Metzler Investment v. Corinthian Colleges

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

METZLER INVESTMENT GMBH, 
Plaintiff-Appellant,
and No. 06-55826
CONWAY INVESTMENT CLUB, D.C. No.
individually and on behalf of all CV-04-05025-R
others similarly situated,
Plaintiff,  ORDER
AMENDING
v. OPINION AND
CORINTHIAN COLLEGES, INC.; DAVID AMENDED
MOORE; ANTHONY DIGIOVANNI; OPINION
DENNIS BEAL,
Defendants-Appellees.

Appeal from the United States District Court
for the Central District of California
Manuel L. Real, District Judge, Presiding

Argued and Submitted
February 11, 2008—Pasadena, California

Filed July 25, 2008
Amended August 26, 2008

Before: Alfred T. Goodwin, Betty B. Fletcher, and
N. Randy Smith, Circuit Judges.

Opinion by Judge B. Fletcher

11671
11674 METZLER INVESTMENT v. CORINTHIAN COLLEGES

COUNSEL

Jeff S. Westerman, Arthur Miller (argued), Milberg Weiss
Bershad & Schulman LLP, Los Angeles, California, for the
plaintiff-appellant.
 METZLER INVESTMENT v. CORINTHIAN COLLEGES 11675
John W. Spiegel, Munger, Tolles & Olson LLP, Los Angeles,
California, for the defendants-appellees.

ORDER

We hereby amend our Opinion filed July 25, 2008 at Slip
Opinion 9249. We file the Amended Opinion contemporane-
ously with this order. We amend as follows:

Delete the paragraph on page 9282 beginning “Second,
Corinthian . . .” and ending with “regulatory scrutiny.”

Insert a new paragraph reading:

“Second, Corinthian was not required to make an
immediate disclosure of the DOE and California AG
investigations, at least not on the facts of this case.
A comparison to In re Apollo Group, Inc. Securities
Litigation, 509 F. Supp. 2d 837, 841 (D. Ariz. 2007),
is instructive. In Apollo the district court denied the
parties’ cross-motions for summary judgment based
in part on a disputed fact regarding the materiality of
a DOE investigation of the Apollo Group. Id. Like
Corinthian, Apollo is a large for-profit provider of
post-secondary education. Id. at 839. The plaintiffs
based their claim on the fact that Apollo failed to
reveal a DOE investigation of misconduct that tied
recruiters’ compensation to enrollment figures. Id.
Defendants failed to disclose a report containing a
preliminary DOE finding of non-compliance related
to those practices. Id. (“The report, which was issued
on February 5, 2004, concluded, among other things,
that the [Apollo campus at issue] improperly com-
pensated its enrollment counselors ‘solely based on
[the] recruiters’ success in securing enrollments,’ a
violation of DOE regulations.”) (second alteration in
11676 METZLER INVESTMENT v. CORINTHIAN COLLEGES
original). Two weeks after the DOE issued that
report, Apollo released a press statement regarding a
dismissal in related lawsuits based on allegations of
recruiter misconduct and that “the government
declined to intervene” in those suits. Id. at 841-42.
Although this statement was formally true, the court
found a disputed issue of fact as to whether it was
“misleading” in light of the DOE report concerning
the exact same recruiting practices.14 Id. at 842; see
also In re Apollo Group, Inc. Sec. Litig., 395 F.
Supp. 2d 906, 920 (D. Ariz. 2005) (denying motion
to dismiss in same case where CEO misleadingly
suggested that no report would issue from DOE).
Here, unlike the complaint in Apollo, the TAC does
not connect the DOE or California Attorney General
investigations to any false or misleading statement—
i.e., some affirmative statement or omission by
Corinthian that suggested it was not under any regu-
latory scrutiny.”

OPINION

B. FLETCHER, Circuit Judge:

Due in large part to the enactment of the Private Securities
Litigation Reform Act (“PSLRA”) of 1995, Pub. L. No. 104-
67, 109 Stat. 737 (1995), plaintiffs in private securities fraud
class actions face formidable pleading requirements to prop-
erly state a claim and avoid dismissal under Fed. R. Civ. P.
12(b)(6). Plaintiff Metzler Investment GMBH’s (“Metzler”)
Consolidated Third Amended Complaint (“TAC”), despite its
lengthy and far-ranging allegations, fails to meet these
14
In a settlement agreement that contained no admission of wrongdoing,
Apollo agreed to pay $9.8 million to settle the DOE’s program review. In
re Apollo Group Inc., 509 F. Supp. 2d. at 839-40.”
 METZLER INVESTMENT v. CORINTHIAN COLLEGES 11677
requirements. We affirm the district court’s dismissal of the
TAC, with prejudice.

I. FACTUAL BACKGROUND1 AND PROCEDURAL HISTORY

Metzler, an institutional investor, is lead plaintiff in a puta-
tive federal securities fraud class action brought pursuant to
§§ 10(b) and 20(a) of the Securities and Exchange Act of
1934 and Securities Exchange Commission (“SEC”) Rule
10b-5. Defendant-Appellee Corinthian Colleges, Inc.
(“Corinthian”) is one of the nation’s largest operators of pri-
vate for-profit vocational colleges. As of June 30, 2004,
Corinthian operated 88 such colleges in 22 states. Three indi-
viduals who served as officers of Corinthian during the Class
Period are also named as Defendants: Dennis Beal, Corinthi-
an’s Chief Financial Officer and Vice President; David
Moore, Corinthian’s Chairman and Chief Executive Officer;
and Anthony Digiovanni, Corinthian’s President and Chief
Operating Officer.

During the Class Period, which extended from August 27,
2003 to July 30, 2004, Metzler purchased 116,000 shares of
Corinthian stock. Numerous other plaintiffs also purchased
stock during the Class Period and filed their own actions
against Corinthian. Eleven separate actions were consolidated
with this proceeding and Metzler was appointed lead plaintiff.

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

Metzler alleges that Corinthian’s colleges are pervaded by
fraudulent practices designed to maximize the amount of fed-
1
Our factual summary is taken from the TAC, documents incorporated
into the TAC by reference, and matters that were properly judicially
noticed by the district court. See Tellabs, Inc. v. Makor Issues & Rights,
Ltd., 127 S. Ct. 2499, 2509, 168 L. Ed. 2d 179 (2007). For purposes of our
review, we accept as true all factual allegations in the TAC. See id.; In re
Silicon Graphics, Inc. Sec. Litig., 183 F.3d 970, 983 (9th Cir. 1999).
11678 METZLER INVESTMENT v. CORINTHIAN COLLEGES
eral Title IV funding—a major source2 of Corinthian’s
revenue—that those schools receive. The TAC alleges that
Corinthian engaged in a variety of false or deceptive schemes:
falsifying financial aid applications to obtain federal funds
and increase federal award entitlements; encouraging students
to falsify federal student aid forms themselves; manipulating
student enrollment by counting students not yet enrolled
(referred to in the TAC as “false starts”); manipulating or fal-
sifying student grades to maintain federal funding eligibility;
exposing the company to bad debt in order to meet regulatory
requirements for continued federal funding; delaying notifica-
tion to federal officials of dropped students and delaying
refunds to the federal government after students had dropped;
and manipulating job placement data in order to satisfy fed-
eral and state regulatory requirements. According to the TAC,
the net effect of these practices was that “at numerous Corin-
thian campuses, as many as 50% to 60% of the people defen-
dants represented to the U.S. government as being qualified,
attending ‘students’ were either ‘no shows’ in class or unqual-
ified for admission and federal funds from the outset.” TAC
¶ 4. Thus, according to the TAC, Corinthian’s public face to
the market—one of growth and financial success premised on
increasing student enrollment and successful placement rates
—masked extensive fraud. The TAC alleges that this fraud
resulted in an artificial inflation of Corinthian’s stock price.

The TAC further alleges that Corinthian violated Generally
Accepted Accounting Principles (“GAAP”) by improperly
recognizing revenue. According to the TAC, at some of its
schools Corinthian recognized an entire month’s worth of
tuition revenue for a student’s first full month of attendance,
regardless of the date during that month on which the student
started. Corinthian ultimately changed this practice to recog-
nize tuition for half of a student’s first month of attendance
and half of a student’s final month of attendance. As a result,
2
In 2003, Corinthian derived 82% of its revenue from federal student
loan funding.
 METZLER INVESTMENT v. CORINTHIAN COLLEGES 11679
in August 2005, it issued restated financials that reflected a
$16.9 million decrease in retained earnings.

