Section 14(e) of the 1934 Securities Exchange Act protects a target corporation’s shareholders during a tender offer. Recently, a circuit split has emerged regarding the level of culpability this provision requires. In Varjabedian v. Emulex Corp., the Ninth Circuit diverged from the Second, Third, Fifth, Sixth, and Eleventh Circuits by holding that this provision requires proof of negligence. Previously, all circuits that addressed this issue held that Section 14(e) required proof of scienter, a higher standard of culpability. While all courts, including the Ninth Circuit, have based their holding on the provision’s linguistic similarities with other provisions, ultimately, a linguistic analysis does not resolve the issue. Instead, the purpose and legislative history of Section 14(e) suggests that it requires a negligence standard of culpability.
