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WO 

IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF ARIZONA 

Richard Di Donato, et al., 

Plaintiffs, 

v. 

Insys Therapeutics Incorporated, et al., 

Defendants. 

No. CV-16-00302-PHX-NVW

ORDER 

TABLE OF CONTENTS 

I. FACTUAL ALLEGATIONS ..................................................................................... 1

A. Insys and Subsys ...................................................................................................... 1

B. The Underlying Fraud .............................................................................................. 2

C. Public Statements ..................................................................................................... 4

D. News of Criminal Fraud Allegations ..................................................................... 10

E. Plaintiffs ................................................................................................................. 11

II. LEGAL STANDARDS ............................................................................................. 11

A. Motion to Dismiss: Securities Fraud Pleading Standards ...................................... 11

B. Section 10(b) and Rule 10b-5 ................................................................................. 12

C. Section 20(a) of the 1934 Exchange Act ................................................................ 12
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III. ANALYSIS ............................................................................................................... 13

A. Judicial Notice ........................................................................................................ 13

B. Section 10(b) and Rule 10b-5 ................................................................................. 14

1. Material Misrepresentation or Omission .......................................................... 14

2. Scienter ............................................................................................................. 24

a. Kapoor ......................................................................................................... 26

b. Baker ........................................................................................................... 27

3. Connection with Purchase or Sale of a Security ............................................... 28

4. Loss Causation .................................................................................................. 30

a. First and Second Disclosures: November 27, 2014 New York Times 

Article and April 24, 2015 Southern Investigative Reporting Foundation 

Article .......................................................................................................... 32

b. Third and Fourth: May 20, 2015 Indictment of Two Physicians and June 

23, 2015 Guilty Plea of Heather Alfonso (and New York Times Article 

Two Days Later) .......................................................................................... 32

c. Fifth: November 4, 2015 CNBC Article ..................................................... 33

d. Sixth: November 5, 2015 Resignation of Babich........................................ 33

e. Seventh and Eighth: December 3, 2015 and January 25, 2016 Southern 

Investigative Reporting Foundation Articles .............................................. 35

f. Ninth: April 11, 2016 Press Release ........................................................... 35

g. Tenth: December 2016 Indictment .............................................................. 38

C. 20(a) ........................................................................................................................ 39

IV. SUMMARY .............................................................................................................. 39
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Before the Court is a Motion to Dismiss filed by defendants Insys Therapeutics 

Incorporated (“Insys”), Michael L. Babich, Darryl S. Baker, John N. Kapoor, and Alec 

Burlakoff (collectively “Defendants”). (Doc. 85.) Clark Miller (“Plaintiff”) is the lead 

plaintiff for the proposed plaintiff class in this action. He filed a response (Doc. 87), and 

Defendants filed a reply (Doc. 95). The Court now considers these and all accompanying 

briefing. 

 

I. FACTUAL ALLEGATIONS

 For this motion to dismiss, the following facts from Plaintiff’s second amended 

complaint are assumed to be true. 

A. Insys and Subsys

Defendant Insys is a publicly traded pharmaceutical company headquartered in 

Arizona that makes and sells pain management drugs. (Doc. 77, ¶ 1.) Defendants 

Babich, Baker, Kapoor, and Burlakoff all served as high level executives at Insys during 

the relevant class period, between 2014 and 2016. (Doc. 77, ¶¶ 30-33.) 

Since 2013, roughly 98% of Insys’s net revenue has come from a product called 

Subsys, an under-the-tongue fentanyl spray designed to treat cancer pain in adult patients 

already taking opioid pain medication (known as “opioid-tolerant adults”). (Doc. 77, 

¶ 2.) The power of fentanyl cannot be overstated. The highly addictive drug is 80-100 

times stronger than morphine and 40-50 times more potent than heroin. The Drug 

Enforcement Agency has classified fentanyl as a “Schedule II” substance under the 

Controlled Substances Act. (Doc. 77, ¶ 73.) 

The Food and Drug Administration approved Subsys in 2012 only for opioidtolerant adults and only for what is known as “breakthrough” cancer pain, intense 

episodes amid otherwise-steady levels of pain. (Doc. 77, ¶ 6; Doc. 85 at 5.) The FDA 

also required that any healthcare professionals prescribing, dispensing, or distributing 

Subsys must first enroll in a program called the Transmucosal Immediate-Release 

Fentanyl Risk Evaluation and Mitigation Strategy Access Program (the “Access 
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Program”). (Id.) Among other things, the Access Program enabled Insys to monitor all 

sales of Subsys. (Id.) Additional FDA regulations prohibit marketing approved drugs for 

“off-label” uses, i.e., any uses other than the ones for which the drug was actually 

approved. Subsys therefore could not be lawfully marketed for anything other than 

breakthrough cancer pain treatment in opioid-tolerant adults. (Doc. 77, ¶ 10.) 

In addition, a federal anti-kickback law prohibits anyone from paying a doctor to 

order a good or service reimbursed by a federal healthcare program. (Id.) See 42 U.S.C. 

§ 1320a-7(b)(2). According to Insys’s own SEC filings, sales of Subsys at all relevant 

times “depend[ed] in significant part on the coverage and reimbursement policies of 

third-party payers, including government payers such as Medicare and Medicaid, and 

private health insurers.” (Doc. 77, ¶ 9.) Coverage decisions would depend in large part 

on “pharmacy benefit managers,” entities within insurance companies that maintain lists 

of covered drugs, contract with pharmacies, negotiate prices with drug manufacturers, 

and process prescription drug claims. (Doc. 77, ¶ 93.) 

Because of these tight regulations, only specialty pharmacies can distribute the 

drug. The resulting scarcity has fueled skyrocketing prices. Even a small quantity (30 

doses at 100 micrograms per dose) will run a patient about $1,000 per month. (Doc. 77, 

¶ 77.) A larger, more potent quantity (240 doses at 1,200 micrograms per dose) can 

exceed $21,000 per month. (Id.) 

B. The Underlying Fraud

The class period in this action spans from August 12, 2014, through December 8, 

2016. During that time, Insys reported increasing revenues each quarter and attributed 

most of its upward trajectory to the sale of Subsys. (Doc. 77, ¶ 11.) Company executives 

publicly attributed the drug’s success to vigorous marketing efforts and the company’s 

diligent negotiations with pharmacy benefit managers, third-party payers, and insurers. 

(Doc. 77, ¶ 12.) The company made no mention of unlawful practices actually taking 

place. Defendants at different times said (or were reported to have said) that Insys was 

“only selling a breakthrough cancer pain drug,” that “no one at Insys wants to see anyone 
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taking [Subsys] for anything other than cancer pain,” and that Insys was “committed to 

complying with the laws governing [Subsys’s] sales, marketing and promotional 

practices.” (Doc. 77, ¶ 99.) The defendants told investors that they “properly 

communicate with all major [insurance] plans and the [pharmacy benefit managers] to 

ensure proper access for Subsys.” (Doc. 77, ¶ 211.) 

 According to the complaint, however, Insys was actually raking in large profits 

because of extensive criminal fraud: the company had made a practice of paying doctors 

bribes and kickbacks in exchange for prescribing Subsys off-label, which boosted the 

company’s sales and, consequently, its stock price. (Doc. 77, ¶¶ 14, 201-08.) Many of 

these doctors have been federally indicted beginning as early as 2012, and several have 

pled guilty to violations of federal anti-kickback statutes. (Doc. 77, ¶¶ 15, 158.) 

Central to the fraud was Insys’s “Insurance Reimbursement Center,” a unit the 

company created ostensibly “to interact with third-party payers to obtain prior 

authorization and insurance coverage for invariably expensive Subsys prescriptions.”1

 

(Doc. 77, ¶ 16.) To ensure coverage for Subsys, employees of the Insurance 

Reimbursement Center would falsify patient diagnoses, lie to insurance companies using 

canned scripts written by Insys executives, and even pose as employees of the prescribing 

doctors. (Id.) Insys paid employees bonuses for doing these things, and for securing 

more Subsys prescriptions. (Doc. 77, ¶ 20.) During the class period, Insys informed 

investors that the Insurance Reimbursement Center existed but disclosed nothing else 

beyond its advertised purpose of working with insurers to cover Subsys. The company 

did not disclose any of the fraudulent conduct in which the Insurance Reimbursement 

Center was actually engaging. (Doc. 77, ¶ 212.) 

The fraud also extended to what Insys called its “speaker series,” which it passed 

off as a series of educational talks by doctors invited (and compensated) to speak about 

the benefits of Subsys. (Doc. 77, ¶¶ 14, 101.) In reality, however, these events were 

 

1

 At oral argument, Plaintiff clarified that the unit went by other names at different points in time, among them the “Prior Authorization Unit.” 
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usually nothing more than social gatherings devoid of any substantive content used as 

vehicles to funnel cash payments to prescribing physicians. (Doc. 77, ¶ 149.) Insys sales 

representatives sometimes even forged attendance sheet signatures to make it appear as 

though the speakers had given presentations before an audience. (Doc. 77, ¶ 164.) 

Defendant Burlakoff said of the speakers hired by Insys, “[T]hey do not need to be good 

speakers, they need to write a lot of [Subsys prescriptions].” (Doc. 77, ¶ 14.) Insys’s 

stock continued to climb as all this was going on. 

