difficult issue.

But I still fear that the decision will have the unintended 

effect of giving the greenlight for securities fraud lawsuits 

based on unsubstantiated assertions that may turn out to be 

nothing more than wisps of innuendo and speculation. And 

even meritless securities fraud lawsuits impose an exorbitant 

cost on companies. I would thus require additional external 

confirmation of fraud allegations in a whistleblower lawsuit 

for them to count as a “corrective disclosure.” Doing so 

comports with our case law and common sense. I thus 

respectfully dissent from the majority’s holding that 
IN RE BOFI HOLDING, INC. SECURITIES LITIG. 31

plausible insider allegations, standing alone, can qualify as a 

corrective disclosure (part III.A.).

* * * *

Charles Erhart, a mid-level auditor at BofI, sued his 

former employer after being terminated, claiming that it was 

retaliation for whistleblowing. His lawsuit against BofI will 

go to trial sometime next year.

The majority believes that Erhart’s allegations in his 

separate whistleblower lawsuit against BofI are plausible 

enough to constitute a “corrective disclosure” under Rule 

10b-5’s loss causation requirement. The majority opinion 

thus allows shareholders in this lawsuit to piggyback off of 

Erhart’s whistleblower lawsuit against his former employer.

It may well be that Erhart’s allegations in his lawsuit are true. 

His allegations, if true, paint a company rife with corruption 

and mismanagement. And many corporate schemes of 

malfeasance have unraveled after a whistleblower exposed 

the wrongdoing.

But what if it turns out that Erhart’s allegations in his 

lawsuit are bunk? What if he is mistaken? Perhaps he 

misconstrued certain information because, as a fairly juniorlevel employee, he did not understand or have access to all 

the facts. Or what if (as BofI suggests) he is a loose cannon 

who has a messianic zeal for seeing wrongdoing where none 

exists? At this point, we simply do not know, especially with 

no other evidence or disclosure to corroborate Erhart’s 

claims in his lawsuit.

But we do know that BofI has not issued any financial 

disclosures that would confirm Erhart’s allegations that he 

first aired in 2015. BofI has not done so, even though the 

U.S. Department of Justice, the Securities and Exchange 
32 IN RE BOFI HOLDING, INC. SECURITIES LITIG.

Commission, and the Treasury Department have reportedly 

investigated BofI. And apparently at least one SEC 

investigation that began in 2015 has already closed with no

action.

Put another way, five years have passed since Erhart first 

disclosed allegations of misconduct at BofI, and multiple 

government agencies commenced investigations into BofI. 

Yet so far, we have not seen any external evidence 

corroborating Erhart’s allegations. So it may turn out that 

there may be smoke but no fire. But based solely on a midlevel employee’s self-interested allegations in a separate 

lawsuit, we are allowing a securities fraud lawsuit to move 

forward. It is premature to do so. Erhart may ultimately be 

vindicated, and perhaps the government investigations will 

eventually expose fraud, but we should not let a securities 

fraud lawsuit proceed when, at this point, there may no there 

there. We may end up with a scenario in which Erhart loses 

his whistleblower trial, and the government agencies end 

their investigations without any action — and yet BofI may 

end up settling a securities fraud case for millions of dollars 

to avoid litigation costs.

The majority notes that not every insider allegation in a 

lawsuit will count as a corrective disclosure; only 

“plausible” ones will survive a dismissal. While the 

plausibility standard under Iqbal/Twombly has rooted out 

many meritless cases at the pleading stage, such a standard 

will likely be less useful in a securities fraud lawsuit based 

on insider allegations in a whistleblower lawsuit. An insider 

account will almost always have a patina of plausibility 

because it will likely be based on some non-public allegation 

that cannot be easily disputed or rebutted at the pleading 

stage. Indeed, like any good conspiracy theory, an insider’s 

story often has some element of truth to it, even if it is largely 
IN RE BOFI HOLDING, INC. SECURITIES LITIG. 33

mistaken or misguided. In the end, the plausibility standard 

will likely stave off only lawsuits based on insider accounts 

that even Mulder and Scully would find unbelievable. In 

short, the plausibility standard provides little comfort to 

companies that may face securities fraud lawsuits based on 

unsubstantiated insider allegations.

What’s the harm of letting a securities fraud lawsuit go 

forward if the company can eventually vindicate itself at 

trial? Plenty. According to Cornerstone Research, 

approximately 8.9% of all public companies listed on a U.S. 

securities exchange were the target of a securities class 

action in 2019. See Cornerstone Research, Securities Class 

Action Filings: 2019 Year in Review, 11 (Jan. 29, 2020), 

https://bit.ly/2TpajjY. And in 2018, the median cost of a 

securities class-action settlement was $13 million, according 

to one estimate. See Chubb, From Nuisance to Menace: The 

Rising Tide of Securities Class Action Litigation (June 

2019), https://bit.ly/3cvbIx4. If a securities fraud lawsuit 

survives a motion to dismiss, it likely will lead to a 

settlement to the tune of millions of dollars. In the past 

quarter-century or so, only six securities fraud cases 

apparently have been tried to verdict. See Jeffrey A. Barrack, 

A Primer on Taking A Securities Fraud Class Action to 

Trial, 31 Am. J. Trial Advoc. 471, 476 (2008). In a time 

when trials are rare, securities fraud trials are virtually 

extinct. That is why the loss causation requirement acts as a 

critical bulwark against frivolous securities fraud lawsuits.

