Daniela Prodanova v. H.C. Wainwright & Co., 993 F.3d 1097

Background:

H.C. Wainwright & Co. (HCW), an investment bank with separated research and banking groups, issued a research Report on Oct. 10, 2017 initiating coverage of MannKind with a $7 target and a FINRA-style disclaimer about seeking investment-banking compensation.
Earlier in the week MannKind received favorable FDA labeling for Afrezza, producing a large prior run-up in price and volume.
That same evening MannKind announced a registered direct offering priced at $6 per share and named HCW as exclusive placement agent (HCW stood to receive ~5% of proceeds).
Purchases between the Report publication and the Offering announcement led to a putative securities class action alleging HCW’s Report was fraudulent manipulation to inflate the price (violations of §10(b)/Rule 10b-5 and §20(a)).
The district court dismissed for failure to plead scienter with particularity; plaintiffs’ Second Amended Complaint (SAC) added two witness declarations but still failed to show motive, knowledge, or deliberate recklessness; this Court affirmed.

Issues:

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the SAC pleads scienter under the PSLRA	HCW published the $7 Report to inflate price so the Offering would be more profitable, increasing HCW’s placement fee	No plausible motive; publication more likely inadvertent error or negligence; no facts showing anyone knew of the Offering when Report issued	SAC fails to plead scienter with particularity; inference of nonfraudulent conduct is more compelling
Plausibility of alleged motive (financial gain)	HCW would gain more fees if Offering attracted more buyers at a higher pre-offer price	HCW’s fee was a percentage of gross proceeds, not tied to per-share target; reputational and client risks outweigh any marginal gain	Motive theories are implausible and speculative; do not support strong inference of intent
Individual and compliance-department knowledge (Livnat, Viklund, Silvera, compliance)	Author and senior officers knew or recklessly disregarded the Offering; compliance must have known under industry practice and FINRA procedures	No particularized facts linking any individual or compliance officer to knowledge of the Offering or to Report approval; witness declarations are not contemporaneous or specific	No particularized allegations that any individual or compliance officer had actual knowledge or acted with deliberate recklessness
Reliance on boilerplate disclaimer, core-operations theory, and failure-to-correct	FINRA-style disclaimer and role of executives show awareness; failure to correct supports scienter	Disclaimer is boilerplate; core-operations allegations are conclusory; no duty-to-correct or particularized facts to show concealment	Boilerplate disclaimer and core-operations assertions insufficient; failure-to-correct does not tip balance toward scienter

Key Cases Cited

Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007) (requirement that inference of scienter be at least as compelling as opposing nonculpable inferences)
Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. 258 (2014) (elements required for a §10(b) and Rule 10b-5 claim)
Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981 (9th Cir. 2009) (pleading particularity and use of witness declarations to show scienter)
Schueneman v. Arena Pharms., Inc., 840 F.3d 698 (9th Cir. 2016) (distinguishing mere recklessness from deliberate recklessness required for scienter)
Nguyen v. Endologix, Inc., 962 F.3d 405 (9th Cir. 2020) (plausibility requirement for motive allegations under PSLRA)
Glazer Capital Mgmt., LP v. Magistri, 549 F.3d 736 (9th Cir. 2008) (corporate scienter must be pleaded by alleging scienter of the individuals who made the statements)
Intuitive Surgical, Inc. v. Police Retirement System of St. Louis, 759 F.3d 1051 (9th Cir. 2014) (limits and formulations of the core-operations theory)
S. Ferry LP, No. 2 v. Killinger, 542 F.3d 776 (9th Cir. 2008) (core-operations theory requires additional particularized allegations)