Despite these actions, Insys maintained that it was “taking market share from other 

competing . . . products and expanding the usage of Subsys for [breakthrough cancer 

pain] by building awareness among oncologists.” (Doc. 77, ¶ 111.) The company touted 

its “very unique programs within the oncology setting” for increasing sales, all while 

executives were specifically steering sales representatives away from doctors who 

prescribed the drug for breakthrough cancer pain. (Doc. 77, ¶¶ 111-12.) Less than 1% of 

Subsys prescriptions were actually written by oncologists. (Doc. 77, ¶ 112.) Instead 

Insys pushed its own sales force to cajole doctors into prescribing Subsys for off-label 

uses, pressuring salespeople to use aggressive tactics and paying them meager base 

salaries with commissions tethered to their success generating prescriptions. (Doc. 77, 

¶¶ 132-33, 139.) 

C. Public Statements

 From the beginning of the class period, Insys made a number of public statements 

regarding its revenue figures and stock price. Plaintiff points to the following statements 

in the second amended complaint: 

1) On August 12, 2014, the first day of the class period, Babich stated in a press 

release that a 200% sales growth compared to the same time the previous year was 

“largely driven by the successful execution of our Subsys strategy.” (Doc. 77, 

¶ 251.) 

2) On a conference call with investors the same day, Babich stated, among other 

things, “We believe the success to date of Subsys is the result of a clinically 
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superior product, coupled with the focused market penetration strategy,” and 

“[t]he majority of patients have access to Subsys through their insurance plans.” 

(Doc. 77, ¶ 252.) The company later made materially similar statements regarding 

their earnings the next two quarters. (Doc. 77, ¶¶ 261, 267.) Babich also told 

investors, “[W]e continue to properly communicate with all the major plans and 

the [pharmacy benefit managers] to ensure proper access for Subsys.” (Doc. 77, 

¶ 253.) 

3) In its Form 10-Q for the second quarter of 2014, Insys stated, “The increase in 

Subsys revenue is primarily as a result of increased prescriptions and change in 

mix of prescribed dosages as Subsys was a relatively new product during the three 

months [and six months] ended June 30, 2012 and also price increases in January 

2014 and April 2014. ...” (Doc. 77, ¶ 254.) 

4) On November 11, 2014, Insys issued a third quarter press release reporting 

“another strong quarter, in which our revenue and gross profit doubled largely 

driven by the continued, successful execution of our Subsys strategy.” (Doc. 77, 

¶ 260.) 

5) In a conference call on the same day, Babich stated, “We continue to proactively 

work with managed care providers to ensure coverage for our patient population. 

We maintain Tier 3 coverage under nearly all major commercial plans, and the 

majority of patients have access to Subsys through their insurance plans.” (Doc. 

77, ¶ 261.) 

6) The next day, in its Form 10-Q for the third quarter of 2014, the company 

reported, “[T]he increase in Subsys revenue is primarily as a result of increased 

prescriptions and change in mix of prescribed dosages as Subsys was a relatively 

new product during the three months ended September 30, 2013 and also price 

increases in January 2014 and April 2014.” (Doc. 77, ¶ 262.) 

7) On a March 3, 2015 conference call with analysis, Babich said of the company’s 

high fourth quarter earnings, 
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We keep hitting new highs in the number of new doctors that we 

activate on a weekly basis. We have some very unique programs 

within the oncology setting that we continue to execute on and any 

growth that we see in this overall [drug] class is specifically coming 

from Subsys. 

 (Doc. 77, ¶ 268.) 

8) Also on March 3, 2015, Insys filed a Form 10-K for the fiscal year 2014. Among 

other things, the company asserted, 

Subsys has been, and will likely continue to be, subject to these 

restrictions and impediments from third-party payers, administrative 

patient support assistance, in large part through our patient services 

hub, which provides administrative support assistance to help 

patients work with their insurance companies. 

(Doc. 77, ¶ 269.) The company made similar statements amid a similar growth in 

revenue throughout the class period. (Doc. 77, ¶¶ 284, 293, 302.) 

9) The Form 10-K also stated, “[W]e commercialize Subsys through a cost-efficient 

commercial organization utilizing an incentive-based sales model similar to that 

employed by” some of its competitors. (Doc. 77, ¶ 271.) 

10) Among “key factors” in its growth, Insys identified the following: 

taking market share from other competing . . . products and 

expanding the usage of Subsys for [breakthrough cancer pain] by 

building awareness among oncologists of its rapid onset of action, 

improved bioavailability, most complete range of dosage strengths 

and ease of administration relative to other [fentanyl] products. 

(Doc. 77, ¶ 272.) 

11) On April 24, 2015, the Southern Investigative Reporting Foundation published an 

article quoting Burlakoff as saying, 
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[T]here is a very, very easy way to get fired on your first day at this 

company,...and that is to mention selling off-label. We are only 

selling a breakthrough cancer pain drug. That’s all we want to 

address with a doctor. You don’t run a unit at a company like this 

by cutting corners. . . . I can say that no one at Insys wants to see 

anyone taking [Subsys] for anything other than cancer pain. 

 (Doc. 77, ¶¶ 278-79.)2

12) On May 7, 2015, Insys issued a press release regarding its earnings in the first 

quarter of 2015, which stated, “Insys had another strong quarter driven by our 

twelfth consecutive quarter of Subsys sales growth.” (Doc. 77, ¶ 281.) 

13) Babich conducted a conference call with analysts and investors the same day in 

which he stated, “[T]hree years post-launch our Subsys business remains healthy 

and continues to grow. This clearly demonstrates that a better product can succeed 

in a crowded playing field, and we believe there is even more opportunity for 

Subsys on the horizon.” (Doc. 77, ¶ 282.) 

14) In its Form 10-Q for the first quarter of 2015, Insys stated, “The increase in 

Subsys revenue is primarily as a result of increased prescriptions and change in 

mix of prescribed dosages and also price increases in January 2014, April 2014, 

July 2014, and January 2015.” (Doc. 77, ¶ 283.) The company made similar 

statements regarding revenue increases during the second quarter of that year 

several months later. (Doc. 77, ¶ 292.) 

15) On August 6, 2015, Insys issued a press release addressing, among other things, a 

then-recent settlement with the Oregon Department of Justice regarding 

allegations that it promoted Subsys illegally. (Doc. 77, ¶¶ 289, 322.) In the press 

release, Insys wrote that it was “committed to complying with laws governing its 

sales, marketing and promotional practices and has implemented a comprehensive 

 

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 Plaintiff’s complaint is replete with added emphasis in the form of italics, underlining, and bold text—and sometimes all three at once. The Court here, as 

elsewhere, silently omits that emphasis, as it is immaterial to deciding this motion. 
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compliance program based on the elements of an effective compliance program 

and industry practices.” (Doc. 77, ¶ 289.) 

16) That same day, in a conference call with investors and analysts, Babich stated, 

“[T]he Company continues to be committed to complying with laws governing in 

sales, marketing, and promotional practices. And then we’ve implemented a 

comprehensive compliance program based on the elements of an effective 

compliance program and industry practices.” (Doc. 77, ¶ 291.) 

17) On November 5, 2015, in a conference call with investors and analysts pertaining 

to Insys’s high quarterly earnings, Kapoor stated that patients “like [Subsys] 

because it helps them, it helps their lives. It’s not that they get addicted to it, as 

some people imply. It’s a product that they – it helps their lives and that’s why the 

product gained the market share and will continue to gain market share.” (Doc. 

77, ¶ 297.) 

18) In the same call, Kapoor said, “[W]e only call on [risk evaluation and mitigation 

strategy] . . . doctors,3

 and so – once we get to 50% [of the market share], further 

growth is going to be slower than it has been in the past and that’s why we have 

accelerated the development of Subsys in other indications.” (Doc. 77, ¶ 298.) 

Kapoor also stated that Babich’s sudden resignation as CEO was not related to 

investigations of Insys, attributing it instead to Babich’s desire to spend time with 

his family “and pursue other interests.” (Doc. 77, ¶ 299.) 

19) In its Form 10-Q pertaining to the third quarter of 2015, the company 

characterized an increase in Subsys revenue as “primarily as a result of a 31% 

increase in shipments to pharmaceutical wholesalers for the three months ended 

September 30, 2015 as compared to the three months ended September 30, 2014,” 

and “a 26% increase in net sales price, which was impacted by price increases in 

 

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July 2014, January 2015 and July 2015, combined with changes in mix of 

prescribed dosages and changes in provisions for wholesaler discounts, patient 

discounts, rebates and returns.” (Doc. 77, ¶ 300.) The company made a similar 

statement about Subsys’s increased revenue over the nine month period ending 

September 30, 2015. (Doc. 77, ¶ 301.) 

20) Regarding criminal allegations made against one specific doctor, the Form 10-Q 

stated that “we have taken a number of remedial actions and implemented 

enhancements to the Company’s compliance controls regarding relationships with 

health care providers. We will continue to assess these matters to ensure we have 

an effective compliance program.” (Doc. 77, ¶ 303.) 

21) In a publicly released statement on November 23, 2015, Insys stated: 

Insys has a compliance program in place with protocols that are 

designed to ensure its sales and marketing practices comply with 

applicable laws. . . . Insys believes that existing data strongly support 

that prescribing decisions have been driven primarily by the clinical 

attributes of Subsys and its market share gains have come from 

patients and [healthcare providers] switching to Subsys from other 

[fentanyl] products. 

 (Doc. 77, ¶ 309.) 

22) On January 25, 2016, in response to a Southern Investigative Reporting 

Foundation article detailing fraud allegations against Insys, Insys issued a 

statement saying, “Insys rejects the recent media reports’ account of the 

Company’s practices as misleading and unreliable, especially in light of the biased 

agenda held by the individuals who made these misrepresentations.” (Doc. 77, 

¶ 313.) The statement additionally said, “Insys requires its Patient Services Center 

personnel undergo specific training on applicable laws and regulations and 

continues to strive to comply with applicable laws and regulations through its 

compliance policies and procedures.” (Id.) 
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D. News of Criminal Fraud Allegations

 Revelations of Insys’s alleged fraud soon began trickling into the public sphere. 

