DANIELA PRODANOVA , Individually and on behalf of all others similarly situated v. H.c. Wainwright & Co., LLC; Mark Viklund ; Edward D. Silvera; Oren Livnat

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
DANIELA PRODANOVA , Individually
and on behalf of all others similarly
situated,
Plaintiff,
and
PANTHERA I NVESTMENT FUND L.P.,
Lead Plaintiff, Individually and on
behalf of all others similarly situated,
Plaintiff-Appellant,
v.
H.C. W AINWRIGHT & CO., LLC;
M ARK VIKLUND ; EDWARD D.
SILVERA; OREN LIVNAT ,
Defendants-Appellees.
No. 19-56048
D.C. No.
2:17-cv-07926-
JAK-AS
OPINION
Appeal from the United States District Court
for the Central District of California
John A. Kronstadt, District Judge, Presiding
Argued and Submitted February 2, 2021
Pasadena, California
Filed April 8, 2021

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Before: Ronald M. Gould, Kenneth K. Lee, and
Lawrence VanDyke, Circuit Judges.
Opinion by Judge Lee
SUMMARY*
Securities Fraud
Affirming the district court’s dismissal of a securities
fraud action against an investment bank, the panel held that
the complaint failed sufficiently to allege scienter.
The panel held that because the complaint did not offer
a plausible motive for the bank’s actions or provide
compelling and particularized allegations about scienter, it
did not support the required strong inference that the
defendant intentionally made false or misleading statements
or acted with deliberate recklessness.
COUNSEL
Ira M. Press (argued) Peter S. Linden, and Angela M. Farren,
Kirby McInerney LLP, New York, New York; Lionel Z.
Glancy and Robert V. Prongay, Glancy Prongay & Murray
LLP, Los Angeles, California; James R. Swanson, Jason W.
Burge, and Kathryn J. Johnson, Fishman Haygood LLP,
New Orleans, Louisiana; for Plaintiff-Appellant.
* This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.

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PANTHERA I NVESTMENT FUND V . H.C. W AINWRIGHT 3
Jay S. Auslander (argued) and Adam Itzkowitz, Wilk
Auslander LLP, New York, New York; Paul B. Salvaty and
Jordan D. Teti, Hogan Lovells US LLP, Los Angeles,
California; for Defendants-Appellees.
OPINION
LEE, Circuit Judge:
As its name suggests, a securities fraud lawsuit requires
a showing of an intent to defraud investors. Mere negligence
— even head-scratching mistakes — does not amount to
fraud. So if the complaint fails to plead a plausible motive
for the allegedly fraudulent action, the plaintiff will face a
substantial hurdle in establishing scienter.
That is the case here. An investment bank analyst
published a report setting a target price of $7 per share for a
company’s stock. That company’s stock surged 26% that
day. But later that evening, the same investment bank
announced that it would act as the placing agent for a dilutive
offering that priced that same stock at $6 per share. The
stock price, not surprisingly, declined the next day. A
securities fraud class action lawsuit against the investment
bank soon followed. The complaint alleged that the bank
fraudulently sought to inflate the price of the company’s
stock price. But the plaintiff has not articulated with
particularity or plausibility the bank’s motive for doing so.
If anything, the bank’s actions tarnished its reputation and
likely frayed its relationship with its client.
Because the complaint does not offer a plausible motive
for the bank’s actions or provide compelling and
particularized allegations about scienter, it does not support
a strong inference that the defendant intentionally made false

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or misleading statements or acted with deliberate
recklessness. See Schueneman v. Arena Pharms., Inc.,
840 F.3d 698, 705 (9th Cir. 2016). We thus affirm the
district court’s dismissal of the complaint.
BACKGROUND1
Defendant H.C. Wainwright & Co. (“HCW”), a specialty
investment bank, focuses on capital markets and equity
research in the life sciences and biotechnology industries.
Under Financial Industry Regulatory Authority (“FINRA”)
regulations, HCW separates its investment banking and
research departments through “information barriers . . .
reasonably designed to ensure that research analysts are
insulated from the review, pressure or oversight by persons
engaged in investment banking services activities.” FINRA
R. 2241(b)(2). It also maintains a compliance department to
“identify and effectively manage conflicts of interest”
between the research and investment banking groups.
FINRA R. 2241(b)(1).
HCW has had a longstanding business relationship with
MannKind Corporation, a small but publicly traded
biopharmaceuticals company. MannKind develops and
markets inhaled therapeutic products for various diseases.
Its first and only FDA-approved drug, Afrezza, is a rapid-
acting inhaled insulin used for adults with Type 1 and Type 2
diabetes.
On October 2, 2017, before trading opened, MannKind
announced that the FDA had approved a favorable labeling
1 We accept the factual allegations in the Second Amended
Complaint as true and construe them in the light most favorable to the
plaintiff. See Nguyen v. Endologix, Inc., 962 F.3d 405, 408 (9th Cir.
2020).

