Greenwald

dissenting.

I respectfully dissent, and I do so essentially because I believe our colleague on the district court had it right when he dismissed this complaint for failure to state a claim. I can do no better than repeat the essence of his analysis:

Fraud on the market is a problematic theory. Unless carefully managed by us, it threatens to wrack our economy. Anytime a stock price drops' significantly, will all prior rosy statements by management concerning the company’s financial condition and future business prospects become the basis for actionable fraud?

I note with great interest that the supposedly defrauded stockholders in this case state in their complaint that “the trading price of Wells Fargo’s common stock, upon disclosure [of the “fraud”] ... collapse[d] ... from over $97 per share to $74 per share.” I note with equally great interest that the trading price of this stock on the day of oral argument, May 10, 1993,. was $104.75. This is an interesting' kind of fraud where the value of the disputed stock before the case goes to trial exceeds its value before the alleged wrongdoing that caused it to “collapse.” I would suspect that on remand the district court will be…

Purchasers of Wells Fargo & Co. common stock (“shareholders”) appeal from the district court’s order dismissing their securities fraud class action with prejudice pursuant to Federal Rule of Civil Procedure 12(b)(6). 1 In their Amended Complaint, the shareholders allege that Wells Fargo & Co. and certain of its senior officers and directors (collectively ‘Wells Fargo”) violated § 10(b) of the Securities Exchange Act of 1934 (“’34 Act”), 15 U.S.C. § 78j(b); the SEC’s Rule 10b-5, 17 C.F.R. § 240 .10b-5; § 20 of the ’34 Act, 15 U.S.C. § 78t; and California Civil Code §§ 1709-10 by fraudulently withholding material information and by issuing a series of false and misleading statements relating to the level of loan loss reserves maintained by Wells Fargo & Co.’s banking subsidiary, Wells Fargo Bank. 2 The shareholders claim that these omissions and misrepresentations served to inflate artificially the trading price of Wells Fargo & Co. stock, thus causing financial injury to those who purchased the overpriced shares. We have jurisdiction under 28 U.S.C. § 1291 , and we reverse.

I

On June 25, 1991, Wells Fargo & Co. issued a statement that Wells Fargo Bank would recognize $180 million…