"Everywhere You Want to Be" Except Federal Court

The recent dismissal by a California federal court of a securities class action against Visa and several of its directors and officers highlights how disclosure of government investigations can be used to defeat subsequent securities fraud claims at the pleading stage. The decision also shows how a rapid recovery from a price decline following bad news can be used to refute allegations of loss causation, a critical element of a securities claim. In addition, the decision demonstrates the importance in the right cases of contesting loss causation (along with the more traditional arguments deployed with respect to materiality and scienter) at the motion to dismiss.

In Cai v. Visa, the U.S. District Court for the Northern District of California dismissed the complaint after concluding the plaintiffs had not sufficiently linked allegedly false and misleading statements to a drop in the company's stock price following its announcement of a forthcoming antitrust lawsuit and noting that Visa's stock price quickly rebounded shortly after the announcement.¹ In Cai, the plaintiffs alleged that the announcement by the U.S. Department of Justice (DOJ) of a civil antitrust lawsuit against Visa related to its debit card business had revealed the "truth" Visa had previously concealed that its debit card revenue was inflated by violating federal antitrust law, causing the stock to drop by 6.6 percent. The defendants pointed out – and the court agreed – that the antitrust investigation that had led to the lawsuit was disclosed three years earlier and that Visa's stock price had fully recovered the loss and, indeed, exceeded the pre-announcement stock price within a matter of days. Accordingly, the court found that the news did not correct a prior misrepresentation and, thus, could not have caused any loss, and that the immediate price rebound contradicted the notion that the price decline was caused by the disclosure.

The decision is notable for how the court framed and applied two familiar loss‑causation concepts together – absence of a causal link and a rapid price recovery – in a way that provides a clear road map for asserting similar defenses.

Key Takeaways

• Early, Robust Risk Disclosures Can Provide Meaningful Defensive Value. Visa's decision to disclose the DOJ investigation years before a complaint was filed proved strategically beneficial, illustrating that early warnings – when material and appropriately framed – may blunt later loss‑causation theories.
• Voluntary Disclosure of Informal Regulatory Inquiries May Be Advantageous. Cai shows that early disclosure of government investigations can help defeat later securities fraud allegations by preventing plaintiffs from claiming that subsequent developments revealed any "new" corrective truth.
• Stock Price Monitoring Can Help Predict Litigation Risk. A company's post‑disclosure price rebound (or lack thereof) can signal whether plaintiffs' firms may proceed from public "investigations" to filing a securities class action complaint.
• Cai Offers a Road Map for a Two‑Pronged Motion‑to‑Dismiss Strategy. By arguing both 1) no revelation of new fraud-related information and 2) no lasting price impact, companies can increase the likelihood of defeating securities fraud claims at the pleading stage.

Background

The Cai plaintiffs alleged that Visa and its current and former CEO, current and former CFO, chief accounting officer, group president, and chief product and strategy officer (collectively, Visa), misled investors about the impact of debit card regulations on its business. According to the complaint, Visa had been generating debit card revenue by to sidestepping the so-called Durbin Amendment, which limits the interchange fees banks can charge and requires merchants to have access to at least two unaffiliated debit‑routing networks. On September 23, 2024, after the market closed, media reports broke that the DOJ was preparing to file an antitrust lawsuit against Visa over its debit practices. Visa's stock price fell 6.6 percent over the next two trading days. Notably, however, Visa previously had publicly disclosed – in March 2021 – that the DOJ was investigating alleged violations of federal law by Visa with respect to its debit business.

Investor Beibei Cai filed suit in late 2024, purportedly on behalf of a putative class of Visa shareholders, claiming securities fraud under Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 (Exchange Act). The plaintiffs alleged that Visa and its executives misrepresented the reasons behind its high debit card routing volume to hide supposedly anti-competitive conduct, through three categories of misleading statements: 1) earnings call and investor conference statements that omitted the impact of a Federal Reserve Rule implemented by the Durbin Amendment on routing volume, 2) FinTech‑related statements at investor conferences and 3) statements in Visa's public filings. Visa moved to dismiss the complaint, arguing lack of loss causation.² First, Visa contended the plaintiffs never tied any alleged misrepresentation to the stock drop – in other words, nothing in the September 2024 news specifically corrected a prior false statement. Second, Visa argued that the stock price's "quick and sustained" recovery after the modest dip negated any inference that the drop was caused by fraud. See Cai Order at 8.

