Court Opinion

ID: 9961703
Source: CourtListenerOpinion
Date Created: 2024-04-19 16:00:54.568206+00
Date Added: 2024-06-11T08:18:42.824728
License: Public Domain

FOR PUBLICATION

   UNITED STATES COURT OF APPEALS
        FOR THE NINTH CIRCUIT

JONATHAN ESPY, on behalf of              No. 22-55829
himself and all others similarly
situated,                                   D.C. No.
                                         2:20-cv-06096-
              Plaintiff-Appellant,         FLA-MAA

 v.
                                           OPINION
J2 GLOBAL, INC.; VIVEK SHAH;
NEHEMIA ZUCKER; R. SCOTT
TURICCHI,

              Defendants-Appellees.

      Appeal from the United States District Court
          for the Central District of California
   Fernando L. Aenlle-Rocha, District Judge, Presiding

         Argued and Submitted October 3, 2023
               San Francisco, California

                  Filed April 19, 2024

 Before: M. Margaret McKeown, Consuelo M. Callahan,
          and Kenneth K. Lee, Circuit Judges.

              Opinion by Judge McKeown
2                     ESPY V. J2 GLOBAL, INC.

                          SUMMARY *

                        Securities Fraud

    The panel affirmed the district court’s dismissal of
Jonathan Espy’s securities fraud action against J2 Global,
Inc., and individual defendants under § 10(b) of the
Securities Exchange Act and Rule 10b-5.
    Espy alleged that J2, an international information
services company, made materially misleading statements
by omitting key facts regarding a 2015 acquisition and a
2017 investment, and hid underperforming acquisitions from
investor scrutiny through consolidated accounting
practices. Espy also alleged that investors learned of J2’s
corporate mismanagement and deception not from J2’s
disclosures, but from two short-seller reports.
    The panel held that Espy failed to sufficiently plead
scienter because he did not state with particularity facts
giving rise to a strong inference that J2 acted with the intent
to deceive or with deliberate recklessness as to the
possibility of misleading investors. As to omitted
disclosures regarding the acquisition, Espy endeavored to
plead scienter by reference to statements of two confidential
former employees, but the majority of the former
employees’ statements failed to establish reliability or
personal knowledge, or simply amounted to criticisms of
J2’s management practices and compensation structure. As
to the investment disclosure, Espy did not adequately
explain why omitted information compelled a strong

*
 This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
                    ESPY V. J2 GLOBAL, INC.                 3

inference of scienter. And Espy failed to plead scienter as to
J2’s consolidated accounting practices because inconsistent
statements from former employees did not demonstrate that
the individual defendants actually knew the underlying data
of each of their acquisitions with the requisite accuracy to
report detailed financials for each. The panel further held
that viewing Espy’s allegations holistically did not alter its
conclusion.
    Addressing an issue not reached by the district court, the
panel held that Espy also failed to sufficiently plead loss
causation by showing that J2’s misstatement, as opposed to
some other fact, foreseeably caused Espy’s loss. The panel
concluded that the two short-sellers’ reports did not qualify
as corrective disclosures because one did not relate back to
the alleged misrepresentations in Espy’s complaint, and the
other’s analysis was based entirely on public information
and required no expertise or specialized skills beyond what
a typical market participant would possess.

                        COUNSEL

Ivy T. Ngo (argued), Velvel Devin Freedman, and
Constantine P. Economides, Freedman Normand Friedland
LLP, Miami, Florida; Michael P. Canty, Thomas G.
Hoffman, Jr., and David J. Schwartz, Labaton Sucharow
LLP, New York, New York; Brian Schall, The Schall Law
Firm, Los Angeles, California; for Plaintiff-Appellant.
Matthew W. Close (argued), Aaron D. Henson, and
Elizabeth A. Arias, O’Melveny & Myers LLP, Los Angeles,
California; Abby F. Rudzin, O’Melveny & Myers LLP, New
York, New York; for Defendants-Appellees.
4                   ESPY V. J2 GLOBAL, INC.