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PANTHERA I NVESTMENT FUND V . H.C. W AINWRIGHT 5
change for Afrezza. Over the next three days, MannKind’s
stock price jumped from $2.17 to $4.96 — an increase of
128%. Its trading volume also increased more than 2,000%.
About a week later, on October 10, 2017 at 4:03 AM
Pacific Time, an investment analyst at HCW published a
report called A Breath of New Life with Afrezza Turnaround
Story: Initiate with Buy and $7 Target (“the Report”). The
Report explained that based on MannKind’s publicly
available cash flow and debt data, it expected “near-term
recapitalization and dilution.” The Report then set a $7 buy
target for MannKind shares. The Report also included a
disclaimer2 stating that HCW “will seek compensation from
the companies mentioned in this report for investment
banking services within three months following publication
of the research report.”
The day HCW published the Report, MannKind’s stock
price spiked up 26% to a closing price of $6.713 with a
trading volume of 48.23 million shares. Later that night at
9:02 PM Pacific Time, MannKind announced a registered
direct offering of 10,166,600 shares of common stock at $6
per share (“the Offering”). In its announcement, MannKind
also revealed that HCW would serve as the exclusive
placement agent for the Offering. The Placement Agency
Agreement — signed on the same day as the Report’s
2 In research reports, FINRA members must disclose if they
“expect[] to receive or intend[] to seek compensation for investment
banking services from the subject company in the next three months.”
FINRA R. 2241(c)(4)(C)(iii).
3 This increase, however, was smaller than the 146% increase in
share price that had occurred between September 29, 2017 (the last
trading day before the FDA approval announcement) and October 9,
2017 (the day before the Report was published).

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6 PANTHERA I NVESTMENT FUND V . H.C. W AINWRIGHT
publication — stated that HCW would receive a cash fee
equal to 5% of the Offering’s aggregate gross proceeds.
The very next day, MannKind’s stock price — not
surprisingly — declined 18% to a closing price of $5.47 with
a trading volume of 33.6 million shares. As the plaintiff
points out, investors who immediately bought MannKind
shares after HCW issued its $7 target price may have felt
blindsided when that same bank participated in a dilutive
offering setting the stock price at $6. After that, the stock
price remained steady for about a week and traded about
71 million shares. At the end of that week, MannKind’s
stock price was still higher than it had been on the day before
the Report’s publication.
Based on these events, Daniela Prodanova, an individual
investor, filed a putative securities class action lawsuit. The
putative class includes “all other persons or entities that
purchased MannKind securities between 4:03 AM Pacific
Time on October 10, 2017 (7:03 AM Eastern Time) and
9:02 PM Pacific Time on October 10, 2017 (12:02 AM
Eastern Time on October 11, 2017).” Under the Private
Securities Litigation Reform Act (“PSLRA”), 15 U.S.C.
§ 78u-4, the district court designated Panthera Investment
Fund L.P. as the lead plaintiff.
Panthera filed the First Amended Complaint (“FAC”),
alleging that HCW, its Chief Executive Officer Mark
Viklund, and the Report’s author Oren Livnat fraudulently
sought to inflate the price of MannKind shares before the
Offering by issuing the Report. The FAC specifically
alleged that the defendants had violated Section 10(b) of the
Securities and Exchange Act of 1934 (“Exchange Act”),
15 U.S.C. § 78j(b), and Rule 10b-5, 17 C.F.R. § 240.10b-5.
It also asserted a claim against Viklund for control person

