City of Warren Police and Fire v. Prudential Financial Inc

PRECEDENTIAL

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

____________

No. 21-1147

____________

CITY OF WARREN POLICE AND FIRE RETIREMENT

SYSTEM, Individually and on behalf of all

others similarly situated,

Appellant

v.

PRUDENTIAL FINANCIAL, INC.; CHARLES F.

LOWREY; KENNETH Y. TANJI; ROBERT M. FALZON

____________

On Appeal from the United States District Court

for the District of New Jersey

(D.C. No. 2-19-cv-20839)

District Judge: Honorable Stanley R. Chesler

____________

Argued: October 27, 2021

Before: GREENAWAY, JR., KRAUSE, and PHIPPS,

Circuit Judges.

(Filed: June 13, 2023)

____________

Joseph D. Daley

ROBBINS GELLER RUDMAN & DOWD

655 West Broadway, Suite 1900

San Diego, CA 92101

Peter S. Pearlman

COHN LIFLAND PEARLMAN HERRMANN & KNOPF

Park 80 West, Plaza One

250 Pehle Avenue, Suite 401

Saddle Brook, NJ 07663

Daniel J. Pfefferbaum [Argued]

Shawn A. Williams

ROBBINS GELLER RUDMAN & DOWD

One Montgomery Street, Suite 1800

San Francisco, CA 94104

Douglas Wilens

ROBBINS GELLER RUDMAN & DOWD

225 North East Mizner Boulevard, Suite 720

Boca Raton, FL 33432

Counsel for City of Warren Police and Fire

Retirement System

2

David D. Cramer

Tricia B. O’Reilly

WALSH PIZZI O’REILLY & FALANGA

Three Gateway Center

100 Mulberry Street, 15th Floor

Newark, NJ 07102

Maeve L. O’Connor [Argued]

Susan R. Gittes

Aasiya F.M. Glover

DEBEVOISE & PLIMPTON

66 Hudson Boulevard

New York, NY 10001

Counsel for Prudential Financial, Inc.;

Charles F. Lowrey; Kenneth Y. Tanji; and

Robert M. Falzon

_______________________

OPINION OF THE COURT

_______________________

PHIPPS, Circuit Judge.

Insurance companies typically set aside funds, known as

reserves, to pay for anticipated benefit claims by their

policyholders. As an exercise of actuarial judgment, a wide

range of considerations bear on the determination of the

amount to hold in reserves. And because circumstances

change, an insurer’s reserves may vary over time. But in this

case, one of the country’s largest publicly traded life insurance

companies suddenly announced that it would need to increase

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its reserves by $208 million and that, in addition to a one-time

charge in that amount, its earnings would be reduced by $25

million per quarter for the foreseeable future. After that news,

the company’s stock price dropped by more than twelve

percent over two days.

A municipal retirement system that had purchased the

company’s common stock before the announcement now

alleges that the company knew beforehand of problems with

its reserves and misled investors about those issues. On that

premise, the retirement system filed this putative class action

against the company and three of its corporate executives,

alleging securities fraud under § 10(b) and § 20(a) of the

Securities Exchange Act of 1934.

In response to the retirement system’s amended complaint,

the insurance company and the executives moved to dismiss

for failure to state a claim for relief. They argued that, under

the heightened pleading standard for securities-fraud claims,

the retirement system’s complaint failed to plausibly allege

three necessary elements of its claims: false or misleading

statements; loss causation; and scienter.

The District Court granted that motion and dismissed the

complaint with prejudice. It determined that the retirement

system did not adequately plead falsity, and for that reason, it

did not evaluate the sufficiency of the complaint’s loss

causation or scienter allegations. The retirement system then

brought this appeal.

While most of the District Court’s judgment holds up on de

novo review, the retirement system’s amended complaint does

contain particularized and plausible allegations of falsity with

respect to one set of statements by the insurance company. On

a conference call with investors eight weeks before the

company adjusted its reserves, its Chief Financial Officer

stated that the recent mortality experience of the company’s

life insurance business was within the “normal” range of

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volatility or, at worst, only “slightly negative.” App. at 76–77

(Am. Compl. ¶ 54 (emphasis removed)). But based on

information from a confidential former employee, who

qualifies as credible at the pleading stage, the complaint alleges

that the insurance company was already contemplating a

significant increase in reserves due to negative mortality

experience at the time of the CFO’s statements. And the

magnitude of the company’s reserve charge and its temporal

proximity to the CFO’s statements further undercut the CFO’s

assertion that recent mortality experience was within a normal

range. Those particularized allegations satisfy the heightened

standard for pleading falsity, and they plausibly allege the

falsity of the CFO’s statement.

Accordingly, we will partially vacate the District Court’s

judgment and remand the case to the District Court to consider

in the first instance the adequacy of the amended complaint’s

allegations of loss causation and scienter with respect to the

CFO’s statement.

I. FACTUAL BACKGROUND

(AS ALLEGED IN THE AMENDED COMPLAINT)

Founded over 140 years ago in Newark, New Jersey,

Prudential Financial, Inc. offers a wide range of financial

products and services. Those products and services include

mutual funds, annuities, investment management, and life

insurance. About ten percent of Prudential’s revenue comes

from its Individual Life business segment, which offers term,

variable, and universal life insurance policies.

As part of its life insurance business, Prudential sets aside

funds – reserves – to pay death-benefit claims under its

policies. The amount of those reserves represents a liability for

future policy benefits on its balance sheet, which Prudential

publishes in its annual and quarterly reports with the Securities

and Exchange Commission. To determine the amount to hold

in reserves, Prudential exercises actuarial judgment in

consideration of many factors, including policyholder

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mortality rates. Typically, during the second quarter of each

fiscal year, Prudential reevaluates and, if necessary, updates

the actuarial assumptions underlying those calculations. If the

amount held in reserves will not cover anticipated death

benefits, then Prudential increases that amount, and the

corresponding charge reduces its income.

In January 2013, Prudential expanded its life insurance

portfolio by acquiring 700,000 life insurance policies that were

underwritten by another insurance company, The Hartford.

Prudential paid $615 million for those policies, referred to as

the ‘Hartford Block.’ Prudential was then able to collect

premiums from the Hartford Block’s policyholders, but it also

assumed the obligation to pay the approximately $141 billion

in death benefits owed under the policies as they came due. By

2015, Prudential had fully integrated the Hartford Block into

its Individual Life business segment.

The Hartford Block proved problematic for Prudential.

Those policies experienced negative mortality development,

meaning that policyholders were not living as long as

predicted, obligating Prudential to pay death benefits sooner

than expected. As a result of that negative mortality

development, the Hartford Block “regularly missed internal

performance expectations” from the time Prudential acquired

it in 2013. App. at 73 (Am. Compl. ¶ 53(a)). In 2016 and 2017,

Individual Life reported poor results due in large part to one-

time adjustments made to integrate the Hartford Block. And,

following its annual assumptions review in the second quarter

of 2018, Prudential announced a $65 million reserve increase

(and corresponding charge against Individual Life’s income),

which the company attributed, in part, to updated mortality-

rate assumptions.

The following year, Prudential made several public

statements that disavowed any serious problems with

Individual Life. In its 2018 Form 10-K annual report, filed

with the SEC on February 15, 2019, Prudential explained its

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general methodology and procedure for calculating reserves.

That annual report further suggested that the amount of its

reserves was adequate, if not excessive, in light of low interest

rates. The Form 10-K also reported Prudential’s liability for

future policy benefits as well as its net income. The next

month, in a meeting with analysts from the Credit Suisse

investment bank, the Vice Chairman of Prudential Financial

and Prudential Insurance, Robert M. Falzon, similarly assured

investors that there were no systemic issues with underwriting

or mortality assumptions in Individual Life. On May 3,

Prudential filed its Form 10-Q for the first quarter of 2019 with

the SEC, and that document, in reporting the company’s net

income and providing its end-of-quarter balance sheets,

disclosed no problems with the reserves for Individual Life.

