Court Opinion

ID: 9957913
Source: CourtListenerOpinion
Date Created: 2024-04-05 17:00:56.780123+00
Date Added: 2024-06-11T08:16:41.087331
License: Public Domain

FOR PUBLICATION

   UNITED STATES COURT OF APPEALS
        FOR THE NINTH CIRCUIT

In re: GENIUS BRANDS                      No. 22-55760
INTERNATIONAL, INC.
SECURITIES LITIGATION,                      D.C. No.
______________________________           2:20-cv-07457-
                                           DSF-RAO
ALI ALAVI; A LEGACY
FOUNDATION, Lead Plaintiffs; On
Behalf of Themselves and All Others         OPINION
Similarly Situated,

              Plaintiffs-Appellants,
 v.

GENIUS BRANDS
INTERNATIONAL, INC.; ANDY
HEYWARD; ROBERT DENTON,

              Defendants-Appellees.

       Appeal from the United States District Court
          for the Central District of California
        Dale S. Fischer, District Judge, Presiding

        Argued and Submitted November 6, 2023
                 Pasadena, California

                   Filed April 5, 2024
2            IN RE: ALI ALAVI V. GENIUS BRANDS INT’L, INC.

     Before: William A. Fletcher and Salvador Mendoza, Jr.,
      Circuit Judges, and Karen E. Schreier,* District Judge.

                    Opinion by Judge Mendoza

                           SUMMARY**

                         Securities Fraud

    The panel affirmed in part and reversed in part the
district court’s dismissal, for failure to state a claim, of
shareholders’ securities-fraud complaint against Genius
Brands International, Inc., and other defendants.
     The shareholders alleged that, in violation of §§ 10(b)
and 20(a) of the Securities Exchange Act of 1934 and
implementing Rule 10b-5(a)-(c), Genius, a children’s
entertainment company, fraudulently concealed its
relationship with a stock promoter, PennyStocks.com;
misstated its relationship with Arnold Schwarzenegger;
exaggerated the number of times that Nickelodeon Jr. aired
Genius’s show Rainbow Rangers in a week; misrepresented
that Disney or Netflix would acquire Genius; and overstated
its rights to the collected works of comic book author Stan
Lee.

*
 The Honorable Karen E. Schreier, United States District Judge for the
District of South Dakota, sitting by designation.
**
  This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
          IN RE: ALI ALAVI V. GENIUS BRANDS INT’L, INC.     3

   Reversing in part, the panel held that the shareholders
adequately pleaded that Genius’s representations regarding
PennyStocks were misleading.
    The panel also held that the shareholders adequately
pleaded loss causation with respect to the Rainbow Rangers,
Disney/Netflix, and Stan Lee claims in this fraud-on-the-
market case.
   Affirming in part, the panel held that the shareholders did
not adequately plead loss causation with respect to the
Schwarzenegger claim.
    The panel remanded with instructions for the district
court to determine whether the shareholders alleged facts
sufficient to show the remaining elements of the
PennyStocks, Rainbow Rangers, Disney/Netflix, and Stan
Lee Rule 10b-5(b) claims and to consider anew whether the
shareholders’      PennyStocks,      Rainbow       Rangers,
Disney/Netflix, and Stan Lee allegations were sufficient to
state a claim under Rule 10b-5(a), Rule 10b-5(c), or Section
20(a).

                         COUNSEL

Raymond D. Sulentic (argued), Ex Kano S. Sams, II, and
Robert V. Prongay, Glancy Prongay & Murray LLP, Los
Angeles, California, for Plaintiffs-Appellants.
Michael L. Charlson (argued) and Elizabeth A. Matthews,
Vinson & Elkins LLP, San Francisco, California; Marisa
Antonelli, Vinson & Elkins LLP, New York, New York; for
Defendants-Appellees.
4        IN RE: ALI ALAVI V. GENIUS BRANDS INT’L, INC.

                         OPINION

MENDOZA, Circuit Judge:

    On the children’s show Rainbow Rangers, Rosie Redd,
her fellow Rangers, and their trusty unicorn sidekick Floof
use their superpowers to save Earth from disaster. Our
judicial power is slightly less sweeping, but today we use it
to save portions of a securities-fraud complaint from
erroneous dismissal.
    In 2019, Defendant-Appellee Genius Brands
International, Inc. (“Genius”), a children’s entertainment
company, watched its shares dip below the NASDAQ’s
minimum trading requirement. In the months that followed,
Genius scrambled to rescue its floundering securities.
According to Plaintiffs-Appellants, Ali Alavi and A Legacy
Foundation (collectively, “the shareholders”), Genius’s
efforts violated Sections 10(b) and 20(a) of the Securities
Exchange Act of 1934 (“Exchange Act”) and implementing
Rule 10b-5(a)–(c). They allege that Genius fraudulently:
(1) concealed its relationship with a stock promoter,
PennyStocks.com (“PennyStocks”); (2) misstated its
relationship with Austrian actor, bodybuilder, and former
California      Governor      Arnold        Schwarzenegger;
(3) exaggerated the number of times that Nickelodeon Jr.
aired Genius’s show Rainbow Rangers in a week;
(4) misrepresented that Disney or Netflix would acquire
Genius; and (5) overstated its rights to the collected works
of famed comic book author Stan Lee (“the Stan Lee
Universe”).
           IN RE: ALI ALAVI V. GENIUS BRANDS INT’L, INC.               5

    The district court dismissed the shareholders’
complaint.1 First, it dismissed the shareholders’ Rule 10b-
5(b) claim related to PennyStocks (“the PennyStocks
Claim”) because the shareholders failed to adequately allege
that Genius’s representations about PennyStocks were
misleading.     Next, the district court dismissed the
shareholders’ Rule 10b-5(b) claims related to
Schwarzenegger, the Rainbow Rangers, and the
Disney/Netflix acquisition (the “Schwarzenegger Claim,”
“Rainbow Rangers Claim,” and “Disney/Netflix Claim,”
respectively) because the shareholders failed to allege loss
causation.    Finally, the district court dismissed the
shareholders’ Rule 10b-5(b) claim related to Stan Lee (“the
Stan Lee Claim”) when it dismissed with prejudice the
complaint as a whole.
    On de novo review, we conclude that the shareholders
adequately pleaded that Genius’s representations regarding
PennyStocks were misleading. Additionally, we conclude
that the shareholders adequately pleaded loss causation with
respect to the Rainbow Rangers, Disney/Netflix, and Stan
Lee Claims, but not with respect to the Schwarzenegger
Claim. Accordingly, we affirm in part and reverse in part
the district court’s order.
                                   I.
    Genius is a small, publicly traded company that licenses
children’s entertainment.2 Its securities trade on the

1
  “The complaint,” as it is used here and throughout this opinion, refers
to the shareholders’ Second Amended Complaint.
2
 We accept the factual allegations in the complaint as true and view them
in the light most favorable to the shareholders. Weston Fam. P’ship
LLLP v. Twitter, Inc., 29 F.4th 611, 617 (9th Cir. 2022). We recite only
those facts relevant to the disposition of the issues before us.
6        IN RE: ALI ALAVI V. GENIUS BRANDS INT’L, INC.