Insys itself disclosed in a September 12, 2014 SEC filing that it had received a subpoena 

from the United States Attorney’s Office for the District of Massachusetts, seeking 

documents related to the company’s sales and marketing of Subsys. (Doc. 77, ¶ 315.) 

Two months later, on November 27, the New York Times published an article detailing 

allegations of the company’s kickback scheme. (Doc. 77, ¶ 316.) Insys’s stock fell 

8.58% over the next several days. (Id.) Similarly, an April 24, 2015 article published by 

the Southern Investigative Reporting Foundation provided further details of the 

company’s alleged criminal fraud. (Doc. 77, ¶¶ 317-18.) Over the next three days the 

company’s stock fell 9.61%. (Id.) Other news items preceded similar drops: a May 20, 

2015 federal indictment of two doctors accused of conspiring to unlawfully prescribe 

Subsys (triggering a 4.43% drop), a June 23, 2015 New York Times article disclosing the 

guilty plea of a Connecticut nurse charged with accepting kickbacks (triggering a 12.64% 

drop), a November 4, 2015 CNBC article detailing the Oregon Department of Justice’s 

investigation into Insys (triggering an 8.50% drop), a December 3, 2015 article by the 

Southern Investigative Reporting Foundation detailing the alleged Insurance 

Reimbursement Center fraud (triggering an 18.54% drop), and a January 25, 2016 article 

by the Southern Investigative Reporting Foundation expanding on the Insurance 

Reimbursement Center’s practices (triggering a 4.72% drop). (Doc. 77, ¶¶ 19-20, 319-

20, 323-24, 326-27, 330). 

On April 11, 2016, Insys issued a press release disclosing quarterly revenues of 

between $61 million and $62 million, about $25 million below previous projections, 

triggering a 19.37% drop in the company’s stock price. (Doc. 77, ¶¶ 21, 332.) Analysts 

attributed the fall to the company’s lower-than-expected sales and revenues for the first 

quarter of 2016. (Doc. 77, ¶ 333.) 

 On December 8, 2016, the last day of the class period, the federal government 

announced the arrest and criminal indictment of defendants Babich, Burlakoff, and other 
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former Insys executives. (Doc. 77, ¶ 23.) The indictment, unsealed and made available 

to the public on December 8, accused Babich and Burlakoff of leading “a nationwide 

conspiracy to bribe medical practitioners to unnecessarily prescribe a fentanyl-based pain 

medication and defraud healthcare insurers.” (Doc. 77, ¶ 343.) By the end of December 

8, Insys’s stock had fallen 11.87% compared to its closing price the previous day. (Doc. 

77, ¶ 344.) Since the start of the class period, Insys’s stock dropped from $44.92 per 

share to $9.43. (Doc. 77, ¶ 24.) 

E. Plaintiffs

 The proposed class of plaintiffs in this case purchased Insys stock during the class 

period. (Doc. 77, ¶ 28.) Lead plaintiff Clark Miller made his first purchase of Insys 

stock, 250 shares for $59.64 each, on May 19, 2015. (Doc. 34-1 at 3.) Less than a month 

later, on June 8, 2015, Miller’s nominal stockholdings doubled to 500 shares after a stock 

split with no additional stock purchase. (Id.) On July 8, 2015, Miller sold all 500 shares 

for $35.38 per share. (Id.) The next day, on July 9, 2015, Miller purchased 4,000 shares 

of Insys stock throughout the day at various prices ranging from $36.29 to $36.71 per 

share. (Id.) 

II. LEGAL STANDARDS

A. Motion to Dismiss: Securities Fraud Pleading Standards

A complaint alleging securities fraud is subject to the requirements of both Federal 

Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act (PSLRA). 

Under Rule 9(b), a plaintiff alleging fraud “must state with particularity the 

circumstances constituting fraud or mistake.” Fed. R. Civ. P. 9(b). Each and every 

element of securities fraud must meet this pleading standard. Or. Pub. Emps. Ret. Fund 

v. Apollo Gp. Inc., 774 F.3d 598, 605 (9th Cir. 2014). In addition, under PSLRA, the 

complaint must “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)(B). 
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B. Section 10(b) and Rule 10b-5

Under section 10(b) of the Exchange Act of 1934, it is unlawful “for any 

person . . . [t]o use or employ, in connection with the purchase or sale of any 

security . . . any manipulative or deceptive device or contrivance in contravention of such 

rules and regulations as the [Securities and Exchange] Commission may prescribe[.]” 15 

U.S.C. § 78j(b). In re Daou Systems, Inc., 411 F.3d 1006, 1014 (9th Cir. 2005). SEC 

Rule 10b-5 accordingly provides: 

It shall be unlawful for any person . . . 

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

(b) To make any untrue statement of a material fact or to omit to state a 

material fact necessary in order to make the statements made, in light of the 

circumstances under which they were made, not misleading, or 

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

would operate as a fraud or deceit upon any person, 

in connection with the purchase or sale of any security. 

17 C.F.R. § 240.10b-5. The basic elements of securities fraud are thus sixfold: 

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

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

purchase or sale of a security; (4) reliance upon the misrepresentation (often 

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

of publicly-traded securities reflects all information in the public domain); 

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

Loos v. Immersion Corp., 762 F.3d 880, 886-87 (9th Cir. 2014) (citing Dura 

Pharmaceuticals, Inc. v. Broudo, 544 U.S. 336, 341-42 (2005)). 

C. Section 20(a) of the 1934 Exchange Act

Section 20(a) of the 1934 Exchange Act states that: 
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Every person who, directly or indirectly, controls any person liable under 

any provision of this chapter or of any rule or regulation thereunder shall 

also be liable jointly and severally with and to the same extent as such 

controlled person . . . is liable . . . unless the controlling person acted in 

good faith and did not directly or indirectly induce the act or acts 

constituting the violation or cause of action. 

15 U.S.C. § 78t(a). Under this “control-person” theory of liability, a defendant employee 

can be held liable for a company’s securities fraud where the plaintiff demonstrates “‘a 

primary violation of federal securities law’ and that ‘the defendant exercised actual power 

or control over the primary violator.’” In re VeriFone Holdings, Inc. Sec. Litig., 704 F.3d 

694, 711 (9th Cir. 2012) (quoting Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 

990 (9th Cir. 2009)). 

III. ANALYSIS

 Plaintiff’s second amended complaint alleges securities fraud by all Defendants 

under section 10(b) and control-person liability for all defendant individuals (the 

executives only, not Insys itself) under section 20(a). Defendants move to dismiss the 

securities fraud count on grounds that it fails to plead two of the six required elements: 

material misrepresentations or omissions and loss causation. Defendants also seek 

dismissal as to Kapoor and Baker for failing to plead scienter, as well as to Burlakoff for 

failing to establish his statements were made “in connection with” the purchase or sale of 

securities. Finally, Defendants move to dismiss the control-person liability count in its 

entirety. 

A. Judicial Notice

Defendants have asked the Court to take judicial notice of fifty-two documents 

that are items referenced in the complaint, public filings, news articles, or undisputedly 

authentic documents made publicly available by the government. (Doc. 81.) Plaintiff 

opposes judicial notice of only one of the documents. The Court will thus take judicial 

notice of the unopposed fifty-one documents, but notes that judicial notice as to court 
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filings made outside of this case is limited to the fact that the filings were made. The 

Court does not (and cannot) take judicial notice of their substantive content as true. 

 Plaintiff’s only opposition is to a September 29, 2008 Corporate Integrity 

Agreement between pharmaceutical company Cephalon, Inc. (“Cephalon”) and the 

Office of the Inspector General of the United States Department of Health and Human 

Services. (Doc. 88 at 2.) As discussed at oral argument, the Court will take judicial 

notice only of the fact that the agreement exists. The truth or falsity of any of its contents 

cannot be discerned at this stage in the litigation. 

 Plaintiff separately sought judicial notice of three documents filed in other courts. 

Those documents all relate to the indictments and subsequent guilty pleas of healthcare 

providers charged in connection with Insys’s alleged fraud. (Doc. 99.) As explained in 

the Court’s previous order (Doc. 104), judicial notice has been granted only to the extent 

that such documents were filed in those courts. The Court will not consider their contents 

for this motion. 

B. Section 10(b) and Rule 10b-5

1. Material Misrepresentation or Omission

To make out a claim for securities fraud, a plaintiff “must allege a 

misrepresentation or a misleading omission with particularity and explain why it is 

misleading.” Retail Wholesale & Dep’t Store Union Local 338 Retirement Fund v. 

Hewlett-Packard Co., 845 F.3d 1268, 1274 (9th Cir. 2017). Additionally, “applying an 

objective standard, that misrepresentation or omission must have been material to 

investors.” Id. Defendants here do not argue that the statements identified in the second 

amended complaint were immaterial. Rather, Defendants move to dismiss on grounds 

that the second amended complaint fails to identify any false or misleading statements 

with sufficient particularity and fails to explain why those statements are false or 

misleading. 

Rule 10b-5 prohibits only “misleading and untrue statements.” Brody v. 