It guards against lawsuits being used as an “in terrorem 

device” to bludgeon companies into settling claims to “avoid 

the cost and burden of litigation.” Meyer v. Greene, 710 F.3d 

1189, 1196 (11th Cir. 2013) (citing Dura Pharms., Inc. v. 

Broudo, 544 U.S. 336, 347–48 (2005)).
34 IN RE BOFI HOLDING, INC. SECURITIES LITIG.

It is true that BofI’s shares plummeted 30% after Erhart 

publicly accused his former employer of fraud. But that does 

not necessarily mean Erhart’s allegations revealed the 

“truth” and acted as a corrective disclosure. Rather, it is 

better construed as a disclosure of “an added risk of future 

corrective action.” Meyer, 710 F.3d at 1201 (ruling that an 

announcement of an SEC investigation by itself is not a 

corrective disclosure but signals an added risk of it).

Our decision in Loos v. Immersion Corp. is instructive.

There, Immersion announced an internal investigation into 

revenue recognition practices of its medical line of business.

Loos, 762 F.3d 880, 885 (9th Cir. 2014). The company’s 

stock price plummeted 23% after this disclosure. Id. A 

shareholder lawsuit inevitably followed. We affirmed the 

district court’s dismissal of the securities fraud lawsuit, 

ruling that the company’s announcement of potential 

problems with revenue recognition was not a corrective 

disclosure. While the disclosure was “ominous,” it “simply 

put[] investors on notice of a potential future disclosure of 

fraudulent conduct.” Id. at 890.

Similarly, in Curry v. Yelp Inc., Yelp’s stock price 

dropped after the FTC disclosed more than 2,000 complaints 

from businesses alleging that Yelp had manipulated reviews.

875 F.3d 1219, 1222 (9th Cir. 2017). We acknowledged that 

a plaintiff “need not allege an outright admission of fraud,” 

but we affirmed the dismissal of the lawsuit because the 

“mere ‘risk’ or ‘potential’ for fraud is insufficient to 

establish loss causation.” Id. at 1225 (quoting Loos, 

762 F.3d at 889).

Likewise here, Erhart’s allegations are certainly 

“ominous,” and may in fact be true. But at this time, the drop 

in BofI’s share price “can only be attributed to market 

speculation about whether fraud has occurred.” Loos, 
IN RE BOFI HOLDING, INC. SECURITIES LITIG. 35

762 F.3d at 890. And this “type of speculation cannot form 

the basis of a viable loss causation theory.” Id. Before 

plaintiffs can establish loss causation based on an 

unsubstantiated whistleblower complaint, another shoe has 

to drop. It has not yet.

In short, if a securities fraud lawsuit turns on insider 

allegations of wrongdoing in a whistleblower lawsuit, I 

would prefer a bright-line rule that requires an external 

disclosure or evidence that confirms those allegations. It 

need not be a mea culpa from the company, but perhaps a 

surprise restatement of earnings, an unexplained 

announcement about an increase in reserves, or some other 

information that confirms those allegations and thus acts as 

a corrective disclosure.1

Finally, I agree with the majority that the anonymous 

Seeking Alpha posts are not corrective disclosures. I would, 

however, base our decision on the grounds that the Seeking 

Alpha posts contain public information only, and that we 

should not credit anonymous posts on a website notorious 

for self-interested short-sellers trafficking in rumors for their 

own pecuniary gain. See, e.g., Jeff Katz & Annie Hancock, 

Short Activism: The Rise of Anonymous Online Short 

Attacks, Harvard Law School Forum on Corporate 

Governance (Nov. 27, 2017), https://bit.ly/3kqF3fi (noting 

the rise of short shellers engaging in anonymous attacks and 

explaining that a “short seller need only prove that a fraction 

1 Some may argue that such a requirement may create perverse 

incentives for a company not to make a corrective disclosure. Perhaps it 

might in the short run, but a wrongdoer can balance its house of cards 

for only so long until it ultimately collapses. Insider allegations of 

wrongdoing almost always lead to governmental investigations, and the 

truth ultimately comes out under scrutiny.
36 IN RE BOFI HOLDING, INC. SECURITIES LITIG.

of the allegations is true, while the company must disprove 

each and every allegation”).

I thus concur in judgment in part III.B. and respectfully 

dissent as to part III.A.