In the Supreme Court of the United States

No. 18-164

In the Supreme Court of the United States

FIRST SOLAR, INC., ET AL., PETITIONERS

v.

MINEWORKERS’ PENSION SCHEME, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF FOR THE UNITED STATES AS AMICUS CURIAE

ROBERT B. STEBBINS

General Counsel

MICHAEL A. CONLEY

Solicitor

JEFFREY A. BERGER

Senior Litigation Counsel

Securities and Exchange

Commission

Washington, D.C. 20549

NOEL J. FRANCISCO

Solicitor General

Counsel of Record

MALCOLM L. STEWART

Deputy Solicitor General

JONATHAN Y. ELLIS

Assistant to the Solicitor

General

Department of Justice

Washington, D.C. 20530-0001

SupremeCtBriefs@usdoj.gov

(202) 514-2217

QUESTION PRESENTED

Whether the plaintiff in a private securities-fraud action under Section 10(b) of the Securities Exchange Act

of 1934, 15 U.S.C. 78j(b), and Rule 10b-5, 17 C.F.R.

240.10b-5, may establish loss causation based on a decline in the market price of a security where the event

or disclosure that triggered the decline did not reveal

that an issuer’s previous false or misleading statement

was fraudulently made.

(I)

TABLE OF CONTENTS

Page

Interest of the United States....................................................... 1

Statement ...................................................................................... 1

Discussion:

A. The court of appeals correctly rejected a revelationof-the-fraud requirement for loss causation ................... 6

B. No circuit conflict exists on the question presented .... 13

Conclusion ................................................................................... 22

TABLE OF AUTHORITIES

Cases:

Alaska Elec. Pension Fund v. Flowserve Corp.,

572 F.3d 221 (5th Cir. 2009) ......................................... 18, 19

Basic Inc. v. Levinson, 485 U.S. 224 (1988) .................... 9, 10

Daou Sys., Inc., In re, 411 F.3d 1006 (9th Cir. 2005),

cert. denied, 546 U.S. 1172 (2006) ................................. 4, 18

Dura Pharm., Inc. v. Broudo, 544 U.S. 336

(2005) ........................................................................... passim

EP Medsystems, Inc. v. EchoCath , Inc., 235 F.3d 865

(3d Cir. 2000) ....................................................................... 19

Erica P. John Fund , Inc. v. Halliburton Co.,

563 U.S. 804 (2011).................................................. 2, 8, 9, 12

FindWhat Investor Grp. v. FindWhat.com,

658 F.3d 1282 (11th Cir. 2011), cert. denied,

568 U.S. 814 (2012)........................................................ 15, 18

Katyle v. Penn Nat’l Gaming, Inc., 637 F.3d 462

(4th Cir.), cert. denied, 565 U.S. 825 (2011) ... 17, 20, 21, 22

Lentell v. Merrill Lynch & Co., 396 F.3d 161

(2d Cir.), cert. denied, 546 U.S. 935 (2005) ....................... 19

Lloyd v. CVB Fin. Corp., 811 F.3d 1200

(9th Cir. 2016) ...................................................................... 19

(III)

IV

Cases—Continued:

Page

Lormand v. US Unwired , Inc., 565 F.3d 228

(5th Cir. 2009) ...................................................................... 21

Massachusetts Ret. Sys. v. CVS Caremark Corp.,

716 F.3d 229 (1st Cir. 2013) ................................... 13, 14, 22

McCabe v. Ernst & Young, LLP, 494 F.3d 418

(3d Cir. 2007) ....................................................................... 20

Metzler Inv. GMBH v. Corinthian Colleges, Inc.,

540 F.3d 1049 (9th Cir. 2008) ............................................... 4

Meyer v. Greene, 710 F.3d 1189 (11th Cir. 2013) ... 14, 15, 21

Norfolk Cnty. Ret. Sys. v. Community Health Sys.,

Inc., 877 F.3d 687 (6th Cir. 2017), cert. denied,

139 S. Ct. 310 (2018) ........................................................... 19

Nuveen Mun. High Income Opportunity Fund v.

City of Alameda, 730 F.3d 1111 (9th Cir. 2013) ................ 4

Ohio Pub. Emps. Ret. Sys. v. Federal Home Loan

Mortg. Corp., 830 F.3d 376 (6th Cir. 2016) ....................... 19

Schleicher v. Wendt, 618 F.3d 679 (7th Cir. 2010).............. 20

Singer v. Reali, 883 F.3d 425 (4th Cir. 2018) ...................... 18

Stoneridge Inv. Partners , LLC v. Scientific-Atlanta ,

Inc., 552 U.S. 148 (2008) ....................................................... 2

Teachers’ Ret. Sys. of La. v. Hunter,

477 F.3d 162 (4th Cir. 2007) ......................................... 16, 17

Tricontinental Indus., Ltd. v.

