from the United States District Court for the District of
Colorado (D.C. No. 1:15-CV-02152-MSK-MEH)
Nicholas I. Porritt, of Levi & Korsinsky LLP, Washington,
D.C. (Alexander A. Krot, III, of Levi & Korsinsky LLP,
Washington, D.C., and Kip B. Shuman and Rusty E. Glenn, of
The Shuman Law Firm, Denver, Colorado, with him on the
briefs), for Plaintiff-Appellant.
F. Locker, of Wilson Sonsini Goodrich & Rosati
Professional Corporation, Palo Alto, California (Steven
Guggenheim, Joni L. Ostler, Evan L. Seite, of Wilson Sonsini
Goodrich & Rosati Professional Corporation, Palo Alto,
California, and Holly Stein Sollod, Christina F. Gomez, Cici
Cheng, of Holland & Hart LLP, Denver, Colorado, with her
on the briefs) for Defendants-Appellees.
HARTZ, KELLY, and HOLMES, Circuit Judges.
HOLMES, CIRCUIT JUDGE.
appeal arises from the district court's dismissal of
Plaintiff-Appellant David Hampton's securities-fraud
class action against Defendants-Appellees root9B
Technologies, Inc. ("root9B"), a provider of
cybersecurity products and services, Joseph J. Grano, Jr.,
root9B's Chief Executive Officer and Chairman, and
Kenneth T. Smith, root9B's former Chief Financial Officer
(collectively, "Defendants"). Mr. Hampton brought
this action pursuant to §§ 10(b) and 20(a) of the
Securities Exchange Act of 1934, 15 U.S.C. §§
78j(b) & 78t(a), and Securities and Exchange Commission
("SEC") Rule 10b-5, 17 C.F.R. § 240.10b-5,
claiming that root9B made false or misleading statements in
connection with the purchase or sale of securities.
Hampton identified two statements that he alleges were false
or misleading and material: (1) a letter from Mr. Grano to
investors-language from which was repeated in a number of SEC
filings-attesting that root9B was differentiated from
competitors by its "proprietary hardware and
software," Aplt.'s App. at 15 (Am. Class Compl.,
dated Jan. 4, 2016); and (2) a press release and associated
report published by root9B in which the company claimed to
have detected a planned cyber attack against a number of
international financial institutions, id. at 30. He
further alleges that the individual defendants-i.e., Mr.
Grano and Mr. Smith-are jointly and severally liable under
district court dismissed Mr. Hampton's claims, finding
that he had failed to sufficiently plead that the identified
statements were false or misleading. Mr. Hampton appeals, and
exercising jurisdiction pursuant to 28 U.S.C. § 1291, we
provides "cybersecurity, regulatory risk mitigation, and
energy and controls solutions" through three business
lines: Cyber Solutions, Business Advisory Solutions, and
Energy Solutions. Aplees.' Resp. Br. at 1. In November
2013, Premier Alliance Group, Inc. ("Premier
Alliance"), a publicly-traded company, acquired root9B
LLC in exchange for cash and restricted shares of Premier
Alliance common stock. On October 17, 2014, Mr. Grano, the
Chief Executive Officer and Chairman of Premier Alliance,
published a letter to shareholders announcing plans to
rebrand Premier Alliance as root9B Technologies, Inc. The
rebranding took place on December 1, 2014. Mr. Grano
explained that the rebranding reflected a business strategy
focused on growing the cybersecurity business.
Hampton alleges that root9B issued, during and after the
rebranding, the two misleading statements underlying this
in the aforementioned October 17 letter to investors, Mr.
Grano identified, as a competitive strength of root9B, its
"proprietary hardware and software designed to combat
the new methodologies being utilized by state-sponsored and
sophisticated individual hackers." Aplt.'s App. at
23-24; id. at 241 (Form 8-K, dated Oct. 17, 2014
("Grano letter")). That statement was repeated in
SEC filings on November 14, 2014, March 31, 2015, and May 15,
2015. Following Mr. Grano's letter, root9B raised $11.5
million over three stock and option offerings in February and
March of 2015. Defendants filed a post-effective amendment to
the registration statement on May 1, 2015, pursuant to which
Mr. Grano and other root9B "insiders" were able to
sell shares to the public. Id. at 68-70.
