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Scienter Required For Civil Liability Under Sec Rule 10b-5, William H. Buckley

Mercer Law Review

In Ernst & Ernst v. Hochfelder, the U. S. Supreme Court held that an action for civil damages cannot be maintained under §10(b) of the Securities and Exchange Act of 1934 and Securities and Exchange Commission Rule 10b-5, unless there is an allegation of the defendant's intent to deceive, manipulate or defraud. Thus, some element of scienter is required, and liability cannot be imposed for negligent conduct alone.

The suit arose following exposure of a fraudulent securities scheme perpetrated by Leston B. Nay, president and principal stockholder of First Securities Company of Chicago (First Securities), a member of the …