FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

METZLER INVESTMENT GMBH, 

Plaintiff-Appellant,

and No. 06-55826

CONWAY INVESTMENT CLUB, D.C. No.

individually and on behalf of all CV-04-05025-R

others similarly situated,  ORDER

Plaintiff, AMENDING

v. OPINION AND

AMENDED CORINTHIAN COLLEGES, INC.; DAVID

M OPINION OORE; ANTHONY DIGIOVANNI;

DENNIS BEAL,

Defendants-Appellees. 

Appeal from the United States District Court

for the Central District of California

Manuel L. Real, District Judge, Presiding

Argued and Submitted

February 11, 2008—Pasadena, California

Filed July 25, 2008

Amended August 26, 2008

Before: Alfred T. Goodwin, Betty B. Fletcher, and

N. Randy Smith, Circuit Judges.

Opinion by Judge B. Fletcher

11671
COUNSEL

Jeff S. Westerman, Arthur Miller (argued), Milberg Weiss

Bershad & Schulman LLP, Los Angeles, California, for the

plaintiff-appellant. 

11674 METZLER INVESTMENT v. CORINTHIAN COLLEGES
John W. Spiegel, Munger, Tolles & Olson LLP, Los Angeles,

California, for the defendants-appellees.

ORDER

We hereby amend our Opinion filed July 25, 2008 at Slip

Opinion 9249. We file the Amended Opinion contemporaneously with this order. We amend as follows: 

Delete the paragraph on page 9282 beginning “Second,

Corinthian . . .” and ending with “regulatory scrutiny.” 

Insert a new paragraph reading: 

“Second, Corinthian was not required to make an

immediate disclosure of the DOE and California AG

investigations, at least not on the facts of this case.

A comparison to In re Apollo Group, Inc. Securities

Litigation, 509 F. Supp. 2d 837, 841 (D. Ariz. 2007),

is instructive. In Apollo the district court denied the

parties’ cross-motions for summary judgment based

in part on a disputed fact regarding the materiality of

a DOE investigation of the Apollo Group. Id. Like

Corinthian, Apollo is a large for-profit provider of

post-secondary education. Id. at 839. The plaintiffs

based their claim on the fact that Apollo failed to

reveal a DOE investigation of misconduct that tied

recruiters’ compensation to enrollment figures. Id.

Defendants failed to disclose a report containing a

preliminary DOE finding of non-compliance related

to those practices. Id. (“The report, which was issued

on February 5, 2004, concluded, among other things,

that the [Apollo campus at issue] improperly compensated its enrollment counselors ‘solely based on

[the] recruiters’ success in securing enrollments,’ a

violation of DOE regulations.”) (second alteration in

METZLER INVESTMENT v. CORINTHIAN COLLEGES 11675
original). Two weeks after the DOE issued that

report, Apollo released a press statement regarding a

dismissal in related lawsuits based on allegations of

recruiter misconduct and that “the government

declined to intervene” in those suits. Id. at 841-42.

Although this statement was formally true, the court

found a disputed issue of fact as to whether it was

“misleading” in light of the DOE report concerning

the exact same recruiting practices.14 Id. at 842; see

also In re Apollo Group, Inc. Sec. Litig., 395 F.

Supp. 2d 906, 920 (D. Ariz. 2005) (denying motion

to dismiss in same case where CEO misleadingly

suggested that no report would issue from DOE).

Here, unlike the complaint in Apollo, the TAC does

not connect the DOE or California Attorney General

investigations to any false or misleading statement—

i.e., some affirmative statement or omission by

Corinthian that suggested it was not under any regulatory scrutiny.” 

OPINION

B. FLETCHER, Circuit Judge: 

Due in large part to the enactment of the Private Securities

Litigation Reform Act (“PSLRA”) of 1995, Pub. L. No. 104-

67, 109 Stat. 737 (1995), plaintiffs in private securities fraud

class actions face formidable pleading requirements to properly state a claim and avoid dismissal under Fed. R. Civ. P.

12(b)(6). Plaintiff Metzler Investment GMBH’s (“Metzler”)

Consolidated Third Amended Complaint (“TAC”), despite its

lengthy and far-ranging allegations, fails to meet these

14In a settlement agreement that contained no admission of wrongdoing,

Apollo agreed to pay $9.8 million to settle the DOE’s program review. In

re Apollo Group Inc., 509 F. Supp. 2d. at 839-40.” 

11676 METZLER INVESTMENT v. CORINTHIAN COLLEGES
requirements. We affirm the district court’s dismissal of the

TAC, with prejudice. 

I. FACTUAL BACKGROUND1AND PROCEDURAL HISTORY

Metzler, an institutional investor, is lead plaintiff in a putative federal securities fraud class action brought pursuant to

§§ 10(b) and 20(a) of the Securities and Exchange Act of

1934 and Securities Exchange Commission (“SEC”) Rule

10b-5. Defendant-Appellee Corinthian Colleges, Inc.

(“Corinthian”) is one of the nation’s largest operators of private for-profit vocational colleges. As of June 30, 2004,

Corinthian operated 88 such colleges in 22 states. Three individuals who served as officers of Corinthian during the Class

Period are also named as Defendants: Dennis Beal, Corinthian’s Chief Financial Officer and Vice President; David

Moore, Corinthian’s Chairman and Chief Executive Officer;

and Anthony Digiovanni, Corinthian’s President and Chief

Operating Officer. 

During the Class Period, which extended from August 27,

2003 to July 30, 2004, Metzler purchased 116,000 shares of

Corinthian stock. Numerous other plaintiffs also purchased

stock during the Class Period and filed their own actions

against Corinthian. Eleven separate actions were consolidated

with this proceeding and Metzler was appointed lead plaintiff.

A. The TAC’s allegations of fraud and falsity.

Metzler alleges that Corinthian’s colleges are pervaded by

fraudulent practices designed to maximize the amount of fed1Our factual summary is taken from the TAC, documents incorporated

into the TAC by reference, and matters that were properly judicially

noticed by the district court. See Tellabs, Inc. v. Makor Issues & Rights,

Ltd., 127 S. Ct. 2499, 2509, 168 L. Ed. 2d 179 (2007). For purposes of our

review, we accept as true all factual allegations in the TAC. See id.; In re

Silicon Graphics, Inc. Sec. Litig., 183 F.3d 970, 983 (9th Cir. 1999). 

METZLER INVESTMENT v. CORINTHIAN COLLEGES 11677
eral Title IV funding—a major source2

 of Corinthian’s

revenue—that those schools receive. The TAC alleges that

Corinthian engaged in a variety of false or deceptive schemes:

falsifying financial aid applications to obtain federal funds

and increase federal award entitlements; encouraging students

to falsify federal student aid forms themselves; manipulating

student enrollment by counting students not yet enrolled

(referred to in the TAC as “false starts”); manipulating or falsifying student grades to maintain federal funding eligibility;

exposing the company to bad debt in order to meet regulatory

requirements for continued federal funding; delaying notification to federal officials of dropped students and delaying

refunds to the federal government after students had dropped;

and manipulating job placement data in order to satisfy federal and state regulatory requirements. According to the TAC,

the net effect of these practices was that “at numerous Corinthian campuses, as many as 50% to 60% of the people defendants represented to the U.S. government as being qualified,

attending ‘students’ were either ‘no shows’ in class or unqualified for admission and federal funds from the outset.” TAC

¶ 4. Thus, according to the TAC, Corinthian’s public face to

the market—one of growth and financial success premised on

increasing student enrollment and successful placement rates

—masked extensive fraud. The TAC alleges that this fraud

resulted in an artificial inflation of Corinthian’s stock price.

The TAC further alleges that Corinthian violated Generally

Accepted Accounting Principles (“GAAP”) by improperly

recognizing revenue. According to the TAC, at some of its

schools Corinthian recognized an entire month’s worth of

tuition revenue for a student’s first full month of attendance,

regardless of the date during that month on which the student

started. Corinthian ultimately changed this practice to recognize tuition for half of a student’s first month of attendance

and half of a student’s final month of attendance. As a result,

2

In 2003, Corinthian derived 82% of its revenue from federal student

loan funding. 

