Legal Memorandum: Scienter Requirement in Securities Fraud Cases

Issue: Under the laws of Kansas, in a securities sales matter is scienter a required element of a violation?

Area of Law: Business Organizations & Contracts, Corporate & Securities
Keywords: Element of a violation; Scienter; Intent to deceive
Jurisdiction: Kansas
Cited Cases: 810 F. Supp. 1127; 738 P.2d 1210
Cited Statutes: K.S.A. 17-12a501(2); federal Rule 10b-5
Date: 12/01/2014

It is clear from the literal language of K.S.A. 17-12a501(2) that the statute is modeled upon and is nearly identical to federal Rule 10b-5.  Compare 17-12a501(2) with Rule 10b-5(ii).  And there is no question that “scienter is an element of a violation of § 10(b) and Rule 10b–5.”  Aaron v. S.E.C., 446 U.S. 680, 691 (1980); Jayhawk Capital Mgmt. LLC v. LSB Indus. Inc., No. 08-2561-EFM, 2012 U.S. Dist. LEXIS 133429 (D. Kan. Sept. 19, 2012) (Melgren, J.).  See also Comeau v. Rupp, 810 F. Supp. 1127, 1157 (D. Kan. 1992) (summarily denying the plaintiffs’ claims under the Kansas statute after denying the Rule 10b-5 claims in part because the state statute “closely tracks the language of Rule 10b-5”.); Dunning v. Bush, 536 F.3d 879, 885-87 (8th Cir. 2008) (applying Iowa Law) (claims against defendant based on alleged violation of Iowa Uniform Securities Act dismissed where there is no evidence of scienter); American Savings Bank FSB v. UBS Paine Webber, Inc., 250 F. Supp. 2d 1254, 1258-59 (D. Haw. 2003) (“the court finds that [the Hawaii securities fraud statute] HRS § 485–25 is a fraud statute which, consistent with the federal securities fraud statute [Rule 10b-5], includes a scienter requirement.”)

Because the Kansas securities fraud statute is patterned upon federal Rule 10b-5, therefore, like 10b-5, it seems arguable that the Kansas Securities Fraud statute has a scienter requirement. 

Further, the usual Kansas rule is that a fraud claim must include “intent […]