NOT FOR PUBLICATION FILED

UNITED STATES COURT OF APPEALS SEP 27 2023

MOLLY C. DWYER, CLERK

U.S. COURT OF APPEALS

FOR THE NINTH CIRCUIT

In re: SEMICONDUCTOR No. 22-55660

MANUFACTURING INTERNATIONAL

CORPORATION SECURITIES D.C. Nos. LITIGATION, 2:20-cv-11219-GW-AFM ______________________________ 2:21-cv-00067-GW-AFM

EDMOND K.L. TO, Lead Plaintiff; et al.,

MEMORANDUM*

Plaintiffs-Appellants,

v.

SEMICONDUCTOR MANUFACTURING

INTERNATIONAL CORPORATION,

Defendant-Appellee,

and

ZIXUE ZHOU; et al.,

Defendants.

Appeal from the United States District Court for the Central District of California George H. Wu, District Judge, Presiding

Argued and Submitted September 14, 2023 Pasadena, California

* This disposition is not appropriate for publication and is not precedent except as provided by Ninth Circuit Rule 36-3. Before: SCHROEDER, FRIEDLAND, and MILLER, Circuit Judges.

Plaintiff appeals the district court’s order granting Defendants’ motion to

dismiss Plaintiff’s second amended securities-fraud class action complaint

(“SAC”). Reviewing de novo, we affirm. See Vess v. Ciba-Geigy Corp. USA, 317

F.3d 1097, 1102 (9th Cir. 2003).

“To recover damages in a private securities fraud action, the plaintiff must

establish a causal connection between the defendant’s fraudulent conduct and the

plaintiff’s economic loss—an element known as loss causation.” In re BofI

Holding, Inc. Sec. Litig., 977 F.3d 781, 786 (9th Cir. 2020). “One way to prove

loss causation is to show that the defendant’s fraud was revealed to the market

through one or more ‘corrective disclosures’ and that the company’s stock price

declined as a result.” Id.

Plaintiff alleges that Defendants misled investors about the ties Defendant

Semiconductor Manufacturing International Corporation (“SMIC”) had to the

Chinese military, including by stating on a call with analysts in May 2020 that

SMIC was “commit[ted]” to “non-military use from day one, 20 years back,” and

continued to be “full[y] commit[ted]” to non-military end-use of its products.

Plaintiff alleges that later news articles revealed the falsity of those statements and

caused a correction of the fraudulently inflated stock price that caused him

economic loss. Alternatively, Plaintiff argues that even if those news articles are

2 best understood as merely announcing an investigation into SMIC’s suspected ties

to the Chinese military, he has still plausibly alleged loss causation under Lloyd v.

CVB Financial Corp., 811 F.3d 1200, 1209-10 (9th Cir. 2016).

We assume without deciding that SMIC misled investors into thinking that it

had no ties to the Chinese military. But we hold that Plaintiff has not plausibly

alleged loss causation.

First, the Wall Street Journal (“WSJ”) article from September 2020 is not a

corrective disclosure. It merely reported that the Trump administration was

weighing putting SMIC on the Entity List because of the suspicion that it “aids

China’s defense establishment,” and it only summarized allegations in a third

party’s report about SMIC’s alleged ties to the Chinese military, equivocating

about the allegations’ veracity by noting that an expert on China found the

allegations of ties “tenuous.” Moreover, the WSJ article reported that the Trump

administration had taken an increasingly broad approach to placing Chinese

companies on the Entity List, “increasingly justif[ying] listings on broader

national-security grounds.” The WSJ article therefore lacks the level of detail and

certitude needed to “disclose[] facts that, if true, rendered false [SMIC’s] prior

statements.” BofI, 977 F.3d at 793.1

1 To the extent the underlying third-party report, which contained highly detailed allegations, could constitute a corrective disclosure, it could do so only if

3 Second, the Reuters article from September 26, 2020 is not a corrective

disclosure because it lacks any purported facts contradicting the May 2020

statement. It reports only that the Trump administration imposed trade restrictions

on SMIC because of an “unacceptable risk” that equipment supplied to SMIC

could be used by the Chinese military, not that SMIC indeed had ties to the

Chinese military when it made the allegedly false statements.

Third, we disagree with Plaintiff that he has pleaded loss causation under the

standard set forth in Lloyd, 811 F.3d 1200, by pointing to later actions by the

Trump and Biden administrations restricting the sale of SMIC securities. Under

Lloyd, “the announcement of an investigation can ‘form the basis for a viable loss

causation theory’ if the complaint also alleges a subsequent corrective disclosure

by the defendant.” Id. at 1210 (quoting Loos v. Immersion Corp., 762 F.3d 880,

890 n.3 (9th Cir. 2014)). That subsequent disclosure must “confirm[]” the

market’s fears—triggered initially by the investigation—that a defendant had

misled investors. Id. at 1211. Even if the WSJ article and Reuters article can be

characterized as announcements that the Trump administration would be

investigating SMIC’s potential ties to the Chinese military, the Trump

it were available to the market when the WSJ article drew attention to it. See BofI, 977 F.3d at 786 (explaining that a defendant’s alleged fraud must be “revealed to the market”). But the WSJ article did not attach the report, and the SAC does not allege that the report was publicly available when the WSJ article was published. The report therefore cannot constitute a corrective disclosure either.

4 administration’s December 2020 action categorizing SMIC as a Communist

Chinese Military Company is insufficient to confirm that Defendants misled

investors during the relevant time period. The Biden executive order from June

2021 also cannot establish loss causation because Plaintiff makes no allegation

about how the relevant market reacted to that executive order.

Because Plaintiff has failed to plead loss causation, which is an essential

element of a securities-fraud claim, Plaintiff’s SAC fails to state a claim.

AFFIRMED.

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