7 NINTH CIRCUIT CASES GOODWIN costs of each sale and indirect overhead costs, were realized at the time of sale. Lease revenues, by con- trast, were accounted for ratably – and installation and overhead costs were amortized – over the term of each lease. SolarCity conducted an initial public offering in December 2012. Beginning in the first quarter of 2012 and continuing for seven consecutive quarters, SolarCi- ty failed to adhere to its GAAP-compliant protocols by pushing its sales division’s direct costs onto its leasing division, where such costs would be amortized over time. In March 2014, SolarCity announced this account- ing error, and issued restated financials for the years and each quarter of 2012 and 2013. These disclosures revealed that SolarCity’s sales unit had operated at a loss for six quarters, and barely broke even in two quarters. Thereafter, SolarCity’s stock price fell by nearly 30% to $23.58. Investors filed a securities class action against SolarCity and its officers, asserting claims under Sections 10(b) and 20(a), and Rule 10b-5 of the 1934 Act. The district court granted defendants’ motion to dismiss for failure to adequately allege scienter. The Ninth Circuit affirmed the district court’s dismissal on the same basis. Viewing the allegations of the complaint holistically, the court concluded that “[a]t best,” the allegations, which were based on accounts of 11 confidential witnesses, “paint a picture of a mismanaged organization in need of closer financial oversight that made a minute error at a critical stage in its development.” The court credited the confidential witnesses’ accounts, which demon- strated that SolarCity’s officers knew that SolarCity was generally unprofitable, were hands-on managers, and had reason to suspect that the company’s internal accounting controls were imperfect. Nonetheless, the court emphasized that the officers did not sell SolarCity stock during the class period, which “detract[ed] from a scienter finding.” Moreover, defendants were forthcom- ing in that they stated in the company’s IPO prospectus that SolarCity was not profitable, and the 2014 restate- ment merely increased the company’s stated losses. The court also concluded that plaintiffs did not ade- quately allege scienter based on defendants’ alleged motive to “boost” the company’s profitability and stock prices surrounding its 2012 IPO, reasoning that the same is true of “every company that goes public.” Nor did the alleged departures of senior company officers close in time with the 2014 restatement establish a compelling inference of scienter, as plaintiffs alleged no facts rebutting the “reasonable presumption” that these departures “occurred as a result of the restatement’s issuance itself.” Finally, the court declined to infer sci- enter based on the accounting issues’ alleged impor- tance to SolarCity, reasoning that plaintiffs’ generalized allegations about defendants’ access to reports that may have documented these issues were insufficient, that the sales division in which the accounting issues occurred “accounted for less than 10%” of SolarCity’s annual installations, and that the error “was so subtle that it appears that even the company’s specialized accounting division and professional auditors missed it” for seven consecutive quarters. Stoyas v. Toshiba Corporation, et al., 896 F.3d 933 (9th Cir. 2018) - Applicability of U.S. Securities Laws to American Depository Shares Toshiba Corporation (“Toshiba”) is a Japanese technol- ogy company offering products and services including computer systems, consumer electronics, and other information technology equipment and systems. On September 7, 2015, Toshiba restated its pre-tax profits for fiscal years 2008 through 2014, admitting substantial institutional accounting fraud. This restatement elimi- nated $2.6 billion in profits, or approximately one-third The Ninth Circuit affirmed the district court’s dismissal on the same basis. Viewing the allegations of the complaint holistically, the court concluded that “[a]t best,” the allega- tions, which were based on accounts of 11 confidential witnesses, “paint a picture of a mismanaged organization in need of closer financial oversight that made a minute error at a critical stage in its development.”