In the Ernst & Ernst v. Hochfelder case, the U.S. Supreme Court ruled that negligence alone is not sufficient to establish liability under Section 10(b) of the Securities Exchange Act and Rule 10b-5. The plaintiff, a partner in a brokerage firm who had lost money due to fraudulent activity by another partner, sued Ernst & Ernst (the auditing firm), alleging they failed to detect and report this fraud during their audits. However, there was no evidence suggesting that Ernst & Ernest intentionally deceived or manipulated anyone; rather it seemed they were merely negligent in their duties as auditors. The court held that mere negligence does not meet the requirement for scienter - intent or knowledge of wrongdoing - which is necessary for establishing liability under these securities laws.

In the dissenting opinion for Ernst & Ernst v. Hochfelder, Justice Blackmun argued that a negligence standard should apply in cases brought under Section 10(b) of the Securities Exchange Act and Rule 10b-5. He disagreed with the majority's decision to require proof of intent to deceive, manipulate or defraud (scienter). According to him, this requirement was not supported by legislative history nor consistent with other securities law provisions where negligence suffices. He also pointed out that it would be difficult for plaintiffs to prove fraudulent intent due its inherently secretive nature. Furthermore, he believed that allowing claims based on negligent conduct would better serve public interest as it could deter careless practices and protect investors from harm caused by such behavior.