ALEJANDRO HANDAL, Individually v. MALLOZZI, Individually

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_________________
No. 24-2829
_________________
ALEJANDRO HANDAL, Individually and on behalf
of all other persons similarly situated; MICHAEL V.
MALLOZZI, Individually and on behalf of all other persons
similarly situated; STEPHEN R. FORRESTER, Individually
and on behalf of all other persons similarly situated
v.
INNOVATIVE INDUSTRIAL PROPERTIES, INC.; PAUL
SMITHERS; CATHERINE HASTINGS; ALAN D. GOLD;
BENJAMIN C. REGIN
Alejandro Handal; Stephen R. Forrester,
Appellants
_________________
On Appeal from the United States District Court
for the District of New Jersey
D.C. Civil No. 2:22-cv-02359
District Judge: Honorable Evelyn Padin
_________________
Argued: June 17, 2025

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Before: CHAGARES, Chief Judge, MONTGOMERY-
REEVES and McKEE, Circuit Judges
(Filed: October 15, 2025)
Michael A. Cohen
Rosen Law Firm
275 Madison Avenue
40th Floor
New York, NY 10016
Jacob A. Goldberg [ARGUED]
Gonen Haklay
Rosen Law Firm
101 Greenwood Avenue
Suite 440
Jenkintown, PA 19046
Counsel for Appellants Alejandro Handal and Stephen R.
Forrester
Andrew A. Howell
Stacy R. Obenhaus [ARGUED]
Foley & Lardner
2021 McKinney Avenue
Suite 1600
Dallas, TX 75201
Counsel for Appellees Innovative Industrial Properties, Inc.,
Paul Smithers, Catherine Hastings, Alan D. Gold, and
Benjamin C. Regin

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_________________
OPINION OF THE COURT
_________________
MONTGOMERY-REEVES, Circuit Judge.
In this case, Innovative Industrial Properties, Inc.
(“Innovative”), a real estate investment trust (“REIT”), was
defrauded of millions of dollars by one of its tenants, a
company called Kings Garden. After discovering the fraud,
Innovative sued Kings Garden, alleging that Kings Garden
bore hallmarks of a Ponzi scheme.
As often happens after an announcement of corporate
trauma, a group of stockholders brought a putative class action
suit alleging violations of Section 10(b) of the Securities
Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder. Their Second Amended Complaint (the
“Complaint”) asserts that Kings Garden’s fraud and
Innovative’s failure to stop it rendered certain statements false
or misleading. And when the market discovered the statements
were false or misleading, Innovative’s stock price declined,
injuring the company’s stockholders.
But corporate trauma alone does not constitute
securities fraud, and neither does ordinary negligence. Further,
“the antifraud provisions of federal securities law are not a
general charter of shareholder protection.” Beck v. Dobrowski,
559 F.3d 680, 683 (7th Cir. 2009) (Posner, J.). “[R]ather,
[Section 10(b)] trains on conduct involving manipulation or
deception” in connection with the purchase or sale of a
security. United States v. O’Hagan, 521 U.S. 642, 655 (1997).
To plead claims under Section 10(b) and Rule 10b-5, a plaintiff

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must identify a fraudulent scheme perpetrated by a defendant
or statements that were false or misleading by omission.
Because the stockholders here chose the latter course, they had
to identify specific statements and plead with particularity that
those statements were false or misleading at the time they were
made. See 15 U.S.C. § 78u-4(b)(1). Then, for any statement
so pleaded, the stockholders had to “state with particularity
facts giving rise to a strong inference that” the statement’s
maker acted with scienter. Id. § 78u-4(b)(2)(A).
The stockholders did not meet those conditions. Many
of the challenged statements are opinions—and although those
opinions plausibly were ill-advised or wrong, such qualities do
not make them fraudulent under the securities laws. Other
statements simply are not false or misleading on the facts
alleged. And while one statement is plausibly alleged to be
false or misleading, the facts pleaded do not yield a strong
inference that the statement’s maker uttered it with scienter.
As such, the underlying corporate conduct and injury could not
sustain any claim under Section 10(b) and Rule 10b-5, and the
District Court properly dismissed the Complaint with
prejudice. Accordingly, we will affirm the District Court’s
judgment.
I. BACKGROUND
The facts outlined below derive from the Complaint and
the documents attached to and incorporated into the Complaint.
A. Innovative’s Business and Its Tenant’s Fraud
As a REIT, Innovative’s business is fairly simple. It
purchases real estate from cannabis companies and leases that
real estate back to them. Innovative’s leases are “triple-net,”

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meaning “the tenant is responsible for all aspects of and costs
related to the property . . . during the lease term,” including
repairs, taxes, and insurance. Appendix 273 (hereinafter
“App._”).
Sometimes, however, Innovative agrees to finance
tenants’ capital improvements, like HVAC systems, grow
lighting, and electrical upgrades. These essentially are
reimbursement arrangements, in which Innovative allocates a
defined amount of money for a project and a tenant seeks
reimbursement from Innovative for its qualifying expenses. To
obtain reimbursement, a tenant must submit a “draw request,”
which consists of a standard form plus accompanying
documents and certifications from any contractor or architect
substantiating the work performed. A team reporting to
Innovative’s Chief Financial Officer then reviews the form and
supporting documentation and decides whether to disburse
funds from the allocated pool.
Kings Garden, a cannabis-cultivation company founded
by Michael King (“King”) and based in California, became an
Innovative tenant in 2019. In 2020 and 2021, Kings Garden
entered a reimbursement arrangement with Innovative.
Innovative agreed to finance capital improvements at two of
Kings Garden’s six properties—one in San Bernardino,
California, and one in Palm Springs, California—allocating
$25 million and $51.4 million, respectively, to those projects.
From 2021 through 2022, Kings Garden submitted several
draw requests to Innovative, and based on those requests,
Innovative paid Kings Garden more than $48 million.
On June 1, 2022, Kings Garden sent Innovative a draw
request for the Palm Springs project. This draw request
sparked Innovative’s suspicion that something was amiss

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because the amount of money Kings Garden requested did not
match the values in Kings Garden’s supporting documentation,
and the form was not signed as required. Innovative called the
Kings Garden executive who submitted the draw request, and
the executive admitted that he—not the general contractor, as
required—had prepared the request.
That admission prompted Innovative to investigate.
First, Innovative reviewed Kings Garden’s previous draw
requests and found many irregularities, like inconsistent fonts
and metadata. Then, Innovative received financial statements
from King that appeared to Innovative to show millions of
dollars flowing from Kings Garden to “unknown individuals.”
App. 173. Next, Innovative contacted the contractors who
supposedly had performed work for which Kings Garden was
reimbursed. And finally, Innovative visited the Palm Springs
and San Bernardino properties. Innovative’s investigation
revealed that some purported contactors had performed no
work, and in other instances, the value of work received did not
match the amounts reimbursed.
Innovative told Kings Garden that it had identified
irregularities in Kings Garden’s draw requests and informed
Kings Garden that reimbursements would not be forthcoming
until those irregularities were resolved. Kings Garden
responded that “it was out of money and would not be paying
its July 2022 rent.” App. 89.
When Kings Garden followed through on its promise
not to pay rent, Innovative sued Kings Garden and certain of
its executives in California state court, seeking injunctive and
other equitable relief. Innovative levied many of the
allegations set forth above and claimed Kings Garden
exhibited “red-flags of a Madoff-style Ponzi scheme.”

