Opinion ID: 161559
Heading Depth: 3
Heading Rank: 1

Heading: Pre-PSLRA Standards

Text: 49 In a case addressing pleading standards pre-PSLRA, 15 this court held that to state a claim under Section 10(b) of the Act and Rule 10b-5 a plaintiff must allege: (1) a misleading statement or omission of a material fact; (2) made in connection with the purchase or sale of securities; (3) with intent to defraud or recklessness; (4) reliance; and (5) damages. Grossman v. Novell, Inc., 120 F.3d 1112, 1118 (10th Cir. 1997). Before the passage of the PSLRA, the pleading requirements for scienter in the securities context were governed by Federal Rule of Civil Procedure 9(b), which dictates that averments of fraud . . . be stated with particularity. Id. at 1125. 50 The term scienter has been defined by the Supreme Court of the United States as a mental state embracing intent to deceive, manipulate, or defraud. Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 n.12 (1976). The Supreme Court has further elaborated on the meaning of the term by stating: The words 'manipulative or deceptive' used in conjunction with 'device or contrivance' strongly suggest that 10(b) was intended to proscribe knowing or intentional misconduct. Id. at 197. Recklessness, defined as conduct that is an extreme departure from the standards of ordinary care, and which presents a danger of misleading buyers or sellers that is either known to the defendant or is so obvious that the actor must have been aware of it, can also satisfy the scienter requirement for Section 10(b). Anixter v. Home-Stake Prod. Co., 77 F.3d 1215, 1232 (10th Cir. 1996) (citations and quotation marks omitted). Simple negligence, however, does not satisfy the scienter requirement. See Bd. of County Comm'rs of San Juan County v. Liberty Group, 965 F.2d 879, 883 (10th Cir. 1992); Ernst & Ernst, 425 U.S. at 197. 51