                   United States Court of Appeals
                         FOR THE EIGHTH CIRCUIT
                                   ___________

                                   No. 09-1303
                                   ___________

Joseph McAdams; JBM, LLC;               *
Florian Homm;                           *
Absolute Return Europe Fund, LTD;       *
The Loyr Foundations;                   *
Europe Catalyst Fund; Richard Smyth,    *
                                        *
           Plaintiffs - Appellants,     *
                                        *
v.                                      *
                                        *   Appeal from the United States
William McCord; Daniel Moudy;           *   District Court for the Western
Lynn Bradley; David Colwell,            *   District of Arkansas.
                                        *
                                        *
     Defendants,                        *
                                        *
Moore Stephens Frost, PLC,              *
                                        *
           Defendant - Appellee,        *
                                        *
_________________                       *
                                        *
William McCord,                         *
                                        *
           Counter Claimant,            *
                                        *
v.                                      *
                                        *
Joseph McAdams; Florian Homm,           *
                                        *
          Counter Defendants,           *
_________________                       *
                                            *
Daniel Moudy,                               *
                                            *
              Third Party Plaintiff,        *
                                            *
v.                                          *
                                            *
UCAP, Inc.,                                 *
                                            *
              Third Party Defendant.        *

                                       ___________

                               Submitted: September 24, 2009
                                  Filed: October 20, 2009
                                   ___________

Before MELLOY, GRUENDER, and BENTON, Circuit Judges
                          ___________

BENTON, Circuit Judge

      UCAP, Inc. was a multi-state provider of mortgage lending and brokerage
services. In April 2004, UCAP announced that it believed it would have to restate its
financial statements for the periods ending September 30, 2002; December 30, 2002;
and March 31, 2003. Six months later, UCAP’s wholly-owned, principal operating
subsidiary filed for Chapter 11 bankruptcy. UCAP soon ceased operations, and its
stock was delisted in 2005.

       Joseph McAdams, Florian Homm, Richard P. Smyth, and their affiliated
companies sued several UCAP executives and Moore Stephens Frost, PLC —
UCAP’s outside auditor from November 2001 to July 2003. The investors claimed
that the executives and MSF defrauded them by inducing them to invest in UCAP
through misrepresentations and false statements about UCAP’s financial condition.

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       The district court1 eventually dismissed the second amended complaint, finding
that the investors did not meet the heightened pleading standards of Rule 9 of the
Federal Rules of Civil Procedure, and of the Private Securities Litigation Reform Act
of 1995 (“PSLRA”), Pub. L. No. 104-67, 109 Stat. 737. This court dismissed an
earlier appeal. See McAdams v. McCord, 533 F.3d 924, 928-29 (8th Cir. 2008)
(holding the Rule 54(b) motion had been wrongly granted and remanding case). The
only issue now is whether the investors state a claim against MSF for federal
securities fraud.

                                            I.

       This court reviews de novo a dismissal for failure to state a claim. Fed. R. Civ.
P. 12(b)(6); Ferris, Baker Watts, Inc. v. Ernst & Young, LLP, 395 F.3d 851, 853
(8th Cir. 2005). The court accepts as true all factual allegations, but is “not bound to
accept as true a legal conclusion couched as a factual allegation.” Ashcroft v. Iqbal,
129 S. Ct. 1937, 1950 (2009). “Threadbare recitals of the elements of a cause of
action, supported by mere conclusory statements, do not suffice.” Id. at 1949. The
complaint “must contain sufficient factual matter, accepted as true, to ‘state a claim
to relief that is plausible on its face.’” Id., quoting Bell Atlantic Corp. v. Twombly,
550 U.S. 544, 570 (2008). “The court may consider, in addition to the pleadings,
materials embraced by the pleadings and materials that are part of the public record.”
In re K-tel Int’l, Inc. Sec. Litig., 300 F.3d 881, 889 (8th Cir. 2002) (quotation
omitted).

      Section 10(b) and Rule 10b-5 prohibit fraudulent conduct in the sale and
purchase of securities. See 15 U.S.C. § 78j(b); 17 C.F.R. § 240.10b-5. Claims
require (1) a material misrepresentation or omission, (2) scienter, i.e., a wrongful state


      1
       The Honorable Robert T. Dawson, United States District Judge for the
Western District of Arkansas.

                                           -3-
of mind, (3) a connection with the purchase or sale of a security, (4) reliance, (5)
economic loss, and (6) loss causation. Dura Pharm., Inc. v. Broudo, 544 U.S. 336,
341-42 (2005). Under the PSLRA and Federal Rule 9(b), a complaint must state with
particularity the circumstances of the alleged fraudulent statement. In re K-tel, 300
F.3d at 890. The complaint must also “state ‘with particularity’ facts giving rise to a
‘strong inference’ that the defendant acted with the scienter required for the cause of
action.” Florida State Bd. of Admin. v. Green Tree Fin. Corp., 270 F.3d 645, 654
(8th Cir. 2001), quoting 15 U.S.C. § 78u-4(b)(2).