These allegations of fraudulent practices are supported
principally by statements taken from confidential witnesses
(abbreviated in the TAC as “CW”), who are former Corin-
thian employees that served at numerous campuses in differ-
ing capacities. The CW’s identified in the TAC include
campus presidents, admissions officials, financial aid officers,
and IT and accounting personnel. These CW’s, with varying
degrees of specificity, attest to instances of misconduct on
their campuses that support the more generalized allegations
of fraud contained elsewhere in the TAC.

The TAC also avers to post-Class Period events that serve
to confirm the TAC’s allegations of Corinthian’s fraud during
the Class Period. In November 2005, Corinthian released re-
stated financials that revealed Corinthian had overstated its
revenues during the Class Period. The restatement revealed
that revenues were overstated by 10.5% for the quarter ending
September 30, 2003, 4.5% for the quarter ending December
21, 2003, and 15% for the quarter ending March 31, 2004.
The TAC points to government investigations and private liti-
gation, initiated after the close of the Class Period, that further
confirm Corinthian’s fraudulent practices. In November 2005,
the Florida Attorney General subpoenaed documents from a
Corinthian campus in Florida related to Corinthian’s advertis-
ing and admissions practices. In December 2005, three Corin-
thian campuses in Georgia had their accreditation revoked by
the Accrediting Bureau of Health Education Schools
(“ABHES”) for failing to meet student completion and place-
ment requirements. Similarly, Corinthian colleges in Michi-
gan and Indiana were ordered by the ABHES to show cause
why, because of alleged improper admissions and high attri-
tion, they should not have their accreditation revoked.

Because Corinthian campuses were allegedly pervaded by
fraudulent admission practices, the TAC alleges that virtually
11680 METZLER INVESTMENT v. CORINTHIAN COLLEGES
every Class Period statement discussing Corinthian’s financial
status was false. Specifically, the TAC alleges that public
statements in regulatory disclosures and related documents
regarding the company’s financial performance were rendered
false by the fact that Corinthian’s underlying fraudulent prac-
tices remained hidden. The TAC states:

All of Corinthian’s stated financial results during the
entire Class Period were false and misleading as a
result of the Company-wide scheme to inflate enroll-
ment figures in order to misappropriate federal
financial aid funding. Likewise, defendants’ state-
ments lauding the Company’s strong financial per-
formance were also false and misleading. . . .
Defendants also made positive statements regarding
the Company’s educational services and business
practices that were false and misleading in light of
the fraudulent means by which a substantial portion
of the Company’s business was gained, in complete
disregard for their students’ educational goals and
financial well-being. . . . The totality of defendants’
statements underlined above create the false impres-
sion that defendants ran their business with proper
financial reporting compliance with student enroll-
ment and federal loan practices which were critical
to the viability of the business, and that quality of
education was emphasized.

TAC ¶¶ 142-150. The TAC thus alleges that any positive
financial statement released by the company created the
decidedly false impression among investors that Corinthian’s
success was due to “legitimate business means that could be
expected to continue,” when in fact its “financial performance
was materially driven by fraudulent manipulation of the Title
IV funding program and could cease at any time if exposed.”
TAC ¶ 147(a).
 METZLER INVESTMENT v. CORINTHIAN COLLEGES 11681
In addition to these alleged affirmative false statements, the
TAC also claims that Corinthian made “omissions to conceal
[its] regulatory and accounting problems,” by failing to imme-
diately disclose a Department of Education (“DOE”) investi-
gation at Corinthian’s Bryman College campus in San Jose,
California (“Bryman”). TAC ¶ 322. The DOE investigation,
commenced in December 2003, concluded that admission
officials at Bryman failed to properly verify student informa-
tion submitted in connection with financial aid applications,
and resolved inconsistencies in those applications in a manner
favorable to Bryman’s ability to obtain federal funding. As a
result of the DOE investigation, the Bryman campus was
placed on “reimbursement” status; reimbursement status
requires an institution to seek reimbursement for federal fund-
ing as opposed to having those funds dispersed up front. The
lag time between application and reimbursement may be as
long as 45 days. Corinthian did not disclose this investigation
or its findings in its fourth quarter 2003 or first quarter 2004
SEC filings. Instead, on June 24, 2004, a Financial Times
news article reported on the investigation, stating that, “In-
spectors discovered that school officials had helped students
manipulate financial aid documents to obtain the maximum
possible towards tuition fees — breaching Title IV of the
Higher Education Act. They found admission officers assisted
students in claiming extra dependants to obtain additional
financial aid, according to the legal sources.”3 Corinthian
responded with a press release the same day, confirming the
investigation and stating that DOE’s primary finding was that
“the school had not properly verified information in students’
financial aid applications.” The following day, on June 25,
2004, a DOE official was quoted in a Financial Times article
3
The Bryman campus was notified by the DOE that it had been returned
to standard advance payment status on September 22, 2004. A Corinthian
press release explained, “The notification from the DOE stated that the
change in status was based, in part, on the school’s ability to demonstrate
that it can comply with the rules and regulations of the Federal Title IV
programs.”
11682 METZLER INVESTMENT v. CORINTHIAN COLLEGES
as stating that the investigation “did not confirm or deny any-
thing about fraud.”

Similarly, the TAC alleges that Corinthian improperly
withheld information related to an investigation by the Cali-
fornia Attorney General. The California Attorney General had
met with Corinthian officials on July 21, 2004, in order for
Corinthian to voluntarily provide information related to its
admission practices and student satisfaction. Again, Corin-
thian did not immediately disclose this meeting or its purpose.
Instead, a press release issued on August 2, 2004, which also
included an adjusted revenue forecast, disclosed the fact of
the meeting and Corinthian’s voluntary compliance with the
California Attorney General’s requests.

B. The TAC’s scienter allegations.

The TAC states that “defendants acted with scienter,”
which requires an intent to defraud or deceive, as to their
alleged fraudulent practices and false public statements. TAC
¶ 348. The TAC relies on a variety of allegations to support
its claim that Corinthian’s practices were intended to deceive
investors.

First, the TAC alleges that suspicious stock sales made by
Beal and Moore during the Class Period reflect the fact that
Corinthian’s purported fraudulent practices were intentional.
During the Class Period, Beal and Moore sold over $33 mil-
lion in stock. These Class Period sales constituted approxi-
mately 37% of Moore’s total holdings and 100% of Beal’s
holdings. The proceeds from those sales were substantially
higher than the proceeds each received from pre-Class Period
sales (82% higher for Moore; 252% higher for Beal). Neither
Beal nor Moore made any sales after the June 24, 2004 Finan-
cial Times story revealing the investigation at the Bryman
campus.

Second, the TAC points to Corinthian’s “hands on” man-
agement and tracking of student data and information. TAC
 METZLER INVESTMENT v. CORINTHIAN COLLEGES 11683
¶ 369. According to a 2003 Form 10-K, Corinthian’s senior
management exercised close oversight over school perfor-
mance and “monitor[ed] operating performance and profit-
ability of each college and ha[d] access to operational data
through our sophisticated information systems . . . [including]
lead flow, starts, student population, and other operating
results to determine the proper course of action.” TAC ¶ 367
(quoting Corinthian’s 2003 Form 10-K). Several confidential
witnesses corroborated the fact that Corinthian management
closely monitored performance at each campus, including
information regarding student enrollment and retention. This
information was also contained in a “sophisticated informa-
tion management system and database [Corinthian] employed
to track everything from student recruitment to job place-
ment.” TAC ¶ 371. The inference plaintiffs draw from the
availability of such a wide swath of data is that Corinthian’s
management must have known about underlying fraudulent
conduct to achieve maximum federal funding at various
schools.