NASDAQ exchange, which imposes a minimum bid price of
$1.00 per share. In 2019, Genius’s share price plummeted
below $1.00, prompting NASDAQ to warn Genius that it
had six months to regain compliance.
     Genius used a variety of strategies to buoy the value of
its stock and to comply with NASDAQ requirements. First,
it retained a securities promotion company, PennyStocks, to
promote its securities in exchange for more than 90,000
shares of Genius common stock. In the months that
followed, PennyStocks wrote and published several
favorable articles about Genius. Genius also touted itself on
social media and through press releases and shareholder
letters. On March 17, for example, Genius issued a press
release stating that Nickelodeon Jr. “ha[d] again increased
the broadcast of the Company’s hit original preschool series,
Rainbow Rangers, to 26 airings per week.” On March 19,
Genius’s stock price rose 25.6%.
    Later, on May 7, Genius conducted a direct offering of
shares subject to a Securities Purchase Agreement (“SPA”),
which stated:

       [Genius] has not, and to its knowledge no one
       acting on its behalf has, (i) taken, directly or
       indirectly, any action designed to cause or to
       result in the stabilization or manipulation of
       the price of any security of [Genius] to
       facilitate the sale or resale of any of the
       Shares, (ii) sold, bid for, purchased, or, paid
       any compensation for soliciting purchases of,
       any of the Shares, or (iii) paid or agreed to
       pay to any Person any compensation for
       soliciting another to purchase any other
       securities of [Genius], other than, in the case
            IN RE: ALI ALAVI V. GENIUS BRANDS INT’L, INC.                7

         of clauses (ii) and (iii), compensation paid to
         [Genius’s] placement agent in connection
         with the placement of the Shares.

Genius did not mention in the May 7 SPA that it had
compensated PennyStocks or that PennyStocks had
published favorable articles on Genius’s behalf.
    Genius’s flurry of business activity caught the media’s
attention, and the value of its shares fluctuated over the
course of June, July, and August 2020. On June 3, Insider
Financial published an article speculating whether Disney
or Netflix would acquire Genius, and Genius’s share price
surged 42.8%. Activist short sellers,3 like Citron Research
and Hindenburg Research, quickly took notice. On June 4,
Citron published a report suggesting that Genius had
engaged an undisclosed stock promoter. That day, Genius’s
share price fell 14.5%. The following day, June 5,
Hindenburg released a report (the “Hindenburg Report”)
revealing that Nickelodeon Jr. aired Rainbow Rangers fewer
than twenty-six times per week. That day, Genius’s share
price tumbled 14.4%, before falling even further over the
course of the following week.

3
 An “activist” refers to an individual or entity that makes “interventions”
to “affect share price.” Barbara A. Bliss et al., Negative Activism, 97
Wash. U. L. Rev. 1333, 1338 (2020). Some activists—the “positive”
activists—strive “to add value for shareholders and increase share
prices.” Id. at 1342–43. Other activists—the “negative” activists—seek
to “decrease [a] company’s stock price.” Id. at 1338. An activist short
seller fits into that second category. Activist short sellers often take a
short position on a target company—i.e., they bet that the value of the
company’s stock will decrease—and then may publish reports reflecting
poorly on the target company. Id. at 1348. Short seller reports frequently
increase the volatility of a target company’s stock “while significantly
decreasing share prices.” Id.
8        IN RE: ALI ALAVI V. GENIUS BRANDS INT’L, INC.

    Undeterred by this bad publicity, Genius continued its
efforts to revitalize its stock price. On June 15, Genius
tweeted that Schwarzenegger would invest in the company.
After the tweet, Genius saw its share price jump 8%. The
same day, however, a financial analysis group, Seeking
Alpha, reported that Genius had engaged PennyStocks to
unlawfully “pump” Genius’s stock and predicted that
Genius’s trading volume would decline to investors’
detriment. Over the next two days, June 16 and 17, Genius’s
share price declined by approximately 14% and 22%,
respectively.
    On June 21, Insider Financial published a second article
about Genius, this one suggesting that it was “only a matter
of time” before Disney or Netflix acquired Genius. The
following day, Genius retweeted the article from its official
Twitter (now “X”) account. The post quoted the article and
included hashtags and dollar signs adjacent to Genius’s stock
ticker. It was the only third-party article that Genius
retweeted during the class period. Ten days later, on July 2,
Genius issued a press release indicating that it would
announce a “key business development” on July 6. Genius’s
stock price rose on the heels of this press release. Some
speculated online that Genius would announce that Disney
or Netflix would acquire Genius. Yet, when July 6 arrived,
Genius did not announce a merger with Disney or Netflix.
    Instead, Genius announced a partnership with POW!
Entertainment, and that Genius and POW! would “[j]ointly
own[]” the Stan Lee Universe.              Following this
announcement, Genius’s shares tumbled from $3.55 per
share to $2.66 per share. The following day, July 7, Genius
received a letter from a law firm explaining that the rights
that Genius publicly claimed to have in the Stan Lee
Universe had been sold to another company, one that was
         IN RE: ALI ALAVI V. GENIUS BRANDS INT’L, INC.     9

represented by that law firm. Despite that notice, Genius did
not immediately disclose the July 7 letter or the truth
regarding its rights to the Stan Lee Universe.
    Genius’s financial woes continued after its Stan Lee
announcement. On August 14, Genius filed a Form 10-Q,
indicating that Genius had issued warrants to
Schwarzenegger in connection with his work on one of
Genius’s shows, Superhero Kindergarten. The next day,
Genius’s shares fell 3.2%. Seven months later, on March 30,
2021, Genius also issued a press release implying that
Genius’s ownership of the Stan Lee Universe was contested.
Genius’s shares fell 22.6%.
     Fed up with Genius’s volatile stock and increasingly
erratic approach to publicity, the shareholders filed suit
against Genius; its CEO, Andy Heyward; and its CFO,
Robert Denton. The shareholders assert three claims:
(1) violation of Section 10(b) of the Exchange Act and its
implementing rule, Rule 10b-5(b), against all Defendants;
(2) violation of Section 10(b) of the Exchange Act and its
implementing rules, Rules 10b-5(a) and (c), against all
Defendants; and (3) violation of Section 20(a) of the
Exchange Act against Heyward and Denton.                The
shareholders’ sprawling complaint invokes at least thirty-
eight allegedly false or misleading statements and omissions
that relate to several topics. Among others, the complaint
alleges that Genius concealed its relationship with
PennyStocks, overstated the number of times Nickelodeon
Jr. aired Rainbow Rangers per week, misstated the nature of
its partnership with Schwarzenegger, misleadingly implied
that Disney or Netflix would acquire Genius, and
misrepresented its rights to the Stan Lee Universe.
10        IN RE: ALI ALAVI V. GENIUS BRANDS INT’L, INC.

