Supreme Court Refines Pleading Requirements In Private Securities Fraud Litigation

On June 21, 2007, the United States Supreme Court reached its much-anticipated decision in Tellabs, Inc. v. Makor Issues & Rights, Ltd.¹, clarifying the requirements for pleading fraud in private securities litigation. Tellabs concerns Congress’s requirement, in the Private Securities Litigation Reform Act (the "PSLRA"), that private plaintiffs allege specific facts giving rise to "strong inference" of a defendant’s fraudulent intent. The Supreme Court held that lower courts must weigh the competing inferences permitted by the plaintiff’s allegations. It also held that the courts must dismiss a complaint, even if its allegations allow a reasonable inference of intent, if its allegations also permit a more plausible, nonculpable inference.