Constr. Industry and Laborers Joint Pension Trust v. Carbonite, Inc. ( 2021 )


Menu:
  •           United States Court of Appeals
    For the First Circuit
    No. 20-2110
    CONSTRUCTION INDUSTRY AND LABORERS JOINT PENSION TRUST,
    Plaintiff, Appellant,
    RUBEN A. LUNA, individually and on behalf of all others
    similarly situated; VALERIE COSGROVE, derivatively on behalf of
    CARBONITE, INC.; WILLIAM FENG, individually and on behalf of all
    others similarly situated; MICHAEL RANDOLPH, derivatively on
    behalf of CARBONITE, INC.,
    Plaintiffs,
    v.
    CARBONITE, INC.; MOHAMAD S. ALI; ANTHONY FOLGER,
    Defendants, Appellees,
    LINDA CONNLY; MARINA LEVINSON; TODD KRASNOW; SCOTT A. DANIELS;
    CHARLES F. KANE; STEPHEN MUNFORD; DAVID FRIEND,
    Defendants.
    APPEAL FROM THE UNITED STATES DISTRICT COURT
    FOR THE DISTRICT OF MASSACHUSETTS
    [Hon. Leo T. Sorokin, U.S. District Judge]
    Before
    Kayatta, Selya, and Barron,
    Circuit Judges.
    Andrew S. Love, with whom Samuel H. Rudman, David A.
    Rosenfeld, Robert D. Gerson, Philip T. Merenda, Robbins Geller
    Rudman & Dowd LLP, Theodore M. Hess-Mahan, and Hutchings Barsamian
    Mandelcorn, LLP were on brief, for appellant.
    Alisha Q. Nanda, with whom James R. Carroll, Immanuel R.
    Foster, and Skadden, Arps, Slate, Meagher & Flom LLP were on brief,
    for appellees.
    December 22, 2021
    KAYATTA, Circuit Judge.            Lead plaintiff Construction
    Industry and Laborers' Joint Pension Trust ("plaintiff") and other
    holders of common stock of defendant Carbonite, Inc. ("Carbonite")
    brought this securities fraud class action alleging that Carbonite
    and certain current and former officers misled investors by touting
    a new product that they knew did not even work.                  The defendants
    moved to dismiss the complaint, arguing both that it failed to
    allege facts raising a strong inference of scienter and that it
    alleged no actionable material misrepresentations or omissions.
    The   district    court     agreed   that     plaintiff   had    insufficiently
    pleaded scienter, so the court granted the motion to dismiss
    without   reaching    the    defendants'      second   argument.       Plaintiff
    appealed.    For the following reasons, we reverse the district
    court's dismissal of the complaint.
    I.
    As this case comes to us on a motion to dismiss, we
    accept the factual allegations set forth in the amended complaint,
    as "supplemented by certain materials the defendants filed in the
    district court in support of their motion to dismiss."                 Mehta v.
    Ocular Therapeutix, Inc., 
    955 F.3d 194
    , 198 (1st Cir. 2020)
    (internal quotation marks and alteration omitted) (quoting Brennan
    v. Zafgen, Inc., 
    853 F.3d 606
    , 609–10 (1st Cir. 2017)).                    These
    include "documents the authenticity of which are not disputed by
    the   parties,"      "official       public     records,"       and   "documents
    - 3 -
    sufficiently referred to in the complaint." 
    Id.
     (quoting Brennan,
    853 F.3d at 610).
    Carbonite is a software company headquartered in Boston
    that offers cloud-based backup and data protection services.             The
    events leading to this suit took place during a specified Class
    Period, beginning with Carbonite's October 18, 2018 launch of a
    new data-backup product called "Server VM Edition" ("VME") and
    concluding with the July 25, 2019 announcement that VME was being
    withdrawn from the market.
    In October 2018, Carbonite announced the release of VME,
    which would "enable[] businesses to select, manage[,] and recover
    their [virtual machine] data from a single location."1             Between
    the October launch and the following July, Carbonite publicly
    promoted VME, including through its CEO, defendant Mohamad S. Ali,
    and its CFO, defendant Anthony Folger.
    For example, on November 1, 2018, Ali stated in a call
    with   investors   and   analysts   that    "[VME],   which   includes   new
    purpose-built server backup for virtual machines, is the first
    Carbonite solution directly integrated into the new platform. This
    significantly improves our performance for backing up virtual
    1  A "virtual machine" is a digital computing environment that
    replicates the functionality of a physical computer's operating
    system. Virtual machines can be hosted on one physical computer
    and operated remotely by a user of another physical computer.