    The district court dismissed the shareholders’ suit with
prejudice for failure to state a claim under Rule 12(b)(6) of
the Federal Rules of Civil Procedure. The district court
began with the shareholders’ Rule 10b-5(b) claims, i.e., the
shareholders’ claims premised on allegedly fraudulent
statements and omissions. First, the district court dismissed
the PennyStocks Claim for failure to allege falsity because
the shareholders did not allege that “anything in the
PennyStocks articles themselves was false or misleading,”
and because PennyStocks had no duty to disclose Genius as
the source of its funding. Second, the district court
dismissed the Schwarzenegger Claim, determining that the
shareholders did not allege a “moment where the truth about
these statements was revealed” because the August 14 10-Q
was not a corrective disclosure. Third, the district court
dismissed the Rainbow Rangers Claim on the grounds that
the shareholders “fail[ed] to allege any meaningful increase
in the Company’s stock price after the Rainbow Rangers
Statements.” The district court dismissed the Disney/Netflix
Claim on the same grounds: failure to allege an initial price
increase. The district court did not provide an analysis of the
Stan Lee Claim.
    The district court then addressed the shareholders’
remaining claims, beginning with their scheme liability
claims under Rule 10b-5(a) and (c). The district court noted
that a plaintiff alleging a violation of Rule 10b-5(a) or (c)
must show “the same elements as a Rule 10b-5(b) claim.”
The district court determined that, because the shareholders
“did not establish the elements of their Rule 10b-5(b)
claim[s],” they “did not adequately plead a violation of Rule
10b-5(a) and (c).” Next, the district court dismissed the
shareholders’ Section 20(a) individual liability claims
against Denton and Heyward because the shareholders failed
            IN RE: ALI ALAVI V. GENIUS BRANDS INT’L, INC.                  11

to allege scheme liability or scienter. Finally, the district
court dismissed with prejudice the complaint as a whole.4
The shareholders timely appealed.
                                     II.
    We have jurisdiction under 28 U.S.C. § 1291. We
review a district court’s ruling on a Rule 12(b)(6) motion to
dismiss de novo, S. Ferry LP, No. 2 v. Killinger, 542 F.3d
776, 782 (9th Cir. 2008), and we can affirm on any ground
supported by the record, see Foster v. Wilson, 504 F.3d
1046, 1050 (9th Cir. 2007).
                                    III.
    Section 10(b) of the Exchange Act proscribes
“manipulative or deceptive” practices in connection with the
purchase or sale of registered securities on a national
securities exchange. 15 U.S.C. § 78j(b). Implementing Rule
10b-5 is “coextensive” with Section 10(b). In re Facebook,
Inc. Sec. Litig., 87 F.4th 934, 947 (9th Cir. 2023). To state
a claim under Section 10(b) and Rule 10b-5(b), plaintiffs
must allege: (1) a material misrepresentation or omission
(“falsity”), (2) made with scienter, (3) in connection with the
purchase or sale of a security, (4) reliance on the
misrepresentation or omission, (5) economic loss, and
(6) loss causation. In re Bofl Holding, Inc. Sec. Litig., 977
F.3d 781, 786 (9th Cir. 2020). Controlling persons liability
under Section 20(a) of the Exchange Act is derivative, such
that there is no individual liability where there is no primary

4
  The district court also stated in passing that it believed the shareholders’
complaint violated Rule 8 of the Federal Rules of Civil Procedure.
Because the district court did not dismiss the complaint on Rule 8
grounds, we do not reach the issue. We note, however, that the complaint
is not significantly more prolix than complaints that we have found
generally adequate in other securities class actions.
12        IN RE: ALI ALAVI V. GENIUS BRANDS INT’L, INC.

violation of securities law. See City of Dearborn Heights
Act 345 Police & Fire Ret. Sys. v. Align Tech., Inc., 856 F.3d
605, 623 (9th Cir. 2017); 15 U.S.C. § 77o.
    Securities fraud complaints, like the shareholders’
complaint, are subject to a heightened pleading standard
under the Public Securities Litigation Reform Act
(“PSLRA”) and Rule 9(b) of the Federal Rules of Civil
Procedure. In re Facebook, 87 F.4th at 947. Under the
PSLRA, “the complaint shall specify each statement alleged
to have been misleading, the reason or reasons why the
statement is misleading, and, if an allegation regarding the
statement or omission is made on information and belief, the
complaint shall state with particularity all facts on which that
belief is formed.” 15 U.S.C. § 78u-4(b)(1)(B). Similarly,
under Rule 9, a party alleging fraud or mistake “must state
with particularity the circumstances constituting fraud or
mistake.” Fed. R. Civ. P. 9(b). These heightened standards
apply “to all elements of a securities fraud action.” Oregon
Pub. Emps. Ret. Fund v. Apollo Grp., Inc., 774 F.3d 598, 605
(9th Cir. 2014). Ultimately, “[a]t the pleading stage, the
plaintiff’s task is to allege with particularity facts ‘plausibly
suggesting’ that both showings can be made.” In re Bofl
Holding, 977 F.3d at 791 (citing Bell Atl. Corp. v. Twombly,
550 U.S. 544, 557 (2007)).
    Here, the shareholders’ appeal involves five Claims that
implicate the first and sixth elements of a securities fraud
action: falsity and causation. We start with falsity and assess
whether Genius misled investors when it professed that it
had not compensated any entity to solicit its securities,
despite having retained PennyStocks to write and
disseminate favorable articles about it. We conclude that the
shareholders adequately alleged that Genius misled
investors regarding PennyStocks. Next, we turn to loss
            IN RE: ALI ALAVI V. GENIUS BRANDS INT’L, INC.                  13

