                 FOR PUBLICATION

  UNITED STATES COURT OF APPEALS
       FOR THE NINTH CIRCUIT


POLICE RETIREMENT SYSTEM OF ST.           No. 12-16430
LOUIS, individually and on behalf of
all others similarly situated,               D.C. No.
                   Plaintiff-Appellant,   5:10-cv-03451-
                                               LHK
                  v.

INTUITIVE SURGICAL, INC.;                   OPINION
BENJAMIN GONG; ALEKS CUKIC;
JEROME MCNAMARA; MARK J.
RUBASH; GARY GUTHART;
MARSHALL MOHR; LONNIE SMITH,
             Defendants-Appellees.


      Appeal from the United States District Court
        for the Northern District of California
        Lucy H. Koh, District Judge, Presiding

                 Argued and Submitted
       March 14, 2014—San Francisco, California

                    Filed July 16, 2014

       Before: Jerome Farris, A. Wallace Tashima,
       and M. Margaret McKeown, Circuit Judges.

               Opinion by Judge McKeown
2     POLICE RETIREMENT SYS. V. INTUITIVE SURGICAL

                           SUMMARY*


                         Securities Fraud

    The panel affirmed the dismissal of a securities fraud
action brought under §§ 10(b) and 20(a) of the Securities
Exchange Act of 1934 and Securities and Exchange Rule
10b-5 by purchasers of the stock of a company that designed,
manufactured, and marketed robotic surgical devices.

     The complaint alleged that through its executives the
company knowingly issued false and misleading statements
regarding its growth and financial health, which caused
artificial inflation of the share price. The panel held that the
company’s statements were, in large part, non-actionable
forward-looking statements or garden variety corporate
optimism. The panel also held that the complaint was
deficient in suggesting that the executives made false
statements with knowing or reckless disregard for the
company’s economic circumstances. The panel concluded
that the complaint did not meet the heightened pleading
requirements under Federal Rule of Civil Procedure 9(b) and
the Private Securities Litigation Reform Act of 1995.




  *
    This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
     POLICE RETIREMENT SYS. V. INTUITIVE SURGICAL            3

                         COUNSEL

Ian D. Berg (argued) and Takeo A. Kellar, Abraham, Fruchter
& Twersky, LLP, San Diego, California; Atara Hirsch and
Mitchell M.Z. Twersky, Abraham, Fruchter, & Twersky,
LLP, New York, New York, for Plaintiff-Appellant.

Michael D. Celio (argued), Robert A. Van Nest, and Cody S.
Harris, Keker & Van Nest LLP, San Francisco, California, for
Defendants-Appellees.


                         OPINION

McKEOWN, Circuit Judge:

    This case, involving robotic surgical devices, raises the
question of how precise public statements of a company’s
potential growth must be to comply with the anti-fraud
protections of the securities laws. Intuitive Surgical, Inc.
(“Intuitive”) is a corporation that designs, manufactures, and
markets da Vinci Surgical Systems (“Systems”), cutting-edge
robotic devices used for minimally invasive surgeries. The
Police Retirement System of St. Louis (“PRS”) is a public
pension fund that purchased shares of Intuitive stock.

    PRS brought a class action suit against Intuitive on behalf
of purchasers of Intuitive common stock, alleging violations
of §§ 10(b) and 20(a) of the Securities Exchange Act of 1934
and Securities and Exchange Commission (“SEC”) Rule 10b-
5. See 15 U.S.C. §§ 78j(b), 78t(a); 17 C.F.R. § 240.10b–5.
PRS also named as defendants the following Intuitive
executives (collectively, the “individual defendants”): Lonnie
M. Smith, the CEO and Chairman of the Board of Directors;
4    POLICE RETIREMENT SYS. V. INTUITIVE SURGICAL

Gary S. Guthart, the President and COO;1 Jerome J.
McNamara, the Executive Vice President of Worldwide Sales
and Marketing; Marshall L. Mohr, the Senior Vice President
and CFO; Aleks Cukic, the Vice President of Business
Development and Strategic Planning; and Benjamin Gong,
the Vice President of Finance.