Transitional Hosps. Corp., 280 F.3d 997, 1006 (9th Cir. 2002). “[A] statement is 
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misleading if it would give a reasonable investor the impression of a state of affairs that 

differs in a material way from the one that actually exists.” In re Cutera Sec. Litig., 610 

F.3d 1103, 1109 (9th Cir. 2010). A statement must be “capable of objective verification” 

in order to be false or misleading. Retail Wholesale, 845 F.3d at 1275. This stands in 

contrast to “puffing,” which “concerns expressions of opinion.” Or. Pub. Emps., 774 

F.3d at 606. Qualitative buzzwords such as “good,” “well-regarded,” or other “vague 

statements of optimism” cannot form the basis of a false or misleading statement. Id.

(citing Cutera, 610 F.3d at 1111). See, e.g., Or. Pub. Emps., 774 F.3d at 606 (statements 

were neither false nor misleading where defendant company hedged statements about 

revenue growth with “we believe” and cited only “general terms” such as “educational 

content” and “teaching resources”); Retail Wholesale, 845 F.3d at 1276 (finding no 

objectively verifiable statements where plaintiff only pointed to defendant company’s 

code of conduct filled with “aspirational” statements not capable of objective 

verification). 

Beyond merely pleading that the defendant made false or misleading statements, 

for each statement a plaintiff must also “explain why it is misleading.” Id. at 1274. 

PSLRA’s pleading requirements cannot be met “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.” Metzler Inv. GMBH v. Corinthian 

Colleges, Inc., 540 F.3d 1049, 1070 (9th Cir. 2008). 

Defendants point to thirty different statements from the second amended 

complaint concerning Insys’s revenue and profits, or its strategies for marketing Subsys, 

that they contend are insufficiently pled as false or misleading. (Doc. 85 at 14 n.6, 15 

n.8, 16-17, 18 n.11.) For most of them, Plaintiff contends they are false or misleading 

because they were spoken against the backdrop of Insys’s ongoing criminal fraud. But 

Metzler precludes that line of argument. See Metzler, 540 F.3d at 1070 (holding 

complaint did not sufficiently plead securities fraud where plaintiff alleged public 

statements were false or misleading solely by virtue of defendants’ “fraudulent practices 
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generally along with its failure to make earlier disclosures of regulatory investigations”). 

In light of that broadly applicable principle, most of the statements Plaintiff points to do 

not qualify as false or misleading under Rule 10b-5: 

1) Paragraphs 251 and 262 point to statements asserting that Subsys’s recent sales 

growth was “largely driven by the successful execution of [Insys’s] Subsys 

strategy.” That statement is essentially true, even if the “strategy” referred to 

involved breaking the law. In any event the term “Subsys strategy” is general 

enough to put the statement outside the scope of what can be misleading or untrue. 

See Or. Pub. Emps., 774 F.3d at 606. 

2) Paragraphs 252 and 261 cite statements by Babich attributing Insys’s success to “a 

clinically superior product, coupled with a focused market penetration strategy.” 

However, the statements begin with “We believe” and are thus sufficiently 

hedged. The second part of each statement goes on to say, “We continue to 

proactively work with managed care providers to ensure coverage for our patient 

population. We maintain Tier 3 coverage under nearly all major insurance plans. 

The majority of patients have access to Subsys through their insurance plans.” 

Plaintiff has not explained how this was false or misleading beyond merely being 

said against the backdrop of ongoing fraud. 

3) Paragraph 253 alleges that Babich said during a conference call that “[w]e 

continue to properly communicate with all the major plans and the [pharmacy 

benefit managers] to ensure proper access for Subsys.” That they were continuing 

“to properly communicate” is neither false nor misleading based on what Plaintiff 

has alleged. That they were doing so “to ensure proper access for Subsys” is too 

vague to be actionable, since it is unclear what “proper access” means. 

4) Paragraphs 254, 283 and 292 assert that “[t]he increase in Subsys revenue is 

primarily as a result of increased prescriptions and change in mix of prescribed 

dosages and also price increases” throughout the year. Paragraphs 300 and 301 
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allege substantively similar statements. Plaintiffs have failed to allege that these 

statements are untrue. The only basis on which they could be deemed misleading 

is precluded by Metzler. See Metzler, 540 F.3d at 1070. 

5) Paragraph 260 points to a press release noting a “strong quarter, in which our 

revenue and gross profit doubled largely driven by the continued, successful 

execution of our Subsys strategy.” Again, there is no indication the financial 

growth figures are untrue. “Successful execution” is a qualitative assessment, and 

“Subsys strategy” leaves it too vague as to what the company was asserting. 

6) Paragraph 261 points to three statements, the first of which begins with “We 

believe.” That statement was sufficiently hedged not to qualify as false or 

misleading. See Or. Pub. Emps., 774 F.3d at 606. The second statement, that 

Insys “continues to proactively work with managed care providers to ensure 

coverage” for patients is highly general and neither false nor misleading. Plaintiff 

has not challenged as false the third part, that Insys “maintain[s] Tier 3 coverage 

under nearly all major commercial plans, and the majority of patients have access 

to Subsys through their insurance plans,” beyond being spoken against the 

backdrop of the company’s ongoing fraud. 

7) The statement cited in Paragraph 267 again begins with “We believe.” It is neither 

false nor misleading. 

8) The only questionable part of the statement in paragraphs 269, 284, 293, and 302 

is the assertion that Insys “provide[s] administrative reimbursement support 

assistance, in large part through our insurance reimbursement support hub, which 

provides administrative support assistance to help patients coordinate with their 

insurance companies.” While this might be misleading on some level, it is also 

highly general and vague. As such it is not actionable. 

9) Paragraph 270 includes the statement “We believe that physicians and payers will 

develop greater familiarity with both the differentiated features of Subsys and the 

process to achieve patient access to the product from continued and broader usage 
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of Subsys by their patients. We offer patients a free trial of Subsys to allow for 

titration to their effective dose and bridge the prior authorization process.” None 

of this is false or misleading based on Plaintiff’s allegations. 

10) Paragraph 271 states that the company “commercialize[s] Subsys through a costefficient commercial organization utilizing an incentive-based sales model similar 

to that employed by” some competitors. “Cost-efficient commercial organization” 

is too vague to be false or misleading, and the rest of the statement appears to be 

true. 

11) Paragraph 282 is a prime example of mere “puffing.” The assertion that Subsys’s 

business “remains healthy” is simply qualitative, and that it “continues to grow” 

was true. Babich’s assertion that “[t]his clearly demonstrates that a better product 

can succeed in a crowded playing field” is qualitative, general, and a mere 

expression of general feeling rather than fact. The statement “we believe there is 

even more opportunity for Subsys on the horizon” is both hedged and nothing 

more than qualitative puffing. 

12) Paragraphs 289 and 291 point to nearly identical statements by Insys and Babich 

following the settlement with the Oregon Department of Justice that the company 

is “committed to complying with laws governing its sales, marketing and 

promotional practices” and has “implemented a comprehensive compliance 

program based on the elements of an effective compliance program and industry 

practices.” Plaintiff nowhere asserts that Insys had not in fact implemented a 

compliance program, however ineffective it might have been. And stating that the 

company was “committed” to legal compliance immediately after reaching a 

settlement with state regulators is, in that context, too vague to be actionable. 

13) Paragraph 297 points to a conference call in which Kapoor said of Subsys 

patients: “They like [Subsys] because it helps them, it helps their lives. It’s not 

that they get addicted to it, as some people imply. It’s a product that they – it 

helps their lives and that’s why the product gained the market share and will 
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continue to gain market share.” Whether or not these assertions are objectively 

true, nothing alleged in the complaint contradicts them. 

14) Paragraph 298 quotes Kapoor as saying during a conference call, “[W]e only call 

on [Risk Evaluation and Mitigation Strategy] . . . doctors, and so – once we get to 

50%, further growth is going to be slower than it has been in the past and that’s 

why we have accelerated the development of Subsys in other indications.” This 

simply addresses projections about Subsys’s market share. There is nothing false 

or misleading about this statement. 

15) Paragraph 303 points to a statement from the company’s 2015 SEC filings that 

says, “[W]e have taken a number of remedial actions and implemented 

enhancements to the Company’s compliance controls regarding relationships with 

health care providers. We will continue to assess these matters to ensure we have 

an effective compliance program.” Plaintiff nowhere asserts that Insys did not in 

fact take remedial actions or enhance compliance controls when this statement was 

made. In any event the statement is vague and general enough not to qualify as 

false or misleading. 

16) Paragraph 309 points to a statement that says, among other things: 

Insys has a compliance program in place with protocols that are 

designed to ensure its sales and marketing practices comply with 

applicable laws. . . . Insys believes that existing data strongly support 

that prescribing decisions have been driven primarily by the clinical 

attributes of Subsys and its market share gains have come from 

patients and [healthcare providers] switching to Subsys from other 

[fentanyl] products. 

Though both are convoluted, neither of these statements is false or misleading. 

Plaintiff has not alleged that Insys’s compliance protocols, however weak and 

ineffective, were not designed to ensure legal compliance. As for the second 

statement, it is hedged as the company’s belief and is not actionable. 
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17) Paragraph 313 of the second amended complaint cites an Insys press release 

issued after a January 25, 2016 news article shed light on the company’s alleged 

off-label marketing and kickback scheme. The press release stated: 

Insys rejects the recent media reports’ [sic] account of the 

Company’s practices as misleading and unreliable, especially in light 

of the biased agenda held by the individuals who made these 

misrepresentations. . . . Insys requires its Patient Services Center 

personnel undergo specific training on applicable laws and 

regulations and continues to strive to comply with applicable laws 

and regulations through its compliance policies and procedures. 