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liability in violation of Section 20(a) of the Exchange Act,
15 U.S.C. § 78t-1(a).
The defendants moved to dismiss under Federal Rule of
Civil Procedure 12(b)(6), arguing that the FAC failed to
allege falsity, scienter, and loss causation. The district court
granted this motion without prejudice. It held that the FAC
had satisfied the pleading requirements for falsity but had
not adequately alleged scienter.
Panthera’s Second Amendment Complaint (“SAC”)
fared no better. Beyond naming HCW’s Chief Operating
Officer Edward D. Silvera as an additional defendant, it
largely repeated the same allegations as the FAC. But
Panthera did try to bolster its scienter allegations by adding
evidence from two witnesses — an industry expert named
Larry Kimmel and a confidential witness (“CW”) who
previously worked in HCW’s research department.
Kimmel provided evidence on industry custom — that
investment banks generally maintain compliance
departments that have visibility into both the research and
investment banking groups to check for conflicts of interest.
The compliance department typically learns of prospective
banking engagements and places those clients on a “watch
list.” Then, when an analyst prepares a research report,
compliance checks to ensure that the watch list does not
include the report’s subject company. Kimmel had never
worked with HCW, but he stated that if HCW followed
industry standards, then HCW’s watch list should have
included MannKind, and the compliance department should
have discovered a conflict when it received the Report for
review.
The CW worked in HCW’s research department from
November 2016 to August 2017. His employment with

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HCW thus ended before any of the events here took place.
The CW provided evidence that HCW’s compliance
department generally follows industry standards for
checking conflicts of interest. But the CW could not provide
any specific information about how HCW approved the
Report for publication.
The defendants filed another motion to dismiss, asserting
that the SAC failed to adequately plead scienter and loss
causation. The district court granted the motion to dismiss
with prejudice as to Livnat and without prejudice as to the
remaining defendants. It again held that Panthera had not
adequately alleged scienter, so it did not reach the issue of
loss causation. When Panthera chose not to further amend
its complaint, the district court entered final judgment
dismissing the case with prejudice. This appeal followed,
and we have jurisdiction under 28 U.S.C. § 1291.
STANDARD OF REVIEW
“We review de novo the district court’s dismissal of
plaintiff’s complaint for failure to state a claim under Rule
12(b)(6).” Lipton v. Pathogenesis Corp., 284 F.3d 1027,
1035 (9th Cir. 2002). Our review includes the face of the
complaint, all materials incorporated into the complaint by
reference, and evidence properly subject to judicial notice.
Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 989
(9th Cir. 2009).
ANALYSIS
I. Legal Standards
Section 10(b) of the Exchange Act makes it unlawful:

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PANTHERA I NVESTMENT FUND V . H.C. W AINWRIGHT 9
To use or employ, in connection with the
purchase or sale of any security registered on
a national securities exchange . . . any
manipulative or deceptive device or
contrivance in contravention of such rules
and regulations as the [SEC] may prescribe
as necessary or appropriate in the public
interest or for the protection of investors.
15 U.S.C. § 78j(b). Under this statute, the SEC promulgated
Rule 10b-5, which declares it unlawful:
(a) To employ any device, scheme, or artifice
to defraud,
(b) To 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 of the circumstances under
which they were made, not misleading, or
(c) To engage in any act, practice, or course
of business which operates or would operate
as a fraud or deceit upon any person,
in connection with the purchase or sale of any
security.
17 C.F.R. § 240.10b-5. Section 20(a) of the Exchange Act
also makes “controlling person[s]” liable for violating
Section 10(b) and Rule 10b-5. 15 U.S.C. § 78t(a).
To state a claim under Section 10(b) and Rule 10b-5, a
complaint must plausibly allege: “(1) a material
misrepresentation or omission by the defendant; (2) scienter;

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10 PANTHERA I NVESTMENT FUND V . H.C. W AINWRIGHT
(3) a connection between the misrepresentation or omission
and the purchase or sale of a security; (4) reliance upon the
misrepresentation or omission; (5) economic loss; and
(6) loss causation.” Halliburton Co. v. Erica P. John Fund,
Inc., 573 U.S. 258, 267 (2014) (citations omitted). And a
complaint stating such claims “must satisfy the dual pleading
requirements of Federal Rule of Civil Procedure 9(b) and the
PSLRA.” Zucco Partners, 552 F.3d at 990.
Federal Rule of Civil Procedure 9(b) requires a plaintiff
to “state with particularity the circumstances constituting
fraud.” In other words, “[a]verments of fraud must be
accompanied by the who, what, when, where, and how of the
misconduct charged.” Kearns v. Ford Motor Co., 567 F.3d
1120, 1124 (9th Cir. 2009) (cleaned up). As relevant here,
the PSLRA extended Rule 9(b)’s particularity requirement
to allegations of scienter. Thus, to adequately plead scienter,
a complaint must “state with particularity facts giving rise to
a strong inference that the defendant acted with the required
state of mind.” 15 U.S.C. § 78u-4(b)(2)(A).
II. The SAC’s Allegations Do Not Support a Strong
Inference of Scienter.
To support a “strong inference” of scienter under the
PSLRA, a complaint must allege that the defendant made
false or misleading statements with an “intent to deceive,
manipulate, or defraud,” or with deliberate recklessness.
City of Dearborn Heights Act 345 Police & Fire Ret. Sys. v.
Align Tech., Inc., 856 F.3d 605, 619 (9th Cir. 2017) (citation
omitted). Deliberate recklessness is not “mere
recklessness.” Schueneman, 840 F.3d at 705 (citation
omitted). Instead, it is “an extreme departure from the
standards of ordinary care . . . which presents a danger of
misleading buyers or sellers that is either known to the