                         OPINION

McKEOWN, Circuit Judge:

    This is a case in which neither individual allegations of
securities fraud nor various acts of alleged corporate
misfeasance over many years satisfies the heightened and
demanding standard required in a securities case.
Dissatisfaction with a company’s strategy, management, and
approach to accounting, coupled with a stock drop, make for
interesting reading but not an actionable securities fraud
claim.
    Jonathan Espy, who purchased shares of common stock
in an international information services company, J2 Global
(“J2”), between 2015 and 2020, appeals the dismissal of his
securities fraud action for failure to plead scienter. Espy
contends that J2 made materially misleading statements by
omitting key facts regarding a 2015 acquisition and a 2017
investment, and hid underperforming acquisitions from
investor scrutiny through consolidated accounting practices.
Espy also alleges that investors learned of J2’s corporate
mismanagement and deception not from J2’s disclosures,
but from two short-seller reports. The district court twice
dismissed Espy’s complaint.
    Because Espy failed to sufficiently plead either scienter
or loss causation, and because failure to plead either of these
elements dooms his appeal, we affirm.
                      ESPY V. J2 GLOBAL, INC.                      5

                       I. BACKGROUND 1
     J2 uses an acquisition model to grow its business. Since
its founding in 1995, J2 has acquired 186 businesses for a
total of $3 billion. In the ordinary course, J2 would purchase
a company in the media, technology, or internet space and
integrate that company into one of its two existing
divisions—Digital Media and Cloud Services—allowing J2
to cut costs while maintaining those businesses’ existing
revenue streams. Once these businesses are integrated into
J2’s divisions, J2 reports only the performance of those
divisions, and not the performance of the individual
acquisitions, a practice known as “consolidated accounting.”
    Espy alleges that since 2015, J2 has shrouded
underperforming acquisitions and investments in
questionable ventures, enriching J2’s executives and
members of its board of directors (“Board”) while
misleading its investors through key omissions in press
releases, earnings calls, proxy statements, and SEC
disclosures. This appeal focuses on three general categories
of alleged corporate malfeasance: (1) the 2015 VDW
acquisition; (2) the 2017 Orchard investment; and (3) J2’s
practice of consolidated accounting.
    1. The VDW Acquisition
    On October 5, 2015, J2 announced that it had completed
nine acquisitions in the third quarter of 2015, and that those
acquisitions would “grow the Company’s global customer
base, provide access to new markets and expand J2’s product
lineup.”    Among the acquisitions listed was VDW

1
 This background is based on the allegations in Espy’s Second Amended
Complaint.
6                  ESPY V. J2 GLOBAL, INC.

(Netherlands) (“VDW”), which J2 described as an
“Intellectual Property” acquisition.
    VDW was in fact an 11-month-old consulting business
registered to the personal residence of Jeroen van der
Weijden, who in 2015 was Vice President of Corporate
Development at J2 and a director of a J2 subsidiary, J2 UK.
J2 paid $900,000 for VDW, which had no employees other
than van der Weijden and his girlfriend. Espy alleges that
van der Weijden pressured J2 to acquire VDW as a “bonus”
to him.
    2. The Orchard Capital Investment
    In September 2017, the Board authorized J2 to invest
$200 million in a fund run by Orchard Capital Ventures
(“Orchard”). Orchard’s ties to J2’s leadership are legion:
Richard Ressler, who served as J2’s CEO from 1997 to 2000
and has been Board Chairman and a director of J2 since
1997, is the majority equity holder of Orchard’s fund and its
manager, OCV Management, LLC. Nehemia Zucker, who
served as J2’s CEO from 2008 to 2017, held significant
equity in Orchard. Three days after J2 authorized the
Orchard investment, J2 announced that Zucker would be
stepping down as J2’s CEO and joining Orchard as a co-
managing principal.
    Lower-level employees and other members of the Board
had ties to Orchard as well. Zohar Loshitzer, J2’s Executive
Vice President of Corporate Strategy since 2001, has also
been a principal at Orchard since 2005. Brian Kretzmer,
elected to the J2 Board in 2007, consulted for Orchard
between 2016 and 2017. Stephen Ross, also elected to the
J2 Board in 2007, had significant prior business ties with
Ressler, Loshitzer, and Kretzmer.
                     ESPY V. J2 GLOBAL, INC.                     7

    In addition to its significant capital investment in
Orchard’s fund, J2 paid Orchard millions in management
fees pursuant to its investment agreement with Orchard.
Espy contends that because Orchard essentially does the
same thing as J2—invests in and acquires companies—the
deal had no business justification, and instead served to
provide an untraceable “slush fund” for J2 insiders to enrich
themselves, friends, and family members.
   Unlike VDW, where details of the acquisition went
undisclosed, J2 did disclose significant detail about the
Orchard investment, including the amount of the investment,
how the management fees would be calculated, and that
Ressler and Zucker had ongoing relationships with Orchard
and J2. However, J2 did not disclose Kretzmer, Loshitzer,
and Ross’s close ties to Orchard and Ressler, or the precise
amount of management fees that J2 would pay to Orchard.
    3. Consolidated Accounting
    Espy alleges that J2’s practice of consolidated
accounting has allowed it to hide underperforming or
overvalued acquisitions within its two divisions. Espy
alleges that, by producing two sets of consolidated financial
data (instead of financial data for each of hundreds of
acquired businesses), J2 has “misrepresented [its] true health
as a business and, in turn, artificially inflated its stock price.”
Espy alleges that two J2 acquisitions and subsidiaries in
particular—J2 Ireland and Everyday Health—failed to
perform and showed declines in revenue that were not
reflected in J2’s consolidated accounting.
    4. Procedural History
   Espy acquired J2 stock between October 5, 2015 and
June 29, 2020, and filed claims under Sections 10(b) and
8                  ESPY V. J2 GLOBAL, INC.

