Attributing mental states to business entities requires law to embrace a double fiction. We must first deem these entities to “exist” even though they lack corporeal substance and are only described in documents. Then, we must somehow attribute mental states to these fictional entities – —not because we believe them to have minds but because we need to do it for the law to work. Unsurprisingly, courts struggle to attribute mental states to business entities and mostly default to respondeatrespondeat superior superior and attribute some human’s mental state to the entity. For entities with many diverse shareholders, members, officers, employees, subsidiaries, and affiliates, attributing some mental state to the entity poses a particular challenge. This chapter probes how we attribute mental states to business entities by focusing on how we attribute scienter or fraudulent intent to business entities in securities cases.

Had Xerox reported its revenues and earnings consistent with its accounting in earlier years, Xerox would have failed to meet Wall Street earnings-per-share expectations in 11 of 12 quarters in 1997–1999. Securities and Exchange Commission, 2002 While it did not receive the same attention as the cases arising out of the Enron and WorldCom frauds, the Securities and Exchange Commission’s (SEC) enforcement action against Xerox was significant because it was the first where the agency imposed a significant penalty on a corporate defendant for misleading investors about its financial results. The case was part of a concerted effort beginning in the latter half of the 1990s to address misstatements by public companies to meet market projections of quarterly earnings. Because many of the issues raised in public company securities fraud cases were present in the Xerox case, it provides an ideal introduction to the subject of securities fraud.