Please review this discussion about scienter and let me know what other questions you may have.
Scienter is "a mental state embracing intent to deceive, manipulate, or defraud," n29 and under 10b-5 the plaintiff must allege that the defendant possessed this scienter at the time of a material misstatement or omission. n30 A corporate actor's mere negligence when making such a misrepresentation [*1601] does not satisfy the scienter pleading requirement, n31 although an allegation of recklessness is sufficient. n32
Despite the fine lines courts often draw between intent and knowledge or recklessness and negligence, one common denominator prevails: "the inevitable mention of a "person' in whom [intent] resides." n33 While the law generally recognizes a corporation as a "person," n34 courts must still determine how a corporation may possess the mental state required to prove scienter. A court's approach to corporate scienter may thus play a pivotal role in determining the viability of a plaintiff's case in the face of a Federal Rules of Civil Procedure (FRCP) 12(b)(6) motion. n35
FRCP pleading standards generally adhere to a low standard of notice, requiring only a "short and plain statement" showing that the plaintiff is entitled to relief. n36 The federal rules require, however, that averments of fraud state "the circumstances constituting fraud ... with particularity." n37 The complaint must specifically identify the alleged fraudulent statements, the party making the statements, the time when the statements were made, and why the statements were fraudulent. n38 The particularity requirement ensures that the defendant receives fair notice of the plaintiff's claim and creates a safeguard against frivolous allegations of wrongdoing. n39 Notably, the FRCP 9(b) particularity standard applies to the [*1602] fraudulent act, but not to the state of mind of the individual perpetrating the fraud. n40
The Private Securities Litigation Reform Act of 1995 implemented heightened standards for pleading fraud in securities litigation. n41 The PSLRA first addressed fraudulent acts by establishing a "clarity and basis" requirement, n42 closely paralleling the particularity requirement under FRCP 9(b). The "clarity and basis" provision required the complaint to "specify each statement alleged to have been misleading ... [and] the reason or reasons why the statement is misleading." n43
Further, the PSLRA's new "strong inference" language raised the pleading standards for scienter (from those previously required under FRCP 9(b)) by mandating that a complaint "state with particularity facts giving rise to a strong inference [of scienter]." n44 At a minimum, courts agree that the strong inference standard does not require pleading evidence, n45 or even "forecloseing all other "characterizations of fact.'" n46 The complaint, however, must at least allege facts that surpass a "reasonable" inference of scienter. n47 Beyond such common denominators, there is conflict in characterizing the PSLRA standard. While an allegation of the defendant's motive and opportunity may be sufficient, courts have declined to deem such an allegation as satisfying the PSLRA standard. n48 A number of courts also suggest that the PSLRA scienter criterion may be [*1603] met by pleading recklessness or by alleging "facts giving rise to a strong inference of recklessness." n49 Although Congress has not yet adopted a universal definition for the strong inference standard, PSLRA has clearly raised the FRCP (9)(b) bar for pleading scienter in securities litigation.