PricewaterhouseCoopers, LLP, 475 F.3d 824

(7th Cir.), cert. denied, 552 U.S. 824 (2007) ..................... 16

Vivendi , S.A. Sec. Litig., In re , 838 F.3d 223

(2d Cir. 2016) ................................................................. 18, 19

Williams Sec. Litig.-WCG Subclass, In re,

558 F.3d 1130 (10th Cir. 2009) ........................................... 19

V

Statutes, regulation, and rule:

Page

Private Securities Litigation Reform Act of 1995,

Pub. L. No. 104-67, 109 Stat. 737 ........................................ 3

§ 101(b), 109 Stat. 747 ....................................................... 3

15 U.S.C. 78u-4(b)(4) ................................................. 3, 6, 8

15 U.S.C. 78u-4(e) ............................................................ 10

15 U.S.C. 78u-4(e)(1) ....................................................... 11

Securities Exchange Act of 1934, ch. 404, § 10(b),

48 Stat. 891 (15 U.S.C. 78j(b)) ................................. 1, 2, 3, 4

28 U.S.C. 1292(b) ..................................................................... 4

17 C.F.R. 240.10b-5(b) (Rule 10b-5) .......................... 1, 2, 3, 4

Sup. Ct. R. 10 ......................................................................... 22

Miscellaneous:

Restatement (Second) of Torts (1977) ............................. 8, 11

S. Rep. No. 98, 104th Cong., 1st Sess. (1995) ...................... 12

In the Supreme Court of the United States

No. 18-164

FIRST SOLAR, INC., ET AL., PETITIONERS

v.

MINEWORKERS’ PENSION SCHEME, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

BRIEF FOR THE UNITED STATES AS AMICUS CURIAE

INTEREST OF THE UNITED STATES

This brief is submitted in response to the Court’s order inviting the Solicitor General to express the views

of the United States. In the view of the United States,

the petition for a writ of certiorari should be denied.

STATEMENT

1. Section 10(b) of the Securities Exchange Act of

1934, ch. 404, § 10(b), 48 Stat. 891, makes it unlawful for

any person “[t]o use or employ[] in connection with the

purchase or sale of any security * * * any manipulative

or deceptive device or contrivance in contravention of ”

rules adopted by the Securities and Exchange Commission (SEC). 15 U.S.C. 78j(b). Rule 10b-5 implements

Section 10(b) and states that “[i]t shall be unlawful for

any person * * * [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

(1)

2

of the circumstances under which they were made, not

misleading * * * in connection with the purchase or

sale of any security.” 17 C.F.R. 240.10b-5(b).

This Court has construed Section 10(b) to provide a

private right of action against an issuer of securities for

violations of Rule 10b-5. Stoneridge Inv. Partners, LLC

v. Scientific-Atlanta, Inc., 552 U.S. 148, 165 (2008). The

elements of such a claim are (1) a material misrepresentation or omission by the defendant; (2) scienter; (3) a

connection between the misrepresentation or omission

and the purchase or sale of a security; (4) reliance by the

plaintiff on the defendant’s misrepresentation or omission (sometimes called transaction causation); (5) economic loss; and (6) loss causation. Erica P. John Fund,

Inc. v. Halliburton Co., 563 U.S. 804, 809-810 (2011).

Reliance (or transaction causation) and loss causation address different aspects of causation. Reliance requires a plaintiff to establish that he justifiably relied on

the alleged misrepresentation when he entered into the

securities transaction and that, if he had “known the

truth,” he would not have bought or sold the security.

Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 344 (2005); see

id. at 341-343. Loss causation requires a private plaintiff

to “prove that the defendant’s misrepresentation (or

other fraudulent conduct),” rather than some other

market factor, “proximately caused the plaintiff ’s economic loss.” Id. at 346; Erica P. John Fund, 563 U.S. at

812-813.

The loss-causation element reflects the fact that the

securities laws are intended “not to provide investors

with broad insurance against market losses, but to protect them against those economic losses that misrepresentations actually cause.” Dura, 455 U.S. at 345. Con-

3

gress codified the loss-causation requirement in the Private Securities Litigation Reform Act of 1995 (PSLRA),

Pub. L. No. 104-67, 109 Stat. 737, by requiring a private

plaintiff to establish “that the act or omission of the defendant alleged to violate this title caused the loss for

which the plaintiff seeks to recover damages.” § 101(b),

109 Stat. 747 (15 U.S.C. 78u-4(b)(4)).

2. a. Petitioner First Solar, Inc. is one of the world’s

largest producers of solar panels, and its stock is traded

on the NASDAQ exchange. Pet. App. 10a. Respondents purchased First Solar stock between April 2008

and February 2012. Id. at 11a. In this class-action suit,

respondents allege that First Solar and several of its

executives violated Section 10(b) and Rule 10b-5 by misrepresenting and concealing the full scope of two technical defects in First Solar’s products, as well as those

defects’ financial impact on the company, in an effort to

distort the price of First Solar stock. Id. at 11a-18a.

Respondents further allege that petitioners’ false or

misleading public statements succeeded in distorting

First Solar’s share price until the occurrence between

February 2010 and February 2012 of a series of market

disclosures, each of which partially corrected the misstatements and was followed by a significant shareprice decline. Pet. App. 19a. By February 2012, the

share price had plummeted from $300 to $50. Id. at 10a19a. Respondents contend that the initial misstatements

proximately caused the drop in share price (and thus

the plaintiffs’ economic loss) because the disclosures

made the market aware of the truth about the solar panels’ defects and First Solar’s financials. Id. at 37a-39a.

