MATTHEW VEAL, XIANGHONG DING, and ZHENBIN CHEN v. LENDINGCLUB CORPORATION, SCOTT SANBORN, BRADLEY COLEMAN, and THOMAS W. CASEY

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
MATTHEW VEAL, XIANGHONG DING,
and ZHENBIN CHEN,
Plaintiffs-Appellants,
v.
LENDINGCLUB CORPORATION,
SCOTT SANBORN, BRADLEY
COLEMAN, and THOMAS W. CASEY
Defendants-Appellees.
No. 20-16603
D.C. No. 5:18-cv-2599-BLF
MEMORANDUM*
Appeal from the United States District Court
for the Northern District of California
Beth Labson Freeman, District Judge, Presiding
Argued and Submitted September 2, 2021
Seattle, Washington
Before: McKEOWN and GOULD, Circuit Judges, and RAKOFF,** District Judge.
Plaintiffs appeal the district court’s dismissal of their Second Amended
Complaint (SAC) for failure to adequately plead falsity and scienter in securities
* This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
** The Honorable Jed S. Rakoff, United States District Judge for the
Southern District of New York, sitting by designation.
FILED
SEP 21 2021
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS

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fraud claims regarding the allegedly misleading disclosure of a Federal Trade
Commission (FTC) inquiry beginning in May 2016.1 See Veal v. LendingClub Corp.,
2020 WL 3128909 (N.D. Cal. June 12, 2020). Specifically, Plaintiffs allege that
Defendants made various statements to investors between August 2016 and the end
of 2017 that misled shareholders regarding the subject matter of an FTC
investigation. The FTC investigation concerned alleged deception of borrowers
regarding hidden loan origination fees. Defendants, however, disclosed the
investigation by inserting a non-particularized disclosure of the fact of an FTC
inquiry into a discussion of other regulatory inquiries being conducted by the U.S.
Department of Justice (DOJ) and the Securities and Exchange Commission (SEC)
regarding deceptive practices in the company’s dealings with investors in loans
originated through the LendingClub platform. This, Plaintiffs maintain, materially
concealed the true scope of the legal risks facing LendingClub, because borrower
origination fees provided nearly 80% of the company’s revenues.
We affirm the district court’s dismissal of the complaint for failure to
adequately plead scienter. To state a claim for securities fraud under the Private
Securities Litigation Reform Act (PSLRA), the complaint, through particularized
1 The Court hereby presumes the Parties’ familiarity with the facts and
procedural history of this case and discusses only those facts relevant to deciding
this appeal.

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allegations of specific facts, “must raise a ‘strong inference’ of scienter—i.e., a
strong inference that the defendant acted with an intent to deceive, manipulate, or
defraud.” Meltzer Inv. GMBH v. Corinthian Colleges Inc., 540 F.3d 1049, 1061 (9th
Cir. 2008).2 “A complaint will survive . . . only if a reasonable person would deem
the inference of scienter cogent and at least as compelling as any opposing inference
one could draw from the facts alleged.” Tellabs, Inc. v. Makor Issues & Rts., Ltd.,
551 U.S. 308, 324 (2007).
As the district court correctly held, nowhere in the SAC do Plaintiffs plausibly
allege with particularity that Defendants knew the focus of the FTC’s investigation
at the time the challenged statements were made, let alone that they sought to hide
that focus from shareholders. Plaintiffs do allege that Defendants were
independently aware of potentially deceptive practices related to their borrower
origination fee policies prior to the existence of the FTC’s inquiries. But this says
nothing about their knowledge of the focus of the FTC’s inquiry, nor anything about
their intent in simply adding disclosure that there was an FTC inquiry to the more
particularized discussion of the previously disclosed DOJ and SEC investigations
and the company’s own internal review of investor-related issues.
2 Unless otherwise specified, all internal quotation marks, citations,
emphases, and alterations are omitted from all sources cited herein.

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The SAC does offer some conclusory assertions to the effect that “[n]o
question exists that [Defendants] knew of the FTC’s thrust,” and Plaintiffs continue
to insist that the Defendants “knew all along” what issues the FTC was investigating.
But it is well settled that conclusory allegations do not suffice to state a claim and
are “not entitled to the assumption of truth.” Ashcroft v. Iqbal, 556 U.S. 662, 679
(2009). As the district court correctly held, knowledge of problems within a
company does not necessarily imply awareness of a government agency’s
investigation of that particular issue.
Plaintiffs belatedly argue that the FTC Civil Investigative Demand (CID) that
initiated the FTC inquiry informed Defendants about the FTC’s investigatory focus.
This might possibly have supported scienter had there been any basis for its
consideration. But this argument cannot save the SAC for two, independent reasons.
First, this argument debuts in Plaintiffs’ reply brief on appeal. “It is well established
in this circuit that the general rule is that appellants cannot raise a new issue for the
first time in their reply briefs.” Eberle v. City of Anaheim, 901 F.2d 814, 818 (9th
Cir. 1990). Second, and more fundamentally, this CID-notice theory is not grounded
in the SAC itself. Plaintiffs’ reply brief seeks judicial notice of various pages from
the FTC website, but it fails to cite any particularized allegation in the SAC to which
such notice would relate. Nor could Plaintiffs’ counsel identify a single such

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allegation from the SAC when asked directly at argument. Accordingly, Plaintiffs
cannot obtain reversal on their late-breaking CID-notice theory.
Finally, since none of the allegations individually establishes the strong
inference of scienter the PLSRA requires, we must also “assess all the allegations
holistically” and ask: “When the allegations are accepted as true and taken
collectively, would a reasonable person deem the inference of scienter at least as
strong as any opposing inference?” In re NVIDIA Corp. Sec. Litig., 768 F.3d 1046,
1056 (9th Cir. 2014). In this respect, we conclude, as the district court did, that
Plaintiffs’ case for scienter is even weaker on a holistic basis. It is undisputed that
none of the individual Defendants sold any stock during the period of the alleged
fraud, and two of them (Sanborn and Casey) purchased LendingClub stock during
the class period. We have previously held that “a lack of stock sales can detract from
a scienter finding” on a holistic inquiry, and where “rather than selling shares,
[defendants] purchased additional stock during the Class Period,” that instead
“support[s] an inference of innocence.” Webb v. Solarcity Corp., 884 F.3d 844, 856
(9th Cir. 2018). So too, here.
We have considered Plaintiffs’ other arguments and find them without merit.
The district court’s dismissal of the SAC is therefore AFFIRMED.

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