Securities Law Prof Blog

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

Sunday, September 9, 2012

Couture on Falsity-Scienter Inference

The Falsity-Scienter Inference, by Wendy Gerwick Couture, University of Idaho College of Law, was recently posted on SSRN.  Here is the abstract:

This essay argues that, under certain circumstances in securities fraud cases, a statement’s well-pleaded falsity gives rise to a strong inference that the speaker acted with scienter. In particular, this essay contends that the well-pleaded falsity of a statement is sufficient to create a strong inference of scienter when (1) the truth is necessarily within the speaker’s core knowledge; and (2) the statement is sufficiently false to have necessarily caught the speaker’s attention. This falsity-scienter inference potentially applies in a variety of securities fraud contexts, including falsified CEO résumés, objectively unreasonable analyst opinions, and cooked books. In addition, the falsity-scienter inference supports adoption of the controversial “core operations inference” and provides guidance on the proper scope of this narrower inference.

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