     The complaint alleges that through its executives Intuitive
knowingly issued false and misleading statements regarding
the company’s growth and financial health, which caused
artificial inflation of the share price throughout the Class
Period, from February 1, 2008 to January 7, 2009, resulting
in losses to the class members. Despite the nearly six
hundred allegations contained in the over three-hundred-page
complaint, the company’s statements are, in large part,
forward-looking statements or garden variety corporate
optimism—neither category is actionable under the securities
laws. The complaint is also deficient in suggesting that the
executives made false statements with knowing or reckless
disregard for Intuitive’s economic circumstances. Although
PRS tries to paint a picture of Intuitive’s affirmative
misrepresentations, we conclude that after two amendments,
the complaint does not meet the heightened pleading
requirements under Federal Rule of Civil Procedure 9(b) and
the Private Securities Litigation Reform Act of 1995
(“PSLRA”), 15 U.S.C. § 78u-4.

        BACKGROUND AND PROCEDURAL HISTORY

    Intuitive sells Systems and instruments for robotic
surgeries, specifically da Vinci Prostatectomy procedures

 1
   Guthart served as President and COO during the Class Period. He now
serves as CEO and Director.
      POLICE RETIREMENT SYS. V. INTUITIVE SURGICAL                      5

(“dVP”) and da Vinci Hysterectomy procedures (“dVH”).
The sale of new Systems2 and instruments (“system
placement”) and of replacement instruments (“recurring
revenue”) to hospitals generates Intuitive’s revenue. Revenue
grew continuously from 1999, when the Systems were first
introduced, to 2007. For example, Intuitive share price closed
at $87.11 in January 2007 and grew to $353.00 by December
2007.

    The landscape changed significantly in the first quarter of
2008 when the share price fell to $280.50. Shortly after
Intuitive announced these results, Oppenheimer & Co.
released a report (“the Oppenheimer Report”), expressing the
view, corroborated by other sources, that Intuitive’s first
quarter of 2008 share price “was nowhere near enough to
sustain [its] valuation” and that system placement was
decelerating.

    Stock prices and revenues continued to fall, and, by the
end of the Class Period, the share price closed at $110.54.
Around this time, the Board of Directors adopted a severance
plan providing for generous benefits to the individual
defendants in the event of a change in control of the
company. Ultimately, Intuitive disclosed that “it was unable
to sustain system placement growth,” and 2008 revenue


  2
    The Systems are comprised of “a Surgeon’s Console, a Patient-Side
Cart, a high performance Vision System and proprietary ‘wristed’
instruments—called EndoWrist instruments—and other surgical
accessories.” Using the Systems, which employ “hardware, software,
algorithms, mechanics and optics to translate the surgeon’s hand
movements on the controls into precise and corresponding real-time micro
movements of the EndoWrist instruments positioned inside the patient,”
surgeons “operate while seated at a console and viewing a high resolution,
3-Dimensional (3-D) image of the surgical field.”
6    POLICE RETIREMENT SYS. V. INTUITIVE SURGICAL

increased only 46%, meeting the company’s guidance of 40%
growth, but falling slightly short of its expected 49–50%
growth for 2007.

    PRS alleges that in the 2007 Annual Report filed with the
SEC and in four analyst calls in 2008, Intuitive knowingly or
recklessly misrepresented the company’s financial situation.
The report warned that an economic downturn “may have
significant impact on the ability of our customers to secure
funding to buy our products or might cause purchasing
decisions to be delayed. . . . [, which] may result in decreased
revenues and also allow our competitors additional time to
develop products that may have a competitive edge, making
future sales of our products more difficult.” The analyst calls
also contained warnings that certain forward-looking
statements might be made and that “[a]ctual results may
differ materially from those expressed or implied, as a result
of certain risks and uncertainties,” such that “investors are
cautioned not to place undue reliance on such
forward-looking statements.”

    Relying on witness accounts, PRS alleges that the
individual defendants “by virtue of their positions with the
company, had access to adverse undisclosed information
about the company’s business, operations, operational trends,
financial statements, markets and present and future business
prospects via internal corporate documents, conversations and
connections with other corporate officers and employees,
attendance at management and board of directors meetings
and committees thereof, and via reports and other information
provided to them in connection therewith.” According to the
witnesses, Intuitive’s proprietary software tracked each use of
the Systems for each procedure down to the types of
movements involved, and this information,“was used to track
     POLICE RETIREMENT SYS. V. INTUITIVE SURGICAL           7

all aspects of [Intuitive’s] business in real-time and to
generate reports on [Intuitive’s] business operations and
business goals.” PRS also points to witness accounts that this
software was “accessible on-line and thus available at all
times” to the individual defendants. One witness described
the company’s management as “top-down,” with the
individual defendants “play[ing] very active roles in running
the day-to-day operations.”