Third, the TAC avers to Beal’s knowledge of Corinthian’s
early revenue recognition practices—crediting a full month’s
worth of tuition regardless of whether a student started at the
beginning or end of that particular month—as reflective of
knowledge of fraudulent conduct more generally. The TAC
also alleges that at a company-wide meeting in Spring 2004,
Beal complained to Corinthian corporate officers and campus
officials that the company’s numbers needed to improve, and
that admissions officers work in “the gray area” when dealing
with unqualified students. TAC ¶ 297. Beal also resisted
changes to Corinthian’s revenue recognition practices because
he was reluctant to take the one quarter “hit” that would result
from changing the practice; an end of month revenue recogni-
tion would result in a loss to reported revenues for earlier in
the month. TAC ¶ 130. When other Corinthian officers raised
concerns regarding the practices, Beal allegedly dismissed
those concerns as unimportant or insignificant. Again, this
11684 METZLER INVESTMENT v. CORINTHIAN COLLEGES
revenue recognition practice was ultimately changed in
August 2005 after the close of the Class Period.

More generally, the TAC refers to post-Class Period state-
ments that confirm that Corinthian was aware of wrongdoing
during the Class Period. The TAC contends that a slide show
given at Corinthian’s 2005 Presidents’ meeting demonstrates
that it knew compliance problems were detrimental to the
company’s well-being. Those slides stated that “failure to
adhere to program requirements impacts students [sic] skill
development and may lead to student injury, lack of certifica-
tion, poor patient care, [and] other end-customer impact.”
TAC ¶ 62. The presentation slides also referred to the signifi-
cance of Corinthian’s regulatory compliance obligations,
observing: “As a publicly traded company, we must disclose
violations of regulatory non-compliance: Increases adminis-
trative burden on the corporation to respond and defend;
Impacts public confidence, stock price; Even non-material
violations, if detected, are highly scrutinized by investors.”
TAC ¶ 141.

C. The TAC’s allegations that Corinthian’s fraud was
revealed to the market, causing Metzler’s losses.

The TAC points to two specific disclosures that purportedly
revealed Corinthian’s fraudulent student enrollment and
financial aid practices to the market: (1) the June 24, 2004
Financial Times story reporting the DOE investigation at the
Bryman campus, and (2) an August 2, 2004 press release dis-
closing reduced earnings and earning projections. According
to the TAC, when read in tandem these two disclosures
revealed “the truth regarding [Corinthian’s] fraudulent prac-
tices and deception,” and precipitated considerable drops in
the value of Corinthian stock. TAC at 18.

As described above, the June 24 Financial Times story
revealed that the DOE investigated Corinthian’s Bryman cam-
pus in December 2003, and as a result that campus had been
 METZLER INVESTMENT v. CORINTHIAN COLLEGES 11685
placed on reimbursement status. The Financial Times story
further reported, however, that the DOE review and Bryman’s
placement on reimbursement status, “does not affect the status
of other Corinthian schools.” Nonetheless, Corinthian stock
fell $2.55 on June 24, losing 10% of its value and closing at
$22.51. Corinthian’s stock rebounded within three trading
days and by June 29, 2004, it rose to $25.11, an amount that
exceeded the stock’s value before the June 24 Financial
Times story.

The second alleged disclosure occurred on August 2, 2004,
when Corinthian issued a press release announcing that it had
cut its revenue and earnings projections for the fourth quarter
of 2004 and all of fiscal year 2005. That press release also
revealed that the company had participated in a meeting with
the California Attorney General regarding Corinthian’s busi-
ness practices. The release announced revised earnings per
share (“EPS”) for fiscal year 2004 of 86 to 87 cents, down
from earlier projections of 94 cents EPS. The company also
lowered guidance for all of fiscal year 2005. CEO Moore
attributed the reduced earnings and accompanying projections
to a number of factors:

During the fourth quarter [FY 2004] we achieved a
remarkable growth rate in student enrollments,
although below our expectations. Strong growth,
unfortunately, sometimes brings challenges, and
there were several during the past quarter that we
now believe caused our revenue to fall short of our
expectations and earlier guidance. Those factors
included changes in lead flow mix among television
leads, direct mail leads, newspaper leads and Internet
leads; higher than anticipated attrition; negative pub-
licity related to student litigation in Florida; and later
than anticipated new branch campus openings.

After the August 2, 2004 earnings miss, Corinthian’s stock
dropped 45% to $10.29.
11686 METZLER INVESTMENT v. CORINTHIAN COLLEGES
The TAC focuses on a particular passage from the August
2 release: Moore’s reference to “higher than anticipated attri-
tion” at Corinthian schools. The TAC contends that this lan-
guage is a veiled reference alerting the market to Corinthian’s
more extensive fraudulent student enrollment and financial
aid practices:

Plaintiff and the Class members purchased Corin-
thian shares during the Class Period at artificially
inflated prices without knowledge of defendants’
fraudulent financial aid and related practices . . . .
[A]rtificial inflation in Corinthian’s stock price was
eliminated on August 2, 2004, when defendants
announced the lowered financial results and—for the
first time—partially attributed the revenue shortfall
to “higher than anticipated attrition”—a euphemism
for an admission that they had enrolled students who
should not have been signed up at all, resulting in a
45% stock drop. This precipitous drop in share value
is consistent with plaintiff’s allegation that as much
as 50% to 60% of enrollment at some Corinthian
schools were illegitimate “false starts.”

TAC ¶¶ 48-49. Although the TAC contends that the August
2 press release’s reference to attrition alerted the market to
inflated student enrollment numbers, that same release
reported that Corinthian’s overall enrollment had increased
49.9% for fiscal year 2004. The TAC does not dispute that
there was an increase in overall reported enrollment in 2004,
nor does it point to information—beyond the Financial Times
story and the August 2 press release—that informed the mar-
ket that Corinthian had engaged in widespread student enroll-
ment and financial aid fraud. But the TAC avers that the
cumulative effect of these two disclosures was to peel back
the curtain and reveal Corinthian’s “impaired and falsely pre-
sented financial condition,” leading to the considerable stock
drop that caused Plaintiffs’ claimed damage. TAC ¶ 50.
 METZLER INVESTMENT v. CORINTHIAN COLLEGES 11687
D. The district court’s dismissal of the TAC.

Plaintiffs, with Metzler acting as lead plaintiff, filed the
Consolidated Amended Complaint (“CAC”) on February 17,
2005. The Defendants moved to dismiss for failure to state a
claim under Fed. R. Civ. P. 12(b)(6); on September 6, 2005,
the district court dismissed the CAC without prejudice and
granted leave to amend. No written order accompanied the
dismissal of the CAC. A Second Consolidated Amended
Complaint was filed on October 3, 2005. Again, the Defen-
dants moved to dismiss under Fed. R. Civ. P. 12(b)(6), and
again that complaint was dismissed without prejudice via a
minute order issued without comment or analysis.

On February 6, 2006, the TAC was filed; Defendants fol-
lowed course and moved to dismiss. After argument by coun-
sel on Defendants’ motion at an April 24, 2006 hearing, the
district court dismissed the TAC, this time with prejudice.
The district court offered no reasons for the dismissal at that
hearing, other than to comment, “I don’t think you have been
able to find anything that goes to the real core of what you
allege, and the motion [to dismiss] is granted this time with
prejudice.” The Defendants prepared a written dismissal order
at the district court’s request. Defendants’ four-page prepared
order recounted the various arguments presented in favor of
dismissal and concluded: “Defendants’ arguments are well-
taken and their motion to dismiss is granted. Plaintiff has
failed to allege an actionable securities claim.” The prepared
order was signed, unaltered, by the district court on May 1,
2006.4

This timely appeal followed.
4
The dismissal with prejudice was, according to the prepared dismissal
order, based on Metzler’s “multiple opportunities to amend and [being]
unable to cure the defects that required dismissal of [ ] previous com-
plaints.”
11688 METZLER INVESTMENT v. CORINTHIAN COLLEGES
II. STANDARD OF REVIEW

The court reviews dismissal under Rule 12(b)(6) de novo.
See Livid Holdings, Ltd. v. Salomon Smith Barney, Inc., 416
F.3d 940, 946 (9th Cir. 2005). The court “accept[s] the plain-
tiffs’ allegations as true and construe[s] them in the light most
favorable to plaintiffs.” Gompper v. VISX, Inc., 298 F.3d 893,
895 (9th Cir. 2002). Review is limited to the complaint, mate-
rials incorporated into the complaint by reference, and matters
of which the court may take judicial notice. Tellabs, 127
S. Ct. at 2509.