This statement specifically asserts that Insys was making efforts to ensure the 

Patient Services Center’s practices were lawful. (It is unclear what the “Patient 

Services Center” is, though it might be another name for the Insurance 

Reimbursement Center.) There is reason to think it is therefore false. However, in 

the second amended complaint, Plaintiff only contends it is false because of the 

alleged criminal fraud occurring behind the scenes. (Doc. 77, ¶ 314.) As already 

discussed, that alone cannot ballast a securities fraud pleading. See Metzler, 540 

F.3d at 1070. 

None of the above statements meets the pleading requirements of the PSLRA. However, 

three others do: 

1) In the statement cited in paragraph 272, the company’s Form 10-K from fiscal 

year 2014, filed on March 3, 2015, points to “taking market share from” 

competitors as key to Subsys’s growth. That is neither false nor misleading. But 

the statement goes on to assert that Insys is “expanding the usage of Subsys for 

[breakthrough cancer pain] by building awareness among oncologists of” several 

of the drug’s features. However, according to Plaintiff’s other allegations, 
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Subsys’s growth had little—if anything—to do with breakthrough cancer pain and 

instead depended chiefly on doctors prescribing it off-label to treat conditions such 

as migraines or back pain. Moreover, the company’s sales force was deliberately 

avoiding oncologists. The complaint alleges that “Insys sales representatives were 

instructed not only to avoid meeting with oncology doctors and pain 

specialists . . . but to aggressively court healthcare professionals who did not have 

any patients with cancer, much less [breakthrough cancer pain], or who did not 

have any experience in prescribing Schedule II narcotics such as Subsys.” (Doc. 

77, ¶ 275.) The complaint also cites multiple alleged statements that further 

support this picture of Insys’s actual practices. See, e.g., Doc. 77, ¶ 112 (quoting a 

former sales representative who said that “when she approached her managers 

about reaching out to palliative care facilities to tell them about Subsys, she was 

told not to approach them because ‘those patients would die soon anyway and 

couldn’t titrate (increase the dosage)’”); ¶ 113 (quoting Burlakoff as instructing 

his sales force, “If I can successfully sell you the [unintelligible] for the 

breakthrough pain, do you have a thousand people in your practice, a thousand 

patients, twelve of them are currently on a rapid-onset opioids [sic]. That leaves 

me with at least five hundred patents [sic] that can go on this drug.”). The 

practices alleged in the complaint amount to the complete opposite of “building 

awareness among oncologists.” The statement alleged in paragraph 272 therefore 

qualifies as false or misleading. 

2) Most of Babich’s March 3, 2015 statement alleged in paragraph 268 is neither 

false nor misleading. Many of the sentences are hedged with “I think.” The 

statement “We keep hitting new highs in the number of new doctors that we 

activate on a weekly basis” is again true and not misleading aside from the 

underlying bribe and kickback schemes. But Babich goes on to say, “We have 

some very unique programs within the oncology setting that we continue to 

execute on and any growth that we see in this overall [fentanyl] class is 
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specifically coming from Subsys.” The second part of that is true. The first part, 

however, is again misleading and arguably false in light of the company’s practice 

of steering its sales force away from oncologists altogether. See Doc. 77, ¶ 275. 

The specific mention of a physician class they were making a point to avoid 

renders this statement misleading at best and outright false at worst. 

3) Paragraphs 278 and 279 point to statements by Burlakoff saying of the company’s 

speaker program, “[T]here is a very, very easy way to get fired on your first day at 

this company,...and that is to mention selling off-label. We are only selling a 

breakthrough cancer pain drug. That’s all we want to address with a doctor. . . . I 

can say that no one at Insys wants to see anyone taking [Subsys] for anything 

other than cancer pain.” There is no question this is false or misleading. 

However, as discussed below, this statement is quoted in a news article published 

by the Southern Investigative Reporting Foundation, which is not something 

investors would presumptively rely on. So while it meets the PSLRA’s “falsity” 

requirement, it fails under the “in connection with” requirement. See § III(B)(3) 

below. 

Defendants alternatively offer three blanket contentions as to why none of these 

statements meets the pleading requirements of Rule 9(b) and PSLRA. They are not 

persuasive. First, Defendants contend that none of the statements alleged in the 

complaint could have been misleading because Insys “informed investors of specific law 

enforcement investigations into” the alleged criminal fraud. (Doc. 85 at 15-16.) But 

disclosing an investigation is not the same thing as disclosing specific fraudulent 

practices the company was actually carrying out. Unless Insys disclosed the specific 

practice of discouraging its sales force from pursuing oncologists, the statements 

identified above as false or misleading remain false or misleading. 

Second, Defendants argue that “in each SEC filing since Insys went public, the 

Company informed investors of the significant risks associated with employee 
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misconduct in marketing and sales practices and other activity.” (Doc. 85 at 16.) In 

particular, Defendants point to specific statements in the company’s SEC filings that 

warn “‘employees may engage in misconduct or other improper activities’ including 

‘intentional failures to comply with FDA regulations’” as well as “‘with federal and state 

healthcare fraud and abuse laws and regulations’ and that ‘[e]mployee misconduct could 

also involve...illegal promotion of a drug product for off-label use.’” (Id. (quoting Doc. 

81-2 at 44-49).) But hypothetical disclaimers such as these do not insulate companies 

from all fraud liability. The Ninth Circuit has rejected the mollifying power of abstract 

risk warnings that fail to “alert[] the reader that some of these risks may already have 

come to fruition.” Berson v. Applied Signal Tech., Inc., 527 F.3d 982, 986 (9th Cir. 

2008). See also Siracusano v. Matrixx Initiatives, Inc., 585 F.3d 1167, 1181 (9th Cir. 

2009) (rejecting warning issued in company’s Form 10-Q of risk that products may be 

subject to product liability claims only “in the abstract, with no indication that the risk 

‘may already have come to fruition’”). Here as well, Insys’s repeated disclosures offered 

no indication that its employees were currently breaking the law. 

Third, Defendants argue that some of their statements are covered by PSLRA’s 

“safe harbor” provision. (Doc. 85 at 19-20.) PSLRA protects from securities fraud 

liability any “forward-looking statement” made under several different circumstances, 

two of which are relevant here. First, a forward-looking statement is protected if it is 

“identified as a forward-looking statement, and is accompanied by meaningful cautionary 

statements identifying important factors that could cause actual results to differ materially 

from those in the forward-looking statement.” 15 U.S.C. § 78u-5(c)(1)(A)(i). Second, 

a forward-looking statement is protected if “the plaintiff fails to prove” that, if made by a 

“natural person,” the statement “was made with actual knowledge by that person that the 

statement was false or misleading.” 15 U.S.C. § 78u-5(c)(1)(B)(i). Defendants point to 

part of the statement cited in paragraph 268 of the second amended complaint, in which 

Babich discusses the company’s market share of Subsys’s class of drugs. (Doc. 85 at 20.) 

As discussed, this part of Babich’s statement is neither false nor misleading, so the Court 
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need not decide whether it is forward-looking. (The part of the cited statement asserting 

that Insys has programs in which they work with oncologists is misleading, as discussed 

above.) That is the only specific statement from the second amended complaint to which 

Defendants point. Defendants broadly contend that “[t]his and other forward-looking 

statements are in the ‘safe harbor’” (Doc. 85 at 20), yet they cite no other specific 

statements for which they believe dismissal is warranted. The Court is not at liberty to 

guess which other statements they had in mind. Defendants have not established that 

PSLRA’s safe harbor provision warrants dismissal of the complaint or any part of it. 

2. Scienter

Under PSLRA, a securities fraud complaint 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)(A). The plaintiff must show “scienter,” i.e., that any false or 

misleading statements were made “either intentionally or with deliberate recklessness.” 

Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 991 (9th Cir. 2009). “Deliberate 

recklessness” is “an extreme departure from the standards of ordinary care...which 

presents a danger of misleading buyers or sellers that is either known to the defendant or 

is so obvious that the actor must have been aware of it.” Schueneman v. Arena Pharm., 

Inc., 840 F.3d 698, 705 (9th Cir. 2016) (emphasis in original). “The inquiry . . . is 

whether 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.” Tellabs Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322-23 (2007) 

(emphasis in original). But see VeriFone Holdings, 704 F.3d at 703 (permitting courts to 

examine specific allegations of scienter before looking at all allegations taken together 

“so long as [the analysis] does not unduly focus on the weakness of individual allegations 

to the exclusion of the whole picture”). “The inference that the defendant acted with 

scienter need not be irrefutable . . . or even the most plausible of competing inferences” 

but must merely be “cogent and at least as compelling as any opposing inference one 
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could draw from the facts alleged.” Tellabs Inc., 551 U.S at 324 (internal quotation 

marks omitted). 

Under certain circumstances, one may infer that corporate officers had scienter by 

virtue of their “knowledge of the critical core operation of their companies.” Police 

Retirement System, 759 F.3d at 1062. Even without particularized allegations, this “core 

operations” theory of scienter may apply “in rare circumstances where the nature of the 

relevant fact is of such prominence that it would be absurd to suggest that management 

was without knowledge of the matter.” Id. A plaintiff can produce either “specific 

admissions by one or more corporate executives of detailed involvement in the minutia of 

a company’s operations, such as data monitoring,” or “witness accounts demonstrating 

that executives had actual involvement in creating false reports.” Id. Compare Daou, 

411 F.3d at 1022-23 (finding inference of scienter where complaint alleged specific 

executives “personally directed [the company’s] recognition of revenue, financial 

reporting and public statements” and directed practices of fraudulently reporting revenue 

figures), and Nursing Home Pension Fund, Local 144 v. Oracle Corp., 380 F.3d 1226, 

1231 (9th Cir. 2004) (finding strong inference of scienter where executives had 

consolidated database with real time sales information and admitted to knowing “exactly 

how much we have sold in the last hour around the world”), with Lipton v. Pathogenesis 

Corp., 284 F.3d 1027, 1036 (9th Cir. 2002) (finding no inference of scienter where 

complaint alleged “merely in conclusory terms that defendants had access to internal data 

demonstrating a decline in sales” of a prescription drug and did not “allege with 

particularity any specific information showing that prescription data informed defendants 

that patient demand for [the drug] was flat”). 