causation and the Schwarzenegger, Rainbow Rangers,
Disney/Netflix, and Stan Lee Claims. We conclude that the
shareholders adequately pleaded loss causation with respect
to the Rainbow Rangers, Disney/Netflix, and Stan Lee
Claims, but not with respect to the Schwarzenegger Claim.
                                     A.
    We begin with falsity and the PennyStocks Claim. The
thrust of the PennyStocks Claim is that Genius misled
investors when it represented in its May 7 SPA that it had
not hired anyone to solicit its securities, when, in reality, it
had compensated PennyStocks to publish favorable articles
about Genius.5 To determine whether a statement or
omission is misleading, “our central inquiry is whether a
reasonable investor would have been misled about the nature
of his investment.” In re VeriFone Sec. Litig., 11 F.3d 865,
869 (9th Cir. 1993). This is an objective inquiry that requires
us to assess “whether an investor who had been reasonably
diligent in reviewing” the statement or omission at issue
“would have been misled.” Durning v. First Bos. Corp., 815
F.2d 1265, 1268 (9th Cir. 1987).
    Here, the parties do not clarify whether the PennyStocks
Claim is a statement- or omission-based claim. Both parties’
briefing seems to treat the PennyStocks Claim as premised

5
  The district court appears to have misunderstood the gist of the
PennyStocks Claim. It dismissed the PennyStocks Claim because the
shareholders did not allege that “anything in the PennyStocks articles
themselves was false or misleading” and that PennyStocks had no duty
to reveal that Genius was funding it. But the PennyStocks Claim does
not concern the veracity of the PennyStocks articles or the sources of
PennyStocks’s funding. Rather, the dispositive question is whether
Genius, by representing that it did not hire anyone to solicit its securities,
made a misleading statement.
14        IN RE: ALI ALAVI V. GENIUS BRANDS INT’L, INC.

on fraudulent statements. But the shareholders’ complaint
handles the PennyStocks Claim as based on fraudulent
omissions. Yet, either way we construe it, we conclude that
the district court erred when it dismissed the PennyStocks
Claim. Contrary to the district court’s suggestion, the
shareholders have adequately alleged that Genius misled
investors about its stock solicitation and relationship with
PennyStocks.
    Construing the PennyStocks Claim as premised on a
fraudulent statement, we find that Genius’s representation in
the May 7 SPA that it had not hired anyone to “solicit”
purchases of its securities was misleading. When Genius
stated that it “ha[d] not . . . paid or agreed to pay to any
Person any compensation for soliciting another to purchase
any other securities of the Company,” it had employed
PennyStocks to write and disseminate favorable articles
about Genius. The question, therefore, is whether writing
and disseminating favorable articles amounts to
“solicitation” within the May 7 SPA’s meaning. We
conclude that it does.
    The ordinary tools of contract interpretation help us
understand the meaning of the May 7 SPA. The plain
meaning of “solicit” is “to make petition,” “to urge,” or “to
entice or lure.” Solicit, The Merriam-Webster Dictionary
(rev. ed. 2022); cf. Solicitation, Black’s Law Dictionary
(11th ed. 2019) (defining “solicitation” as “[t]he act or an
instance of requesting or seeking to obtain something; a
request or petition”). In keeping with that definition, a
person solicits the sale of a security where she “petition[s],”
“entice[s],” “lure[s]” or “urge[s]” another to purchase a
security.
          IN RE: ALI ALAVI V. GENIUS BRANDS INT’L, INC.        15

    Our recent decision in Pino v. Cardone Capital, LLC, 55
F.4th 1253 (9th Cir. 2022) is also instructive. The plaintiff
in Pino filed suit against a real estate management company,
alleging that it made misleading statements on social media
to encourage people to invest in two of its equity funds. Id.
at 1255–56. In considering whether the real estate
management company was a statutory seller within the
meaning of Section 12(a)(2) of the Securities Act of 1933
(“Securities Act”), the court considered what it means to
“‘engage[] in solicitation,’ i.e., ‘solicit[] the purchase [of the
securities], motivated at least in part by a desire to serve his
own financial interests or those of the securities owner.’” Id.
at 1257–58 (third alteration in Pino) (quoting Pinter v. Dahl,
486 U.S. 622, 643, 647 (1988)). The court defined
“solicitation” broadly, applying it to various mechanisms
used to “‘urge or persuade’ another to buy a particular
security.” Id. at 1258 (quoting Wildes v. BitConnect Int’l
PLC, 25 F.4th 1341, 1346 (11th Cir. 2022)). And that
includes “communications made through diffuse, publicly
available means,” such “that a person can solicit a purchase,
within the meaning of the Securities Act, by promoting the
sale of a security in a mass communication.” Id. at 1258,
1260 (quoting Wildes, 25 F.4th at 1346).
    With plain meaning and Pino in mind, we conclude that
PennyStocks solicited the purchase of Genius’s securities.
According to the complaint, Genius retained PennyStocks
“to publish and disseminate favorable information about
Genius’s shares.” Those articles solicited the purchase of
Genius’s securities because they urged or lured readers into
purchasing Genius stock. It plausibly follows that Genius
misled investors when it represented in its May 7 SPA that
it “ha[d] not . . . paid or agreed to pay to any Person any
compensation for soliciting another to purchase any other
16        IN RE: ALI ALAVI V. GENIUS BRANDS INT’L, INC.

securities of the Company.” A diligent investor would have
taken that representation to mean that Genius had not hired
anyone to promote its securities, through articles or
otherwise. See Durning, 815 F.2d at 1268 (noting that
whether a statement is misleading is considered from the
vantage of a reasonably diligent investor). In reality, Genius
had compensated PennyStocks with more than 90,000 shares
of Genius common stock and, in return, PennyStocks
solicited the purchase of Genius’s stock through its articles.
    Genius fares no better if we frame the PennyStocks
Claim as based on a misleading omission. Ordinarily,
“[s]ilence, absent a duty to disclose, is not misleading under
Rule 10b-5.” Basic Inc. v. Levinson, 485 U.S. 224, 239 n.17
(1988). But an omission of a material fact is unlawful if the
omitted fact is “necessary in order to make the statements
made, in the light of the circumstances under which they
were made, not misleading.” 17 C.F.R. § 240.10b-5(b). Put
in simpler terms, disclosure is required if, under the
circumstances, nondisclosure would render some other
corporate statement misleading. See Retail Wholesale &
Dep’t Store Union Loc. 338 Ret. Fund v. Hewlett-Packard
Co., 845 F.3d 1268, 1278 (9th Cir. 2017) (“[A] duty to
provide information exists only where statements were made
which were misleading in light of the context surrounding
the statements.”).
     Here, Genius did not have an affirmative duty to disclose
its relationship with PennyStocks. See 15 U.S.C. § 77q(b).
Thus, if Genius had been silent, it likely would not have
misled investors. Basic, 485 U.S. at 239 n.17. But Genius
was not silent; it affirmatively represented in its May 7 SPA
that it had not “paid or agreed to pay to any Person any
compensation for soliciting another to purchase any other
securities of the Company.” Therefore, Genius was required
           IN RE: ALI ALAVI V. GENIUS BRANDS INT’L, INC.             17

