In a Securities and Exchange Commission enforcement action, a federal district court granted defendants’ motions for reconsideration of the entry of summary judgment against them on claims asserted under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. In its complaint, the SEC alleged, among other things, that the defendants, a corporation and four of its former officers and directors, violated Section 10(b) and Rule 10b-5 by making false and misleading statements to the public to manipulate the price of the corporation’s stock.

In its grant of summary judgment, the court ruled that “[s]cienter is established upon proof that the defendant acted knowingly or recklessly,” and that recklessness consists of “a highly unreasonable omission, involving not merely simple, or even inexcusable negligence, but an extreme departure from the standards of ordinary care, and which presents a danger of misleading buyers or sellers that is either known to the defendant or is so obvious that the actor must have been aware of it.” In support of their motions for reconsideration, defendants argued that the court’s scienter analysis was flawed because it allowed a finding of scienter based on recklessness without any “subjective” wrongdoing. The court agreed, holding that under controlling Ninth Circuit precedent “recklessness” only constitutes scienter under §10(b) if it “reflects some degree of intentional or conscious misconduct.” (SEC v. Platforms Wireless International Corp., 2008 WL 281112 (S.D. Cal. Jan. 31, 2008))