### IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT

No. 18

- 40499

DOCTOR DAVID MASEL; DINESH CHANDIRAMANI; NEURON SHIELD, L.L.C.; NEURON SHIELD PARTNERS I, L.P.; NEURON SHIELD 2, L.L.C.; NEURON SHIELD PARTNERS 2, L.P.; NEURON SHIELD 3, L.L.C.; NEURON SHIELD PARTNERS 3, L.P.; NEURON SHIELD 4, L.L.C.; NEURON SHIELD PARTNER S 4, L.P.; NEURON SHIELD 7, L.L.C.; NEURON SHIELD MONITORING ASSOCIATES, P.L.L.C.; NEURON INTEGRITY TEXAS, P.L.L.C.; NEURON INTEGRITY 1, P.L.L.C.; NEURON INTEGRITY PARTNERS, L.L.C.; NEURON SHIELD MONITORING ASSOCIATES, P.C.; NEURON SHIELD 9, L.L.C.,
Plaintiffs

- Appellants

v. ADRIANA VILLARREAL; ANTHONY CASAREZ; MEDICAL PRACTICE SOLUTIONS, L.L.C.; IOS MANAGEMENT SERVICES, L.L.C.; CGR INVESTMENTS, L.L.C.,
Defendants

- Appellees

Appeal from the United States District Court for the Eastern District of Texas

Before KING, SMITH, and WILLETT, Circuit Judges

. KING, Circuit Judge : Adriana Villarreal and Anthony Casarez approached Dr. David Masel with a proposal: if you will set up businesses that provide intraoperative neuromonitoring procedures, we will manage them, and through our signature United States Court of Appeals Fifth Circuit 

### FILED May 15, 2019 Lyle W. Cayce Clerk Case: 18-40499 Document: 00514958937 Page: 1 Date Filed: 05/15/2019No. 18

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2 billing practices , we can make you a sub stantial profit. It did not work out that
way ; on the $190 million worth of services the entities allegedly provided, Villarreal and Casarez collected less than $11 million . Masel and his business partner sued, alleging Villarreal and Casarez induced them to join the enterprise with material misrepresentations and omissions in violation of the Securities Exchange Act of 1934. The district court granted defendants’ motion to dismiss , and plaintiffs appealed. For the reasons set forth below, we REVERSE and RE MAND IN PART and AFFIRM IN PART. I. We recount the allegations as they are pleaded in the complaint, taking them as true, as we are required to do at the motion

- to

- dismiss stage. Arias

Benn v. State Farm Fire & Cas. Ins. Co. , 495 F.3d 228, 230 (5th Cir. 20 07). Intraoperative monitoring (“IOM”) is a method of monitoring a patient’s nervous system during surgery. The administration of IOM has a so - called technical component and a professional component. The technical component is usually performed by a c ertif ied n europhysiological i ntraoperative

m onitoring professional (“CNIM”) , who operate s the IOM machinery . The professional component is performed by a licensed physician, who evaluate s the IOM readings produced by the CNIM. Plaintiff David Masel is a neuros urgeon with more than 30 years of experience in the field. Defendant Adriana Villar r eal is the owner of Medi c al Practice Solutions, L.L.C. (“MPS”) , a medical services billing company specializing in billing for IOM services. Masel and Villa r real met through defendant Anthony Casarez, a CNIM Masel had worked with. In the s pring of 2014, during a chance encounter at a hospital, Casarez informed Masel that the IOM business was very profitable and proposed a meeting between Masel, Casarez, and Vi lla r real to discuss investment opportunities within the industry. Shortly thereafter, Masel, Casarez, and Case: 18-40499 Document: 00514958937 Page: 2 Date Filed: 05/15/2019No. 18

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3 Villarreal met at a b akery in Plano, Texas. There, Villarreal told Masel that MPS had superior billing practices and was capable of generating the hig hest payouts f or IOM procedures . Villarreal explained that her ability to pinpoint how much a given claim will pay within a margin of error of about 10 to 20 percent gave MPS an advantage in the industry

. She said she could achieve this feat using a specia l algorithm

— or “secret sauce,” in her words

— that she had developed while working for two large insurance companies. Villarreal told Masel that her “ secret sauce ” enabled her to collect $50,000 or more for each
out

- of

- network claim for IOM services. She als o represented that the reimbursement cycle for such claims was around six months. According to the complaint “Ca [ s ] are[z] agreed with and confirmed the veracity of these statements for Dr. Masel, adopting them as his own representations.” In a later email, Masel emailed Villarreal to ask what percentage of accounts receivable MPS could be expected to recover. Villarreal replied, “I always say 50% but a lot of times its [sic] more
. ” Sometime after the Plano meeting, Masel took this proposal to plaintiff Din esh Chandiramani , his business partner. Motivated by Villarreal’s representations at the Plano meeting, the two agreed to Villarreal’s proposal. A t this point in the narrative , the experienced reader of securities

- law

cases might expect the plaintiffs to allege that Masel and Chandiramani turned over large sums of cash to Villarreal and Casarez, who then squandered it all . If only it were that simple. Though the complaint is somewhat vague as to precisely how the transaction got off the g round, this much is clear : instead of just giving Villarreal and Casarez a check , Masel and Chandiramani (in reliance on Villarreal’s pitch) established and invested in a large collection of business entities , each founded for the purpose of providing IOM services. Masel and Chandiramani then hired Villarreal’s companies to operate these entities in exchange for a financial interest in the entities. Case: 18-40499 Document: 00514958937 Page: 3 Date Filed: 05/15/2019No. 18

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4 The first of these entities was Neuron Shield, LL C, organized and headquartered in Texas. Neuron Shield, LLC contracted with defendant CGR Investments, LLC (“CGR”), a Texas company solely owned by Villarreal , t o grant CGR a 35% non - voting net

- profits interest in the company in exchange for CGR’s agreement to provide management services for the company. 1 According to the complaint, the profits