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PANTHERA I NVESTMENT FUND V . H.C. W AINWRIGHT 11
defendant or is so obvious that the actor must have been
aware of it.” Id. (citation omitted).
The “strong inference” standard “present[s] no small
hurdle for the securities fraud plaintiff.” Id. (citation
omitted). A reviewing court must “engage in a comparative
evaluation [and] . . . consider, not only inferences urged by
the plaintiff . . . but also competing inferences rationally
drawn from the facts alleged.” Tellabs, Inc. v. Makor Issues
& Rights, Ltd., 551 U.S. 308, 314 (2007). A complaint will
survive a motion to dismiss “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.” Id. at 324. We now consider whether the
SAC meets this high burden.
A. The SAC Did Not Plead a Plausible Theory of the
Defendants’ Motive.
Panthera maintains that HCW deliberately published the
Report without disclosing the impending Offering to drive
up MannKind’s stock price. HCW’s alleged motive was to
increase its own compensation from the Offering, as it was
set to receive 5% of the Offering’s gross proceeds. Panthera
appears to assert two formulations of this motive, but neither
theory is plausible. And “[a]llegations that are implausible
do not create a strong inference of scienter.” Nguyen v.
Endologix, Inc., 962 F.3d 405, 408 (9th Cir. 2020).
Panthera’s first theory alleges that HCW had an
incentive to boost MannKind’s stock price on October 10 —
the day the Offering was announced — because HCW’s
overall compensation from the Offering would somehow
increase if the stock price were higher. The second theory
similarly asserts that HCW had an interest in “generat[ing]
buying activity at an artificially inflated price to ensure a

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12 PANTHERA I NVESTMENT FUND V . H.C. W AINWRIGHT
profitable offering.” Because there was no predetermined
minimum number of shares to be sold in the Offering, HCW
had an incentive to generate interest in MannKind stock so
that as many shares as possible would be sold. By publishing
the Report, HCW could generate such interest, increasing
MannKind’s stock price and trading volume. This would
maximize the Offering’s profitability, leading to greater
compensation for HCW.
Neither theory is persuasive or plausible, as both are
divorced from common experience. See Nguyen, 962 F.3d
at 415 (“[T]he PSLRA neither allows nor requires us to
check our disbelief at the door.”). Generally, we expect that
a financial motive for securities fraud will be clear; for
example, someone inside a company stands to gain a
substantial profit by engaging in deceptive behavior, such as
selling shares before the company discloses negative
information. See, e.g., Zucco Partners, 552 F.3d at 1004.
But here, neither theory provides a clear financial incentive.
Panthera’s first theory does not make sense for a couple
of reasons.
First, MannKind raised almost $61 million in the
Offering, so HCW earned a little over $3 million (i.e., 5% of
the $61 million gross proceeds from the Offering). But
Panthera does not explain how the share price would affect
the Offering’s gross proceeds, which in turn determine
HCW’s compensation. Put another way, HCW would have
received the same compensation for a $61 million Offering,
no matter if the share price was $6 or $7.
Second, HCW would stand to lose more from its
allegedly fraudulent actions than it would gain. HCW’s
apparent snafu — issuing a $7 target price in a Report just
before a dilutive offering of $6 per share — likely strained