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App. 222. Innovative also claimed to have discovered during
its investigation that King had “changed his name from
Michael Buyanovsky,” App. 228, and had “a history of over 32
lawsuits, felony charges, and alleged fraudulent misconduct,”
App. 216. In Innovative’s words, the facts “evidence[d] a
business conducting a fraudulent criminal enterprise.”
App. 216. Innovative disclosed its suit to the market in a Form
10-Q filed on August 4, 2022.1
B. The Allegedly False or Misleading Statements
Three Innovative stockholders—Alejandro Handal,
Stephen R. Forrester (together, “Appellants”) and Michael V.
Mallozzi2—sued Innovative’s Chief Executive Officer, Paul
Smithers; Chief Financial Officer, Catherine Hastings;
Executive Chairman, Alan D. Gold; and Vice President of
Investments, Benjamin C. Regin (collectively, the “Individual
Defendants”), plus Innovative itself (with the Individual
Defendants, “Appellees”) for violations of Section 10(b) (15
U.S.C. § 78j(b)) and Rule 10b-5 (17 C.F.R. § 240.10b-5).
Appellants additionally allege the Individual Defendants are
liable as control persons under Section 20(a) of the Exchange
1 Innovative initially sued Kings Garden and related entities on
July 25, 2022, alleging only breach of contract and seeking
declaratory and injunctive relief. On August 2, 2022,
Innovative amended its complaint to include the individual
Kings Garden executives and to raise claims related to Kings
Garden’s alleged reimbursement fraud. The August 4, 2022
Form 10-Q disclosed the suit as amended.
2 Mallozzi is not named in the Notice of Appeal and is not a
participant in this appeal.

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Act (15 U.S.C. § 78t). Appellants claim that Kings Garden’s
fraud renders false or misleading numerous statements made
by Innovative or its personnel over the three-year period of
Kings Garden’s tenancy. The statements alleged to be false or
misleading may be organized into five categories:
(1) statements about Innovative’s evaluation and diligence of
potential tenants; (2) statements about Innovative’s ongoing
evaluation and monitoring of existing tenants; (3) statements
of praise for Kings Garden and its leaders; (4) statements about
Innovative’s reimbursement arrangements; and
(5) Innovative’s statement about Kings Garden’s nonpayment
of July 2022 rent.
1. Evaluation-and-Diligence Statements
Innovative’s securities filings described, in general but
consistent terms, the company’s process for conducting
diligence on prospective tenants. First, Innovative represented
that it “rel[ies] on [its] management team to perform due
diligence investigations of [its] potential tenants, related
guarantors and their properties, operations and prospects, of
which there is generally little or no publicly available operating
and financial information.”3 App. 285. Second, Innovative
cautioned that its “agreements for the acquisition of properties
are typically subject to closing conditions, including
satisfactory completion of due diligence investigations, and we
may spend significant time and money and divert management
3 Without including the disclosure’s reliance language,
Appellants alleged that Innovative “affirmatively stated that
[its] ‘management team [] perform[ed] due diligence
investigations.’” App. 101. For completeness, we reproduce
the full and unaltered disclosure here.

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attention on potential acquisitions that we do not
consummate.” App. 284.
On August 5, 2021, Gold supplied additional detail in
response to an investment analyst’s question on an earnings
call. Referencing two Innovative tenants other than Kings
Garden, the analyst asked Gold how Innovative “go[es] about
evaluating these early-stage companies and determining
whether or not to make investments in the real estate assets.”
App. 306. Gold responded that “we spent a lot of time with the
management team, evaluating their skills and expertise . . . .
And we utilize our existing network of growers to do
background checks on these tenants, understanding where
they’ve come from and their reputations in the specific state or
just in the industry in general.” App. 82 (emphasis omitted).
Gold did not mention Kings Garden.4
4 At oral argument, Appellants referenced additional
evaluation-and-diligence statements by Innovative executives
during a May 5, 2022 earnings call. We omit those statements
here and do not consider them in the analysis that follows
because Appellants did not plead them (or even attach them to
the Complaint). Just as “it is axiomatic that the complaint may
not be amended by the briefs in opposition to a motion to
dismiss,” Pennsylvania ex rel. Zimmerman v. PepsiCo, Inc.,
836 F.2d 173, 181 (3d Cir. 1988) (citation and alterations
omitted), Appellants may not amend their complaint on appeal
of a motion to dismiss that was granted. See generally Fed. R.
Civ. P. 15(a).

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2. Ongoing-Evaluation-and-Monitoring
Statements
Innovative’s securities filings also repeated multiple
descriptions of its processes for monitoring the health of its
tenants. First, Innovative disclosed that it “evaluate[s] the
credit quality of [its] tenants and any guarantors on an ongoing
basis by reviewing, where available, the publicly filed financial
reports, press releases and other publicly available industry
information regarding” those tenants and guarantors. App. 104
(emphasis omitted). Second, Innovative stated that, “in some
instances,” it “monitor[ed] [its] tenants by periodically
conducting site visits and meeting with the tenants to discuss
their operations.” Innovative Indus. Props., Inc., Annual
Report (Form 10-K) 13 (Mar. 2, 2020).5 Finally, Innovative
cautioned investors that “[i]n many instances, we will
generally not be entitled to financial results or other credit-
related data from our tenants.” Id.
3. Statements of Praise
Before Innovative discovered Kings Garden’s fraud,
Innovative’s officers praised Kings Garden and its principals
during periodic earnings calls. Typically, those statements
lauded Kings Garden’s commercial reputation, praised Kings
Garden’s practice of issuing dividends to its owners, reported
on developments in Kings Garden’s business, or updated the
market on the commercial relationship between Kings Garden
5 Appellants’ Complaint reproduces this disclosure without
including the “in some instances” caveat. Again, we reproduce
the relevant disclosure from the source to include all relevant
context.

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and Innovative. The statements of praise at issue in this appeal
are as follows:6
• “Kings Garden has developed a truly distinguished
brand in California and consistently ranks as a top
producer in sales in a state that represents the largest
market in the world . . . . With production of 40,000
pounds of cannabis flower annually and continuing
to ramp significantly, it is the leading top-quality
producer in the state . . . . We highlighted a number
of environmental initiatives of our tenant partners in
their operations and our inaugural ESG report posted
to our website. And Kings Garden is yet another
example of our tenant partners focused on long-
term, responsible, sustainable production.”
App. 106.
• “[W]e’ve been proud to continue to partner with
many of our tenant operators and amend the leases
to provide for additional expansion capital at our
facilities for a corresponding increase in base rent.”
App. 107.
6 While Appellants pleaded several other such statements, they
do not argue on appeal that any are actionable and thus have
abandoned any such argument. See Barna v. Bd. of Sch. Dirs.
of Panther Valley Sch. Dist., 877 F.3d 136, 145 (3d Cir. 2017)
(“We have long recognized, consistent with Federal Rule of
Appellate Procedure 28(a) and Third Circuit Local Appellate
Rule 28.1, that an appellant’s opening brief must set forth and
address each argument the appellant wishes to pursue in an
appeal.”).

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• Kings Garden is “a tenant partner . . . across 6
properties in Southern California, representing a
total commitment of about $148 million . . . . Kings
Garden has developed a truly distinguished brand in
California and consistently ranks as a top producer
in sales in a state that represents the largest market
in the world” with Kings Garden’s “brand reputation
and operational expertise driving financial
results . . . . We are excited to be working closely
with Kings Garden as they complete full build-out
of their production capacity in the months to come.”
App. 112–13 (citation modified).
• “In May of 2020, we followed with the acquisition
of a fully operational property comprised of
approximately 70,000 square feet of industrial space
for $17.5 million or $250 per square foot. Shortly
after that closing, Kings Garden announced the
initiation of a quarterly dividend to its stockholders,
something that was and is considered highly unusual
among any prominent brand in the industry and
which demonstrates their belief in the long-term
prospects in the business.” App. 119–20 (emphasis
omitted).
4. Statements Concerning
Reimbursement Arrangements
On April 14, 2022—about six weeks before Kings
Garden sparked Innovative’s suspicion—a short-seller named
Blue Orca Capital (“Blue Orca”) released a report criticizing
certain Innovative tenants and arguing that Innovative’s stock
was overvalued. Mining public records, Blue Orca unearthed
multiple lawsuits alleging Kings Garden and King had