- interest agreement “acknowledged the applicability of the Securities Act of 1933.” Though this is not reflected in any formal agreement contained in the record, the complaint alleges that CGR’s responsibilities inclu ded management of all day

- to

- day operations of Neuron Shield, LLC, including marketing the business, retaining and paying employees, booking and scheduling IOM services, locating new sources of business , and collecting and billing for Neuron Shield’s servi ces. Neuron Shield, LLC also contracted with MPS to provide billing services. 2 Plaintiffs then formed Neuron Shield Partners I, LP ; Neuron Shield Partners 2, LP ; Neuron Shield Partners 3, LP ; and Neuron Shield Partners 4, LP. Each of these LPs designated one of the Neuron Shield LLC s 3 as the general partner . Limited partners were divided into two classes: Class A and Class B. In each agreement, CGR was a Class B limited partner. The agreements limit Class A partners to physicians and Class B partners to no n physicians. They provide that Class A partners shall have no more than 40%

1 The only document in the record related to Neuron Shield, LLC, is the first page of the profits

- interest agreement discussed above. Neither the complaint nor a ny exhibit in the record further elaborates on the structure of Neuron Shield, LLC, or the parties’ formal powers within that company. 2 The complaint alleges that both CGR and MPS managed billing for IOM services. The complaint is not clear as to how labo r was divided between the two companies with respect to billing. 3 Each numbered Neuron Shield Partners, LP lists the corresponding numbered Neuron Shield, LLC as the general partner. So, for example, Neuron Shield Partners 2, LP, lists Neuron Shield 2, LL C, as the general partner. For ease of reading, we refer to Neuron Shield, LLC as the general partner for each agreement. Case: 18-40499 Document: 00514958937 Page: 4 Date Filed: 05/15/2019No. 18

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5 aggregate ownership in the partnership, but the provision explaining how a party’s percentage interest in the partnership is determined is not in the record. However, the complain t alleges that plaintiffs sold CGR a 35% interest in each of the plaintiff entities “ other than Neuron Shield [,] LLC. ” 4 Each agreement prohibited the g eneral p artner (Neuron Shield , LLC) from m aking certain enumerated major decisions (such as receiving a capital contribution or dissolving the partnership) without obtaining approval of each p artner with

an interest equal to or greater than 20% of the partnership , which would include CGR as a 35% interest

- holder. According to the complaint , the Limited Partnership agreements each also “acknowledged the applicability of the Securities Act of 1933.” CGR’s interests in Neuron Shield Partners I, 2, and 4 were later transferred to defendant IOS M anageme nt Services, LLC (“IOS”) , of which Villarreal is a principal member

. Plaintiffs also allege that they agreed to pay an 8% fee to MPS on all collections, regardless of whether they made a profit , although it is unclear what agreement this arrangement was ba sed on or whether this arrangement applied to each entity concerned in this

case. Plaintiffs also formed several other entities. Neither the complaint nor the exhibits provide any clarification as to how these entities were structured or what formal powers the parties had in them . These other entities were: Neuron Shield 2, LLC ; Neuron Shield 3, LLC ; Neuron Shield 4, LLC ; Neuron Shield 7 , LLC ; Neuron Shield 9, LLC; Neuron Shield Monitoring Associates , PLLC ; Neuron Integrity Texas, PLLC ; Neuron Integrity 1, P LLC ; Neuron

4 It is uncertain how plaintiffs reconcile this statement with the Neuron Shield, LLC profits

- interest agreement discussed above. We understand plaintiffs to allege that CGR received a 35% voting interest in each of the non

- LLC entities. Case: 18-40499 Document: 00514958937 Page: 5 Date Filed: 05/15/2019No. 18

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6 Integrity Partners, LLC ; and Neuron Shield Monitoring Associates , PC. Each entity is a plaintiff in this action. 5 The complaint also contains scant information regarding the scope and degree of plaintiffs’ involvement in the Neuron Shield Ente rprise. As discussed above, CGR, and in certain cases IOS, handled the day

- to

- day operations of the entities. It is clear that Masel was not entirely removed from the Neuron Shield Enterprise’s operations, however

. T he complaint alleges that Masel ’s “estab lished relationships with neurosurgeons and referral sources in the neurosurgical industry were critical to Neuron Shield’s growth” and that these relationships “gave him an edge over other providers when competing to offer IOM services to these doctors.” Masel’s participation “paid off. In two and [ a ] half years since it was established, Neuron Shield provided over $190 Million in IOM services.” The Neuron Shield Enterprise ’s revenues ultimately fell far short of what Villarreal had promised. Of the $190 m illion the Neuron Shield Enterprise billed for IOM services, MPS collected just $11 m illion. MPS was unable to collect anything on half of the claims it submitted, and it collected less than one percent of the value on three

- quarters

. Based on this outcome, plaintiffs allege that no “secret sauce” algorithm existed. The reimbursement cycle also lasted significantly longer than Villarreal had represented. Instead of a six

- month cycle, the complaint alleges that Villarreal later stated, “ in sworn courtroom testimony” given during a parallel proceeding , that the cycle takes “anywhere from 12 to 18 months.” It also turned out, unbeknown to plaintiffs, that defendants had many other clients who provide d IOM services.