    - 4 -
    environments and makes us extremely competitive going after that
    market."
    On November 15, 2018, CFO Folger spoke on behalf of
    Carbonite at an investor conference, where he said:
    One of the products that we did deliver also
    that is integrated with the console is our
    [VME]. So think about this as protecting your
    server infrastructure, but it is specifically
    targeting virtual machines. This is a market
    that we haven't been particularly strong in,
    in the past, we've been okay. I think we have
    completely overhauled the product and we have
    put something out that we think is just
    completely competitive and just a super strong
    product in a streamline user management, it's
    got a ton of APIs for monitoring.
    On December 6, 2018, Folger told another conference,
    "[VME is] a really important product for us, and I think it will
    help us address a pretty big segment of the market."
    Contrary to the picture painted by senior management,
    the complaint alleges that VME never worked. Prior to VME's launch
    on October 18, 2018, several clients had tested VME on a trial
    basis, and the complaint alleges that "there was not one successful
    customer data backup before the product was released."      Also pre-
    launch, Carbonite employees allegedly "reported internally that
    the product was not ready and should not be running."   The software
    failed to back up files as scheduled by clients, resulted in
    corrupted files, and experienced difficulty identifying the target
    virtual machines.
    - 5 -
    In light of the issues with VME, the complaint alleges
    that Carbonite set up an internal "tiger team" focused on fixing
    the product in the months following the launch, and Carbonite
    engineers,   software    architects,     and   development-operations
    employees participated in a similarly focused internal group chat
    called "Get VME Healthy."      Between the launch in October 2018 and
    the eventual shelving of VME the following July, Carbonite put out
    a "large patch" and "hundreds of bug fixes."
    Nonetheless,   VME    allegedly   "never   once   successfully
    backed up a customer's data."       In early summer 2019, Carbonite
    decided internally to stop selling VME, several weeks before it
    publicly pulled the product. Then, on July 25, Carbonite announced
    its second quarter 2019 financial results and its revised 2019
    full-year revenue projections in a press release, which also
    disclosed that Ali was resigning from his role as CEO, effective
    immediately, to pursue other opportunities.2
    Later that day, Folger spoke on a call with analysts and
    investors to explain the company's reduced financial projections.
    During that call, he also announced that Carbonite was withdrawing
    VME from the market because, "[t]owards the end of the quarter, we
    determined that the virtual server edition of our server backup
    product was not at the level of quality that customers have come
    2  The same day, International Data Group, Inc., a large technology
    media company, announced that Ali had been named its CEO.
    - 6 -
    to expect from Carbonite."          Folger reminded the analysts and
    investors that VME "was newly launched in Q3 of 2018 and [was]
    something   we    expected   to   meaningfully   contribute   to   revenue
    starting in the back half of 2019 and through 2020," and he
    explained that "maybe a third" of the projections' reduction was
    attributable to VME's withdrawal.          Analysts reacted negatively.
    From July 25 to July 26, the price of Carbonite stock dropped more
    than twenty-four percent -- from $23.90 per share to $18.01 per
    share.
    The first complaint in this action was filed seven days
    after the press release and announcement.         Several related suits
    were consolidated below, and plaintiff, as the sole lead, filed a
    consolidated amended complaint against defendants Carbonite, Ali,
    and Folger.      Plaintiff seeks recovery under section 10(b) of the
    Securities Exchange Act of 1934 ("the Exchange Act"), codified at
    15 U.S.C. § 78j(b), as implemented by Securities and Exchange
    Commission (SEC) Rule 10b-5, codified at 
    17 C.F.R. § 240
    .10b-5.
    For ease of reference, we call this the "section 10(b)" claim.
    Plaintiff also seeks recovery under section 20(a) of the Exchange
    Act, codified at 15 U.S.C. § 78t(a).        Defendants moved to dismiss
    the amended complaint. After a hearing, the district court allowed
    the motion and dismissed the claims with prejudice.            Plaintiff
    appealed.
    - 7 -
    II.