4

b. After denying a motion to dismiss and certifying

a class, the district court largely denied petitioners’ motion for summary judgment on respondents’ Section

10(b) and Rule 10b-5 claims. Pet. App. 9a-79a.

In its analysis of loss causation, the district court

perceived a conflict among the Ninth Circuit’s precedents. In the court’s view, one line of Ninth Circuit decisions required a plaintiff to draw a “causal connection

between the facts misrepresented and the plaintiff ’s

loss,” but not to show “that the fraudulent practices

themselves were revealed” to the market. Pet. App. 28a

(citing, e.g., Nuveen Mun. High Income Opportunity

Fund v. City of Alameda, 730 F.3d 1111 (9th Cir. 2013);

In re Daou Sys., Inc., 411 F.3d 1006 (9th Cir. 2005), cert.

denied, 546 U.S. 1172 (2006)). But the court understood

a different line of decisions to take “a more restrictive

view,” requiring a showing that the market “learned of

and reacted to the fraud” itself. Pet. App. 30a-32a

(quoting Metzler Inv. GMBH v. Corinthian Colleges,

Inc., 540 F.3d 1049 (9th Cir. 2008)) (brackets omitted).

The district court relied on “the loss causation test

adopted in Daou”—a decision within the first line of authority the court had identified—and ruled primarily in

favor of respondents, holding that they had “presented

sufficient evidence to avoid summary judgment on loss

causation with respect to five of the six alleged stock

price declines.” Pet. App. 33a, 54a; see id. at 35a, 37a54a. The court concluded, however, that, under the second line of decisions, petitioners would be entitled to

summary judgment on each of respondents’ claims. Id.

at 35a-36a. The court therefore took “the unusual step

of certifying the loss causation issue for immediate interlocutory appeal” under 28 U.S.C. 1292(b). Pet. App.

36a. It certified the following question:

5

Can a plaintiff prove loss causation by showing that

the very facts misrepresented or omitted by the defendant were a substantial factor in causing the

plaintiff ’s economic loss, even if the fraud itself was

not revealed to the market, or must the market actually learn that the defendant engaged in fraud and

react to the fraud itself ?

Ibid. (citations omitted).

3. The Ninth Circuit accepted the interlocutory appeal and affirmed. Pet. App. 1a-8a. The court explained

that the loss-causation inquiry “requires no more than

the familiar test for proximate cause,” so that a plaintiff

must “show a ‘causal connection’ between the fraud and

the loss by tracing the loss back to ‘the very facts about

which the defendant lied.’ ” Id. at 5a (citations omitted).

Under that standard, the court stated, “[d]isclosure of

the fraud is not the sine qua non of loss causation.” Ibid.

(citation omitted). Rather, loss causation is necessarily

a “ ‘context-dependent’ inquiry as there are an ‘infinite

variety’ of ways for a tort to cause a loss.” Id. at 6a (citation omitted). The court explained that the “ultimate

issue is whether the defendant’s misstatement, as opposed to some other fact, foreseeably caused the plaintiff ’s loss.” Ibid. (citation omitted).

The court of appeals stated that no intracircuit split

existed, explaining that the “cases that the district court

cite[d] for the proposition of a more restrictive test

should be understood as fact specific variants of the

basic proximate cause test.” Pet. App. 6a. The court of

appeals explained that, although revelation of the fraud

is “one of the ‘infinite variety’ of causation theories a

plaintiff might allege to satisfy proximate cause,” it is

not the only viable theory. Id. at 6a-7a (citation omitted). The court observed that, although a stock-price

6

drop that “comes immediately after the revelation of

fraud can help rule out alternative causes,” such a “sequence is not a condition of loss causation.” Id. at 7a.

The court of appeals therefore concluded that “the

district court applied the correct test in making [the

loss-causation] determination.” Pet. App. 8a. The court

declined to “reach any other issue presented by this

case.” Ibid.

DISCUSSION

To establish the loss-causation element in a private

securities-fraud suit, a plaintiff must “prove that the defendant’s misrepresentation (or other fraudulent conduct) proximately caused the plaintiff ’s economic loss.”

Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 346 (2005);

see 15 U.S.C. 78u-4(b)(4). As the court of appeals correctly held, a plaintiff can satisfy that requirement by

pleading and proving the existence of a disclosure that

reveals to the market the falsity of a prior statement.

The plaintiff need not further prove that the market “actually learn[ed] that the defendant engaged in fraud.”

Pet. App. 5a.

A revelation-of-the-fraud requirement would be inconsistent with this Court’s precedents, Congress’s codification of the loss-causation requirement, the commonlaw principles that the loss-causation requirement reflects, and the purposes of the securities laws. The

Ninth Circuit’s rejection of such a requirement does not

conflict with any decision of this Court or of another

court of appeals. Further review is not warranted.

A. The Court Of Appeals Correctly Rejected A RevelationOf-The-Fraud Requirement For Loss Causation

1. The Court most directly addressed the losscausation requirement in Dura Pharmaceuticals, Inc.

7

v. Broudo, supra. In Dura, the Court considered

whether a plaintiff can prove loss causation simply by

establishing that the price of a security was inflated by

a misrepresentation at the time of the plaintiff ’s purchase. 544 U.S. at 342. For several reasons that are

instructive here, the Court held that such proof was

insufficient.

