FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

GLAZER CAPITAL MANAGEMENT, LP; 

GLAZER OFFSHORE FUND LTD. “The

Glazer Funds,”

Plaintiffs-Appellants, No. 06-16899

v. D.C. No.  CV-04-02181-MJJ SERGIO MAGISTRI; ROSS

MULHOLLAND; INVISION OPINION

TECHNOLOGIES INC. SECURITIES

LITIGATION,

Defendants-Appellees. 

Appeal from the United States District Court

for the Northern District of California

Martin J. Jenkins, District Judge, Presiding

Argued and Submitted

June 13, 2008—San Francisco, California

Filed November 26, 2008

Before: J. Clifford Wallace and Susan P. Graber,

Circuit Judges, and George P. Schiavelli,* District Judge.

Opinion by Judge Wallace

*The Honorable George P. Schiavelli, United States District Judge for

the Central District of California, sitting by designation. 

15761
COUNSEL

Jeffrey S. Abraham, Abraham Fruchter & Twersky LLP, New

York, New York, for the plaintiffs-appellants. 

Susan S. Muck, Fenwick & West LLP, San Francisco, California, for the defendants-appellees.

OPINION

WALLACE, Senior Circuit Judge:

Glazer Capital Management, LP and Glazer Offshore Fund

Ltd. (Glazer) appeal from the district court’s August 31, 2006

judgment of dismissal. Glazer’s claims arose after InVision

Technologies, Inc. (InVision) announced, in March 2004, that

GLAZER CAPITAL MANAGEMENT v. MAGISTRI 15765
it had entered into a merger agreement with General Electric

(GE). Several months later, in July 2004, InVision issued a

press release, casting doubt on the merger because of the discovery of potential violations of the Foreign Corrupt Practices

Act of 1997(FCPA), 15 U.S.C. § 17dd-1. Although the proposed merger ultimately was consummated, the July 2004

announcement resulted in an immediate drop in InVision’s

share price. A class action complaint was filed by InVision

shareholders and Glazer was appointed lead plaintiff. 

To support the shareholders’ claim, Glazer focused on three

alleged misstatements in the sixty-page merger agreement,

which InVision had included as an attachment to its Form 10-

K filed pursuant to section 13 of the Securities Exchange Act

of 1934 (Exchange Act), 15 U.S.C. § 78m. Those alleged misstatements appeared in the “representations and warranties”

section of the merger agreement. The district court concluded

that Glazer had not adequately pled either falsity or scienter

with respect to these alleged misstatements and dismissed

Glazer’s action. We have jurisdiction pursuant to 28 U.S.C.

§ 1291, and we affirm. 

I.

Prior to 2004, InVision was a publicly traded company

engaged in the manufacture and sale of explosives detection

systems (EDS). InVision sold EDS to airports for use in

screening checked baggage. From the company’s inception in

1990 through 2003, it shipped more than 1000 EDS to customers in the United States and abroad. Approximately 80%

of InVision’s sales were made domestically, while 20% were

made to foreign clients in many parts of the world. For sales

outside the United States, InVision marketed its products

through the use of authorized foreign agents and distributors.

InVision’s business grew steadily during the company’s

first decade. After September 11, 2001, however, demand for

EDS increased dramatically worldwide. In 2003, InVision

15766 GLAZER CAPITAL MANAGEMENT v. MAGISTRI
entered into discussions regarding a possible merger with GE.

On March 15, 2004, InVision formally announced that it

would be acquired by GE in a cash transaction for $50 per

share. The press release announcing the merger stated that the

“acquisition is subject to normal closing conditions, including

customary regulatory approval.” That same day, the company

filed a Form 10-K and attached a copy of its merger agreement. The merger agreement was signed by Sergio Magistri,

InVision’s President and Chief Executive Officer (CEO), and

Donald Mattson, its Chief Operating Officer (COO). 

Several months later, on July 30, 2004, InVision issued a

press release stating that an internal investigation had revealed

possible violations of the FCPA in connection with certain

foreign sales transactions. InVision announced that it had voluntarily reported the activities to the Securities and Exchange

Commission (SEC) and the Department of Justice (DOJ), but

warned that subsequent investigations could potentially delay

or terminate the merger. Following the announcement, the

price of InVision stock dropped by more than six dollars per

share. 