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PANTHERA I NVESTMENT FUND V . H.C. W AINWRIGHT 13
its longstanding relationship with MannKind. The risk of
losing a longtime client and publicly sullying its own
reputation in the industry far outweighs the benefit of a
slightly higher return on one transaction. Indeed, the only
plausible explanation for HCW’s action is that someone
there pulled a Bill Buckner and somehow let a glaring
conflict pass by. Its conduct is more like an embarrassing
Red Sox error than an elaborate Black Sox fraud. Simply
put, a company’s apparent error — even an embarrassing or
inexplicable one — does not establish fraudulent intent,
especially if the plaintiff cannot offer a plausible motive for
the company’s conduct. Panthera thus does not plausibly
allege scienter on this theory. See Nguyen, 962 F.3d at 415.
Panthera’s second theory is even more speculative. The
SAC alleges no facts to show that the Offering would not
have sold out but for the Report’s publication and the later
increase in MannKind’s share price and trading volume.
Especially considering the substantial increase in share price
and trading volume following the FDA approval
announcement, it strains plausibility that HCW believed it
needed to publish the Report to ensure a sold-out Offering.
It is true that a complaint lacking a plausible motive
allegation may still meet its burden of pleading a strong
inference of scienter. See Tellabs, 551 U.S. at 325. But the
lack of a plausible motive certainly makes it much less likely
that a plaintiff can show a strong inference of scienter. Only
where a complaint otherwise asserts compelling and
particularized facts showing fraudulent intent or deliberate
recklessness will we overlook the failure to allege a plausible
motive. See id; Nguyen, 962 F.3d at 415. With this in mind,
we now turn to the SAC’s remaining factual allegations.

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B. The SAC Did Not Adequately Allege Facts with
Particularity to Support a Strong Inference of
Scienter for Any of the Defendants.
To meet the PSLRA’s high burden for pleading scienter,
a complaint cannot rely on “mere motive and opportunity or
recklessness, but rather, must state specific facts indicating
no less than a degree of recklessness that strongly suggests
actual intent.” Glazer Cap. Mgmt., LP v. Magistri, 549 F.3d
736, 743 (9th Cir. 2008) (cleaned up). And because “a
corporation can only act through its employees and agents,”
it can “only have scienter through them.” In re ChinaCast
Educ. Corp. Sec. Litig., 809 F.3d 471, 475 (9th Cir. 2015)
(cleaned up). Panthera asserts that HCW acted with scienter
based on the intent or deliberate recklessness of the
individual defendants — Livnat, Viklund, and Silvera — and
that of its compliance department. But as we explain below,
the SAC does not allege with sufficient particularity that any
of those parties acted with scienter that could be imputed to
HCW.
i. The SAC Fails to Sufficiently Plead That Any
Individual Defendant Acted with Scienter.
We first consider the plaintiff’s claim against Livnat, the
Report’s author. As the district court dismissed this claim
without leave to amend, we review for abuse of discretion.4
See Gompper v. VISX, Inc., 298 F.3d 893, 898 (9th Cir.
2002).
4 The claims against the remaining defendants were dismissed with
leave to amend, so de novo review still applies. See Lipton, 284 F.3d
at 1035.

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PANTHERA I NVESTMENT FUND V . H.C. W AINWRIGHT 15
The SAC pleads no facts alleging that Livnat knew about
the Offering when he authored the Report. There is thus no
factual basis for the allegation that he acted with knowledge
or deliberate recklessness. See Glazer, 549 F.3d at 745
(stating that a complaint must “plead scienter with respect to
those individuals who actually made the false statements”).
The SAC also acknowledges that HCW follows FINRA
regulations that require separating its research and
investment banking groups. This underscores the
conclusion that Livnat, a research analyst, remained walled
off from the investment banking department and did not
know about the Offering when he published the Report.
Without factual allegations to the contrary, the SAC has not
alleged with particularity — or even alleged at all — that
Livnat acted with scienter. The district court did not abuse
its discretion in dismissing this claim without leave to
amend.
We next turn to the claims against Viklund, the bank’s
CEO. The SAC asserts that, as the “primary contact” for the
research and investment banking groups, he “knew (1) the
price target that was set forth in the Report; (2) the formula
for pricing the offering; (3) the Report’s vague reference to
a deal between MannKind and [HCW] over the next three
months; (4) the Report’s expectation of ‘near-term
recapitalization’; and (5) the timing of the Offering, and of
MannKind’s public announcement of the Offering.” These
generalized allegations fail to show that Viklund had direct
involvement in writing or publishing the Report.
“[C]orporate management’s general awareness of the day-
to-day workings of the company’s business does not
establish scienter — at least absent some additional
allegation of specific information conveyed to management
and related to the fraud.” Metzler Inv. GMBH v. Corinthian
Colls., Inc., 540 F.3d 1049, 1068 (9th Cir. 2008).