to disclose its relationship with PennyStocks so as not to
render its statements about solicitation in its May 7 SPA
misleading. 17 C.F.R. § 240.10b–5(b).
    In short, whether we construe the PennyStocks Claim as
statement- or omission-based, a “reasonable investor” would
have been misled by Genius’s May 7 SPA. In re VeriFone,
11 F.3d at 869. A reasonable investor would have taken
Genius’s statements to mean that Genius had not retained
any person or any entity to promote its securities, when
Genius had in fact done so. For these reasons, we reverse
the district court’s decision that the shareholders failed to
adequately allege that Genius’s May 7 representation
regarding solicitation was misleading.6
                                  B.
    We next consider the Claims implicating loss causation:
the Schwarzenegger Claim, Rainbow Rangers Claim,
Disney/Netflix Claim, and Stan Lee Claim. Plaintiffs in
securities fraud actions must allege loss causation. Dura
Pharms. Inc. v. Broudo, 544 U.S. 336, 347 (2005). In a
fraud-on-the-market case like this one, loss causation
“begins with the allegation that the defendant’s
misstatements (or other fraudulent conduct) artificially
inflated the price at which the plaintiff purchased her
shares.” In re Bofl Holding, 977 F.3d at 789. Next, a
plaintiff must allege that “the truth became known.” Id.
(quoting Dura Pharms., 544 U.S. at 347). Finally, a plaintiff
must allege that “the revelation caused the fraud-induced
inflation in the stock’s price to be reduced or eliminated.”

6
 Because the district court did not address materiality, we do not do so
here. On remand, the district court shall consider whether the
shareholders adequately alleged materiality with respect to the
PennyStocks Claim.
18        IN RE: ALI ALAVI V. GENIUS BRANDS INT’L, INC.

Id. The plaintiff need not show “that a misrepresentation
was the sole reason” for a price decline, but rather that it was
“one substantial cause.” In re Daou Sys., Inc., 411 F.3d
1006, 1025 (9th Cir. 2005) (quoting Robbins v. Koger
Props., Inc., 116 F.3d 1441, 1447 n.5 (11th Cir. 1997)),
abrogated on other grounds by Matrixx Initiatives, Inc. v.
Siracusano, 563 U.S. 27 (2011). In the end, “loss causation
is simply a variant of proximate cause, [and] the ultimate
issue is whether the defendant’s misstatement, as opposed to
some other fact, foreseeably caused the plaintiff’s loss.”
Mineworkers’ Pension Scheme, 881 F.3d at 753 (quoting
Lloyd v. CVB Fin. Corp., 811 F.3d 1200, 1210 (9th Cir.
2016)). “[P]laintiffs need only show a ‘causal connection’
between the fraud and the loss,” and they can do so “even
when the alleged fraud is not necessarily revealed prior to
the economic loss.” Id. (quoting Nuveen Mun. High Income
Opportunity Fund v. City of Alameda, 730 F.3d 1111, 1119–
20 (9th Cir. 2013)).
                               1.
    We begin with the Schwarzenegger Claim. The
shareholders premise the Schwarzenegger Claim on
Genius’s June 15 tweet about Schwarzenegger. The
shareholders allege that the tweet misled investors into
believing that Schwarzenegger was investing in Genius,
when, in reality, he was merely developing a new show with
Genius, but not investing. The district court dismissed the
Schwarzenegger Claim because the shareholders did not
allege a “moment where the truth about these statements was
revealed.” We agree.
    To allege loss causation, the plaintiff must plead that “the
truth became known.” Dura Pharms., 544 U.S. at 347. “The
most common way for plaintiffs to prove that ‘the truth
         IN RE: ALI ALAVI V. GENIUS BRANDS INT’L, INC.    19

became known’ is to identify one or more corrective
disclosures.” In re Bofl Holding, 977 F.3d at 790. A
corrective disclosure “occurs when ‘information correcting
the misstatement or omission that is the basis for the action
is disseminated to the market.’” Id. (quoting 15 U.S.C.
§ 78u-4(e)(1)). It can reveal fraud “in one fell swoop” or
through a series of partial disclosures. Id. A corrective
disclosure also need not “precisely mirror” the
misrepresentation. Id. (quoting In re Williams Sec. Litig.—
WCG Subclass, 558 F.3d 1130, 1140 (10th Cir. 2009)). “It
is enough if the disclosure reveals new facts that, taken as
true, render some aspect of the defendant’s prior statement
false or misleading.” Id. In the end, “[a] corrective
disclosure can . . . come from any source, including
knowledgeable third parties such as whistleblowers,
analysts, or investigative reporters.” Id.
    A corrective disclosure, however, is not the only way a
plaintiff can show that “the truth became known.” Dura
Pharms., 544 U.S. at 347. Loss causation is a “‘context-
dependent’ inquiry,” and what may reveal fraud in one case
may not reveal fraud in another. Mineworkers’ Pension
Scheme v. First Solar Inc., 881 F.3d 750, 753 (9th Cir. 2018)
(per curiam) (quoting Lloyd, 811 F.3d at 1210). As a result,
we take “a flexible approach” in evaluating whether some
event or occurrence revealed fraud to the market. In re Bofl
Holding, 977 F.3d at 795. Thus, we have considered
whether an alleged revelation “contain[s] enough
information to significantly undermine” the allegedly
fraudulent misrepresentation, In re Gilead Scis. Sec. Litig.,
536 F.3d 1049, 1058 (9th Cir. 2008), such that it “can be
reasonably read to reveal” the underlying fraud, Metzler Inv.
GMBH v. Corinthian Colls., Inc., 540 F.3d 1049, 1063 (9th
Cir. 2008). We have also considered whether the “market
20       IN RE: ALI ALAVI V. GENIUS BRANDS INT’L, INC.