The required elements of a private securities fraud action
are: “(1) a material misrepresentation or omission of fact, (2)
scienter, (3) a connection with the purchase or sale of a secur-
ity, (4) transaction and loss causation, and (5) economic loss.”
In re Daou Sys. Inc., 411 F.3d 1006, 1014 (9th Cir. 2005) (cit-
ing Dura Pharms., Inc. v. Broudo, 544 U.S. 336, 341-42, 125
S. Ct. 1627, 161 L. Ed. 2d 577 (2005)).

As a putative securities fraud class action, the TAC is also
subject to the pleading requirements of the PSLRA. See
DSAM Global Value Fund v. Altris Software, Inc., 288 F.3d
385, 388 (9th Cir. 2002). In order to state a claim for securi-
ties fraud that complies with the dictates of the PSLRA, the
complaint must raise a “strong inference” of scienter—i.e., a
strong inference that the defendant acted with an intent to
deceive, manipulate, or defraud. 15 U.S.C. § 78u-4(b)(2);
Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193, 96 S. Ct.
1375, 47 L. Ed. 2d 668 (1976). In reviewing a complaint
under this standard, “the court must consider all reasonable
inferences to be drawn from the allegations, including infer-
ences unfavorable to the plaintiffs.” Gompper, 298 F.3d at
897 (emphasis in original); accord Tellabs, 127 S. Ct. at 2509
(“[I]n determining whether the pleaded facts give rise to a
‘strong’ inference of scienter, the court must take into account
plausible opposing inferences.”). This examination requires
the court to survey the complaint in its entirety, not to simply
 METZLER INVESTMENT v. CORINTHIAN COLLEGES 11689
scrutinize individual allegations in isolation. See Tellabs, 127
S. Ct. at 2509 (citing Gompper, 298 F.3d at 897).

The PSLRA also requires that “the complaint shall specify
each statement alleged to have been misleading, the reason or
reasons why the statement is misleading, and, if an allegation
regarding the statement or omission is made on information
and belief, the complaint shall state with particularity all facts
on which that belief is formed.” 15 U.S.C. § 78u-4(b)(1). By
requiring specificity, § 78u-4(b)(1) prevents a plaintiff from
skirting dismissal by filing a complaint laden with vague alle-
gations of deception unaccompanied by a particularized
explanation stating why the defendant’s alleged statements or
omissions are deceitful. See Falkowski v. Imation Corp., 309
F.3d 1123, 1133 (9th Cir. 2002).

The district court did not attempt to explain why the TAC
or the prior complaints were subject to dismissal.5 Based on
5
The prepared four-page dismissal order signed by the district court pro-
vides no meaningful guidance as to why the TAC—181 pages comprised
of 399 paragraphs—was deficient. Fortunately, the parties’ briefing below
and on appeal accurately identifies and thoroughly analyzes the disputed
issues. But good lawyering is not a substitute for clear judging.
Dismissal of securities fraud complaints by way of a boilerplate pre-
pared order effectively requires the appeals court to decide the 12(b)(6)
motion without any explanation from the district court as to the com-
plaint’s defects. Moreover, the parties themselves never receive the benefit
of learning the district court’s reason or reasons—whatever they may be—
for the dismissal. Although there is no absolute rule requiring a district
court to issue a written dismissal for failure to state a claim, the preferred
practice is to provide at least some modest explanation for the decision.
See Bonanno v. Thomas, 309 F.2d 320, 322 (9th Cir. 1962) (“Where a
complaint is dismissed on the ground that it fails to state a claim, the order
should also inform the plaintiff of the reason for dismissal so that he can
make an intelligent choice as to amending.”). A review of published and
unpublished decisions in recent securities fraud cases confirms that the
truncated manner of dismissal here is the exception that proves the rule,
as other district courts appear to routinely issue well-articulated dismissal
orders. See, e.g., In re LeapFrog Enters., Inc. Sec. Litig., 527 F. Supp. 2d
11690 METZLER INVESTMENT v. CORINTHIAN COLLEGES
the thorough dismissal briefing below and the arguments
raised on appeal, however, we are able to accurately identify
the three contested grounds for dismissal: (1) failure to plead
“loss causation,” (2) failure to raise a “strong inference” of
scienter, and (3) failure to allege “falsity” with the specificity
required by the PSLRA. We agree that the TAC fails on all
three bases.

III. DISCUSSION

A. The TAC does not adequately plead “loss
causation.”

[1] As explained by the Supreme Court in Dura Pharma-
ceuticals, loss causation is the “causal connection between the
[defendant’s] material misrepresentation and the [plaintiff’s]
loss.” 544 U.S. at 342 (citation omitted). A complaint fails to
allege loss causation if it does not “provide[ ] [a defendant]
with notice of what the relevant economic loss might be or of
what the causal connection might be between that loss and the
misrepresentation[.]” Id. at 347. Stated in the affirmative, the
complaint must allege that the defendant’s “share price fell
significantly after the truth became known.” Id. A plaintiff
does not, of course, need to prove loss causation in order to
avoid dismissal; but the plaintiff must properly allege it. Id.
at 346 (“[N]either the Rules nor the securities statutes impose
any special further requirement [beyond Fed. R. Civ. P.

1033 (N.D. Cal. 2007); In re Gilead Scis. Sec. Litig., 2006 WL 1320466
(N.D. Cal. May 12, 2006); Plumbers & Pipefitters Local 572 Pension
Fund v. Cisco Sys., Inc., 411 F. Supp. 2d 1172, 1178 (N.D. Cal. 2005).
Based on the extensive record before us, we are nonetheless confident
that Metzler was sufficiently well-informed of the deficiencies in the TAC
and the prior complaints, and that no harm was suffered as a result of the
district court’s failure to provide a reasoned explanation for dismissal. But
neither the parties, nor the interests of efficient civil justice, were well-
served by the district court in this case.
 METZLER INVESTMENT v. CORINTHIAN COLLEGES 11691
8(a)(2)] in respect to the pleading of proximate causation or
economic loss.”).

[2] The principal Ninth Circuit case applying Dura’s loss
causation standards is In re Daou Systems. 411 F.3d 1006.
The Daou court explained, “A plaintiff is not required to
show ‘that a misrepresentation was the sole reason for the
investment’s decline in value’ in order to establish loss causa-
tion.” Id. at 1025 (quoting Robbins v. Koger Props., Inc., 116
F.3d 1441, 1447 n.5 (11th Cir. 1997)) (emphasis in original).
A plaintiff’s complaint must, however, set forth allegations
that “if assumed true, are sufficient to provide [the defendant]
with some indication that the drop in [defendant’s] stock price
was causally related to [the defendant’s] financial misstate-
ment[s].” Id. at 1026; accord Berson v. Applied Signal Tech.,
Inc., 527 F.3d 982, 989-90 (9th Cir. 2008). So, in Daou the
court held that the plaintiff had pled loss causation based on
allegations that major losses reported in an August 1998 quar-
terly report were causally connected to the company’s prema-
ture recognition of revenue—the practice that served as the
basis of the alleged fraud in the plaintiff’s complaint. Id. But
the court held that the plaintiff had not adequately pled loss
causation for the drop in the defendant’s stock that occurred
prior to the August 1998 disclosure, because those losses took
place “before the revelations began in August 1998, [when]
the true nature of [the defendant’s] financial condition had not
yet been disclosed.” Id. at 1027.

[3] Thus, the Daou court’s careful delineation between
losses caused after the company’s conduct was revealed, and
losses suffered before the revelation, confirm that the com-
plaint must allege that the practices that the plaintiff contends
are fraudulent were revealed to the market and caused the
resulting losses. In Daou the plaintiffs’ theory of fraud was
that the defendant was systematically recognizing revenue on
contracts that had not been completed. Id. at 1012-13. Plain-
tiffs adequately pled loss causation in Daou because their
complaint alleged that the market learned of and reacted to
11692 METZLER INVESTMENT v. CORINTHIAN COLLEGES
this fraud, as opposed to merely reacting to reports of the
defendant’s poor financial health generally. Id. at 1026
(“[T]he TAC alleges that ‘Defendants further revealed that the
Company’s rapidly escalating work in progress account repre-
sented over $10 million in unbilled receivables—the direct
result of prematurely recognizing revenue.”) (emphasis in
original); see also Teachers’ Ret. Sys. of La. v. Hunter, 477
F.3d 162, 186 (4th Cir. 2007) (holding that plaintiffs must
plead [loss causation] “with sufficient specificity to enable the
court to evaluate whether the necessary causal link exists”);
Tricontinental Indus., Ltd. v. PricewaterhouseCoopers, LLP,
475 F.3d 824, 843 (7th Cir. 2007) (holding that to plead loss
causation plaintiff had to allege that the defendant’s “material
misrepresentation [ ] caused [the plaintiff] to suffer a loss
when that material misrepresentation ‘became generally
known’ ”).

