The defendant company, a subprime lender and issuer of mortgage-backed securities, suffered significant declines in its stock price after it disclosed in February 2007 that its financial results and expectations for future earnings were far less than it had previously anticipated. Following the disclosure, the plaintiff shareholders brought a class action complaint against the company and its officers and directors alleging violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The defendants moved to dismiss, arguing that the complaint did not satisfy the Private Securities Litigation Reform Act’s (PSLRA’s) pleading requirements.

The District Court granted the motion with prejudice, and the Eighth Circuit affirmed. Although the plaintiffs cited thirty-six pages of press releases, Securities and Exchange Commission filings, and transcripts of conference calls during the class period, the Eighth Circuit held that plaintiffs’ complaint did not specify “what specific statements within these communications are alleged to be false or misleading.”

In addition, the court held that even if the complaint could be read to identify the statements that allegedly were false or misleading, “[t]he complaint does not provide any link between an alleged misleading statement and specific factual allegations demonstrating the reasons why the statements were false or misleading.” The plaintiffs attempted to explain why the statements were false in a one-paragraph summary, but the court held that the “broad allegations” in that paragraph did not “necessarily show that the defendants’ statements were misleading, or provide the level of particularity required by the PSLRA.” (In re 2007 Novastar Fin., Inc. Sec. Litig., No. 08-2452, 2009 WL 2747281 (8th Cir. Sept. 1, 2009))