A federal judge in Arizona dismissed a lawsuit by Carvana investors that alleged company leaders perpetrated a “pump-and-dump” stock scheme, ruling that the plaintiffs did not back up their claims with the clarity and concision required under court rules. The judge will allow the plaintiffs to refile.

The plaintiffs’ claims that Carvana insiders misled investors were based on lengthy statements by executives of the online used car company cited in the plaintiffs’ complaint. But the plaintiffs, two North American pension funds, failed in their filing to adequately specify which parts of those statements they alleged to be misleading, U.S. District Judge Michael T. Liburdi said in his Feb. 29 ruling.

Carvana and attorney Daniel S. Drosman, who is representing the United Association National Pension Fund and Saskatchewan Healthcare Employees’ Pension Plan, did not respond to messages seeking comment. 

“Plaintiffs have failed to set forth a ‘short and plain statement’ of their claims [and] to make their allegations ‘simple, concise, and direct’,” as required under federal rules for civil proceedings in U.S. district courts, Liburdi wrote. 

In their response to the pension funds’ complaint, Carvana attorneys said that the plaintiffs had not directly substantiated their securities fraud claims with specific statements made by executives, instead leaving it to readers of the complaint to make those connections themselves. Court rules prohibit such “puzzle pleadings,” they said. 

Liburdi agreed with Carvana but allowed the plaintiffs to refile their complaint under rules allowing claims to be amended if they are dismissed for reasons other than their merits. If no amended complaint is filed within 30 days, the case will be permanently dismissed, he wrote. 

The pension funds alleged in their February 2023 complaint that investors suffered heavy losses as a result of a scheme orchestrated by Carvana founders and executives.

The complaint accused the father-and-son duo who founded the company, Ernest Garcia II and Ernest Garcia III, and other company officials of multiple Securities Act and Exchange Act violations, including making materially false and misleading statements.

Their complaint tracked Carvana’s stock market performance through a period spanning from May 2020 through November 2022, which saw company shares rise to a high of $376 before plummeting to $7.39. Shares were trading at about $81 on Friday after rallying on better-than-expected earnings growth announced late last month.

Plaintiffs alleged in the lawsuit that the Garcias and other Carvana leaders took steps to boost the company’s stock price by inflating its retail sales through “a series of unsustainable machinations.”