Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Saturday, July 16, 2011

Kaufman & Wunderlich on Pleading Scienter in Securities Fraud Litigation

The Core Operations Inference in Private Securities Fraud Litigation, by Michael J. Kaufman, Loyola University Chicago School of Law, and John M. Wunderlich , was recently posted on SSRN.  Here is the abstract:

Adequately pleading scienter is a cornerstone to successful securities fraud litigation under Rule 10b-5. But pleading any state of mind is difficult. To meet this burden, litigants often rely on the core operations inference to adequately plead scienter. This inference presumes that a company’s senior management was aware of facts pertaining to the company's core operations, or at least should have been. Thus, when senior management makes misleading statements about these core operations, we can strongly infer that senior management acted with an intent to deceive, or we can infer that senior management acted recklessly in making public statements that pertain to the company’s core operations when management was not aware of all the facts. The inference is a powerful tool, and as this Article argues, is even more so in light of the implicit support the inference has from Supreme Court precedent.

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