Establishing scienter in private securities fraud litigation under the Private Securities Litigation Reform Act of 1995 (PSLRA) can be a daunting challenge to even the most skilled and seasoned practitioners. In enacting the PSLRA, Congress sought to raise the evidentiary bar by which claims of fraudulent conduct by corporations and executives must be pleaded. This has led to substantial litigation on various aspects of the PSLRA, including the heightened requirements for pleading scienter confronted by potential PSLRA plaintiffs.
These enhanced requirements have led PSLRA plaintiffs to employ many techniques to plead scienter with sufficient specificity, as required by the PSLRA, including the use of confidential witness statements in securities fraud complaints. This article analyzes the standards under which courts review such statements when considering a motion to dismiss, and provides securities litigators some thoughts to consider when drafting or attacking a securities fraud complaint containing confidential witness statements.