Defendants contend the second amended complaint does not adequately plead 

scienter as to Kapoor and Baker. The Court considers their arguments as to each one in 

turn. 
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a. Kapoor

The statements identified in paragraph 272 of the second amended complaint 

come from Insys’s Form 10-K from the fiscal year 2014, which was signed by Babich, 

Baker, and Kapoor. (Doc. 77, ¶¶ 269, 272.) Because Kapoor signed the filing, the 

contents constitute his statements, and the complaint alleges sufficient facts giving rise to 

a strong inference of scienter, i.e., that he either knew they were false or misleading or 

exhibited deliberate recklessness in making them. Kapoor had direct contact with some 

of the doctors who were targets of the company’s bribes and kickbacks. The complaint 

alleges that a member of the Insys sales force, also the son of a physician sought after by 

Insys to write off-label Subsys prescriptions, made reference on multiple occasions to 

positive meetings between his father and Kapoor. (Doc. 77, ¶¶ 123-24.) In addition, 

Kapoor attended a dinner at Ruth’s Chris Steak House in Mobile, Alabama, where he and 

other Insys executives sealed an agreement to sell Subsys directly to a pharmacy owned 

by those doctors for a cut rate. (Doc. 77, ¶ 194.) Finally, many of the company’s 

allegedly fraudulent “speaker series” events took place at locations of a restaurant owned 

by Kapoor. (Doc. 77, ¶ 148.) 

Each of these individually raises at least a plausible inference of scienter. One 

could reasonably infer from each one that Kapoor knew Insys was running a fraudulent 

speaker series and paying doctors bribes and kickbacks to increase prescriptions of 

Subsys. One could even infer that Kapoor himself was leading the operation. Of course 

one could also plausibly infer that Kapoor made or facilitated contact with doctors absent 

any such knowledge. But the test is not whether scienter is the only plausible inference; 

it must simply be “cogent and at least as compelling as any opposing inference one could 

draw from the facts alleged.” Tellabs Inc., 551 U.S. at 324. Especially taken altogether, 

the inference is strong and compelling: Kapoor interacted (or facilitated interactions) with 

doctors who do not treat cancer pain and did so in environments reasonably interpreted as 

designed to sell them on Subsys. 
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Scienter is also plausible on the “core operations” theory. Kapoor served in one 

high-level leadership role or another throughout the class period: he was Insys’s cofounder, served as Executive Chairman of the Board of Directors throughout much of the 

class period, and served as acting president and CEO of Insys from November 5, 2015, 

until the end of the class period. (Doc. 77, ¶ 32.) Revenue from Subsys accounted for 

roughly 98% of Insys’s total revenue since 2014. (Doc. 77, ¶ 363.) At a conference in 

December of 2015, Kapoor himself stated that he and other Insys officials “have a 

meeting everyday [sic] . . . looking at what happened yesterday. I can tell you how many 

[prescriptions] we did yesterday. And we do that every single day, because Subsys is so 

important to us.” (Doc. 77, ¶ 349.) Even though Kapoor was only acting CEO from 

November 2015 on, it is implausible that even as executive chairman of its board of 

directors he would not have known 98% of the company’s revenue was coming from 

Subsys prescriptions. And it is absurd to think he would not have known that Subsys’s 

revenue, which was glaringly high among comparable fentanyl products, was being 

driven by fraud. Even on the core operations theory, Plaintiff has sufficiently pled 

scienter as to Kapoor. 

b. Baker

Baker, too, signed the Form 10-K containing the statements identified in 

paragraph 272 of the second amended complaint. As a result, the statement is fairly 

attributed to him as much as it is to Babich and Kapoor. 

The complaint, however, contains less evidence of Baker’s state of mind. Plaintiff 

first points to the fact that Baker was CFO of Insys during the class period and signed not 

only the Form 10-K but each and every one of the company’s SEC filings. (See, e.g., 

Doc. 77, ¶¶ 254, 262, 269, 283, 292, 300.) In those filings, Plaintiff argues, Baker “made 

detailed factual statements” about Subsys revenues “while misrepresenting and omitting 

the sources of those revenues.” (Doc. 87 at 22.) Plaintiff also points to Defendants’ 

collective access to information, such as sales figures from the Access Program and 

Kapoor’s general statement that high-level executives closely monitored Subsys 
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prescriptions, as warranting an inference of scienter as to Baker specifically. (Doc. 87 at 

20-21.) Finally, Plaintiff at oral argument pointed out that because Insys paid a glaringly 

high amount to a small number of Subsys prescribers, those payments—not to mention 

the high commissions Insys gave to its otherwise-low-paid sales reps—almost certainly 

required approval by Baker and at the very least were subject to his review on the 

company’s books. See Doc. 77, ¶ 374. 

All of that suffices to meet the threshold for giving rise to a plausible inference of 

Baker’s scienter. Either way, scienter can be inferred on the core operations theory: as 

the company’s CFO, it is absurd to think Baker knew about Subsys’s anomalous market 

dominance but did not know how the company had pulled off the feat when he signed on 

to the company’s SEC filings. The complaint has adequately alleged that he did. 

3. Connection with Purchase or Sale of a Security

To make out a claim of securities fraud, a plaintiff must also show the alleged 

fraud “somehow touches upon or has some nexus with any securities transaction.” S.E.C. 

v. Rana Research, Inc., 8 F.3d 1358, 1361-62 (9th Cir. 1993) (internal quotation marks 

omitted). “Where the fraud alleged involves public dissemination in a document such as 

a press release, annual report, investment prospectus or other such document on which an 

investor would presumably rely, the ‘in connection with’ requirement is generally met by 

proof of the means of dissemination and the materiality of the misrepresentation or 

omission.” Id. at 1362. The crux of the inquiry is whether “assertions are made . . . in a 

manner reasonably calculated to influence the investing public.” Id. 

Defendants only challenge this requirement as to Burlakoff and argue that, among 

other things, the only statements of his cited in the second amended complaint “are not 

actionable because Plaintiff does not allege that they were made in a publication ‘on 

which an investor would presumptively rely,’” such as “an SEC filing, press release, call 

with analysts or a financial news publication,” or were “intended to influence the 

investing public.” (Doc. 85 at 32.) Defendants are correct. 
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Burlakoff’s only allegedly false statements identified in the complaint are 

quotations from a Southern Investigative Reporting Foundation article from April of 

2015, which quoted him as saying, “We are only selling a breakthrough cancer pain drug. 

That’s all we want to address with a doctor. . . . I can say that no one at Insys wants to see 

anyone taking [Subsys] for anything other than cancer pain.” (Doc. 77, ¶¶ 278-79.) The 

complaint does not say when, where, or to whom Burlakoff made this statement, only 

that it was published in the article. The kinds of statements courts have found to satisfy 

the “in connection with” requirement are typically documents directly targeted to 

investors or the investment community—and at the very least documents produced by the 

defendants themselves. See, e.g., McGann v. Ernst & Young, 102 F.3d 390, 397 (9th Cir. 

1996) (audit report that would be included in SEC filings); S.E.C. v. Retail Pro, Inc., 673 

F. Supp. 2d 1108, 1132 (S.D. Cal. 2009) (annual and quarterly reports, press releases, and 

conference calls); S.E.C. v. Trabulse, 526 F. Supp. 2d 1001, 1006 (N.D. Cal. 2007) 

(account statements and newsletters sent directly to investors); S.E.C. v. Pirate Investor 

LLC, 580 F.3d 233, 250-51 (4th Cir. 2009) (collecting cases and concluding email 

message with fraudulent insider information met “in connection with” requirement where 

email authors “certainly should not have been shocked to learn that their fraudulent 

statements induced securities transactions”). 

 The Southern Investigative Reporting Foundation news article at issue here is a 

far cry from these examples and certainly not the kind of document on which investors 

would presumably rely. But even if it were, there is no allegation that Burlakoff wrote or 

published it, only that it contained a quote attributed to him. The published quote might 

correctly reflect what Burlakoff said, but it might also contain inaccuracies over which he 

had no control. Since he did not produce the article, and since it is not something upon 

which investors would presumably rely, the statement from the Southern Investigative 

Reporting Foundation attributed to Burlakoff fails to meet the “in connection with” 

requirement. All claims against him under Section 10(b) are dismissed. 
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4. Loss Causation

Loss causation is the requirement that a securities fraud plaintiff “must 

demonstrate that the defendant’s deceptive conduct caused [the plaintiff’s] claimed 

economic loss.” Lloyd v. CVB Fin. Corp., 811 F.3d 1200, 1209 (9th Cir. 2016). See 15 

U.S.C. § 78u-4(b)(4) (“[T]he 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.”). Loss causation is established where “the market 

learns of a defendant’s fraudulent act or practice, the market reacts to the fraudulent act 

or practice, and a plaintiff suffers a loss as a result of the market’s reaction.” In re Oracle 

Corp. Sec. Litig., 627 F.3d 376, 392 (9th Cir. 2010).4

 

A plaintiff can establish that a market became aware of fraud by showing 

“corrective disclosures,” news or announcements to investors that revealed the 

company’s prior misstatements to have been false or misleading. Lloyd, 811 F.3d at 

1209. The revelation may be direct or require steps of inference. See, e.g., Cement & 

Concrete Workers Dist. Council Pension Fund v. Hewlett Packard Co., 964 F. Supp. 2d 

1128, 1146 (N.D. Cal. 2013) (finding loss causation adequately pled where CEO’s 

resignation amid misconduct allegations preceded stock drop, giving rise to plausible 

inference that market treated resignation as disclosure of fraud); Daou, 411 F.3d at 1026 

(loss causation adequately pled where defendant company’s below-expected revenue 

figures preceded sharp drops in stock price). 

