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Evidence of Fraud, Not Bad Motives, Needed to Prove Securities Fraud
Description Appeals court dismissed a securities fraud suit based on assertions that the officers of a company had the motive and opportunity to engage in securities fraud. Such evidence may be useful in a showing of securities fraud, but are not enough to establish fraud under the Securities Litigation Reform Act of 1995.
Topic Securities Law
Key Words Securities Fraud; Securities Litigation Reform Act
C A S E   S U M M A R Y
Facts Shareholders brought a class action lawsuit against a corporation and several of its officers, claiming that the officers had made both false and misleading statements and material omissions to inflate the value of company stock. The district court refused to dismiss the suit; defendants appealed that ruling.
Decision Reversed. To show securities fraud under Rule 10b-5, plaintiff must show: 1) misstatement or omission, 2) of material fact, 3) made with scienter; 4) on which plaintiff relied, 5) that proximately caused injury. Allegations of motive to commit fraud and opportunity to commit fraud are not sufficient to establish scienter under the Securities Litigation Reform Act; such allegations might be evidence of recklessness, but are not enough to constitute reckless behavior for which liability may be imposed.
Citation Bryant v. Avado Brands, Inc., 187 F.3d 1271 (11th Cir., 1999)

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