20(a) of the Exchange Act and Rule 10b-5 of the Act’s
implementing regulations. On J2’s first motion to dismiss,
the district court held that while Espy had adequately
pleaded loss causation and that certain categories of
statements were materially misleading, Espy failed to
adequately plead scienter. The court dismissed Espy’s first
amended complaint with leave to amend. Espy filed a
second amended complaint with additional allegations of
scienter, primarily from four anonymous J2 employees. The
district court held that the second amended complaint still
failed to plead scienter and dismissed the action without
leave to amend.
                      II. ANALYSIS
    Section 10(b) of the Securities Exchange Act
(“Exchange Act”) prohibits a party from engaging in
“manipulative or deceptive practices in connection with the
purchase or sale of a security.” In re Facebook, Inc. Sec.
Litig., 87 F.4th 934, 947 (9th Cir. 2023) (cleaned up). Rule
10b-5 of the Exchange Act’s implementing regulations is
coextensive with Section 10(b). Id. To survive a motion to
dismiss under this regime, Espy must plead: “(1) a material
misrepresentation or omission by the defendant (‘falsity’);
(2) scienter; (3) a connection between the misrepresentation
or omission and the purchase or sale of a security;
(4) reliance upon the misrepresentation or omission;
(5) economic loss; and (6) loss causation.” Id. (quoting
Glazer Cap. Mgmt., L.P. v. Forescout Techs. Inc., 63 F.4th
747, 764 (9th Cir. 2023)).
    We review de novo the dismissal of a complaint for
failure to state a claim and accept the well-pleaded
allegations in the complaint as true. In re Nektar
Therapeutics Sec. Litig., 34 F.4th 828, 835 (9th Cir. 2022).
                     ESPY V. J2 GLOBAL, INC.                   9

To survive a motion to dismiss, plaintiffs “must plead
‘enough facts to state a claim to relief that is plausible on its
face.’” Id. (quoting Bell Atl. Corp. v. Twombly, 550 U.S.
544, 570 (2007)). The factual allegations must “allow[] the
court to draw the reasonable inference that the defendant is
liable for the misconduct alleged.” Id. (quoting Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009)). These allegations are
subject to heightened pleading requirements under Federal
Rule of Civil Procedure 9(b) and the Private Securities
Litigation Reform Act (“PSLRA”). Id. (citing Zucco
Partners, LLC v. Digimarc Corp., 552 F.3d 981, 990 (9th
Cir. 2009)).
    We address only two of the Section 10(b) factors, either
of which requires dismissal here: scienter and loss causation.
A. Scienter
    To plead scienter, a complaint “must ‘state with
particularity facts giving rise to a strong inference’ that
defendants acted with the intent to deceive or with deliberate
recklessness as to the possibility of misleading investors.”
Berson v. Applied Signal Tech., Inc., 527 F.3d 982, 987 (9th
Cir. 2008) (quoting 15 U.S.C. § 78u–4(b)(2)). The “strong
inference” “must be cogent and compelling, thus strong in
light of other [countervailing] explanations,” not merely
“reasonable” or “permissible.” In re NVIDIA Corp. Sec.
Litig., 768 F.3d 1046, 1052 (9th Cir. 2014) (alteration in
original) (quoting Tellabs, Inc. v. Makor Issues & Rights,
Ltd., 551 U.S. 308, 324 (2007)). “Deliberate recklessness is
a higher standard than mere recklessness and requires more
than a motive to commit fraud.” Glazer, 63 F.4th at 765.
Instead, deliberate recklessness represents “an extreme
departure from the standards of ordinary care . . . which
presents a danger of misleading buyers or sellers that is
10                  ESPY V. J2 GLOBAL, INC.

