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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

Katherine Lazarski
Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.