Saturday, November 23, 2013

Makor Issues & Rights, Ltd. v. Tellabs, Inc. case brief

Makor Issues & Rights, Ltd. v. Tellabs, Inc. case brief summary
513 F.3d 702 (2008)

In this securities fraud case, the court previously reversed a decision from the United States District Court for the Northern District of Illinois, that dismissed the case. However, that decision was reversed by the U.S. Supreme Court, which remanded the case with directions to consider whether the allegations created the strong inference of scienter required under the Private Securities Litigation Reform Act (PSLRA), 15 U.S.C.S. § 78u-4(b)(2).

Plaintiffs alleged that defendant, a manufacturer of equipment used in fiber optic cable networks, violated § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C.S. § 78j(b), in making materially false statements regarding demand and sales of certain products at a time when the demand and sales were sharply declining.

The issue the Supreme Court put back before the appellate court was whether the complaint sufficiently alleged a strong inference of scienter as required by the PSLRA. The critical question on remand was how likely it was that the allegedly false statements were the result of merely careless mistakes at the management level based on false information fed it from below, rather than of an intent to deceive or a reckless indifference to whether the statements were misleading.

  • The court concluded that the former more innocent explanation was exceedingly unlikely, given the importance of the products at issue and that the manufacturer had provided no plausible story that might dispel the court's incredulity. 
  • Finding the inference of corporate scienter more likely, the court further concluded that it must be cogent and was therefore in compliance with the PSLRA standard.

The court reversed the district court's dismissal of the complaint and remanded.

Recommended Supplements for Corporations and Business Associations Law

No comments:

Post a Comment

The Ins and Outs of Class Action Lawsuits: A Comprehensive Guide

Sometimes, you may buy a product only to find it defective. To make it worse, your search for the product reveals mass complaints. You can ...