11678 METZLER INVESTMENT v. CORINTHIAN COLLEGES
in August 2005, it issued restated financials that reflected a

$16.9 million decrease in retained earnings. 

These allegations of fraudulent practices are supported

principally by statements taken from confidential witnesses

(abbreviated in the TAC as “CW”), who are former Corinthian employees that served at numerous campuses in differing capacities. The CW’s identified in the TAC include

campus presidents, admissions officials, financial aid officers,

and IT and accounting personnel. These CW’s, with varying

degrees of specificity, attest to instances of misconduct on

their campuses that support the more generalized allegations

of fraud contained elsewhere in the TAC. 

The TAC also avers to post-Class Period events that serve

to confirm the TAC’s allegations of Corinthian’s fraud during

the Class Period. In November 2005, Corinthian released restated financials that revealed Corinthian had overstated its

revenues during the Class Period. The restatement revealed

that revenues were overstated by 10.5% for the quarter ending

September 30, 2003, 4.5% for the quarter ending December

21, 2003, and 15% for the quarter ending March 31, 2004.

The TAC points to government investigations and private litigation, initiated after the close of the Class Period, that further

confirm Corinthian’s fraudulent practices. In November 2005,

the Florida Attorney General subpoenaed documents from a

Corinthian campus in Florida related to Corinthian’s advertising and admissions practices. In December 2005, three Corinthian campuses in Georgia had their accreditation revoked by

the Accrediting Bureau of Health Education Schools

(“ABHES”) for failing to meet student completion and placement requirements. Similarly, Corinthian colleges in Michigan and Indiana were ordered by the ABHES to show cause

why, because of alleged improper admissions and high attrition, they should not have their accreditation revoked. 

Because Corinthian campuses were allegedly pervaded by

fraudulent admission practices, the TAC alleges that virtually

METZLER INVESTMENT v. CORINTHIAN COLLEGES 11679
every Class Period statement discussing Corinthian’s financial

status was false. Specifically, the TAC alleges that public

statements in regulatory disclosures and related documents

regarding the company’s financial performance were rendered

false by the fact that Corinthian’s underlying fraudulent practices remained hidden. The TAC states: 

All of Corinthian’s stated financial results during the

entire Class Period were false and misleading as a

result of the Company-wide scheme to inflate enrollment figures in order to misappropriate federal

financial aid funding. Likewise, defendants’ statements lauding the Company’s strong financial performance were also false and misleading. . . .

Defendants also made positive statements regarding

the Company’s educational services and business

practices that were false and misleading in light of

the fraudulent means by which a substantial portion

of the Company’s business was gained, in complete

disregard for their students’ educational goals and

financial well-being. . . . The totality of defendants’

statements underlined above create the false impression that defendants ran their business with proper

financial reporting compliance with student enrollment and federal loan practices which were critical

to the viability of the business, and that quality of

education was emphasized. 

TAC ¶¶ 142-150. The TAC thus alleges that any positive

financial statement released by the company created the

decidedly false impression among investors that Corinthian’s

success was due to “legitimate business means that could be

expected to continue,” when in fact its “financial performance

was materially driven by fraudulent manipulation of the Title

IV funding program and could cease at any time if exposed.”

TAC ¶ 147(a). 

11680 METZLER INVESTMENT v. CORINTHIAN COLLEGES
In addition to these alleged affirmative false statements, the

TAC also claims that Corinthian made “omissions to conceal

[its] regulatory and accounting problems,” by failing to immediately disclose a Department of Education (“DOE”) investigation at Corinthian’s Bryman College campus in San Jose,

California (“Bryman”). TAC ¶ 322. The DOE investigation,

commenced in December 2003, concluded that admission

officials at Bryman failed to properly verify student information submitted in connection with financial aid applications,

and resolved inconsistencies in those applications in a manner

favorable to Bryman’s ability to obtain federal funding. As a

result of the DOE investigation, the Bryman campus was

placed on “reimbursement” status; reimbursement status

requires an institution to seek reimbursement for federal funding as opposed to having those funds dispersed up front. The

lag time between application and reimbursement may be as

long as 45 days. Corinthian did not disclose this investigation

or its findings in its fourth quarter 2003 or first quarter 2004

SEC filings. Instead, on June 24, 2004, a Financial Times

news article reported on the investigation, stating that, “Inspectors discovered that school officials had helped students

manipulate financial aid documents to obtain the maximum

possible towards tuition fees — breaching Title IV of the

Higher Education Act. They found admission officers assisted

students in claiming extra dependants to obtain additional

financial aid, according to the legal sources.”

3

 Corinthian

responded with a press release the same day, confirming the

investigation and stating that DOE’s primary finding was that

“the school had not properly verified information in students’

financial aid applications.” The following day, on June 25,

2004, a DOE official was quoted in a Financial Times article

3The Bryman campus was notified by the DOE that it had been returned

to standard advance payment status on September 22, 2004. A Corinthian

press release explained, “The notification from the DOE stated that the

change in status was based, in part, on the school’s ability to demonstrate

that it can comply with the rules and regulations of the Federal Title IV

programs.” 

METZLER INVESTMENT v. CORINTHIAN COLLEGES 11681
as stating that the investigation “did not confirm or deny anything about fraud.” 

Similarly, the TAC alleges that Corinthian improperly

withheld information related to an investigation by the California Attorney General. The California Attorney General had

met with Corinthian officials on July 21, 2004, in order for

Corinthian to voluntarily provide information related to its

admission practices and student satisfaction. Again, Corinthian did not immediately disclose this meeting or its purpose.

Instead, a press release issued on August 2, 2004, which also

included an adjusted revenue forecast, disclosed the fact of

the meeting and Corinthian’s voluntary compliance with the

California Attorney General’s requests. 

B. The TAC’s scienter allegations.

The TAC states that “defendants acted with scienter,”

which requires an intent to defraud or deceive, as to their

alleged fraudulent practices and false public statements. TAC

¶ 348. The TAC relies on a variety of allegations to support

its claim that Corinthian’s practices were intended to deceive

investors. 

First, the TAC alleges that suspicious stock sales made by

Beal and Moore during the Class Period reflect the fact that

Corinthian’s purported fraudulent practices were intentional.

During the Class Period, Beal and Moore sold over $33 million in stock. These Class Period sales constituted approximately 37% of Moore’s total holdings and 100% of Beal’s

holdings. The proceeds from those sales were substantially

higher than the proceeds each received from pre-Class Period

sales (82% higher for Moore; 252% higher for Beal). Neither

Beal nor Moore made any sales after the June 24, 2004 Financial Times story revealing the investigation at the Bryman

campus. 

Second, the TAC points to Corinthian’s “hands on” management and tracking of student data and information. TAC

11682 METZLER INVESTMENT v. CORINTHIAN COLLEGES
¶ 369. According to a 2003 Form 10-K, Corinthian’s senior

management exercised close oversight over school performance and “monitor[ed] operating performance and profitability of each college and ha[d] access to operational data

through our sophisticated information systems . . . [including]

lead flow, starts, student population, and other operating

results to determine the proper course of action.” TAC ¶ 367

(quoting Corinthian’s 2003 Form 10-K). Several confidential

witnesses corroborated the fact that Corinthian management

closely monitored performance at each campus, including

information regarding student enrollment and retention. This

information was also contained in a “sophisticated information management system and database [Corinthian] employed

to track everything from student recruitment to job placement.” TAC ¶ 371. The inference plaintiffs draw from the

availability of such a wide swath of data is that Corinthian’s

management must have known about underlying fraudulent

conduct to achieve maximum federal funding at various

schools. 

