The neglected relationship of materiality and recklessness in actions under rule 10b-5

The concept of "materiality" under the federal securities laws has received much attention from the courts and the Securities and Exchange Commission, yet it has become increasingly murky. Judgments about what is and what Is not material for purposes of the disclosure requirements under SEC rules an d the antifraud provisions of the federal securities laws are often very di fficult. At the same time, errors in making those judgments can result in c ivil liability. Litigants seldom contend that, and courts seldom address wh ether, a defendant's judgment about whether a fact was material is germane in assessing liability particularly under Rule 10b-5. This Article suggests that the determination of liability under Rule 10b-5, particularly where t he defendant is alleged to have acted recklessly (rather than with a specif ic intent to defraud), should take into account whether the defendant was r eckless in failing to appreciate the materiality of the fact that was omitt ed or misrepresented. In other words, a determination of whether a defendan t acted with scienter encompasses an evaluation of whether the defendant wa s reckless in not recognizing that the fact that was omitted or misrepresen ted was material.