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Viklund’s status as a “primary contact” does not
strengthen the SAC’s scienter allegations. The SAC fails to
explain what a “primary contact” is, or how Viklund’s
position establishes that he had detailed and
contemporaneous knowledge of both the Report and the
Offering. For Viklund to have made a false statement with
intent or deliberate recklessness, he would have needed to
know about the Offering when the Report was published and
had control over the Report’s publication. See Glazer,
549 F.3d at 745. As the SAC offers no particularized facts,
it has not adequately pled scienter in this context.
In a similar fashion, the SAC alleges that “Viklund
possessed the power and authority to control the policies and
procedures of [HCW’s] Compliance Department to ensure
that they did not allow research reports to be published in
blatant violation of industry custom and practice.” That he
generally had such authority, however, does not establish
that he was involved with this Report. As the SAC fails to
present facts establishing his involvement with the
compliance department’s review of the Report, we cannot
infer that he knew about it. See S. Ferry LP, No. 2 v.
Killinger, 542 F.3d 776, 784 (9th Cir. 2008) (“Where a
complaint relies on allegations that management had an
important role in the company but does not contain
additional detailed allegations about the defendants’ actual
exposure to information, it will usually fall short of the
PSLRA standard.”). The complaint thus does not support a
strong inference of scienter for Viklund.
Finally, we conclude that the SAC does not adequately
plead that Silvera, the COO, had scienter. Where the
plaintiff asserts the same allegations of scienter for Silvera
as it does for Viklund, those claims are insufficient for the
same reasons discussed above. And the SAC’s remaining

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PANTHERA I NVESTMENT FUND V . H.C. W AINWRIGHT 17
allegations fail to provide particularized facts showing that
Silvera acted with intent or deliberate recklessness.
The SAC’s assertion that “[c]ompliance personnel
reported to Silvera as COO,” does not provide any
particularized facts supporting an inference of scienter, see
Nursing Home Pension Fund, Local 144 v. Oracle Corp.,
380 F.3d 1226, 1234 (9th Cir. 2004) (holding that
defendants’ hands-on management style supported an
inference of scienter when coupled with their admissions
that they closely monitored the data and information that
they misrepresented in the alleged false statements).
Panthera has offered no information on whether compliance
personnel reported to Silvera about the details of the Report
or whether he was directly involved with the Report at all.
Nor does the SAC include admissions by Silvera that he
closely monitored any information that in the Report.
Panthera’s final allegation that “[a]s COO, Silvera
drafted, negotiated, and executed the Placement Agency
Agreement,” similarly lacks facts reflecting intentional or
deliberately reckless conduct. Even accepting the allegation
as true,5 it cannot support a strong inference of scienter.
Silvera may have had a role in negotiating the Offering and
known about it before the Report’s publication. But without
particularized allegations showing that he was directly
involved with the Report and ignored its falsity, there is not
enough factual support for a plausible inference of scienter.
See Glazer, 549 F.3d at 745.
5 HCW argues that there are no facts showing that Silvera drafted
the agreement. All the record shows is that Silvera signed the agreement.

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18 PANTHERA I NVESTMENT FUND V . H.C. W AINWRIGHT
ii. The SAC Fails to Adequately Plead That the
Compliance Department Acted with Scienter.
Panthera argues that, even if no individual defendant
acted with scienter, someone in HCW’s compliance
department must have approved the Report despite knowing
about the Offering. The SAC asserts that the compliance
department had scienter that can be imputed to HCW. See
ChinaCast, 809 F.3d at 475. The SAC alleges this based
mainly on two witness declarations from Kimmel and the
CW, along with the Report’s inclusion of a disclaimer. But,
like its allegations for the individual defendants, the SAC has
not pled particularized facts showing that the compliance
department knew about the Offering when it approved the
Report.
Witness declarations can support an inference of
scienter, but to do so, they must provide specific facts
showing a connection between the false statement and the
mindset of the person who made it. See Zucco Partners,
552 F.3d at 996; see also Police Ret. Sys. of St. Louis v.
Intuitive Surgical, Inc., 759 F.3d 1051, 1063 (9th Cir. 2014)
(explaining that witness declarations must include
“allegations linking specific reports and their contents to the
[defendants], not to mention the link between the witnesses
and the” defendants).
Neither Kimmel nor the CW could link a member of the
compliance department with the Report or knowledge of the
Offering. Instead, Kimmel only offered evidence of
standard industry practices, which standing alone remains
insufficient. While industry custom may include
maintaining a “watch list” of pending transactions and
checking that list for conflicts before publishing reports, that
does not support an inference that someone in HCW’s
compliance department acted with scienter in approving the