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committed fraud in connection with the operation of Kings
Garden’s business. One suit, brought in May 2021 by King’s
brother—himself a co-founder of Kings Garden—claimed
King had “falsified books and records to personally enrich
himself, and swindle money from investors” while selling
cannabis on the black market. App. 151–52. Another suit,
brought by Kings Garden investor Swiss American Investment
Corp. (“Swiss American”) in January 2019, sought Kings
Garden’s books and records and alleged that Kings Garden had
engaged in “troubling” related-party transactions. App. 153.
Notably, Blue Orca’s report did not comment on Innovative’s
reimbursement arrangement with Kings Garden, though it
alleged another tenant had received suspicious
reimbursements.
Innovative responded to the short-seller’s report the
same day, in a statement titled “Innovative Industrial
Properties Responds to Short-Seller Report.” App. 337.
Innovative charged that Blue Orca did “not understand the
process that [Innovative] employs for underwriting [tenants’]
improvements, and that any [Innovative] reimbursements
relate only to verified, qualified improvements to the buildings
for these purposes, and never as funding for any type of ‘loan’
to be utilized for any other purpose.” Id. (emphasis added).
On May 5, 2022, Innovative convened a call with
investment analysts to discuss its second-quarter earnings and
to discuss the two tenants most prominently featured in the
Blue Orca report, one of which was Kings Garden. On the call,
Innovative’s Director of Construction Management, Griffin
Marquardt, discussed Innovative’s two reimbursement projects
with Kings Garden. Referring to the San Bernardino project,
Marquardt stated that “[w]e have funded approximately
$18 million of the $25 million and expect the remaining to be

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drawn over the coming months.” App. 315. And for the Palm
Springs project, “we have funded approximately $27 million
of the $51.4 million allowance for improvements.” Id.
Marquardt did not mention Kings Garden’s fraud, which
Innovative did not discover for about another month.
5. Statement Concerning Kings Garden’s
Nonpayment of July 2022 Rent
On July 13, 2022, Innovative disclosed on a Form 8-K
that Kings Garden had defaulted on its July rent and related
monetary obligations, to the tune of about $2.2 million.
Innovative informed the market that it was “continuing
discussions” with Kings Garden but also had “commenced
discussions with other operators regarding potential re-leasing
of certain” Kings Garden properties. App. 293. Although
Innovative had commenced its investigation of Kings Garden
weeks earlier and filed the first iteration of its lawsuit against
Kings Garden twelve days later, Innovative did not mention
Kings Garden’s reimbursement fraud or the other allegations it
later included in legal filings.
C. This Litigation’s Procedural History
After one dismissal, Appellants filed the operative
Complaint. The District Court granted with prejudice
Appellees’ motion to dismiss, holding that some statements
were actionably false or misleading but that Appellants had
failed to plead the required strong inference of scienter. In the
District Court’s view, garden-variety mismanagement and
negligence more plausibly explained Innovative’s statements,
absent particularized allegations about “how the [Appellees]
could or should have known [Innovative] was being defrauded
at the time.” App. 27. Appellants appealed.

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II. JURISDICTION AND STANDARD OF REVIEW
The District Court had jurisdiction under 15 U.S.C.
§ 78aa(a) and 28 U.S.C. § 1331. We have jurisdiction under
28 U.S.C. § 1291.
“When considering an appeal from a denial of a motion
to dismiss, this Court exercises plenary review, accepting as
true the facts alleged in the complaint and the reasonable
inferences that can be drawn from those facts.” Keystone
Redevelopment Partners, LLC v. Decker, 631 F.3d 89, 95 (3d
Cir. 2011) (citation modified). “We also exercise plenary
review over the dismissal of a complaint for failure to satisfy
the heightened pleading standards of the [Private Securities
Litigation Reform Act of 1995 (“PSLRA”)] and over the
District Court’s interpretation of federal securities laws.” City
of Edinburgh Council v. Pfizer, Inc., 754 F.3d 159, 166 (3d Cir.
2014). “In considering the propriety of the District Court’s
ruling, this Court may also consider,” in addition to the
complaint, “matters of public record, orders, exhibits attached
to the complaint and items appearing in the record of the case.”
Keystone Redevelopment Partners, 631 F.3d at 95 (citation and
internal quotation marks omitted); see also Oran v. Stafford,
226 F.3d 275, 289 (3d Cir. 2000) (holding that this Court may
“take judicial notice of properly-authenticated public
disclosure documents filed with the SEC”).
III. DISCUSSION
The Exchange Act “regulates the trading of securities
on the secondary market.” City of Warren Police & Fire Ret.
Sys. v. Prudential Fin., Inc., 70 F.4th 668, 679 (3d Cir. 2023)
(citation omitted). The “centerpiece of [the Exchange Act’s]
antifraud framework” is Section 10(b), which “prohibits the

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use of ‘any manipulative or deceptive device or contrivance’
in violation of regulations promulgated by the SEC.” Id.
(quoting 15 U.S.C. § 78j(b)). The SEC exercised that
rulemaking authority to create Rule 10b-5, which prohibits
“mak[ing] any untrue statement of a material fact or [omitting]
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.” 17 C.F.R. § 240.10b–5(b);
see also Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 37
(2011) (“Rule 10b-5 implements” Section 10(b).). “Together,
[Section] 10(b) and Rule 10b-5 imply a private cause of action
for securities fraud.” City of Warren, 70 F.4th at 679 (citing
Basic, Inc. v. Levinson, 485 U.S. 224, 230–31 (1988)). A
plaintiff alleging violations of Section 10(b) and Rule 10b-5
may also bring claims under Section 20(a) of the Exchange
Act, “which imposes joint and several liability on persons who
control an individual or entity that violates [Section] 10(b) and
Rule 10b-5.” Id. (citations omitted).
To state a claim under Section 10(b) and Rule 10b-5, a
plaintiff must plead six elements: “(1) a material
misrepresentation or omission by the defendant; (2) scienter;
(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.” Matrixx Initiatives, 563 U.S. at 37–38 (citation and
internal quotation marks omitted). Only the first two elements
are at issue in this appeal.
When pleading these elements, a plaintiff must also
“satisfy [two] heightened pleading rules codified in the
PSLRA[,] . . . both of which must be met in order for a
complaint to survive a motion to dismiss.” Institutional Invs.
Grp. v. Avaya, Inc., 564 F.3d 242, 252 (3d Cir. 2009). First, a

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complaint must “specify each statement alleged to have been
misleading, the reason or reasons why the statement is
misleading, and, if an allegation regarding the statement or
omission is made on information and belief, the complaint
shall state with particularity all facts on which that belief is
formed.” 15 U.S.C. § 78u-4(b)(1). That requires a plaintiff to
“plead the who, what, when, where, and how: the first
paragraph of any newspaper story.” In re Advanta Corp. Sec.
Litig., 180 F.3d 525, 534 (3d Cir. 1999) (citations and internal
quotation marks omitted), abrogated on other grounds by
Tellabs, Inc. v. Makor Issues & Rts., Ltd., 551 U.S. 308 (2007).
Second, 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).
With these standards in mind, we will first analyze the
statements alleged by Appellants to be actionable. Second, we
will determine whether, for any statements plausibly alleged to
be actionable, the Complaint permits a strong inference that the
makers of those statements uttered the statements with scienter.
Third, and finally, we will assess Appellants’ Section 20
claims.
A. Whether Any Statements Were False or
Misleading
When analyzing a motion to dismiss a Section 10 and
Rule 10b-5 claim based on an alleged false or misleading
statement, courts must apply the PSLRA’s pleading
requirements to each challenged statement because each one
could sustain a claim. That means that for each such statement,
a court must consider the precise language of the statement and
ask whether, taking the pleaded facts as true and drawing all
reasonable inferences from those facts, the statement was

