Defining recklessness: A doctrinal approach to deterrence of secondary market securities fraud

Little has been written about recklessness as a level of intent sufficient to impose civil liability, even less in the context of the federally implied cause of action for securities fraud. This article engages the concept of recklessness in the setting of class action, fraud-on-the-market lawsuits against securities issuers and their executives. Extending prior work, the author demonstrates the utility of contextual factors in an assessment of an individual corporate actor's recklessness at the crucial pleading stage. The proposed rubric-based on magnitude, atypicality, and timing of the information misrepresented-is informed by recent Supreme Court pronouncements on scienter, by established 10(b) case law attempting to define recklessness as a level of intent producing fraud, and by the Third Restatement's recent adoption of a fundamentally objective approach to recklessness in tort law more generally. By providing an intellectually grounded prescription for the evaluation of inferences of recklessness in 10(b) cases, this work both harmonizes the federal common law of securities fraud and reinforces its normative power. At the same time, the author's conception of recklessness revives largely moribund legislative efforts to increase executive accountability and to improve the quality of corporate disclosure for the benefit of shareholders. Thus, it adds meaningfully to the literature seeking to establish and put into service an optimal level of securities fraud deterrence.