A few days after InVision’s announcement, shareholders

filed a class action complaint in the Northern District of California. Glazer was appointed lead plaintiff, representing a

putative class of investors who purchased InVision stock

between March 15, 2004, when InVision announced the

merger, and July 30, 2004, when it announced the potential

FCPA violations. 

On December 6, 2004, InVision announced that it had

entered into a non-prosecution agreement with the DOJ and

had agreed to pay a fine of $800,000. The announcement also

reported that InVision had submitted an offer of settlement to

the SEC, which the SEC staff had agreed to recommend. That

same day, GE consummated the merger. 

On February 14, 2005, the SEC issued a cease-and-desist

order formally accepting InVision’s settlement offer. The

GLAZER CAPITAL MANAGEMENT v. MAGISTRI 15767
SEC’s order gave specific details about InVision’s FCPA violations, including that it authorized payments to foreign sales

agents in China, the Philippines, and Thailand, despite knowing the “high probability” that those funds would be used to

make improper payments to local government officials. The

SEC also faulted InVision for failing to maintain proper internal controls and for failing to train its foreign distributors and

sales agents adequately. 

Following the SEC’s announcement, Glazer filed an

Amended Consolidated Complaint with citations to the FCPA

settlements. On January 24, 2006, the district court granted

InVision’s motion to dismiss the complaint, but allowed

Glazer leave to amend. Glazer filed a Second Amended Consolidated Complaint on February 22, 2006. InVision again

moved to dismiss, and the district court heard arguments. A

few weeks later, the SEC announced that it had settled

charges against InVision’s former senior vice president for

sales and marketing, David M. Pillor, for his role in the company’s FCPA violations. Ten days later, Glazer sought leave

to amend its complaint for a third time, in order to add allegations against Pillor. The district court denied Glazer’s request

to amend its complaint, dismissed the Second Amended Consolidated Complaint, and entered a judgment dismissing the

action. The present appeal followed.

II.

[1] Glazer alleges that InVision, along with its CEO and

Chief Financial Officer (CFO), violated section 10(b) of the

Exchange Act and Rule 10b-5 promulgated thereunder. 15

U.S.C. § 78j(b); 17 C.F.R. § 240.10b-5. To state a claim

under Rule 10b-5, a plaintiff must demonstrate “(1) a material

misrepresentation or omission of fact, (2) scienter, (3) a connection with the purchase or sale of a security, (4) transaction

and loss causation, and (5) economic loss.” Sparling v. Daou

(In re Daou Sys., Inc.), 411 F.3d 1006, 1014 (9th Cir. 2005).

Under the heightened pleading standard of the Private Securi15768 GLAZER CAPITAL MANAGEMENT v. MAGISTRI
ties Litigation Reform Act of 1995 (PSLRA), 15 U.S.C.

§ 78u-4(b)(1), complaints alleging misrepresentations or

omissions under 10b-5 must “specify each statement alleged

to have been misleading, the reason or reasons why the statement is misleading, and, if an allegation regarding the statement or omission is made on information and belief, the

complaint shall state with particularity all facts on which that

belief is formed.”

A.

We first consider InVision’s argument that the mere context of the three alleged misstatements renders them legally

incapable of supporting a securities fraud claim, and that we

need go no further. InVision contends that because the statements appeared in the representations and warranties section

of a private merger agreement directed solely to GE, the statements could not reasonably have been interpreted as factual

communications to investors. To support this argument, InVision refers to a passage in the merger agreement which provides that the agreement was “not intended to . . . confer upon

any [p]erson other than the parties hereto any rights or remedies hereunder.” InVision also refers to a separate section of

the merger agreement, which rendered the entire agreement

expressly subject to a disclosure schedule. Because that disclosure schedule was never released to the public, InVision

argues that no reasonable investor would have relied on the

representations and warranties contained in the merger agreement. 

[2] The context of InVision’s alleged misstatements is certainly relevant to the issue of scienter, as discussed later.