    Based on the witness accounts, PRS asserts that the
individual defendants knew of or recklessly disregarded the
falsity of certain public statements and disclosures because
the proprietary software reflected a different situation.
Although the individual defendants publicly claimed that the
company would remain in a growth position, PRS alleges that
the individual defendants knew or should have known that
system placement was decreasing because of the economic
downturn, market saturation, and sales and service trends, and
that this decreased growth was evident from the
software-generated reports to which the executives had
access.

    In addition to alleging false statements, PRS claims that
statements about increased revenue were misleading because
Intuitive did not disclose known trends, including the facts
that revenue increased due to price increases for Systems
rather than higher system placement rates; the economic
crisis would continue to impact system placement negatively;
market saturation was also causing decreased system
placement; diminished system placement would impact
recurring revenue; and the number of dVP procedures, which
generate the most revenue per procedure, was decelerating
faster than disclosed and would result in decreased system
placement that the growth in dVH procedures would not
8    POLICE RETIREMENT SYS. V. INTUITIVE SURGICAL

offset. These representations allegedly “misled investors
about the sustainability of system placement growth . . . and
[r]ecurring revenue growth.”

    PRS also highlights other allegedly suspicious activity
during the Class Period.          The already-significant
compensation of Intuitive executives spiked. Smith, Guthart,
McNamara, and Mohr made lucrative sales of Intuitive stock
allegedly based on insider information. Finally, in March
2009, three months following the end of the Class Period, the
Board of Directors, led by Smith, authorized a stock buy
back, which was privately negotiated with the individual
defendants.

   After two amendments, the district court dismissed the
complaint with prejudice for failure to state a claim under
Federal Rules of Civil Procedure 9(b) and (12)(b)(6).

                         ANALYSIS

    The adoption of the PSLRA in 1995 spurred a growing
body of appellate precedent related to pleading requirements
in securities suits. See, e.g., Tellabs, Inc. v. Makor Issues &
Rights, Ltd., 551 U.S. 308 (2007); In re VeriFone Holdings,
Inc. Sec. Litig., 704 F.3d 694 (9th Cir. 2012). The PSLRA
standards, though well known, require careful application in
each case, particularly in evaluating dismissal under Federal
Rules of Civil Procedure 9(b) and 12(b)(6). See Tellabs,
551 U.S. at 313. Rule 10b-5, which implements the anti-
fraud provisions of section 10(b) of the Securities Exchange
Act, makes it “unlawful for any person, directly or indirectly,
by the use of any means or instrumentality of interstate
commerce, or of the mails or of any facility of any national
securities exchange . . . [t]o make any untrue statement of a
     POLICE RETIREMENT SYS. V. INTUITIVE SURGICAL            9

material fact or to omit to state a material fact necessary in
order to make the statements made, in the light of the
circumstances under which they were made, not misleading.”
17 C.F.R. § 240.10b–5. To state a claim for securities fraud,
a complaint must allege: “(1) a material misrepresentation or
omission by the defendant; (2) scienter; (3) a connection
between the misrepresentation or omission and the purchase
or sale of a security; (4) reliance upon the misrepresentation
or omission; (5) economic loss; and (6) loss causation.”
Halliburton Co. v. Erica P. John Fund, Inc., —S. Ct.—, No.
13-317, 2014 WL 2807181, at *6 (June 23, 2014) (citations
omitted). Only the first and second elements—material
misrepresentations or omissions and scienter—are at issue in
this appeal.