Third, the TAC avers to Beal’s knowledge of Corinthian’s

early revenue recognition practices—crediting a full month’s

worth of tuition regardless of whether a student started at the

beginning or end of that particular month—as reflective of

knowledge of fraudulent conduct more generally. The TAC

also alleges that at a company-wide meeting in Spring 2004,

Beal complained to Corinthian corporate officers and campus

officials that the company’s numbers needed to improve, and

that admissions officers work in “the gray area” when dealing

with unqualified students. TAC ¶ 297. Beal also resisted

changes to Corinthian’s revenue recognition practices because

he was reluctant to take the one quarter “hit” that would result

from changing the practice; an end of month revenue recognition would result in a loss to reported revenues for earlier in

the month. TAC ¶ 130. When other Corinthian officers raised

concerns regarding the practices, Beal allegedly dismissed

those concerns as unimportant or insignificant. Again, this

METZLER INVESTMENT v. CORINTHIAN COLLEGES 11683
revenue recognition practice was ultimately changed in

August 2005 after the close of the Class Period. 

More generally, the TAC refers to post-Class Period statements that confirm that Corinthian was aware of wrongdoing

during the Class Period. The TAC contends that a slide show

given at Corinthian’s 2005 Presidents’ meeting demonstrates

that it knew compliance problems were detrimental to the

company’s well-being. Those slides stated that “failure to

adhere to program requirements impacts students [sic] skill

development and may lead to student injury, lack of certification, poor patient care, [and] other end-customer impact.”

TAC ¶ 62. The presentation slides also referred to the significance of Corinthian’s regulatory compliance obligations,

observing: “As a publicly traded company, we must disclose

violations of regulatory non-compliance: Increases administrative burden on the corporation to respond and defend;

Impacts public confidence, stock price; Even non-material

violations, if detected, are highly scrutinized by investors.”

TAC ¶ 141. 

C. The TAC’s allegations that Corinthian’s fraud was

revealed to the market, causing Metzler’s losses.

The TAC points to two specific disclosures that purportedly

revealed Corinthian’s fraudulent student enrollment and

financial aid practices to the market: (1) the June 24, 2004

Financial Times story reporting the DOE investigation at the

Bryman campus, and (2) an August 2, 2004 press release disclosing reduced earnings and earning projections. According

to the TAC, when read in tandem these two disclosures

revealed “the truth regarding [Corinthian’s] fraudulent practices and deception,” and precipitated considerable drops in

the value of Corinthian stock. TAC at 18. 

As described above, the June 24 Financial Times story

revealed that the DOE investigated Corinthian’s Bryman campus in December 2003, and as a result that campus had been

11684 METZLER INVESTMENT v. CORINTHIAN COLLEGES
placed on reimbursement status. The Financial Times story

further reported, however, that the DOE review and Bryman’s

placement on reimbursement status, “does not affect the status

of other Corinthian schools.” Nonetheless, Corinthian stock

fell $2.55 on June 24, losing 10% of its value and closing at

$22.51. Corinthian’s stock rebounded within three trading

days and by June 29, 2004, it rose to $25.11, an amount that

exceeded the stock’s value before the June 24 Financial

Times story.

The second alleged disclosure occurred on August 2, 2004,

when Corinthian issued a press release announcing that it had

cut its revenue and earnings projections for the fourth quarter

of 2004 and all of fiscal year 2005. That press release also

revealed that the company had participated in a meeting with

the California Attorney General regarding Corinthian’s business practices. The release announced revised earnings per

share (“EPS”) for fiscal year 2004 of 86 to 87 cents, down

from earlier projections of 94 cents EPS. The company also

lowered guidance for all of fiscal year 2005. CEO Moore

attributed the reduced earnings and accompanying projections

to a number of factors: 

During the fourth quarter [FY 2004] we achieved a

remarkable growth rate in student enrollments,

although below our expectations. Strong growth,

unfortunately, sometimes brings challenges, and

there were several during the past quarter that we

now believe caused our revenue to fall short of our

expectations and earlier guidance. Those factors

included changes in lead flow mix among television

leads, direct mail leads, newspaper leads and Internet

leads; higher than anticipated attrition; negative publicity related to student litigation in Florida; and later

than anticipated new branch campus openings. 

After the August 2, 2004 earnings miss, Corinthian’s stock

dropped 45% to $10.29. 

METZLER INVESTMENT v. CORINTHIAN COLLEGES 11685
The TAC focuses on a particular passage from the August

2 release: Moore’s reference to “higher than anticipated attrition” at Corinthian schools. The TAC contends that this language is a veiled reference alerting the market to Corinthian’s

more extensive fraudulent student enrollment and financial

aid practices: 

Plaintiff and the Class members purchased Corinthian shares during the Class Period at artificially

inflated prices without knowledge of defendants’

fraudulent financial aid and related practices . . . .

[A]rtificial inflation in Corinthian’s stock price was

eliminated on August 2, 2004, when defendants

announced the lowered financial results and—for the

first time—partially attributed the revenue shortfall

to “higher than anticipated attrition”—a euphemism

for an admission that they had enrolled students who

should not have been signed up at all, resulting in a

45% stock drop. This precipitous drop in share value

is consistent with plaintiff’s allegation that as much

as 50% to 60% of enrollment at some Corinthian

schools were illegitimate “false starts.” 

TAC ¶¶ 48-49. Although the TAC contends that the August

2 press release’s reference to attrition alerted the market to

inflated student enrollment numbers, that same release

reported that Corinthian’s overall enrollment had increased

49.9% for fiscal year 2004. The TAC does not dispute that

there was an increase in overall reported enrollment in 2004,

nor does it point to information—beyond the Financial Times

story and the August 2 press release—that informed the market that Corinthian had engaged in widespread student enrollment and financial aid fraud. But the TAC avers that the

cumulative effect of these two disclosures was to peel back

the curtain and reveal Corinthian’s “impaired and falsely presented financial condition,” leading to the considerable stock

drop that caused Plaintiffs’ claimed damage. TAC ¶ 50. 

11686 METZLER INVESTMENT v. CORINTHIAN COLLEGES
D. The district court’s dismissal of the TAC.

Plaintiffs, with Metzler acting as lead plaintiff, filed the

Consolidated Amended Complaint (“CAC”) on February 17,

2005. The Defendants moved to dismiss for failure to state a

claim under Fed. R. Civ. P. 12(b)(6); on September 6, 2005,

the district court dismissed the CAC without prejudice and

granted leave to amend. No written order accompanied the

dismissal of the CAC. A Second Consolidated Amended

Complaint was filed on October 3, 2005. Again, the Defendants moved to dismiss under Fed. R. Civ. P. 12(b)(6), and

again that complaint was dismissed without prejudice via a

minute order issued without comment or analysis. 

On February 6, 2006, the TAC was filed; Defendants followed course and moved to dismiss. After argument by counsel on Defendants’ motion at an April 24, 2006 hearing, the

district court dismissed the TAC, this time with prejudice.

The district court offered no reasons for the dismissal at that

hearing, other than to comment, “I don’t think you have been

able to find anything that goes to the real core of what you

allege, and the motion [to dismiss] is granted this time with

prejudice.” The Defendants prepared a written dismissal order

at the district court’s request. Defendants’ four-page prepared

order recounted the various arguments presented in favor of

dismissal and concluded: “Defendants’ arguments are welltaken and their motion to dismiss is granted. Plaintiff has

failed to allege an actionable securities claim.” The prepared

order was signed, unaltered, by the district court on May 1,

2006.4

This timely appeal followed. 

4The dismissal with prejudice was, according to the prepared dismissal

order, based on Metzler’s “multiple opportunities to amend and [being]

unable to cure the defects that required dismissal of [ ] previous complaints.” 

METZLER INVESTMENT v. CORINTHIAN COLLEGES 11687
II. STANDARD OF REVIEW

The court reviews dismissal under Rule 12(b)(6) de novo.

See Livid Holdings, Ltd. v. Salomon Smith Barney, Inc., 416

F.3d 940, 946 (9th Cir. 2005). The court “accept[s] the plaintiffs’ allegations as true and construe[s] them in the light most

favorable to plaintiffs.” Gompper v. VISX, Inc., 298 F.3d 893,

895 (9th Cir. 2002). Review is limited to the complaint, materials incorporated into the complaint by reference, and matters

of which the court may take judicial notice. Tellabs, 127

S. Ct. at 2509. 

The required elements of a private securities fraud action

are: “(1) a material misrepresentation or omission of fact, (2)

scienter, (3) a connection with the purchase or sale of a security, (4) transaction and loss causation, and (5) economic loss.”

