Advanta Corporation (codefendant), a major issuer of credit cards, earned its profits by attracting a large customer base with discounted introductory interest rates, which after six months reverted to higher permanent interest rates. Advanta accurately reported its recent earnings and informed shareholders (plaintiffs) that, based on those earnings and Advanta's intention to charge 17 or 18 percent permanent interest rates, Advanta expected to boost its earnings in the first quarter of 1997. Shortly thereafter, Advanta attempted to increase its customer base by setting its permanent interest rates at only 13 or 14 percent. As a result of that strategy, Advanta lost $20,000,000 in the first quarter. Before the loss was recorded, two Advanta officers (codefendants) sold their Advanta shares at a profit. Advanta shareholders sued Advanta and the officers for fraudulently misstating or withholding Advanta's plans to lower permanent interest rates and recklessly disregarding the risks involved in the low-rate strategy. A federal district court dismissed the suit, ruling that the shareholders had failed to plead scienter, as required by the Private Securities Litigation Reform Act of 1995 (Reform Act). The shareholders appealed to the United States Court of Appeals for the Third Circuit.