5 For ease of reading, we refer to the entire arrangement between the parties to this case as the “Neuron Shield Enterprise.” We refer to each of the entity plaintiffs (e.g., Neuron Shield , LLC , Neuron Integrity Texas, PLLC, and Neuron Shield , PC) as the “N euron Shield entities.” Case: 18-40499 Document: 00514958937 Page: 6 Date Filed: 05/15/2019No. 18

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7 In a “recent court hearin g,” Villarreal testified that MPS provided billing services to “109 or 1 1 0” IOM providers. This is contrary to what Villarreal had told Masel previously : w hen asked if she had any other clients, Villarreal told Masel that she worked with only one other “sm all” IOM provider. According to the complaint, defendants actively stole business from Neuron Shield entities for the benefit of their other clients

. As an example, plaintiffs cite to an instance where a physician had been in discussions with Neuron Shiel d to use its IOM services but did not ultimately sign on. Sometime thereafter, the physician contacted Masel to ask him why, following a procedure performed by a CNIM wearing a Neuron Shield uniform, the bill for the procedure was sent to “an unknown and u ndisclosed entity.” When Masel confronted Casarez about this development, Casarez admitted to Masel that he had redirected the physician from Neuron Shield to a competing business. When plaintiffs thereafter raised their concerns regarding defendants’ conf licts of interest to Villarreal, she refused to proceed with any collections for the Neuron Shiel d entities “unless Neuron Shield signed over a vested interest in the uncollected accounts receivable to MPS and agreed to a one

- sided confidentiality agreemen t.” When plaintiffs refused , defendants terminated their contracts with all Neuron Shield entities

. Plaintiffs sued defendants in federal district court. They sought relief under the Securities Exchange Act of 1934, the Texas Securities Ac t, Texas

common law, the Racketeer Influenced and Corrupt Organizations Act (“RICO”) , and the Texas Theft Liability Act. With respect to their securities

fraud claims, plaintiffs cited several misrepresentations and omissions. The precise statements alleged are set forth in the discussion below

. B roadly speaking , plaintiffs alleged that defendants (1) misrepresented that a “secret sauce” algorithm existed, when in fact it did not; (2) misrepresented how much MPS was capable of collecting with this supposed algorithm and how soon Case: 18-40499 Document: 00514958937 Page: 7 Date Filed: 05/15/2019No. 18

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8 collections could be expected ; and (3) made material omission s by failing to disclose their intention to set up competing businesses. The district court dismissed each of these claims for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6). With respect to plaintiffs’

s ecurit ies

- fraud claims, the court found that plaintiffs failed to plead several of the alleged misrepresentations or omissions with sufficient particularity , that other statements were inactionable as either puffery or future predictions, and in all other cases plaintiffs had failed to adequately plead that defendants acted with scienter in making the alleged misrepresentations or omissions. The court proceeded directly to the merits of plaintiffs’ claims and did not consider the threshold question (raised by the defendants) whether plaintiffs had adequately pleaded the existence of a security. The district court also dismissed plaintiffs’ RICO claims on the merits and declined to exercise supplemental jurisdiction over the state

- law claims. Plaintiffs appea l, arguing the district court erred in dismissing their securities

- fraud claims. 6 II. A. We review a district court’s grant of a motion to dismiss de novo, applying the same standard applied by the district court. Boyd v. Driver , 579 F.3d 513, 515 (5th Ci r. 2009). To survive a motion to dismiss, “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Waller v. Hanlon , No. 18

- 10561 , 2019 WL 1783558 , at *4 (5th Cir. Apr. 24, 2019) (quoting Ashcroft v. Iqbal , 556 U.S. 662, 678 (2009)). In conducting this analysis, we accept as true any well

- pleaded factual allegations, but we do not accept as true legal conclusions or “‘naked

6 Plaintiffs do not press their remaining claims on appeal and we therefore do not consider them. Case: 18-40499 Document: 00514958937 Page: 8 Date Filed: 05/15/2019No. 18

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9 assertion[s]’ devoid of ‘further factual enhancement

. ’” Iqbal , 556 U.S. at 678 (alteration in original) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 557 (2007)). B. Before proceeding to the merits of plaintiffs’ securities

- fraud claims, we must first address the threshold question

— not considered by t he district
court

— whether plaintiffs have successfully ple a d ed the existence of a security. Plaintiffs seek relief under § 10(b) of the Securities Exchange Act of 1934 (the “1934 Act”)

. 15 U.S.C. § 78j(b). To successfully state a private cause of action

un der § 10(b), a plaintiff must plead “ (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. ” Affco Invs. 2001, L.L.C. v. Proskauer Rose, L.L.P. , 625 F.3d 185, 192 (5th Cir. 2010) (quoting Stoneridge Inv. Partners, LLC v. Sci

. – Atlanta, Inc. , 552 U.S. 148, 157 (2008) ). The third factor in this te st

— a connection between the misrepresentation or omission and the purchase or sale of a security

— requires the existence of a security. The 1934 A ct defines “security” broadly to include, among other things, an “ investment contract. ” 15 U.S.C. § 78c(a)(10). The Supreme Court has in turn interpreted “investment contract” to mean “ a contract, transaction or scheme whereby a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party. ” SEC v. W.J. Howey Co. , 328 U.S. 293, 298

- 99 (1946). 7 We have gleaned from this statement a three

- factor test, requiring plaintiffs to show “ (1) an investment of money; (2) in a common enterprise; and

7 Although Howey interpreted the Securities Act of 1933, we have extended its reasoning to cases such as this that concern the defini tion of “security” under the 1934 Act. See Affco , 625 F.3d at 190. Case: 18-40499 Document: 00514958937 Page: 9 Date Filed: 05/15/2019No. 18

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10 (3) on an expectation of profits to be derived solely fr om the efforts of individuals other than the investor. ” Williamson v. Tucker , 645 F.2d 404, 417 (5th Cir . May 1981). In conducting this analysis, “ form should be disregarded for substance and the emphasis should be on economic reality .” Un ited Hous

. Found. , Inc. v. Forman , 421 U.S. 837, 848 (1975) (quoting Tcherepnin v. Knight , 389 U.S. 332, 336 (1967) ). Accordingly, the label given by parties to a certain transaction will not be determinative of whether the parties have engaged in the purchase or sale of a security. See Williamson , 645 F.2d at 423 (“ A scheme which sells investments to inexperienced and unknowledgeable members of the general public cannot escape the reach of the securities laws merely by labelling itself a general partnership or joint ventur e. ”). The only Howey factor disputed in this case is the third one: whether investors have been “ led to expect profits solely from the efforts of the promoter or a third party .” Howey , 328 U.S. at 299. In applying this third factor, we have not understood the Supreme Court to use the word “solely” in its literal sense. Williamson , 645 F.2d at 418. Instead, the question is “ whether the efforts made by those other than the investor are the undeniably signi ficant ones, those essential managerial efforts which affect the failure or success of the enterprise.” Affco , 625 F.3d at 190 (quoting SEC v. Koscot Interplanetary, Inc. , 497 F.2d 473, 483 (5th Cir. 1974) )