understood” the alleged revelation as “a revelation of fraud”
and responded accordingly. Mineworkers’ Pension Scheme,
881 F.3d at 753. Ultimately, we focus on plausibility: “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?” In re Bofl Holding,
977 F.3d at 795.
    Here, the shareholders contend that Genius’s August 14
10-Q revealed that Schwarzenegger had not invested in
Genius, and, by extension, that the June 15 tweet was false.
The August 14 10-Q, however, cannot “reasonably [be] read
to reveal” the truth behind the allegedly misleading tweet
because the tweet and the 10-Q speak to different things. See
Metzler, 540 F.3d at 1063. While the tweet asserted that
Schwarzenegger would invest in Genius, the 10-Q indicated
that Genius had compensated Schwarzenegger in connection
with Superhero Kindergarten. Investing in Genius and
developing programming with Genius are not mutually
exclusive; Schwarzenegger could have done both. Indeed,
he is a man known for his ability to do many things, like act
and run a state government. Accordingly, we cannot say
that, on the basis of the August 14 10-Q, the “market
understood” that the June 15 tweet was false. See
Mineworkers’ Pension Scheme, 881 F.3d at 753. For that
reason, the district court properly dismissed the
Schwarzenegger Claim.
                              2.
    Next, we turn to the Rainbow Rangers Claim, which
boils down to a simple alleged misrepresentation.
According to the shareholders, Genius misled investors
when it asserted in its March 17 press release that
Nickelodeon Jr. aired Rainbow Rangers twenty-six times per
          IN RE: ALI ALAVI V. GENIUS BRANDS INT’L, INC.      21

week, when, in reality, Nickelodeon Jr. only aired Rainbow
Rangers twelve to fourteen times per week. The district
court dismissed the Rainbow Rangers Claim on the grounds
that the shareholders failed to plead an initial price increase.
    In its analysis of the Rainbow Rangers Claim, the district
court erred in its recitation and application of our loss
causation rules. First, the district court’s reasoning
impermissibly conflated an initial price increase with initial
price inflation. We have held that “loss causation begins
with the allegation that the defendant’s misstatements (or
other fraudulent conduct) artificially inflated the price at
which the plaintiff purchased her shares.” In re Bofl
Holding, 977 F.3d at 789 (emphasis added). To show that a
misstatement inflated the value of a security, the plaintiff
must allege that “the price was higher than it would have
been had the false statements not been made.” Id. It bears
emphasis that initial price inflation and initial price increase
are not one and the same; a price increase is one way of
demonstrating that “the price was higher than it would have
been,” but it is not the only way. Id. To be sure, a plaintiff
can plausibly allege that a misstatement artificially inflated
a stock’s price by demonstrating that the stock’s price
meaningfully increased on the heels of the misstatement.
See, e.g., In re Gilead, 536 F.3d at 1052 (determining that
the plaintiffs adequately pleaded loss causation in part
because they alleged that the company’s misstatement
increased its stock price by 13.4%). But a plaintiff can also
successfully plead that misstatements artificially inflated the
value of a security where she can plausibly allege that the
stock’s price was higher “than it would have been had the
false statements not been made.” In re Bofl Holding, 977
F.3d at 789. For example, a plaintiff could plausibly allege
that a misstatement inflated the value of a security where the
22       IN RE: ALI ALAVI V. GENIUS BRANDS INT’L, INC.

price remained stable, but it would have gone down if the
misstatement had not been made. Similarly, a plaintiff could
plausibly allege that a misstatement inflated the value of a
security where the price dropped, but that the drop would
have been even more significant if the misstatement had not
been made. In either case, the plaintiff would plausibly
allege that the stock’s price was higher “than it would have
been had the false statements not been made,” even though
the misstatements did not increase the stock’s price. Id.
    Take, for example, cases involving corporate crisis
management or damage control. If a company’s stock is
tanking, and one of its senior executives makes a
misstatement that pacifies the market and causes the stock
price to decrease at a lower rate, that misstatement inflated
the stock’s price without increasing it. Similarly, if a
company is in hot water, and one of its executives makes a
misstatement to avoid a price crash and causes the stock
price to hold steady, that misstatement also inflated the
stock’s value without increasing it. In both scenarios, a
plaintiff could plausibly show that the misstatement inflated
the stock’s price because, if the misstatement had not been
made, the price would have fallen or continued to fall at a
higher rate. See In re Bofl Holding, 977 F.3d at 789.
    This concept is on full display in our recent In re
Facebook decision. There, social media giant Facebook
farmed out “vast amounts” of its users’ data to a “sketchy”
British consulting firm. In re Facebook, 87 F.4th at 942.
During the fallout, Facebook assured users that it had
changed its ways and that they were in control of their data.
Id. at 945. The press later revealed that Facebook had an
undisclosed practice of allowing certain “whitelisted” third-
party applications to obtain users’ data. Id. at 946.
Facebook’s stock dropped after that revelation.           Id.
          IN RE: ALI ALAVI V. GENIUS BRANDS INT’L, INC.    23

Although the plaintiffs did not plead that Facebook’s
misleading statement that users controlled their own data
increased the value of Facebook’s shares, we nevertheless
found that their allegations were sufficient to plead loss
causation. Id. at 954–55. The user-control statements were
crisis-management statements aimed at soothing the market
and averting a price crash. One would not reasonably expect
such a statement to increase the value of Facebook’s
securities. Rather, Facebook’s misstatements seemingly
comforted the market temporarily until the truth was more
fully revealed and Facebook’s stock plummeted. Id. at 945–
46. In that period, the value of Facebook’s stock was inflated
above what it would have been if the market had known the
truth from the outset.
    Second, the district court overlooked that the
shareholders do allege that Genius’s statement about the
frequency of the Rainbow Rangers showings increased the
price of Genius’s stock. The shareholders allege that Genius
made the Rainbow Rangers misstatement on March 17, and
that Genius’s stock price rose 25.6% two days later. They
further allege that the Hindenburg Report “reveal[ed] the
discrepancy” on June 8, and that Genius’s shares fell 14.3%
that day and another 26% the following day. Contrary to the
district court’s conclusion, these facts are sufficient to
demonstrate loss causation at the pleading stage. See In re
Bofl Holding, 977 F.3d at 789.
    In an effort to persuade us otherwise, Genius contends
that the Hindenburg Report did not reveal the truth to the
market because it reflected information that was already
public. That argument takes an overly restrictive view of our
precedent. We have held that “[a] disclosure based on
publicly available information can, in certain circumstances,
constitute a corrective disclosure,” like when “the alleged
24        IN RE: ALI ALAVI V. GENIUS BRANDS INT’L, INC.