    This appeal turns on the viability of the section 10(b)
    claim.      Plaintiff does not contend that its section 20(a) claim
    survives even if the section 10(b) claim does not.                       See Mehta, 955
    F.3d   at   210–11       ("A   claim   brought      under      section 20(a)    is . . .
    derivative     of    a    claim    alleging        an    underlying     securities     law
    violation.").         And      defendants     do    not       provide   any   basis   for
    sustaining the dismissal of the section 20(a) claim should we
    reverse the dismissal of the section 10(b) claim.
    To     successfully       make        out    a     section 10(b)    claim,
    plaintiff was required to plead six elements: "(1) a material
    misrepresentation or omission; (2) scienter; (3) a connection with
    the purchase or sale of a security; (4) reliance; (5) economic
    loss; and (6) loss causation."              In re Biogen Inc. Sec. Litig., 
    857 F.3d 34
    , 41 (1st Cir. 2017) (citing Fire & Police Pension Ass'n of
    Colo. v. Abiomed, Inc., 
    778 F.3d 228
    , 240 (1st Cir. 2015)).                           Only
    the first two elements of plaintiff's section 10(b) claim --
    material misrepresentation or omission and scienter -- are at issue
    in this appeal.
    A complaint must contain "sufficient factual matter,
    accepted as true, to 'state a claim to relief that is plausible on
    its face.'"         Mehta, 955 F.3d at 205 (quoting Ashcroft v. Iqbal,
    
    556 U.S. 662
    , 678 (2009)).               And because it alleged securities
    fraud, plaintiff was also required to satisfy several heightened
    - 8 -
    pleading   requirements.       Federal      Rule    of    Civil    Procedure 9(b)
    requires    that   a    plaintiff    claiming      fraud     "must    state        with
    particularity the circumstances constituting fraud."                  The Private
    Securities Litigation Reform Act (PSLRA) further requires that
    plaintiffs claiming securities fraud in particular must "specify
    each statement alleged to have been misleading, [and] the reason
    or reasons why the statement is misleading."                     15 U.S.C. § 78u-
    4(b)(1).    Additionally, as we will discuss, the PSLRA requires a
    complaint brought under section 10(b) to allege particular facts
    sufficient to give rise to a strong inference of scienter.                          Id.
    § 78u-4(b)(2)(A).
    In determining whether a securities fraud complaint
    satisfies these requirements, "[w]e review de novo the district
    court's    dismissal . . .     for   failure       to    state    a   claim    under
    Rule 12(b)(6)."        Mehta, 955 F.3d at 205.           In so doing, we accept
    well-pleaded factual allegations in the complaint as true and,
    while cognizant of the requirements for pleading scienter, we view
    all reasonable inferences in the plaintiff's favor. ACA Fin. Guar.
    Corp. v. Advest, Inc., 
    512 F.3d 46
    , 58–59 (1st Cir. 2008).
    III.
    Plaintiff alleged that twelve statements made by the
    defendants during the Class Period were "materially false and
    misleading."       Most    prominently   on    appeal,      it    points      to    the
    November 1 and November 15 statements made by Ali and Folger,
    - 9 -
    respectively, as quoted above.   Otherwise, plaintiff mentions but
    places less weight on an October 2018 statement and nine statements
    made between February and June of 2019, each of which speak more
    generally about Carbonite's products or financial prospects and do
    not mention VME by name.   Plaintiff does not contend that the less
    pointed statements might be actionable if the November statements
    are not.   Nor do the parties describe any scenario in which the
    less pointed statements might affect the extent of liability if
    the November statements are sufficient to establish liability.
    Like the parties, we therefore train our attention on the two
    November statements that directly discuss VME.
    In contesting the adequacy of the complaint vis à vis
    those statements, defendants advance three basic arguments, each
    of which would independently support dismissal: (1) the challenged
    statements were not material misrepresentations because they were
    not false statements of fact; (2) any misrepresentations were not
    material; and, (3) in any event, the complaint fails to allege
    facts eliciting a strong inference of scienter.    We address each
    argument in turn.
    A.
    Section 10(b) prohibits the use    of "manipulative or
    deceptive device[s]" in connection with the purchase or sale of,
    inter alia, registered securities.      15 U.S.C. § 78j(b).    SEC
    Rule 10b-5 implements that prohibition by making it unlawful to
    - 10 -
    "make any untrue statement of a material fact or to omit to state
    a   material    fact   necessary   in    order   to   make    the     statements
    made . . . not misleading."        
    17 C.F.R. § 240
    .10b-5.            A violation
    thus requires a false, or misleadingly omitted, statement of fact.
