Although scienter — the intent to defraud — is heavily litigated in securities cases, the circumstances in which it will be imputed to a corporation are not well defined. The issue has generated substantial scholarship, but, with very limited exceptions, was not addressed by courts until the U.S. Court of Appeals for the 5th Circuit decided Southland Securities Corp. v. INSpire Insurance Solutions Inc., 365 F.3d 353 (5th Cir. 2004).
This article argues that the correct approach would determine whether a company’s statements evince intentional fraud or recklessness on the part of senior management, taking into account particularized allegations as to facts widely known within the firm and knowledge possessed by one or more senior executives.