First, the Court explained that an inflated purchase

price alone would not prove that the defendants’ misstatement caused any loss at all. Dura, 544 U.S. at 342343. The Court noted that, if “the purchaser sells the

shares quickly before the relevant truth begins to leak

out, the misrepresentation will not have led to any loss.”

Id. at 342. And if the purchaser “sells later after the

truth makes its way into the marketplace, an initially

inflated purchase price might mean a later loss,” but not

“inevitably so.” Ibid. Rather, a lower resale price “may

reflect, not the earlier misrepresentation, but changed

economic circumstances, changed investor expectations,

new industry-specific or firm-specific facts, conditions,

or other events, which taken separately or together account for some or all of that lower price.” Id. at 343.

Second, the Court held that equating price inflation

with loss causation lacked support in the common-law

principles that underlie private securities-fraud claims.

Dura, 544 U.S. at 343-344. The Court analogized private securities-fraud suits to common-law actions alleging deceit or misrepresentation, in which a plaintiff

must show not only “justifiabl[e] reli[ance]”—“had he

known the truth he would not have acted”—but also

that the defendant’s misrepresentation proximately

caused “actual economic loss.” Ibid. The Court explained that, under those principles, an individual who

“ ‘misrepresents the financial condition of a corporation

8

in order to sell its stock’ ” is liable to the “relying purchaser ‘for the loss’ the purchaser sustains ‘when the

facts . . . become generally known’ and ‘as a result’

share value ‘depreciate[s].’ ” Id. at 344 (quoting Restatement (Second) of Torts § 548A cmt. b at 107 (1977)

(Restatement)) (brackets in original). But the individual is not liable for losses “brought about by business

conditions or other factors.” Id. at 344-345 (citation

omitted). The Court explained that an inflated-price approach, which eliminated the need for proof that any

economic loss was actually caused by the defendant’s

misstatement, could not be reconciled with those principles. Id. at 345.

Finally, the Court held that the inflated-price approach was inconsistent with an “important securities

law objective.” Dura, 544 U.S. at 345-346. The Court

explained that the securities laws “seek to maintain

public confidence in the marketplace.” Id. at 345. Private securities-fraud actions serve that purpose by deterring fraud and protecting investors “against those

economic losses that misrepresentations actually cause.”

Ibid. But, as the PSLRA confirms, such actions are not

intended “to provide investors with broad insurance

against market losses.” Ibid.; see 15 U.S.C. 78u-4(b)(4).

The Court concluded that the PSLRA “makes clear

Congress’ intent to permit private securities fraud actions for recovery where, but only where, plaintiffs adequately allege and prove the traditional elements of

causation and loss.” Dura, 544 U.S. at 346.

The Court reiterated this understanding of loss causation in Erica P. John Fund, Inc. v. Halliburton Co.,

563 U.S. 804 (2011). In that case, the Court declined to

require a private securities-fraud plaintiff to prove “loss

causation” before invoking the fraud-on-the-market

9

theory of reliance adopted in Basic Inc. v. Levinson,

485 U.S. 224 (1988). Erica P. John Fund, 563 U.S. at

809-813. The Court explained that Basic’s fraud-on-themarket doctrine establishes a presumption of reliance

where a defendant’s misrepresentation “ ‘is reflected in

[the] market price’ of the stock at the time of the relevant transaction.” Id. at 812 (quoting Basic, 485 U.S. at

247) (brackets in original). The separate loss-causation

element of the private cause of action “addresses a matter different from whether an investor relied on a misrepresentation,” by “requir[ing] a plaintiff to show that

a misrepresentation that affected the integrity of the

market price also caused a subsequent economic loss.”

Ibid. That requirement ensures that a plaintiff may recover losses based on a stock price’s decline only to the

extent that the loss was caused by the defendant’s misrepresentation, rather than by “other intervening causes,

such as ‘changed economic circumstances, changed investor expectations, new industry-specific or firm-specific

facts, conditions, or other events.’ ” Id. at 812-813 (quoting Dura, 544 U.S. at 342-343).

2. The decision below is consistent with these principles. Applying the “familiar test for proximate cause,”

the Ninth Circuit held that, to prove loss causation, a

plaintiff must establish “a ‘causal connection’ between

the fraud and the loss by tracing the loss back to ‘the

very facts about which the defendant lied.’ ” Pet. App.

5a (citations omitted). The court correctly recognized

that, like proximate cause generally, “loss causation is

a ‘context-dependent’ inquiry.” Id. at 6a (citation omitted). And it explained that, although a stock price drop

immediately following a revelation of fraud (i.e., a revelation that the issuer knowingly concealed the truth)

10

“can help to rule out alternative causes,” such a revelation is not a necessary “condition of loss causation.” Id.

at 7a. Rather, “[t]he ultimate issue * * * is whether the

defendant’s misstatement, as opposed to some other

fact, foreseeably caused the plaintiff ’s loss.” Id. at 7a-8a

(citation and internal quotation marks omitted).

