Supreme Court Raises Bar for Securities Fraud Class-Action Suits

The U.S. Supreme Court ruled 8-1 on Thursday in favor of defendant Tellabs Inc. in a class-action suit in which shareholders alleged the company had committed securities fraud. The decision, which overturns an appellate court ruling, further toughens the standards of evidence required of plaintiffs in cases of this kind. The case will now be returned to a lower court. In an opinion written by Justice Ruth Bader Ginsburg, the Court said plaintiffs must demonstrate that company executives had a "cogent and compelling" intent to deceive. Tellabs shareholders filed suit in 2001 after a steep drop in the company's share price, alleging that former executives misled them by overstating revenue and demand projections. Tellabs management says it was as surprised as anyone by the abrupt drop in the share price, which coincided with a wider downturn across the telecom sector. The Court's decision follows a ruling earlier this week that made it harder for investment banks to be successfully sued for antitrust violations. Senior officials of the Bush administration have been urging the courts to limit shareholder lawsuits on the grounds that they discourage investment and push companies to raise capital abroad.

Sources: Supreme Court opinion, CNN.com, Bloomberg, Forbes, New York Times
Commentary: Supreme Court Tosses Class-Action Suit Against I-Banks • When The Supreme Court Weighs In, Investors Had Better Pay Attention • Supreme Court Sides with Innovators Over Patent Holders
Stocks/ETFs to watch: Tellabs, Inc. (TLAB). ETFs: Broadband HOLDRs (BDH), PowerShares Dynamic Networking (PXQ)

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