In re Daou Sys. Inc., 411 F.3d 1006, 1014 (9th Cir. 2005) (citing Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 341-42, 125

S. Ct. 1627, 161 L. Ed. 2d 577 (2005)). 

As a putative securities fraud class action, the TAC is also

subject to the pleading requirements of the PSLRA. See

DSAM Global Value Fund v. Altris Software, Inc., 288 F.3d

385, 388 (9th Cir. 2002). In order to state a claim for securities fraud that complies with the dictates of the PSLRA, the

complaint must raise a “strong inference” of scienter—i.e., a

strong inference that the defendant acted with an intent to

deceive, manipulate, or defraud. 15 U.S.C. § 78u-4(b)(2);

Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193, 96 S. Ct.

1375, 47 L. Ed. 2d 668 (1976). In reviewing a complaint

under this standard, “the court must consider all reasonable

inferences to be drawn from the allegations, including inferences unfavorable to the plaintiffs.” Gompper, 298 F.3d at

897 (emphasis in original); accord Tellabs, 127 S. Ct. at 2509

(“[I]n determining whether the pleaded facts give rise to a

‘strong’ inference of scienter, the court must take into account

plausible opposing inferences.”). This examination requires

the court to survey the complaint in its entirety, not to simply

11688 METZLER INVESTMENT v. CORINTHIAN COLLEGES
scrutinize individual allegations in isolation. See Tellabs, 127

S. Ct. at 2509 (citing Gompper, 298 F.3d at 897). 

The PSLRA also requires that “the complaint shall specify

each statement alleged to have been misleading, the reason or

reasons why the statement is misleading, and, if an allegation

regarding the statement or omission is made on information

and belief, the complaint shall state with particularity all facts

on which that belief is formed.” 15 U.S.C. § 78u-4(b)(1). By

requiring specificity, § 78u-4(b)(1) prevents a plaintiff from

skirting dismissal by filing a complaint laden with vague allegations of deception unaccompanied by a particularized

explanation stating why the defendant’s alleged statements or

omissions are deceitful. See Falkowski v. Imation Corp., 309

F.3d 1123, 1133 (9th Cir. 2002). 

The district court did not attempt to explain why the TAC

or the prior complaints were subject to dismissal.5 Based on

5The prepared four-page dismissal order signed by the district court provides no meaningful guidance as to why the TAC—181 pages comprised

of 399 paragraphs—was deficient. Fortunately, the parties’ briefing below

and on appeal accurately identifies and thoroughly analyzes the disputed

issues. But good lawyering is not a substitute for clear judging. 

Dismissal of securities fraud complaints by way of a boilerplate prepared order effectively requires the appeals court to decide the 12(b)(6)

motion without any explanation from the district court as to the complaint’s defects. Moreover, the parties themselves never receive the benefit

of learning the district court’s reason or reasons—whatever they may be—

for the dismissal. Although there is no absolute rule requiring a district

court to issue a written dismissal for failure to state a claim, the preferred

practice is to provide at least some modest explanation for the decision.

See Bonanno v. Thomas, 309 F.2d 320, 322 (9th Cir. 1962) (“Where a

complaint is dismissed on the ground that it fails to state a claim, the order

should also inform the plaintiff of the reason for dismissal so that he can

make an intelligent choice as to amending.”). A review of published and

unpublished decisions in recent securities fraud cases confirms that the

truncated manner of dismissal here is the exception that proves the rule,

as other district courts appear to routinely issue well-articulated dismissal

orders. See, e.g., In re LeapFrog Enters., Inc. Sec. Litig., 527 F. Supp. 2d

METZLER INVESTMENT v. CORINTHIAN COLLEGES 11689
the thorough dismissal briefing below and the arguments

raised on appeal, however, we are able to accurately identify

the three contested grounds for dismissal: (1) failure to plead

“loss causation,” (2) failure to raise a “strong inference” of

scienter, and (3) failure to allege “falsity” with the specificity

required by the PSLRA. We agree that the TAC fails on all

three bases.

III. DISCUSSION

A. The TAC does not adequately plead “loss

causation.” 

[1] As explained by the Supreme Court in Dura Pharmaceuticals, loss causation is the “causal connection between the

[defendant’s] material misrepresentation and the [plaintiff’s]

loss.” 544 U.S. at 342 (citation omitted). A complaint fails to

allege loss causation if it does not “provide[ ] [a defendant]

with notice of what the relevant economic loss might be or of

what the causal connection might be between that loss and the

misrepresentation[.]” Id. at 347. Stated in the affirmative, the

complaint must allege that the defendant’s “share price fell

significantly after the truth became known.” Id. A plaintiff

does not, of course, need to prove loss causation in order to

avoid dismissal; but the plaintiff must properly allege it. Id.

at 346 (“[N]either the Rules nor the securities statutes impose

any special further requirement [beyond Fed. R. Civ. P.

1033 (N.D. Cal. 2007); In re Gilead Scis. Sec. Litig., 2006 WL 1320466

(N.D. Cal. May 12, 2006); Plumbers & Pipefitters Local 572 Pension

Fund v. Cisco Sys., Inc., 411 F. Supp. 2d 1172, 1178 (N.D. Cal. 2005). 

Based on the extensive record before us, we are nonetheless confident

that Metzler was sufficiently well-informed of the deficiencies in the TAC

and the prior complaints, and that no harm was suffered as a result of the

district court’s failure to provide a reasoned explanation for dismissal. But

neither the parties, nor the interests of efficient civil justice, were wellserved by the district court in this case. 

11690 METZLER INVESTMENT v. CORINTHIAN COLLEGES
8(a)(2)] in respect to the pleading of proximate causation or

economic loss.”). 

[2] The principal Ninth Circuit case applying Dura’s loss

causation standards is In re Daou Systems. 411 F.3d 1006.

The Daou court explained, “A plaintiff is not required to

show ‘that a misrepresentation was the sole reason for the

investment’s decline in value’ in order to establish loss causation.” Id. at 1025 (quoting Robbins v. Koger Props., Inc., 116

F.3d 1441, 1447 n.5 (11th Cir. 1997)) (emphasis in original).

A plaintiff’s complaint must, however, set forth allegations

that “if assumed true, are sufficient to provide [the defendant]

with some indication that the drop in [defendant’s] stock price

was causally related to [the defendant’s] financial misstatement[s].” Id. at 1026; accord Berson v. Applied Signal Tech.,

Inc., 527 F.3d 982, 989-90 (9th Cir. 2008). So, in Daou the

court held that the plaintiff had pled loss causation based on

allegations that major losses reported in an August 1998 quarterly report were causally connected to the company’s premature recognition of revenue—the practice that served as the

basis of the alleged fraud in the plaintiff’s complaint. Id. But

the court held that the plaintiff had not adequately pled loss

causation for the drop in the defendant’s stock that occurred

prior to the August 1998 disclosure, because those losses took

place “before the revelations began in August 1998, [when]

the true nature of [the defendant’s] financial condition had not

yet been disclosed.” Id. at 1027. 

[3] Thus, the Daou court’s careful delineation between

losses caused after the company’s conduct was revealed, and

losses suffered before the revelation, confirm that the complaint must allege that the practices that the plaintiff contends

are fraudulent were revealed to the market and caused the

resulting losses. In Daou the plaintiffs’ theory of fraud was

that the defendant was systematically recognizing revenue on

contracts that had not been completed. Id. at 1012-13. Plaintiffs adequately pled loss causation in Daou because their

complaint alleged that the market learned of and reacted to

METZLER INVESTMENT v. CORINTHIAN COLLEGES 11691
this fraud, as opposed to merely reacting to reports of the

defendant’s poor financial health generally. Id. at 1026

(“[T]he TAC alleges that ‘Defendants further revealed that the

Company’s rapidly escalating work in progress account represented over $10 million in unbilled receivables—the direct

result of prematurely recognizing revenue.”) (emphasis in

original); see also Teachers’ Ret. Sys. of La. v. Hunter, 477

F.3d 162, 186 (4th Cir. 2007) (holding that plaintiffs must

plead [loss causation] “with sufficient specificity to enable the

court to evaluate whether the necessary causal link exists”);

Tricontinental Indus., Ltd. v. PricewaterhouseCoopers, LLP,

475 F.3d 824, 843 (7th Cir. 2007) (holding that to plead loss

causation plaintiff had to allege that the defendant’s “material

misrepresentation [ ] caused [the plaintiff] to suffer a loss

when that material misrepresentation ‘became generally

known’ ”). 