Petitioners contend (Pet. 3) that the Ninth Circuit

should have required respondents to show “that the

market learned of and reacted to information that revealed the fraudulent nature of the defendant’s conduct.” That argument is incorrect. In a typical private

securities-fraud case, it is the release to the market of

false information about a company that artificially distorts the purchase price of the company’s stock. When

“the relevant truth begins to leak out,” a subsequent decrease in share price can occur and can cause a plaintiff

harm, regardless of whether or when the market becomes aware that the prior misstatement was fraudulent. Dura, 544 U.S. at 342; see Basic, 485 U.S. at 246

(“[T]he market price of shares traded on well-developed

markets reflects all publicly available information.”).

To be sure, the plaintiff must also prove, as a distinct

element of a private securities-fraud claim, that the defendant acted with scienter. See p. 2, supra. But a revelation to the market that the prior misstatements were

fraudulently made is not required to establish that the

fraud proximately caused the purchaser harm.

The PSLRA’s damages-limitation provision, 15 U.S.C.

78u-4(e), reinforces this conclusion. With an exception

that is not relevant here, Section 78u-4(e) provides that,

in a private securities-fraud suit in which “the plaintiff

seeks to establish damages by reference to the market

price of a security,” the award of damages to the plaintiff may not exceed the difference between the purchase

11

price and the “mean trading price” during a 90-day period that begins when “information correcting the misstatement or omission that is the basis for the action is

disseminated to the market.” 15 U.S.C. 78u-4(e)(1).

Congress thus recognized that the revelation of information “correcting the misstatement,” ibid., is the critical prerequisite for attributing harm caused by a drop

in share price to a defendant’s misstatement. Such a

correction may occur even if the new information does

not reveal that the prior misstatement was fraudulently

made.

A revelation-of-the-fraud standard also lacks a basis

in the common-law principles in which private securitiesfraud actions are “root[ed].” Dura, 544 U.S. at 345. The

Restatement explains that “one who misrepresents the

financial condition of a corporation in order to sell its

stock” becomes “liable to a purchaser who relies upon

the misinformation for the loss that he sustains when

the facts as to the finances of the corporation become

generally known and as a result the value of the shares

is depreciated on the market.” Restatement § 548A

cmt. b at 107. Causation in a common-law action for deceit or misrepresentation thus depends not on the market learning that the issuer fraudulently concealed the

truth, but on the true “facts as to the finances of the

corporation becom[ing] generally known.” Ibid.

Finally, a revelation-of-the-fraud standard would not

further the purpose of the loss-causation requirement.

The loss-causation element reflects the fact that private

securities-fraud actions are intended to protect investors against losses caused by a defendant’s misrepresentations, rather than to “provide investors with broad

insurance against market losses.” Dura, 544 U.S. at

345. The element thus limits an issuer’s liability—even

12

for knowing misstatements—when its stock price drops

because of “changed economic circumstances, changed

investor expectations, new industry-specific or firmspecific facts, conditions, or other events, which taken

separately or together account for some or all of that

lower price.” Id. at 342-343; see S. Rep. No. 98, 104th

Cong., 1st Sess. 15 (1995) (requiring proof “that the misstatement or loss alleged in the complaint caused the

loss incurred by the plaintiff,” as opposed to “factors

unrelated to the fraud”).

Requiring proof that the defendant’s scienter was

made known to the market would not advance this purpose. Consider an issuer that misstates the number of

products it has sold, distorting its share price. The correct

sales figures are later revealed, and the share price

drops accordingly, but it is unknown at the time whether

fraud or a good-faith error produced the misstatement.

If evidence adduced during subsequent litigation reveals

that the issuer acted with scienter, the defendant can

rightly be held liable for the price drop caused by the

disclosure of the actual quantity of merchandise sold.

Under any reasonable understanding of causation, the

fraudulent “misrepresentation that affected the integrity of the market price also caused a subsequent economic loss.” Erica P. John Fund, 563 U.S. at 812 (emphasis omitted). Yet a revelation-of-the-fraud requirement would bar that action simply because the disclosure

to which the market reacted did not reveal that the truth

had been fraudulently concealed. Such an approach

would undermine Congress’s purpose to protect investors “against those economic losses that misrepresentations actually cause.” Dura, 544 U.S. at 345.

13

B. No Circuit Conflict Exists On The Question Presented

Petitioners contend (Pet. 9) that the circuits are divided “over whether loss causation requires proof that

the market actually learned of and reacted to the defendant’s fraudulent misconduct, or whether some lesser

showing may suffice.” But no court of appeals requires

a private securities-fraud plaintiff “to establish that the

market learned that the defendant’s challenged statements were knowingly false when made.” Pet. 13. Nor

have petitioners identified any conflict over any other

legal standard that should apply. To the contrary, the

courts of appeals have applied consistent legal standards,

and petitioners identify no sound reason to believe that

any other circuit would have decided this case differently.

1. Contrary to petitioners’ contention (Pet. 9), neither the First, Fourth, Seventh, or Eleventh Circuit

has adopted a revelation-of-the-fraud standard for loss

causation.

a. In Massachusetts Retirement Systems v. CVS

Caremark Corp., 716 F.3d 229 (1st Cir. 2013), the plaintiffs alleged that the defendants had misrepresented

the success of a merger between CVS Corp. and Caremark Rx Inc., including the integration of the companies’ computer systems and the maintenance of a high

level of service for existing customers. Id. at 231-232.