And on June 5, during an Investor Day conference call,

Prudential’s CFO, Kenneth Y. Tanji, described Individual

Life’s recent mortality experience as within the range of

“normal volatility” or, at worst, only “slightly negative.” Id. at

76–77 (Am. Compl. ¶ 54 (emphasis removed)).

But eight weeks after that Investor Day call, Prudential

disclosed a significant adjustment to its reserves. In a July 31

press release – issued after the stock market had closed –

Prudential announced that, due to unfavorable updates to its

mortality assumptions, it would charge $208 million to

Individual Life’s income to supplement its reserves. By

Prudential’s own benchmarks, a reserve charge of that size was

unusual. In a Form 8-K that Prudential had previously filed

with the SEC in December 2018, the company reported that

negative mortality within one standard deviation from

expectation would reduce Individual Life’s annual pre-tax

adjusted operating income by a comparatively smaller amount

– between $55 million and $80 million. The $208 million

adjustment to reserves, along with other unfavorable

developments, drove Individual Life to report an adjusted

operating loss of $135 million for the second quarter of 2019 –

far below the company’s expected quarterly income of $108

million.

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The analyst community immediately criticized the timing

of Prudential’s announcement. In a report issued the evening

of July 31, one investment bank opined that Prudential “should

have used its June investor day to lay out the new disclosure

and reset the bar at that point.” Id. at 81–82 (Am. Compl. ¶ 61

(emphasis removed)). Another report issued that same night

predicted that “investors will most likely be surprised since this

came so close to [Prudential’s] investor day in June.” Id. at 82

(Am. Compl. ¶ 62 (emphasis removed)).

The next day, three of Prudential’s officers held a

conference call with analysts to discuss the company’s

quarterly results. Those officers explained that the company’s

revised mortality assumptions “related to the longer-dated

vintages” in Individual Life, a seeming reference, at least in

part, to the Hartford Block. Id. at 84 (Am. Compl. ¶ 66

(emphasis removed)). They also previewed that the updated

mortality assumptions, which led to the $208 million charge,

would continue to reduce Individual Life’s earnings by “about

$25 million a quarter . . . for the foreseeable future.” Id. (Am.

Compl. ¶ 65 (emphasis removed)).

On August 2, in its Form 10-Q for the second quarter of

2019, Prudential also commented on the reserve charge.

Specifically, it stated that the reserve charge was “mainly

driven by unfavorable impacts related to mortality rate

assumptions.” Id. at 88 (Am. Compl. ¶ 72 (emphasis

removed)).

In line with the analyst community’s reaction, the market

did not respond favorably to Prudential’s announcements. On

July 31, the price of Prudential’s common stock closed at

$101.31 per share. But on August 1, following Prudential’s

after-hours press release the evening before, the stock closed at

$91.09 per share on heavy trading volume. The stock

continued to drop the next day, closing at $88.56 per share on

August 2. In those two days of trading, Prudential lost about

one-eighth of its market capitalization.

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II. PROCEDURAL HISTORY

After the drop in stock price, two of Prudential’s

shareholders – the City of Warren Police and Fire Retirement

System (the ‘Warren Retirement System’) and Donald P.

Crawford – separately initiated class actions against Prudential

for making false or misleading statements related to the

company’s life insurance reserves. They sued under the

Securities Exchange Act of 1934, which regulates the trading

of securities on the secondary market. See Pub. L. No. 73-291,

48 Stat. 881 (codified as amended at 15 U.S.C. § 78a et seq.).

The centerpiece of the 1934 Act’s antifraud framework,

§ 10(b), prohibits the use of “any manipulative or deceptive

device or contrivance” in violation of regulations promulgated

by the SEC. 15 U.S.C. § 78j(b). And under one of the SEC’s

regulations, Rule 10b-5, it is illegal “[t]o make any untrue

statement of a material fact or to omit to state a material fact

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

the circumstances under which they were made, not

misleading.” 17 C.F.R. § 240.10b-5(b).

Together, § 10(b) and Rule 10b-5 imply a private cause of

action for securities fraud. See Basic Inc. v. Levinson, 485 U.S.

224, 230–31 (1988) (“Judicial interpretation and application,

legislative acquiescence, and the passage of time have removed

any doubt that a private cause of action exists for a violation of

§ 10(b) and Rule 10b-5 . . . .”). That claim has six elements:

(i) a misrepresentation or omission of material fact;

(ii) scienter; (iii) a connection with the purchase or sale of a

security; (iv) reliance; (v) economic loss; and (vi) loss

causation. See Dura Pharms., Inc. v. Broudo, 544 U.S. 336,

341–42 (2005); Fan v. StoneMor Partners LP, 927 F.3d 710,

714 (3d Cir. 2019). Both the Warren Retirement System and

Crawford pursued such a claim against Prudential, as well as

against its Chief Executive Officer, Charles F. Lowrey, and its

Chief Financial Officer, Kenneth Y. Tanji. They also brought

claims under § 20(a) of the 1934 Act, which imposes joint and

several liability on persons who control an individual or entity

that violates § 10(b) and Rule 10b-5. See 15 U.S.C. § 78t(a);

9

Williams v. Globus Med., Inc., 869 F.3d 235, 246 (3d Cir.

2017) (“Section 20(a) of the Securities Exchange Act permits

plaintiffs to bring a cause of action against individuals who

control a corporation that has violated Section 10(b).” (citing

15 U.S.C. § 78t(a))).

Exercising jurisdiction over those suits, see 15 U.S.C.

§ 78aa(a), the District Court consolidated the actions and

appointed the Warren Retirement System as lead plaintiff, see

id. § 78u-4(a)(3). After that appointment, the Warren

Retirement System filed an amended complaint, which, among

other things, added § 10(b) and § 20(a) claims against

Prudential’s Vice Chairman, Robert M. Falzon. The Warren

Retirement System also sought to represent a class of persons

who, like it, bought Prudential’s common stock between

February 15, 2019, the date of the first alleged

misrepresentation, and August 2, 2019, the second day that the

company’s stock price dropped following Prudential’s

corrective disclosures.

In response, Prudential and the individual defendants

moved to dismiss the amended complaint for failure to state a

claim for relief. In that motion, they argued that the Warren

Retirement System failed to adequately allege three essential

elements of its securities-fraud claims: a misrepresentation or

omission of material fact, scienter, and loss causation.

The District Court granted the motion on the ground that

the complaint did not plausibly allege that any of Prudential’s

class-period statements were false or misleading. See In re

Prudential Fin., Inc. Sec. Litig., 2020 WL 7706860, at *15

(D.N.J. Dec. 29, 2020). Reasoning that any attempt to further

amend would be futile, the District Court dismissed the

amended complaint with prejudice without addressing scienter

or loss causation. See id. The Warren Retirement System

timely appealed the resulting order of dismissal, bringing the

case within this Court’s appellate jurisdiction. See 28 U.S.C.

§ 1291.

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III. DISCUSSION

By virtue of Civil Rule 9(b) and the Private Securities

Litigation Reform Act of 1995 (the ‘PSLRA’), heightened

pleading standards govern securities-fraud claims brought

under § 10(b) and Rule 10b-5. See Fed. R. Civ. P. 9(b); Pub.

