The Locus of Corporate Scienter

Abstract

With no uniform jurisprudential roadmap, courts in civil securities fraud lawsuits have been applying widely divergent assumptions and methods for locating a defendant corporation’s scienter. This article posits a new conceptualization of corporate scienter in the 10(b) setting, built upon the history, philosophical foundations, and evolution of corporate states of mind in the area of criminal law, a context that has necessarily seen various approaches to corporate scienter develop and flourish. Based on this new construct, the article proposes a rule that places in the locus of scienter a group of corporate agents whose personal scienter, by virtue of their participation in or link to the 10(b) misrepresentation or omission, is indicative of the corporation’s. More importantly, the proposed rule recognizes the influence of corporate personality in the perpetration of wrongdoing and presumes that a corporation can be found to possess scienter of its own – temporally and physically independent from that of its constituent agents.