The Problem With ‘Summary Scienter Analysis’
Lane Powell Shareholder Doug Greene authored an August 27 Law360 article titled “The Problem With ‘Summary Scienter Analysis.’” In the article, Greene discussed the Sixth Circuit’s interpretation of the scienter component of the Supreme Court’s decision in Matrixx Initiatives Inc. v. Siracusano, and the Ninth Circuit’s treatment of the issue in In Re VeriFone Holdings Inc. Sec. Lit., 704 F.3d 694.
Greene identified the problem as follows:
Although the Ninth Circuit correctly understood that Matrixx did not alter the [governing] scienter standard, its willingness to abandon an explicit two-step scienter analysis is an unfortunate consequence of the incorrect interpretation of Matrixx advanced by the plaintiffs. The result is the implicit endorsement of an approach that could yield a more cursory analysis of individual scienter allegations by district courts. This is troubling, because scrutiny of each scienter allegation, to understand and weigh it in relationship to each challenged statement, allows a court to properly weigh the allegations collectively. Without such scrutiny, there is a risk that courts will under- or over-value one or more of the individual allegations and thus spoil the collective analysis.
Greene concluded that Matrixx could not have departed from analysis of individual scienter allegations, because individualized scienter analysis is statutorily required by the 1934 Act and the Private Securities Litigation Reform Act.