L. No. 104-67, 109 Stat. 737 (codified as amended in various

sections of Title 15 of the United States Code). These

heightened standards share a common foundation with the

ordinary pleading standards in that speculative or threadbare

allegations along with legal conclusions are disregarded, and

the remaining allegations are generally taken as true. See

Tellabs, Inc. v. Makor Issues & Rts., Ltd., 551 U.S. 308, 322

(2007); Lutz v. Portfolio Recovery Assocs., LLC, 49 F.4th 323,

327–28 (3d Cir. 2022). But due to Rule 9(b) and the PSLRA,

a securities-fraud complaint must contain more than “a short

and plain statement of the claim showing that the pleader is

entitled to relief,” Fed. R. Civ. P. 8(a)(2); it must include

particularized allegations of fraud. See Tellabs, 551 U.S. at

319; Fed. R. Civ. P. 9(b); 15 U.S.C. § 78u-4(b)(1)–(2).

To plead falsity, Rule 9(b) and the PSLRA each demand

specificity. Rule 9(b) requires that a fraud plaintiff “state with

particularity the circumstances constituting fraud.” Fed. R.

Civ. P. 9(b). Under that standard, the complaint must describe

the time, place, and contents of the false representations or

omissions, as well as the identity of the person making the

statement and the basis for the statement’s falsity. See

Institutional Invs. Grp. v. Avaya, Inc., 564 F.3d 242, 253 (3d

Cir. 2009) (explaining the Rule 9(b) pleading standard as

requiring “the who, what, when, where and how” (quoting In

re Advanta Corp. Sec. Litig., 180 F.3d 525, 534 (3d Cir. 1999),

abrogated on other grounds by Tellabs, 551 U.S. at 323–34));

5A Charles Alan Wright, Arthur R. Miller & A. Benjamin

Spencer, Federal Practice & Procedure § 1297 (4th ed. 2022).

Like Rule 9(b), the PSLRA requires the pleadings to identify

“each statement alleged to have been misleading” and to

specify “the reason or reasons why the statement is

misleading.” 15 U.S.C. § 78u-4(b)(1); see also City of

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Cambridge Ret. Sys. v. Altisource Asset Mgmt. Corp., 908 F.3d

872, 881 n.7 (3d Cir. 2018) (“In general, a complaint that

satisfies the PSLRA’s heightened pleading standards will also

satisfy Rule 9(b)’s requirements.”). And if allegations of

falsity are based on information and belief, instead of on

“evidentiary support,” Fed. R. Civ. P. 11(b)(3), the PSLRA

requires the complaint to plead, with particularity, facts

“sufficient to support a reasonable belief as to the misleading

nature of the statement or omission” before the allegations can

be accepted as true. Cal. Pub. Emps.’ Ret. Sys. v. Chubb Corp.,

394 F.3d 126, 147 (3d Cir. 2004) (quoting Novak v. Kasaks,

216 F.3d 300, 314 n.1 (2d Cir. 2000)); see also 15 U.S.C.

§ 78u-4(b)(1). For example, even at the pleading stage,

information provided by confidential witnesses is subject to a

steep discount when the source is not credible or reliable. See

Rahman v. Kid Brands, Inc., 736 F.3d 237, 244 (3d Cir. 2013);

Chubb, 394 F.3d at 147; see also Avaya, 564 F.3d at 263

(recognizing that anonymity alone is not a basis for rejecting

allegations by confidential witnesses that are otherwise

reliable). 1

Upon a motion by any defendant, a claim for securities

fraud under § 10(b) and Rule 10b-5 that lacks particularized

allegations of falsity must be dismissed. See 15 U.S.C. § 78u-

4(b)(3)(A) (requiring the dismissal of a complaint that fails to

1

Although the pleading standards in Rule 9(b) and the PSLRA

can be generally reconciled harmoniously for allegations of

falsity, the PSLRA’s requirements for allegations of scienter

control over the more lenient standard in Rule 9(b) for mental-

state allegations. See Avaya, 564 F.3d at 253 (“The PSLRA’s

requirement for pleading scienter . . . marks a sharp break with

Rule 9(b).”); Tellabs, 551 U.S. at 323–24. Compare Fed. R.

Civ. P. 9(b) (permitting “[m]alice, intent, knowledge, and other

conditions of a person’s mind [to] be alleged generally”), with

15 U.S.C. § 78u-4(b)(2)(A) (requiring a particularized

statement of the “facts giving rise to a strong inference that the

defendant acted with the required state of mind”).

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satisfy the PSLRA’s pleading rules); In re Rockefeller Ctr.

Props., Inc. Sec. Litig., 311 F.3d 198, 224 (3d Cir. 2002)

(recognizing that Rule 9(b) and the PSLRA “impose

independent, threshold pleading requirements that, if not met,

support dismissal apart from Rule 12(b)(6)”). But even if

falsity is pleaded with the requisite particularity, those factual

allegations must still satisfy the plausibility standard, which

requires a “reasonable expectation that discovery will reveal

evidence” of the necessary elements of the claim. Bell Atl.

Corp. v. Twombly, 550 U.S. 544, 556 (2007); see also In re

Synchrony Fin. Sec. Litig., 988 F.3d 157, 161, 169 (2d Cir.

2021) (examining whether the complaint’s “particularized

allegations plausibly allege” a false or misleading statement);

United States ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 186

(5th Cir. 2009) (“Rule 9(b) . . . requires only ‘simple, concise,

and direct’ allegations of the ‘circumstances constituting

fraud,’ which after Twombly must make relief plausible . . . .”);

see generally 5A Charles Alan Wright, Arthur R. Miller &

A. Benjamin Spencer, Federal Practice & Procedure § 1298

(4th ed. 2022) (explaining that the requirement in Rule 9(b) to

plead with particularity “must be read in conjunction with” the

plausibility pleading standard). Thus, Rule 9(b) and the

PSLRA do not insist upon irrefutable evidence of a statement’s

falsity at the pleading stage; rather, a complaint must contain

particularized factual allegations that plausibly allege that a

statement was misleading.

On appeal, the Warren Retirement System argues that the

District Court erred in dismissing its securities-fraud claims for

failing to plead falsity. It identifies four sets of statements that

it contends are pleaded with particularity and are plausibly

false or misleading: (i) the statements in Prudential’s 2018

Form 10-K regarding company’s methodology for updating its

reserves, (ii) the statements about the adequacy of Prudential’s

reserves, which render false or misleading the financial

disclosures in its 2018 Form 10-K and in its first-quarter 2019

Form 10-Q, (iii) the statement by Prudential’s Vice Chairman,

Robert M. Falzon, to Credit Suisse analysts in March 2019,

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which declared that there were no “systemic issues” with the

company’s underwriting practices or mortality assumptions,

App. at 67–68 (Am. Compl. ¶ 43), and (iv) the statements by

Prudential’s CFO, Kenneth Y. Tanji, on June 5, 2019, during

the company’s Investor Day conference regarding Prudential’s

recent mortality experience being within a normal range or at

worst, only slightly negative. As a fallback, the Warren

Retirement System argues that the District Court abused its

discretion by not permitting it to amend its complaint for a

second time to augment its allegations of falsity.

A. Statements Regarding Prudential’s Reserve-

Setting Methodology

The Warren Retirement System argues that it adequately

pleaded the falsity of two statements concerning Prudential’s

methodology for determining and updating its reserves. While

the amended complaint identifies the statements with

particularity and provides reasons for their falsity, those

allegations fail to plausibly demonstrate that Prudential

misrepresented its methodology for setting reserves.

In satisfaction of Rule 9(b) and the PSLRA, the amended

complaint alleges with particularity the circumstances

surrounding the statements about Prudential’s reserve-setting

methodology. Prudential made the two statements in its 2018

Form 10-K, which was filed with the SEC on February 15,

2019. One of the statements in that annual report disclosed that

Prudential’s actuarial “assumptions used in establishing

reserves are generally based on [its] experience, industry

experience, and/or other factors, as applicable.” App. at 64

(Am. Compl. ¶ 37 (emphasis removed)). Another statement

was an assurance that although Prudential typically updates its

actuarial assumptions (including those relating to mortality)

once a year, the company would make an earlier adjustment if

“a material change is observed in an interim period that [it]

feel[s] is indicative of a long-term trend.” Id. at 65 (Am.