either known to the defendant or is so obvious that the actor
must have been aware of it.” Zucco, 552 F.3d at 991
(quoting In re Silicon Graphics Inc. Sec. Litig., 183 F.3d
970, 976 (9th Cir. 1999)).
     1. The VDW Acquisition
    Espy endeavors to plead scienter as to the omitted
disclosures regarding the VDW acquisition by reference to
statements of two confidential former employees: FE1 and
FE2. In doing so, Espy must satisfy two hurdles imposed by
the PSLRA: “First, the confidential witnesses whose
statements are introduced to establish scienter must be
described with sufficient particularity to establish their
reliability and personal knowledge. Second, those
statements which are reported by confidential witnesses with
sufficient reliability and personal knowledge must
themselves be indicative of scienter.” Id. at 995 (internal
citations omitted).
    FE1, who was Managing Director of J2’s Australia and
New Zealand division between 2015 and 2017, worked with
van der Weijden when he came to Australia for meetings,
and understood that van der Weijden, as Vice President of
Corporate Development, oversaw the acquisitions aspect of
J2’s business. In 2015, FE1’s then-boss told him that van
der Weijden’s incentive package was based on the number
of deals he brought in that closed, rather than the quality of
those deals. FE1 thought that incentive structure led to
shoddy due diligence, overpayment for acquisitions, and
failure to integrate those acquisitions into J2’s divisions.
    FE2 was J2’s Global Head of Human Resources between
July 2006 and December 2016. As with FE1, FE2 recalled
that van der Weijden was compensated based on the number
of acquisitions he brought in, rather than their quality, and
                    ESPY V. J2 GLOBAL, INC.                11

that FE2 “constantly pressured” van der Weijden to conduct
more rigorous due diligence on potential acquisitions, but he
never did so. FE2 understood that van der Weijden reported
directly to Zucker, Turicchi, and Ressler who signed off on
every acquisition and were aware that van der Weijden
performed limited due diligence on the acquisitions he
brought in. FE2 states that because the Board wanted van
der Weijden to bring in six acquisitions per quarter, he “had
a great deal of sway at J2” and his “demands were always
met because otherwise he threatened to ‘turn off the spigot.’”
    FE2 was present at meetings during which van der
Weijden, Turicchi, and Zucker discussed van der Weijden’s
compensation structure and his girlfriend’s visa status. FE2
understood that van der Weijden wanted to bring his
longtime girlfriend with him from the Netherlands to the
United States by making her an employee of VDW, which
he wanted J2 to acquire. At the meeting with Zucker and
Turicchi, “van der Weijden threatened to leave J2 unless
Turicchi and Zucker accommodated his demand to bring his
girlfriend to the United States.” FE2 was not present for the
rest of the conversation.
     The majority of FE1 and FE2’s statements fail to
establish reliability or personal knowledge, or simply
amount to criticisms of J2’s management practices and
compensation structures. While FE1’s understanding of van
der Weijden’s job responsibilities can be credited as reliable
due to FE1’s direct observations of van der Weijden, his
criticisms of van der Weijden’s incentives—even if that
information is reliable, given that it came secondhand from
FE1’s boss—are simply negative opinions of J2’s business
practices or compensation structures, not statements which
are “themselves . . . indicative of scienter.” Zucco, 552 F.3d
at 995. FE2’s similar critique of van der Weijden’s
12                 ESPY V. J2 GLOBAL, INC.

incentives fails for the same reasons. FE2’s assessment is
further undermined by her prior position as Global Head of
Human Resources, which indicates that FE2 relies on
secondhand information about the extent of van der
Weijden’s due diligence, and how closely those acquisitions
were scrutinized by Zucker, Turicchi, and Ressler. See id. at
996–97 (holding that a human resources employee “had no
firsthand knowledge of the workings of the finance or
corporate departments”).        FE2’s general allegations
regarding van der Weijden’s conduct thus lack reliability and
personal knowledge.
    Espy comes closest to alleging scienter through FE2’s
description of the meeting in which van der Weijden,
Turicchi, and Zucker discussed “van der Weijden’s
compensation structure and his girlfriend’s visa status,” and
where “van der Weijden threatened to leave J2 unless
Turicchi and Zucker accommodated his demand to bring his
girlfriend to the United States.” While FE2 makes broader
statements regarding the VDW acquisition—namely, that J2
“acquiesced to van der Weijden’s demands and acquired
VDW for $900,000, which J2 considered to be a bonus to
van der Weijden”—it is unclear whether those statements
come from general knowledge, gossip, or the meeting where
FE2 was present. But as alleged, the meeting FE2 attended
did not directly discuss the VDW acquisition itself. The
relationship between van der Weijden’s “demands” and the
VDW acquisition was apparently discussed, if at all, after
“the discussions became private and FE2 no longer
participated.” Thus, FE2’s incomplete report of the meeting
in question cannot serve to impute to Turicchi and Zucker
knowledge of the details of the VDW acquisition—that it
was effectively a “bonus” to van der Weijden and a vehicle
                    ESPY V. J2 GLOBAL, INC.                 13

