Adding a Due Diligence Defense to Section 13(b) and Rule 13b2–2 of the Securities Exchange Act of 1934
This Article explores a split among the federal circuit courts regarding the mental state necessary for a company and its officers and directors to be liable under Section 13(b) of the 1934 Act, which imposes accounting requirements on public companies. While the law is quite clear that Section 13(b) imposes liability regardless of an actor's mental state, this Article argues that, as a matter of policy, raising the requisite mental state—by allowing officers and directors to advance a due diligence defense—would actually result in more accurate financial disclosures, stronger internal accounting controls, and, thus, a more efficient market.