October 26, 2004

According to Lyle Roberts at 10-b5 Daily, a theory of "collective scienter" is "beginning to gain a foothold in securities litigation caselaw, even if courts are not expressly acknowledging the nature of their holdings." The idea is to attribute conscious wrongdoing to a business if the requisite knowledge or awareness was present among executives or employees aggregated together -- the alternative, of course, being to require proof that one particular corporate officer had a guilty state of mind. Which raises the inevitable question: "if an officer makes the statement and a janitor knows the statement is false, has the corporation acted with fraudulent intent?"