Compl. ¶ 38 (emphasis removed)).

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The Warren Retirement System also articulates the reason

for each statement’s falsity. The amended complaint alleges

that Prudential’s description of its reserve-setting methodology

was misleading because Prudential ignored the negative

mortality experience in the Hartford Block when setting its

reserves. Similarly, the amended complaint alleges that

Prudential’s assurance that it would revisit its mortality

assumptions in an interim period to reflect any material

changes created the false impression that no such changes had

occurred since its 2018 annual review.

Although the Warren Retirement System identifies the

allegedly false statements with particularity, that is not enough

to survive a motion to dismiss. The allegations in the amended

complaint must still be plausible. See City of Cambridge Ret.

Sys., 908 F.3d at 879 n.6; In re Synchrony, 988 F.3d at 161,

169. Under that standard, the Warren Retirement System must

demonstrate that discovery would be reasonably likely to

reveal evidence of the falsity of the two statements. See

Twombly, 550 U.S. at 556; Lutz, 49 F.4th at 328. And the

allegations in the amended complaint fail to do so.

The first statement was that Prudential’s assumptions are

generally based on a variety of factors, one of which is its

applicable experience. To allege the plausible falsity of this

statement, the Warren Retirement System must provide facts

showing that Prudential did not generally consider a variety of

factors, including its applicable experience, in updating its

mortality assumptions. But by its own terms, the amended

complaint undermines that effort. It alleges that Prudential

used its experience – including with the Hartford Block – to

update mortality assumptions. See App. at 74 (Am. Compl.

¶ 53(c)) (“Prudential evaluated mortality experience at least

quarterly as it was a key component of Individual Life’s

business performance.” (emphasis added)); id. at 64, 73–74

(Am. Compl. ¶¶ 36, 53(a), (d)) (alleging that the “Hartford

[B]lock was closely monitored,” separately forecasted, and that

updates to mortality assumptions had prompted a $65 million

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reserve charge following Prudential’s 2018 annual review).

The pleading also alleges that Prudential “was particularly

focused on the financial impact of quarterly mortality

experience,” including the Hartford Block’s experience, and

was willing to update its mortality assumptions, and by

extension its reserves, based on that experience. Id. at 74 (Am.

Compl. ¶ 53(c)). These allegations undercut any reasonable

likelihood that discovery would reveal that Prudential did not

consider its experience with the Hartford Block, or its

experience generally, in calibrating its mortality assumptions.

The amended complaint likewise fails to allege the

plausible falsity of Prudential’s assurance about updating its

mortality assumptions on an interim basis. By its terms, that

statement conditioned the promise of interim updates on

Prudential’s observation of a “material change” that it

perceived as “indicative of a long-term trend.” Id. at 65 (Am.

Compl. ¶ 38 (emphasis removed)). The Warren Retirement

System, however, does not allege that between mid-2018

(when Prudential took a $65 million reserve charge based on

updated mortality assumptions) and February 2019 (when it

filed the Form 10-K), the company observed additional

negative mortality developments within the Hartford Block

that were so severe as to constitute a material change in the

assumptions about Individual Life’s reserves, which had been

increased less than a year earlier. The amended complaint

contains even less support for the proposition that Prudential

perceived the pre-February 2019 mortality experience within

the Hartford Block as indicative of a long-term trend in

Individual Life requiring an immediate assumptions update.

Instead, as the District Court succinctly observed, the Warren

Retirement System’s theory of falsity “elides the difference

between short-term mortality experience in one group of

policies and long-term trends for Individual Life as a whole.”

In re Prudential, 2020 WL 7706860, at *13.

For these reasons, the amended complaint does not

plausibly allege falsity with respect to Prudential’s statements

16

about its reserve-setting methodology. And because the

Warren Retirement System did not propose any additional

facts that would demonstrate the plausible falsity of

Prudential’s stated methodology, either before the District

Court or on appeal, the District Court did not abuse its

discretion in denying leave to amend this part of the claim. See

City of Cambridge Ret. Sys., 908 F.3d at 879 n.6 (explaining

that denial of leave to amend is proper when “the complaint

‘would not survive a Rule 12(b)(6) motion even if pled with

more particularity’” (quoting In re Burlington Coat Factory

Sec. Litig., 114 F.3d 1410, 1435 (3d Cir. 1997))); In re

Allergan ERISA Litig., 975 F.3d 348, 357 (3d Cir. 2020)

(affirming a denial of leave to amend because the plaintiffs

gave the district court “no hint as to how they would further

amend their complaint”); In re Adams Golf, Inc. Sec. Litig.,

381 F.3d 267, 280 (3d Cir. 2004) (affirming a denial of leave

to amend because the “proposed amendments would not have

remedied the pleading deficiencies”).

B. Prudential’s Statements Regarding the

Adequacy of its Reserves

The Warren Retirement System also contends that it

properly pleaded the falsity of a group of Prudential’s

statements related to the adequacy of its reserves. Although

the amended complaint provides the particularity required by

Rule 9(b) and the PSLRA about the circumstances of those

statements, the challenged statements are opinions that also are

not actionable.

The Warren Retirement System identifies with particularity

Prudential’s statements about the adequacy of its reserves.

Prudential made those statements in two public filings with the

SEC: its 2018 Form 10-K, filed on February 15, 2019, and its

Form 10-Q for the first quarter of 2019, filed on May 3, 2019.

Those reports disclosed, among other things, the company’s

earnings per share and net income for the prior quarter, and

they included the company’s end-of-period balance sheets.

The balance sheets reported the company’s liabilities, which

17

included the amount held in reserves. Without any qualifiers

or annotations, the identification of those amounts implied

their adequacy as reserves. And in its Form 10-K, Prudential

stated that in light of low interest rates, there was “an increased

likelihood that the reserves determined based on best estimate

assumptions may be greater than the net liabilities.” App. at

66 (Am. Compl. ¶ 39 (emphasis removed)).

As far as the basis for the falsity of those statements, the

amended complaint relies on information from confidential

former employees. Those sources report that at the same time

as Prudential made those filings with the SEC, the Hartford

Block was experiencing consistently negative mortality. On

that ground, the Warren Retirement System postulates that

Prudential’s reserves were inadequate. At the very least, the

Warren Retirement System contends, Prudential’s omission of

the Hartford Block’s negative mortality gave investors false

confidence in the company’s reserves and rendered misleading

the suggestion in its Form 10-K that it was over-reserved.

Those particularized statements about the adequacy of

Prudential’s reserves are opinions. As the Supreme Court has

explained, “[a]n opinion is ‘a belief[,] a view,’ or a ‘sentiment

which the mind forms of persons or things,’” whereas a fact is

a “‘thing done or existing’ or ‘[a]n actual happening.’”

Omnicare, Inc. v. Laborers Dist. Council Const. Indus.

Pension Fund, 575 U.S. 175, 183 (2015) (quoting Webster’s

New International Dictionary 782, 1509 (1927)). And the

setting of reserves reflects an insurer’s actuarial judgment,

based on a variety of complex assumptions and considerations,

of the amount that it must set aside to pay claims by

policyholders. See Shapiro v. UJB Fin. Corp., 964 F.2d 272,

281 (3d Cir. 1992) (observing that there is “no single method

of evaluating and setting loan loss reserves” and cautioning

that “the economic judgments made in setting [such] reserves

can be validated only at some future date”). Thus, when the

stated amount of reserves is challenged, not on the factual

ground that the indicated amount is not actually set aside, but

18

for the sufficiency of that set-aside to pay claims by

policyholders, the stated reserve amount, as a manifestation of

actuarial judgment, functions as an opinion. See Fait v.