The plaintiffs claimed that the market had learned the

truth about the issues with the merger when the CEO

of the combined entity, CVS Caremark, acknowledged

that it had “suffered ‘some big client losses’ ” for “varying reasons[:] some price, one service,” and that “ ‘one

of the chief architects’ ” of the integration model for the

companies had “unexpected[ly] retire[d].” Id. at 234235 (first set of brackets in original); see id. at 234-236.

The First Circuit held that the plaintiffs had adequately

14

alleged loss causation because the CEO’s statements

“plausibly revealed to the market that CVS Caremark

had problems with service and the integration of its systems.” Id. at 240. Relying on the Ninth Circuit’s decision in Daou, the court found it sufficient that the allegations “indicate[d] that the drop in CVS Caremark’s

share price was causally related to its misstatements

regarding the integration of CVS and Caremark.” Id.

at 242; see ibid. (“We agree with the Ninth Circuit’s

approach, and we believe that the result here is the

same.”). In requiring the plaintiffs to allege (and ultimately prove) a causal link between their economic loss

and the defendants’ prior “misstatements,” the court

did not suggest that a loss-causing disclosure must inform the market that the misstatements were fraudulently made.

b. In Meyer v. Greene, 710 F.3d 1189 (11th Cir.

2013), the plaintiffs alleged that a publicly traded company had materially overstated the value of its real estate holdings in quarterly and annual reports to the

SEC, and that the “truth * * * c[a]me to light” when a

prominent hedge fund investor gave a presentation at a

conference, questioning the company’s valuation, and

when the SEC subsequently opened an investigation

into the company’s “ ‘policies and practices concerning

impairment of investment in real estate assets.’ ” Id. at

1192-1193. The Eleventh Circuit held that the plaintiffs

had not established loss causation because they had

failed to offer “proof of a causal connection between the

misrepresentation and the investment’s subsequent decline in value.” Id. at 1195 (citation omitted).

The court in Meyer explained that, in a fraud-on-themarket case, plaintiffs typically establish loss causation

15

by (1) “identifying a ‘corrective disclosure,’ ” i.e., “a release of information that reveals to the market the pertinent truth that was previously concealed or obscured

by the company’s fraud”; (2) “showing that the stock

price dropped” shortly thereafter; and (3) “eliminating

other possible explanations.” 710 F.3d at 1196-1197

(quoting FindWhat Investor Grp. v. FindWhat.com,

658 F.3d 1282, 1311-1312 (11th Cir. 2011), cert. denied,

568 U.S. 814 (2012)). The court concluded that the investor presentation did not qualify as a corrective disclosure because it did not reveal any new information at

all. See id. at 1198 (“Because a corrective disclosure

‘obviously must disclose new information,’ the fact that

the sources used in the [investor presentation] were already public is fatal to the [plaintiffs’] claim of loss causation.”) (citation omitted). The court held that the SEC

investigation could not constitute a corrective disclosure

for similar reasons, explaining that “[t]he announcement

of an investigation reveals just that—an investigation

—and nothing more.” Id. at 1201. That analysis has no

logical implications for a case (like this one) where the

market receives new information that shows the defendants’ prior representations to be false, but that does not

reveal whether the defendants acted with scienter.

As petitioners emphasize (Pet. 12), the Meyer court

also “note[d]” that the hedge fund investor’s opinions

about public facts “were not necessarily revelatory of

any past fraud.” 710 F.3d at 1200. But the court was

not commenting on whether the investor had expressed

an opinion about the company’s state of mind. Rather,

it was pointing out that the investor’s statements were

“about potential future actions,” not past misstatements. Ibid.

16

c. The Fourth and Seventh Circuit decisions that petitioners cite are similar. In Tricontinental Industries,

Ltd. v. PricewaterhouseCoopers, LLP, 475 F.3d 824,

cert. denied, 552 U.S. 824 (2007), the Seventh Circuit

explained that “[t]o plead loss causation, the plaintiff

must allege that it was the very facts about which the

defendant lied which caused its injuries.” Id. at 842

(emphasis added; citation omitted). It held that the

plaintiff had not adequately alleged that misstatements

in a 1997 audit had caused the plaintiff ’s injuries, because the only public disclosures that the plaintiff identified concerned accounting irregularities in financial

statements from 1998 and 1999. Id. at 842-844. Because

the plaintiff had failed to “identif [y] any statements

* * * that made ‘generally known’ any problems or irregularities in the 1997 audited financial statement,” its

allegations were not sufficient to state a claim “for

losses suffered as a result of alleged misrepresentations

in the 1997 audited financial statement.” Id. at 843-844.

In Teachers’ Retirement System of Louisiana v.

Hunter, 477 F.3d 162 (2007), the Fourth Circuit likewise

explained that, in order to show loss causation, a plaintiff must prove that “the defendant’s misrepresentations proximately caused the plaintiff ’s economic loss.”

Id. at 185. The plaintiffs there alleged that the defendant had misrepresented a series of transactions “in an

effort to artificially inflate the price of its stock,” and

that the plaintiffs had been harmed when the complaint

in an earlier lawsuit against the company revealed “the

true nature of the transactions” and the defendant company’s stock price dropped as a result. Id. at 168-169.