acquired in part to allow van der Weijden’s girlfriend to
come to the United States.
    Even if knowledge of the claimed nature of the VDW
arrangement could be imputed to Turicchi and Zucker, that
alone would not indicate a strong inference of scienter in J2’s
failure to disclose those details.        The press release
announcing the VDW acquisition also reported eight other
acquisitions in the third quarter of 2015. Turicchi is quoted
in the press release as saying that since the beginning of
2015, J2 had “completed twenty acquisitions deploying
approximately $265 million of capital.” The press release
included no further discussion of any of the other eight
acquisitions that quarter. While it is theoretically possible
that J2 lumped VDW into a press release with other, more
legitimate acquisitions to call as little attention to it as
possible, that inference of scienter is not “strong in light of
other explanations,” such as mere negligence. Tellabs, 551
U.S. at 324. After all, compared to the $265 million in
capital J2 had spent to acquire other businesses in 2015, it
seems less likely that J2 failed to fully describe a $900,000
acquisition because it was trying to hide it, as the overall
value of J2 transactions that year dwarfed this particular
acquisition. It is more plausible that the details of the VDW
acquisition were equally unimportant to the press release as
the details of the eight other acquisitions announced in that
same disclosure.
    Espy’s remaining allegations—that van der Weijden was
on the board of a foreign J2 subsidiary and that VDW was a
shell start-up—fare no better. Such disclosures were not
required in view of the law and their minor value as
compared to J2’s $265 million in total acquisitions that year.
What is missing are credible allegations of an intent to
defraud investors.
14                     ESPY V. J2 GLOBAL, INC.

     2. The Orchard Capital Investment
    Espy also fails to adequately plead scienter as to the
Orchard investment disclosure. J2 disclosed significant
detail in its 2017 proxy statement—including the amount of
the investment ($200 million), the calculation of annual
management fees that would be owed (two percent of J2’s
capital commitment), that Ressler was a majority equity
holder in Orchard, and that Zucker was stepping down from
his position as CEO to help manage the fund. Espy does not
explain why the information that was left out—the precise
amount of management fees that would be paid to Orchard
and the ties between Kretzmer, Loshitzer, and Ross and
Orchard—compels a strong inference of scienter.
    As to the management fees, Espy appears to mistake
management fees for payment of capital commitments. The
underlying documents cited in the complaint indicate that J2
paid management fees of between $3 and $4.5 million
between 2018 and 2019, or approximately two percent of the
$200 million capital commitment, as disclosed. 2

2
  Espy alleges that “J2 paid [Orchard] over $36 million in 2018 and $29
million in 2019,” citing J2’s 2020 10-K and the partnership agreement
between J2 and Orchard. While Espy does not explain whether those
payments are management fees or something else, in his reply brief, he
characterizes those payments as entirely management fees: “But Plaintiff
alleges that J2 paid management fees ‘over $36 million in 2018 and $29
million in 2019’—as revealed by Hindenburg—so J2’s disclosure was
false and misleading.” Espy appears to misunderstand his sources. J2’s
disclosures describe capital call notices from Orchard for $36.8 million
in 2018 and $29.6 million in 2019, “inclusive of certain management
fees.” J2’s 2020 10-K further discloses the actual management fees J2
paid Orchard: $3.0 million in 2019, $4.5 million in 2018, and zero in
2017, almost precisely the yearly two percent of $200 million disclosed
in the 2017 proxy statement announcing the deal.
                   ESPY V. J2 GLOBAL, INC.               15