[4] Here, Metzler relies on the June 24 Financial Times
story disclosing the DOE investigation at the Bryman campus
and the August 2 earnings announcement. In doing so, Met-
zler fails to adequately plead loss causation.6 The TAC does
not allege that the June 24 and August 2 announcements
disclosed—or even suggested—to the market that Corinthian
was manipulating student enrollment figures company-wide
in order to procure excess federal funding, which is the fraud-
ulent activity that Metzler contends forced down the stock
that caused its losses. Neither the June 24 Financial Times
story nor the August 2 press release regarding earnings can be
reasonably read to reveal widespread financial aid manipula-
tion by Corinthian, and the TAC does not otherwise ade-
quately plead that these releases did so.
6
Despite Corinthian’s arguments to the contrary, there is no prohibition
against Metzler alleging loss causation through a series of disclosures by
the Defendants. Daou, 411 F.3d at 1026. So, the TAC’s allegations of loss
causation premised on two separate disclosures—one on June 24 and one
on August 2—are, in theory, a permissible means for alleging loss causa-
tion.
 METZLER INVESTMENT v. CORINTHIAN COLLEGES 11693
As for the Financial Times story, it does reveal a DOE
investigation at the Bryman campus and the campus’s place-
ment on reimbursement status as a result of improper finan-
cial aid practices; but it simultaneously notes that the
investigation there “does not affect the status of other Corin-
thian schools.” The TAC does not allege that all, or even
some appreciable number, of Corinthian’s schools were being
investigated or placed on reimbursement status. Only the Bry-
man campus was subject to that sanction. Indeed, the TAC
itself discredits the notion that the June 24 disclosure revealed
company-wide manipulation of student enrollment, by
describing the June 24 disclosure as revealing to investors
“the potential but real risk of all 88 colleges being placed on
reimbursement status, which would have delayed Title IV
funding and increased accounts receivable by up to $135 mil-
lion company-wide.” TAC ¶ 159 (emphases added). But nei-
ther Daou nor Dura support the notion that loss causation is
pled where a defendant’s disclosure reveals a “risk” or “po-
tential” for widespread fraudulent conduct. In Daou the
defendant disclosed that the company actually had $10 mil-
lion in unbilled receivables, not merely that there was some
risk it might accrue such receivables. 411 F.3d at 1026. More-
over, as Corinthian notes, its stock recovered very shortly
after the modest 10% drop that accompanied the June 24
announcement.7

The TAC’s characterization of the August 2 earnings
announcement similarly fails to allege that the market became
aware of, and the resulting stock drop resulted from, wide-
spread enrollment fraud. At best, the TAC contends that the
reference in the August 2 announcement to “higher than antic-
7
Defendants sought judicial notice for Corinthian’s reported stock price
history and other publicly available financial documents, including a num-
ber of Corinthian’s SEC filings. In its dismissal order, the court granted
Defendants’ unopposed requests for judicial notice. Metzler does not con-
test the propriety of the noticing of these documents on appeal, which in
any event was proper. See Dreiling v. Am. Exp. Co., 458 F.3d 942, 946
n.2 (9th Cir. 2006) (SEC filings subject to judicial notice).
11694 METZLER INVESTMENT v. CORINTHIAN COLLEGES
ipated attrition” was understood by the market as Corinthian’s
“euphemism for an admission that they had enrolled students
who should not have been signed up at all, resulting in a 45%
stock drop.” TAC ¶ 48. Metzler’s appellate brief asserts that
the August 2 disclosure made investors “realize[ ] that Corin-
thian’s improper manipulation of student and enrollment
records was not limited to [the Bryman campus at] San Jose,
nor was it immaterial.” But the TAC does not allege facts to
suggest that on August 2 the market became aware that Corin-
thian was manipulating student records company-wide, other
than an undocumented assertion that Corinthian’s August 2
stock drop was, by necessity, a result of this market “realiza-
tion.”8

Metzler is correct to observe that neither Daou nor Dura
require an admission or finding of fraud before loss causation
can be properly pled. Dura Pharms., Inc., 544 U.S. at 346;
Daou, 411 F.3d at 1025. But that does not allow a plaintiff to
plead loss causation through “euphemism” and thereby avoid
alleging the necessary connection between defendant’s fraud
and the actual loss. So long as there is a drop in a stock’s
price, a plaintiff will always be able to contend that the mar-
ket “understood” a defendant’s statement precipitating a loss
as a coded message revealing the fraud. Enabling a plaintiff
to proceed on such a theory would effectively resurrect what
Dura discredited—that loss causation is established through
an allegation that a stock was purchased at an inflated price.
544 U.S. at 347. Loss causation requires more. Daou, 411
8
Nor do the June 24 and August 2 disclosures become adequate when
viewed in tandem. The June 24 Financial Times story discusses impropri-
ety regarding the financial aid practices at one school; the August 2 release
contains one reference to attrition. The combined force of these statements
does not suggest that the market was alerted to widespread enrollment and
admissions fraud at Corinthian schools nationwide. Nor does the TAC
allege any genuine causal connection between the August 2 earnings miss
and the allegations that Corinthian had manipulated student enrollment in
order to receive excess federal funds, or that the earnings miss was caused
by slashed federal funding.
 METZLER INVESTMENT v. CORINTHIAN COLLEGES 11695
F.3d at 1026 (plaintiff’s complaint quoting an analyst as inter-
preting defendant’s unbilled receivables as suggesting “they
are manufacturing earnings”).

[5] Finally, while the court assumes that the facts in a com-
plaint are true, it is not required to indulge unwarranted infer-
ences in order to save a complaint from dismissal. In re
Syntex Corp. Sec. Litig., 95 F.3d 922, 926 (9th Cir. 1996)
(“[C]onclusory allegations of law and unwarranted inferences
are insufficient to defeat a motion to dismiss for failure to
state a claim.”) (emphasis added) (affirming 12(b)(6) dis-
missal of securities fraud complaint). The TAC’s allegation
that the market understood the June 24 and August 2 disclo-
sures as a revelation of Corinthian’s systematic manipulation
of student enrollment is not a “fact.” It is an inference that
Metzler believes is warranted from the facts that are alleged.
But Corinthian persuasively explains why this is not the case.
As to the June 24 disclosure, Corinthian points out that its
stock quickly recovered from the 10% drop that followed the
Financial Times story. Similarly, the August 2 announcement
contained a far more plausible reason for the resulting drop in
Corinthian’s stock price—the company failed to hit prior
earnings estimates. The August 2 announcement simulta-
neously reported that student population growth was up nearly
50% overall and same-school population increased 15%, mak-
ing it even further unwarranted to infer that the reference to
“attrition” was understood by the market to mean that Corin-
thian had revealed widespread misrepresentation of student
enrollment to fraudulently procure excess federal funding.
The TAC thus fails to allege loss causation based on the June
24 and August 2 disclosures.9
9
Corinthian also argues that Metzler cannot, as a matter of law, establish
loss causation because the TAC describes post-Class Period events that
indicate that the purported fraud continued beyond the Class Period. Rely-
ing on the Seventh Circuit’s decision in Thomas v. Farley, 31 F.3d 557
(7th Cir. 1994), Corinthian argues that the allegations of post-Class Period
misconduct are fatally inconsistent with the theory that Corinthian’s mis-
11696 METZLER INVESTMENT v. CORINTHIAN COLLEGES
B. The TAC does not raise a “strong inference” of
scienter.

