## Facts

- Investors brought a putative class action against a bank holding company and senior executives alleging violations of Exchange Act § 10(b) and Rule 10b-5, and control-person liability under § 20(a).
- Plaintiffs alleged defendants misrepresented the company’s conservative underwriting, effective internal controls, and strong compliance practices, allegedly masking risky or unlawful lending and control failures.
- Plaintiffs tied stock declines to two categories of alleged corrective disclosures:
  - A whistleblower lawsuit filed by a former internal auditor alleging misconduct, including misleading regulators and concealing risky or illegal loans.
  - A series of negative online articles/blog posts (including anonymous or pseudonymous posts) criticizing lending practices and internal controls, allegedly based largely on public information.
- The district court dismissed with prejudice for failure to plead loss causation, concluding the whistleblower complaint did not “confirm” fraud and the blog posts were not actionable corrective disclosures; it also rejected claims tied to statements about the absence of government investigations.

## Issues

1. Whether allegations in a whistleblower lawsuit by a former insider can constitute a corrective disclosure sufficient to plead loss causation under § 10(b) at the pleading stage.
2. Whether negative online articles/blog posts qualify as corrective disclosures revealing the falsity of prior statements, rather than merely criticizing public information.
3. Whether plaintiffs plausibly alleged falsity and loss causation concerning statements about the absence of government investigations.

## Decision

- The Ninth Circuit reversed in part and remanded.
- It held plaintiffs adequately pleaded loss causation as to some alleged misstatements by alleging the whistleblower lawsuit plausibly functioned as a corrective disclosure followed by a stock price decline.
- It affirmed dismissal of claims premised on the blog posts, holding they were not plausibly perceived by the market as revealing prior falsity in this case.
- It affirmed dismissal of claims tied to statements about government investigations for inadequate pleading of falsity and loss causation.

## Legal Principles

- Loss causation in fraud-on-the-market cases may be pleaded by alleging that a corrective disclosure revealed the falsity of prior misstatements and that the stock price declined as a result.
- A corrective disclosure need not be a “mirror image” of the alleged misrepresentation and need not be a formal admission or regulatory finding; the question is whether it plausibly revealed falsity to the market.
- Allegations in a lawsuit, standing alone, are not categorically barred from qualifying as a corrective disclosure; credibility, detail, and alleged market reaction may support plausibility at the pleading stage.
- Critical characterizations or reinterpretations of already-public information generally do not suffice as corrective disclosures absent plausible allegations that the publication revealed new facts that the market understood as exposing prior falsity.
- Statements about government investigations require plausible allegations that the statements were false when made and that a subsequent disclosure revealed that falsity and caused the claimed loss.

## Conclusion

The court allowed the case to proceed only to the extent plaintiffs tied losses to a detailed, insider whistleblower complaint plausibly credited by the market as revealing falsity, while rejecting loss-causation theories based on anonymous blog posts and insufficiently pleaded claims about government-investigation statements.


In re BofI Holding, Inc. Securities Litigation, 977 F.3d 781 (9th Cir. 2020)