corrective disclosure provide[s] new information to the
market that was not yet reflected in the company’s stock
price.” In re Bofl Holding, 977 F.3d at 795. Thus, we
generally consider whether the pre-existing public
information at issue is related to the alleged
misrepresentation, and whether it is readily available to the
public, easily digestible in its native format, and
understandable to a lay person, among other factors. Id.
(citing Pub. Emps. Ret. Sys. v. Amedisys, Inc., 769 F.3d 313,
318–23 (5th Cir. 2014)). This makes sense. After all,
securities issuers should not escape liability for
misrepresentations merely because they can show that
corrective information was publicly available on some
webpage tucked in a deep corner of the internet or buried in
some unwieldy spreadsheet. See id. at 323 (determining that
the plaintiffs pleaded adequate facts to show that a news
article premised on public Medicare records revealed fraud
where the records were “only available to a narrow segment
of the public” and “had little to no probative value in [their]
native state”). Such information is so hidden that the market
cannot access or understand it and react accordingly.
    Although the Hindenburg Report was premised on
public information—the March 2020 Nickelodeon Jr.
broadcast schedule—that information had “little to no
probative value in its native state.” Amedisys, 769 F.3d at
323. The shareholders attached to their complaint several
printouts of the webpage on Nickelodeon Jr.’s website that
features the broadcast schedule. The printouts covering the
week of March 18, 2020, span over twenty-five pages and
reflect no fewer than 377 show listings. A shareholder
hoping to fact check Genius’s March 17 claim that
Nickelodeon Jr. aired Rainbow Rangers twenty-six times per
week would have no easy time doing so. She would have to
         IN RE: ALI ALAVI V. GENIUS BRANDS INT’L, INC.   25

go onto Nickelodeon Jr.’s website, find the schedule
webpage, sift through hundreds of listings for shows like
Bubble Guppies and Team Umizoomi, and tally up the
handful of Rainbow Rangers listings.
     We also note that the shareholder’s task would be
considerably more difficult retrospectively because it
appears that the Nickelodeon Jr. schedule webpage is
updated daily or every other day. For example, the March
20 schedule shows “[w]hat’s on today” and allows users to
“view tomorrow’s schedule.” The March 21 schedule
indicates the same and so on. We question whether a
shareholder would have been able to easily access the March
18, 2020, broadcast schedule after March 18, 2020. Indeed,
it seems that whoever accessed the March 2020 schedule for
the purpose of making the attachment for the complaint had
to use a web archive to access the schedule webpage. Put
simply, the information contained in the Nickelodeon Jr.
broadcast schedule was not in a “readily digestible” form on
the Nickelodeon Jr. website and did not become digestible
until the Hindenburg Report synthesized it for the
marketplace. In re Bofl Holding, 977 F.3d at 795 (quoting
Amedisys, 769 F.3d at 323).          For that reason, the
shareholders have plausibly alleged that the truth became
known through the Hindenburg Report, and, therefore, have
adequately pleaded loss causation on the Rainbow Rangers
Claim. The district court erred in concluding otherwise.
                              3.
    Next, we turn to the Disney/Netflix Claim. The
gravamen of this claim is that Genius misled investors on
June 22 when it retweeted a June 21 Financial Insider
article—the second of two Financial Insider articles that
month speculating that Disney or Netflix would acquire
26        IN RE: ALI ALAVI V. GENIUS BRANDS INT’L, INC.

Genius. The district court dismissed the Disney/Netflix
Claim because “the price of the Company’s stock did not
meaningfully increase” after Genius retweeted the article.
We disagree.
     As discussed above, a plaintiff need not allege that a
defendant’s false or misleading statement caused an increase
in the stock price. Instead, it suffices to plausibly allege that
the stock price was higher than it would have been but for
the defendant’s statement—whether because the statement
increased the stock price, maintained the stock price, or
prevented a greater decrease in the stock price. Here, the
shareholders adequately alleged that Genius’s stock price
would have been lower but for Genius’s June 22 tweet
regarding the Disney or Netflix acquisition. On June 3,
Financial Insider published an article speculating that
Netflix or Disney would buy Genius. The price of Genius’s
stock jumped 42.8% that day. This price increase was
followed by three critical reports by Citron, Hindenburg, and
Seeking Alpha, the first of which was released on June 4.
Genius’s stock price fell 14% on June 4, another 13% on
June 5, another 14.3% on June 8, another 26% on June 9,
another 14% on June 16, and another 21.7% on June 17. By
the time that Genius retweeted the June 21 Financial Insider
article on June 22, its stock was trading at less than half of
its closing price on June 3, before the three critical reports
were issued.
    The shareholders allege that the company’s June 22
retweet of the June 21 Financial Insider article was a
successful effort to stanch the bleeding from the unfavorable
reports by Citron, Hindenburg, and Seeking Alpha. They
allege that the June 22 retweet “served to maintain some of
[the] inflation” caused by the June 3 Financial Insider
article. That is, the shareholders allege that Genius’s stock
            IN RE: ALI ALAVI V. GENIUS BRANDS INT’L, INC.                  27

price would have fallen even more if Genius had not
retweeted the June 21 Financial Insider article, which
misleadingly suggested that a buyout by Disney or Netflix
was in the works. Considering the enormous price increase
that the June 3 article caused, it is plausible that Genius’s
June 22 retweet maintained its stock price at a higher level
“than it would have been” absent the retweet.7 In re Bofl
Holding, 977 F.3d at 789.
    Further, the shareholders plausibly allege that the truth
became known on July 6 when Genius made an
announcement without mentioning a possible buyout by
Disney or Netflix. On July 2, ten days after Genius’s retweet
of the June 21 Financial Insider article, Genius issued a
press release stating that it would announce a “key business
development” on July 6. Based on the two Financial Insider
articles, and on Genius’s June 22 retweet of the second
article, investors speculated on Twitter that the “key
business development” that Genius planned to announce
could be a buyout by Disney or Netflix. On July 6, Genius
said nothing about a Disney or Netflix buyout. Instead,

7
  A third-party report’s assertions may not, in some circumstances, be
attributable to an entity that merely retweets such report. Determining
whether a third-party’s report is attributable to an entity that retweets that
report is highly fact-dependent. Here, Genius only retweeted one third-
party report during the class period, the June 21 Financial Insider article,
making it stand out. And Genius did not simply retweet the article
without commentary. Rather, Genius quoted the article and included
hashtags and dollar signs adjacent to Genius’s stock ticker. Finally,
Genius used its official company account to retweet the article, making
it more likely that the general public would perceive Genius as adopting
the article’s assertions. Thus, viewing these facts as a whole and in the
light most favorable to the shareholders, we hold that the shareholders
have plausibly alleged that the June 21 Financial Insider article’s
assertions are attributable to Genius.
28        IN RE: ALI ALAVI V. GENIUS BRANDS INT’L, INC.