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actually untrue or “omitted to state a material fact necessary in
order to make the statement[] made, in the light of the
circumstances in which [it was] made, not misleading.”
15 U.S.C. § 78u-4(b)(1)(B). In doing so, a court must be
mindful that, “[t]o be actionable, a statement or omission must
have been misleading at the time it was made; liability cannot
be imposed on the basis of subsequent events.” In re NAHC,
Inc. Sec. Litig., 306 F.3d 1314, 1330 (3d Cir. 2002) (citation
omitted). So, while “later developments may allow a
reasonable inference that prior statements were untrue or
misleading when made,” a plaintiff cannot speculatively plead
“fraud-by-hindsight.” City of Warren, 70 F.4th at 693 (citation
omitted).
Further, Section 10(b) and Rule 10b-5 do not target
“ordinary business operations” or corporate conduct generally.
See Stoneridge Inv. Partners, LLC v. Scientific-Atlanta, Inc.,
552 U.S. 148, 161 (2008). They do not make it unlawful to do
bad business, act negligently, breach fiduciary duties, or
otherwise to fail to take care in managing corporate affairs.7
7 See, e.g., Stoneridge Inv. Partners, 552 U.S. at 161–62; Ernst
& Ernst v. Hochfelder, 425 U.S. 185, 210 (1976) (“[T]he
judicially created private damages remedy under [Section]
10(b) which has no comparable restrictions—cannot be
extended, consistently with the intent of Congress, to actions
premised on negligent wrongdoing.”); Santa Fe Indus., Inc. v.
Green, 430 U.S. 462, 473, 476 (1977) (“The language of
§ 10(b) gives no indication that Congress meant to prohibit any
conduct not involving manipulation or deception.” Section
10(b) and Rule 10b-5 do not make unlawful “a breach of
fiduciary duty by majority stockholders, without any
deception, misrepresentation, or nondisclosure.”); Advanta,

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Those are the subjects of other potential causes of action.
Instead, Section 10(b) and Rule 10b-5 “prohibit[] only the
making of a material misstatement (or omission) or the
commission of a manipulative act” touching a purchase or sale
of securities. Cent. Bank of Denv., N.A. v. First Interstate Bank
of Denv., N.A., 511 U.S. 164, 177 (1994); see also Macquarie
Infrastructure Corp. v. Moab Partners, L. P., 601 U.S. 257,
264 (2024) (“Logically and by its plain text, [Rule 10b-5]
requires identifying affirmative assertions (i.e., ‘statements
made’) before determining if other facts are needed to make
those statements ‘not misleading.’”); Santa Fe Indus., Inc. v.
Green, 430 U.S. 462, 476 (1977). Thus, in a case like this one,
where liability is based on allegedly false or misleading
statements, the falsity inquiry must focus on whether each
individual statement the plaintiff has identified was, as written
or spoken and at the time the statement was made, actually
false or misleading by omission.
1. Evaluation and Diligence
Appellants allege that Innovative’s securities filings
repeatedly and “affirmatively stated” that Innovative “did not
purchase properties until its management team conducted
‘satisfactory completion [sic] of due diligence investigations.’”
App. 92. According to Appellants, Innovative claimed with
similar definitiveness that its “management team performed
due diligence investigations of . . . potential tenants, related
guarantors and their properties, operations and prospects, of
180 F.3d at 540 (“[C]laims essentially grounded on corporate
mismanagement are not cognizable under federal law.”
(citation omitted)).

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which there is generally little or no publicly available operating
and financial information.” Id. (citation modified).
Ordinarily, we would take those allegations as true at
the pleading stage. Here, however, we may look directly at
“the very [filings] alleged to contain [these] misrepresentations
or omissions,” Oran, 226 F.3d at 289 (quoting Kramer v. Time
Warner, Inc., 937 F.2d 767, 774 (2d Cir. 1991)), because we
may “take judicial notice of properly-authenticated public
disclosure documents filed with the SEC,” id. And
Innovative’s representations in those filings were different
from Appellants’ allegations in two important ways.
First, Innovative did not affirmatively warrant that all
its purchases followed satisfactory completion of due diligence
investigations. In fact, Innovative disclosed that its purchase
agreements “are typically subject to closing conditions” that
include the “satisfactory completion of due diligence
investigations.” App. 284 (emphasis added). But the
Complaint does not allege that Innovative’s real estate
purchases do not typically have a diligence-related closing
condition. Indeed, the Complaint refers only to Innovative’s
transactions with Kings Garden; there is no basis to infer what
Innovative has or has not done, typically, across its portfolio.
Second, Innovative claimed not that its “management
team performed due diligence investigations,” see App. 97, but
that it “rel[ies] on [its] management team to perform due
diligence investigations.” App. 285. Even if we construed that
as a promise to perform diligence on every tenant, the
Complaint and attached documents identify statements by
Innovative and its executives describing the diligence
Innovative performed on Kings Garden and other tenants. For
example, Innovative claimed in its lawsuit against Kings

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Garden that before Innovative “entered into [its] Leases” with
Kings Garden, it communicated with Kings Garden’s
management “in meetings, e-mails, teleconferences, and video
calls” about Kings Garden’s “financial condition.” App. 167.
Appellants do not allege those assertions are false.
Appellants’ argument, in essence, is that Innovative’s
diligence was inadequate at best. Indeed, Innovative’s
decision to purchase Kings Garden’s properties, despite the
public litigation history that Innovative discovered with
apparent ease in 2022, may plausibly imply that Innovative’s
diligence was subpar. But Innovative never promised that its
diligence would meet any particular standard of thoroughness.8
Instead, Innovative represented that it relied on management
(as opposed to third parties or other actors) and typically
subjected deals to closing conditions. The Complaint and
attached documents show that disclosure is true. Innovative
relied on its management team to conduct due diligence, and
such an investigation occurred. Even if Innovative missed
obvious red flags, including King’s litigation history and the
8 Appellants contend that a promise to perform diligence
“implies thorough review,” citing our purported holding in
GSC Partners CDO Fund v. Washington, 368 F.3d 228 (3d Cir.
2004), that “due diligence [implies] ‘thorough scrutiny.’”
Opening Br. 51. Washington did not so hold, nor did it
announce any rule concerning the implied meaning of a
company’s general promise to perform due diligence. In
Washington, we used the phrase “thorough scrutiny” only to
describe the diligence conducted in that case. See 368 F.3d at
232 (“Before finalizing the deal, Washington began its due
diligence process, which entailed thorough scrutiny of [a
counterparty’s] financial statements and projections.”).

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22
Swiss American lawsuit, that fact cannot sustain a securities
claim.
The remaining statements about Innovative’s evaluation
and diligence of potential tenants are Gold’s remarks on
August 5, 2021, that Innovative “spent a lot of time with the
management team, evaluating their skills and expertise,” and
“utilize[s] [its] existing network of growers to do background
checks on these tenants, understanding where they’ve come
from and their reputations.” App. 82 (emphasis omitted). But
those statements are not plausibly false or misleading. The
transcript of the August 5, 2021 earnings call shows that Gold
was responding to a question about two other tenants, and the
Complaint pleads no facts explaining why, in that context, a
reasonable investor would have understood Gold’s statement
to refer to Kings Garden. See Omnicare, Inc. v. Laborers Dist.
Council Constr. Indus. Pension Fund, 575 U.S. 175, 186
(2015) (“[W]hether a statement is ‘misleading’ depends on the
perspective of a reasonable investor.”). As such, Innovative’s
alleged misstatements concerning evaluation and diligence are
not actionably false or misleading.
2. Ongoing Evaluation and Monitoring
Appellants claim that Innovative made two recurrent
representations about its ongoing evaluation and monitoring:
that Innovative reviews “publicly filed financial reports, press
releases, and other publicly available industry information”
concerning tenants and guarantors, and that Innovative
“conduct[s] site visits and meet[s] with [its] tenants to discuss
their operations.” App. 104. Appellants claim these
statements are actionable because Innovative failed to
“scrutinize draw requests that were fraudulent on their face,”
and otherwise failed to detect that Kings Garden had not

