Pleading Scienter Under Section 21D(b)(2) of the Securities Exchange Act of 1934: Motive, Opportunity, Recklessness, and the Private Securities Litigation Reform Act of 1995

This Article discusses conflicting case law regarding the standard for pleading scienter under section 21D(b)(2) of the Securities Exchange Act of 1934. The Private Securities Litigation Reform Act of 1995 (PSLRA) enacted section 21(b)(2). Several courts found that the standard for pleading scienter under section 21(b)(2) was the same as the Second Circuit requirement to show a "strong inference" of scienter in the pleadings. Other courts found that the pleading requirement in section 21(b)(2) was heightened above the Second Circuit standard.

This Article reviews the text and structure of section 21(b)(2) and the conflicting case law, in order to determine the correct pleading standard. The authors conclude that the Second Circuit standard is the standard that Congress intended with the passage of the PSLRA.