    Defendants argue that the November 2018 statements were merely
    optimistic     opinions   that   are    not   actionable     as    misstatements
    because they may have been "genuinely held when made."
    The     Supreme   Court      has    explained     that     the   most
    significant difference between statements of fact and expressions
    of opinion is that "a statement of fact ('the coffee is hot')
    expresses certainty about a thing, whereas a statement of opinion
    ('I think the coffee is hot') does not."                   Omnicare, Inc. v.
    Laborers Dist. Council Constr. Indus. Pension Fund, 
    575 U.S. 175
    ,
    183 (2015).      Words like "I think" or "I believe" can play a role
    in demonstrating a lack of certainty, id. at 187, but their use
    does not preclude the possibility that the statement as a whole
    may still mislead as to some fact, id. at 193.                    For example, a
    statement in the form of an opinion ("I believe that the proposed
    transaction is legal.") may convey three facts: that the speaker
    has such a belief; that the belief fairly aligns with the facts
    known to the speaker; and, if stated in the context of the
    securities market, that the speaker has made the type of inquiry
    that a reasonable investor would expect given the circumstances.
    Id. at 188–89.
    - 11 -
    Ali's November 1, 2018 statement that VME "improves our
    performance for backing up virtual environments and makes us really
    competitive"   could   be   reasonably    construed    in   context     as   a
    statement of fact, at least to the extent that it plainly implied
    some better "performance for backing up virtual environments."               As
    such, it would be false as compared to the complaint's contention
    that as of November 1 VME could not back up virtual environments.
    Folger's     November 15     statement,     by    contrast,     was
    presented in the form of a statement of belief:             "[W]e have put
    something out that we think is just completely competitive and
    just a super strong product." Nonetheless, the statement plausibly
    conveyed at least three facts: first, that Folger actually believed
    VME to be "completely competitive" and "super strong"; second,
    that his opinion "fairly align[ed] with the information" that
    Folger possessed at the time; and third, that his opinion was based
    on the type of reasonable inquiry that an investor in context would
    expect to have been made.    See id.     The complaint's description of
    the state of the VME product plausibly alleges that at least one
    and possibly all three of these facts must be false.            It thereby
    sufficiently alleges that Folger misled investors.
    Defendants' fallback argument that investors would have
    understood Folger's statement to be only "an opinion about future
    potential," and thus not a statement of present or historical fact,
    simply mischaracterizes the statement.        (Emphasis added.)         As we
    - 12 -
    discuss further in addressing the element of scienter, infra,
    Folger used the present tense to describe Carbonite's beliefs about
    the then-existing status of a product that the company had already
    "put out" into the market.          Retrospectively asserting that this
    was somehow a forward-looking statement does not make it so.
    Accordingly, the complaint adequately alleges that Ali
    and Folger each made a misleading statement.
    B.
    Defendants argue that even if the challenged statements
    made by Ali and Folger were misleading, they were not material.
    This argument fares no better.
    A fact is material if it is substantially likely "that
    the disclosure of the omitted [or misrepresented] fact would have
    been viewed by the reasonable investor as having significantly
    altered the 'total mix' of information made available."               Basic
    Inc. v. Levinson, 
    485 U.S. 224
    , 231–32 (1988) (quoting TSC Indus.,
    Inc. v. Northway, Inc., 
    426 U.S. 438
    , 449 (1976)).            Here, we have
    no trouble finding that the complaint adequately alleges facts
    raising a reasonable inference that VME's ability to perform was
    a   significant   part   of   the   mix    of   information   considered   in
    evaluating Carbonite as an investment.
    As described in the complaint, VME was an important
    product for Carbonite -- we need only take CFO Folger's word for
    it:   "[W]e've got a new offering out, Carbonite Server Virtual
    - 13 -
    Edition which I think is a really important product for us, and I
    think it will help us address a pretty big segment of the market."
    Carbonite described VME's simultaneous launch with Carbonite's
    flagship console as "the culmination of one of our largest cross-
    functional efforts."     CEO Ali bolstered the product's importance
    by stating that VME "significantly improves our performance for
    backing up virtual environments and makes us extremely competitive
    going after that market."        And this is a market that Folger had
    described as one "we haven't been particularly strong in, in the
    past, we've been okay."         That Carbonite's most senior officers
    promoted this new product to investors as shoring up one of the
    company's weaker market segments further reinforces the conclusion
    that the complaint adequately alleges that the product's basic
    inability to function would have been viewed by investors as a
    significant part of the total mix of                information in valuing
    Carbonite.
