Intentional wrongdoing is hard to prove. A plaintiff must allege facts that imply that the defendant acted with intent, since few defendants admit that they meant to engage in a tort or an illegal act. This case is about how much a plaintiff must allege in his complaint to satisfy the statutory requirement in the Private Securities Litigation Reform Act of 1995 (PSLRA) that he plead facts giving rise to a "strong inference" of intent.
Tellabs is the defendant, a telecommunications equipment manufacturer. Its stock price dropped dramatically in the early 2000's, and shareholders sued, claiming various improper or fraudulent acts. The court of appeals found that the complaint contained sufficient factual allegations for a jury to infer intent, even though, according to Tellabs, the facts are also consistent with innocent behavior.
The Supreme Court ruled on 6/21/07 that "an inference of scienter must be more than merely plausible or reasonable -- it must be cogent and at least as compelling as any opposing inference of nonfraudulent intent." This decision is based on specific statutory language that provides a pleading standard that is higher than usual. The Court also ruled that this heightened standard does not violate a plaintiff's Seventh Amendment right to a jury trial.
This is an important recognition by the Court that the heightened pleading requirements of the PSLRA were properly designed to dismiss frivolous securities claims at an early stage.