[6] In order to state a claim for securities fraud, a plaintiff
must allege that defendant acted with scienter—that the
defendant had an intention “to deceive, manipulate, or
defraud.” Ernst & Ernst, 425 U.S. at 193. “[P]laintiffs pro-
ceeding under the PSLRA can no longer aver intent in general
terms of mere ‘motive and opportunity’ or ‘recklessness,’ but

conduct was revealed through the June 24 and August 2 disclosures. This
argument is not supported by the record or the law.
The post-Class Period conduct and statements in the TAC do not aver
that Corinthian continued to conceal its alleged unlawful enrollment prac-
tices after the close of the Class Period. Rather, nearly all of these refer-
ences in the TAC concern Corinthian’s restatement of revenue that took
place later in 2005, an occurrence that does not inexorably lead to the con-
clusion that Corinthian was continuing to conceal its student enrollment
practices. So, while it is correct that loss causation cannot be alleged by
referring to a drop in a stock price that occurs prior to the revelation of
the alleged truth, Glaser v. Enzo Biochem, Inc., 464 F.3d 474, 479 (4th
Cir. 2006), Corinthian has not persuasively shown that is what the TAC’s
references to post-Class Period conduct does.
Moreover, the Seventh Circuit’s holding in Thomas that a plaintiff can
plead “himself out of court” by alleging particulars that contradict the
plaintiff’s legal theory is not applicable in this case. 31 F.3d at 559.
Thomas is applied in this circuit as support for the rule that precludes a
party from avoiding summary judgment by making statements that contra-
dict earlier allegations. See Cline v. Indus. Maint. Eng’g & Contracting
Co., 200 F.3d 1223, 1232 (9th Cir. 2000) (citing Thomas for proposition
that “Appellants could not contradict their earlier allegations in an effort
to survive summary judgment.”). Corinthian points to no authority that
prevents a securities fraud plaintiff from alleging that the defendant con-
tinues to perpetuate the misconduct after it has been revealed to the mar-
ket. Although such behavior is no longer “fraud” per se—because the
misrepresentations have been revealed and reliance is no longer possible
—that does not mean that the earlier fraud is somehow legally negated.
Hence, the TAC’s reference to post-Class Period conduct does not defeat
loss causation as a matter of law (although, for reasons discussed above,
the TAC also does not otherwise establish loss causation).
 METZLER INVESTMENT v. CORINTHIAN COLLEGES 11697
rather, must state specific facts indicating no less than a
degree of recklessness that strongly suggests actual intent.”
Silicon Graphics, 183 F.3d at 979. “To meet this pleading
requirement, the complaint must contain allegations of spe-
cific contemporaneous statements or conditions that demon-
strate the intentional or the deliberately reckless false or
misleading nature of the statements when made.” Ronconi v.
Larkin, 253 F.3d 423, 432 (9th Cir. 2001) (internal quotation
marks and citation omitted).

[7] The PSLRA placed an additional gloss on the scienter
requirement so that a plaintiff must “state with particularity
facts giving rise to a strong inference that the defendant acted
with the required state of mind.” 15 U.S.C. § 78u-4(b)(2)
(emphasis added). The PSLRA does not further define what
is required in order to allege a “strong inference” of scienter.
In Tellabs the Supreme Court addressed that question, holding
that a court evaluating a complaint for compliance with
PSLRA’s “strong inference” of scienter:

[M]ust engage in a comparative evaluation; it must
consider, not only inferences urged by the plaintiff
. . . but also competing inferences rationally drawn
from the facts alleged. An inference of fraudulent
intent may be plausible, yet less cogent than other,
nonculpable explanations for the defendant’s con-
duct. To qualify as “strong” within the intendment of
[the PSLRA], we hold, an inference of scienter must
be more than merely plausible or reasonable—it
must be cogent and at least as compelling as any
opposing inference of nonfraudulent intent.

127 S. Ct. at 2504-05. When assessing a complaint for com-
pliance with this standard, “courts must consider the com-
plaint in its entirety . . . [and inquire] whether all of the facts
alleged, taken collectively, give rise to a strong inference of
scienter, not whether any individual allegation, scrutinized in
11698 METZLER INVESTMENT v. CORINTHIAN COLLEGES
isolation, meets that standard.” Id. at 2509 (emphasis in origi-
nal).10

The TAC alleges that scienter is principally established
here by three factors: (1) insider trading during the Class
Period by Defendants Moore and Beal; (2) the existence of a
“sophisticated information management system” within
Corinthian that would have enabled management to access
“all student and financial aid records for all Corinthian
schools,” TAC ¶ 371; and (3) Defendant Beal’s involvement
in Corinthian’s revenue recognition policies and his rejection
of alternate accounting methods. Metzler’s allegations—even
when taken collectively—do not give rise to a “strong infer-
ence” of scienter sufficient to defeat dismissal.

1. The insider trading alleged does not raise a
“strong inference” of scienter.

While “ ‘suspicious’ stock sales by corporate insiders may
constitute circumstantial evidence of scienter,” such sales
only give rise to an inference of scienter when they are “ ‘dra-
matically out of line with prior trading practices at times cal-
culated to maximize the personal benefit from undisclosed
inside information.’ ” Silicon Graphics, 183 F.3d at 986
(quoting In re Apple Computer Sec. Litig., 886 F.2d 1109,
1117 (9th Cir. 1989)). Three factors are relevant to this
inquiry: (1) the amount and percentage of the shares sold; (2)
the timing of the sales; and (3) whether the sales were consis-
tent with the insider’s trading history. Id. During the Class
Period, Defendants Moore and Beal sold a total of $33 million
10
The Tellabs Court cited with approval this court’s decision in Gomp-
per, which articulated a standard for evaluating a securities fraud com-
plaint’s scienter allegations similar to the standard ultimately adopted by
the Court. 127 S. Ct. at 2509 (citing Gompper, 298 F.3d at 897 (“the court
must consider all reasonable inferences to be drawn from the allegations,
including references unfavorable to the plaintiffs”) (emphasis in original)).
We thus rely on the Ninth Circuit’s pre-Tellabs decisions interpreting the
PSLRA’s scienter requirement where appropriate here.
 METZLER INVESTMENT v. CORINTHIAN COLLEGES 11699
of Corinthian stock; the sales constituted 37% of Moore’s
stock and 100% of Beal’s. TAC ¶ 360. Metzler makes
repeated reference to the gross profits obtained by these sales
to allege scienter, but a more careful look at the transactions
tells a different story.

[8] Many of the sales alleged to demonstrate scienter took
place in October 2003 before the DOE began its investigation
at the Bryman campus. There is therefore nothing particularly
suspicious about the “timing of [these] sales,” even accepting
as true Metzler’s theory that the DOE Bryman investigation
would have triggered a sell-off amongst insiders. Silicon
Graphics, 183 F.3d at 986 (affirming dismissal where trading
consistent with prior practices). Moreover, of the three indi-
vidual Defendants, only Beal sold large amounts of his total
stock holdings during the Class Period—and half of these
sales were before the DOE investigation at the Bryman cam-
pus. Digiovanni made no sales during the Class Period;
Moore sold only 37% of his total stock holdings during the
Class Period. We typically require larger sales amounts—and
corroborative sales by other defendants—to allow insider
trading to support scienter. Id. at 987-88 (no inference of
scienter with sales of 75.3% of holdings); see also Tripp v.
Indymac Fin., Inc., 2007 WL 4591930 at *4-5 (C.D. Cal.
Nov. 29, 2007) (dismissing for lack of scienter where several
individual defendants sold no stock, and the sales of the sole
defendant who sold “were relatively small given his overall
holdings”). Moreover, both Moore and Beal sold in a manner
consistent with their pre-Class Period sales; they regularly
sold as their options vested. So the sales here are largely con-
sistent with the prior trading history. Nursing Home Pension
Fund, Local 144 v. Oracle Corp., 380 F.3d 1226, 1232 (9th
Cir. 2004) (“Stock trades are only suspicious when ‘dramati-
cally out of line with prior trading practices at times calcu-
lated to maximize the personal benefit from undisclosed
inside information.’ ”) (quoting Silicon Graphics, 183 F.3d at
986).11 The allegations of insider trading do not raise a “strong
11
As Defendants note, the bulk of Beal’s and Moore’s sales took place
according to pre-determined 10b5-1 trading plans. Sales according to pre-
11700 METZLER INVESTMENT v. CORINTHIAN COLLEGES
inference” of scienter, particularly when considering the pos-
sible “opposing inference[s]” to be drawn from the pattern of
trading in this case. Tellabs, 127 S. Ct. at 2504-05 Namely,
Moore and Beal were simply trading in line with prior pat-
terns, and selling without regard to the timing and substance
of the DOE investigation at Bryman. Digiovanni meanwhile
sold nothing at all, suggesting that there was no insider infor-
mation from which to benefit. So, when the allegedly
improper stock transactions are viewed as a whole, they fail
to raise the necessary “strong inference” of scienter required
by the PSLRA.

