Article by Bruce Ericson, Edward Flanders, David G. Keyko, Jill E. Klements and Takemi Ueno
The Private Securities Litigation Reform Act of 1995 (PSLRA) requires a securities fraud plaintiff to "state with particularity facts giving rise to a strong inference" of defendant’s scienter. 15 U.S.C. §78u-4(b)(2). The nine circuits that have considered how a plaintiff can satisfy this pleading requirement have divided into three camps. In the Second and Third Circuits, a plaintiff can demonstrate scienter either with allegations of motive and opportunity or with allegations constituting strong circumstantial evidence of conscious misbehavior or recklessness. At the other end of the spectrum, the Ninth Circuit accepts only allegations raising a strong inference of intentional misconduct or deliberate recklessness. Thus, in addition to rejecting the motive and opportunity test, the Ninth Circuit sets a higher standard for pleading recklessness than any other circuit. In the middle, six
