Metzler Investment GMBH v. Corinthian Colleges, Inc.
United States Court of Appeals for the Ninth Circuit
540 F.3d 1049 (9th Cir. 2008)
Metzler Investment GMBH (plaintiff) owned stock in Corinthian Colleges, Inc. (defendant) and sued alleging Corinthian committed widespread fraud by manipulating student enrollment numbers to obtain more federal funding. Metzler pointed to two events as revealing the fraud to the market: a Financial Times article noting the Department of Education was investigating one Corinthian campus for improper financial aid practices, and a Corinthian press release lowering its revenue and earnings projections. Corinthian's stock dropped 10 percent after the Financial Times article but fully rebounded within three days; it also dropped after the earnings press release. Corinthian moved to dismiss for failure to state a claim, and the district court granted the motion.
Whether a securities-fraud complaint adequately pleads loss causation without alleging facts showing the defendant's stock price fell significantly after the market actually learned the truth about the alleged fraud.