    In our de novo review of the district court’s dismissal for
failure to state a claim, we accept as true all allegations of
material fact and “construe them in the light most favorable
to the nonmoving party.” Parks Sch. of Bus., Inc. v.
Symington, 51 F.3d 1480, 1484 (9th Cir. 1995). A fraud
claim must satisfy both the pleading requirements of the
PSLRA and the heightened pleading standard of Rule 9(b),
which requires that the complaint “state with particularity the
circumstances constituting fraud.” Fed. R. Civ. P. 9(b); see
also Reese v. Malone, 747 F.3d 557, 568 (9th Cir. 2014). The
PSLRA also imposes “more exacting pleading requirements”
including, among other things, that the complaint “state with
particularity facts giving rise to a strong inference that the
defendant acted with the required state of mind,” 15 U.S.C.
§ 78u-4(b)(2)(A). Zucco Partners, LLC v. Digimarc Corp.,
552 F.3d 981, 991 (9th Cir. 2009). Although we examine
individual allegations in order to benchmark whether they are
actionable, we consider the allegations collectively and
10    POLICE RETIREMENT SYS. V. INTUITIVE SURGICAL

examine the complaint as a whole. See Tellabs, 551 U.S. at
322–23.

I. Material Misstatements or Omissions

    To meet the materiality requirement of Rule 10b-5, the
complaint must allege facts sufficient to support the inference
that there is “a substantial likelihood that the disclosure of the
omitted 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) (internal quotation marks
omitted). The heart of PRS’s allegations, which target
misstatements made during various analyst calls, are not
actionable because they are forward-looking statements
covered by the safe harbor provision of the PSLRA or mere
corporate puffery. Nor are the claimed omissions in the 2007
Annual Report actionable because they are not material.

     A. Safe Harbor for Forward-Looking Statements

    The PSLRA’s safe harbor provision exempts, under
certain circumstances, a forward-looking statement, which is
“any statement regarding (1) financial projections, (2) plans
and objectives of management for future operations,
(3) future economic performance, or (4) the assumptions
underlying or related to any of these issues.” No. 84
Emp’r-Teamster Joint Council Pension Trust Fund v. Am. W.
Holding Corp., 320 F.3d 920, 936 (9th Cir. 2003) (internal
quotation marks omitted). The safe harbor applies if the
forward-looking statement is “(i) identified as a
forward-looking statement, and is accompanied by
meaningful cautionary statements identifying important
factors that could cause actual results to differ materially
      POLICE RETIREMENT SYS. V. INTUITIVE SURGICAL                    11

from those in the forward-looking statement,” or (ii) if it is
not identified as a forward-looking statement and not
accompanied by cautionary language, unless the statement
was “made with actual knowledge . . . that the statement was
false or misleading.” 15 U.S.C. § 78u-5(c)(1); see In re
Cutera Sec. Litig., 610 F.3d 1103, 1108 (9th Cir. 2010).

    The alleged misstatements in analyst calls are classic
growth and revenue projections, which are forward-looking
on their face. See id. at 1111 (“[An] earnings projection is by
definition a forward-looking statement.”). Statements such
as “[i]nstrument and accessor[ies] revenues . . . are expected
to grow approximately 55% over 2007,” “we continue to
expect dVP procedures to grow approximately 40% . . . .,”
and “we are now forecasting our system revenue to grow
45–46% over 2007,” are illustrative examples of Intuitive’s
revenue projections. Contrary to PRS’s assertions, the
statements are not “misleading as to the then-present effects
and circumstances,”of known trends on Intuitive’s financial
health; they plainly project expectations for future growth.
We adopt the district court’s analysis regarding these
statements.

    We also identify three additional statements, beyond those
the district court identified, as falling within the safe harbor.3
As with the other statements, these responses during the
analyst calls relate to future economic performance or
assumptions underlying those projections:



 3
   The district court deemed these statements were not actionable because
they were not false or misleading and were not made with scienter. Police
Ret. Sys. of St. Louis v. Intuitive Surgical, Inc., No. 10-CV-03451, 2012
WL 1868874, at *15 (N.D. Cal. May 22, 2012).
12    POLICE RETIREMENT SYS. V. INTUITIVE SURGICAL

     • “Gynecology plays a bigger and bigger role each
     day . . .[G]ynecology is a big player in that, and I
     think will continue to be and continue to expand.”

     • “So those procedures, GYN procedures . . . you’ll
     see that the addition of those procedures has required
     a lot of hospitals to get third and fourth systems. And
     we see that continuing.”