    As for the additional ties between Kretzmer, Loshitzer,
and Ross, Espy does not allege that any of the individual
defendants knew that Loshitzer was a principal at Orchard,
that Kretzmer had done M&A consulting for Orchard, or that
Ross had previously approved deals that benefitted Orchard
and Ressler. And even assuming that Zucker—who was
about to become a co-managing principal at Orchard—was
aware of the additional relationships between J2 and
Orchard, Espy does not explain why the omission of
Kretzmer, Loshitzer, and Ross compels a strong inference of
scienter when Ressler and Zucker’s (arguably more
important) relationships with Orchard were disclosed.
   3. Consolidated Accounting
    Finally, Espy fails to plead scienter as to J2’s
consolidated accounting practices because inconsistent
statements from former employees do not demonstrate that
the individual defendants actually knew the underlying data
of each of their acquisitions with the requisite accuracy to
report detailed financials for each.
    Espy points to various former employees who contend
that Zucker and Turicchi were deeply involved with the day-
to-day workings of J2, such as receiving reports and signing
off on every new acquisition. While “allegations regarding
management’s role in a company may be relevant and help
to satisfy the PSLRA scienter requirement,” allegations of
“corporate management’s general awareness of the day-to-
day workings of the company’s business does not establish
scienter.” S. Ferry LP, No. 2 v. Killinger, 542 F.3d 776,
784–85 (9th Cir. 2008) (quoting Metzler Inv. GmbH v.
Corinthian Colls., Inc., 534 F.3d 1068, 1087 (9th Cir.
2008)). The former employees attest only to such a “general
awareness” of J2’s finances: FE1 provided Zucker with
16                  ESPY V. J2 GLOBAL, INC.

weekly reports of performance results for businesses he
oversaw in Australia and New Zealand; FE2 understood that
Zucker and Turicchi signed off on every acquisition; FE2
reported that Zucker was “obsessed with numbers” and that
“budgets ruled J2;” FE4 stated that Turicchi and Zucker
received a daily report on J2’s financial condition, and that
they would often respond to the report with questions.
    The only allegation that suggests that company
management might have been attempting to keep financial
information about individual acquisitions away from public
scrutiny was FE1’s instruction from his direct boss, Harmeet
Singh—who reported to Zucker—that FE1 should not talk
publicly about new acquisitions. Singh informed FE1 that
that policy “was intentional and deliberate by the Board
because, then, analysts could not track individual entities and
would have to track the consolidated entity.” Even if such a
hearsay-within-hearsay statement can be credited as reliable,
see Zucco, 552 F.3d at 997, it does not compel a strong
inference that J2 management was trying to keep its
employees quiet to limit public disclosure regarding
underperforming acquisitions. The competing innocuous
inferences—that a company might want to keep a lid on
lower-level employees speaking publicly about inside
information or that the company did not want to invite
unfounded speculation on individual acquisitions—are
much more compelling. Indeed, “[t]here is nothing so
necessarily nefarious about” this policy “to suggest that an
inference of deliberate recklessness in such a situation is
equally as cogent and as compelling as an innocent
explanation.” Id. at 998.
    Further, a strong inference of scienter is particularly
implausible because even analysts within J2 had difficulty
assessing how well individual acquisitions were performing.
                    ESPY V. J2 GLOBAL, INC.                17

As FE3, a senior financial analyst at J2, noted, because there
were “hundreds of companies” with different accounting
systems incorporated into J2, it was difficult even for
financial analysts within J2 to “line up the numbers.” It is
implausible that Turicchi and Zucker had better financial
data about underperforming acquisitions than their own
financial analysts (who were preparing the reports they
allegedly pored over).
    Espy’s allegations also fall short of those that might
establish scienter under a “core operations” theory. Cases
where this theory has supported a strong inference of
scienter typically involve “specific admissions from top
executives that they are involved in every detail of the
company,” or “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,” S.
Ferry, 542 F.3d at 785–86 (first quoting In re Daou Sys.,
Inc., 411 F.3d 1006, 1022 (9th Cir. 2005), then quoting
Berson, 527 F.3d at 988). Allegations that Turicchi and
Zucker signed off on every acquisition, received detailed
reports, or were “obsessed with numbers,” do not compel a
strong inference that they had knowledge of the alleged
omitted information about particular underperforming
acquisitions under J2’s umbrella and used consolidated
accounting to cover them up. See Zucco, 552 F.3d at 1000
(noting that “allegations that senior management . . . closely
reviewed [quarterly] accounting numbers . . . and that top
executives had several meetings in which they discussed
quarterly inventory numbers” are insufficient to establish
scienter).
18                   ESPY V. J2 GLOBAL, INC.

