In a move that underscores the complexities and evolving landscape of securities litigation, at the end of 2024, the United States Supreme Court “DIG’d” out two closely watched securities fraud cases, Facebook[i] and Nvidia[ii], brought under the Private Securities Litigation Reform Act of 1995[iii] (the “PSLRA”) and decided by the Ninth Circuit Court of Appeals. The two SCOTUS DIGs leave in place a significant split among the circuits.
For the uninitiated, a DIG—short for “Dismissed as Improvidently Granted”—occurs when the Supreme Court, initially grants certiorari (indicating that it will review a lower court’s decision), later decides it should not have taken the case after all. The Court issues no opinion on the merits, and the lower court’s decision stands, in these cases, the Ninth Circuit. While DIGs may seem procedural, they often have profound implications, especially in areas where circuit courts disagree.
A Tale of Two Tech Titans
In Facebook, the Ninth Circuit reinstated securities fraud claims against Facebook based on allegations that it mischaracterized the nature and scope of data privacy risks in its public filings. At the center of the litigation was Facebook’s failure to disclose that third parties, including Cambridge Analytica, had already misused user data — despite telling investors that such risks were purely hypothetical. The Court found that Facebook’s risk disclosures were materially misleading because they did not acknowledge that the risk had already materialized. This ruling clarified that under the PSLRA, once a company becomes aware of a risk that has come to fruition, describing it as merely potential may amount to a material misstatement or omission.
Notably, the Court rejected Facebook’s invocation of the PSLRA’s safe harbor for forward-looking statements. Because the misleading statements concerned present or historical facts — namely, the company’s actual knowledge of data misuse — they were not protected. The Ninth Circuit panel emphasized that simply referencing the possibility of data breaches or reputational harm does not cure the omission of known, significant issues. The Court also held that shareholders had adequately pled loss causation by pointing to the stock price drop following revelations in the New York Times and The Guardian that data had been improperly harvested. While certain statements were found non-actionable, the decision overall reaffirms the Ninth Circuit’s view that, depending on the circumstances, known risks may be required to be disclosed in SEC filings.
In Nvidia, the Ninth Circuit tackled a different but equally important aspect of securities pleading: the use of expert analysis at the motion-to-dismiss stage. Plaintiffs alleged that Nvidia’s executives downplayed the impact of crypto-mining on its GPU revenues by misleadingly stating that sales to miners were limited to a discrete product line. In fact, as alleged by plaintiffs, a substantial portion of crypto-related revenues was reported under Nvidia’s gaming segment. To support these allegations, plaintiffs relied on an expert report by Prysm Group, a blockchain-focused economics consultancy, which had been employed by plaintiffs to provide an analysis of NVIDIA’s finances.
The Ninth Circuit held that the expert report, in combination with statements from confidential witnesses, was sufficient to meet the PSLRA’s demanding particularity standard. The Ninth Circuit’s holding in Nvidia is distinguished fromother Circuit Courts, which have been skeptical of expert-driven pleadings at the 12(b)(6) stage[iv]. The Ninth Circuit emphasized that the expert’s methodology, transparency, and factual support rendered the allegations “at least as compelling” as any innocent explanation. It further found that plaintiffs adequately alleged scienter as to Nvidia’s CEO, citing internal reports, his reputed micromanagement style, and detailed witness accounts showing his knowledge of the true revenue mix.
The Nvidia ruling may signal a broader shift in how courts evaluate technical or data-heavy securities fraud claims. By validating the role of expert testimony early in litigation — prior to discovery — the Ninth Circuit has expanded the evidentiary tools available to plaintiffs and opened the door for more sophisticated economic modeling to inform fraud allegations. Together, Facebook and Nvidia reflect the Ninth Circuit’s increasingly nuanced approach to modern securities litigation, particularly in cases arising out of the tech sector.
Can You DIG It?
At the heart of both Facebook and Nvidia lies a fundamental question that has caused a split between Circuit Courts: When does risk disclosure become misleading, what level of scienter must be pled to survive a motion to dismiss in securities fraud cases, and to what degree do references to expert reports satisfy the heightened pleading requirements of the PSLRA?
In declining to resolve these questions, SCOTUS has left litigants and corporations without further clarity. Notably, SCOTUS’s DIGs result in a patchwork of standards across Circuit Courts. For instance, the Ninth Circuit has adopted a relatively plaintiff-friendly standard when it comes to interpreting corporate risk disclosures and assessing scienter based on confidential witness statements, a position that is not uniformly shared elsewhere. Other Circuit Courts, however, such as the First, Second, and Tenth Circuits have been more weary of expanding the heightened pleading requirements of the PSLRA.
By DIG’ing these cases, the Supreme Court may have inadvertently encouraged forum-shopping in federal securities fraud cases brought by private plaintiffs under the PSLRA. Under federal securities laws, defendants are arguably subject to any jurisdiction for which they offer or sell a security, which some argue contravenes decades of precedent holding that a corporation is generally subject to jurisdiction only where it is incorporated and its principal place of business. We’ve seen this play out recently in the headlines with Target, a Minnesota Corporation, that is being sued in United States Court for the Middle District of Florida for alleged federal securities fraud violations[v].
There are three takeaways from the Facebook and Nvidia Ninth Circuit Decisions and subsequent SCOTUS DIGs worth considering:
- If you’re corporate counsel, review your risk disclosures for known risks that may have not been previously disclosed, but have since materialized;
- If you’re outside counsel defending your corporate client against securities fraud claims under the Exchange Act of 1934 and the PSLRA, be prepared for plaintiffs to satisfy the heightened pleading requirements by relying on expert reports, particularly if the case is pending in the Ninth Circuit; and
- If you’re an attorney representing a plaintiff in a securities fraud action under the PSLRA and your case involves issues of risk disclosures, scienter, and reliance on third-party expert reports, it could make sense to file in a court in the Ninth Circuit, if you can.
[i] In re Facebook, Inc. Sec. Litig., 87 F.4th 934 (9th Cir. 2023), cert. granted in part sub nom. Facebook, Inc. v. Amalgamated Bank, 144 S. Ct. 2629, 219 L. Ed. 2d 1267 (2024), and cert. dismissed as improvidently granted sub nom. Facebook, Inc. v. Amalgamated Bank, 604 U.S. 4, 145 S. Ct. 10 (2024)
[ii] E. Ohman J:or Fonder AB v. NVIDIA Corp., 81 F.4th 918 (9th Cir. 2023), cert. granted sub nom. NVIDIA Corp. v. Ohman J, 144 S. Ct. 2655 (2024), and cert. dismissed as improvidently granted, 604 U.S. 20, 145 S. Ct. 33, 220 L. Ed. 2d 259 (2024).
[iii] Private Securities Litigation Reform Act of 1995, Pub. L. No. 104-67, 109 Stat. 737 (1995), codified at 15 U.S.C. §§ 77z-1, 78u-4.
[iv] See, e.g. Arkansas Pub. Emps. Ret. Sys. v. Bristol-Myers Squib Co., 28 F. 4th 343, 354 (2d Cir. 2022); Fin. Acquisition Partners LP v. Blackwell, 440 F.3d 278, 285-86 (5th Cir. 2006).
[v] See City of Riviera Beach Police Pension Fund v. Target Corporation et al, 2:25-CV-00085(M.D. Fl.); Craig v. Target Corporation et al, 2:23-CV-00599 (M.D. Fl.).
The information above is not intended to and should