     • “You guys probably know more than we do.
     Clearly it’s not a positive for anyone. We haven’t
     seen a significant impact yet [on System leasing].
     And that is all I can say . . . . I suspect that they may
     increase—our leasing companies still have an appetite
     for these devices.”

    PRS also argues that, in the case of mixed statements, the
non-forward looking portions of statements are actionable.
We need not resolve whether the safe harbor covers non-
forward-looking portions of forward-looking statements
because, examined as a whole, the challenged statements
related to future expectations and performance. See Cutera,
610 F.3d at 1111–12. Only two statements plausibly fall in
this category. In answer to a question about lower capital
expenditures by hospitals, Mohr stated: “At the present time,
we don’t have any indicators that tell us that’s the case. But
we’re early into this.” This statement is properly classified as
an assumption “underlying or related to” projections for
lower hospital expenditures on Systems. See No. 84
Emp’r-Teamster Joint Council Pension Trust Fund, 320 F.3d
at 936. Similarly, when asked if anything in the “external
environment” made the executives nervous about System
purchases in the next twelve months, Smith responded:
“[T]here’s always a decision within a hospital of how do they
     POLICE RETIREMENT SYS. V. INTUITIVE SURGICAL                13

prioritize their capital investment . . . I think we come up
typically fairly high on that priority list. . . . We aren’t
hear[ing] anything that causes us any significant concern
. . . no change from last quarter, I guess . . . .” In context, this
statement is properly understood as regarding Smith’s
expectations of the future impact of the external economic
environment on Intuitive.

    Next, PRS challenges the warnings accompanying the
forward-looking statements as inadequate under 15 U.S.C.
§ 78u-5(c)(1)(A)(i). The following disclaimer accompanied
each of the statements:

        Before we begin, I would like to inform you
        that comments mentioned on today’s call may
        be deemed to contain forward-looking
        statements.     Actual results may differ
        materially from those expressed or implied, as
        a result of certain risks and uncertainties.
        These risks and uncertainties are described in
        detail in the company’s [SEC] filings.
        Prospective investors are cautioned not to
        place undue reliance on such forward-looking
        statements.

This cautionary language is virtually identical to the
cautionary language approved in Cutera: “[T]hese prepared
remarks contain forward-looking statements concerning
future financial performance and guidance . . . management
may make additional forward-looking statements in response
to questions, and . . . factors like Cutera’s ability to continue
increasing sales performance worldwide could cause variance
in the results.” 610 F.3d at 1112 (internal quotation marks
and alteration omitted). Because the cautionary language was
14    POLICE RETIREMENT SYS. V. INTUITIVE SURGICAL

sufficient, the forward-looking statements are exempt under
the PSLRA’s safe harbor provision.

     B. Corporate Puffery

     Statements of mere corporate puffery, “vague statements
of optimism like ‘good,’ ‘well-regarded,’ or other feel good
monikers,” are not actionable because “professional investors,
and most amateur investors as well, know how to devalue the
optimism of corporate executives.” Id. at 1111 (internal
quotation marks omitted). Four of the challenged statements
fall into this category. Intuitive communicated optimism
(i) that the opportunity for system placement at hospitals “is
still very, very large”; (ii) that there is potential for growth in
the dVP market; (iii) that the company is “reservedly
optimistic” about sales; and (iv) wishing it had “a crystal
ball,” that Intuitive “will come out stronger” and “in a pretty
good position” despite the economic crisis.

    According to PRS, these pronouncements are objectively
verifiable and thus qualify as material misstatements, not
mere puffery. The statements are, however, the antithesis of
facts. They represent the “feel good” speak that characterizes
“non-actionable puffing.” See id. In Cutera, we detailed
similar statements, noting that such “optimistic, subjective
assessment hardly amounts to a securities violation.” Id.; see
e.g., id. (“[N]one of our employees is represented by a labor
union, and we believe our employee relations are good” and
“everything is clicking [for the 1990s] . . . new products are
coming in a wave, not in a trickle . . . old products are doing
very well”); see also In re Syntex Corp. Sec. Litig., 95 F.3d
922, 934 (9th Cir. 1996) (holding that general statements of
optimism made in an unstable market were “inactionable
forecasts”).
     POLICE RETIREMENT SYS. V. INTUITIVE SURGICAL           15