. Interests in a general partnership typically do not meet Howey ’s third
prong
. Youmans v. Simon , 791 F.2d 341, 346 (5th Cir. 1986). The interest of a limited partner, by contrast, “ is analogous to that of a stockholder in a corporation , ” and thus limited partnership interests typically are securities

un der Howey ’s third prong. Id

. Nonetheless, even a limited partnership interest may not be a security when limited partners are given such managerial control that it can no longer be said that the limited partners are Case: 18-40499 Document: 00514958937 Page: 10 Date Filed: 05/15/2019No. 18

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11 dependent on the entrepreneurial skills of the promoter or a third party. See Frazier v. Manson , 651 F.2d 1078, 1080 (5th Cir. Unit A July 1981). The unusual facts of this case make this analysis particularly vexing. Typically, Williamson cases (and secu rities

- fraud cases generally) involve the investment of money by a plaintiff either directly with the defendant or in an entity controlled by the defendant. Here, by contrast, plaintiffs ’ investment went into entities they themselves set up. Although defen dants exercised day

to

- day mana gerial control of each of th ose entities, it was plaintiffs who held controlling interests. Plaintiffs also marketed the entities to potential customers using Masel’s professional connections. Nonetheless, it is undeniable th at the inducement for setting up these entities was the profit that might be generated through the collection of payments

— profits only made possible by Villarreal’s promised “secret sauce.” Further complicating matters is the fact that plaintiffs do not m ake clear precisely what it was in this case that they bought or sold that amounted to a security

— i.e., which agreement in this case constituted an investment contract . By our lights, plaintiffs attempt to argue that defendants’ interests in the Neuron Shi eld entities were securities and that the agreement conveying those interests to defendants w as a sale of securities (in relation to which defendants made fraudulent representations)

. In this scenario, somewhat idiosyncratically, plaintiffs are the promoters , and defendants are the investors

. We note also that the structure of our analysis may appear highly counterintuitive at first blush ; because plaintiffs were the promoters of the Neuron Shield entities, the question is whether defendants exercised sufficient managerial control such that the third Howey factor was satisfied. Thus , plaintiffs ’ case depends on their demonstrating that defendants were passive investors. This is unlike the typical case, wherein defendants claim plaintiffs Case: 18-40499 Document: 00514958937 Page: 11 Date Filed: 05/15/2019No. 18

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12 exer cised such control that their interests were not securities. Unusual as this mode of analysis may be, nothing about it runs contrary to federal securities law. The 1934 A ct prohibits fraud “ in connection with the purchase or sale” of a security. 15 U.S.C. § 78j(b). Accordingly, so long as the fraud alleged is connected with the purchase or sale of a security, it is within the bounds of the 1934 A ct, and a 10(b) suit may proceed , regardless of which side of the caption an investor or promoter falls on in a g iven case

. See Chadbourne & Parke LLP v. Troice, 571 U.S. 377, 387 (2014) (“ A fraudulent misrepresentation or omission is not made ‘ in connection with ’ such a ‘ purchase or sale of a covered security ’ unless it is material to a decision by one or more individuals (other than the fraudster) to buy or to sell a ‘ covered security. ’”). In all, plaintiffs allege that they set up 15 entities, including LLCs, LPs, PLLCs, and a PC. Defendants only argue on appe al that plaintiffs have failed to allege that the limited partnership interests were securities; they do not discuss the LLCs, PLLCs, or the PC. As discussed, the complaint and record tell us little about any of these entities: neither explain s what each e ntity did, why each additional entity was set up, or what powers the parties had within them. Nonetheless, we will evaluate the limited partnership s based on the documents provided and the facts alleged. Each of the Neuron Shield LPs is structured in roug hly the same manner. Neuron Shield , LLC served as the general partner, and CGR and others served as the limited partner s . Limited partners were divided into Class A and B partners, with CGR listed as a Class B partner in each agreement. The agreements , tog ether with the complaint, tell us that (1) C lass A partners could not possess more than 40% of aggregate ownership of the partnership ; (2) Neuron Shield , LLC could not make major decisions without the approval of each partner holding an interest of 20% or greater in the partnership; and (3) CGR held a 35% interest in each partnership

. Case: 18-40499 Document: 00514958937 Page: 12 Date Filed: 05/15/2019No. 18

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13 Defendants argue that they had too much control of the LPs for their interests in them to be securities. For support, defendants cite the district court opinion in Frazier v . Manson , 484 F. Supp. 449 (N.D. Tex. 1980), aff’d , 651 F.2d 1078 , as well as this court’s brief affirming opinion in that case. Defendants cite Frazier f or the proposition that where a party maintains managerial rights in an investment, the investment is not a security, even where that investment takes the form of a limited partnership. Thus, defendants argue, their extensive participation in the day

- to

- day work of the LPs negates the possibility that a security existed in this case. This misunderstands Frazier ’s characterization of “managerial rights.” In Frazier , the plaintiff’s involvement was not merely that of a limited partner in the relevant enterprise. See 484 F. Supp. a t 450

- 51. Manson

- Frazier Companies was the general partner i n the underlying limited partnership s
. Manson

- Frazier Companies , in turn, was a general partnership in which the plaintiff served as a general partner. Id. In granting defendants’ motion for summary judgment on the grounds that plaintiff h ad failed to prove the existence of a security, the district court found it could not “ segregate Frazier ’ s limited partnership interests from his status as a partner in [Manson

- Fraz i er Companies]

. ” Id

. at 452. It was this status that gave him the “manageri al rights” to “ participate actively in the daily business operations of both [Manson