However, we do not accept InVision’s argument that the mere

context of the statements is enough to render these statements

inactionable as a matter of law. InVision’s proposed merger

with GE was a very significant event for the company. InVision could have expected intense investor interest in the

details of the merger, particularly from institutional investors

GLAZER CAPITAL MANAGEMENT v. MAGISTRI 15769
like Glazer. The mere fact that the company chose to communicate the details of the merger in the form of an attachment

to its publicly-filed Form 10-K, as opposed to in the body of

the document itself, cannot work as a per se bar to securities

law liability. Moreover, that the merger agreement was a private document and included reference to a non-public disclosure schedule would not, as a matter of law, prevent a

reasonable investor from relying on its terms. Therefore, we

must move on to examine the substance of Glazer’s 10b-5

pleading. 

B.

The first step in our 10b-5 analysis requires us to determine

whether Glazer has adequately pled facts showing InVision’s

representations to be false or misleading. 17 C.F.R.

§ 240.10b-5. Glazer identifies three alleged misstatements in

the merger agreement. 

First, section 3.8(a) of the agreement broadly warrants that

InVision is “in compliance in all material respects with all

laws . . . .” Second, section 3.5(d) provides that InVision is

in compliance with the books and records provision of Section 13(b) of the Exchange Act, 15 U.S.C. § 78m(b)(2).

Finally, section 3.5(d) provides: “Neither the Company . . .

nor, to the Knowledge of the Company, any director, officer,

agent, employee or other Person acting on behalf of the Company” has violated the anti-bribery provisions of Section 30A

of the Exchange Act, 15 U.S.C. § 78dd-1. 

To plead falsity properly under the PSLRA, Glazer was

required to “specify each statement alleged to have been misleading,” and provide “the reason or reasons why the statement is misleading.” 15 U.S.C. § 78u-4(b)(1). If we were to

accept the sweeping scope of the warranty contained in sections 3.8(a), Glazer could probably meet this standard merely

by demonstrating that InVision was in violation of any law at

the time the warranty was made. 

15770 GLAZER CAPITAL MANAGEMENT v. MAGISTRI
The district court, however, did not read section 3.8(a) so

broadly. The court held that the broad representation at the

start of section 3.8(a) was implicitly modified by the following sentence, which appeared later in the same section of the

agreement: 

Since January 1, 2002, neither the Company nor any

of its Subsidiaries has received written notice to the

effect that a Governmental Authority claimed or

alleged that the Company . . . was not in compliance

. . . with any Law applicable to the Company . . . .

The district court read this section as welding a knowledge

element onto the broad warranty contained at the start of section 3.8(a). Under this interpretation, InVision was not warranting that it was in compliance with all laws; merely that it

was in compliance with all laws, as far as it knew then. This

interpretation is not directly supported by the text of the

merger agreement, and it appears to conflate the issue of

scienter with the issue of falsity. Moreover, the district court

did not address the other alleged misstatements contained in

section 3.5(d). 

[3] Under the plain language of the merger agreement,

InVision warranted that it was “in compliance in all material

respects with all laws,” and more specifically, that it was “in

compliance in all material respects with the provisions of Section 13(b) of the Exchange Act.”] Glazer has pled facts demonstrating that InVision was not in compliance with Section

13(b) of the Exchange Act at the time the warranties were

made: the SEC cease and desist order of February 14, 2005

stated that “InVision violated Section 13(b)(2)(A) by improperly recording in its books and records payments it made [in

violation of the FCPA]” and that InVision “violated Section

13(b)(2)(B) by failing to devise and maintain an effective system of internal controls to prevent and detect violations of the

FCPA.” Therefore, we conclude that Glazer has satisfied the

GLAZER CAPITAL MANAGEMENT v. MAGISTRI 15771
pleading requirements of the PSLRA with respect to the issue

of falsity. 

Whether Glazer has adequately pled falsity with respect to

InVision’s third alleged misstatement in section 3.5(d) is a

closer question, but it is a question we need not decide. As

discussed later, even if Glazer properly pled falsity, the district court’s dismissal would still be appropriate if Glazer

failed to plead scienter adequately with respect to the three

statements.

C.