[4] Here, Metzler relies on the June 24 Financial Times

story disclosing the DOE investigation at the Bryman campus

and the August 2 earnings announcement. In doing so, Metzler fails to adequately plead loss causation.6

 The TAC does

not allege that the June 24 and August 2 announcements

disclosed—or even suggested—to the market that Corinthian

was manipulating student enrollment figures company-wide

in order to procure excess federal funding, which is the fraudulent activity that Metzler contends forced down the stock

that caused its losses. Neither the June 24 Financial Times

story nor the August 2 press release regarding earnings can be

reasonably read to reveal widespread financial aid manipulation by Corinthian, and the TAC does not otherwise adequately plead that these releases did so. 

6Despite Corinthian’s arguments to the contrary, there is no prohibition

against Metzler alleging loss causation through a series of disclosures by

the Defendants. Daou, 411 F.3d at 1026. So, the TAC’s allegations of loss

causation premised on two separate disclosures—one on June 24 and one

on August 2—are, in theory, a permissible means for alleging loss causation. 

11692 METZLER INVESTMENT v. CORINTHIAN COLLEGES
As for the Financial Times story, it does reveal a DOE

investigation at the Bryman campus and the campus’s placement on reimbursement status as a result of improper financial aid practices; but it simultaneously notes that the

investigation there “does not affect the status of other Corinthian schools.” The TAC does not allege that all, or even

some appreciable number, of Corinthian’s schools were being

investigated or placed on reimbursement status. Only the Bryman campus was subject to that sanction. Indeed, the TAC

itself discredits the notion that the June 24 disclosure revealed

company-wide manipulation of student enrollment, by

describing the June 24 disclosure as revealing to investors

“the potential but real risk of all 88 colleges being placed on

reimbursement status, which would have delayed Title IV

funding and increased accounts receivable by up to $135 million company-wide.” TAC ¶ 159 (emphases added). But neither Daou nor Dura support the notion that loss causation is

pled where a defendant’s disclosure reveals a “risk” or “potential” for widespread fraudulent conduct. In Daou the

defendant disclosed that the company actually had $10 million in unbilled receivables, not merely that there was some

risk it might accrue such receivables. 411 F.3d at 1026. Moreover, as Corinthian notes, its stock recovered very shortly

after the modest 10% drop that accompanied the June 24

announcement.7

The TAC’s characterization of the August 2 earnings

announcement similarly fails to allege that the market became

aware of, and the resulting stock drop resulted from, widespread enrollment fraud. At best, the TAC contends that the

reference in the August 2 announcement to “higher than antic7Defendants sought judicial notice for Corinthian’s reported stock price

history and other publicly available financial documents, including a number of Corinthian’s SEC filings. In its dismissal order, the court granted

Defendants’ unopposed requests for judicial notice. Metzler does not contest the propriety of the noticing of these documents on appeal, which in

any event was proper. See Dreiling v. Am. Exp. Co., 458 F.3d 942, 946

n.2 (9th Cir. 2006) (SEC filings subject to judicial notice). 

METZLER INVESTMENT v. CORINTHIAN COLLEGES 11693
ipated attrition” was understood by the market as Corinthian’s

“euphemism for an admission that they had enrolled students

who should not have been signed up at all, resulting in a 45%

stock drop.” TAC ¶ 48. Metzler’s appellate brief asserts that

the August 2 disclosure made investors “realize[ ] that Corinthian’s improper manipulation of student and enrollment

records was not limited to [the Bryman campus at] San Jose,

nor was it immaterial.” But the TAC does not allege facts to

suggest that on August 2 the market became aware that Corinthian was manipulating student records company-wide, other

than an undocumented assertion that Corinthian’s August 2

stock drop was, by necessity, a result of this market “realization.”8

Metzler is correct to observe that neither Daou nor Dura

require an admission or finding of fraud before loss causation

can be properly pled. Dura Pharms., Inc., 544 U.S. at 346;

Daou, 411 F.3d at 1025. But that does not allow a plaintiff to

plead loss causation through “euphemism” and thereby avoid

alleging the necessary connection between defendant’s fraud

and the actual loss. So long as there is a drop in a stock’s

price, a plaintiff will always be able to contend that the market “understood” a defendant’s statement precipitating a loss

as a coded message revealing the fraud. Enabling a plaintiff

to proceed on such a theory would effectively resurrect what

Dura discredited—that loss causation is established through

an allegation that a stock was purchased at an inflated price.

544 U.S. at 347. Loss causation requires more. Daou, 411

8Nor do the June 24 and August 2 disclosures become adequate when

viewed in tandem. The June 24 Financial Times story discusses impropriety regarding the financial aid practices at one school; the August 2 release

contains one reference to attrition. The combined force of these statements

does not suggest that the market was alerted to widespread enrollment and

admissions fraud at Corinthian schools nationwide. Nor does the TAC

allege any genuine causal connection between the August 2 earnings miss

and the allegations that Corinthian had manipulated student enrollment in

order to receive excess federal funds, or that the earnings miss was caused

by slashed federal funding. 

11694 METZLER INVESTMENT v. CORINTHIAN COLLEGES
F.3d at 1026 (plaintiff’s complaint quoting an analyst as interpreting defendant’s unbilled receivables as suggesting “they

are manufacturing earnings”). 

[5] Finally, while the court assumes that the facts in a complaint are true, it is not required to indulge unwarranted inferences in order to save a complaint from dismissal. In re

Syntex Corp. Sec. Litig., 95 F.3d 922, 926 (9th Cir. 1996)

(“[C]onclusory allegations of law and unwarranted inferences

are insufficient to defeat a motion to dismiss for failure to

state a claim.”) (emphasis added) (affirming 12(b)(6) dismissal of securities fraud complaint). The TAC’s allegation

that the market understood the June 24 and August 2 disclosures as a revelation of Corinthian’s systematic manipulation

of student enrollment is not a “fact.” It is an inference that

Metzler believes is warranted from the facts that are alleged.

But Corinthian persuasively explains why this is not the case.

As to the June 24 disclosure, Corinthian points out that its

stock quickly recovered from the 10% drop that followed the

Financial Times story. Similarly, the August 2 announcement

contained a far more plausible reason for the resulting drop in

Corinthian’s stock price—the company failed to hit prior

earnings estimates. The August 2 announcement simultaneously reported that student population growth was up nearly

50% overall and same-school population increased 15%, making it even further unwarranted to infer that the reference to

“attrition” was understood by the market to mean that Corinthian had revealed widespread misrepresentation of student

enrollment to fraudulently procure excess federal funding.

The TAC thus fails to allege loss causation based on the June

24 and August 2 disclosures.9

9Corinthian also argues that Metzler cannot, as a matter of law, establish

loss causation because the TAC describes post-Class Period events that

indicate that the purported fraud continued beyond the Class Period. Relying on the Seventh Circuit’s decision in Thomas v. Farley, 31 F.3d 557

(7th Cir. 1994), Corinthian argues that the allegations of post-Class Period

misconduct are fatally inconsistent with the theory that Corinthian’s misMETZLER INVESTMENT v. CORINTHIAN COLLEGES 11695
B. The TAC does not raise a “strong inference” of

scienter.

[6] In order to state a claim for securities fraud, a plaintiff

must allege that defendant acted with scienter—that the

defendant had an intention “to deceive, manipulate, or

defraud.” Ernst & Ernst, 425 U.S. at 193. “[P]laintiffs proceeding under the PSLRA can no longer aver intent in general

terms of mere ‘motive and opportunity’ or ‘recklessness,’ but

conduct was revealed through the June 24 and August 2 disclosures. This

argument is not supported by the record or the law. 