Regions Fin. Corp., 655 F.3d 105, 112–13 (2d Cir. 2011)

(analyzing statements regarding the adequacy of loan loss

reserves as opinions), abrogated on other grounds by

Omnicare, 575 U.S. at 184–89. Similarly, when a claim

against an insurance company for false or misleading financial

statements hinges on an opinion about the adequacy of

reserves, those financial statements should be treated as

opinions too.

1. Opinion Falsity Under § 10(b) and

Rule 10b-5.

Although the challenged statements are opinions, they may

still be false or misleading. In a case arising under § 11 of the

Securities Act of 1933, 2 Omnicare, Inc. v. Laborers District

Council Construction Industry Pension Fund, 575 U.S. 175

(2015), the Supreme Court identified three scenarios in which

an opinion may be false or misleading. First, because every

statement of opinion “explicitly affirms one fact: that the

speaker actually holds the stated belief,” an insincere statement

of the speaker’s opinion qualifies as a misrepresentation. Id. at

184. Second, opinion statements that contain expressly

“embedded” factual assertions are misleading if any of the

embedded factual assertions are untrue. Id. at 185–86. The

third scenario involves omissions that render opinion

statements misleading: if, under the circumstances in which it

is given, an opinion reasonably implies facts that are untrue,

then, without a qualifying statement regarding those facts, the

opinion is misleading. See id. at 188–89.

Unlike Omnicare, this case involves claims under § 10(b)

of the 1934 Act and Rule 10b-5. And this Circuit has not

2

Pub. L. No. 73-22, 48 Stat. 74 (codified as amended at

15 U.S.C. § 77a et seq.).

19

precedentially addressed the applicability of Omnicare’s

opinion-falsity framework to claims under § 10(b) for

violations of Rule 10b-5. But this Court has assumed that

Omnicare applies to proxy-fraud claims under § 14(a) of the

1934 Act. See Jaroslawicz v. M&T Bank Corp., 962 F.3d 701,

717 & n.16 (3d Cir. 2020) (observing that “[t]he Supreme

Court’s decision in Omnicare provides the relevant

framework” for assessing the falsity of opinion statements

under § 14(a)). More broadly, every other Court of Appeals to

encounter the issue has applied the Omnicare framework for

opinion falsity to claims for Rule 10b-5 violations. See Emps.’

Ret. Sys. of the City of Baton Rouge & Par. of E. Baton Rouge

v. MacroGenics, Inc., 61 F.4th 369, 386–91 (4th Cir. 2023);

Constr. Indus. & Laborers Joint Pension Tr. v. Carbonite, Inc.,

22 F.4th 1, 7 (1st Cir. 2021); Carvelli v. Ocwen Fin. Corp.,

934 F.3d 1307, 1322 n.7 (11th Cir. 2019); City of Dearborn

Heights Act 345 Police & Fire Ret. Sys. v. Align Tech., Inc.,

856 F.3d 605, 616 (9th Cir. 2017); Tongue v. Sanofi, 816 F.3d

199, 209–10 (2d Cir. 2016); Nakkhumpun v. Taylor, 782 F.3d

1142, 1159 (10th Cir. 2015).

We join that consensus: Omnicare’s framework for

evaluating opinion falsity applies to claims under § 10(b) for

violations of Rule 10b-5. Although differences exist between

§ 11 and Rule 10b-5, 3 the two provisions use almost identical

language in prohibiting misrepresentations and omissions.

Compare 15 U.S.C. § 77k(a) (creating liability for registration

statements that “contained an untrue statement of a material

fact or omitted to state a material fact required to be stated

therein or necessary to make the statements therein not

misleading”), with 17 C.F.R. § 240.10b-5(b) (making it illegal

3

Unlike Rule 10b-5, § 11 applies only to registration

statements, and it lacks scienter and loss-causation

requirements. See Obasi Inv. LTD v. Tibet Pharms., Inc.,

931 F.3d 179, 182 (3d Cir. 2019) (observing that § 11

“imposes near-strict liability for untruths and omissions made

in a registration statement”).

20

“[t]o make any untrue statement of a material fact or to omit to

state a material fact necessary in order to make the statements

made, in the light of the circumstances under which they were

made, not misleading”). That textual congruence strongly

suggests that the SEC, in promulgating Rule 10b-5, intended

to employ the same standard for falsity as Congress used when

enacting § 11. Cf. Antonin Scalia & Bryan A. Garner, Reading

Law: The Interpretation of Legal Texts 323 (2012) (“[W]hen a

statute uses the very same terminology as an earlier statute –

especially in the very same field, such as securities law . . . – it

is reasonable to believe that the terminology bears a consistent

meaning.” (emphasis added)).

Relatedly, this Circuit has already held that § 11 and Rule

10b-5 share the same standard of materiality for misleading

statements. See In re Merck & Co., Inc. Sec. Litig., 432 F.3d

261, 273–75 (3d Cir. 2005) (reaffirming that “[s]ections 11 and

10(b) share the materiality element and the [same] materiality

definition”); In re Donald J. Trump Casino Sec. Litig.-Taj

Mahal Litig., 7 F.3d 357, 369 (3d Cir. 1993) (observing that

§ 10(b), Rule 10b-5, § 11, and § 12(2) all share the same

standard of materiality). And in prior precedent, this Circuit

prefigured the Omnicare framework by recognizing that, for

purposes of Rule 10b-5 violations, opinion statements are

misleading when “issued without a genuine belief or

reasonable basis.” In re Merck & Co., Inc. Sec., Derivative &

“ERISA” Litig., 543 F.3d 150, 166 (3d Cir. 2008) (quoting

Herskowitz v. Nutri/System, Inc., 857 F.2d 179, 185 (3d Cir.

1988)); see also City of Edinburgh Council v. Pfizer, Inc.,

754 F.3d 159, 170 (3d Cir. 2014).

In sum, Omnicare is best viewed as a more developed

articulation of that principle so that for claims under § 10(b)

and Rule 10b-5, an opinion statement is misleading if it: (i) was

not sincerely believed when made; (ii) contains an expressly

embedded, untrue factual assertion; or (iii) reasonably implies

untrue facts and omits appropriate qualifying language.

21

2. None of the challenged opinion

statements in this case fit within any of

Omnicare’s categories of false or

misleading opinions.

For the first Omnicare category, the amended complaint

does not contain plausible allegations that Prudential did not

sincerely hold its opinion about the adequacy of its reserves.

At most, the amended complaint relies on reports by three

confidential former employees for the proposition that one

subset of Individual Life’s portfolio, the Hartford Block,

experienced negative mortality during 2018 and 2019. But

even assuming, for the sake of argument, the credibility of

those sources, see Avaya, 564 F.3d at 263, their accounts fail

to show that Prudential, at least prior to conducting its second-

quarter actuarial assumptions review, believed the Hartford

Block’s problems had affected Individual Life to the point that

the reserves for that entire business segment were deficient.

See Williams, 869 F.3d at 246 (“[A]ctual knowledge that sales

from one source might decrease is not the same as actual

knowledge that the company’s overall sales projections are

false.” (emphasis added)). And because the challenged

statements were made before the alleged second-quarter

review of actuarial assumptions could be reasonably inferred

to have discovered any problems, the Warren Retirement

System does not provide a basis for plausibly concluding that

Prudential did not sincerely believe the adequacy of its reserve

amounts as it reported them on its SEC filings.

For the second Omnicare scenario, the challenged

statements have no expressly embedded factual assertions that

are untrue. The statement of a likelihood of being over-

reserved has only two embedded factual statements: that

interest rates were low, and that Prudential held reserves at all.

The truthfulness of both of those statements is undisputed.