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PANTHERA I NVESTMENT FUND V . H.C. W AINWRIGHT 19
Report. The complaint contains no factual allegations that
the watch list included the Offering, that a compliance
officer checked the list and realized the conflict, and then
that same officer approved the Report knowing that a
conflict existed. In absence of such allegations, the SAC
does not adequately plead facts supporting a strong inference
of scienter.
The CW’s declaration fails to remedy this problem, as it
only confirms that HCW generally adheres to industry
standards, not that it intentionally (as opposed to merely
inadvertently) failed to follow those standards for this
Report. The CW could not have provided more specific
information, as he left his employment at HCW before any
of the events at issue took place. See Zucco Partners,
552 F.3d at 996 (explaining that witness declarations did not
support an inference of scienter because the witnesses “were
not employed by [defendant corporation] during the time
period in question and have only secondhand information”).
Thus, all the CW’s declaration can tell us is that HCW had
industry-standard procedures in place. That fact does not
provide a basis for inferring culpable conduct for the
Report.6
In a final attempt to allege that someone in the
compliance department acted with scienter, Panthera points
to a FINRA disclaimer in the Report. The SAC asserts that
6 Panthera asserts that In re Finisar Corp. Sec. Litig., 646 F. App’x
506 (9th Cir. 2016) provides a scenario where similar circumstantial
evidence was used to support a strong inference of scienter. But our
memorandum disposition did not address scienter, see id. at 507, and the
district court’s decision that did address scienter relied on particularized
factual allegations that are not analogous to those presented here, see In
re Finisar Corp. Sec. Litig., No. 5:11-CV-01252-EJD, 2017 WL
1549485 at *6–7 (N.D. Cal. May 1, 2017).

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20 PANTHERA I NVESTMENT FUND V . H.C. W AINWRIGHT
the inclusion of the language HCW “will seek compensation
from the companies mentioned in this report for investment
banking services within three months following publication
of the research report,” suggests that a compliance officer
knew of the Offering when he or she approved the Report.
But the SAC does not allege that a compliance officer
inserted the disclaimer, nor does it assert that anyone other
than Livnat contributed to the Report.7 The CW’s
declaration also does not state that the compliance
department adds FINRA disclaimers to reports. Thus, the
SAC has not provided a factual basis for concluding that
anyone in the compliance department knew about the
Offering and added the disclaimer in response.
Further, the disclaimer language is essentially identical
to that in FINRA R. 2241(c)(4)(C)(iii). This suggests that it
is boilerplate language HCW generally includes in its
reports. See Zucco Partners, 552 F.3d at 1003–04 (stating
that “[b]oilerplate language” required by a regulation or
statute “add[s] nothing substantial to the scienter calculus”).
And considering HCW’s longtime relationship with
MannKind, HCW may have included the language simply
because HCW regularly does business with MannKind, not
because someone knew the Offering was imminent. The
disclaimer also referred to “the companies mentioned in this
report,” not just MannKind. Since there were two
companies mentioned in the Report, the disclaimer applied
to both. This undercuts the theory that someone inserted it
based on knowledge of the Offering. As the SAC does not
allege facts to counter these more plausible innocent
7 Panthera now argues that someone else wrote the disclaimer, but
that allegation was not in the SAC or presented to the district court. We
thus cannot consider it. See In re Heritage Bond Litig., 546 F.3d 667,
681 n.16 (9th Cir. 2008).

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PANTHERA I NVESTMENT FUND V . H.C. W AINWRIGHT 21
explanations, the disclaimer does not support an inference of
scienter. See Tellabs, 551 U.S. at 324.
iii. The SAC Cannot Rely on the Core Operations
Theory to Support an Inference of Scienter.
We next consider the plaintiff’s allegations based on the
core operations theory, which presumes that “corporate
officers have knowledge of the critical core operation of
their companies.” Intuitive Surgical, 759 F.3d at 1062
(citation omitted).
There are three circumstances under which core
operations allegations can support a strong inference of
scienter: (1) when they, along with other allegations, support
a cogent and compelling inference of scienter, (2) when they
are themselves particular and suggest that the defendants had
actual access to the disputed information, and (3) in the “rare
circumstances” when they are not particularized, but “the
nature of the relevant fact is of such prominence that it would
be absurd to suggest that management was without
knowledge of the matter.” Id. (quoting S. Ferry, 542 F.3d at
785–86). Plaintiffs face a high burden of proof, as they must
provide either specific admissions by the executives that
they were involved in the details of a company’s operations
or witness statements that the executives were specifically
involved in producing the false reports. See id.
The SAC does not plead particularized facts sufficient to
support the first two formulations of the core operations
theory. As detailed above, no HCW executives admitted any
involvement with the minutiae of the compliance or research
groups. The only witness statements are those of Kimmel
and the CW, neither of whom asserts that any HCW
executive personally worked on or approved the Report.
Rather, all the SAC alleges is that, because of their positions

