In re GlenFed, Inc. Sec. Litig.

United States Court of Appeals for the Ninth Circuit · 1994 · Corporations

42 F.3d 1541 (9th Cir. 1994)

Updated August 22, 2026

CorporationsSecurities fraudPleadingRule 9(b)scienterparticularitySection 10(b)Rule 10b-5

Facts

Plaintiffs alleged that GlenFed and its officers and directors misrepresented GlenFed's financial condition, internal controls, asset quality, loan loss reserves, and the prospects for disposing of three subsidiaries. They claimed defendants publicly described GlenFed as secure, healthy, and subject to rigorous controls while non-public materials indicated weaknesses in internal controls, outdated appraisals, database inaccuracies, and difficulties selling the subsidiaries without losses. Plaintiffs also alleged GlenFed later announced greatly increased loan loss reserves and losses, and that earlier statements had concealed the bank's true condition. The complaint relied in part on contemporaneous board materials, internal audit comments, and management-related documents to explain why some earlier public statements were misleading when made.

Issue

Does Rule 9(b) require securities fraud plaintiffs to plead facts giving rise to a strong inference, or even some inference, of scienter? If not, what must a plaintiff plead with particularity under Rule 9(b), and did this complaint meet that standard?

Rule

Under Rule 9(b), scienter, including intent and knowledge, may be averred generally; the rule does not require plaintiffs to plead facts creating a strong inference or any separate inference of scienter. But the complaint must plead with particularity the circumstances constituting fraud by identifying what statements or omissions were false or misleading and explaining why they were false or misleading when made; where later events could explain the difference, plaintiffs must do more than allege fraud by hindsight.

See the holding & full analysis

Create a free KwikCourt account to unlock the rest of this brief — and practice the case.

The court's holding and reasoning
Doctrine tests, pitfalls & exam hypotheticals
10 practice questions + 4 AI-graded essays on this case

Free sample · practice this case

Test yourself

One of 10 multiple-choice questions for this case. Pick an answer to see why.

Investors sue Cascade Harbor Finance, a regional lender based in Portland, alleging that its quarterly filings overstated the quality of its commercial loan portfolio. The complaint identifies several public statements and explains why those statements were false when made by citing internal credit summaries, but it alleges scienter only by stating that the executives acted knowingly or recklessly.

If the defendants move to dismiss solely because the complaint does not plead facts creating a strong inference of fraudulent intent, how should the court rule?

Explanation. The majority held that Rule 9(b)'s text controls: malice, intent, knowledge, and other conditions of mind may be averred generally. It rejected both a 'strong inference' and an independent 'some inference' scienter pleading requirement. If the complaint otherwise pleads the circumstances constituting fraud with particularity, scienter need not be supported by separately particularized facts.