Nor are the challenged statements misleading under the

falsity-by-omission scenario described in Omnicare. The

Warren Retirement System’s omission argument rests on

22

information from confidential former employees that the

Hartford Block had a consistently negative mortality

experience, and the Warren Retirement System contends that

Prudential should have disclosed that issue. Even without

examining whether that confidential-source information

should be discounted, the recognition that the alleged negative

mortality in the Hartford Block would tend to increase the

amount of needed reserves would be, at most, only one of many

factors that Prudential considered in setting its reserves. And

because “[r]easonable investors understand that opinions

sometimes rest on a weighing of competing facts,” an opinion

statement is “not necessarily misleading when an issuer knows,

but fails to disclose, some fact cutting the other way.”

Omnicare, 575 U.S. at 189–90. Thus, without an

accompanying allegation that the negative mortality in the

Hartford Block was so great that it would, for a reasonable

investor, eclipse the balance of the numerous other

considerations used to set reserves for all of Individual Life,

the omission of that fact from Prudential’s Forms 10-K and

10-Q does not make the challenged opinions in those filings

misleading. See id. at 190 (“A reasonable investor does not

expect that every fact known to an issuer supports its opinion

statement.”); Chubb, 394 F.3d at 156 (explaining that

“anecdotal examples” of individual policies’ poor performance

did not demonstrate that the broader business was failing).

For these reasons, the Warren Retirement System does not

allege circumstances under which Prudential’s statements

concerning the adequacy of its reserves were plausibly false or

misleading opinions under any of the scenarios identified in

Omnicare. Because the Warren Retirement System does not

propose any allegations that would bring the company’s

statements regarding the adequacy of its reserves within any of

the three Omnicare scenarios, the District Court did not abuse

its discretion in denying a second opportunity to amend the

complaint in this respect.

23

C. The Reference to Falzon’s No-Systemic-Issues

Statement in the Credit Suisse Analyst Report

The Warren Retirement System also premises its securities-

fraud claims upon a statement allegedly made by Prudential’s

Vice Chairman, Robert M. Falzon. As required by Rule 9(b)

and the PSLRA, the amended complaint identifies the

circumstances surrounding that statement with particularity.

According to a March 31 analyst report from the Credit Suisse

investment bank, Falzon stated three days earlier, at a meeting

with analysts, that “there are no systemic issues with

underwriting or mortality assumptions.” App. at 67–68 (Am.

Compl. ¶ 43) (emphasis removed). The amended complaint

also provides the Warren Retirement System’s reason for the

falsity of Falzon’s statement. That rationale depends on

information from three confidential witnesses, who as former

Prudential employees, assert that the Hartford Block was “not

priced to cover the adverse mortality trends being experienced”

and that Prudential was powerless to increase the premiums on

those policies. Id. at 73–74 (Am. Compl. ¶ 53(b)). Based on

that information, the Warren Retirement System contends that,

contrary to Falzon’s assurances, there were systemic issues

with Prudential’s underwriting practices and mortality

assumptions.

The District Court rejected Credit Suisse’s report of

Falzon’s statement as a basis for a Rule 10b-5 claim against

Prudential. See In re Prudential, 2020 WL 7706860, at *14. It

reasoned that because the statement, which was a paraphrasing,

not a direct quotation, appeared in an analyst report, it was not

‘made’ by Falzon or Prudential for purposes of Rule 10b-5.

See id.; see also 17 C.F.R. § 240.10b-5(b) (“It shall be

unlawful for any person, directly or indirectly, . . . [t]o make

any untrue statement of a material fact . . . .” (emphasis

added)). In reaching that conclusion, the District Court relied

on Janus Capital Group, Inc. v. First Derivative Traders,

564 U.S. 135 (2011), for the proposition that Falzon could not

have made the statement because he did not “control[] the

content of the report.” In re Prudential, 2020 WL 7706860, at

24

*14 (citing Janus, 564 U.S. at 142 (“Without control, a person

or entity can merely suggest what to say, not ‘make’ a

statement in its own right.”)). That reasoning is incorrect, but

inconsequential here. See TD Bank N.A. v. Hill, 928 F.3d 259,

270 (3d Cir. 2019) (recognizing that this Court “may affirm on

any basis supported by the record, even if it departs from the

District Court’s rationale”).

Janus announced two important points of law regarding the

maker of a statement for purposes of Rule 10b-5. First, it held

that for a person or entity to ‘make’ a statement, that person or

entity must have “ultimate authority over the statement,

including its content and whether and how to communicate it.”

Janus, 564 U.S. at 142. Second, Janus emphasized the role of

attribution in determining a statement’s maker: “attribution

within a statement or implicit from surrounding circumstances

is strong evidence that a statement was made by – and only by

– the party to whom it is attributed.” Id. at 142–43. Applying

those principles to allegedly false statements in a mutual fund’s

prospectuses, the Supreme Court concluded that an investment

advisor for the mutual fund – even if it were “significantly

involved in preparing the prospectuses” – did not ‘make’ the

challenged statements because the prospectuses did not

attribute the statements to the fund advisor and because only

the mutual fund, not the advisor, had the statutory obligation to

issue the prospectuses. See id. at 146–48.

Those two Janus principles lead to a different conclusion

here: Prudential, through Falzon, made the no-systemic-issues

statement. The allegations about the contents of Falzon’s

statement and its attribution to him are not based on

information and belief, and they do not rely on confidential

sources. So even under the PSLRA’s heightened pleading

standard for falsity, see 15 U.S.C. § 78u-4(b); Avaya, 564 F.3d

at 252–53, nothing more is needed to accept those allegations

as true at this stage. From that perspective, the challenged

statement is sufficiently attributed to Falzon – Credit Suisse

identifies him by name as the speaker. See ESG Cap. Partners,

25

LP v. Stratos, 828 F.3d 1023, 1033 (9th Cir. 2016) (explaining

that “attributing a statement to another party generally

indicates that party as the ‘maker’ of the statement” for Rule

10b-5 purposes under Janus). And with Falzon’s position as

Vice Chairman and the surrounding context of the statement –

that it was made at a meeting where Prudential’s management

discussed the company’s financial condition with outside

analysts – the amended complaint allows the reasonable

inference that Falzon (not Credit Suisse’s analysts) had

“ultimate authority” on behalf of Prudential to speak about the

company’s underwriting practices and mortality assumptions.

Janus, 564 U.S. at 142. Under Janus, then, the amended

complaint plausibly pleads that Prudential, through Falzon,

made the challenged statement. See id. at 147 n.11; see also

Basic, 485 U.S. at 227 & n.4 (treating a paraphrased statement

by a company’s president that was published in a newspaper as

having been “made” by the company for purposes of Rule

10b-5); Nursing Home Pension Fund, Loc. 144 v. Oracle

Corp., 380 F.3d 1226, 1235 (9th Cir. 2004) (explaining, pre-

Janus, that “when statements in analysts’ reports clearly

originated from the defendants, and do not represent a third

party’s projection, interpretation, or impression, the statements

may be held to be actionable even if they are not exact

quotations”).

In reaching a contrary conclusion, the District Court

misapplied Janus. It examined Credit Suisse’s control over the

analyst report and not Prudential’s ultimate authority over the

statements within the report that were attributed to Falzon. But

Janus distinguishes between the act of ‘making’ a statement

and the act of republishing it, such that “publishing another’s

statement does not make someone the ‘maker’ of the

statement.” Stratos, 828 F.3d at 1033 (quoting Janus, 564 U.S.

at 142–43); see also Janus, 564 U.S. at 147 n.11 (“[A]s long as

a statement is made, it does not matter whether the statement

was communicated directly or indirectly to the recipient.”);

Basic, 485 U.S. at 227 & n.4. In this case, because the report

attributed the statement to Falzon and the context of the

26

statement indicates that he exercised control over its content

and the decision to communicate it to Credit Suisse, the

statement cannot, at least at the pleading stage, be considered

to have been ‘made’ by Credit Suisse for purposes of Rule

10b-5.