The court rejected the plaintiffs’ theory of loss causation, not on the ground that the prior lawsuit had not

17

revealed the defendant’s state of mind about the company’s alleged misrepresentations, but because the only

facts contained in the earlier complaint concerning

those transactions “had already been disclosed in public

filings.” Id. at 187. Indeed, the court found it immaterial to the loss-causation analysis that the earlier complaint had “attribute[d] an improper purpose to th[os]e

previously disclosed facts.” Ibid.

As petitioners note (Pet. 10), a subsequent Fourth

Circuit decision did focus on whether the alleged disclosures had revealed the defendant’s state of mind at the

time the alleged misstatements were made. See Katyle

v. Penn Nat’l Gaming, Inc., 637 F.3d 462, 478 (concluding that a decline in share price following a series of alleged corrective disclosures could not be attributed to

the defendant’s alleged misstatements because the purported disclosures “did not, gradually or otherwise, reveal to the market any undisclosed truth about [the defendant’s] undisclosed knowledge and resulting fraudulent omissions”), cert. denied, 565 U.S. 825 (2011). The

court’s focus on the defendant’s state of mind, however,

appears to reflect its understanding that the alleged

misstatements were false because they concealed the

company’s knowledge about whether a planned leveraged buy-out would actually occur. See, e.g., id. at 475

(referring to the “undisclosed knowledge behind” the

company’s fraudulent statements); id. at 477 (stating

that the “falsity of the [defendant’s allegedly fraudulent] press releases necessarily depends on the fact [the

defendant] knew the deal was off ”). In a more recent

decision, the Fourth Circuit stated more precisely that

the “ultimate loss causation inquiry” is “whether a ‘misstatement or omission concealed something from the

market that, when disclosed, negatively affected the

18

value of the security.’ ” Singer v. Reali, 883 F.3d 425,

446 (2018) (quoting In re Vivendi, S.A. Sec. Litig.,

838 F.3d 223, 261-262 (2d Cir. 2016)).

To be sure, certain decisions on which petitioners

rely do consider a market reaction to the disclosure of a

company’s fraudulent conduct. In Singer, for example,

the Fourth Circuit held that the plaintiffs had adequately alleged loss causation based on a disclosure to

the market that the issuer had made false or misleading

statements about engaging in Medicare fraud. 883 F.3d

at 447. In FindWhat.com, an Internet advertising company disclosed that it had engaged in “click fraud” that

had artificially inflated its revenues. 658 F.3d at 13121316. In such “double fraud” cases, a corrective disclosure may reveal a type of non-securities fraud. But the

existence of such cases does not mean that loss causation can be established only when the defendant’s securities fraud is revealed to the market.

2. Petitioners are also wrong in suggesting (Pet. 1216) that the Second, Third, Fifth, Sixth, Ninth, and

Tenth Circuits are divided on which less demanding alternative legal standard applies. All of those circuits

recognize that “[l]oss causation requires proof of a

causal connection between a misstatement and a subsequent decline in a stock’s price.” Alaska Elec. Pension

Fund v. Flowserve Corp., 572 F.3d 221, 229 (5th Cir.

2009) (per curiam); see, e.g., In re Daou Sys., Inc.,

411 F.3d 1006, 1025 (9th Cir. 2005) (requiring “a causal

connection between the deceptive acts * * * and the injury suffered”), cert. denied, 546 U.S. 1172 (2006). And

they agree that, in the context of a fraud-on-the-market

claim, loss causation generally requires proof that a “misstatement or omission concealed something from the

market that, when disclosed, negatively affected the

19

value of the security.” In re Vivendi, 838 F.3d at 261262 (quoting Lentell v. Merrill Lynch & Co., 396 F.3d

161 (2d Cir.), cert. denied, 546 U.S. 935 (2005)); see, e.g.,

EP Medsystems, Inc. v. EchoCath, Inc., 235 F.3d 865,

884 (3d Cir. 2000) (noting that in a typical case, plaintiffs

allege that “they purchased the securities at a price that

was artificially inflated, only to suffer a loss when the

true situation was made known”); Flowserve, 572 F.3d

at 230 (stating that “th[e] disclosed information must

reflect part of the ‘relevant truth’—the truth obscured

by the fraudulent statements”); Norfolk Cnty. Ret. Sys.

v. Community Health Sys., Inc., 877 F.3d 687, 695 (6th

Cir. 2017), cert. denied, 139 S. Ct. 310 (2018) (describing

a corrective disclosure as “a statement that reveals

what the defendants * * * previously concealed”);

Lloyd v. CVB Fin. Corp., 811 F.3d 1200, 1209 (9th Cir.

2016) (“The burden of pleading loss causation is typically satisfied by allegations that the defendant revealed the truth through ‘corrective disclosures’ which

‘caused the company’s stock price to drop and investors

to lose money.’ ”) (citation omitted); In re Williams Sec.

Litig.-WCG Subclass, 558 F.3d 1130, 1138 (10th Cir.