[4] The next step in our 10b-5 analysis is to determine

whether Glazer has properly pled the element of scienter,

defined as “a mental state embracing intent to deceive, manipulate, or defraud.” Ernst & Ernst v. Hochfelder, 425 U.S. 185,

194 n.12 (1976). To plead scienter properly under the

PSLRA, Glazer was required to “state with particularity facts

giving rise to a strong inference that the defendant acted with

the required state of mind.” 15 U.S.C. § 78u-4(b)(2). Such an

inference “must be more than merely plausible or reasonable

—it must be cogent and at least as compelling as any opposing inference of nonfraudulent intent.” Tellabs, Inc. v. Makor

Issues & Rights, Ltd., 127 S. Ct. 2499, 2504-05 (2007). As we

described in Janas v. McCracken (In re Silicon Graphics Inc.

Securities Litigation), “plaintiffs proceeding under the

PSLRA can no longer aver intent in general terms of mere

‘motive and opportunity’ or ‘recklessness,’ but rather, must

state specific facts indicating no less than a degree of recklessness that strongly suggests actual intent.” 183 F.3d 970,

979 (9th Cir. 1999). 

The three alleged misstatements on which Glazer relies to

show scienter all appeared in the merger agreement. The

agreement was signed by two InVision officers, but Glazer

has alleged scienter only on the part of one of them, Sergio

Magistri. Glazer also alleges scienter on the part of Ross Mul15772 GLAZER CAPITAL MANAGEMENT v. MAGISTRI
holland, InVision’s CFO, based on his sworn Sarbanes-Oxley

certification included with InVision’s Form 10-K. We will

discuss later whether this certification is sufficient to meet the

scienter pleading requirements of the PSLRA. 

[5] The first issue we must consider, then, is whether

Glazer was required to plead scienter as to Magistri as an

individual, or whether it can rely on a theory of “collective

scienter,” which would hold the company as a whole responsible for the statements contained in the merger agreement.

1.

Glazer urges us to follow the Second and Seventh Circuits

in adopting a theory of “collective scienter” for purposes of

PSLRA pleading. As the Second Circuit described in Teamsters Local 445 Freight Division Pension Fund v. Dynex Capital, Inc.: 

In most cases, the most straightforward way to raise

[an inference of scienter] for a corporate defendant

will be to plead it for an individual defendant. But it

is possible to raise the required inference with regard

to a corporate defendant without doing so with

regard to a specific individual defendant. 

531 F.3d 190, 195 (2d Cir. 2008). The Seventh Circuit

reached a similar conclusion in Makor Issues & Rights, Ltd.

v. Tellabs Inc., holding that “it is possible to draw a strong

inference of corporate scienter without being able to name the

individuals who concocted and disseminated the fraud.” 513

F.3d 702, 710 (7th Cir. 2008). To illustrate the point, the court

gave the following example: 

Suppose General Motors announced that it had sold

one million SUVs in 2006, and the actual number

was zero. There would be a strong inference of corporate scienter, since so dramatic an announcement

GLAZER CAPITAL MANAGEMENT v. MAGISTRI 15773
would have been approved by corporate officials

sufficiently knowledgeable about the company to

know that the announcement was false. 

Id.; see also Caterpillar, Inc. v. Great Am. Ins. Co., 62 F.3d

955, 962 (7th Cir. 1995) (stating, in dictum, “there are conceivable situations where the individual actors would not be

liable but their corporate employer would be, for example

where a case depends on the collective scienter of its employees”). 

Other circuits have disagreed with the collective scienter

theory of liability. In Southland Securities Corp. v. INSpire

Insurance Solutions Inc., the Fifth Circuit rejected the concept

of “group pleading” whereby plaintiffs could presume “that

statements in prospectuses, registration statements, annual

reports, press releases, or other group-published information,

are the collective work of those individuals with direct

involvement in the everyday business of the company.” 365

F.3d 353, 363-64 (5th Cir. 2004) (internal quotation marks

omitted). The court concluded that the “group pleading doctrine conflicts with the scienter requirement of the PSLRA”

because “the PSLRA requires . . . plaintiffs to distinguish

among those they sue and enlighten each defendant as to his

or her particular part in the alleged fraud.” Id. at 365 (internal

quotation marks omitted). The Eleventh Circuit reached a

similar conclusion in Phillips v. Scientific-Atlanta, Inc., when

it stated in dictum that “the most plausible reading [of the

PSLRA] in light of congressional intent is that a plaintiff, to

proceed beyond the pleading stage, must allege facts sufficiently demonstrating each defendant’s state of mind regarding his or her alleged violations.” 374 F.3d 1015, 1018 (11th

Cir. 2004) (footnote omitted). 