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obtained the work for which Innovative reimbursed. App. 112.
Even if Innovative failed to scrutinize the draw requests,
Innovative’s statements are not actionable.
Start with Innovative’s claim to review “publicly filed
financial reports, press releases and other publicly available
industry information.” App. 104. Appellants have not alleged
that Kings Garden’s draw requests and the documents that
accompanied them were publicly available, those materials
were not financial reports or press releases, and there is no
claim that they were industry information. So even if
Innovative completely failed to scrutinize Kings Garden’s
draw requests, Innovative’s disclosure about the tenant
materials it reviews would not be false or misleading.
Superficially, Innovative’s alleged statement that it
“. . . monitor[s] our tenants by periodically conducting site
visits,” App. 109, is more problematic—and, indeed, the
District Court determined that statement was misleading. If
Innovative’s personnel had visited the Palm Springs or San
Bernardino properties, Innovative plausibly would have
discovered that Kings Garden had not obtained the work for
which it was reimbursed. Innovative itself later claimed that it
made that discovery when conducting site visits after receiving
the suspicious June 1, 2022 draw request.
But Innovative did not make a blanket promise to
conduct site visits or discuss with tenants their operations. The
ellipsis reproduced above omits three critical words: “in some
instances, we monitor our tenants by periodically conducting
site visits and meeting with the tenants to discuss their
operations.” E.g., Innovative Indus. Props., Inc., Annual
Report (Form 10-K) 13 (Mar. 2, 2020) (emphasis added).
Those words change the disclosure’s meaning significantly,

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requiring Appellants to allege that Innovative categorically
does not conduct site visits or meet with tenants across its
portfolio to discuss their operations. While the Complaint
plausibly alleges that Innovative did not visit Kings Garden’s
Palm Springs or San Bernardino properties to audit the work it
had paid for, the Complaint does not contain the portfolio-wide
claims required to render Innovative’s disclosure false or
misleading. Properly read, then, Innovative’s site-visits
disclosure, like its document-review disclosure, is not
actionable.
3. Statements of Praise
Turning now to Innovative’s statements of praise, we
depart from the realm of pure fact to a more nuanced genre:
statements of opinion. The District Court correctly recognized
that Appellees’ statements of praise for Kings Garden’s
business, for the reputations of Kings Garden and its principals,
and for certain decisions Kings Garden and its principals made,
are essentially opinion statements. The District Court’s
analysis of those statements turned on whether information
contradicting a given opinion was available to the speaking
Defendant at the time the opinion was offered. On that basis,
the District Court concluded that two statements of praise are
actionable, but the rest are not. The first actionable statement
was Regin’s comment, on February 24, 2022, that Kings
Garden “represent[ed] a total commitment of about
$148 million” and “has developed a truly distinguished brand
in California and consistently ranks as a top producer in sales
in a state that represents the largest market in the world.”
App. 113. The second is Regin’s statement, on May 5, 2022,
that a dividend paid in May 2020 by Kings Garden “was and is
considered highly unusual among any prominent brand in the

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industry and . . . demonstrates their belief in the long-term
prospects in the business.” App. 119–20 (emphasis omitted).
Now, Appellants argue that if those statements are
actionable, two statements of praise made on Innovative’s
August 5, 2021 earnings call must also be actionable, as there
is no meaningful distinction between them. Those are Regin’s
statement that Kings Garden was a “top producer” and
“focused on long-term, responsible, sustainable production,”
Opening Br. 48; App. 106; and Hastings’s statement that
Innovative was “proud to continue to partner” with Kings
Garden, Opening Br. 48; App. 107.
Before assessing these four statements, we pause to
explain the framework in which statements of opinion like
these are evaluated. In Omnicare, the Supreme Court
explained that federal securities liability for statements of
opinion is circumscribed and may exist in one of three
situations.9 575 U.S. at 184, 185–86, 188–89; see also 17
C.F.R. § 240.10b-5(b) (prohibiting making “any untrue
statement of a material fact or [the omission of a] material fact”
that renders a statement misleading). First, if the speaker does
not believe what they say, their opinion statement is false.
Omnicare, 575 U.S. at 184. “Second, opinion statements that
contain expressly ‘embedded’ factual assertions are misleading
if any of the embedded factual assertions are untrue.” City of
Warren, 70 F.4th at 685 (quoting Omnicare, 575 U.S. at 185).
Third, an opinion statement may be misleading when the
9 Although Omnicare dealt with Section 11 of the Securities
Act of 1933, we have held that its reasoning applies equally to
Section 10(b) of the Exchange Act and Rule 10b-5. See City
of Warren, 70 F.4th at 685.

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speaker “omits material facts about [its] inquiry into or
knowledge” of the facts underlying the opinion, and “those
facts conflict with what a reasonable investor would take from
the statement itself.”10 Omnicare, 575 U.S. at 189. In such a
case, “whether an omission makes an expression of opinion
misleading always depends on context.” Id. at 190. For
example, if a corporate executive stated his belief that his
company’s “conduct is lawful,” but omitted that the company’s
lawyers offered “contrary advice, or . . . that the Federal
Government was taking the opposite view,” the stated opinion
would not “fairly align[] with the information in the issuer’s
possession at the time,” and thus would mislead a “reasonable
investor.” Id. at 188–89.
10 As the Court’s reference to “inquiry” implies, a speaker need
not always have actual knowledge of contradictory facts for her
opinion to mislead. In some cases, a speaker might know there
are facts bearing on the veracity of her opinion but fail to
undertake “the expected inquiry” into those facts before
opining. Omnicare, 575 U.S. at 189 n.6. For example, if an
executive stated her belief “that her company’s TV had the
highest resolution available on the market, [but] had failed to
review any of her competitors’ product specifications,” her
“subjective belief” in the truth of her opinion “would not
insulate her from liability.” Id. As that example shows,
however, a speaker’s “inquiry” is only “expected” when she
knows there is available material information that foreseeably
could affect the truth of her opinion. Id. Thus, when a speaker
opines after failing to inquire (or to disclose her non-inquiry),
Omnicare permits liability only when the speaker knew there
was something to inquire about in the first place.

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Here, we deal with the third Omnicare scenario, since
Appellants do not allege that Regin’s or Hastings’s statements
were insincere or embedded false factual assertions.
Appellants argue all four statements of praise were misleading
because, on the dates when each statement was uttered,
Innovative possessed at least one fraudulent draw request and
some Kings Garden financial statements “show[ing] millions
of dollars disappearing from [Kings Garden’s] accounts.”
Opening Br. 49.
The problem for Appellants is that in the third Omnicare
scenario, the speaker is aware of what she is omitting or that
there is foreseeably material information that could affect the
veracity of her opinion and that she has failed to investigate.
Here, Regin and Hastings evidently were unaware of the
information that allegedly undercut their opinions. The
Complaint does not allege that Regin and Hastings knew or
suspected that Innovative was being defrauded until the June
2022 draw request—that is, after all four opinion statements
alleged to be false or misleading. Innovative had not yet
discovered the irregularities in Kings Garden’s draw requests,
and, in court documents attached to the Complaint, Innovative
claimed it had not received financial statements showing cash
outflows from Kings Garden until July 2022.11 Thus, when
11 Regin’s reference to Kings Garden as a “top producer,”
App. 106, and claim that Kings Garden’s dividend “was and is
considered highly unusual,” App. 119 (emphasis omitted), face
additional issues. The “top producer” statement refers
generically to the relative commercial success of Kings
Garden’s cannabis production operations—something
Appellants do not challenge. Regin’s passive-voice discussion
of Kings Garden’s dividend describes a general industry

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they praised Kings Garden as a top producer with a prominent
brand and a great team, Regin and Hastings could not have
“sa[id] one thing and [held] back another”; there was nothing
for them to hold back, particularly with respect to the three
statements uttered before the Blue Orca report.12 Omnicare,
575 U.S. at 192. Because we cannot draw another plausible
perception of Kings Garden’s dividend payment. Again,
Appellants do not dispute that industry participants viewed
dividend payments in general, or Kings Garden’s in particular,
as unusual.
12 We note that the generality of Regin’s and Hastings’s
statements further undermines the claim that a failure to
investigate rendered those statements misleading. See
Omnicare, 575 U.S. at 190 n.8 (“[A] reasonable investor
generally considers the specificity of an opinion statement in
making inferences about its basis.”). Regin and Hastings
expressed no opinion related to the San Bernardino or Palm
Springs properties, Kings Garden’s reimbursement
arrangements with Innovative more generally, or Kings
Garden’s financial statements; they spoke only in broad terms
about Kings Garden’s commercial success and bright outlook.
These statements more closely resemble “vague and general
statements of optimism,” which “are non-actionable” and
“immaterial,” Fan v. StoneMor Partners LP, 927 F.3d 710, 716
(3d Cir. 2019) (internal quotation marks omitted), than
Omnicare’s examples of opinions concerning particular
courses of conduct, inventory figures, and product
specifications, see 575 U.S. at 188–90 & nn.6, 8. See also
Advanta, 180 F.3d at 539 (stating that “accurate reports of past
[performance] and . . . expressions of optimism for the future”
were not actionable).

