Supreme Court Raises Bar for Pleading Securities Fraud Claims

On June 21, the United States Supreme Court decided Tellabs, Inc. v. Makor Issues & Rights, Ltd.1 In an 8-1 ruling,2 the Court held that in pleading a "strong inference" of scienter -- the intent to defraud -- required by the federal securities laws, a plaintiff must go beyond what is "merely plausible or reasonable," and plead facts supporting scienter that are "cogent and at least as compelling as any opposing inference of nonfraudulent intent." Thus, in considering a federal securities fraud complaint, the lower courts must engage in a "comparative inquiry" in which they consider "plausible opposing inferences," as opposed to only inferences favoring the plaintiff.