root9B announced, via a press release on May 12, 2015, that
it had uncovered and defeated plans by a state-sponsored team
of Russian hackers, known as Sofacy or APT28, to target
several international financial institutions ("Sofacy
statements"). Id. at 30-37, 249-50 (root9B
Uncovers Planned Sofacy Cyber Attack Targeting Several
International and Domestic Financial Institutions, PR
Newswire, dated May 12, 2015). root9B claimed that this was
"the first and only known Sofacy attack to be
discovered, identified, and reported" before the attack
began. Id. at 32 (emphasis omitted). root9B
contemporaneously published a report entitled "APT28
Targets Financial Markets: Root9B Releases Zero Day
Hashes" ("APT28 Report") explaining its basis
for attributing the planned attack to Sofacy. Id. at
31, 251-59 (APT28 Targets Financial Markets: Root9B
Releases Zero Day Hashes, Root9B.com, dated May 10,
2015). Mr. Grano gave a televised interview on Fox Business
on May 14, 2015, during which he discussed the Sofacy
statements and said that he was aware of the evidence upon
which root9B attributed the attack to Sofacy. Following the
announcement, the price of root9B's stock rose 42%
between May 11, 2015 and May 19, 2015, to an "all-time
trading high of $2.51." Id. at 37.
Hampton alleges that two subsequent articles that challenged
root9B's statements caused the company's inflated
share price to fall.
on May 20, 2015, "cybersecurity expert" and former
reporter Brian Krebs published an article entitled
"Security Firm Redefines APT: African Phishing
Threat" ("Krebs article") on his security news
blog, challenging root9B's attribution of the attack to
Sofacy. Id. at 44, 120-22 (Brian Krebs, Security
Firm Redefines APT: African Phishing Threat, Krebs on
Security, dated May 20, 2015). Mr. Krebs claimed that root9B
had "scant evidence" to support its attribution of
the attack to Sofacy. Id. at 45, 122. According to
Mr. Krebs, root9B based the attribution in large part upon
the use of a domain known to be used by Sofacy. However,
based in part on his claim that this server was associated
with a number of bad actors in the world of cyberattacks, Mr.
Krebs concluded that the attack was more likely a
"run-of-the-mill bank phishing scam" perpetrated
by "Nigerian scammers." Id. at 45, 122.
The article claimed that this conclusion was corroborated by
the "chief scientist" of "one of the security
firms that first published the initial findings on the
Sofacy/APT28 group back in October 2014." Id.
at 46, 122. Mr. Hampton claims that, as a result of the Krebs
article, root9B's share price fell by 8%, from $2.51 on
May 19, 2015 to $2.32 on May 21, 2015.
on June 15, 2015, an anonymous author known as Pump Stopper
published an article entitled "ROOT9: -82.5% Downside
[o]n Management Fraud Allegations, Cyber Failure [a]nd
Bankruptcy - Strong Sell" ("Pump Stopper
article") on the website SeekingAlpha.com. Aplt.'s
App. at 46, 95-119 (Pump Stopper, Root9: -82.5% Downside
On Management Fraud Allegations, Cyber Failure And Bankruptcy
- Strong Sell, Seeking Alpha, dated June 15, 2015). In
the article, the author claimed that the financial results
reported for the Cyber Solutions sector of root9B's
business reflected "a one-time[, ] low margin hardware
installation," and the resale and installation of a
product called Digital Shield. Id. at 47. The author
allegedly based his or her claims on an interview with Mr.
Smith, root9B's CFO. Mr. Hampton claims that, as a result
of the Pump Stopper article, root9B's share price fell by
9% on June 15, 2015 on heavy trading, from $1.87 to $1.70.
The share price fell an additional 40%, to $1.02, by June 23,
claims were first filed in the United States District Court
for the Central District of California by Ty Messerli, on
behalf of others similarly situated. Those claims were
transferred to the District of Colorado on September 29,
2015. A magistrate judge granted Mr. Hampton's motion for
appointment as lead plaintiff, which was unopposed. See
Hampton v. Root9B Techs., Inc., Dist. Ct. No.
15-cv-02152-MSK-MEH, Doc. 18, at 1-2 (Order, dated Oct. 14,
Hampton filed an amended class-action complaint on January 4,
2016, alleging violations of Securities Exchange Act
§§ 10(b) and 20(a), and SEC Rule 10b-5, and also
purporting to represent a class of "all persons who
acquired root9B securities between October 17, 2014 and June
15, 2015, inclusive." Aplt.'s App. at 13, 15.
Defendants moved to dismiss the amended complaint on February
18, 2016. Mr. Hampton filed a brief in opposition to the
motion to dismiss.
district court, adopting in part and rejecting in part the
magistrate judge's recommendation, entered an opinion and
final judgment on September 21, 2016 that granted
Defendants' motion to dismiss all claims. Aplt.'s
App. at 404 (Op. & Order Granting Mot. to Dismiss, dated
Sept. 21, 2016), 417 (Final J., dated Sept. 21, 2016). The
district court held that Mr. Hampton had failed to state a
claim under § 10(b) or § 20(a) because his
"allegations [were] ...