LAW 3111H Study Guide - Final Guide: Scienter
9.3 Fraud Elements of Private 10b-5 Action
9.3.1 Material Deception
●Prohibits false or misleading statements of material fact
●Not only are outright lies prohibited but so are half-truths
○Omitted material information that renders the statement misleading
●Securities tradings that create false impressions
●As well as silence in the face of a duty to speak
●Deception can also occur, when a statement though true when made, is superseded
by new information that triggers a duty to update
Materiality:
●Something is material if there is a substantial likelihood that a reasonable investor
would find the information altering the total mix of information and would affect their
decision to buy or sell.
●For Possible future events: Magnitude of event * probability of event occurring
●If disclosure of information would affect price of stock, the information is material
Manipulation:
●prohibits activities that manipulate the price of securities by creating false
appearances of market activity
Duty to Speak:
●Courts have imposed a duty to speak when defendants have a relationship of trust
and confidence with the plaintiff
●Company Activities: when the company is trading, when the company fails to correct
misinformation it gave out and that is actively circulating in the market
●When the company knows that insiders are trading based on information not
available to the pulc
Duty to Update:
●Courts have also imposed a duty to update on incorrect information that may have
been correct when started but is actively being used in the market
9.3.2 Scienter- manipulative or Deceptive Device or Contrivance
- Plaintiff must plead and prove the defendant's science
- Mental state embracing intent to deceive, manipulate, or defraud
- Recklessness can satisfy the 10b5 culpability standard
- When representations were so obvious the defendant must have been aware
of them
Corporate Scienter
- Courts look at the sum of knowledge of all corporate agents to determine corporate
scienter
Document Summary
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