- Frazier Companies] and the limited partnerships ,” i d. , and it was on this basis that we affirmed

. Frazier , 651 F.2d at 1080 (“ The District Court properly concluded that Frazier ’ s managerial rights negated the possibility that his limited partnership interests were securities

. An investor does not always need the extensive protection of the federal securities laws when he or she has partial control of an enterprise. ” (cita tion omitted) ). Here, by contrast, defendants have not entered into a general partnership agreement with plaintiffs. Instead, CGR’s (or IOS’s) involvement Case: 18-40499 Document: 00514958937 Page: 13 Date Filed: 05/15/2019No. 18

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14 in the relevant entities is solely as a limited partner. At this stage, not enough is known about de fendants’ formal powers under the limited partnership agreements to say whether their powers were akin to those of a general partner. True, defendants did in fact take on significant day

- to

- day responsibilities within these LPs , but defendants took this co ntrol pursuant to what was essentially a service agreement subservient to the plaintiffs’ formal powers under the limited

- partnership agreements. As a factual matter, no agreement is provided or alleged that grants them any ultimate power to control th ose entities

. As a legal matter, defendants cite to no case where the conduct of investors, without any formal power to engage in that conduct , has sufficed to overcome the presumption that limited partnerships are securities. More by way of formal powers is n eeded to do so

. Cf. Steinhardt Grp. Inc. v. Citicorp , 126 F.3d 144, 153

- 54 (3d Cir. 1997) (finding limited partnership interest was not a security where limited partner retained power s “ far afield of the typical limited partnership agreement ,” including power to remove general partner without notice , propose and approve new business plan, and veto the general partner’s business plan ). Here, the record only establishes that defendants had the power to block certain enumerated business decisions , including receiving capital contributions, admitting a new partner, and dissolving the partnership

. We will not expand the law to say that such veto
powers , standing alone, suffice to negate the existence of an investment
contract when it comes to limited partnershi p interests. We therefore conclude that the limited partnership interests in this case were securities . Defendants do not argue on appeal that the interests in the other Neuron Shield entities were not securities, and we therefore will not analyze those en tities under Howey . Moreover, nothing in the record undermines the conclusion that the entities discussed were securities for the same reasons stated above . There is no pleading, for example, suggesting that Case: 18-40499 Document: 00514958937 Page: 14 Date Filed: 05/15/2019No. 18

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15 defendants had legal powers under any of the LLC entities that either matched or went beyond their powers under the LPs

. We acknowledge the possibility that, during the course of discovery, new facts may emerge that cast doubt on this conclusion. We are limited at this stage, however, to the complaint a nd documents attached as exhibits. On the basis of those sources alone, we cannot say plaintiffs have failed to plead the existence of a security

. C. i. Having determined that plaintiffs have adequately ple a d ed the existence of a security, we proceed to the merits of plaintiffs’ securit ies

- f raud claims. As discussed, the Securities Exchange Act of 1934 make s it unlawful “ [t] o use or employ, in connection with the purchase or sale of any security

. . . any manipu lative or deceptive device or contrivance in contravention of such rules and regulations as the [ SEC] may prescribe as necessary or appropriate in the public interest or for the protection of investors .” 15 U.S.C. § 78j(b). The SEC has interpreted this pro vision to prohibit the making of “ any untrue statement of a material fact or [omission of] a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading” in connection with the sale of a security. 17 C.F.R. § 240.10 b

- 5 (b) . Courts have read the above statute and regulation to imply the existence of a private cause of action, requiring proof of six elements : “ (1) [a] misstatement or omission (2) of material fact (3) in connection w ith the purchase or sale of a security, which was made (4) with scienter, and upon which (5) plaintiff justifiably relied, (6) proximately causing injury to the plaintiff. ” Rosenzweig v. Azurix Corp. , 332 F.3d 854, 865 (5th Cir. 2003). The Private Securit ies Litigation Reform Act (“PSLRA”) requires plaintiffs in 10 b

- 5 actions to satisfy a pleading requirement higher than the ordinary Rule 12(b)(6) standard . For the first element of the cause of action

— Case: 18-40499 Document: 00514958937 Page: 15 Date Filed: 05/15/2019No. 18

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16 a misstatement or omission

— plaintiffs must “ specify eac h statement alleged to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief, the complaint shall state with particularity all facts on which that belief is formed

. ” 15 U.S.C. § 78u

- 4(b)(1). This pleading standard requires plaintiffs to set forth the who (the speaker), the what (the statements alleged to have been misleading, as well as their content), the when (when the statement was made), th e where (where the statement was made), and the why (what the defendant obtained by making the statement , and why it was misleading). See Rosenzweig , 332 F.3d at 866. Failure to plead any of these facts with particularity warrants dismissal of the case. Se e i d. On the fourth element

— that the statements or omissions were made with scienter

— plaintiff must plead “with particularity facts giving rise to a strong inference that the defendant acted with” scienter. § 78u

- 4(b)(2)(A). In 10b

- 5 actions, “ scienter ”
range s from intentional deception to severe recklessness, the latter being defined as “ an extreme departure from the standards of ordinary care, [presenting] a danger of misleading buyers or sellers which is either known to the defendant or is so obvious that the defendant must have been aware of it.” Rosenzweig , 332 F.3d at 866 (quoting Nathenson v. Zonagen Inc. , 267 F.3d 400, 408 (5th Cir. 2001)). Plaintiffs allege d both misrepresentations and omissions as part of their case under 10b

- 5. The misreprese ntations are as follows : (1) Villarreal’s representation to Masel that MPS was “superior at billing IOM procedures and could generate the highest payouts.” (“Statement 1”). (2) Villarreal’s representation that she developed a “secret sauce” while workin g at other insurance companies that allowed her to “pinpoint how much any given claim will pay within a 10 to 20 percent margin of error.” (“Statement 2”). Case: 18-40499 Document: 00514958937 Page: 16 Date Filed: 05/15/2019No. 18

