U.S. Supreme Court Articulates Standards For Pleading Scienter In Securities Fraud Cases

On June 26, 2007, the New York office authored an Alert Memorandum entitled, “U.S. Supreme Court Articulates Standards For Pleading Scienter In Securities Fraud Cases.” On June 21, 2007, in Tellabs, Inc. v. Makor Issues & Rights, Ltd., the Supreme Court clarified what plaintiffs must allege in securities fraud cases to adequately plead a “strong inference” of scienter under the Private Securities Litigation Reform Act (PSLRA). The Court held that on a motion to dismiss, a district court must review not only the inferences urged by the plaintiff but also competing inferences rationally drawn from all of the facts alleged in the complaint and other sources cognizable on a motion to dismiss. The Court held that a complaint will survive dismissal only if a reasonable person would deem the inference of the defendant’s scienter to be both “cogent” and “at least as compelling as any opposing inference of nonfraudulent intent.”