Law.com Subscribers SAVE 30%
Call 855-808-4530 or email [email protected] to receive your discount on a new subscription.
Recklessness Under the Federal Securities Laws
Whenever the Enforcement Division of the Securities and Exchange Commission (SEC) investigates potential fraudulent conduct, one of the key issues it must address is whether there is evidence of scienter; in the words of the Supreme Court, 'a mental state embracing intent to deceive, manipulate, or defraud.' (Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193-194, n.12 (1976)). In some cases ' for example, where an individual engages in insider trading, or falsifies accounting records as part of a scheme to manage earnings ' scienter may be fairly clear-cut. In other instances, the evidence regarding an actor's mental state is murky, a problem made more acute by the fact that the law treats a finding of 'recklessness' as the equivalent of fraudulent intent. The thin line between conduct that is reckless, and conduct that is something less ' for example, grossly negligent or, as the SEC put it in one case, 'alarmingly careless' (In the Matter of KPMG Peat Marwick, 54 SEC 1135 (2001), pet. for rev. denied, KPMG, LLP v. SEC, 289 F.3d 109 (D.C. Cir. 2002)), may mean the difference between a career-ending fraud charge, and a finding of a lesser regulatory violation or even no violation at all. When defense counsel engage the SEC staff in discussions about proposed enforcement actions, often a major focus of their efforts is to make the case that the client, though his conduct may not have been perfect, did not behave recklessly within the meaning of the securities laws.
This article offers guidance for executives and others on the interpretation and application of recklessness in SEC enforcement actions, as well as in private litigation, charging securities fraud. We first provide an overview of the concept of recklessness as it has evolved in the case law, and its use in the statutes the SEC enforces. The article next suggests business practices that may help deter claims of fraud based on allegedly reckless conduct. As will be seen, although the contours of recklessness are ill-defined and tend to shift with the facts of each case, some helpful governing principles can be identified.
Recklessness As a Basis for Securities Fraud Liability
Major Differences In UK, U.S. Copyright Laws
This article highlights how copyright law in the United Kingdom differs from U.S. copyright law, and points out differences that may be crucial to entertainment and media businesses familiar with U.S law that are interested in operating in the United Kingdom or under UK law. The article also briefly addresses contrasts in UK and U.S. trademark law.
The Article 8 Opt In
The Article 8 opt-in election adds an additional layer of complexity to the already labyrinthine rules governing perfection of security interests under the UCC. A lender that is unaware of the nuances created by the opt in (may find its security interest vulnerable to being primed by another party that has taken steps to perfect in a superior manner under the circumstances.
Legal Possession: What Does It Mean?
Possession of real property is a matter of physical fact. Having the right or legal entitlement to possession is not "possession," possession is "the fact of having or holding property in one's power." That power means having physical dominion and control over the property.
Removing Restrictive Covenants In New York
In Rockwell v. Despart, the New York Supreme Court, Third Department, recently revisited a recurring question: When may a landowner seek judicial removal of a covenant restricting use of her land?
Warehouse Liability: Know Before You Stow!
As consumers continue to shift purchasing and consumption habits in the aftermath of the pandemic, manufacturers are increasingly reliant on third-party logistics and warehousing to ensure their products timely reach the market.