The following is not meant to be legal advice.
On June 21, 2007, the US Supreme Court in Tellabs, Inc. v. Makor Issues & Rights, Ltd., resolved the interpretation of the scienter pleading standard set forth in the Private Securities Litigation Reform Act of 1995 ("PSLRA") for securities fraud actions. The plaintiffs in Tellabs represented a class of shareholders who purchased stock between
In the Tellabs, at issue was the extent to which a court must weigh competing factual inferences in determining whether a strong inference of scienter had been plead. The US Supreme Court held that a securities fraud complaint may survive dismissal only if the scienter inference stated in facts pled was "cogent and at least as compelling as any opposing inference one could draw from the facts alleged."
The PSLRA sets forth a heightened pleading standard for securities fraud complaints. The PSLRA requires that a complaint "state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind”. This relates to the intent to deceive investors. The US Supreme Court made clear that the Congress intended to mandate a stringent requirement that all of the relevant factual allegations, considered in their entirety, must give rise to an inference of fraud that is not merely plausible.
A court must examine all relevant facts at the pleading stage, and evaluate the competing inferences to be drawn from those facts.
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