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29
inference, Appellants have insufficiently alleged that Regin’s
and Hastings’s statements of praise were actionably misleading
by omission.
4. Statements Concerning Innovative’s
Reimbursements
By contrast, Innovative’s two statements about its
reimbursement arrangements, in the wake of the Blue Orca
report, were statements of fact. The first statement, made on
April 14, 2022 by Innovative in a press release hours after the
report was issued, affirmatively represented that “any
[Innovative] reimbursements relate only to verified, qualified
improvements to the buildings for [infrastructure
improvements], and never as funding for any type of ‘loan’ to
be utilized for any other purpose” (the “April 14 Statement”).13
App. 337 (emphasis added). The second statement, by
Marquardt on the May 5, 2022 earnings call, likewise offered
two facts about Innovative’s construction reimbursements to
Kings Garden: “[w]e have funded approximately $18 million
of the $25 million” for the San Bernardino project, and for the
Palm Springs project, “we have funded approximately
$27 million of the $51.4 million allowance for improvements.”
App. 121. All these statements “express[] certainty about a
thing,” and thus are statements of fact. Omnicare, 575 U.S. at
183. The first statement describes what Innovative’s
13 Although the Blue Orca report did not mention Innovative’s
reimbursement arrangement with Kings Garden—only
Innovative’s arrangement with another tenant—Innovative’s
response did not differentiate between tenants.

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30
reimbursements relate to. The second describes amounts
reimbursed and allocated for the two projects.
As pleaded, the April 14 Statement plausibly is false.
The Complaint pleads with particularity that, as of April 14,
2022, some Innovative reimbursements were unrelated to
verified, qualified improvements. In fact, Innovative had
reimbursed Kings Garden for reimbursements that neither
qualified for reimbursement nor were verified by Innovative.
Cf. Babb v. Wilkie, 589 U.S. 399, 405 n.2 (2020) (explaining
the “expansive” meaning of the word “any”). Thus, the
“certainty” expressed by Innovative’s statement was incorrect,
and the statement is actionable.14 Omnicare, 575 U.S. at 183.
The May 5 statement, however, is not false. The
Complaint alleges that Innovative did, in fact, give Kings
Garden the stated amounts for the Palm Springs and San
Bernardino projects; that is one of the Complaint’s key
premises. So, if Marquardt’s statement is actionable, it must
be because he “omit[ted] to state a material fact,” 17 C.F.R.
§ 240.10b-5(b), that made his statement misleading “in
context,” EP Medsystems, Inc. v. EchoCath, Inc., 235 F.3d
865, 873 (3d Cir. 2000). Marquardt did not mention that Kings
Garden misappropriated many of the reimbursed funds, and
14 Because Innovative’s statement was an assertion of fact, not
opinion, this analysis does not account for Innovative’s state of
mind at the moment it spoke. Said differently, the falsity of
Innovative’s statement does not depend on whether it knew or
was sufficiently reckless in not knowing the facts that made the
statement false or misleading. That is a subject for our separate
scienter analysis. At this analytical step, it suffices to say that
Innovative’s statement was, as a matter of fact, wrong.

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31
that information could have “be[en] important to a reasonable
investor.” In re Burlington Coat Factory Sec. Litig., 114 F.3d
1410, 1425 (3d Cir. 1997). But Appellants do not claim that
Kings Garden’s misappropriation was “then known” to
Marquardt. Williams v. Globus Med., Inc., 869 F.3d 235, 241
(3d Cir. 2017) (quoting Kline v. First W. Gov’t Sec., Inc., 24
F.3d 480, 491 (3d Cir. 1994)). As noted above, Innovative did
not suspect malfeasance until June 1, 2022. Without a
plausible allegation that Marquardt contemporaneously knew,
or at least was willfully ignorant of, the material fact he did not
include, there can be no liability for “omit[ting] to state” that
fact, 17 C.F.R. § 240.10b-5(b).15 Williams, 869 F.3d at 240.
Thus, while Innovative’s April 14 Statement is an actionably
false statement of fact, Marquardt’s May 5 statement is neither
false nor misleading by omission.
15 To understand what it means to “omit,” we may also consult
dictionaries dating to Rule 10b-5’s promulgation, in 1942. See
United States v. Lucidonio, 137 F.4th 177, 183 n.8 (3d Cir.
2025). Consistent with our precedent’s focus on
contemporaneous knowledge, definitions of “omit” emphasize
an omission’s affirmative character—that is, that the omitter
had something to omit, which he then “le[ft] out or
unmentioned.” Omit, Webster’s New Int’l Dictionary of the
English Language (2d ed. 1934); see also id. (defining further
as “not to insert, include or name”; “[t]o forbear or fail to
perform or to make use of”); Omission, Black’s Law
Dictionary (3d ed. 1933) (“The neglect to perform what the law
requires.”).

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5. Innovative’s July 14, 2022 Form 8-K
Finally, the Complaint claims that Innovative’s Form
8-K disclosure of Kings Garden’s failure to pay July 2022 rent
was “materially false and misleading because [Appellees] were
duty-bound to disclose that Kings Garden was a Ponzi scheme
designed to, and accomplishing, the embezzlement of tens of
million dollars [sic] via forged and fraudulent draw requests.”
App. 123. Appellants also allege that Appellees culpably
failed to disclose in the Form 8-K King’s history of dishonesty
and the indicia of fraud in Kings Garden’s financial statements.
The Complaint pleads no facts plausibly suggesting that
Innovative’s statement was false. The Complaint in fact offers
every reason to believe that Kings Garden failed to make its
July 2022 rent payments, and there is no indication that any
other averment in the Form 8-K was untrue.
Nor is the Form 8-K misleading by omission. The
subject of Innovative’s disclosure was Kings Garden’s failure
to pay rent; a reasonable investor would not have expected
Innovative to also disclose the results of its then-unfinished
investigation of Kings Garden’s reimbursement fraud. In any
case, Appellants’ allegations do not imply that Innovative had
an affirmative obligation to talk about Kings Garden’s fraud.
“Even non-disclosure of material information will not give rise
to liability under Rule 10b–5 unless the defendant had an
affirmative duty to disclose that information.” Oran, 226 F.3d
at 285. Appellants do not plead facts indicating that Innovative
had such a duty here.16
16 Oran enumerates three circumstances in which a duty to
disclose may arise: “insider trading, a statute requiring

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B. Whether Any False or Misleading Statements
Were Made with Scienter
After identifying any adequately pleaded false or
misleading statements, a court must assess the scienter of the
statement’s “maker.” Janus Cap. Grp., Inc. v. First Derivative
Traders, 564 U.S. 135, 142 (2011). That, in turn, requires a
court to ask three basic questions: Who made the statement?17
See id. at 141–42 (defining a statement’s “maker”). Did the
maker have the requisite scienter when he, she, or it made the
statement? And, if so, is the maker’s scienter imputable to any
disclosure, or an inaccurate, incomplete or misleading prior
disclosure.” 226 F.3d at 285–86. Appellants do not allege the
first two and have not argued that Innovative had a “duty to
correct” or a “duty to update” any misleading prior disclosures,
which might give rise to failure-to-disclose liability. Id. at 286;
see generally City of Edinburgh, 754 F.3d at 176 (“[A] duty to
update applies only in narrow circumstances involving more
fundamental corporate changes such as mergers, takeovers, or
liquidations, as well as when subsequent events produce an
extreme or radical change in the continuing validity of [an]
original statement.” (citation modified)).
17 Of course, liability may exist when someone disseminates or
otherwise employs a false or materially misleading statement
in a “device, scheme, or artifice to defraud.” 17 C.F.R.
§ 240.10b-5(a); see Lorenzo v. SEC, 587 U.S. 71, 77–79
(2019). In such a case, the question who made the relevant
statement would be replaced with a similar question capturing
the conduct alleged to have violated Rule 10b-5. In this case,
however, we address the alleged making of false or misleading
statements.