     4. Holistic Analysis
    Viewing the allegations holistically, as Tellabs instructs,
does not alter our conclusion. See 551 U.S. at 326. Espy
paints a picture of a company that acquired many far-flung
businesses and integrated them into a large conglomerate
with mixed results. Where Espy points out details of
transactions that were not disclosed, other, more relevant
details were disclosed (as with the Orchard investment), or
Espy did not supply sufficient evidence of knowledge (as
with VDW). In both transactions, the omitted information
and the context of the disclosure does not compel a strong
inference of scienter. Even taken together, these allegations
are insufficient to plead scienter under the PSLRA.
    This conclusion could be the end of the inquiry.
However, in the interest of completeness, we also address
loss causation, another factor Espy has failed to plead
sufficiently. While the district court did not reach loss
causation in dismissing Espy’s second amended complaint,
we may “affirm the district court’s dismissal on any ground
that is supported by the record,” and exercise our discretion
to do so here. Silk v. Bond, 65 F.4th 445, 456 (9th Cir. 2023)
(quoting Hartmann v. Cal. Dep’t of Corr. & Rehab., 707
F.3d 1114, 1121 (9th Cir. 2013)). Failure to sufficiently
plead either scienter or loss causation is fatal to Espy’s
complaint.
B. Loss Causation
    The loss causation prong “is simply a variant of
proximate cause.” Lloyd v. CVB Fin. Corp., 811 F.3d 1200,
1210 (9th Cir. 2016). Espy must show that “[J2’s]
misstatement, as opposed to some other fact, foreseeably
caused [Espy’s] loss.” Id. This proof is often made by
identifying one or more corrective disclosures, which occur
                    ESPY V. J2 GLOBAL, INC.                  19

when “information correcting the misstatement or omission
that is the basis for the action is disseminated to the market.”
In re BofI Holding, Inc. Sec. Litig., 977 F.3d 781, 790 (9th
Cir. 2020) (quoting 15 U.S.C. § 78u-4(e)(1)). Espy must
allege with particularity facts “plausibly suggesting” that “a
corrective disclosure revealed, in whole or in part, the truth
concealed by the defendant’s misstatements,” and that
disclosure “caused the company’s stock price to decline.”
Id. at 791; see also Lloyd, 811 F.3d at 1210 (“To be
corrective, the disclosure need not precisely mirror the
earlier misrepresentation, but it must at least relate back to
the misrepresentation and not to some other negative
information about the company.” (quoting In re Williams
Sec. Litig.-WCG Subclass, 558 F.3d 1130, 1140 (10th Cir.
2009))).
    Espy identifies two proposed corrective disclosures: a
2016 report from Citron Research detailing the failures of
J2’s acquisition model, and a 2020 Hindenburg Research
report arguing that J2’s “opaque acquisition approach has
opened the door to egregious insider self-enrichment.” Both
Citron and Hindenburg are short-sellers that produce reports
on companies they perceive to be underperforming the
company’s stock price. Because Citron and Hindenburg rely
on public information to compile their reports, whether those
reports “revealed . . . the truth concealed by the defendant’s
misstatements” is an open question. In re BofI, 977 F.3d at
791. While “[a] disclosure based on publicly available
information can, in certain circumstances, constitute a
corrective disclosure,” the inquiry is whether, “[b]ased on
[Espy’s] particularized allegations, can we plausibly infer
that the alleged corrective disclosure provided new
information to the market that was not yet reflected in the
company’s stock price?” Id. at 795. To allege that a
20                  ESPY V. J2 GLOBAL, INC.

disclosure provided “new information,” Espy must allege
“particular facts plausibly suggesting that other market
participants had not done the same analysis” as that done in
the proposed corrective disclosure. Id. (emphasis omitted).
In determining whether a disclosure provided “new
information to the market,” we consider a number of factors,
including whether “the underlying data was publicly
available,” “the complexity of the data and its relationship to
the alleged misstatements,” and “the great effort needed to
locate and analyze” that information. Id.; see also Grigsby
v. BofI Holding, Inc., 979 F.3d 1198, 1208 (9th Cir. 2020)
(holding that an article derived from publicly available
information did not qualify as a corrective disclosure in part
because its analysis “did not require any expertise or
specialized skills beyond what a typical market participant
would possess”).
    We considered the plausibility of relying on short-seller
reports to plead loss causation in BofI, which dealt with
anonymous blog posts from the crowdsourced financial
news website Seeking Alpha. Although it was “plausible that
the posts provided new information to the market,” we
concluded that the posts did not qualify as corrective
disclosures because the posts were “authored by anonymous
short-sellers who had a financial incentive to convince others
to sell,” and included a disclaimer that the anonymous
authors made “no representation as to the accuracy or
completeness of the information set forth” in their blog
posts. In re BofI, 977 F.3d at 797. As a consequence, “[a]
reasonable investor reading these posts would likely have
taken their contents with a healthy grain of salt.” Id. We
have applied this reasoning not only to other anonymous
posts on Seeking Alpha, see Grigsby, 979 F.3d at 1208–09,
but also to anonymous reports ostensibly from short-seller
                    ESPY V. J2 GLOBAL, INC.                  21

