Supreme Court Adopts A High Pleading Standard For Securities Class Actions

On June 21, 2007, the United States Supreme Court issued an important ruling that clarified and strengthened the pleading standard in securities fraud class action cases. The Court’s 8-1 opinion in Tellabs, Inc. v. Makor Issues & Rights will make it more difficult for plaintiffs to survive a motion to dismiss with weak or conclusory allegations of fraud. See the complete opinion here.

Background: Federal Securities Litigation and the Private Securities Litigation Reform Act

In 1995, Congress passed the Private Securities Litigation Reform Act (PSLRA). The legislative history of the PSLRA shows that Congress was greatly concerned that frivolous securities lawsuits were causing significant damage to investors, the securities markets and the national economy. In particular, the pleading standards for securities complaints were felt to be too low, allowing too many frivolous suits to survive a motion to dismiss and imposing on defendants the significant costs of discovery and trial. To