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(other) defendant? See Avaya, 564 F.3d at 251–52 (holding
that an individual’s scienter may be imputed to a corporation
when the individual had “apparent authority” to make the
relevant statement). Only those defendants with the requisite
scienter may remain in the case.
Before proceeding to our scienter analysis, it is worth
clarifying exactly which statement and whose scienter we are
analyzing. Here, the subject statement is the April 14
Statement about reimbursements—the only statement we have
identified as false or misleading by omission. And where, as
here, plaintiffs assert liability for making false or misleading
statements (as opposed to disseminating them or otherwise
wielding them in a scheme to defraud, see Lorenzo v. SEC, 587
U.S. 71, 78 (2019)), the only scienter that matters is the scienter
of the person who “make[s]” the false or misleading statement.
17 C.F.R. § 240.10b-5(b); Janus, 564 U.S. at 141 (explaining
that a defendant “must have ‘made’ the material
misstatement[]” to be liable under Rule 10b-5(b)). Thus, we
must determine who made the April 14 Statement—that is,
“the person or entity with ultimate authority over [the]
statement.” Janus, 564 U.S. at 143 n.6.
That is Innovative itself. At oral argument, Appellants
argued that the April 14 Statement is Hastings’s responsibility
because she was “the person who crafted the statement,” was
listed as the “[c]ontact[],” App. 337, and was generally familiar
with the April 14 Statement’s subject matter. Tr. of Oral Arg.
4–5. Those arguments fail. The April 14 Statement’s title
(“Innovative Industrial Properties Responds to Short-Seller
Report”) and first sentence (“[Innovative] . . . today announced
. . .”) make clear that Innovative was speaking. App. 337. The
Complaint does not plead that Hastings wrote the document,
but that fact would be irrelevant under Janus anyway: “One

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who prepares or publishes a statement on behalf of another is
not its maker.” Janus, 564 U.S. at 142. Instead, “attribution
within a statement or implicit from surrounding
circumstances is strong evidence that a statement was made
by—and only by—the party to whom it is attributed.” Id. at
142–43. The April 14 Statement repeatedly is attributed to
Innovative and is written in its voice.
Thus, we must determine whether Innovative, the
corporation, made the April 14 Statement with scienter.
Scienter consists of “an extreme departure from the standards
of ordinary care, and which presents a danger of misleading
buyers or sellers that is either known to the defendant or is so
obvious that the actor must have been aware of it.” Advanta,
180 F.3d at 539 (citations omitted). “[E]ven inexcusable
negligence” will not suffice. Id. (citations omitted). To
survive Appellees’ motion to dismiss, the Complaint must
“state with particularity facts giving rise to a strong inference
that [Innovative] acted with th[at] required state of mind.” 15
U.S.C. § 78u-4(b)(2)(A). To be “strong,” the inference must
“be cogent and at least as compelling as any opposing inference
of nonfraudulent intent.” Tellabs, 551 U.S. at 314 (internal
quotation marks omitted). “The inquiry . . . is whether all of
the facts alleged, taken collectively,” permit such an inference.
Id. at 322–23 (emphasis omitted).
When assessing the scienter of a corporate defendant
that, like Innovative, lacks a mind of its own, the analysis
reduces to multiple questions. First, does the complaint
adequately allege that any individuals had scienter? If so, may
we impute that individual’s (or those individuals’) scienter to
the corporation? For purposes of this case, we also ask
whether, if no imputation is possible, we still may infer that
Innovative made the April 14 Statement with scienter based on

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36
a corporate scienter theory. Finally, we address the application
of our decision in Avaya, which Appellants argue supports a
strong inference of scienter.
1. Individuals’ Scienter
It is clear enough from the Complaint that, as of April
14, Kings Garden had submitted false draw requests to
Innovative, and Innovative had paid Kings Garden the money
requested. The Complaint does not allege, however, that as of
that date anyone at Innovative knew or suspected the company
was being defrauded. As the District Court recognized, such
an allegation would implausibly imply that Innovative turned
a blind eye to its own victimization.
Perhaps to avoid that odd result, Appellants argue that
Innovative “should have known of Kings Garden’s
wrongdoing.”18 Opening Br. 29. Appellants note that, in at
least some cases, Kings Garden’s draw requests facially
presented indicia of fraud that Innovative overlooked in the
first instance, and Innovative failed to perform the site visits or
third-party verification that would have uncovered Kings
Garden’s fraud earlier. In Appellants’ view, at least Hastings,
18 At times, Appellants frame this argument as a claim that
Innovative “assum[ed] the affirmative duty to monitor Kings
Garden.” Opening Br. 16. But Innovative assumed no such
duty with respect to the draw requests or the reimbursement
program more generally. As explained above, Innovative said
only that it would review publicly available industry
information and financial reports concerning tenants and their
guarantors—not the nonpublic draw requests relevant to the
April 14 Statement.

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37
the leader of the team responsible for paying draw requests,
should have known that the team had failed to perform this
work.
Taking the Complaint’s allegations as true, Innovative
plausibly should have discovered earlier, from the information
in its possession, that Kings Garden was swindling it.
Reasonable investors might be dissatisfied with the
performance of Innovative’s personnel on that score. Indeed,
Appellants’ “should have known” argument might even
resemble a claim for negligence or a state-law claim that the
failure of oversight breached fiduciary duties. See generally In
re Caremark Int’l Inc. Derivative Litig., 698 A.2d 959, 967–71
(Del. Ch. 1996) (finding such a claim under Delaware law).
But “Rule 10b–5 . . . requires ‘more than negligent nonfeasance
as a precondition to the imposition of civil liability.’” Belmont
v. MB Inv. Partners, Inc., 708 F.3d 470, 493 (3d Cir. 2013)
(citation modified) (quoting Ernst & Ernst, 425 U.S. at 215);
see also Advanta, 180 F.3d at 535. And “[g]eneralized
imputations of knowledge do not suffice, regardless of [a]
defendant[’s] position[] within the company.” Advanta, 180
F.3d at 539.
Still, Appellants argue it is reckless for a speaker to turn
a blind eye to red flags and then speak about the relevant
subject matter publicly, never mind whether the speaker knew
about the underlying issues. We have not squarely considered
whether this type of willful ignorance can constitute actionable
scienter. But several of our sister circuits have, and they are in
harmony: “[A]n egregious refusal to see the obvious, or to
investigate the doubtful” can support a strong inference of
scienter when the facts left undiscovered are those that made a
statement false or misleading. Novak v. Kasaks, 216 F.3d 300,
308 (2d Cir. 2000) (citation and internal quotation marks