firms, see In re Nektar, 34 F.4th at 839–40 (holding that a
report from an anonymous author at Plainview LLC did not
establish loss causation).
    The Citron and Hindenburg reports differ from the blog
posts and reports held to be insufficient in BofI, Grigsby, and
Nektar. Most notably, Citron and Hindenburg are well-
known short-seller firms whose reports are not
“anonymous,” unlike the blog posts in BofI and Grigsby or
the Plainview report in Nektar, which had no associated
contact information that would allow investors to verify the
report’s reliability. Still, despite these differences, the
Citron and Hindenburg reports do not qualify as corrective
disclosures.
    We begin with the Citron report. Espy alleges that the
report revealed that J2 “needs acquisitions,” “us[ed] money
generated from its legacy eFax business to prop the
financials” of its other assets, and the market was not
“paying any attention to the bottom line or the quality of
businesses J2 Global is aggregating.”            While these
allegations suggest that Citron may have disclosed “negative
information about [J2],” that information did not “relate
back” to the alleged misrepresentations in Espy’s complaint.
Lloyd, 811 F.3d at 1210. For starters, the Citron report
predates the Orchard investment and makes no mention of
the VDW acquisition. And while the report accuses J2 of
using consolidated accounting, this generalized criticism is
untethered from Espy’s allegations in the second amended
complaint. For example, Espy alleges that J2 concealed the
underperformance of two acquired assets in particular—J2
Ireland and Everyday Health—but Citron does not identify
either of these assets, so could not have revealed
“information correcting the . . . omission that is the basis for
[Espy’s] action.” 15 U.S.C. § 78u-4(e)(1); In re BofI, 977
22                  ESPY V. J2 GLOBAL, INC.

F.3d at 794 n.6 (holding that some alleged corrective
disclosures were “not tethered to any actionable
misstatements”).
     While the Hindenburg report may be more tethered to
J2’s alleged misrepresentations and omissions than the
Citron report, because its analysis was based entirely on
public information and required no “expertise or specialized
skills beyond what a typical market participant would
possess,” it too fails to qualify as a corrective disclosure.
Grigsby, 979 F.3d at 1208. Espy alleges that the Hindenburg
report revealed how J2’s “opaque acquisition approach
opened the door to insider self-enrichment”—specifically
the enrichment of van der Weijden through the VDW
acquisition. Espy further alleges that the report disclosed
how J2 “masked” the underperformance of acquisitions by
utilizing “tricky accounting,” especially relating to J2
Ireland and Everyday Health, and failed to disclose “decades
of intertwined financial interests between board members
and executives,” as reflected in the Orchard investment. The
Hindenburg report is undoubtedly more relevant to J2’s
alleged misrepresentations than the Citron report. But
Hindenburg’s analysis was based only on a careful reading
of public documents, including J2’s investor presentations,
press releases, employees’ LinkedIn profiles, board
members’ resumes, public corporate records, and SEC
filings. Espy alleges no facts plausibly explaining why this
information—already publicly available, requiring no
“expertise or specialized skills beyond what a typical market
participant would possess” to uncover and disseminate,
Grigsby, 979 F.3d at 1208—was not yet reflected in J2’s
stock price. In re BofI, 977 F.3d at 794. By failing to plead
any such facts with particularity, Espy has failed to plausibly
                    ESPY V. J2 GLOBAL, INC.                23

allege that the Hindenburg report qualifies as a corrective
disclosure.
    In light of the foregoing, we hold that Espy also fails to
plead loss causation.
C. Leave to Amend
    Finally, the district court did not err in dismissing the
second amended complaint without leave to amend.
Because Espy had previously been granted two chances to
amend but still failed to state a claim, “the district court’s
discretion to deny leave to amend is particularly broad.”
Zucco, 552 F.3d at 1007 (quoting In re Read-Rite Corp., 335
F.3d 843, 845 (9th Cir. 2003)). Espy points to two potential
sources of new information: “additional information from
the former employees” of J2, and a settlement agreement
resolving a Delaware action brought against J2 and Orchard
leadership for breach of fiduciary duties related to the
Orchard deal. Espy’s vague promise of “additional
information” cannot cure the deficiencies in the complaint.
Even assuming the Delaware settlement does represent new
facts—as the settlement was filed in July 2021 and only
brought to the district court’s attention in January 2022—
Espy fails to demonstrate how a settlement of a different
claim in a different jurisdiction rescues his claims here. The
district court did not abuse its discretion in denying further
leave to amend “since it was clear that the plaintiffs had
made their best case and had been found wanting.” Zucco,
552 F.3d at 1007.
   AFFIRMED.