The post-Class Period conduct and statements in the TAC do not aver

that Corinthian continued to conceal its alleged unlawful enrollment practices after the close of the Class Period. Rather, nearly all of these references in the TAC concern Corinthian’s restatement of revenue that took

place later in 2005, an occurrence that does not inexorably lead to the conclusion that Corinthian was continuing to conceal its student enrollment

practices. So, while it is correct that loss causation cannot be alleged by

referring to a drop in a stock price that occurs prior to the revelation of

the alleged truth, Glaser v. Enzo Biochem, Inc., 464 F.3d 474, 479 (4th

Cir. 2006), Corinthian has not persuasively shown that is what the TAC’s

references to post-Class Period conduct does. 

Moreover, the Seventh Circuit’s holding in Thomas that a plaintiff can

plead “himself out of court” by alleging particulars that contradict the

plaintiff’s legal theory is not applicable in this case. 31 F.3d at 559.

Thomas is applied in this circuit as support for the rule that precludes a

party from avoiding summary judgment by making statements that contradict earlier allegations. See Cline v. Indus. Maint. Eng’g & Contracting

Co., 200 F.3d 1223, 1232 (9th Cir. 2000) (citing Thomas for proposition

that “Appellants could not contradict their earlier allegations in an effort

to survive summary judgment.”). Corinthian points to no authority that

prevents a securities fraud plaintiff from alleging that the defendant continues to perpetuate the misconduct after it has been revealed to the market. Although such behavior is no longer “fraud” per se—because the

misrepresentations have been revealed and reliance is no longer possible

—that does not mean that the earlier fraud is somehow legally negated.

Hence, the TAC’s reference to post-Class Period conduct does not defeat

loss causation as a matter of law (although, for reasons discussed above,

the TAC also does not otherwise establish loss causation). 

11696 METZLER INVESTMENT v. CORINTHIAN COLLEGES
rather, must state specific facts indicating no less than a

degree of recklessness that strongly suggests actual intent.”

Silicon Graphics, 183 F.3d at 979. “To meet this pleading

requirement, the complaint must contain allegations of specific contemporaneous statements or conditions that demonstrate the intentional or the deliberately reckless false or

misleading nature of the statements when made.” Ronconi v.

Larkin, 253 F.3d 423, 432 (9th Cir. 2001) (internal quotation

marks and citation omitted). 

[7] The PSLRA placed an additional gloss on the scienter

requirement so that a plaintiff must “state with particularity

facts giving rise to a strong inference that the defendant acted

with the required state of mind.” 15 U.S.C. § 78u-4(b)(2)

(emphasis added). The PSLRA does not further define what

is required in order to allege a “strong inference” of scienter.

In Tellabs the Supreme Court addressed that question, holding

that a court evaluating a complaint for compliance with

PSLRA’s “strong inference” of scienter: 

[M]ust engage in a comparative evaluation; it must

consider, not only inferences urged by the plaintiff

. . . but also competing inferences rationally drawn

from the facts alleged. An inference of fraudulent

intent may be plausible, yet less cogent than other,

nonculpable explanations for the defendant’s conduct. To qualify as “strong” within the intendment of

[the PSLRA], we hold, an inference of scienter must

be more than merely plausible or reasonable—it

must be cogent and at least as compelling as any

opposing inference of nonfraudulent intent. 

127 S. Ct. at 2504-05. When assessing a complaint for compliance with this standard, “courts must consider the complaint in its entirety . . . [and inquire] whether all of the facts

alleged, taken collectively, give rise to a strong inference of

scienter, not whether any individual allegation, scrutinized in

METZLER INVESTMENT v. CORINTHIAN COLLEGES 11697
isolation, meets that standard.” Id. at 2509 (emphasis in original).10

The TAC alleges that scienter is principally established

here by three factors: (1) insider trading during the Class

Period by Defendants Moore and Beal; (2) the existence of a

“sophisticated information management system” within

Corinthian that would have enabled management to access

“all student and financial aid records for all Corinthian

schools,” TAC ¶ 371; and (3) Defendant Beal’s involvement

in Corinthian’s revenue recognition policies and his rejection

of alternate accounting methods. Metzler’s allegations—even

when taken collectively—do not give rise to a “strong inference” of scienter sufficient to defeat dismissal. 

1. The insider trading alleged does not raise a

“strong inference” of scienter. 

While “ ‘suspicious’ stock sales by corporate insiders may

constitute circumstantial evidence of scienter,” such sales

only give rise to an inference of scienter when they are “ ‘dramatically out of line with prior trading practices at times calculated to maximize the personal benefit from undisclosed

inside information.’ ” Silicon Graphics, 183 F.3d at 986

(quoting In re Apple Computer Sec. Litig., 886 F.2d 1109,

1117 (9th Cir. 1989)). Three factors are relevant to this

inquiry: (1) the amount and percentage of the shares sold; (2)

the timing of the sales; and (3) whether the sales were consistent with the insider’s trading history. Id. During the Class

Period, Defendants Moore and Beal sold a total of $33 million

10The Tellabs Court cited with approval this court’s decision in Gompper, which articulated a standard for evaluating a securities fraud complaint’s scienter allegations similar to the standard ultimately adopted by

the Court. 127 S. Ct. at 2509 (citing Gompper, 298 F.3d at 897 (“the court

must consider all reasonable inferences to be drawn from the allegations,

including references unfavorable to the plaintiffs”) (emphasis in original)).

We thus rely on the Ninth Circuit’s pre-Tellabs decisions interpreting the

PSLRA’s scienter requirement where appropriate here. 

11698 METZLER INVESTMENT v. CORINTHIAN COLLEGES
of Corinthian stock; the sales constituted 37% of Moore’s

stock and 100% of Beal’s. TAC ¶ 360. Metzler makes

repeated reference to the gross profits obtained by these sales

to allege scienter, but a more careful look at the transactions

tells a different story. 

[8] Many of the sales alleged to demonstrate scienter took

place in October 2003 before the DOE began its investigation

at the Bryman campus. There is therefore nothing particularly

suspicious about the “timing of [these] sales,” even accepting

as true Metzler’s theory that the DOE Bryman investigation

would have triggered a sell-off amongst insiders. Silicon

Graphics, 183 F.3d at 986 (affirming dismissal where trading

consistent with prior practices). Moreover, of the three individual Defendants, only Beal sold large amounts of his total

stock holdings during the Class Period—and half of these

sales were before the DOE investigation at the Bryman campus. Digiovanni made no sales during the Class Period;

Moore sold only 37% of his total stock holdings during the

Class Period. We typically require larger sales amounts—and

corroborative sales by other defendants—to allow insider

trading to support scienter. Id. at 987-88 (no inference of

scienter with sales of 75.3% of holdings); see also Tripp v.

Indymac Fin., Inc., 2007 WL 4591930 at *4-5 (C.D. Cal.

Nov. 29, 2007) (dismissing for lack of scienter where several

individual defendants sold no stock, and the sales of the sole

defendant who sold “were relatively small given his overall

holdings”). Moreover, both Moore and Beal sold in a manner

consistent with their pre-Class Period sales; they regularly

sold as their options vested. So the sales here are largely consistent with the prior trading history. Nursing Home Pension

Fund, Local 144 v. Oracle Corp., 380 F.3d 1226, 1232 (9th

Cir. 2004) (“Stock trades are only suspicious when ‘dramatically out of line with prior trading practices at times calculated to maximize the personal benefit from undisclosed

inside information.’ ”) (quoting Silicon Graphics, 183 F.3d at

986).11 The allegations of insider trading do not raise a “strong

11As Defendants note, the bulk of Beal’s and Moore’s sales took place

according to pre-determined 10b5-1 trading plans. Sales according to preMETZLER INVESTMENT v. CORINTHIAN COLLEGES 11699
inference” of scienter, particularly when considering the possible “opposing inference[s]” to be drawn from the pattern of

trading in this case. Tellabs, 127 S. Ct. at 2504-05 Namely,

Moore and Beal were simply trading in line with prior patterns, and selling without regard to the timing and substance

of the DOE investigation at Bryman. Digiovanni meanwhile

sold nothing at all, suggesting that there was no insider information from which to benefit. So, when the allegedly

improper stock transactions are viewed as a whole, they fail

to raise the necessary “strong inference” of scienter required

by the PSLRA. 