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omitted); see also PR Diamonds, Inc. v. Chandler, 364 F.3d
671, 695 (6th Cir. 2004); SEC v. Shanahan, 646 F.3d 536, 544
(8th Cir. 2011); N.M. State Inv. Council v. Ernst & Young LLP,
641 F.3d 1089, 1098 (9th Cir. 2011); Plotkin v. IP Axess Inc.,
407 F.3d 690, 700 (5th Cir. 2005). We agree. Remaining
willfully blind to potentially material matters and then making
public statements that are false or misleading because of the
matters to which the speaker blinded himself may constitute an
“egregious” or “extreme departure from the standards of
ordinary care.”19 Advanta, 180 F.3d at 539–40.
That is not strongly inferable here. We are prepared to
believe that Innovative’s decision to release a same-day
response to Blue Orca’s report with a blanket statement about
all its reimbursements was rash. But it was not willfully
ignorant. Appellants do not plead that any particular
Innovative employee noticed that something was amiss with
Kings Garden’s draw requests and then failed to investigate.
And while “it is not necessary to plead motive to establish that
a defendant acted with scienter,” it “is significant” that the
Complaint does not allege what would have motivated
Innovative or its agents to bury their heads in the sand about
the company’s own victimization. Rahman v. Kid Brands,
19 We note that the speaker’s willful ignorance of the
underlying issues does not itself show scienter. Again, the
question is not whether a defendant-speaker committed an
underlying wrong with scienter; it is whether the act covered
by Section 10(b) and Rule 10b-5—here, making a false or
misleading statement—was committed with scienter. Cf. Cent.
Bank of Denv., 511 U.S. at 177–78 (“We cannot amend the
statute to create liability for acts that are not themselves
manipulative or deceptive within the meaning of the statute.”).

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Inc., 736 F.3d 237, 245 (3d Cir. 2013). Without specific facts
about individuals’ willful ignorance or “facts to support an
assertion that [any Innovative employee] had a motive to
engage in wrongful conduct,” id. at 246, the Complaint fails to
plead with the particularity required by the PSLRA that any
individual had scienter with respect to the April 14 Statement.
And, because Appellants have failed to plead that any
individual had scienter, Appellants have failed also to plead
that anyone’s scienter may be imputed to Innovative.
2. Corporate Scienter
Without any individual’s scienter available for
imputation to Innovative, Appellants propose another way to
show Innovative made the April 14 Statement with scienter:
the doctrine of corporate, or collective, scienter. On this theory
of scienter, “it is possible to draw a strong inference of [a
corporation’s] scienter without being able to name the
individuals who concocted and disseminated the fraud.”
Makor Issues & Rts., Ltd. v. Tellabs Inc., 513 F.3d 702, 710
(7th Cir. 2008). Thus, in theory, “[a] plaintiff can use corporate
or collective scienter to plead an inference of scienter against a
corporate defendant without raising the same inferences
required to attribute scienter to an individual defendant.”
Rahman, 736 F.3d at 246. Appellants argue we should adopt
and apply the doctrine here because of Innovative’s small size
and the strength of Appellants’ “allegations of no site visits, no
contacting contractors, and possessing documents that were
incomplete or altered on their face.” Reply Br. 4 n.6.
Our sister circuits have approached the corporate
scienter doctrine differently, to the extent they recognize the
doctrine at all. See In re Omnicare, Inc. Sec. Litig., 769 F.3d
455, 473–77 (6th Cir. 2014) (discussing the different

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approaches). We “have neither accepted nor rejected th[e]
doctrine.” In re Hertz Glob. Holdings Inc., 905 F.3d 106, 121
n.6 (3d Cir. 2018); see also Rahman, 736 F.3d at 246. We
decline to do so here, too. Setting aside the fact that Appellants
raised the corporate scienter doctrine for the first time in their
reply brief, which normally results in forfeiture, see Kost v.
Kozakiewicz, 1 F.3d 176, 182 n.3 (3d Cir. 1993), “the
[Complaint’s] allegations would not give rise to corporate
scienter under any recognized theory of that doctrine,” Hertz,
905 F.3d at 121 n.6.
In circuits that recognize corporate scienter, the doctrine
typically is reserved for “exceedingly rare” cases, Jackson v.
Abernathy, 960 F.3d 94, 99 (2d Cir. 2020), involving
statements that are “dramatically false,” In re NVIDIA Corp.
Sec. Litig., 768 F.3d 1046, 1063 (9th Cir. 2014) (citation and
internal quotation marks omitted). These have included, in
theory or in actuality, “General Motors announc[ing] that it had
sold one million SUVs . . . [when] the actual number was zero,”
and a CEO repeatedly and grossly misstating demand for
products that were as important to his company “as Windows
XP and Vista [were] to Microsoft.” Tellabs, 513 F.3d at 709–
10. On the facts pleaded, we cannot say Innovative’s lone
misstatement is of similar magnitude. We therefore leave for
another day the propriety of the corporate scienter doctrine and
note only that application of such a doctrine would not change
the result here.
3. Avaya
Finally, we address our scienter analysis in Avaya.
There, the defendant corporation’s Chief Financial Officer was
repeatedly asked “focused questions” on earnings calls about
his company’s pricing, and the executive repeatedly denied,

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“in statements evincing certitude,” that the company was
discounting prices like its competitors were. 564 F.3d at 270.
“Because of the context (specific analyst queries) and content
(consistent denials[)]” of the executive’s statements, we held
that the executive “might be culpable as long as what he knew
made obvious the risk that his confident, unhedged denials of
unusual discounting would mislead investors.” Id. (emphasis
added). Appellants argue that Avaya holds that, when posed
with a “pointed inquiry about a matter at the core of one’s
business, it is reckless to deny with certainty material,
knowable, adverse facts.” Opening Br. 34. It follows, in
Appellants’ view, that Innovative’s April 14 Statement was
reckless.
We disagree. First, as explained above, there is no
allegation that “what [Innovative] knew made obvious” that its
confident declaration about reimbursement payments was
false. Avaya, 564 F.3d at 270 (emphasis added). Second, the
Blue Orca report was not the equivalent of the “focused
questions” in Avaya. Id. In Avaya, those questions, and the
CFO’s alleged misstatements, came in three conference calls
held over several days. See id. at 269–70. The Blue Orca
report did not mention Kings Garden’s reimbursement
arrangement at all, let alone raise pointed questions about it,
and Innovative responded to the report once, the same day it
was released. The nature of the analysts’ questions in Avaya
was key to our holding, and “distin[guished] th[at] case [from]
those in which defendants win dismissal on a showing that
defendants were most likely simply ignorant of the facts that
made their statements false.” Id. at 270. Finally, in Avaya, the
discounting issue was not “restricted to only a few products or
customers,” in which case “nonculpable ignorance might
[have] be[en] the more likely explanation.” Id. The falsehood

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in Innovative’s April 14 Statement, on the other hand, was
restricted to one subject concerning one tenant.
So, if anything, Avaya reinforces that nonculpable
ignorance is the most natural inference from the Complaint’s
allegations. Without the strong inference of scienter required
by the PSLRA, the Complaint does not adequately plead that
the April 14 Statement violated Section 10(b) or Rule 10b-5.
The District Court thus properly held that the Complaint fails
to plead actionable misstatements and properly dismissed
Count I of the Complaint.
C. Section 20(a) Claims
Count II of the Complaint contains a claim for control-
person liability against the Individual Defendants under
Section 20(a) of the Exchange Act. See 15 U.S.C. § 78t(a).
That provision “creates a cause of action against individuals
who exercise control over a ‘controlled person,’ including a
corporation, who has committed a [S]ection 10(b) violation.”
City of Edinburgh, 754 F.3d at 177 (quoting 15 U.S.C.
§ 78t(a)). A control-person claim can only exist, however,
where there is “a predicate [S]ection 10(b) violation.” Id.
“Because we find there was no violation under Section 10(b),
and no other violations are alleged, there is no [control-person]
liability under Section 20.” In re Aetna, Inc. Sec. Litig., 617
F.3d 272, 285 (3d Cir. 2010). “The District Court, upon
finding no liability under Section 10(b), properly dismissed the
derivative claims under Section 20(a).” Id.
IV. CONCLUSION
For the reasons discussed above, we will affirm the
District Court’s judgment.

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