2. Corinthian’s use of a “management information
system” does not raise a “strong inference” of
scienter.

The TAC also alleges that because Corinthian had in place
a “management information system” that monitored enroll-
ment and other data company-wide, its principals must have
had knowledge of the alleged fraudulent practices. TAC
¶ 371. This argument rests on an inference that the existence
of Corinthian’s complex computer tracking-system mutually
excludes the possibility that Beal, Moore and Digiovanni
were unaware of massive enrollment fraud. This allegation is
further supported by the statements of a confidential witness
who alleged that the Defendants, Beal in particular, were reg-
ularly made aware of the status of Corinthian’s enrollment
and placement figures.

[9] Again, the TAC’s allegations lack the specifics required
to establish a “strong inference” of scienter. As this court has
noted on more than one occasion, corporate management’s

determined plans may “rebut [ ] an inference of scienter.” Cf. In re Worlds
of Wonder Sec. Litig., 35 F.3d 1407, 1427-28 (9th Cir. 1994) (sales based
on pre-determined trading plan coupled with small sales amounts rebutted
allegations of scienter).
 METZLER INVESTMENT v. CORINTHIAN COLLEGES 11701
general awareness of the day-to-day workings of the compa-
ny’s business does not establish scienter—at least absent
some additional allegation of specific information conveyed
to management and related to the fraud. In re Vantive Corp.
Sec. Litig., 283 F.3d 1079, 1087-88 (9th Cir. 2002)
(“[P]laintiffs have failed to cite to any specific report, to men-
tion any dates or contents of reports, or to allege their sources
of information about any reports.”); Silicon Graphics, 183
F.3d at 988 (allowing a plaintiff “to go forward with a case
based on general allegations of ‘negative internal reports’
would expose all those companies to securities litigation
whenever their stock prices dropped”). Viewed under the
rubric of the Tellabs Court’s instruction to comparatively
weigh inferences, it is more “cogent and at least as compel-
ling” to conclude that Corinthian maintained its information
tracking systems for the necessary and legitimate purpose of
running its business. 127 S. Ct. at 2505.12

12
Metzler’s insufficient scienter allegations are not overcome with refer-
ences to post-Class Period statements. Metzler places special emphasis on
a slide show presented at Corinthian’s Presidents’ Meeting in 2005 that
summarizes a Corinthian 2004 internal audit and refers to several findings
regarding Corinthian’s “Financial Aid” practices. TAC ¶ 13 (“Unresolved
Credit Balances . . . Missing Documents . . . Late Refunds . . . Incorrect
DOD’s”). Metzler alleges that these slides point to “internal reforms” that
raise a “strong inference” of scienter. But plaintiffs fail to allege any cor-
roborating details to indicate that the audit revealed company wide fraud,
or that the Defendants were aware of the fraud during the Class Period.
Accordingly, these post-Class Period statements do not rectify the lack of
scienter pled elsewhere. See No. 84 Employer-Teamster Joint Council
Pension Trust Fund v. Am. W. Holding Corp., 320 F.3d 920, 941-42 n.20
(9th Cir. 2003) (noting that generalized references to internal reports
insufficient to provide strong inference of scienter as to particular defen-
dant).
11702 METZLER INVESTMENT v. CORINTHIAN COLLEGES
3. Beal’s insistence on certain revenue recognition
practices do not raise a “strong inference” of
scienter.

Relying on the statements of confidential witnesses, the
TAC alleges that Beal insisted on perpetuating an improper
method of revenue recognition for Corinthian in violation of
GAAP. As mentioned, the revenue recognition practice in
question involved accounting for a full month of revenue dur-
ing a student’s first month, and spreading revenue recognition
for students with externships to include the post-class instruc-
tion period. The TAC also alleges that Beal implied to admis-
sions officers at a company-wide meeting that they had the
authority to admit unqualified students. TAC ¶ 297 (CW20
testifying that Beal stated admissions officers “are the gray
area”).

[10] The first of these allegations—going to Corinthian’s
revenue recognition for certain students—fails to raise a
“strong inference” of scienter because the TAC does not suffi-
ciently allege that Beal knowingly and recklessly engaged in
an improper accounting practice. The TAC does not allege
that Corinthian’s external auditors counseled against the prac-
tice or that Beal admitted or was aware it was improper.
Although the TAC does draw its own legal conclusion that the
practice was improper, TAC ¶ 289, the TAC’s factual allega-
tions point only to disagreement and questioning within
Corinthian about the practice. Finally, the TAC does not tie
the disputed revenue recognition practice, or Corinthian’s
restatements when the practice was changed, to the TAC’s
more general theory that Corinthian invented the presence of
students in order to increase access to federal financial aid.
Given the standard for reliance on technical GAAP violations
to plead securities fraud, the TAC fails to establish scienter
based on these allegations. Daou, 411 F.3d at 1022 (“scienter
cannot be established by publishing inaccurate accounting fig-
ures, even when in violation of GAAP”); DSAM Global Value
Fund, 288 F.3d at 389 (“To allege a ‘strong inference of
 METZLER INVESTMENT v. CORINTHIAN COLLEGES 11703
deliberate recklessness,’ Appellants ‘must state facts that
come closer to demonstrating intent, as opposed to mere
motive and opportunity.’ ”) (quoting Silicon Graphics, 183
F.3d at 974) (affirming dismissal due to failure to allege
scienter based on GAAP violations).

The TAC’s most persuasive allegation of scienter involves
Beal’s comments to admissions officers at the company’s
Spring 2004 meeting, purportedly telling admissions officers
that “they are the gray area” in dealing with unqualified stu-
dents. TAC ¶ 297. This is perhaps the closest the TAC comes
to an allegation that the named Defendants were aware of or
encouraged fraudulent conduct related to Corinthian’s admis-
sion practices. Viewing the TAC in its totality, however, this
statement does not raise a “strong inference” of scienter.
Beal’s statement is capable of being read in the manner Metz-
ler urges—Beal was instructing admissions to admit unquali-
fied students. But the Tellabs Court’s directive that a com-
plaint must be read in its entirety cuts both ways. Although a
defendant cannot gain dismissal by de-contextualizing every
statement in a complaint that goes to scienter, a plaintiff can-
not avoid dismissal by reliance on an isolated statement that
stands in contrast to a host of other insufficient allegations.
Tellabs, 127 S. Ct. at 2509 (“all of the facts alleged, taken
collectively, give rise to a strong inference of scienter, not
whether any individual allegation, scrutinized in isolation,
meets that standard”) (emphasis in original). Beal’s “gray
area” statement is susceptible to Metzler’s characterization
that it was intended as a winking suggestion that admissions
officers should perpetrate fraud. But it is equally susceptible
to an interpretation, not unlikely given its utterance at a
company-wide meeting, that Beal was simply making a
broader exhortation to improve business. In light of the
Court’s guidance in Tellabs and PSLRA’s heightened stan-
dards for plaintiffs’ securities fraud cases generally, this state-
ment it not so indicative of fraudulent intent that it carries the
11704 METZLER INVESTMENT v. CORINTHIAN COLLEGES
weight of the entire 181-page complaint for purposes of estab-
lishing a “strong inference” of scienter.13

