Commercial Litigation and Arbitration

Securities — Scienter — Conscious Avoidance Charge

It is difficult to get a civil securities fraud case to trial, but there are gems to pluck from the criminal cases, which are tried. In criminal securities fraud prosecutions, a conscious avoidance instruction "permits a jury to find that a defendant had culpable knowledge of a fact when the evidence shows that the defendant intentionally avoided confirming the fact" - in other words, it allows a jury to "find[] . . . knowledge even where there is no evidence that the defendant possessed actual knowledge." United States v. Ferrarini, 219 F.3d 145, 154 (2d Cir. 2000). A conscious avoidance instruction may be appropriate "[e]ven when the government attempts to prove actual knowledge." United States v. Jacobs, 117 F.3d 82, 98 (2d Cir. 1997). Under the Second Circuit’s decision in United States v. Adelson, 2007 U.S. App. LEXIS 19613 (2d Cir. Aug. 16, 2007), such an instruction should be given only if "(1) the defendant asserts the lack of some specific aspect of knowledge required for conviction, and (2) the appropriate factual predicate for the charge exists. The latter requires that there be evidence sufficient to allow a rational juror to conclude beyond a reasonable doubt that the defendant was aware of a high probability of the fact in dispute and consciously avoided confirming that fact" (internal alterations, quotation marks, and citation omitted). We avoid much of this in civil cases because recklessness is enough to get a case to trial, and the defendants almost never want to get the trial, if it starts, to a jury. However, the PSLRA joint-and-several liability provisions make actual knowledge critical. The outcome of the charge conference on a conscious avoidance instruction in a civil action could be critical to the collectibility of a judgment or the value of a late settlement.

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