Thursday, November 7, 2013

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

Tellabs, Inc. v. Makor Issues & Rights, Ltd. case brief summary
551 U.S. 308 (2007)

Respondent shareholders of a corporation brought a securities fraud action against petitioner officer of the corporation, alleging that the officer deceived the public concerning the value of the corporation's stock. Upon the grant of a writ of certiorari, the officer challenged the judgment of the U.S. Court of Appeals for the Seventh Circuit which held that the shareholders sufficiently pleaded scienter under 15 U.S.C.S. § 78u-4(b)(2).

The shareholders contended that their allegations were sufficient to establish a strong inference that the officer acted with the intent to deceive, manipulate, or defraud, as required by § 78u-4(b)(2). The officer argued that the shareholders failed to allege any financial motive of the officer to support scienter and offered vague and ambiguous allegations.

  • The U.S. Supreme Court held that, while the shareholders' allegations plausibly permitted an inference of the requisite scienter, further analysis was required to determine whether the inference of fraudulent intent was a powerful or cogent inference which was at least as compelling as any opposing inference of nonfraudulent intent. 
  • The strong inference of scienter required by § 78u-4(b)(2) was not required to be irrefutable or even the most plausible inference, but the strength of the inference could not be evaluated in a vacuum and consideration of plausible, nonculpable explanations for the officer's conduct was required. 
  • Further, any lack of pecuniary motive on the part of the officer did not by itself preclude a finding of scienter, and any ambiguities in the shareholders' allegations were relevant but not determinative.


The judgment holding that scienter was sufficiently alleged was vacated, and the case was remanded for further proceedings.

Suggested Study Aids For Securities Regulation Law
Securities Regulation in a Nutshell, 10th (Nutshell Series)
Securities Regulation: Examples & Explanations, 5th Edition
Securities Regulations: The Essentials

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