C. The TAC does not adequately plead falsity.

[11] The PSLRA has exacting requirements for pleading
“falsity.” The plaintiff’s complaint “shall specify each state-
ment alleged to have been misleading, the reason or reasons
why the statement is misleading, and, if an allegation regard-
ing the statement or omission is made on information and
belief, the complaint shall state with particularity all facts on
which that belief is formed.” 15 U.S.C. § 78u-4(b)(1). A lit-
any of alleged false statements, unaccompanied by the plead-
ing of specific facts indicating why those statements were
false, does not meet this standard. Falkowski, 309 F.3d at
1133 (“Although the allegations here are voluminous, they do
not rise to the level of specificity required under the PSLRA.
The allegations consist of vague claims about what statements
were false or misleading, how they were false, and why we
can infer intent to mislead. We have dismissed much more
specific and compelling allegations.”). The TAC alleges that
Corinthian’s fraudulent practices generally along with its fail-
ure to make earlier disclosures of regulatory investigations—
particularly the DOE investigation at the Bryman campus and
the California AG investigation—rendered Corinthian’s SEC
filings and other public statements made during the Class
Period either affirmatively false or false by way of omission.
13
The TAC relies on the statement of CW20, a former Director of
Financial Aid at Corinthian’s Las Vegas College, who was employed by
Corinthian for part of the Class Period and attended the meeting at issue.
CW20’s identity and knowledge, as with the other confidential witnesses
named in the TAC, are described with sufficient specificity to meet the
PSLRA’s standards generally. See Daou, 411 F.3d at 1016 (“Plaintiffs
here describe the confidential witnesses with a large degree of specifici-
ty.”). The problem for Metzler is not that the confidential witnesses are
inadequately identified—the problem is that these witnesses do not convey
information sufficient to support the strong inference of scienter that the
PSLRA requires.
 METZLER INVESTMENT v. CORINTHIAN COLLEGES 11705
TAC ¶¶ 142-150. These allegations lack the specificity that
the PSLRA requires. See, e.g., TAC ¶ 142 (“All of Corinthi-
an’s stated financial results during the entire Class Period
were false and misleading as a result of the Company-wide
scheme to inflate enrollment figures in order to misappropri-
ate federal financial aid funding.”).

[12] The TAC alleges that virtually every statement made
by Corinthian during the Class Period related to the compa-
ny’s financial health or performance was, by definition, false.
The TAC mistakes quantity for quality. Although the TAC
sets forth a considerable number of alleged false statements,
the TAC’s explanation of how and why the statements were
false is decidedly vague. The TAC alleges that Corinthian’s
statements regarding its financial status were false because
they “create the false impression that defendants ran their
business with proper financial reporting compliance with stu-
dent enrollment and federal loan practices which were critical
to the viability of the business, and that quality of education
was emphasized.” TAC ¶ 150. But this Circuit has consis-
tently held that the PSLRA’s falsity requirement is not satis-
fied by conclusory allegations that a company’s class period
statements regarding its financial well-being are per se false
based on the plaintiff’s allegations of fraud generally. In re
Vantive Corp. Sec. Litig., 283 F.3d at 1086 (“[A]lthough the
complaint alleges that over the fifteen-month class period,
[defendant] continually and deliberately misled investors by
stating that its sales-cycle was ‘holding steady at three to six
months,’ much of the complaint fails to allege any facts to
indicate why this statement would have been misleading at
the several points at which it was alleged to have been
made.”) (falsity not established due to lack of particularity;
dismissal affirmed); Ronconi, 253 F.3d at 429-32 (affirming
dismissal due to lack of falsity where plaintiff’s allegations
based on defendant’s general statements regarding strength of
its sales); Silicon Graphics, 183 F.3d at 984-85 (“[Plaintiff]
would have us speculate as to the basis for the allegations
about the reports, the severity of the problems, and the knowl-
11706 METZLER INVESTMENT v. CORINTHIAN COLLEGES
edge of the officers. We decline to do so.”). Here, the TAC
fails to sufficiently allege facts that demonstrate the falsity of
Corinthian’s characterizations of its financial health and busi-
ness practices during the Class Period.

As to the specific regulatory investigations, Metzler is like-
wise unable to connect their non-disclosure with any state-
ment by Corinthian’s regarding its financial health rendered
false or misleading due to the omission. Ronconi, 253 F.3d at
432 (plaintiff “must [ ] alleg[e] specific ‘contemporaneous
statements or conditions’ . . . deliberately reckless [ ] or mis-
leading . . . when made.”). The general statements the TAC
identifies as false or misleading are Corinthian’s disclosures
of its current revenue projections and anticipated growth. But
the TAC’s connection between the falsity of these statements
and the regulatory investigations is extraordinarily vague.
TAC ¶ 147(a) (financial statements false because they “cre-
ated the overarching impression that the Company was out-
performing expectations and continually increasing revenue
through legitimate business means”) (emphasis omitted). The
PSLRA requires a clearer explication of why a statement is
false. 15 U.S.C. § 78u-4(b)(1) (must specify “the reason or
reasons why the statement is misleading”); Silicon Graphics,
183 F.3d at 974 (must plead facts that demonstrate intent).

Second, Corinthian was not required to make an immediate
disclosure of the DOE and California AG investigations, at
least not on the facts of this case. A comparison to In re
Apollo Group, Inc. Securities Litigation, 509 F. Supp. 2d 837,
841 (D. Ariz. 2007), is instructive. In Apollo the district court
denied the parties’ cross-motions for summary judgment
based in part on a disputed fact regarding the materiality of
a DOE investigation of the Apollo Group. Id. Like Corinthian,
Apollo is a large for-profit provider of post-secondary educa-
tion. Id. at 839. The plaintiffs based their claim on the fact
that Apollo failed to reveal a DOE investigation of miscon-
duct that tied recruiters’ compensation to enrollment figures.
Id. Defendants failed to disclose a report containing a prelimi-
 METZLER INVESTMENT v. CORINTHIAN COLLEGES 11707
nary DOE finding of non-compliance related to those prac-
tices. Id. (“The report, which was issued on February 5, 2004,
concluded, among other things, that the [Apollo campus at
issue] improperly compensated its enrollment counselors
‘solely based on [the] recruiters’ success in securing enroll-
ments,’ a violation of DOE regulations.”) (second alteration
in original). Two weeks after the DOE issued that report,
Apollo released a press statement regarding a dismissal in
related lawsuits based on allegations of recruiter misconduct
and that “the government declined to intervene” in those suits.
Id. at 841-42. Although this statement was formally true, the
court found a disputed issue of fact as to whether it was “mis-
leading” in light of the DOE report concerning the exact same
recruiting practices.14 Id. at 842; see also In re Apollo Group,
Inc. Sec. Litig., 395 F. Supp. 2d 906, 920 (D. Ariz. 2005)
(denying motion to dismiss in same case where CEO mislead-
ingly suggested that no report would issue from DOE). Here,
unlike the complaint in Apollo, the TAC does not connect the
DOE or California Attorney General investigations to any
false or misleading statement—i.e., some affirmative state-
ment or omission by Corinthian that suggested it was not
under any regulatory scrutiny.

[13] In sum, the TAC’s far-ranging collection of alleged
false statements simply fail to identify with sufficient speci-
ficity how and why the statements were false, and thus fail to
comply with the PSLRA.

D. Dismissal with prejudice was proper.

Denial of leave to amend is reviewed for abuse of discre-
tion. In re Vantive Corp. Sec. Litig., 283 F.3d at 1097. As we
have observed, “the district court’s discretion to deny leave to
amend is particularly broad where plaintiff has previously
14
In a settlement agreement that contained no admission of wrongdoing,
Apollo agreed to pay $9.8 million to settle the DOE’s program review. In
re Apollo Group Inc., 509 F. Supp. 2d. at 839-40.”
11708 METZLER INVESTMENT v. CORINTHIAN COLLEGES
amended the complaint.” In re Read-Rite Corp., 335 F.3d
843, 845 (9th Cir. 2003) (internal quotations and citation
omitted). Admittedly, the prior dismissals here did not pro-
vide Metzler with guidance as to the basis for the dismissals.
But the parties’ dismissal briefing below and on appeal con-
firms that Metzler’s prior amendments were intended to cure
the deficiencies that lead us to affirm dismissal here—that the
TAC failed to properly plead loss causation, scienter, and fal-
sity. Metzler points to no additional facts that it might allege
to cure these deficiencies, which persisted in every prior itera-
tion of the TAC. See Silicon Graphics, 183 F.3d at 991. We
therefore affirm dismissal of the TAC with prejudice.

IV. CONCLUSION

The TAC’s allegations, although not lacking in breadth or
numerosity, ultimately fail to meet the PSLRA’s exacting
requirements and the standards for pleading loss causation.
The disclosures that the TAC relies on simply do not identify
the requisite causal connection between Metzler’s claims of
fraudulent student admission and financial aid practices, and
a resulting drop in Corinthian’s stock price. Likewise, the
sheer volume of alleged false statements and claims support-
ing scienter do not overcome the lack of specificity that the
PSLRA requires. For these reasons, we affirm.

AFFIRMED.