    C.
    We turn finally to the element of scienter. To establish
    scienter,    plaintiff   must    "show     either    that   the   defendants
    consciously intended to defraud, or that they acted with a high
    degree of recklessness."    Kader v. Sarepta Therapeutics, Inc., 
    887 F.3d 48
    , 57 (1st Cir. 2018) (quoting        Aldridge v. A.T. Cross Corp.,
    
    284 F.3d 72
    , 82 (1st Cir. 2002)).          Recklessness in this context
    requires "'a highly unreasonable omission' constituting '. . . an
    - 14 -
    extreme departure from the standards of ordinary care, and which
    presents a danger of misleading buyers and sellers that is either
    known to the defendant or is so obvious that the actor must have
    been aware of it.'"     Mehta, 955 F.3d at 206 (quoting Brennan, 853
    F.3d at 613).
    The PSLRA's heightened pleading standards require that
    complaints brought under section 10(b) "state with particularity
    facts giving rise to a strong inference that the defendant acted
    with   [scienter]."     15    U.S.C.      § 78u-4(b)(2)(A).        The   "strong
    inference" for purposes of the PSLRA means that "an inference of
    scienter must be more than merely plausible or reasonable -- it
    must be cogent and at least as compelling as any opposing inference
    of nonfraudulent intent." Mehta, 955 F.3d at 206 (quoting Tellabs,
    Inc. v. Makor Issues & Rights, Ltd., 
    551 U.S. 308
    , 314 (2007)).
    Defendants argue, and the district court found below,
    that plaintiff failed to meet this statutorily enhanced threshold
    for successfully pleading scienter.              We disagree.
    Plaintiff's primary argument for a "strong inference" of
    scienter is that the defendants "must have known that VME was not
    functional," because the product's professed importance to the
    company strongly implied that senior officers at the company were
    following    it   closely    and   thus    were     aware   of   its   failings.
    Relatedly,    plaintiff      advances      the     alternative    theory    that
    defendants were at least highly reckless in promoting VME because,
    - 15 -
    if defendants were not aware of VME's issues, then they repeatedly
    and with apparent premeditation promoted it as important to the
    company without at least checking that it had ever worked.             We
    find that the complaint adequately alleges facts giving rise to
    these alternative inferences.
    We have said that "the importance of a particular item
    to a defendant can support an inference that the defendant is
    'paying close attention' to that item," if "that close attention
    would have revealed an incongruity so glaring as to make the need
    for further inquiry obvious."        Loc. No. 8 IBEW Ret. Plan & Tr. v.
    Vertex Pharms., Inc., 
    838 F.3d 76
    , 82 (1st Cir. 2016) (quoting
    Institutional Invs. Grp. v. Avaya, Inc., 
    564 F.3d 242
    , 271 (3d
    Cir. 2009)).       And as we have already explained, the complaint
    certainly alleges sufficiently compelling facts showing that VME
    was viewed by Carbonite as an important product.
    Defendants argue in response that the company did not
    consider VME so critical because it was one of Carbonite's many
    offerings, because the complaint does not allege that investors
    "clamored for updates on VME," and because the withdrawal of VME
    did   not   have    an   "outsized    impact   on   Carbonite's   revenue
    projections."      But the relevant point here is not that VME was the
    only or the most "outsized" Carbonite product.         Rather, the point
    is that, as pleaded in the complaint, the company thought it
    important enough to warrant two specific plugs from top management,
    - 16 -
    thereby creating a very strong inference that the senior executives
    who gave those apparently prepared remarks touting the product
    would have paid at least some attention to the product's status.
    This inference is cogent because a company certainly can consider
    a   product     important    long    before    it    contributes      substantial
    revenue, such as when a product has the potential to "make[] [a
    company]   extremely    competitive      going      after   [a   weak]   market."
    Similarly, the absence of express market "clamor" about a new
    product does not preclude the inference that management thought
    the product important; direct allegations in the form of their own
    words can do the trick just as well.
    Of course, it is not enough to say that senior management
    would have paid some attention to the product that they were raving
    about;   the     complaint    must    allege    particular       facts   strongly
    suggesting that that attention exposed them to information that
    either   rendered    their    public   statements      false     or   necessarily
    invited further investigation.          For example, in Vertex, we found
    that the defendants' paying attention to a drug study would not
    have revealed any obvious incongruity in the publicly announced
    study results that turned out to be erroneous, in part because the
    complaint did not allege that "scientists in general, much less
    those at Vertex, regarded the reported results as implausible."
