Id. Neither of these press releases makes any mention whatsoever of the Company’s
accounting for deferred revenue or chargeback levels. Moreover, plaintiff concedes the
Company disclosed the increase in chargeback reserves from one to five percent on
August 12, 2005. CAC at ¶ 43. As the rise in chargeback levels was announced more
than a year before the cited press releases, there can be no causal relationship
between that issue and the decline in the Company’s share price.
Indeed, if the Company misstated revenue by taking it too soon (as alleged in the
deferred revenue theory), that would have inflated the balance sheet. Plaintiff, however,
has alleged no facts as to any dollar amounts, how the revenue was inflated or when
the adjustment was made or how that affected the stock.
Moreover, the press releases are insufficient to establish loss causation as to the
business model theory of fraud. The mere announcement of investigations regarding
“efficacy or trading success” and “marketing activities,” without any subsequent
disclosure of actual misconduct, can hardly be considered a “revelation” that the
Company’s business model is a “sham.” The Company’s announcement that it would
be withdrawing the EduTrades registration statement similarly does not identify, reveal,
or correct any prior misstatement or omission regarding the legitimacy of the Company’s
business model and, therefore, does not qualify as a corrective disclosure for loss
Plaintiff relies on In re Bradley Pharms. Sec. Litig., 421 F. Supp. 2d 822 (D.N.J.
2006), for the proposition that a drop in stock price following the disclosure of a
governmental investigation is sufficient to establish loss causation. However, Bradley is
distinguishable because, there the press release announcing an SEC investigation was