2. Corinthian’s use of a “management information

system” does not raise a “strong inference” of

scienter. 

The TAC also alleges that because Corinthian had in place

a “management information system” that monitored enrollment and other data company-wide, its principals must have

had knowledge of the alleged fraudulent practices. TAC

¶ 371. This argument rests on an inference that the existence

of Corinthian’s complex computer tracking-system mutually

excludes the possibility that Beal, Moore and Digiovanni

were unaware of massive enrollment fraud. This allegation is

further supported by the statements of a confidential witness

who alleged that the Defendants, Beal in particular, were regularly made aware of the status of Corinthian’s enrollment

and placement figures. 

[9] Again, the TAC’s allegations lack the specifics required

to establish a “strong inference” of scienter. As this court has

noted on more than one occasion, corporate management’s

determined plans may “rebut [ ] an inference of scienter.” Cf. In re Worlds

of Wonder Sec. Litig., 35 F.3d 1407, 1427-28 (9th Cir. 1994) (sales based

on pre-determined trading plan coupled with small sales amounts rebutted

allegations of scienter). 

11700 METZLER INVESTMENT v. CORINTHIAN COLLEGES
general awareness of the day-to-day workings of the company’s business does not establish scienter—at least absent

some additional allegation of specific information conveyed

to management and related to the fraud. In re Vantive Corp.

Sec. Litig., 283 F.3d 1079, 1087-88 (9th Cir. 2002)

(“[P]laintiffs have failed to cite to any specific report, to mention any dates or contents of reports, or to allege their sources

of information about any reports.”); Silicon Graphics, 183

F.3d at 988 (allowing a plaintiff “to go forward with a case

based on general allegations of ‘negative internal reports’

would expose all those companies to securities litigation

whenever their stock prices dropped”). Viewed under the

rubric of the Tellabs Court’s instruction to comparatively

weigh inferences, it is more “cogent and at least as compelling” to conclude that Corinthian maintained its information

tracking systems for the necessary and legitimate purpose of

running its business. 127 S. Ct. at 2505.12

12Metzler’s insufficient scienter allegations are not overcome with references to post-Class Period statements. Metzler places special emphasis on

a slide show presented at Corinthian’s Presidents’ Meeting in 2005 that

summarizes a Corinthian 2004 internal audit and refers to several findings

regarding Corinthian’s “Financial Aid” practices. TAC ¶ 13 (“Unresolved

Credit Balances . . . Missing Documents . . . Late Refunds . . . Incorrect

DOD’s”). Metzler alleges that these slides point to “internal reforms” that

raise a “strong inference” of scienter. But plaintiffs fail to allege any corroborating details to indicate that the audit revealed company wide fraud,

or that the Defendants were aware of the fraud during the Class Period.

Accordingly, these post-Class Period statements do not rectify the lack of

scienter pled elsewhere. See No. 84 Employer-Teamster Joint Council

Pension Trust Fund v. Am. W. Holding Corp., 320 F.3d 920, 941-42 n.20

(9th Cir. 2003) (noting that generalized references to internal reports

insufficient to provide strong inference of scienter as to particular defendant). 

METZLER INVESTMENT v. CORINTHIAN COLLEGES 11701
3. Beal’s insistence on certain revenue recognition

practices do not raise a “strong inference” of

scienter. 

Relying on the statements of confidential witnesses, the

TAC alleges that Beal insisted on perpetuating an improper

method of revenue recognition for Corinthian in violation of

GAAP. As mentioned, the revenue recognition practice in

question involved accounting for a full month of revenue during a student’s first month, and spreading revenue recognition

for students with externships to include the post-class instruction period. The TAC also alleges that Beal implied to admissions officers at a company-wide meeting that they had the

authority to admit unqualified students. TAC ¶ 297 (CW20

testifying that Beal stated admissions officers “are the gray

area”). 

[10] The first of these allegations—going to Corinthian’s

revenue recognition for certain students—fails to raise a

“strong inference” of scienter because the TAC does not sufficiently allege that Beal knowingly and recklessly engaged in

an improper accounting practice. The TAC does not allege

that Corinthian’s external auditors counseled against the practice or that Beal admitted or was aware it was improper.

Although the TAC does draw its own legal conclusion that the

practice was improper, TAC ¶ 289, the TAC’s factual allegations point only to disagreement and questioning within

Corinthian about the practice. Finally, the TAC does not tie

the disputed revenue recognition practice, or Corinthian’s

restatements when the practice was changed, to the TAC’s

more general theory that Corinthian invented the presence of

students in order to increase access to federal financial aid.

Given the standard for reliance on technical GAAP violations

to plead securities fraud, the TAC fails to establish scienter

based on these allegations. Daou, 411 F.3d at 1022 (“scienter

cannot be established by publishing inaccurate accounting figures, even when in violation of GAAP”); DSAM Global Value

Fund, 288 F.3d at 389 (“To allege a ‘strong inference of

11702 METZLER INVESTMENT v. CORINTHIAN COLLEGES
deliberate recklessness,’ Appellants ‘must state facts that

come closer to demonstrating intent, as opposed to mere

motive and opportunity.’ ”) (quoting Silicon Graphics, 183

F.3d at 974) (affirming dismissal due to failure to allege

scienter based on GAAP violations). 

The TAC’s most persuasive allegation of scienter involves

Beal’s comments to admissions officers at the company’s

Spring 2004 meeting, purportedly telling admissions officers

that “they are the gray area” in dealing with unqualified students. TAC ¶ 297. This is perhaps the closest the TAC comes

to an allegation that the named Defendants were aware of or

encouraged fraudulent conduct related to Corinthian’s admission practices. Viewing the TAC in its totality, however, this

statement does not raise a “strong inference” of scienter.

Beal’s statement is capable of being read in the manner Metzler urges—Beal was instructing admissions to admit unqualified students. But the Tellabs Court’s directive that a complaint must be read in its entirety cuts both ways. Although a

defendant cannot gain dismissal by de-contextualizing every

statement in a complaint that goes to scienter, a plaintiff cannot avoid dismissal by reliance on an isolated statement that

stands in contrast to a host of other insufficient allegations.

Tellabs, 127 S. Ct. at 2509 (“all of the facts alleged, taken

collectively, give rise to a strong inference of scienter, not

whether any individual allegation, scrutinized in isolation,

meets that standard”) (emphasis in original). Beal’s “gray

area” statement is susceptible to Metzler’s characterization

that it was intended as a winking suggestion that admissions

officers should perpetrate fraud. But it is equally susceptible

to an interpretation, not unlikely given its utterance at a

company-wide meeting, that Beal was simply making a

broader exhortation to improve business. In light of the

Court’s guidance in Tellabs and PSLRA’s heightened standards for plaintiffs’ securities fraud cases generally, this statement it not so indicative of fraudulent intent that it carries the

METZLER INVESTMENT v. CORINTHIAN COLLEGES 11703
weight of the entire 181-page complaint for purposes of establishing a “strong inference” of scienter.13

C. The TAC does not adequately plead falsity.

[11] The PSLRA has exacting requirements for pleading

“falsity.” The plaintiff’s complaint “shall specify each statement alleged to have been misleading, the reason or reasons

why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and

belief, the complaint shall state with particularity all facts on

which that belief is formed.” 15 U.S.C. § 78u-4(b)(1). A litany of alleged false statements, unaccompanied by the pleading of specific facts indicating why those statements were

false, does not meet this standard. Falkowski, 309 F.3d at

1133 (“Although the allegations here are voluminous, they do

not rise to the level of specificity required under the PSLRA.

The allegations consist of vague claims about what statements

were false or misleading, how they were false, and why we

can infer intent to mislead. We have dismissed much more

specific and compelling allegations.”). The TAC alleges that

Corinthian’s fraudulent practices generally along with its failure to make earlier disclosures of regulatory investigations—

particularly the DOE investigation at the Bryman campus and

the California AG investigation—rendered Corinthian’s SEC

filings and other public statements made during the Class

Period either affirmatively false or false by way of omission.