Of note, by late September 2024 (just days after the news), Visa's share price had already bounced back above its pre-drop level and, by mid-October, it exceeded its price before the disclosure. The plaintiffs opposed Visa's motion, arguing that the stock price drop following the DOJ's complaint was sufficient to establish a causal connection between the alleged fraud and the plaintiffs' alleged losses. The court agreed with Visa on both points.

On December 10, 2025, the court granted Visa's motion to dismiss, holding that the complaint failed to adequately plead loss causation.³ In particular, the court found 1) the complaint did not plausibly connect any alleged misstatement about Visa's debit practices to the subsequent stock price decline and 2) the swift price rebound refuted an inference that investors suffered any losses.

Two-Pronged Dismissal for Lack of Loss Causation

To survive a motion to dismiss, a securities fraud complaint must plausibly allege "loss causation," meaning a causal link between the alleged misrepresentation and the economic loss. The bar is lower than for the particularity required for pleading scienter; however, loss causation need not await summary judgment in circumstances such as those present in Cai. The standard varies somewhat among circuits, but in the U.S. Court of Appeals for the Ninth Circuit, to plead loss causation, a plaintiff must allege that the decline in the defendant's stock price was proximately caused by a revelation of fraudulent activity rather than by changing market conditions, changing investor expectations or other unrelated factors.⁴

In practical terms, this usually requires pleading that new information revealing the fraud came to light and caused the stock price to go down. The Cai decision highlights two independent arguments a defendant can raise to challenge loss causation early: 1) The plaintiff fails to tie the supposed "truth" to a prior misstatement and 2) the stock price drop was fleeting and fully recovered. Both prongs can be case-dispositive at the pleading stage, as seen in Cai, and both have support in case law across multiple circuits.

First Line of Attack: No Causal Connection

In Cai, the defendants first attacked the causal linkage between the alleged fraud and stock drop. Here, the defense argument is that the complaint does not connect the price decline to any revelation of fraud attributable to the defendants' misstatements. In Cai, the plaintiffs claimed that the "truth" was exposed by the late September 2024 news articles and DOJ's eventual lawsuit. See Cai Order at 9. But the court found this theory lacking as the complaint did not identify a misrepresentation by Visa that was corrected by those news reports. In fact, the DOJ's investigation was old news as Visa had disclosed the DOJ probe years earlier, in 2021. Thus, to the extent the September 2024 articles reiterated that DOJ enforcement was coming, they "occurred before the filing of the DOJ complaint" and added little new information. See id. at 10. The stock drop of about 5.5 percent on September 24 was not explicitly tied to any fraud being unmasked – it appeared to be a reaction to the prospect of a government lawsuit, not a corrective disclosure of prior misrepresentations. As the court explained, "more is needed" at the pleading stage, and a plaintiff must at least give defendants some indication that the price decline was causally related to a fraud that had been concealed. See id. at 10. Simply pointing to a stock drop following negative news, without showing that the news revealed the falsity of the defendant's statements, is insufficient.

This decision is consistent with Ninth Circuit precedent, which requires plaintiffs to plead facts indicating that "the drop in stock price was causally related to the defendant's misstatements" and that "the truth became known" and directly affected the stock. In Metzler Investment GMBH v. Corinthian Colleges, the Ninth Circuit affirmed dismissal where the complaint failed to link a stock decline to any disclosure that corrected the alleged fraud, noting that if other factors or earlier disclosures explain the drop, loss causation is not met.⁵ Like in Cai, in applying Metzler, courts in the Ninth Circuit have held that a plaintiff must allege that a defendant's fraudulent practices were "revealed to the market" and caused the defendant's share price to fall significantly "after the truth became known" to the market.⁶ In Ambow, the court found that "[l]oss causation is [] absent as a matter of law" where there was no "revelation of some wrongdoing to the market" and the "ensuing decline in stock price cannot be attributed to the alleged fraud." Id.