      The district court held that the complaint failed to plead with particularity the
circumstances of MSF’s alleged fraud, as well as the facts giving rise to a strong
inference of scienter. The court accordingly dismissed the investors’ federal, state,
and common law fraud claims. The court did not address MSF’s argument that the
complaint also did not adequately plead loss causation. This court, however, may
affirm the district court’s judgment “on any basis supported by the record.” K-tel, 300
F.3d at 889 (citation omitted).




                                         -4-
                                          II.

        The complaint contains numerous allegedly fraudulent statements by the
executives in press releases and UCAP’s financial statements. The complaint further
states that MSF assisted the executives to distort UCAP’s financial statements to make
the company appear like it was a thriving, growing business, when it was not. Section
10(b), however, imposes liability only on a person who makes a material misstatement
or omission, not on a person who aids in making the misstatement or omission.
Central Bank of Denver v. First Interstate Bank of Denver, 511 U.S. 164, 177-78
(1994). Therefore, MSF is liable only for misstatements or omissions it made.

       MSF made two statements, according to the complaint. On UCAP’s 2001 and
2002 annual 10-K reports, filed in January 2002 and January 2003, respectively, MSF
stated that it conducted its audit in accordance with generally accepted accounting
principles and that in MSF’s opinion, UCAP’s financial statements fairly presented
the financial position of UCAP.2 The complaint further alleges that MSF knew that
UCAP’s financial statements were not prepared in accordance with GAAP and knew
that UCAP’s actual financial condition was far weaker than was presented by the
financial statements. Therefore, because MSF issued “clean” audit opinions when it
knew UCAP’s financial statements were not accurate, MSF allegedly made false
statements with scienter. This court need not decide whether the complaint adequately
states with particularity facts giving rise to a strong inference that MSF acted with




      2
         The investors assert that MSF is also liable for UCAP’s quarterly reports from
the first quarter of 2001 through the second quarter of 2003. They argue that the audit
opinion on an annual report opines on the quarterly statements previously issued.
However, the quarterly statements did not contain an audit opinion and were not
attributed to MSF. Therefore, the quarterly reports are not MSF’s statements for
purposes of Section 10(b). See Lattanzio v. Deloitte & Touche LLP, 476 F.3d 147,
154 (2d Cir. 2007).

                                         -5-
scienter when it issued its audit opinions because, as discussed below, the complaint
fails to sufficiently plead loss causation.

      A complaint must “provide a defendant with some indication of the loss and the
causal connection that the plaintiff has in mind.” Dura, 544 U.S. at 347. To
adequately plead loss causation, the complaint must state facts showing a causal
connection between the defendant’s misstatements and the plaintiff’s losses. Schaaf
v. Residential Funding Corp., 517 F.3d 544, 549 (8th Cir. 2008), citing Dura, 544
U.S. at 347. Loss causation in a securities fraud case is analogous to the common
law’s requirement of proximate causation. Schaaf, 517 F.3d at 550. The plaintiff
must show “that the loss was foreseeable and that the loss was caused by the
materialization of the concealed risk.” Id. (emphasis in original) (citation omitted).

       The complaint alleges that McAdams invested over $3 million in UCAP, that
Homm invested over $6 million, and that Smyth invested $2 million. The complaint
then broadly alleges that “as a direct and proximate result of Defendants’ fraudulent
misrepresentations and omission of material facts, Plaintiffs have been damaged in
amounts to be determined at trial but which exceed $10 million.” This threadbare,
conclusory statement does not sufficiently allege loss causation. It does not specify
how two statements by MSF, as compared to the complaint’s long list of alleged
misrepresentations and omissions by the executives, proximately caused the investors’
losses.

       The complaint alleges that the investors suffered damages because they
purchased stock at “artificially inflated prices.” This allegation is insufficient under
Dura. Specifically, a stock’s subsequent loss in value can reflect a variety of factors
other than the earlier misstatement. Dura, 544 U.S. at 342-43 (“When the purchaser
subsequently resells such shares, even at a lower price, that lower price may reflect,
not the earlier misrepresentation, but changed economic circumstances, changed
investor expectations, new industry-specific or firm-specific facts, conditions, or other

                                          -6-
events, which taken separately or together account for some or all of that lower
price.”). The complaint states that the truth about UCAP’s financial position was
revealed on April 23, 2004, when UCAP announced that it would need to restate
several financial statements. However, the complaint does not state the value of
UCAP’s stock when the investors made their investments, or its value right before, or
right after, the need for the restatement was announced.

       Without these facts, the complaint does not show that the investors’ losses were
caused by MSF’s misstatements. This failure is revealing because UCAP’s financial
troubles were public knowledge before the announcement of the need for a
restatement in April 2004. Specifically, in November 2003, UCAP disclosed in an 8-
K announcement that its wholly-owned, principal operating subsidiary was in
imminent danger of losing its only line of credit and that UCAP had sold a controlling
share of its stock to avoid the subsidiary’s bankruptcy. The complaint’s lack of
specific allegations of the value of UCAP stock defeats the plausibility of the
investors’ claim that MSF’s audit opinions in January 2002 and 2003 caused their
losses.3

                                          III.

      The judgment of the district court is affirmed.




      3
         The parties agree that the investors’ claims under the Arkansas securities laws
and for common law fraud fail if their Section 10(b) allegations are insufficient to
state a claim.


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