High Court Tightens Investor Suit Standards
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WASHINGTON (AP) – The Supreme Court on Thursday imposed a strict standard that investors must meet to avoid having their lawsuits alleging securities fraud thrown out of court.
In an 8-1 decision, the justices said that courts must weigh possible innocent explanations for defendants’ conduct at the very start of a securities fraud case. Doing so can lead to early dismissal of investors’ lawsuits.
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’ 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.
A lawsuit will survive only if the facts alleged in it are “cogent and compelling” in pointing to an intent to deceive, wrote Ruth Bader Ginsburg. Those factual allegations must be at least as compelling as “any opposing inference” suggesting innocence, she added.
The business community says the Tellabs case is the kind of meritless claim that Congress intended to prohibit when it reformed securities law 12 years ago.