Disclosures can come in many forms but must occur under the right circumstances 

to establish loss causation. News of an investigation, for example, only informs the 

 

4

 Some courts have noted a potential inconsistency in the Ninth Circuit’s loss 

causation legal standard as it has developed over time. See Smilovits v. First Solar Inc., 119 F. Supp. 3d 978, 986-92 (D. Ariz. 2015) (Campbell, J.) (observing two lines of cases, one finding loss causation only where market learns of underlying fraud, the other where 

fraud causes plaintiff’s loss regardless of market’s knowledge). Because the Ninth 

Circuit has not resolved this question, the Court here applies the standard from the circuit’s most recent cases, which require a plaintiff to show the market actually learned of the alleged fraud that caused its securities to decline in value. See Oracle, 627 F.3d at 

392; Metzler, 540 F.3d at 1063. However, it is the Court’s judgment that the motion here would come out the same way under either approach. 
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market of fraud “if the complaint also alleged a subsequent corrective disclosure by the 

defendant.” Lloyd, 811 F.3d at 1210. Accord Loos, 762 F.3d at 890 (holding that “the 

announcement of an investigation, without more, is insufficient to establish loss 

causation”). This would come into play where a security lost value on news of the 

investigation but then did not respond to a later disclosure by the defendant. In a case 

like that, one can infer that investors interpreted the investigation as a disclosure of fraud 

and thus treated the actual disclosure of fraud as something they already knew. See, e.g., 

Lloyd, 811 F.3d at 1210 (finding loss causation where company’s stock dropped 20% on 

news of an SEC subpoena but reacted “hardly at all” to later news that the company’s 

largest borrower was charging off millions in the company’s loans). “[T]he ultimate 

issue is whether the defendant’s misstatement, as opposed to some other fact, foreseeably 

caused the plaintiff’s loss.” Lloyd, 811 F.3d at 1210. 

The complaint alleges that ten different partial corrective disclosures revealing 

false or misleading statements caused losses to Plaintiff as an investor.5

 As a preliminary 

matter, Defendants argue generally that none of the relevant risks was ever concealed; 

risks of government investigations, legal action, negative publicity, and employee 

misconduct were repeatedly disclosed in Insys’s SEC filings. (Doc. 85 at 26.) But none 

of the disclaimers stated in those filings specifically discloses the risk of company-wide 

fraud orchestrated by the company’s highest level executives. That risk was never 

disclosed in any document, much less anything public and available to investors. Since 

that argument is unavailing, the Court must consider one by one whether each alleged 

disclosure is sufficiently pled. 

 

5

 The complaint also raises a second theory known as “materialization of the risk,” 

by which several disclosures reveal fraud to the market gradually over time. See Doc. 77, 

¶¶ 428-30.) However, at oral argument Plaintiff clarified that he is no longer pursuing that argument. The Court will thus only consider the ten corrective disclosures 

individually. 
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a. First and Second Disclosures: November 27, 2014 New York Times 

Article and April 24, 2015 Southern Investigative Reporting 

Foundation Article

Defendants argue that the articles published on November 27, 2014, by the New 

York Times and April 24, 2015, by the Southern Investigative Reporting Foundation 

cannot constitute partial corrective disclosures because they occurred before Plaintiff 

purchased Insys stock. (Doc. 85 at 22.) Defendants also argue that the Southern 

Investigative Reporting Foundation article merely identifies a government investigation 

into Insys that the company had previously disclosed. (Doc. 85 at 22.) 

Despite reciting more than 170 pages of allegations against Defendants, the 

complaint fails to mention exactly when Plaintiff bought and sold his Insys stock. 

However, the record does contain a certification by Plaintiff that he first purchased Insys 

stock on May 19, 2015. (Doc. 34-1 at 3.) Indeed, the two articles at issue here were 

published before he made any Insys stock purchases. Whether or not these were 

corrective disclosures (the Court does not decide that question), they could not have 

caused him any loss. 

b. Third and Fourth: May 20, 2015 Indictment of Two Physicians and 

June 23, 2015 Guilty Plea of Heather Alfonso (and New York Times 

Article Two Days Later)

Defendants argue that the third partial disclosure, the May 20, 2015 indictment of 

two doctors for unlawful distribution of controlled substances, “does not mention Insys, 

Subsys, or any off-label marketing or kickback scheme.” (Doc. 85 at 23.) Additionally, 

Defendants argue that the complaint does not state any new information disclosed by the 

fourth partial disclosure, the June 23, 2015 guilty plea by Heather Alfonso (and the New 

York Times article that followed). (Doc. 85 at 23.) 

More fundamentally, though, the records of Plaintiff’s stock transactions show that 

after purchasing his first batch of Insys stock on May 19, 2015, he sold his stockholdings 

on July 8, 2015—for a profit. (Doc. 34-1 at 3.) The next day, he made the purchase of 
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4,000 shares that he currently holds today.6 (Id.) In other words, no corrective 

disclosures, however damning, could have caused Plaintiff any loss before July 9, 2015, 

since he suffered no loss up until that point. These two disclosures are not actionable 

here. 

c. Fifth: November 4, 2015 CNBC Article

Defendants argue that the fifth alleged partial disclosure, a November 4, 2015 

article published on CNBC’s website, simply revealed that the Department of Health and 

Human Services had recently classified Subsys as commonly prescribed for unintended 

uses but did nothing to reveal securities fraud on the part of Insys. (Doc. 85 at 23-24.) 

Taken in isolation, this would be correct. But by late 2015, allegations against employees 

and collaborating healthcare providers sufficiently saturated the public sphere to create a 

different context for the CNBC article. The public knew Insys faced fraud allegations 

and knew multiple physicians had been charged with accepting bribes or kickbacks in 

exchange for prescribing Subsys. One had even pled guilty. (Doc. 81-4 at 26-35.) 

Against this backdrop, the complaint alleges that the CNBC article lent itself to an 

obvious inference: doctors were overprescribing Subsys because they were getting bribes 

and kickbacks from Insys. The CNBC article did not prove this to be conclusively true. 

But it sufficed to constitute a partial disclosure of the company’s underlying fraud. 

Over the next day, Insys’s stock dropped 8.50%. (Doc. 77, ¶ 324.) Plaintiff has 

thus sufficiently pled that the article’s new revelations caused a drop in Insys’s stock 

price. 

d. Sixth: November 5, 2015 Resignation of Babich

Defendants contest Plaintiff’s sixth alleged partial disclosure, the November 5, 

2015 announcement of Babich’s resignation as CEO, on two separate grounds. First, 

they argue Babich’s resignation did not reveal anything more than the fact he was 

resigning. (Doc. 85 at 24.) Second, they argue that either way, announcement of his 

 

6

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resignation caused no loss; Insys’s stock price dropped from $26.38 to $25.43 between 

November 4 and 5 but then rebounded to $27.39 by November 6. (Id.) For this fact, 

Defendants point the Court to the official Nasdaq website with publicly available records 

of Insys’s stock price over time. See “Insys Therapeutics, Inc. Common Stock Historical 

Stock Prices,” Nasdaq, http://www.nasdaq.com/symbol/insy/historical (last visited 

August 1, 2017). While Defendants’ reference to these records is not a formal request for 

judicial notice, the Court may take judicial notice of certain facts “on its own.” Fed. R. 

Evid. 201(c)(1). Those facts of which it can take notice include anything “not subject to 

reasonable dispute because it . . . can be accurately and readily determined from sources 

whose accuracy cannot reasonably be questioned.” Fed. R. Evid. 201(b)(2). Publicly 

traded companies’ historical stock prices stand among them. ScripsAmerica, Inc. v. 

Ironridge Global LLC, 119 F. Supp. 3d 1213, 1232 (C.D. Cal. 2015). Accordingly the 

Court takes judicial notice of Insys’s closing stock prices on November 4, 5, and 6, 2015. 

At least one other circuit has concluded that news of an executive’s resignation 

does not by itself amount to a “corrective disclosure,” but courts may consider the event 

as “a portion of the totality” that must be considered. See Pub. Emps. Ret. Sys. of Miss., 

P.R. Teachers Ret. Sys. v. Amedisys, Inc., 769 F.3d 313, 322-23 (5th Cir. 2014), cert 

denied, 135 S. Ct. 2892 (2015). As the Fifth Circuit pointed out, even a large market 

decline following a high-level resignation “could have simply been a market reaction to 

sudden news that two key executives had left the company.” Id. at 322. The broader 

context of Babich’s announcement makes this a close question because of all the 

allegations swirling in the background. But the significance of Babich’s resignation need 

not be determined, because Defendants are correct that Insys’s stock experienced no 

actual loss as a result of the announcement. A securities fraud plaintiff must show that he 

“suffer[ed] a loss as a result of the market’s reaction.” Oracle, 627 F.3d at 392. With no 

loss, there can be no loss causation. 
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e. Seventh and Eighth: December 3, 2015 and January 25, 2016 Southern 

Investigative Reporting Foundation Articles

Defendants contend that the seventh and eighth alleged partial disclosures, articles 

from December 3, 2015, and January 25, 2016, published by the Southern Investigative 

Reporting Foundation, merely restated allegations from a separate 2014 securities 

complaint about fraud by the company’s “Prior Authorization Unit” and otherwise leaned 

on unreliable statements by an anonymous source concerning Babich’s resignation. 