Our circuit has not previously adopted a theory of collective scienter. In Nordstrom, Inc. v. Chubb & Son, Inc., we

touched on the issue indirectly in the context of an insurance

dispute. 54 F.3d 1424 (9th Cir. 1995). There the plaintiff

15774 GLAZER CAPITAL MANAGEMENT v. MAGISTRI
sought to compel payment on an insurance policy covering

the actions of its directors and officers. The dispute arose after

a group of shareholders brought suit against the directors and

officers of Nordstrom and successfully obtained a $7.5 million settlement. The defendant insurance company refused to

cover one-half of the settlement on the ground that the shareholders’ lawsuit had named both the directors and officers,

who were insured, as well as Nordstrom, which was not

insured. The defendant argued that because Nordstrom could

have been found liable independent of the actions of its directors and officers, the insurance policy covered only one-half

of the settlement. We rejected this argument and held that

“there is no case law supporting an independent ‘collective

scienter’ theory.” Id. at 1435. We then concluded that “corporate scienter relies heavily on the awareness of the directors

and officers,” and that on the facts of the case, “we see no

way that [the defendant] could show that the corporation, but

not any individual [director or officer], had the requisite intent

to defraud.” Id. at 1436. 

At least one district court in our circuit has also discussed

the issue of collective scienter. In In re Apple Computer, Inc.,

the court cited Nordstrom and concluded that “[t]he Ninth

Circuit has rejected the concept of ‘collective scienter.’ ” 243

F. Supp. 2d 1012, 1023 (N.D. Cal. 2002). The court went on

to hold: 

It is not enough to establish fraud on the part of

a corporation that one corporate officer makes a false

statement that another officer knows to be false. A

defendant corporation is deemed to have the requisite scienter for fraud only if the individual corporate

officer making the statement has the requisite level

of scienter . . . . 

Id., citing Nordstrom, 54 F.3d at 1435-36. The district court

in Apple appears to have overstated our holding in Nordstrom.

We had at that time not categorically rejected the concept of

GLAZER CAPITAL MANAGEMENT v. MAGISTRI 15775
“collective scienter.” Rather, Nordstrom merely held that, on

the facts of the case, it was impossible to allege corporate

scienter without also implicating the directors and officers.

Nordstrom does not foreclose the possibility that, in certain

circumstances, some form of collective scienter pleading

might be appropriate. For instance, as outlined in the hypothetical posed in Makor, there could be circumstances in

which a company’s public statements were so important and

so dramatically false that they would create a strong inference

that at least some corporate officials knew of the falsity upon

publication. See Makor, 513 F.3d at 710. 

[6] We need not decide whether we agree with Makor

because the facts of this case are different from the hypothetical in Makor. Glazer rests its securities fraud claim on three

statements, all of which appear in a sixty-page legal document. If the doctrine of collective scienter excuses Glazer

from pleading individual scienter with respect to these legal

warranties, then it is difficult to imagine what statements

would not qualify for an exception to individualized scienter

pleadings. In fact, because the merger agreement warranted

that the company was in compliance “with all laws,” then

under the collective scienter theory urged by Glazer, so long

as any employee at InVision had knowledge of the violation

of any law, scienter could be imputed to the company as a

whole. This result would be plainly inconsistent with the

pleading requirements of the PSLRA. We are thus not faced

with whether, in some circumstances, it might be possible to

plead scienter under a collective theory. That issue is not

before us. Rather, given the limited nature and unique context

of the alleged misstatements in this case, we hold that the

PSLRA requires Glazer to plead scienter with respect to those

individuals who actually made the false statements in the

merger agreement. Therefore, to succeed on its claim, Glazer

must “plead, in great detail, facts that constitute strong circumstantial evidence of deliberately reckless or conscious

misconduct” on the part of Magistri. See In re Silicon Graphics, 183 F.3d at 974. 