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17 (3) Villarreal’s representation that she could generate “$50,000 or more for each out

- of

- network IO M claim, ” and that she “ could generate $20,000 in additional revenue for the technical component of monitoring, and that she typically got much more, up to $50,000 for the professional component.” (“Statement 3”). (4) Villarreal’s representation that “th e reimbursement cycle for out

- of

- network claims is around six months.” (“Statement 4”). (5) When Masel inquired about the percentage of accounts receivable that MPS could be expected to recover on a given claim, Villarreal responded “I always say 50% but a lot of times its more .” (“Statement 5”). (6) Villarreal’s repeating of S tatement 4 at a later date. (“Statement 6”). (7) Villarreal’s statement that MPS’s “average out of network claim will reimburse around 50

- 75k.” (“Statement 7”). Plaintiffs also allege the following omissions: (1) Defendants’ failure to disclose their investments in other IOM providers

. (“Omission 1”). (2) Defendants’ failure to disclose their intent to set up other IOM businesses to compete wi th Neuron Shield

. (“Omission 2”). (3) Defendants’ failure to disclose that plaintiffs would not receive compensation for most IOM cases. (“Omission 3”). Plaintiffs allege that Casarez adopted as his own Statements 1

– 4 above and is therefore liable for th em as well. They also allege that MPS, CGR , and IOS are liable for each of these misrepresentations because Villarreal and Casarez made them while acting as their agents. For the reasons set forth below, we conclude that S tatements 1 , 6 , and 7, as well as all three omissions, were properly dismissed. But we conclude that plaintiffs adequately stated a 10b

- 5 Case: 18-40499 Document: 00514958937 Page: 17 Date Filed: 05/15/2019No. 18

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18 claim with regard to Villarreal and the defendant entities for S tatements 2

– 5

. However, we also conclude that plaintiffs’ case against Casarez fails wit h regard to these statements. ii. We address first the statements and omissions properly dismissed by the district court, each in turn. The district court dismissed Statement 1

— that MPS had superior billing procedures and was capable of generating the highest payouts

— because it found the statement to be inactionable puffery

. See Emps

. ’ Ret. Sys. v . Whole Foods Mkt., Inc. , 905 F.3d 892 , 90 1 (5th Cir. 2018) (“[A] company’s ‘ generalized, positive statements ’ are immaterial because they do not alter a reasonable investor’s assessment of the company’s prospects. ”) We express no opinion as to whether such a statement constitutes puffery because we believe there is a sounder basis for affirmance. Whether or not reasonable investors would rely on such statements, there is no allegation in plaintiffs’ complaint that the statements were false wh en made, i.e., that MPS’s billing procedures were not in fact superior and that they were not capable of generating the “highest payouts.” This factual scenario is akin to one addressed by this court in Whole Foods

. In that case, plaintiffs alleged that Wh ole Foods had made an actionable misrepresentation when it stated that its prices were “competitive.” Id. at 901. While acknowledging that the complaint may have established that Whole Foods’ prices were not “ as competitive as advertised,” we concluded tha t “it need not follow that they were not competitive.” Id. Similarly here, although the payouts generated by MPS fell short of what Villarreal represented, this does not mean that these payouts were not “the highest” or that the billing procedures were not “superior.” Thus, the district court properly dismissed Statement 1 as inactionable because of plaintiffs’ failure to allege with particularity that such statements were false when made. Case: 18-40499 Document: 00514958937 Page: 18 Date Filed: 05/15/2019No. 18

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19 Statements 6 and 7 also fail under the heightened pleading standard imposed by the PSLRA. As the district court recognized, the complaint “fail[ed] to specify the place Villarreal allegedly made such statements.” Plaintiffs maintain on appeal that these statements were “obvious[ly]” made in correspondence because of their inclusion of misspelled words, quotation marks, and brackets. First, we express doubt as to whether the existence of typos, quotation marks, and brackets in a court filing indicates that the filing is quoting from co rrespondence. Second, and more to the point, we are aware of no case supporting the claim that the PSLRA’s heightened standard can be satisfied where the context in which a statement is made has been implied by spelling and punctuation . The statute require s such matters to be set forth “with particularity,” and we insist on nothing less. In the alternative , plaintiffs request that this court reverse the judgment of the district court with instructions to grant them leave to amend so that they can specify that Statements 6 and 7 were made in written correspondence. Generally, leave to amend should be “freely give [n]

. . . when justice so requires .” Fed. R. Civ. P. 15(a)(2). But for leave to be given, it must be requested. Here, plaintiffs failed to request leave to amen d at any point following the filing of their first amended complaint . Our rule that argument s not raised below are waived on appeal applies with equal force to requests for leave to amend. See Cent. Sw. T e x. Dev., L.L.C. v. JPMorgan Chase Bank, Nat’l Ass’n , 780 F.3d 296, 300 (5th Cir. 2015) (treating as waived argument not raised before the distr ict court); Ransom v. Nat’l City M ort g. Co. , 595 F. App’x 304, 306 (5th Cir. 2014) (unpublished) (finding plaintiffs could not seek leave to amend on appeal w hen they had failed to do so in the district court). And a party’s obligation to seek leave to ame nd from the district court first is not discharged , as plaintiffs seem to imply, when the party requests “any alternative relief.” A holding to the contrary would render our waiver rules Case: 18-40499 Document: 00514958937 Page: 19 Date Filed: 05/15/2019No. 18

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20 meaningless. See F.D.I.C. v. Mijalis , 15 F.3d 1314, 1327 (5th Cir. 19 94) (“ [I] f a litigant desires to preserve an argument for appeal, the litigant must press and not merely intimate the argument during the proceedings before the district court. If an argument is not raised to such a degree that the district court has
an op portunity to rule on it, we will not address it on appeal. ”). Turning to the omissions, we conclude that none state s a claim under 10b

