Corporate Securities Law Blog

In Tellabs, Inc. v. Makor Issues & Rights, Ltd., 127 S. Ct. 2499 (2007) (link) (Westlaw citation: 2007 WL 1773208), the Supreme Court for the first time addressed the heightened requirements for pleading scienter enacted in the Private Securities Litigation Reform Act of 1995 (the “Reform Act”).  Rejecting a relaxed “reasonable inference” approach adopted by the Seventh Circuit, the Supreme Court held that a securities fraud complaint will survive dismissal only if, based upon its factual allegations, the inference of defendant’s scienter is “cogent and at least as compelling as any opposing inference.”  In the majority opinion by Justice Ginsburg, the Court held that courts must consider at the pleadings stage plausible nonculpable explanations for the defendant’s conduct, as well as inferences favoring the plaintiff.  The inferences must be “cogent and compelling, and thus strong in light of other explanations.”