NOT FOR PUBLICATION FILED

UNITED STATES COURT OF APPEALS SEP 21 2021

MOLLY C. DWYER, CLERK

U.S. COURT OF APPEALS

FOR THE NINTH CIRCUIT

MATTHEW VEAL, XIANGHONG DING, No. 20-16603 and ZHENBIN CHEN, D.C. No. 5:18-cv-2599-BLF Plaintiffs-Appellants,

v. MEMORANDUM*

LENDINGCLUB CORPORATION,

SCOTT SANBORN, BRADLEY

COLEMAN, and THOMAS W. CASEY

Defendants-Appellees.

Appeal from the United States District Court for the Northern District of California Beth Labson Freeman, District Judge, Presiding

Argued and Submitted September 2, 2021 Seattle, Washington Before: McKEOWN and GOULD, Circuit Judges, and RAKOFF,** District Judge.

Plaintiffs appeal the district court’s dismissal of their Second Amended

Complaint (SAC) for failure to adequately plead falsity and scienter in securities

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. ** The Honorable Jed S. Rakoff, United States District Judge for the Southern District of New York, sitting by designation. Page 2 of 5

fraud claims regarding the allegedly misleading disclosure of a Federal Trade

Commission (FTC) inquiry beginning in May 2016.1 See Veal v. LendingClub Corp.,

2020 WL 3128909 (N.D. Cal. June 12, 2020). Specifically, Plaintiffs allege that

Defendants made various statements to investors between August 2016 and the end

of 2017 that misled shareholders regarding the subject matter of an FTC

investigation. The FTC investigation concerned alleged deception of borrowers

regarding hidden loan origination fees. Defendants, however, disclosed the

investigation by inserting a non-particularized disclosure of the fact of an FTC

inquiry into a discussion of other regulatory inquiries being conducted by the U.S.

Department of Justice (DOJ) and the Securities and Exchange Commission (SEC)

regarding deceptive practices in the company’s dealings with investors in loans

originated through the LendingClub platform. This, Plaintiffs maintain, materially

concealed the true scope of the legal risks facing LendingClub, because borrower

origination fees provided nearly 80% of the company’s revenues.

We affirm the district court’s dismissal of the complaint for failure to

adequately plead scienter. To state a claim for securities fraud under the Private

Securities Litigation Reform Act (PSLRA), the complaint, through particularized

1 The Court hereby presumes the Parties’ familiarity with the facts and procedural history of this case and discusses only those facts relevant to deciding this appeal. Page 3 of 5

allegations of specific facts, “must raise a ‘strong inference’ of scienter—i.e., a

strong inference that the defendant acted with an intent to deceive, manipulate, or

defraud.” Meltzer Inv. GMBH v. Corinthian Colleges Inc., 540 F.3d 1049, 1061 (9th

Cir. 2008).2 “A complaint will survive . . . only if a reasonable person would deem

the inference of scienter cogent and at least as compelling as any opposing inference

one could draw from the facts alleged.” Tellabs, Inc. v. Makor Issues & Rts., Ltd.,

551 U.S. 308, 324 (2007).

As the district court correctly held, nowhere in the SAC do Plaintiffs plausibly

allege with particularity that Defendants knew the focus of the FTC’s investigation

at the time the challenged statements were made, let alone that they sought to hide

that focus from shareholders. Plaintiffs do allege that Defendants were

independently aware of potentially deceptive practices related to their borrower

origination fee policies prior to the existence of the FTC’s inquiries. But this says

nothing about their knowledge of the focus of the FTC’s inquiry, nor anything about

their intent in simply adding disclosure that there was an FTC inquiry to the more

particularized discussion of the previously disclosed DOJ and SEC investigations

and the company’s own internal review of investor-related issues.

2 Unless otherwise specified, all internal quotation marks, citations, emphases, and alterations are omitted from all sources cited herein. Page 4 of 5

The SAC does offer some conclusory assertions to the effect that “[n]o

question exists that [Defendants] knew of the FTC’s thrust,” and Plaintiffs continue

to insist that the Defendants “knew all along” what issues the FTC was investigating.

But it is well settled that conclusory allegations do not suffice to state a claim and

are “not entitled to the assumption of truth.” Ashcroft v. Iqbal, 556 U.S. 662, 679

(2009). As the district court correctly held, knowledge of problems within a

company does not necessarily imply awareness of a government agency’s

investigation of that particular issue.

Plaintiffs belatedly argue that the FTC Civil Investigative Demand (CID) that

initiated the FTC inquiry informed Defendants about the FTC’s investigatory focus.

This might possibly have supported scienter had there been any basis for its

consideration. But this argument cannot save the SAC for two, independent reasons.

First, this argument debuts in Plaintiffs’ reply brief on appeal. “It is well established

in this circuit that the general rule is that appellants cannot raise a new issue for the

first time in their reply briefs.” Eberle v. City of Anaheim, 901 F.2d 814, 818 (9th

Cir. 1990). Second, and more fundamentally, this CID-notice theory is not grounded

in the SAC itself. Plaintiffs’ reply brief seeks judicial notice of various pages from

the FTC website, but it fails to cite any particularized allegation in the SAC to which

such notice would relate. Nor could Plaintiffs’ counsel identify a single such Page 5 of 5

allegation from the SAC when asked directly at argument. Accordingly, Plaintiffs

cannot obtain reversal on their late-breaking CID-notice theory.

Finally, since none of the allegations individually establishes the strong

inference of scienter the PLSRA requires, we must also “assess all the allegations

holistically” and ask: “When the allegations are accepted as true and taken

collectively, would a reasonable person deem the inference of scienter at least as

strong as any opposing inference?” In re NVIDIA Corp. Sec. Litig., 768 F.3d 1046,

1056 (9th Cir. 2014). In this respect, we conclude, as the district court did, that

Plaintiffs’ case for scienter is even weaker on a holistic basis. It is undisputed that

none of the individual Defendants sold any stock during the period of the alleged

fraud, and two of them (Sanborn and Casey) purchased LendingClub stock during

the class period. We have previously held that “a lack of stock sales can detract from

a scienter finding” on a holistic inquiry, and where “rather than selling shares,

[defendants] purchased additional stock during the Class Period,” that instead

“support[s] an inference of innocence.” Webb v. Solarcity Corp., 884 F.3d 844, 856

(9th Cir. 2018). So too, here.

We have considered Plaintiffs’ other arguments and find them without merit.

The district court’s dismissal of the SAC is therefore AFFIRMED.