2009) (“Plaintiff must establish that his losses were attributable to some form of revelation to the market of the

wrongfully concealed information.”) (brackets, citation,

and emphasis omitted).*

Several circuits have identified, as an alternative to the “corrective disclosure” theory of loss causation, a “materialization of the

risk” theory “whereby a plaintiff may allege ‘proximate cause on the

ground that negative investor inferences,’ drawn from a particular

event or disclosure, ‘caused the loss and were a foreseeable materialization of the risk concealed by the fraudulent statement.’ ” Ohio

Pub. Emps. Ret. Sys. v. Federal Home Loan Mortg. Corp., 830 F.3d

376, 384-385 (6th Cir. 2016) (collecting cases) (citation omitted).

Other courts have questioned whether those labels “add[] [any]*

20

Petitioners contend (Pet. 15) that the Third Circuit

applied an unduly lenient standard in McCabe v. Ernst

& Young, LLP, 494 F.3d 418 (2007). But the court in

McCabe held that the plaintiffs had not adequately alleged loss causation. Id. at 438. The court’s discussion

of what allegations might be sufficient in a future case

therefore was dictum. And even if the McCabe court

had issued a holding that conflicted with decisions of

other circuits, this case would be an unsuitable vehicle

to resolve the conflict, since petitioners do not suggest

that the Third Circuit would have decided this case differently than did the court below.

Petitioners also contend that the court of appeals

“broke with this Court’s guidance and congressional intent” when it held “that a plaintiff may prove loss causation by ‘tracing the loss back to the very facts about

which the defendant lied.’ ” Pet. 19 (quoting Pet. App.

5a). That criticism is misconceived. The Ninth Circuit’s

reference (Pet. App. 5a) to “tracing the loss” is simply

another way of stating that corrective disclosures must

“ ‘relate back to the misrepresentation and not to some

other negative information about the company,’ ” Katyle,

637 F.3d at 473 (citation and emphasis omitted). In this

case, the district court held that there were triable issues of loss causation for five of the disclosure events,

but no triable issue as to the announcement that First

thing to the analysis.” Schleicher v. Wendt, 618 F.3d 679, 684 (7th

Cir. 2010); see ibid. (noting that, regardless of which terminology is

used, “the fraud lies in an intentionally false or misleading statement, and the loss is realized when the truth turns out to be worse

than the statement implied”). Petitioners make clear (Pet. 9 n.2;

Reply Br. 7 n.1) that their argument does not turn on any such semantic distinction.

21

Solar’s CEO would leave the company. The court explained that, although the stock price had declined after

that announcement was made, the disclosure could not

support a finding of loss causation because it did not relate back to earlier misstatements about product quality and financial performance. Pet. App. 45a-48a.

Petitioners also argue (Pet. 16) that the Ninth Circuit split with other circuits when it “affirmed the district court’s decision with respect to losses following the

December 2011 press release,” because the release

simply revised the company’s earnings and revenue

guidance and “did not mention the hot-climate defect”

that allegedly drove the revisions. But the district court

understood the complaint to allege misrepresentations

concerning not only the technical defects themselves,

but the financial impacts of those defects. See Pet. App.

17a-18a. Other courts of appeals have recognized that

“a plaintiff need not rely on a single, complete corrective disclosure,” but instead may “show that the truth

gradually leaked out into the marketplace ‘through a series of partial disclosures.’ ” Meyer, 710 F.3d at 1197

(quoting Lormand v. US Unwired, Inc., 565 F.3d 228,

261 (5th Cir. 2009)); Katyle, 637 F.3d at 472 (stating that

a “single complete disclosure” is not a “prerequisite to

establishing loss causation”).

Even if the district court had erred in applying the

governing legal standard to the facts of this case, that

error would not warrant this Court’s review. In conducting interlocutory review, the court of appeals addressed only the certified question concerning the “correct test” for alleging loss causation, not the district

court’s application of that test. Pet. App. 8a. In any

event, “[a] petition for a writ of certiorari is rarely

granted when the asserted error consists of erroneous

22

factual findings or the misapplication of a properly

stated rule of law.” Sup. Ct. R. 10.

3. Although petitioners assert that the courts of appeals are “irreconcilably divided” on the question presented, the various circuits’ standards for establishing

loss causation in private securities-fraud suits actually

reflect a striking degree of jurisprudential harmony.

Indeed, there is a recognizable pattern of cross-circuit

citations across all three of petitioners’ judicial groupings. Reply Br. 3 (capitalization omitted). In Katyle,

for instance, the Fourth Circuit relied on Second, Fifth,

and Tenth Circuit precedents. 637 F.3d at 471-473 (citing Lentell, Flowserve, and Williams). Similarly in CVS

Caremark, the First Circuit relied on the Second,

Third, Fifth, Ninth, and Tenth Circuit decisions that petitioners describe as taking different positions on corrective disclosures. 716 F.3d at 238-241 (citing Lentell,

McCabe, Flowserve, Daou, and Williams). And petitioners identify no court that has expressed the view

that a circuit conflict exists on this issue. Further review is not warranted.

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.

ROBERT B. STEBBINS

General Counsel

MICHAEL A. CONLEY

Solicitor

JEFFREY A. BERGER

Senior Litigation Counsel

Securities and Exchange

Commission

MAY 2019

NOEL J. FRANCISCO

Solicitor General

MALCOLM L. STEWART

Deputy Solicitor General

JONATHAN Y. ELLIS

Assistant to the Solicitor

General