15776 GLAZER CAPITAL MANAGEMENT v. MAGISTRI
In a final effort to meet the stringent FCPA requirements,

Glazer moved to file a Third Amended Consolidated Complaint naming Pillor, the former senior vice president for sales

and marketing at InVision. But Glazer was required to plead

individual scienter with respect to Magistri because Magistri

was responsible for actually making the statements in the

merger agreement. As the district court correctly held in denying the motion, the fact that Glazer could have shown that a

different executive knew about the FCPA violations would do

nothing to resuscitate Glazer’s claims. This ruling was not an

abuse of discretion.

2.

Glazer has pled no facts that directly demonstrate Magistri

possessed the requisite scienter when he made the representations contained in the merger agreement. Although the SEC

and DOJ concluded that certain illegal payments were

approved by InVision’s regional sales manager and senior

vice president for sales and marketing, Glazer has not pled

any facts to demonstrate that Magistri was personally aware

of the illegal payments or that he was actively involved in the

details of InVision’s Asian sales. Instead, Glazer asks us to

infer scienter on the part of Magistri based on a number of

factors, including (1) the nature of InVision’s business, (2) the

fact that Magistri signed a Sarbanes-Oxley certification

required by Sarbanes-Oxley Act of 2002, Pub. L. No. 107-

204, (3) the discovery of FCPA violations by GE during the

due diligence process, (4) the personal financial incentives for

Magistri to consummate the merger, and (5) the conclusions

contained in the DOJ and SEC settlement documents. To

determine whether Glazer has met the PSLRA pleading

requirements, we must determine whether these five events,

“even though individually lacking, are sufficient to create a

strong inference” of scienter. In re Daou, 411 F.3d at 1022

(internal quotation marks omitted); see also South Ferry LP,

#2 v. Killinger, 542 F.3d 776, 784 (9th Cir. 2008) (holding

that courts must consider scienter allegations “holistically”).

GLAZER CAPITAL MANAGEMENT v. MAGISTRI 15777
First, Glazer argues that the very size and nature of InVision’s business creates a strong inference that Magistri knew

about the FCPA violations. In its complaint, Glazer describes

InVision as a small company which sold a relatively small

number of devices to a limited number of customers. The

pleadings also allege that overseas sales formed an important

part of the company’s business, and point out that Magistri

was able to name several of the company’s overseas partners

in Thailand and the Philippines. Glazer argues that we can

therefore infer that Magistri, as CEO, knew about the FCPA

violations when he signed the merger agreement. 

We have had occasion to address arguments similar to

Glazer’s in the past. In Daou, a group of shareholders brought

suit against five individual officers and directors of a company, alleging they systematically violated generally accepted

accounting principles in order to inflate the company’s stock

price artificially. Plaintiffs alleged scienter, in part, based on

the theory that the officers must have known about the

accounting irregularities given their positions within the company and their roles in the day-to-day decision making. In

responding to this argument, we held that “[g]eneral allegations of defendants’ ‘hands-on’ management style, their interaction with other officers and employees, their attendance at

meetings, and their receipt of unspecified weekly or monthly

reports are insufficient” to create a strong inference of

scienter. Id. at 1022, citing Fischer v. Vantive Corp. (In re

Vantive Corp. Sec. Litig.), 283 F.3d 1079, 1087 (9th Cir.

2002). However, we cautioned that “specific admissions from

top executives that they are involved in every detail of the

company and that they monitored portions of the company’s

database are factors in favor of inferring scienter . . . .” Id.,

citing Nursing Home Pension Fund, Local 144 v. Oracle

Corp., 380 F.3d 1226, 1234 (9th Cir. 2004). Against this

backdrop, we concluded in Daou that the plaintiffs had sufficiently pled scienter, based on the officers’ “direct involvement in the production of false accounting statements,” as

well as their suspicious insider stock sales. 