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22 PANTHERA I NVESTMENT FUND V . H.C. W AINWRIGHT
in the company and their supervisory authority over the
compliance department, Silvera or Viklund “would have”
been involved in creating and publishing the Report. This
conclusory allegation, without more, is insufficient.
This is also not a case in which the third formulation of
the core operations theory applies. The conflict between the
Report and the Offering is not a fact of such prominence that
it would be “absurd” to suggest that management did not
know about it. Though the compliance department checks
for conflicts, it does not follow that HCW’s senior
executives would have known about a particular conflict.
Cf. Berson v. Applied Signal Tech., Inc., 527 F.3d 982, 988
& n.5 (9th Cir. 2008) (applying core operations theory
because executives who were directly responsible for day-
to-day operations must have known about actions that
affected the “company’s largest contract with one of its most
important customers”).8
iv. The SAC’s Failure-to-Correct Argument
Does Not Provide a Basis for Inferring
Scienter.
Finally, Panthera argues that HCW’s failure to promptly
correct the Report supports an inference of intentional or
deliberately reckless conduct. Neither this circuit nor the
Supreme Court has recognized a duty to correct, and we
decline to do so in this case as well.
8 Panthera asserts for the first time that the Offering was HCW’s
largest transaction that week, suggesting that management must have
known about the conflict. But Panthera did not allege that fact in the
SAC or present it to the district court, so it cannot supply a basis for
inferring scienter. See Heritage Bond, 546 F.3d at 681 n.16.

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PANTHERA I NVESTMENT FUND V . H.C. W AINWRIGHT 23
Even without recognizing a duty to correct, however,
some district courts have found that a defendant’s failure to
correct a false statement supports an inference of scienter.
In these cases, the allegations — when considered
collectively — demonstrated a deliberate intent to conceal
information. See Oaktree Principal Fund V, L.P. v. Warburg
Pincus LLC, No. CV 15-8574 PSG (MRWx), 2018 WL
6137169 at *14–15 (C.D. Cal. Aug. 29, 2018); Axonic Cap.
LLC v. Gateway One Lending & Fin., No. CV 18-5127 PSG
(SSx), 2019 WL 4138024 at *10–11 (C.D. Cal. May 22,
2019). In other words, where a complaint already alleges
particularized facts supporting an inference of scienter, a
defendant’s failure to correct may tip the scale in favor of the
strong inference required by the PSLRA.
As we discussed above, the SAC does not plead with
particularity facts showing that HCW or its executives
concealed information intentionally or with deliberate
recklessness. Panthera’s failure-to-correct argument does
not provide any particularized allegations showing that any
defendant acted with scienter in concealing information.
Simply put, this is not a case in which HCW’s failure to
correct could tip the scale in favor of a strong inference of
scienter.
C. Viewing the SAC Holistically, an Inference of
Fraudulent Conduct is Not as Compelling as an
Inference of Non-Fraudulent Conduct.
When considering whether a complaint adequately
pleads scienter, we must review all the allegations
holistically. See Tellabs, 551 U.S. at 326. Based on our
analysis above, we conclude that the SAC does not allege a
strong inference of scienter. Panthera has not established
that an inference of intentional or deliberately reckless
conduct is as compelling as an inference of nonculpable

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24 PANTHERA I NVESTMENT FUND V . H.C. W AINWRIGHT
conduct. See id. at 314. When considering the allegations
as a whole, it is more likely that HCW engaged in merely
negligent conduct.
We base our conclusion on the lack of a plausible motive
as well as the lack of particularized facts showing any
individual’s knowledge or deliberate recklessness about the
Report’s falsity at the time of its publication. Given these
deficiencies, the most plausible inferences are that someone
failed to put MannKind on the watch list, failed to properly
check the watch list, or failed to realize that a conflict existed
when approving the Report. As these innocent explanations
are more plausible, we hold that the district court properly
dismissed the SAC for failure to adequately plead scienter.
III. The District Court Properly Dismissed the
Section 20(a) Claims.
Section 20(a) of the Exchange Act imposes liability on
“certain ‘controlling’ individuals . . . for violations of
section 10(b) and its underlying regulations.” Zucco
Partners, 552 F.3d at 990. As we have concluded that the
SAC does not adequately plead a primary violation of
Section 10(b) or Rule 10b-5 by any defendant, its allegations
under Section 20(a) necessarily fail.
CONCLUSION
The district court’s order granting the defendants’
motion to dismiss is AFFIRMED.

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