The Supreme Court ruled by a vote of 8-to-1 June 21, 2007 on Tellabs Inc. v. Makor Issues and Rights Ltd, a case involving the threshold of evidence that investors must meet to prevent a fraud lawsuit from being dismissed. The case involves a securities fraud lawsuit filed by investors against Tellabs. The issue before the Supreme Court involves a provision of the Private Securities Litigation Reform Act of 1995 (PSLRA) that sets the threshold of evidence that investors must meet to prevent a fraud lawsuit from being dismissed. The SEC had filed an amicus brief on behalf of Tellabs, contending that the appeals court that ruled that the case could be heard set too low a threshold. The SEC contended that the law requires investors to present evidence showing ''a high likelihood'' that the defendant possessed the intent to violate the law. The Court did not adopt the strictest pleading standard. It sent the case back to the lower courts to apply the new standard. That standard, according to the ruling, requires that a plaintiff alleging fraud must plead facts rendering an inference of scienter “at least as likely as any plausible opposing inference.”
On March 9, 2007 the Council filed a brief in the case that did not take a position on the technical issue of what is the appropriate pleading standard under the PSLRA, rather it provided the Court with factual information to respond to the suggestions by Tellabs and some of their amici that anything less than the strictest pleading standard would open the floodgates to frivolous securities litigation. It also pointed out that the PSLRA has generally succeeded in reducing frivolous litigation, that interpretative differences among the circuits have not led to forum shopping and that private cause of action is an essential supplement to federal enforcement activity and has accordingly strengthened, not weakened, U.S. capital markets.
The Supreme Court's Ruling in Tellabs v. Makor
CII Amicus Brief in Tellabs v. Makor