Nevertheless, the amended complaint does not plausibly

allege the falsity of Falzon’s statement. The information used

to justify its falsity – underwriting problems and negative

mortality in the Hartford Block – comes from confidential

former employees. Even without accounting for any potential

discounting of that information, see Avaya, 564 F.3d at 263,

the statements support, at most, the conclusion that there were

flaws in the underwriting practices and mortality assumptions

for the Hartford Block that could not be remedied by raising

premiums for the Hartford Block. But Falzon’s no-systemic-

issues statement concerned Individual Life as a whole – not

just the Hartford Block. Thus, his statement cannot be

interpreted as disavowing any issues related to underwriting or

mortality assumptions in the Hartford Block. Rather, the

statement communicated that there were no problems with

underwriting or mortality assumptions that would jeopardize

the performance of all of Individual Life. And without

allegations about the relative size of the Hartford Block

compared to all of Individual Life, or about the magnitude of

the problems in the Hartford Block relative to the full

Individual Life portfolio, the amended complaint does not

allow the inference that any problems with the Harford Block

were systemic when Falzon made his statement.

Accordingly, Falzon’s alleged statement reproduced in the

Credit Suisse analyst report is not plausibly false or

misleading. Also, because the Warren Retirement System did

not identify any additional information that would change this

conclusion, the District Court did not abuse its discretion in

denying leave to amend the complaint in this respect.

27

D. Tanji’s Investor Day Comments

The most recent of the allegedly misleading statements

were made on June 5, 2019, at Prudential’s Investor Day

conference. The amended complaint identifies those

statements and the circumstances surrounding them with the

particularity required by Rule 9(b) and the PSLRA. During a

presentation, Prudential’s CFO, Kenneth Y. Tanji, assured

investors that Individual Life’s “recent [mortality] experience

has been in between [the] range of what we’d expect[,] normal

volatility, but net it has been below our experience.” App. at

76–77 (Am. Compl. ¶ 54 (emphasis removed)). Then, in

response to a follow-up question from an analyst, Tanji further

described Individual Life’s mortality experience as “very

quarter-to-quarter, both positive and negative,” or, at worst,

only “slightly negative.” Id. (emphasis removed).

The amended complaint also specifies two reasons for

those statements’ falsity. The first rationale relies entirely on

information from a confidential former employee, referred to

as ‘FE1.’ According to FE1, Prudential discussed in May 2019

that its reserves would need to be significantly increased as a

result of negative mortality experience in the Hartford Block:

[A]s early as May 2019, it was discussed in

forecast meetings that Individual Life was

performing poorly due to negative mortality

experience in the legacy Hartford [B]lock and

that [Prudential] would need to take a significant

charge to Individual Life adjusted operating

income.

Id. at 79 (Am. Compl. ¶ 59). Tanji’s statement on June 5 that

Prudential’s recent mortality experience had been within a

normal range (or perhaps slightly negative) does not reconcile

easily with these allegations that the company, the month

before, discussed taking a significant reserve charge as a result

of negative mortality experience. If credited, the information

28

from FE1 would go a long way toward establishing the

plausible falsity of Tanji’s statement.

The second rationale for falsity is the combined effect of

the temporal proximity of Tanji’s assurances, made eight

weeks before Prudential’s corrective disclosures, and the

magnitude of the corrective actions – a one-time $208 million

reserve charge followed by a $25 million per-quarter reduction

in earnings for the foreseeable future. Those allegations

increase the likelihood that, contrary to Tanji’s statements,

Individual Life’s recent mortality experience could not have

been within a normal range, or at worst slightly negative, on

Investor Day. 4 Consistent with that conclusion, the amended

complaint alleges that a sensitivity analysis published by

Prudential in a Form 8-K on December 6, 2018, indicated that

a one-standard-deviation change in expected mortality would

decrease Individual Life’s income by $55 million to $80

million. From that reference point, it is a reasonable inference

from a reserve charge of $208 million that the company’s

mortality experience was not in the normal range, or at worst

slightly negative, eight weeks before the charge.

These allegations, if credited, along with the reasonable

inferences that may be drawn from them, plausibly plead that

the mortality experience for Individual Life was not within a

normal range or just slightly negative as of June 5. Indeed,

analysts were surprised by Prudential’s disclosure of the $208

million reserve charge so close in time to the company’s

4

Tanji’s Investor Day comments related to mortality

experience, and Prudential’s corrective disclosures attributed

the reserve charge to updated mortality assumptions. Those

concepts are not the same, and unexpected mortality

experience does not always compel updated mortality

assumptions. But here, it is a reasonable inference, in light of

the magnitude of the reserve charge and the information from

FE1, that Prudential’s updated mortality assumptions resulted

from negative mortality experience.

29

Investor Day conference. See id. at 81 (Am. Compl. ¶ 61

(citing a UBS report questioning why Prudential failed to

“reset the bar” during Investor Day (emphasis removed))); id.

at 82 (Am. Compl. ¶ 62 (citing a Wells Fargo report predicting

investor surprise because the announcement was “so close” in

time to the Investor Day conference)). Thus, FE1’s account of

Prudential’s internal discussions, combined with the

magnitude of the reserve charge and its close temporal

proximity to Investor Day, suffice to plead that Tanji’s

statements regarding the company’s recent mortality

experience were plausibly false or misleading when made. 5

To avoid that outcome, Prudential attacks both alleged

rationales. It contends that the confidential-source information

from FE1 is unreliable and should be steeply discounted. It

also disputes the inference of falsity from the combination of

the temporal proximity and the magnitude of the reserve

adjustment. Neither of those contentions has merit, so we will

vacate and remand the dismissal of the claims, including the

companion claims under § 20(a), predicated on Tanji’s

Investor Day remarks. See Avaya, 564 F.3d at 252, 280 (noting

that “liability under Section 20(a) is derivative of an underlying

violation of Section 10(b)”).

5

Because, when taken together, the information from FE1 and

the circumstances of the reserve charge demonstrate the

plausible falsity of Tanji’s statements, it is not necessary to

assess whether either allegation would, on its own, cross the

plausibility threshold. By contrast, the allegedly misleading

statements made earlier in the class period lack the same close

temporal connection to the reserve charge. That attenuation,

along with the lack of “mutually reinforcing” allegations and

the other shortcomings identified above, makes unreasonable

any inference that those prior statements were false. Avaya,

564 F.3d at 266.

30

1. The Information Supplied by the

Confidential Former Employee,

‘FE1,’ Should Not Be Discounted.

Prudential argues that the information provided by FE1

should be discounted to the point of insignificance. Under this

Circuit’s PSLRA jurisprudence, allegations based on

information from a confidential witness must be “steeply

discounted” if the source is not credible or if the information is

unreliable. Avaya, 564 F.3d at 262–63. Several factors guide

that determination: the dependability of a confidential

witness’s basis of knowledge; the level of detail provided by

the witness; the degree to which other testimony or evidence

corroborates the witness’s account; and the internal

consistency of the information provided. See Chubb, 394 F.3d

at 147; Rahman, 736 F.3d at 244. Under those factors, the

information from FE1 related to Prudential’s discussions in

May 2019 about taking a significant reserve charge cannot be

discounted at the pleading stage.

As to the dependability of FE1’s basis of knowledge, the

amended complaint provides “sufficient particularity to

support the probability that a person in the position occupied

by the source would possess the information alleged.”

Rahman, 736 F.3d at 244 (quoting Novak, 216 F.3d at 314).

Such a showing – that a confidential source, by virtue of his or

her position, would have access to the information alleged –

can be made through a description of the duration of the

confidential witness’s employment along with explanations of

how and when the confidential witness learned the

information. See Avaya, 564 F.3d at 263; Chubb, 394 F.3d at

148 (requiring “allegations regarding how or why [the

confidential sources] would have access to the information

they purport to possess”). The amended complaint describes

FE1’s basis of knowledge in the required degree of detail. FE1

was an Associate Manager in Prudential’s Planning and

Analysis group between November 2016 and February 2020.