    PRS relies on Warshaw v. Xoma Corp., 74 F.3d 955 (9th
Cir. 1996), for the uncontroversial proposition that “general
statements of optimism, when taken in context, may form a
basis for a securities fraud claim.” Id. at 959. Though that
broad statement is undoubtedly true, as PRS underscores, the
context in which the statements were made is key. In
Warshaw, “the company, whose financial success depended
on FDA approval . . . made repeated assurances that FDA
approval was ‘imminent’” when it knew that it was not.
Syntex Corp. Sec. Litig., 95 F.3d at 927 (analyzing Warshaw).
So too in Fecht v. Price Co., 70 F.3d 1078 (9th Cir. 1995),
“where company officials had made statements that the
company’s expansion of its retail warehouse operations was
successful and that the expansion increased the company’s
prospects for earnings,” when the officials knew that the
expansion had failed. Syntex Corp. Sec. Litig., 95 F.3d at 927
(analyzing Fecht). In this case, “the market already knew” of
the difficulties facing Intuitive through the Oppenheimer
Report and other sources. See In re Stac Elecs. Sec. Litig., 89
F.3d 1399, 1407 (9th Cir. 1996). In context, any reasonable
investor would have understood Intuitive’s statements as
mere corporate optimism.

    Citing In re Apple Computer Securities Litigation,
886 F.2d 1109 (9th Cir. 1989), PRS argues that these four
statements are not puffery because they were in fact relied on
by investors. However, Apple does not suggest that in
determining whether a statement is mere puffing we should
consider the mindset of the public. See id. at 1116
(“[E]vidence of stock price movements provides no rational
basis for determining whether [the product’s] risks were
adequately conveyed to the public.”). PRS’s construct skips
a step. Absent an actionable misstatement, reliance does not
come into play. See id. at 1113 (“In the usual claim under
16    POLICE RETIREMENT SYS. V. INTUITIVE SURGICAL

Section 10(b), the plaintiff must show individual reliance on
a material misstatement.”). Theoretical reliance cannot
transform corporate optimism into a securities violation.

     C. Actionable Omissions

     PRS takes aim at the 2007 Annual Report Intuitive filed
with the SEC. Acknowledging that the report was factually
accurate, PRS nonetheless claims that certain statements in
the report altered the “total mix” of information available to
investors by failing to disclose “known trends.” In particular,
PRS faults the report for not detailing that system placement
was declining because of market saturation and the economic
downturn, that new Systems were being purchased at higher
utilization rates, and that dVP growth was declining faster
than anticipated.

    In other words, PRS faults Intuitive for not providing a
more fulsome report. The securities laws do not demand such
reporting. Rule 10b–5 prohibits “only misleading and untrue
statements, not statements that are incomplete.” Brody v.
Transitional Hosps. Corp., 280 F.3d 997, 1006 (9th Cir.
2002). We have expressly declined to require a rule of
completeness for securities disclosures because “[n]o matter
how detailed and accurate disclosure statements are, there are
likely to be additional details that could have been disclosed
but were not.” Id. In practical terms, “[t]o be actionable
under the securities laws, an omission must be misleading . . .
it must affirmatively create an impression of a state of affairs
that differs in a material way from the one that actually
exists.” Id.

   Nothing about the statements in the 2007 Annual Report
would give a reasonable investor the impression that
      POLICE RETIREMENT SYS. V. INTUITIVE SURGICAL                       17

Intuitive’s growth was different than it was in reality. The
statements accurately reflect the company’s growth in 2007;
they do not purport to speak to any trends in Intuitive’s
growth or revenues and do not alter the total mix of
information available to investors.4 The 2007 Annual Report
is neither incomplete nor misleading.

II. Scienter

    The remaining challenged statements relate to denials that
the Intuitive sales force observed delayed deals, reduced
System sales, or an impact on buying patterns due to the
economic downturn. Because the complaint failed to allege
facts sufficient to raise a strong inference that the individual
defendants knew of these circumstances, PRS has not
established the necessary scienter under the PSLRA.

