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Collective corporate scienter



Lyle Roberts at 10b-5 Daily reports that expansive ideas are afoot in some federal courts on what it takes for securities plaintiffs to establish fraudulent intent on the part of a business enterprise as a whole. In two recent cases, courts have adopted the theory that "it is sufficient for a plaintiff to establish that a management-level employee of the corporation acted with fraudulent intent, even if that employee is not a defendant and did not make any alleged false statement." In the third recent case, a court in the Southern District of New York held that a plaintiff can establish that the corporation acted with fraudulent intent without demonstrating that any particular employee held such intent, thus raising a question Roberts posed a while back: "if an officer makes the statement and a janitor knows the statement is false, has the corporation acted with fraudulent intent?"

 

 


Rafael Mangual
Project Manager,
Legal Policy
rmangual@manhattan-institute.org

Katherine Lazarski
Manhattan Institute
klazarski@manhattan-institute.org

 

Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.