15778 GLAZER CAPITAL MANAGEMENT v. MAGISTRI
[7] We confronted the same argument more recently in

Berson v. Applied Signal Technology, Inc., 527 F.3d 982 (9th

Cir. 2008). There, shareholders filed a securities fraud class

action against Applied Signal and two of its officers, after the

company announced an unexpected 25% drop in revenue. At

issue were certain “stop-orders” received from Berson’s customers, which the company failed to report accurately to

investors. On the issue of scienter, plaintiffs did not allege any

specific facts showing that the individually named officers

actually knew about the stop-work orders. Nevertheless, we

held that plaintiffs had adequately demonstrated a “strong

inference” of scienter, based on the officers’ positions and the

nature of the misstatements. In particular, we concluded the

named officers “were directly responsible for Applied Signal’s day-to-day operations” and that the stop-work orders

“were prominent enough that it would be ‘absurd to suggest’

that top management was unaware of them.” Id. at 988-89,

citing No. 84 Employer-Teamster Joint Council Pension Trust

Fund v. America West, 320 F.3d 920, 943 n.21 (9th Cir.

2003). 

[8] The facts of this case are quite different. The alleged

misstatements here involved a discrete set of illegal payments

made by InVision’s foreign sales agents operating in China,

the Philippines, and Thailand. Unlike the misstatements in

Daou and Berson, these payments were not, by their nature,

the type of transaction of which it would be “hard to believe”

senior officials were unaware. Berson, 527 F.3d at 989. To the

contrary, the surreptitious nature of the transactions creates an

equally strong inference that the payments would have deliberately been kept secret—even within the company. This

inference is supported by the fact that the sales and marketing

director responsible for approving the payments received the

bulk of his salary from commissions earned on sales. Based

on the allegations made in this case, it would not be “absurd

to suggest” that Magistri was unaware of the details of payments made through foreign sales agents in Asia. Id. Therefore, we hold that given the nature of the alleged

GLAZER CAPITAL MANAGEMENT v. MAGISTRI 15779
misstatements, the mere size and nature of InVision’s business are not sufficient to create a strong inference of scienter.

Glazer next points to the Sarbanes-Oxley certification

which Magistri and InVision’s CFO, Ross Mulholland, signed

and attached to the company’s Form 10-K. In that certification, Magistri and Mulholland stated: 

The registrant’s other certifying officer and I are

responsible for establishing and maintaining disclosure controls and procedures . . . and have: 

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure

that material information relating to the registrant . . .

is made known to us . . . ; 

(b) Evaluated the effectiveness of the registrant’s

disclosure controls and procedures and presented in

this report our conclusions about the effectiveness of

the disclosure controls and procedures . . . . 

Glazer argues that this statement is sufficient to infer knowledge of the FCPA violations, because the controls and procedures put into place by Magistri and Mulholland would have

necessarily alerted them to any FCPA violations. 

[9] Our circuit has yet to examine the precise interplay

between the reporting requirements of Sarbanes-Oxley and

the scienter pleading requirements of the PSLRA. However,

at least two other circuits have specifically addressed the

issue. In Garfield v. NDC Health Corp., the Eleventh Circuit

rejected the plaintiffs’ argument that Sarbanes-Oxley certifications signed by senior executives were sufficient to demonstrate scienter. 466 F.3d 1255, 1267 (11th Cir. 2006). The

court held: 

15780 GLAZER CAPITAL MANAGEMENT v. MAGISTRI
The plain language of Sarbanes-Oxley evidences no

congressional intent to alter the pleading requirements set forth in the PSLRA. . . . If we were to

accept [the plaintiff’s] proffered interpretation of

Sarbanes-Oxley, scienter would be established in

every case where there was an accounting error or

auditing mistake made by a publicly traded company, thereby eviscerating the pleading requirements

for scienter set forth in the PSLRA. 

Id. at 1266. The Fifth Circuit recently reached a similar conclusion in Indiana Electrical Workers’ Pension Trust Fund

IBEW v. Shaw Group, Inc., explicitly adopting the holding of

Garfield. 537 F.3d 527, 544-45 (5th Cir. 2008). We agree

with the reasoning of the Eleventh and Fifth Circuits. Because

Congress expressed no intent to alter the pleading requirements of the PSLRA, “Sarbanes-Oxley certification is only

probative of scienter if the person signing the certification

was severely reckless in certifying the accuracy of the financial statements.” Garfield, 466 F.3d at 1266. Because Glazer

has pled no facts to that effect, the Sarbanes-Oxley certifications are not sufficient, without more, to raise a strong inference of scienter on the part of Magistri. 