The U.S. Court of Appeals for the Second Circuit follows a similar approach. There, a plaintiff must plead that "the subject of the fraudulent statement or omission was the cause of the actual loss suffered," rather than some other intervening cause.⁷ In other words, if the loss coincides with a broader market downturn or an unrelated event, or if the purported "corrective" information was already public, the causal chain is too attenuated. In applying Lentell v. Merrill Lynch & Co., Inc., courts in the Second Circuit have held that "the plaintiff's complaint must plead that the loss was foreseeable and caused by the materialization of the risk concealed by the fraudulent statement."⁸ Without this, dismissal is appropriate.

The U.S. Court of Appeals for the Fifth Circuit takes a similar but distinct approach, emphasizing that a purported corrective disclosure must do more than invite market speculation – it must disclose information that "makes the existence of the actionable fraud more probable than it would be without that alleged fact."⁹ In Public Employees' Ret. Sys. of Mississippi v. Amedisys, Inc., the court held that analyst reports calling for "deeper scrutiny" or executive resignations were insufficient standing alone because "speculation of wrongdoing cannot by itself arise to a corrective disclosure," but it ultimately found loss causation adequately alleged when the plaintiffs identified new, corrective financial information revealing operational changes attributable to the alleged fraud. This framework places the Fifth Circuit squarely with the Second and Ninth Circuits in rejecting mere investor suspicion as a basis for loss causation while still permitting plaintiffs to rely on a totality of partial disclosures – as long as at least one of them actually introduces new facts that make the alleged fraud meaningfully more probable.

The takeaway is that companies should closely scrutinize the alleged "corrective" event. If the complaint fails to connect the dots between a prior misrepresentation and the stock drop – for instance, if the supposed corrective disclosure is not actually new or does not contradict the company's statements – a motion to dismiss for lack of loss causation can have real teeth. In Cai, this prong alone was fatal as nowhere did the plaintiffs show that Visa's stock fell because the truth about an earlier misrepresentation emerged. Other circuits – such as the Ninth and Second Circuits – likewise endorse dismissing claims when the causal connection is too tenuous or speculative.¹⁰

Second Line of Attack: Quick Stock Price Recovery – No Lasting Loss

The second prong of the defense strategy focuses on what happens after the stock price drops. Notwithstanding whether "the truth" was revealed, did the disclosure actually inflict a lasting economic loss on investors? If the stock price rebounded quickly, the argument is that the market essentially shrugged off the news – undermining any inference that the disclosure caused a meaningful, enduring loss. In Cai, this is exactly what happened with Visa's stock. After dropping to around $269 on September 25, 2024, Visa's shares bounced back above $275 by September 27 and, by October 17, they were trading around $290 (higher than before the news). The Cai court held that this "quick and sustained" recovery "refutes [the] inference" that the alleged fraud caused any material decline in the stock's value. In other words, because the price dip was so short-lived, the market did not ultimately view the disclosure as damaging and, therefore, one cannot reasonably attribute a loss to the purported corrective disclosure.

The Ninth Circuit's decision in Wochos v. Tesla, Inc. illustrates this "rebound defense" well. In Wochos, Tesla's stock price fell on news that cast doubt on Elon Musk's production pronouncements, but "the stock price immediately rebounded" by the next trading day and soon exceeded the pre-disclosure price.¹¹ The Ninth Circuit held that this rapid recovery "refute[d] the inference that the alleged concealment of [the truth] caused any material drop in the stock price." Because the losses evaporated almost overnight, the plaintiffs could not show that the disclosure resulted in any lasting harm. The logic is straightforward: If the market corrects the price quickly, then the "loss" caused by the disclosure is minimal or nonexistent.

It is important to note that timing matters, as a rebound must be truly prompt to support dismissal – courts have distinguished between an immediate recovery and a delayed one. For example, in Hable v. Godenzi, a federal court in Nevada assessing a crypto token case reasoned that prior precedents (such as Wochos and Metzler) involved rebounds in "mere days," whereas in that case, the token took about one month to recover, which the court found was too long to categorically negate loss causation at the pleading stage.¹² Because the price remained depressed for several weeks, the court could not exclude the possibility that the disclosure caused a meaningful loss.¹³ The lesson is that a defendant can leverage a rapid bounceback as a powerful defense, but if the recovery occurs only after an extended period, the "no loss, no causation" argument carries less weight – as shown by the court's holding in Hable.

