The Court of Appeals for the Second Circuit held yesterday that a securities-fraud plaintiff cannot establish corporate scienter without pleading facts showing that employees who allegedly knew of underlying corporate misconduct had some connection to the corporation’s purportedly false or misleading public statements. The decision in Jackson v. Abernathy should prevent securities plaintiffs from establishing “collective” or corporate scienter in the absence of factual allegations showing a corporate speaker’s awareness of the underlying alleged misconduct even if other employees not involved with the corporation’s disclosures purportedly had such knowledge.
Last week, the Ninth Circuit issued a decision that could affect analyses of corporate scienter in securities class actions. The court reversed the dismissal of In re ChinaCast Education Corporation Securities Litigation and held that a malfeasant executive’s knowledge could be imputed to his or her company when the executive acted with apparent authority. The court also observed that, “as a practical matter,” the adverse-interest exception presumptively does not apply in fraud-on-the-market securities class actions.