The Hain Celestial Group, Inc., et al. v. Salamon Gimpel, et al.

The Private Securities Litigation Reform Act of 1995 (PSLRA) requires securities-fraud plaintiffs to “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.” 15 U.S.C. § 78u-4(b)(2)(A). Under the PSLRA’s heightened pleading standards, “an inference of scienter must be more than merely plausible or reasonable—it must be cogent and at least as compelling as any opposing inference of nonfraudulent intent.” Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 314 (2007). The circuits are sharply divided on two frequently recurring questions of law concerning the PSLRA’s standard for pleading scienter. The questions presented are:

1. Whether a plaintiff may plead scienter based on the “core operations doctrine,” under which the alleged significance of an issue supports an inference that defendants must have known about it.

2. Whether a plaintiff may plead scienter by alleging that executives generally receive information through routine corporate communications, such as internal reports or customer calls, without specifying the contents of those communications.