Tellabs, Incorporated, et al. v. Makor Issues & Rights, Ltd., et al.

Proof of Scienter under the Securities Laws

Term: 2006 Term
Oral Argument Date: Mar 28, 2007
Vote: 8-1
Opinion: Ginsburg
Questions Presented: 

Whether, and to what extent, a court must consider or weigh competing inferences in determining whether a complaint asserting a claim of securities fraud has alleged facts sufficient to establish a “strong inference” that the defendant acted with scienter, as required under the Private Securities Litigation Reform Act of 1995.

U.S. Chamber's Position: 

NCLC filed twice in this case: once supporting cert. and once on the merits.

Urging the U.S. Supreme Court to adopt a strict pleading test as to the sufficiency of scienter allegations in securities fraud cases, NCLC reminded the high court that Congress enacted the Private Securities Litigation Reform Act (PSLRA) to curb vexatious litigation. In particular, NCLC described the significant risk of blackmail settlements and highlighted the potential of a stricter pleading standard for avoiding that risk. The courts of appeals have arrived at three different approaches in determining whether the defendant had the proper state of mind to be held culpable, and the Seventh Circuit, in its decision below, developed a particularly weak variant.

Outcome Content: 

As urged by NCLC, the Supreme Court adopted a stricter test for pleading scienter in securities fraud cases than did the Seventh Circuit below, holding that the inference of wrongful mind must be as cogent and compelling as competing inferences.

Justices in Minority: 
Procedural History: 

Amicus brief supporting cert. 12/6/06. Cert. granted 1/5/07. Amicus brief on the merits filed 2/9/07. Oral argument held 3/28/07. Decided 6/21/07.