    838 F.3d at 81–83; see also Metzler Asset Mgmt. GmbH v. Kingsley,
    
    928 F.3d 151
    , 165 (1st Cir. 2019) (finding plaintiffs' theory for
    - 17 -
    attributing knowledge to corporate officers was insufficient where
    plaintiffs failed to allege        "that   anyone in the company had
    knowledge regarding the drug's safety profile and sales that
    contradicted    the   company's   public     representations"   (emphasis
    added)).
    Here, we need not guess at the scientific community's
    understanding    of   complex   biological    data   to   identify   a   red
    flag -- it does not require a PhD to know that a product cannot be
    "super strong" if it has never once done what it is supposed to
    do.      Nor does the complaint leave open the possibility that
    Carbonite management was somehow in the dark about VME's true
    status.    The complaint states that Carbonite employees working on
    VME had reported internally before the launch that the product was
    not ready for market.     And the trial runs for VME, a data-backup
    product, had allegedly produced not one successful backup.
    In sum, the complaint alleges facts raising a strong
    inference that Ali and Folger either inquired about VME before
    deciding to promote it to investors or were reckless in failing to
    do so.     Further, the complaint alleges facts that, if true, make
    it clear that the Carbonite employees familiar with the product
    knew that it did not work yet.       Finally, nothing in the alleged
    facts renders less than sufficiently compelling the conclusion
    that Ali and Folger would have known of the product's status had
    they inquired.
    - 18 -
    In an effort to undercut the legal significance of this
    reasoning, defendants argue that a court cannot properly infer
    that they paid some attention to a product simply because they
    considered it important and chose to tout it to investors.                But
    they cite only inapposite authority for this position.            They point
    us   first    to   Maldonado   v.   Dominguez,     where   we   recited   the
    uncontroversial proposition that "the pleading of scienter 'may
    not rest on a bare inference that a defendant "must have had"
    knowledge of the facts.'"           
    137 F.3d 1
    , 9–10 (1st Cir. 1998)
    (quoting Barker v. Henderson, Franklin, Starnes & Holt, 
    797 F.2d 490
    , 497 (7th Cir. 1986)).          But the complaint in Maldonado had
    failed to plead any "specific allegations of fact" that could give
    rise to an inference of scienter and relied only on conclusory
    allegations that the defendants "were aware of the risk of margin
    calls." Id. at 10. Defendants' invocation of Metzler is similarly
    misplaced.     As we have noted, supra, the complaint there failed to
    allege that anyone in the company was aware of facts contrary to
    the allegedly misleading public statements, so it could hardly
    present a strong inference that the senior officer defendants
    possessed such knowledge, regardless of the relevant product's
    import.      See Metzler, 928 F.3d at 165.
    Defendants also urge us to adopt, as the district court
    did, a competing, non-culpable inference from Carbonite's efforts
    to remedy the issues with VME:               "[C]reating varied teams and
    - 19 -
    rushing out software patches suggests a sincere belief that VME
    could be made operational with enough work," such that "Carbonite
    believed VME was fixable."    But both Ali's and Folger's statements
    from this period were framed in the present tense:      "[W]e have put
    something out that we think is just completely competitive and
    just a super strong product"; "[VME] significantly improves our
    performance . . . and makes us extremely competitive."       (Emphases
    added.)    These     were   not   projections   of   hoped-for   future
    performance.   Rather, they were flat-out claims about the product
    as it then stood.3
    IV.
    For the foregoing reasons, we find that the complaint
    sufficiently pleads that the statements of Ali and Folger on
    November 1 and 15, 2018, were material misrepresentations made
    with scienter.   There being no other claimed basis for dismissing
    the complaint, we therefore reverse the judgment of the district
    court granting the motion to dismiss, and remand for further
    proceedings in accord with this opinion.
    3  Plaintiff also argued that scienter could be inferred from Ali's
    and Folger's sales of Carbonite stocks during the Class Period, as
    well as from Ali's resigning simultaneously with the withdrawal of
    VME from the market. Because we find that scienter was otherwise
    sufficiently pleaded, we need not consider these additional
    proffered bases.
    - 20 -