Genius announced that it would jointly own the Stan Lee
Universe. Genius’s stock price fell from $3.55 to $2.66 per
share that day. The shareholders allege that the Stan Lee
announcement caused investors “to realize” that Genius had
misrepresented its prospects of being acquired by Disney or
Netflix because “the purported ‘key business development’
update [on July 6] had nothing to do with a sale to Disney or
Netflix.”
    Those allegations are sufficient to plead loss causation.
The July 6 Stan Lee announcement was plainly good, albeit
inaccurate, news. After all, it indicated that Genius would
jointly own intellectual property that had the potential to be
exceptionally profitable. Genius told investors that “Stan
was the editor and creative force behind Marvel Comics,
which was sold to the Walt Disney Company for $4.4 billion
and has since proved to be worth many multiples of that
amount.” Such news should have produced an increase in
Genius’s stock price. Instead, Genius’s stock price fell
sharply on July 6. The shareholders allege that the sharp
decline in Genius’s stock price on July 6 indicates that
investors understood the announcement as bad news for
Genius. We agree.
    Standing alone, the Stan Lee announcement was, of
course, good news. But the shareholders plausibly allege
that the market understood the announcement as bad news
because Genius’s failure to mention the Disney or Netflix
buyout signaled that no such buyout would take place. In
other words, they plausibly allege “that the market
understood” the Stan Lee announcement on July 6 “to be a
revelation” that Genius’s June 22 retweet of the second
Financial Insider article was false or misleading.
Mineworkers’ Pension Scheme, 881 F.3d at 753. In sum, the
shareholders plausibly allege that Genius’s June 22 retweet
          IN RE: ALI ALAVI V. GENIUS BRANDS INT’L, INC.      29

of the June 21 Financial Insider article “foreseeably caused
the [shareholders’] loss.” Id.
                               4.
    Finally, we turn to the Stan Lee Claim. The general tenor
of the Stan Lee Claim is that Genius misled investors on July
6 when it indicated that it would jointly own the Stan Lee
Universe, despite another entity owning those rights. Unlike
the other Claims at issue, the district court did not provide a
particularized explanation for its decision to dismiss the Stan
Lee Claim. Rather it disposed of the Stan Lee Claim when
it dismissed the complaint as a whole. Genius argues on
appeal that, even absent explanation, the district court
correctly dismissed the Stan Lee Claim because the
shareholders failed to demonstrate loss causation,
specifically, that the truth became known. We disagree.
    Contrary to Genius’s suggestion, the shareholders
adequately alleged loss causation with respect to the Stan
Lee Claim. The shareholders allege that in June 2020 the
value of Genius’s stock was dwindling. Amidst that decline,
Genius scrambled to rally investor confidence. In that effort,
Genius backed itself into a corner on July 2 by specifying
that it would make a big announcement on July 6. The
market reacted favorably to the promise of a big
announcement and Genius’s stock rose on July 2. Yet, after
the July 6 Stan Lee misstatement, Genius’s stock dipped
again.
    At first blush, it would appear that these allegations are
not the stuff of loss causation. After all, it seems implausible
that the shareholders would be able to show that the Stan Lee
misstatement inflated Genius’s stock price when Genius’s
stock price fell on the heels of the Stan Lee misstatement.
See In re Bofl Holding, 977 F.3d at 789 (requiring a plaintiff
30        IN RE: ALI ALAVI V. GENIUS BRANDS INT’L, INC.

to demonstrate initial price inflation). But as we explain in
greater detail above, price inflation and price increase are
not synonymous and our precedent requires a showing of the
former, not the latter. See id. The value of a declining stock
can nevertheless be inflated for loss causation purposes
where, as here, the stock would have declined even more if
the misrepresentation had not been made. Id.
    Applied here, that principle dictates that it is plausible
that, on July 6, the value of Genius’s stock “was higher than
it would have been” if Genius had not made the Stan Lee
misstatement. See In re Bofl Holding, 977 F.3d at 789. After
Genius’s July 2 statement, the market anticipated a big
announcement on July 6. It is plausible that, if Genius had
not made the Stan Lee misstatement on July 6, Genius’s
stock would have tumbled even more. See id. at 791 (“At
the pleading stage, the plaintiff’s task is to allege with
particularity facts ‘plausibly suggesting’ that [such]
showings can be made.”). If Genius had not made an
announcement on July 6, it seems probable that the market
would have been especially disappointed by the lack of an
anticipated big announcement and that Genius’s stocks
would have fallen even further. Viewed in this light, the
Stan Lee misstatement artificially inflated Genius’s stock
value on July 6 even though the overall value declined that
day.
    The shareholders’ allegations are also sufficient to
demonstrate the other elements of loss causation as to the
Stan Lee Claim. They allege that Genius received a letter
from a law firm on July 7 indicating that POW! had already
licensed the rights to the Stan Lee Universe. Yet, on that
day, Genius did not publicly disclose the letter or the
information it reflected. Instead, the truth of Genius’s rights
to the Stan Lee Universe—or lack thereof—did not become
          IN RE: ALI ALAVI V. GENIUS BRANDS INT’L, INC.     31

known until Genius disclaimed its rights over eight months
later in a press release issued on March 30, 2021. When the
market learned the truth, Genius’s shares tumbled 22.6%.
Taken together, these allegations are sufficient to allege loss
causation at the pleading stage.
                       *       *        *
    In sum, we conclude that the shareholders plausibly
allege that, for their Rule 10b-5(b) Claims, Genius’s
representations regarding PennyStocks in its May 7 SPA
were misleading, and Genius’s statements regarding
Rainbow Rangers, Disney/Netflix, and Stan Lee caused the
shareholders’ losses. At the same time, the shareholders
have not plausibly alleged their Schwarzenegger Claim has
merit. Accordingly, we AFFIRM in part and REVERSE in
part the district court’s order dismissing the shareholders’
Second Amended Complaint. We REMAND to the district
court for further proceedings in keeping with this opinion.
On remand, the district court shall determine whether the
shareholders alleged facts sufficient to show the remaining
elements of the PennyStocks, Rainbow Rangers,
Disney/Netflix, and Stan Lee Rule 10b-5(b) Claims.
Additionally, on remand, the district court shall consider
anew whether the shareholders’ PennyStocks, Rainbow
Rangers, Disney/Netflix, and Stan Lee allegations are
sufficient to state a claim under Rule 10b-5(a), Rule 10b-
5(c), or Section 20(a).