- 5 and the PSLRA

. Omissions 2 and 3 (failure to disclose an intent to set
up competing businesses and that plaintiffs would not receive compensation on most claims) fail under the PSLRA’s particularity requirement. To plead an omission with sufficient particularity, plaintiff must specifically plead when a given disclosure should have been made. Carroll v. Fort James Corp. , 470 F.3d 1171, 1174 (5th Cir. 2006) . Here, plaintiffs contend on appeal that defendants should have made these disclosures at the initial meeting between Masel and defendants. However, plaintiffs do not point us to anywhe re in the complaint where this is alleged , and we are unable to discern therein any specific allegations to this effect. Accordingly, plaintiffs failed to plead with sufficient particularity the existence of a fraudulent omission on the part of defendants for Omissions 2 and 3

. As for Omission 1

— defendants’ failure to disclose conflicts of interest

— we will assume , as the district court did , that defendants should have disclosed th eir alleged conflict of interest when Masel asked Villarreal if she had any

o ther clients. Even granting plaintiffs that fact, the complaint does not plausibly allege that this conflict existed when the disclosure should have been made

. The only support plaintiffs offer for their claim that defendants operated under a conflict of i nterest is Villarreal’s testimony in a recent proceeding that she had over 100 IOM clients. Nowhere in the complaint is it alleged that Villarreal had over 100 clients at the time Masel inquired about her other business. Thus, plaintiffs ’ fraudulent omissi on claim s were properly dismissed. Case: 18-40499 Document: 00514958937 Page: 20 Date Filed: 05/15/2019No. 18

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21 iii. Statements 2 through 5 , however, were adequately ple a d ed and should not have been dismissed

. Broadly characterized , each representation relates to MPS’s capabilities to pinpoint how much it will collect on a given c laim and how long MPS would take to collect. Statements 2 and 4 were Villarreal ’s representations that she had developed a “secret sauce” to pinpoint how much a given statement would pay within a 10

– 20 % margin of error and that the reimbursement cycle for out

- of

- network claim s was six months, respectively. The district court dismissed both because the complaint lacked “any allegations demonstrating that such statements were false when they were made

. ” We disagree. Beginning with Statement 2, plaintiffs all eged that no “secret sauce” existed at the time of Villarreal’s alleged representations . They supported this claim by pointing to the fact that MPS was ultimately unable to collect on the overwhelming majority of claims it billed. Defendants contend that p laintiffs are attempting to prove fraud by hindsight by pointing to later events in order to shed light on the truth or falsehood of earlier statements. However, evidence of later events can provide useful circumstantial evidence that a given representatio n w as false when made

. See Lormand v. US Unwired, Inc. , 565 F.3d 228, 254 (5th Cir. 2009) (concluding scienter was adequately alleged, even when allegation was partially based on later admissions by defendants, because the admissions “ directly and cogentl y tend to prove their state

- of

mind at the time of their misleading statements and omissions, i.e., they are evidence that the defendants actually knew earlier that the course of action would turn out badly ”). Moreover, as the foregoing parenthetical indic ates, fraud

- by

- hindsight issues arise in the context of the scienter factor, not the misrepresentation factor. Id. (“ This is not the classic fraud by hindsight case where a plaintiff alleges that the fact that something turned out badly must Case: 18-40499 Document: 00514958937 Page: 21 Date Filed: 05/15/2019No. 18

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22 mean defendant knew earlier that it would turn out badly. ”) (quoting Miss. Pub. Emps.’ Ret. Sys. v. Bos . Sci. Corp. , 523 F.3d 75, 91 (1st Cir. 2008) (emphasis added ) ). Where, as here, the representation in question concerned an asset or skill possessed by the defendant (here, an algorithm), the defendant’s failure to perform as promised casts doubt on whether he possessed that skill in the first place. Plaintiffs draw a helpful analogy: suppose a pianist represents that he is well

- trained and commits to perform Gershwin’s Rhapsody in Blue at a concert some time in the future. If he later arrives unable to play even Chopsticks , it becomes highly unlikely that he was a talented piano player to begin with

. Here, Villarreal claimed to possess an algorithm that enabl ed her to pinpoint the payout for a given procedure within a 10

– 20 % margin of erro r. The complaint alleges that MPS collected nothing on more than half of all claims and less than 1% on 75% of all claims. Taking these allegations as true, they allow for th e plausible inference that either (1) Villarreal had no algorithm and therefore misrepresented her capabilities when she pitched her investment to Masel , or (2) Villarreal had an algorithm and some intervening event prevented her algorithm from functioning as described. Since no intervening event is alleged, the former scenario is the more plausible of the
two

. Plaintiffs have therefore adequately pleaded a misrep resentation with respect to Statement 2. The same reasoning applies to Statement 4. Villarreal’s assertion that claims would be reimbursed within six months was directly contradicted by her later sworn testimony in another proceeding that reimbursement t ook 12 to 18 months. There is no allegation that some intervening event made the reimbursement cycle substantially longer. Perhaps discovery may help explain this alleged inconsistency , but we may not probe such depths at this early Case: 18-40499 Document: 00514958937 Page: 22 Date Filed: 05/15/2019No. 18

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23 stage. Accordingly, pla intiffs adequately alleged a misrepresentation for Statements 2 and 4. We turn next to S tatements 3 and 5 . These both concern the profits MPS could generate. The district court dismissed both of these, finding they constituted nonactionable future predict ions. The district court is correct that “projections of future performance not worded as guarantees are generally not actionable under the federal securities laws

. ” Shushany v. Allwaste, Inc. , 992 F.2d 517, 524 (5th Cir. 1993) (quoting Krim v. BancTexas Grp., Inc. , 929 F.2d 1435, 144 6 (5th Cir. 1993) )

. 8 However, we do not read Statements 3 and 5 as projections of future performance . Rather, they relate to the present capabilities of the MPS algorithm. To understand this contrast , consider a n alternative scenario in which Villarreal stated that plaintiffs could expect profits of $50,000, without referencing the algorithm. I n that case, the statement would be predictive in nature

