Corporations are named as defendants in nearly every federal securities fraud case under 1934 Securities Exchange Act (‘‘1934 Act’’) Section 10(b) and Rule 10b-5. The most frequently litigated issue in Section 10(b) cases, especially at the pleading stage, is scienter, i.e., whether the plaintiff has pleaded facts raising a ‘‘strong inference’’ that the defendant—often, a corporate defendant—has acted with the required ‘‘intent to deceive, manipulate, or defraud.’’ Yet, despite the importance of this question, the federal securities laws are mostly silent on how to ascertain the intent of a corporation or other business entity, and the courts, until relatively recently, have been hesitant to offer an explicit rationale for their treatment of corporate scienter. Even today, courts continue to describe this as an open issue even in Circuits where it has been settled in practice for some time—a reticence that deprives litigants and District Courts of needed guidance.
Reproduced with permission from Securities Regulation & Law Report, 46 SRLR 875, 05/05/2014. Copyright 2014 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bna.com