In that position, FE1 regularly attended Individual Life forecast

meetings with the actuarial, capital, and financial teams. And,

31

as early as May 2019, FE1 learned that Prudential was

discussing, at those forecast meetings, taking a significant

reserve charge due to the Hartford Block’s negative mortality

experience.

The amended complaint also provides an appropriate

degree of detail about the information provided by FE1. FE1

explained that, internally, Prudential understood that

Individual Life as a whole was “performing poorly” and that

the company attributed that poor performance to “negative

mortality experience in the legacy Hartford [B]lock.” App. at

79 (Am. Compl. ¶ 59). Also according to FE1, those

developments caused Prudential to discuss as early as May

2019 that it “would need to take a significant charge to

Individual Life adjusted operating income.” Id. This

information contains enough detail to call into question the

veracity of Tanji’s Investor Day remarks that Prudential’s

mortality experience was within a normal range, or at worst

only slightly negative. Cf. Rahman, 736 F.3d at 245

(discounting information from a confidential witness that

consisted of “little more than generalized allegations with few

specifics”).

In addition, other allegations in the amended complaint

corroborate the information from FE1. The explanation

reported by FE1 for Prudential’s internal discussions aligns

with the company’s own justification for the $208 million

reserve charge – updated mortality assumptions related to

Individual Life’s longer-dated vintages. See Avaya, 564 F.3d

at 264; cf. generally Illinois v. Gates, 462 U.S. 213, 244–45

(1983) (noting “that corroboration through other sources of

information reduce[s] the chances of a reckless or

prevaricating tale” (quoting Jones v. United States, 362 U.S.

257, 271 (1960))). Similarly, FE1’s report that the relevant

discussions began as early as May 2019 is consistent with the

timing of Prudential’s annual, actuarial assumptions review,

which occurs during the second quarter of each fiscal year.

And although they did not attend the forecast meetings, two

32

other confidential witnesses with dependable bases for their

more limited knowledge 6 corroborate FE1’s report of negative

mortality experience in the Hartford Block. See Avaya,

564 F.3d at 266 (examining the dependability of a confidential

witness’s basis of knowledge before relying on information

from the witness for corroboration at the pleading stage).

Consistent with FE1’s information, those witnesses reported

that the Hartford Block was not adequately priced to cover its

negative mortality experience and that its actuarial and data

administration systems were subpar.

For similar reasons, the information from FE1 fits within a

coherent narrative. FE1’s report that the Hartford Block had

problems with underwriting and with consistently negative

mortality does not undermine the plausibility of other

allegations in the amended complaint. To the contrary, FE1’s

information reconciles with the possibility that Prudential

initially viewed the underwriting and negative mortality issues

as localized to the Hartford Block, but that by the time of the

company’s second-quarter assumptions review in May 2019,

the problems with the Hartford Block began to affect

Individual Life as a whole, prompting Prudential to take the

$208 million reserve charge.

In sum, the factors used to evaluate the overall reliability of

information from confidential sources do not reveal a basis to

steeply discount the information from FE1. Consequently, the

6

As alleged, one of the confidential former employees,

referred to as ‘FE2,’ worked at Prudential from April 2001 to

July 2019. During that time, FE2 worked as a manager in the

company’s Actuarial Project Management Office with

responsibility for assessing model risks. Another confidential

former employee, referred to as ‘FE3,’ worked at Prudential

from 2011 to June 2018. During that time, FE3 served as an

associate manager in Individual Life Insurance Financial

Planning and Analysis and was responsible for financial

forecasting.

33

allegations premised on the information from FE1 must be

taken as true at the pleading stage. See id. at 263.

2. Inferences About the Falsity of Tanji’s

Investor Day Statements Are Not

Impermissible Fraud by Hindsight.

Prudential separately argues that reliance on the $208

million reserve charge eight weeks after Tanji’s statements is

an impermissible attempt to plead fraud by hindsight, and

therefore those allegations should not receive any weight in the

plausibility analysis. The fraud-by-hindsight prohibition has

its greatest potency in the context of otherwise deficient

allegations of scienter, 7 but for purposes of allegations of

falsity, it operates as a corollary of the rule that “[t]o be

actionable, a statement or omission must have been misleading

at the time it was made.” In re NAHC, Inc. Sec. Litig., 306 F.3d

1314, 1330 (3d Cir. 2002); see also Williams, 869 F.3d at 244

(noting that allegations of falsity “must be sufficient to show

that the challenged statements were ‘actionably unsound when

made’” (quoting In re Burlington Coat Factory, 114 F.3d at

1430)). Thus, while the PSLRA forbids reliance on

“speculative fraud by hindsight” allegations, In re Rockefeller,

311 F.3d at 225 (emphasis added), later developments may

allow a reasonable inference that prior statements were untrue

or misleading when made. See In re Merck, 432 F.3d at 272

(“[A]ny information that sheds light on whether class period

statements were false or materially misleading is relevant.”

(quoting In re Scholastic Corp. Sec. Litig., 252 F.3d 63, 72 (2d

7

See 15 U.S.C. § 78u-4(b)(2)(A) (requiring particularized

allegations “giving rise to a strong inference that the defendant

acted with the required state of mind” (emphasis added)); see

also Tellabs, 551 U.S. at 320 (“The ‘strong inference’ [of

scienter] formulation was appropriate, the Second Circuit said,

to ward off allegations of ‘fraud by hindsight.’” (quoting

Shields v. Citytrust Bancorp, Inc., 25 F.3d 1124, 1129 (2d Cir.

1994))).

34

Cir. 2001))); Plotkin v. IP Axess Inc., 407 F.3d 690, 698 (5th

Cir. 2005) (recognizing that “allegations of later-emerging

facts can, in some circumstances, provide warrant for

inferences about an earlier situation”). And an inference of

falsity is easier to justify for statements that are followed

shortly by corrective disclosures of significant dimension. See

Neiman v. Bulmahn, 854 F.3d 741, 751 (5th Cir. 2017) (“[T]he

fact that a business files for bankruptcy on ‘Day Two,’ may,

under the right surrounding circumstances, provide grounds for

inferring that the business was performing poorly on ‘Day

One.’” (quoting Plotkin, 407 F.3d at 698)); see also Emps.’

Ret. Sys. of Gov’t of the V.I. v. Blanford, 794 F.3d 297, 307 (2d

Cir. 2015) (reasoning that “a significant gap in fourth quarter

sales tends to support [a] claim that inventory was misleadingly

characterized throughout the Class Period”); Novak, 216 F.3d

at 312–13 (inferring from a company’s “significant write-off

of inventory directly following the Class Period . . . that

inventory was seriously overvalued at the time the purportedly

misleading statements were made”).

This case illustrates the application of those principles.

Prudential’s corrective disclosures were momentous (a $208

million charge plus a $25 million quarterly impact on earnings

for the foreseeable future) and close in time (eight weeks later)

to Tanji’s statements. Thus, at least at the pleading stage, when

Prudential has not yet had an opportunity to present its own

evidence, the conclusion that Tanji’s statements were untrue is

not impermissible fraud by hindsight, but instead a reasonable

inference. See Plotkin, 407 F.3d at 697–98 (finding that events

occurring months after the challenged statements were “so

temporally connected that they shed light on the financial

condition of the companies at the time” the statements were

made).

IV. CONCLUSION

For these reasons, the Warren Retirement System plausibly

pleaded falsity only with respect to CFO Tanji’s statements on

June 5, 2019, regarding Prudential’s mortality experience.

35

Accordingly, we will affirm the District Court’s judgment

except for a vacatur with respect to the claims premised on

those statements, recognizing that this “disposition entails a

shorter class period” that can begin no earlier than the date of

Tanji’s statements. Avaya, 564 F.3d at 280.

36