13The TAC relies on the statement of CW20, a former Director of

Financial Aid at Corinthian’s Las Vegas College, who was employed by

Corinthian for part of the Class Period and attended the meeting at issue.

CW20’s identity and knowledge, as with the other confidential witnesses

named in the TAC, are described with sufficient specificity to meet the

PSLRA’s standards generally. See Daou, 411 F.3d at 1016 (“Plaintiffs

here describe the confidential witnesses with a large degree of specificity.”). The problem for Metzler is not that the confidential witnesses are

inadequately identified—the problem is that these witnesses do not convey

information sufficient to support the strong inference of scienter that the

PSLRA requires. 

11704 METZLER INVESTMENT v. CORINTHIAN COLLEGES
TAC ¶¶ 142-150. These allegations lack the specificity that

the PSLRA requires. See, e.g., TAC ¶ 142 (“All of Corinthian’s stated financial results during the entire Class Period

were false and misleading as a result of the Company-wide

scheme to inflate enrollment figures in order to misappropriate federal financial aid funding.”). 

[12] The TAC alleges that virtually every statement made

by Corinthian during the Class Period related to the company’s financial health or performance was, by definition, false.

The TAC mistakes quantity for quality. Although the TAC

sets forth a considerable number of alleged false statements,

the TAC’s explanation of how and why the statements were

false is decidedly vague. The TAC alleges that Corinthian’s

statements regarding its financial status were false because

they “create the false impression that defendants ran their

business with proper financial reporting compliance with student enrollment and federal loan practices which were critical

to the viability of the business, and that quality of education

was emphasized.” TAC ¶ 150. But this Circuit has consistently held that the PSLRA’s falsity requirement is not satisfied by conclusory allegations that a company’s class period

statements regarding its financial well-being are per se false

based on the plaintiff’s allegations of fraud generally. In re

Vantive Corp. Sec. Litig., 283 F.3d at 1086 (“[A]lthough the

complaint alleges that over the fifteen-month class period,

[defendant] continually and deliberately misled investors by

stating that its sales-cycle was ‘holding steady at three to six

months,’ much of the complaint fails to allege any facts to

indicate why this statement would have been misleading at

the several points at which it was alleged to have been

made.”) (falsity not established due to lack of particularity;

dismissal affirmed); Ronconi, 253 F.3d at 429-32 (affirming

dismissal due to lack of falsity where plaintiff’s allegations

based on defendant’s general statements regarding strength of

its sales); Silicon Graphics, 183 F.3d at 984-85 (“[Plaintiff]

would have us speculate as to the basis for the allegations

about the reports, the severity of the problems, and the knowlMETZLER INVESTMENT v. CORINTHIAN COLLEGES 11705
edge of the officers. We decline to do so.”). Here, the TAC

fails to sufficiently allege facts that demonstrate the falsity of

Corinthian’s characterizations of its financial health and business practices during the Class Period. 

As to the specific regulatory investigations, Metzler is likewise unable to connect their non-disclosure with any statement by Corinthian’s regarding its financial health rendered

false or misleading due to the omission. Ronconi, 253 F.3d at

432 (plaintiff “must [ ] alleg[e] specific ‘contemporaneous

statements or conditions’ . . . deliberately reckless [ ] or misleading . . . when made.”). The general statements the TAC

identifies as false or misleading are Corinthian’s disclosures

of its current revenue projections and anticipated growth. But

the TAC’s connection between the falsity of these statements

and the regulatory investigations is extraordinarily vague.

TAC ¶ 147(a) (financial statements false because they “created the overarching impression that the Company was outperforming expectations and continually increasing revenue

through legitimate business means”) (emphasis omitted). The

PSLRA requires a clearer explication of why a statement is

false. 15 U.S.C. § 78u-4(b)(1) (must specify “the reason or

reasons why the statement is misleading”); Silicon Graphics,

183 F.3d at 974 (must plead facts that demonstrate intent). 

Second, Corinthian was not required to make an immediate

disclosure of the DOE and California AG investigations, at

least not on the facts of this case. A comparison to In re

Apollo Group, Inc. Securities Litigation, 509 F. Supp. 2d 837,

841 (D. Ariz. 2007), is instructive. In Apollo the district court

denied the parties’ cross-motions for summary judgment

based in part on a disputed fact regarding the materiality of

a DOE investigation of the Apollo Group. Id. Like Corinthian,

Apollo is a large for-profit provider of post-secondary education. Id. at 839. The plaintiffs based their claim on the fact

that Apollo failed to reveal a DOE investigation of misconduct that tied recruiters’ compensation to enrollment figures.

Id. Defendants failed to disclose a report containing a prelimi11706 METZLER INVESTMENT v. CORINTHIAN COLLEGES
nary DOE finding of non-compliance related to those practices. Id. (“The report, which was issued on February 5, 2004,

concluded, among other things, that the [Apollo campus at

issue] improperly compensated its enrollment counselors

‘solely based on [the] recruiters’ success in securing enrollments,’ a violation of DOE regulations.”) (second alteration

in original). Two weeks after the DOE issued that report,

Apollo released a press statement regarding a dismissal in

related lawsuits based on allegations of recruiter misconduct

and that “the government declined to intervene” in those suits.

Id. at 841-42. Although this statement was formally true, the

court found a disputed issue of fact as to whether it was “misleading” in light of the DOE report concerning the exact same

recruiting practices.14 Id. at 842; see also In re Apollo Group,

Inc. Sec. Litig., 395 F. Supp. 2d 906, 920 (D. Ariz. 2005)

(denying motion to dismiss in same case where CEO misleadingly suggested that no report would issue from DOE). Here,

unlike the complaint in Apollo, the TAC does not connect the

DOE or California Attorney General investigations to any

false or misleading statement—i.e., some affirmative statement or omission by Corinthian that suggested it was not

under any regulatory scrutiny. 

[13] In sum, the TAC’s far-ranging collection of alleged

false statements simply fail to identify with sufficient specificity how and why the statements were false, and thus fail to

comply with the PSLRA. 

D. Dismissal with prejudice was proper.

Denial of leave to amend is reviewed for abuse of discretion. In re Vantive Corp. Sec. Litig., 283 F.3d at 1097. As we

have observed, “the district court’s discretion to deny leave to

amend is particularly broad where plaintiff has previously

14In a settlement agreement that contained no admission of wrongdoing,

Apollo agreed to pay $9.8 million to settle the DOE’s program review. In

re Apollo Group Inc., 509 F. Supp. 2d. at 839-40.” 

METZLER INVESTMENT v. CORINTHIAN COLLEGES 11707
amended the complaint.” In re Read-Rite Corp., 335 F.3d

843, 845 (9th Cir. 2003) (internal quotations and citation

omitted). Admittedly, the prior dismissals here did not provide Metzler with guidance as to the basis for the dismissals.

But the parties’ dismissal briefing below and on appeal confirms that Metzler’s prior amendments were intended to cure

the deficiencies that lead us to affirm dismissal here—that the

TAC failed to properly plead loss causation, scienter, and falsity. Metzler points to no additional facts that it might allege

to cure these deficiencies, which persisted in every prior iteration of the TAC. See Silicon Graphics, 183 F.3d at 991. We

therefore affirm dismissal of the TAC with prejudice.

IV. CONCLUSION

The TAC’s allegations, although not lacking in breadth or

numerosity, ultimately fail to meet the PSLRA’s exacting

requirements and the standards for pleading loss causation.

The disclosures that the TAC relies on simply do not identify

the requisite causal connection between Metzler’s claims of

fraudulent student admission and financial aid practices, and

a resulting drop in Corinthian’s stock price. Likewise, the

sheer volume of alleged false statements and claims supporting scienter do not overcome the lack of specificity that the

PSLRA requires. For these reasons, we affirm. 

AFFIRMED.

11708 METZLER INVESTMENT v. CORINTHIAN COLLEGES