# kaal:claim:2811718-020

**Claim.** Deficient due diligence does not create securities fraud liability unless it is intentional or highly reckless; conduct that is merely negligent or professionally incompetent falls short of the scienter requirement.

**Type.** failure  **Support.** evidenced

**Holds when.**

- securities fraud claims under section 10(b) and Rule 10b-5
- PSLRA pleading standard

**Source quote.**

> Courts hold that the lack of due diligence, beyond merely being negligent or just professionally incompetent, must be intentional or highly reckless.

**From.** Wulf A. Kaal, *Private Fund Investor Due Diligence – Evidence from 1995 to 2015* (2016), III.B.1. Legal Standards, page 33

**Cite as.** Wulf A. Kaal, Private Fund Investor Due Diligence – Evidence from 1995 to 2015 (2016). SSRN: https://ssrn.com/abstract=2811718

**Verify.** sha256 of source PDF `b52152af561288173840a1cabbcf8f4b337e73507c856ee01600799073f4156f` at https://raw.githubusercontent.com/wulfkaal/Academic-Papers/main/papers/pdf/Kaal%20-%202016%20-%20Private%20Fund%20Investor%20Due%20Diligence%20%E2%80%93%20Evidence%20from%201995%20to%202015.pdf

**Failure mode.** scienter gap for incompetent due diligence  (family: enforcement-gap)

**Topics.** securities-law, law-and-legal-systems

**Keywords.** scienter, securities-fraud, legal-standards, pleading-standard

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