Court Imposes Strict Standard For Investors Seeking Restitution

Investors lost another round at the Supreme Court yesterday when the justices imposed a strict standard for shareholder lawsuits seeking to recover losses from companies accused of fraudulent business practices.

The 8–1 opinion written by Justice Ruth Bader Ginsburg will make it harder for groups of investors to file lawsuits alleging they lost money because company officials violated federal securities laws.

A lawsuit will survive only if the facts alleged in it are "cogent and compelling" in pointing to an intent to deceive investors, Ms. Ginsburg wrote. Those factual allegations must be at least as compelling as "any opposing inference" suggesting innocence, she added.

The standard will be applied at the very start of a securities fraud case, meaning many lawsuits may be tossed out at the earlier stages of a court battle.

The ruling came in a shareholders suit against high-tech company Tellabs Inc.

The firm misled investors by engaging in a scheme to inflate Tellabs's stock price from December 2000 to June 2001, according to the lawsuit. It said the company's CEO provided false assurances of robust demand for the company's products.