Second Circuit Rules on Corporate Scienter Standard
July 14, 2008
On June 26, 2008, the United States Court of Appeals for the Second Circuit issued an opinion addressing the standard for pleading corporate scienter in securities fraud actions. In Teamsters Local 445 Freight Division Pension Fund v. Dynex Capital Inc. et al., 2008 WL 2521676 (2d Cir. June 26, 2008), Judge John M. Walker held that a plaintiff may plead scienter against a corporate defendant without pleading scienter as to any specifically named individual defendants. In Dynex, the plaintiff purchased bonds issued by Dynex Capital Inc. which ultimately decreased in price by 85%. Thereafter, the plaintiff filed a putative class action against Dynex Capital Inc., its subsidiary Merit Securities Corp. and two individual officer defendants, alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 for making materially false and misleading statements in connection with the bond issues.
In addressing the standard for successfully establishing corporate scienter, the court explained that a plaintiff must plead facts that “create a strong inference that someone whose intent could be imputed to the corporation acted with the requisite scienter. In most cases, the most straightforward way to raise such an inference 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.” However, the court ultimately concluded that the plaintiff failed to plead the requisite scienter as to defendants Dynex Capital Inc. and its subsidiary Merit Securities Corp.
Teamsters Local 445 Freight Division Pension Fund v. Dynex Capital Inc. et al., Case No. 06-cv-2902 (2d Cir)
Opinion located at: 2008 WL 2521676 (2d Cir. June 26, 2008)
Summer Institute in Taxation
July 14-25, 2008
Location: The Westin New York, New York City
William Sherman, who heads Holland & Knight’s National Tax Practice Group, will chair the Introduction to International Taxation and Advanced International Taxation conferences at New York University’s Summer Institute in Taxation. Mr. Sherman, who has extensive experience providing corporate clients sophisticated tax planning for domestic and international mergers and acquisitions, restructurings, joint ventures and investments, will speak on Subpart F and Case Studies for Outbound and Inbound Investment.
Also speaking at the conference will be Holland & Knight attorneys Jeffrey Rubinger and Kevin Packman. Mr. Rubinger, who practices in the area of domestic and international taxation and is head of the firm’s South Florida tax practice group, will be presenting on The Use of Derivatives in International Tax Planning. Mr. Packman, who assists international clients in developing estate plans and investment structures that minimize gift and estate tax exposure and counsels clients with tax compliance, will present on Pre-Immigration and Ethical Issues in Representing a Foreign Individual.
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