Alerts

Supreme Court Clarifies Scienter Pleading Standard Under the Private Securities Litigation Reform Act

June 22, 2007

In Tellabs, Inc. v. Makor Issues & Rights Ltd., the United States Supreme Court clarified the standard for pleading scienter under the Private Securities Litigation Reform Act of 1995 (the "PSLRA"). To establish liability under Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, a private plaintiff must plead and prove, among other things, that the defendant acted with scienter, that is, with "a mental state embracing intent to deceive, manipulate, or defraud." However, in an effort to curb perceived abuses of the Section 10(b) private cause of action, particularly in the class action context, Congress enacted certain new procedures and controls in the PSLRA, including heightened pleading standards for private litigants in Section 10(b) actions.