From a strategic perspective, this argument capitalizes on market volatility dynamics. In today's tumultuous markets, stock prices often fluctuate because of factors unrelated to a company's fraud. A sharp one-day dip followed immediately by a rally might indicate that the drop was an overreaction or the result of external forces, rather than a permanent destruction of value caused by fraud. Companies should analyze post-disclosure trading closely, as a quick rebound can bolster the argument that investors who held the stock didn't suffer a lasting decline. Indeed, those who didn't sell during the brief dip may have no compensable loss at all. Though plaintiffs might counter that subsequent gains could stem from other positive news, as seen, courts are willing to infer from an immediate recovery that the alleged fraud wasn't the true driver of the stock's longer-term price.

The SECond Opinions Blog will continue to monitor this topic and provide updates. If you need additional information on this or any topic related to securities litigation, securities enforcement or investigations, please contact the authors or other members of Holland & Knight's Securities Litigation Team or Securities Enforcement Defense Team.

Notes

¹ Beibei Cai v. Visa Inc., et al., No. 24-cv-08220 (N.D. Cal. Dec. 10, 2025).

² Visa also argued no falsity or scienter, but the court did not address those arguments.

³ The plaintiffs filed their Second Amended Complaint (SAC) on January 9, 2026. Visa moved to dismiss on January 23, 2026, arguing that the SAC still fails to plead loss causation, falsity or scienter and should be dismissed with prejudice because the plaintiffs have added nothing substantive to cure the defects dismissed by the court previously. As to loss causation, Visa argued that the plaintiffs still do not allege that the "truth became known," do not show that the disclosures revealed fraud, do not link the disclosures to the alleged misstatements and cannot overcome the undisputed quick stock recovery – so loss causation remains inadequately pled.

⁴ Loos v. Immersion Corp., 762 F.3d 880, 887 (9th Cir. 2014), as amended (Sept. 11, 2014).

⁵ Metzler Inv. GMBH v. Corinthian Colleges, Inc., 540 F.3d 1049, 1062–65 (9th Cir. 2008).

⁶ Brown v. Ambow Educ. Holding Ltd., 2014 WL 523166, at *8–9 (C.D. Cal. Feb. 6, 2014).

⁷ Lentell v. Merrill Lynch & Co., Inc., 396 F.3d 161, 173 (2d Cir. 2005).

⁸ ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 107 (2d Cir. 2007).

⁹ Public Employees' Ret. Sys. of Mississippi v. Amedisys, Inc., 769 F.3d 313, 321 (5th Cir. 2014).

¹⁰ A recent U.S. Court of Appeals for the Eleventh Circuit decision (reviving a securities suit against an energy company) took a more plaintiff-friendly stance on what counts as revealing the truth. The appellate panel cautioned that at the motion to dismiss stage, courts should not search for "a singular corrective disclosure" or demand that a company explicitly confess the fraud. Instead, one must consider the total mix of information that hit the market and whether, taken together, it "necessarily reveal[ed] something" about the falsity of the company's prior statements. The Eleventh Circuit found that a combination of partial disclosures – including a risk factor warning, the abrupt retirement of a CEO and analysts' commentary – did plausibly alert the market to the alleged falsehood of the company's earlier denials. In reinstating the case, the appeals court found that loss causation at the pleading stage requires only a Rule 8 plausible showing of linkage, not the particularity of Rule 9(b) or proof of causation. The defendants filed a petition for rehearing en banc on January 7, 2026, arguing that the court's decision is out of step with Eleventh Circuit precedent and that if left undone would create the "the nation's most permissive loss-causation standard." On February 11, 2026, the petition for rehearing was denied, and the case was remanded to the district court.

¹¹ Wochos v. Tesla, Inc., 985 F.3d 1180, 1198 (9th Cir. 2021).

¹² Hable v. Godenzi, 2023 WL 8653185 at *8 (D. Nev. Dec. 12, 2023), aff'd, 2024 WL 5252227 (9th Cir. Dec. 31, 2024).

¹³ Though the court in Hable still dismissed because the plaintiff did not "properly plead a material misrepresentation whose revelation cause the alleged drop in stock price." Hable, 2023 WL 8653185 at *8.