Washington Mutual (WAMU) is a publicly traded financial services company that serves individuals and small businesses, offering consumer banking, mortgage lending, commercial banking, and other services. Defendants Kerry Killinger, Thomas Casey, and Deanna Oppenheimer all served as officers of WAMU, with Killinger serving as the chairman of WAMU’s board of directors, president, and CEO; Casey serving as executive vice president and CFO; and Oppenheimer serving as president of WAMU’s consumer group. Thus, they held key officer positions at relevant times. South Ferry, a WAMU shareholder, alleges violations of Section 10(b) and Rule 10b-5 by Killinger, Casey, and Oppenheimer. 

The complaint relates to several related aspects of WAMU’s mortgage lending business. That business involves originating home loans, buying and selling home loans in the secondary markets, servicing mortgages, and providing mortgage-insurance products. South Ferry claims that the individual defendants made materially false or misleading statements concerning WAMU’s ability to manage risk. In addition, it asserts that the individual defendants repeatedly assured investors that WAMU would thrive in an environment where interest rates were increasing, and that the individual defendants assured investors that WAMU had fully integrated the information systems that are central to WAMU’s ability to maintain and update their various hedges in a timely fashion during periods of interest rate volatility. 

The three defendants moved to dismiss the securities fraud action, arguing that it would be improper to infer that they had knowledge of WAMU’s core operations based entirely on their management positions. In short, they asserted that the scienter requirement was not met. Has the scienter requirement been met? Explain.