    Scienter is “a mental state embracing intent to deceive,
manipulate, or defraud.” Ernst & Ernst v. Hochfelder,
425 U.S. 185, 193 n.12 (1976). To plead scienter, the
complaint must “state with particularity facts giving rise to a
strong inference that the defendant acted with the required
state of mind.” 15 U.S.C. § 78u–4(b)(2)(A). Scienter is
adequately pleaded when “all of the facts alleged, taken


 4
    To the extent that PRS’s argument relies on the failure to comply with
Rule S-K, which requires that “known trends” be disclosed in certain SEC
filings, that allegation is insufficient for a claim under Rule 10(b). See In
re VeriFone Sec. Litig., 11 F.3d 865, 870 (9th Cir. 1993) (“While
§ 229.303(a)(3)(ii) provides that ‘known trends or uncertainties’ be
disclosed in certain SEC filings, another SEC regulation, which expressly
addresses forecasts, states that forward-looking information need not be
disclosed.” (citing 17 C.F.R. § 229.303(a))). Intuitive cannot be liable for
failing to make disclosures it was expressly not required to make under the
securities laws.
18    POLICE RETIREMENT SYS. V. INTUITIVE SURGICAL

collectively, give rise to a strong inference of scienter.”
Tellabs, 551 U.S. at 323. This means that “[a] complaint will
survive . . . only if a reasonable person would deem the
inference of scienter cogent and at least as compelling as any
opposing inference one could draw from the facts alleged.”
Id. at 324.

    PRS endeavors to establish scienter through three
different avenues: (i) a core operations theory; (ii) witness
accounts; and (iii) evidence of insider trading. The factual
allegations fall short of establishing a strong inference of
scienter. Read as a whole, the allegations in the complaint at
best establish “mere recklessness or a motive to commit fraud
and opportunity to do so,” and are “not independently
sufficient.” Reese, 747 F.3d at 569.

     A. Core Operations

     The core operations theory of scienter relies on the
principle that “corporate officers have knowledge of the
critical core operation of their companies.” Id. Core
operations may support a strong inference of scienter under
three circumstances:

        First, the allegations may be used in any form
        along with other allegations that, when read
        together, raise an inference of scienter that is
        cogent and compelling, thus strong in light of
        other explanations . . . . Second, such
        allegations may independently satisfy the
        PSLRA where they are particular and suggest
        that defendants had actual access to the
        disputed information . . . . Finally, such
        allegations may conceivably satisfy the
     POLICE RETIREMENT SYS. V. INTUITIVE SURGICAL          19

       PSLRA standard in a more bare form, without
       accompanying particularized allegations, in
       rare circumstances where the nature of the
       relevant fact is of such prominence that it
       would be absurd to suggest that management
       was without knowledge of the matter.

S. Ferry LP, No. 2 v. Killinger, 542 F.3d 776, 785–86 (9th
Cir. 2008) (internal quotation marks omitted).

    Proof under this theory is not easy. A plaintiff must
produce either specific admissions by one or more corporate
executives of detailed involvement in the minutia of a
company’s operations, such as data monitoring, see id.
(collecting cases); or witness accounts demonstrating that
executives had actual involvement in creating false reports.
See id. at 785 (explaining that information about corporate
structure may raise a strong inference of scienter “in
conjunction with detailed and specific allegations about
management’s exposure to factual information within the
company”); see, e.g., In re Daou Sys., Inc., 411 F.3d 1006,
1022–23 (9th Cir. 2005).

    The complaint lacks allegations of specific admissions by
the individual defendants regarding their involvement with
Intuitive’s operations or with the software-generated reports.
Instead, PRS points to the impressions of witnesses who
lacked direct access to the executives but claim that the
executives were involved with Intuitive’s day-to-day
operations and were familiar with the contents of the
software-generated reports because the substance of the
reports was discussed in meetings. PRS also references
remarks by the individual defendants that they were “going
through the sales pipeline.” The closest PRS gets is a
20   POLICE RETIREMENT SYS. V. INTUITIVE SURGICAL

statement from Smith that “no one has seen any deal delays”
due to “the overall credit crunch market,” which the
complaint misleadingly paraphrases as Smith admitting that
he “actively sought and received information from the sales
force regarding the effects of the economic crisis and credit
crunch on system placements.”

