b'LendingClub revealed the FTC investigation for theThe court concluded that plaintiffs had not sufficiently first time on November 9, 2016. In December 2017, thealleged that defendants knew the substance of the FTC transmitted a draft consent order to LendingClubFTCs investigation at the time the allegedly misleading with proposed injunctive relief that would bring it intostatements referencing government investigations were compliance with FTC regulations. In its Form 10-K formade in its 2016 financial result reports. The court also FY17, LendingClub stated it was continuing to cooperateheld that LendingClubs statements on a May 2018 with all government agencies but did not mention theearnings call that the allegations in the FTC complaint draft consent order. On April 25, 2018, the FTC issuedwere self-disclosed only showed that defendants a press release, disclosing that it had filed a complaintwere aware of the underlying issues ultimately alleged against LendingClub, alleging that the company hadin the FTC complaintnot that any of the [d]efendants engaged in deceptive practices by charging up-frontknew the content of the FTC complaint.hidden fees and misleading borrowers into believingThe court rejected plaintiffs claim that LendingClubs that they had been approved for a loan, in additionrisk warnings in its SEC filings and its safe harbor to withdrawing more from borrowers accounts thanstatements in press releases were materially false was authorized and failing to provide sufficient privacyor misleading because, although the statements notices. On the day of the FTCs announcement of itsreferenced potential government investigations and complaint, LendingClubs share price fell by over 15%.issues related to regulatory compliance, the outcome Investors filed a putative securities class action lawsuitof the FTC Investigation had not materialized at the time against LendingClub and its officers under Sections 10(b)the statements were made. The court also rejected and 20(a) of the 1934 Act and Rule 10b-5 promulgatedallegations that defendants had made false or misleading thereunder, alleging that defendants misled investorsstatements regarding ongoing legal costs, reasoning by failing to disclose its allegedly deceptive practicesthat, even assuming the statements related to the with respect to borrowers and the subsequent FTCinvestigations, the statements did not contain anything investigation and consent order. On a May 8, 2018about the substance of the investigations themselves. earnings call, LendingClubs CEO indicated that theRather, the statements merely relayed that LendingClub allegations in the FTC investigation were self-identifiedhad incurred legal expenses from inquiries and private issues and that the company believed it was and hadlitigation. Addressing the other disputed statements, been in compliance with applicable laws and regulations.the court held they were either inactionable puffery, Defendants moved to dismiss the first amendedunrelated to the plaintiffs theory of liability, or plaintiffs complaint on March 8, 2019, and the court granted thehad failed to include sufficient facts showing they were motion to dismiss with leave to amend, holding thatfalse when made. For example, statements the company plaintiffs failed to plead falsity sufficiently for some ofhad made regarding its transparency and fairness, the alleged false or misleading statements, that otherwere not capable of objective verification, and alleged false or misleading statements were inactionablestatements relating to the companys website, business puffery, and also that the complaint failed to pleadimprovements, and its SOX certifications were unrelated sufficient facts establishing a strong inference of scienter.to the plaintiffs new theory of liability.Plaintiffs filed a second amended consolidatedThe court concluded plaintiffs had also failed to complaint introducing allegations that defendants madeadequately plead facts to support a strong inference false or misleading statements by failing to discloseof scienter, holding that plaintiffs failed to plead what the thrust of the FTC investigation itself and also indefendants knew and when they knew it or that the lumping the FTC investigation together with the DOJdefendants were aware of the specific substantive and SEC investigations in its disclosures. Plaintiffs alsodetails of the FTC investigation. The court explained alleged defendants knew of the companys practicethat the amended complaint improperly lumped all of charging hidden fees as described in the FTCdefendants together in attempting to allege scienter action based on internal compliance reviews, legaland failed to establish each particular defendants state counsel alerts, employee compliance warnings, andof mind as it related to the FTC investigation. The court LendingClubs admission that it tracked consumerfurther rejected plaintiffs attempt to allege scienter complaints on the subject. Defendants moved toby relying on the core operations doctrine rejecting dismiss the second amended complaint, which theplaintiffs argument that because fees were a significant court granted with leave to amend in part and withoutportion of the companys revenue, defendants must leave to amend in part. In its order, the court concludedhave been aware of what the FTC was investigating. that plaintiffs second amended complaint lackedThe court found that the doctrine did not apply because sufficient allegations to establish falsity and scienterthe issue of hidden fees did not fall within one of the and found other statements regarding LendingClubsrare circumstances where the nature of the relevant transparency and fairness as a lender werefact would have been so significant that it would be inactionable puffery.absurd that officers and executives at the company 28'