(Doc. 85 at 24-25.) 

The Court has not taken judicial notice of the 2014 complaint’s contents, and thus 

cannot consider them in deciding this motion. At this stage, Plaintiff’s allegations recited 

in his second amended complaint are assumed to be true unless contradicted by 

something of which the Court has taken notice. The Court therefore assumes that the 

revelations detailed in the Southern Investigative Reporting Foundation articles were 

sufficiently novel to constitute partial disclosures. 

By the end of the day on December 3, 2015, Insys’s stock had fallen from $31.99 

per share to $26.06 per share from the day before, a drop of 18.54%. (Doc. 77, ¶ 327.) 

The drop on January 25, 2016, was somewhat less dramatic: the stock price fell to $21.58 

from a price of $22.65 the previous trading day, a drop of 4.72%. (Doc. 77, ¶ 330.) 

Nonetheless the complaint suffices to plead loss causation as to both of these disclosures. 

f. Ninth: April 11, 2016 Press Release

Defendants argue that the ninth alleged partial disclosure, an April 11, 2016 press 

release announcing Insys’s lower-than-expected net revenues, “itself does not reveal 

anything about an alleged off-label marketing or kickback scheme.” (Doc. 85 at 25.) 

Two Ninth Circuit cases have addressed whether news of a revenue shortfall can 

support loss causation. In In re Gilead Sciences Sec. Litig., 536 F.3d 1049, 1057-58 (9th 

Cir. 2008), the court concluded loss causation was sufficiently pled via allegations that 

news of the defendant pharmaceutical company’s poor quarterly performance caused its 

stock to drop. The complaint in that case accused the company of marketing and selling 
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an HIV drug for off-label uses, which generated between 75% and 95% of all its sales. 

Id. at 1051. Several years into these practices, the FDA issued a public Warning Letter 

chastising one of the company’s employees for making “oral statements that minimized 

the risk information and broadened the indication for” the drug. Id. at 1052-53. After 

quarter upon quarter of reported revenue growth, the company eventually issued a press 

release in late 2003 revealing lower-than-expected sales, which triggered a 12% drop in 

the company’s stock. Id. at 1054. In concluding the press release sufficed as a public 

disclosure, the court connected the stock drop to the FDA warning letter: 

Importantly, the drop occurred immediately after Gilead disclosed lessthan-expected revenues resulting from the reduction in 

wholesalers’ . . . inventories [of the drug], which analysts ascribed to lower 

end-user demand. That lower end-user demand, in turn, is expressly 

alleged to have been caused by the Warning Letter. In this light, the market 

did react immediately to the corrective disclosure—the October 28 press 

release. The Warning Letter, which discussed only two instances of offlabel marketing, would not necessarily trigger a market reaction because it 

did not contain enough information to significantly undermine Gilead’s 

July 2003 pronouncements concerning demand for [the drug]. 

Id. at 1058. 

However, later in the same year, the Ninth Circuit separately held in Metzler that a 

for-profit education company’s announcement of lower-than-expected earnings did not 

suffice to establish loss causation. 540 F.3d at 1064. In that case, the complaint alleged 

that the company engaged in a variety of fraudulent practices such as falsifying financial 

aid applications, improperly calculating student enrollment, falsifying student grades, and 

other similar practices in order to maximize the funding it received from the federal 

government. Id. at 1055. One of two disclosures the complaint identified as triggering 

loss to investors was a press release detailing earnings shortfalls that the company 

attributed to “higher than anticipated attrition” at its schools, which the complaint 

interpreted as “a euphemism for an admission that they had enrolled students who should 
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not have been signed up at all.” Id. at 1059-60. In rejecting this inference, the court 

reasoned that 

[s]o 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. . . . Loss causation requires more. 

Id. at 1064 (citation omitted). 

 The takeaway from Metzler is that “loss causation is not adequately pled unless a 

plaintiff alleges that the market learned of and reacted to the practices the plaintiff 

contends are fraudulent, as opposed to merely reports of the defendant’s poor financial 

health generally.” Oracle Corp., 627 F.3d at 392 (citing Metzler, 540 F.3d at 1063). But 

Gilead makes clear that just the right causal chain between fraud and a belowexpectations financial report can suffice to show the market reacted to the fraud rather 

than to the poor results themselves. 

The allegations here, however, do not establish an adequate causal link. True, the 

second amended complaint does contend that analysts attributed the revenue shortfall to a 

“decline in [prescriptions],” specifically prescriptions “at the lower doses of Subsys,” 

which suggested that “fewer patients were initiating therapy.” (Doc. 77, ¶ 336.) But in 

Gilead, the lower end-user demand was “expressly alleged to have been caused by the 

[FDA] Warning Letter,” which stated particular accusations of the company’s fraudulent 

conduct. Gilead, 536 F.3d at 1058. By contrast, all the complaint here alleges is that 

news of Insys’s lower revenues “revealed the remaining undisclosed relevant truth 

concealed and/or obscured by Defendants’ prior misstatements and omissions 

surrounding Subsys, including the negative impact on Company revenues that resulted 

from the [Insurance Reimbursement Center’s] decreased ability to obtain third-party 

payer approval for Subsys prescriptions.” (Doc. 77, ¶ 433.) In other words, Plaintiff here 
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has failed to explicitly connect the decrease in Subsys prescriptions to accusations of 

fraud. It would require several steps of inference to get from fewer third-party-payer 

approvals to the market having learned about Insys’s fraudulent practices. Those 

inferences are not explicitly stated in the complaint. The crux of Gilead is that a revenue 

shortfall establishes loss causation where the complaint “expressly allege[s]” the requisite 

inferential chain. Gilead, 536 F.3d at 1058. That is a perfectly sensible requirement in 

light of the stringent pleading standards of Rule 9(b) and the PSLRA. 

Given Metzler’s resistance to giving mere market loss too much meaning, the 

absence of an expressly alleged connection linking each step of reasoning cannot stand 

on its own. The April 11, 2016 revenue announcement therefore does not suffice to 

establish loss causation. 

g. Tenth: December 2016 Indictment

Defendants next contend that the complaint fails to identify how the tenth and 

final partial disclosure, the December 8, 2016 unsealing of an indictment charging 

numerous former Insys executives with racketeering, “identif[ies] with the required 

particularity any alleged misstatement that was rendered untrue by this disclosure.” 

(Doc. 85 at 25.) Plaintiff responds only with the general assertion that the indictment 

“revealed additional new facts, including internal Insys communications, demonstrating 

that Defendants deliberately perpetrated the Company-wide and nationwide OffLabel/Kickback Scheme and [Insurance Reimbursement Center] Fraud to increase 

Insys’s sales revenues.” (Doc. 87 at 36.) 

The question is not whether the indictment “rendered” any statement untrue, but 

whether it revealed to the market that prior statements by Insys and its executives were in 

fact false or misleading. Plaintiff has not adequately alleged that it did. It is not enough 

to say generally that a corrective disclosure “revealed additional new facts” and then 

describe those facts only as “internal Insys communications.” To permit that explanation 

would be to dispense with the requirement that securities fraud actions be pled with 

“particularity.” Fed. R. Civ. P. 9(b). No defendant could possibly defend themselves 
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against allegations that are so vague. If the December 2016 indictment did reveal 

anything new, Plaintiff has not pled it here. 

 To summarize, only the fifth, seventh, and eighth purported corrective disclosures 

suffice to allege loss causation. The rest either fall outside of when Plaintiff had suffered 

losses or are insufficiently pled to meet the PLSRA pleading standards.

C. 20(a)

Section 20(a) requires both an underlying violation and that the defendant had 

actual power or control over the primary violator. Defendants here challenge the 

complaint only on the grounds that there was no underlying violation of Section 10(b). 

Where a plaintiff fails to plead a violation of 10(b) adequately, a Section 20(a) claim may 

be dismissed summarily. Zucco, 552 F.3d at 990. As to Burlakoff, this is the case. The 

claim against him under Section 20(a) is dismissed. But the above discussion makes 

clear that claims under Section 10(b) remain as to all other Defendants. Since 

Defendants challenged the Section 20(a) claim only on that ground, their challenge fails. 

IV. SUMMARY

In summary, the Court finds as follows: 

- Only the statements alleged in paragraphs 268 and 272 of the second amended 

complaint meet PLSRA’s falsity requirement. All others cannot be part of this 

action. 

- Scienter has been adequately pled as to both Kapoor and Baker. 

- The allegations against Burlakoff are dismissed for failing to meet the “in 

connection with” requirement. 

- Loss causation has been adequately pled only as to the November 4, 2015 

CNBC article, and the December 3, 2015 and January 25, 2016 Southern 

Investigative Reporting Foundation articles. All other alleged “corrective 

disclosures” are no longer part of this action. 
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IT IS THEREFORE ORDERED that Plaintiff’s Motion to Dismiss (Doc. 85) is 

granted in part and denied in part as summarized in the preceding paragraph. 

IT IS FURTHER ORDERED that Defendants’ Request for Judicial Notice (Doc. 

81) is denied to the extent that Defendants ask the Court to take notice of the substantive 

content of filings in other judicial proceedings, but granted in all other respects. 

Dated this 1st day of August, 2017.