Legal Definitions - Scienter

Scienter refers to the mental state of knowing that an act is wrong, fraudulent, or illegal, or having the intent to deceive or mislead. It signifies a person's awareness of the wrongful nature of their conduct or statements at the time they are made or performed.

Here are a few examples to illustrate this concept:

• Example 1: Misleading Product Claims

  Imagine a pharmaceutical company executive who approves a marketing campaign claiming their new drug cures a specific illness, even though internal research data clearly shows the drug is ineffective for that purpose. The executive's knowledge of the drug's ineffectiveness while promoting it as a cure demonstrates scienter. They possessed a "guilty mind" because they knew the claims were false and intended to mislead the public and healthcare providers.

• Example 2: Real Estate Fraud

  Consider a homeowner selling their house who is aware of severe, hidden structural damage, such as a crumbling foundation, but deliberately conceals this information from potential buyers and explicitly states in disclosure documents that there are "no known structural issues." The homeowner's direct knowledge of the significant defect and their intentional act of misrepresentation to induce a sale illustrates scienter. They knew their statement was false and intended to deceive the buyer.

• Example 3: Securities Misrepresentation

  A financial advisor recommends a particular stock to clients, touting it as a "guaranteed investment" with "zero risk," despite having received internal company warnings that the stock is highly volatile and speculative. The advisor's awareness of the stock's true risk profile, combined with their misleading assurances to clients, demonstrates scienter. They knew their advice was inaccurate or incomplete and could potentially harm their clients, yet they proceeded with the intent to persuade them to invest.