Some securities fraud plaintiffs contend that greed—in the form of perpetuating a prestigious executive position, ensuring a gainful bonus, or maintaining the appearance of corporate profitability—is a bona fide motive evidencing scienter. But currently, no single judicial standard or analytical rubric guides the analysis of whether allegations of greed indicate scienter in these cases. The Private Securities Litigation Reform Act of 1995 (PSLRA) requiresthat the complaint state “with particularity” facts giving rise to a “strong inference” that the defendant acted with the scienter required for the cause of action. Plaintiffs have long established scienter through “motive and opportunity” pleading: facts demonstrating the presence of a motive in tandem with the perpetrator’s opportunity to commit the fraud. As part of motive and opportunity pleading, some plaintiffs have contended that greed can be a manifestation of scienter. Such allegations have met disparate and somewhat unreasoned fates. This Article draws from the over one hundred reported circuit court cases interpreting the “strong inference” standard in a variety of factual settings to propose a framework for more orderly analysis of allegations of corporate and personal avarice. Guided by the way some courts analyze the role of insider stock transactions in scienter pleading, the contextual model identifies three dimensions—magnitude, timing, and atypicality—that can heighten ordinary profit-seeking activities to suspicious or unusual conduct and can provide a motive that properly gives rise to a strong inference of scienter.
Ann Morales Olazabal and Patricia Sanchez Abril,
In Honor of Walter O. Weyrauch: The Ubiquity of Greed: A Contextual Model for Analysis of Scienter,
60 Fla. L. Rev.
Available at: http://scholarship.law.ufl.edu/flr/vol60/iss2/3