[10] Glazer next argues that because GE was able to discover evidence of FCPA violations relatively early in the due

diligence process, the information must have been readily

available and therefore known to Magistri when he signed the

merger agreement. This argument is not sufficient to create a

strong inference of scienter. The mere fact that GE was able

to discover the FCPA violations does not create a direct inference that Magistri personally knew about the violations. At

most, it creates the inference that he should have known of the

violations. This is not sufficient to meet the stringent scienter

pleading requirements of the PSLRA. See In re Silicon

Graphics, 183 F.3d at 977 (requiring “some degree of intentional or conscious misconduct”). 

GLAZER CAPITAL MANAGEMENT v. MAGISTRI 15781
Moreover, the material misrepresentations at issue in this

case appeared in the public filing of a private merger agreement. This fact undercuts any inference that Magistri knew

about the FCPA violations when he signed the merger agreement, because such knowledge would have required him to

make false representations knowingly, not only to the investing public, but also to the very company that would shortly be

conducting a due diligence inquiry. 

[11] Glazer next argues that a strong inference of scienter

arises from the fact that Magistri had a motive to make false

statements, because he was positioned to profit personally

from the proposed merger. Although neither side has cited

any Ninth Circuit law on this issue, a number of out-of-circuit

cases have rejected Glazer’s argument. In Phillips v. LCI

International, Inc., the Fourth Circuit explained that because

personal profit motive is present in almost every merger,

inferring scienter from motive would “force the directors of

virtually every company to defend securities fraud actions

every time that company effected a merger or acquisition.”

190 F.3d 609, 623 (4th Cir. 1999) (internal citation omitted).

The Third Circuit echoed this sentiment in GSC Partners

CDO Fund v. Washington, when it held that “[i]n every corporate transaction, the corporation and its officers have a

desire to complete the transaction, and officers will usually

reap financial benefits from a successful transaction. Such

allegations alone cannot give rise to a ‘strong inference’ of

fraudulent intent.” 368 F.3d 228, 237-38 (3d Cir. 2004); see

also, Kalnit v. Eichler, 264 F.3d 131, 139-40 (2d Cir. 2001)

(holding that officers’ motive to maintain or increase compensation was insufficient to support scienter); Tuchman v. DSC

Commc’ns Corp., 14 F.3d 1061, 1068 (5th Cir. 1994) (holding

that “incentive compensation can hardly be the basis on which

an allegation of fraud is predicated”). We join our sister circuits and hold that evidence of a personal profit motive on the

part of officers and directors contemplating a merger is insufficient to raise a strong inference of scienter. 

15782 GLAZER CAPITAL MANAGEMENT v. MAGISTRI
[12] Finally, Glazer argues that the settlement agreements

InVision entered into with the DOJ and SEC are sufficient to

create a strong inference of scienter. In those agreements,

InVision accepted responsibility for misconduct and admitted

that the company “was aware of the high probability that its

foreign sales agents or distributors paid or offered to pay

something of value to government officials in order to obtain

or retain business for InVision.” The company further admitted that it “improperly accounted for certain payments . . . in

its books and records in violation of the FCPA.” The district

court correctly held that these agreements were not sufficient

to meet the pleading requirements of the PSLRA. First, the

admissions in these settlement agreements were largely legal

conclusions, rather than particularized facts giving rise to a

strong inference of scienter. More importantly, even if InVision accepted the SEC’s and DOJ’s statements of fact, there

is nothing in either settlement agreement that would support

the conclusion that Magistri had actual knowledge of the violations. As discussed earlier, the mere fact that someone at

InVision had knowledge of the illegal transactions is not sufficient to satisfy the scienter pleading requirements of the

PSLRA, given the context and limited nature of the misrepresentations at issue. 

Therefore, we hold that the five identified events, individually or collectively, fail “to create a strong inference” of

scienter. In re Daou, 411 F.3d at 1022.

III.

The district court did not err when it dismissed Glazer’s

Second Amended Consolidated Complaint, did not abuse its

discretion when it denied leave to file a Third Amended Consolidated Complaint, and did not err when it entered a judgment dismissing the action. Glazer has not pled facts that

would either directly or indirectly give rise to a strong inference of scienter on the part of those officers responsible for

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making the false statements contained in the merger agreement. 

AFFIRMED.

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