On behalf of Wolf Popper LLP
Previously, we began looking at recent securities fraud cases, all involving traders for Nomura Securities International. The cases all involve allegations that the traders misled customers regarding securities prices in order to increase their profits.
In the second set of cases we mentioned last time, one interesting aspect of the litigation is that the traders didn't deny that they lied, but that customers were not justified in taking the lies seriously. This argument refers to an important aspect of securities litigation.
In securities fraud cases under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, one of the most commonly used measures to pursue securities fraud claims, a plaintiff must be able to provide sufficient evidence to meet a number of requirements. First of all, there must be evidence that the defendant made an untrue statement of material fact or omitted a material fact in connection with the purchase or sale of securities.
Second, the statement or omission must have been made with "scienter," or an intent to deceive. To satisfy the scienter requirement, a plaintiff must prove the statement was made knowingly or with severe recklessness. Negligence is not sufficient to prove scienter. In addition, a private plaintiff, or a class of investors, must also be able to show that the fraudulent misrepresentation or omission caused the plaintiff or class to suffer damages. For publicly traded securities, this is sometimes evidenced by a decline in the price of the security when the truth becomes public.
In addition to the above elements, another important element is reliance. This element gets to the heart of the defense tactic attempted in the above-mentioned set of securities fraud cases. We'll say more about this issue, and how the reliance element is satisfied in securities fraud class actions, in upcoming posts.
United States Courts for the Ninth Circuit, Manual of Civil Jury Instruction: 8.2 Securities-Rule 10b-5 Claim, Accessed May 23, 2017.
Cornell Law School, 17 CFR 240.10b-5