When Is Silence Fraudulent?

Law360, New York (February 7, 2011, 2:19 PM EST) -- As far back as Judge Henry Friendly’s seminal decision in Denny v. Barber, 576 F.2d 465 (2d Cir. 1978), a common battle in securities fraud cases has been whether plaintiffs have improperly alleged “fraud” based on the wisdom afforded by 20-20 hindsight. As Judge Friendly sagely observed, the failure to be “clairvoyan[t] … does not constitute fraud.” Id. at 470.

Since Denny, the cases have been uniform on this issue, holding that fraud by hindsight allegations do not suffice to allege a strong inference of scienter,...
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