. Here, by contrast, Villarreal is alleged to have stated that “she had the abi lity to generate $50,000 ,” and that she typically collects 50% or more of accounts receivable. The latter statement

concerns how the algorithm ha d previously performed . The former statement concerns how the algorithm could perform at the time the statement was made. Because , as discussed, the failure of Villarreal to come close to generating the profits represented casts doubt on the veracity of her statements as to the algorithm ’ s existence , it is plausible her statements as to how well the supposed algori thm could perform are false as well

. Accordingly, we find that Statements 3 and 5 also satisfied the first element of a 10b

- 5 claim

. The district court concluded in the alternative that, even if Statements 2 through 5 were misrepresentations, plaintiffs h ad not adequately ple a d ed

8 We do not understand defendants to seek the safe

- harbor provision of the PSLRA for forward

- looking statements in making this argument. See 15 U.S.C. § 78u

- 5. Case: 18-40499 Document: 00514958937 Page: 23 Date Filed: 05/15/2019No. 18

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24 that defendants possessed the required scienter in making them. As discussed, the PSLRA require s plaintiffs to allege with particularity facts giving rise to a “strong inference” of scienter. 15 U.S.C. § 78u

- 4(b)(2)(A) . In this context, scienter means, at a minimum, severe recklessness. See Lormand , 565 F.3d at 251. The PSLRA’s requirement of a “strong inference” does not require an “irrefutable” inference “or even the most plausible of competing inferences.” Id. (quoti ng Tellabs , Inc. v. Makor Issues & Rights, Ltd. , 551 U.S. 308, 324 (2007)). Rather, the inference of scienter must be “cogent and at least as compelling as any opposing inference of nonfraudulent intent.” Id. at 252 (quoting Tellabs , 551 U.S. at 3 1 4). This inference may be made using not only direct evidence but circumstantial evidence as well. Id. at 251. In their complaint, plaintiffs alleged that defendants knew such representations were false because they were based on metrics and information in their contro l . The district court deemed these allegations to be conclusory and determined that they did not give rise to a strong inference of scienter. For support, the district court cited Indiana Electrical Workers’ Pension Trust Fund IBEW v. Shaw Group, Inc

. , 537 F.3d 527 (5th Cir. 2008). There, we stated that “‘ general allegations and conclusory statements, such as stating [defendants] knew

. . . adverse material ’ do not contribute to a strong inference of scienter. ” Id. at 538

- 39 (alteration and omission i n original) (quoting Fin. Acquisition P artners LP v. Blackwell , 440 F.3d 278, 289

- 90 (5th Cir. 2006)). Shaw is distinguishable

. In the quoted portion of Shaw , this court confronted the question whether the CEO and CFO of a corporation were aware at the time they made certain representations about the corporation’s financial performance that the corporation’s accounting software “was not functional.” Id. at 538. Plaintiffs supported their scienter claim with allegations that a letter was sen t to certain senior officials in the corporation Case: 18-40499 Document: 00514958937 Page: 24 Date Filed: 05/15/2019No. 18

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25 detailing the problems with the software, but no specific allegations suggesting the CEO and CFO were themselves made aware of such issues. Id. at 538

- 39

. Here, by contrast, plaintiffs allege that Villarrea l knew her algorithm could not generate the expected returns because her representations on this subject were based on metrics and information within her own control

. That Villarreal would possess such information is plausible: r eturning to the pianist

ana logy discussed above , if it is plausible that a self

- purported pianist misrepresented his ability to play piano , it is similarly likely that he knew he lacked such capability. This does not amount, as defendants contend, to an allegation that defendants “m ust have known” that their statements were false, or an allegation of scienter based solely on defendant ’ s position . Rather, plaintiffs’ scienter allegations proceed from the premise, plausible on its face, that because Villarreal had developed this algori thm and used it previously, she knew how and whether it would work. Since plaintiffs have plausibly alleged that this algorithm did not exist, they have similarly alleged that Villarreal was aware of this fact

. Indeed, the competing inference

— that Villarre al mistakenly, but honestly, believed she had developed and successfully employed an algorithm to precisely predict how much an IOM claim would pay out

— seems unlikely. The same goes for Villarreal’s representation that the reimbursement cycle took about si x months: this too was purportedly based on information gleaned from her work billing for medical procedures. Defendants do not contest whether Villarreal’s misrepresentations are attributable to MPS, CGR, and IOS, and we therefore do not consider the issue. Based on the foregoing, we conclude that plaintiffs have successfully ple a d ed a case for securities fraud against Villarreal, MPS, CGR , and IOS with respect to Statements 2 thr ough 5. Th e reasoning above does not extend to Casarez, however. Although the complaint alleges that Villarreal had developed the secret

- sauce algorithm and Case: 18-40499 Document: 00514958937 Page: 25 Date Filed: 05/15/2019No. 18

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26 previously used it, nothing in the complaint suggests that Casarez understood the algorithm, how i t worked, or whether it existed

. Nor is there any allegation that Casarez was aware that the billing cycle would take longer than six months. Although the representations Casarez adopted turned out to be false, nothing in the complaint suggests that he had any basis to know that they were false. At most, the face of the complaint establishes that Casarez was negligent in agreeing with Villarreal’s statements about her algorithm and billing cycle

. Accordingly, the district court correctly dismissed the claim s against Casarez. III. Because we conclude that the district court erred in dismissing plaintiffs’ securities

- fraud claims for Statements 2 through 5 in their suit against Villarreal, MPS, CGR, and IOS , we REVERSE and REMAND IN PART with regard to the co urt’s dismissal of those claims. Because the district court did
not err in dismissing plaintiffs’ claims stemming from the remaining alleged misrepresentations and omissions as to each defendant, as well as each claim against Casarez, we AFFIRM IN PART wit h regard to the court’s dismissal of those claims. Each party shall bear is own costs. Case: 18-40499 Document: 00514958937 Page: 26 Date Filed: 05/15/2019