    At best, these facts support a “mere inference of [the
defendants’] knowledge of all core operations,” not scienter.
See S. Ferry LP, 542 F.3d at 785 (internal quotation marks
omitted). Missing are allegations linking specific reports and
their contents to the executives, not to mention the link
between the witnesses and the executives. See, e.g., Zucco,
552 F.3d at 1000 (“[A]llegations that senior management . . .
closely reviewed the accounting numbers generated . . . each
quarter (through the use of the Access databases), and that top
executives had several meetings in which they discussed
quarterly inventory numbers” insufficient to establish
scienter). “[N]egative characterizations of reports relied on
by insiders, without specific reference to the contents of those
reports, are insufficient to meet the heightened pleading
requirements of the PSLRA.” Lipton v. Pathogenesis Corp.,
284 F.3d 1027, 1036 (9th Cir. 2002). The allegations here are
insufficient to defeat the competing inference and conclude
that the executives “had reasonable grounds to believe
material facts existed that were misstated or omitted, but
nonetheless failed to obtain and disclose such facts although
[they] could have done so without extraordinary effort.”
Reese, 747 F.3d at 569 (internal quotation marks omitted).

    Finally, this is not the “rare circumstance” in which it
would be “absurd” to suggest that management was without
knowledge of the contents of the reports because there are no
allegations regarding discussions of the reports’
     POLICE RETIREMENT SYS. V. INTUITIVE SURGICAL          21

contents—other than that some discussions occurred at some
point. See S. Ferry LP, 542 F.3d at 786. Mere access to
reports containing undisclosed sales data is insufficient to
establish a strong inference of scienter. See Zucco, 552 F.3d
at 1001.

   B. Witness Accounts

    Next, PRS points to a single statement by a lone witness,
a clinical sales representative in Florida who worked for
Intuitive for three months and said, “100% that hospitals were
cutting back.” This impression of a low-level employee is
just that—an unsubstantiated statement without substance or
context. The complaint lacks critical information about
whether the statement refers exclusively to the Florida
market, how many hospitals were cutting back, how much
and when the hospitals were cutting back, or whether they
were cutting back on system placement or recurring revenue
sources. This vague and incomplete statement hardly
supports a claim that the individual defendants knew or
should have known that sales were slowing and that Intuitive
would not meet its financial projections.

    Although PRS does not rely on any other witness
accounts to support an inference of scienter, on de novo
review we consider the complaint in its entirety. Other
witness statements similarly lack foundation because they do
not detail the actual contents of the reports the executives
purportedly referenced or had access to; the statements
provide only snippets of information, not a view of the
company’s overall health; and the witnesses lack first hand
knowledge regarding what the individual defendants knew or
did not know about Intuitive’s financial health. Taken as a
whole and crediting the statements, although incomplete,
22    POLICE RETIREMENT SYS. V. INTUITIVE SURGICAL

these allegations do not defeat the competing inference that
the individual defendants thought that Intuitive could get
through the economic downturn without suffering the losses
it ultimately suffered.

     C. Insider Trading

    Intuitive also relies on evidence of insider trading, which
can serve as circumstantial evidence of scienter, but “is
suspicious only when it is dramatically out of line with prior
trading practices at times calculated to maximize the personal
benefit from undisclosed inside information.” Zucco,
552 F.3d at 1005 (internal quotation marks omitted). The
allegations that the individual defendants (excluding Cukic
and Gong) made significant profits from the sale of Intuitive
stock do not raise an inference of scienter, let alone a strong
inference, because the complaint contains no allegations
regarding the defendants’ prior trading history, which are
necessary to determine whether the sales during the Class
Period were “out of line with” historical practices.5 See id.

                            CONCLUSION

    We affirm the district court’s dismissal of the complaint
with prejudice. Read as a whole, PRS’s allegations do not
satisfy the heightened pleading requirements imposed in




  5
    PRS also asserts that the spike in compensation raises an inference of
scienter, but offers no support for this proposition.
      POLICE RETIREMENT SYS. V. INTUITIVE SURGICAL                   23

securities fraud cases and do not identify any material
misstatements made with scienter.6

     AFFIRMED.




 6
   We also affirm the dismissal of PRS’s claim under Section 20(a) of the
Securities Exchange Act, 15 U.S.C. § 78t(a), because PRS has failed to
establish “a primary violation of the securities laws.” See Howard v.
Everex Sys., Inc., 228 F.3d 1057, 1065 (9th Cir. 2000).
