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Supreme Court hears arguments in shareholder fraud suit

[JURIST] The US Supreme Court [official website; JURIST news archive] heard oral arguments [transcript, PDF] Wednesday in Tellabs v. Makor Issues & Rights [Duke Law case backgrounder; merit briefs], 06-484 [docket], where the Court must decide the extent to which shareholders bringing suit against a company must prove the company intended to deceive the public about its financial future. Tellabs, Inc. [corporate website] allegedly made predictions about its future sales that turned out to be incorrect, ultimately costing its shareholders millions of dollars. The company's attorney argued that the lower court's ruling that shareholders must show a "strong inference" of wrongdoing means shareholders must prove with a certainty of over fifty percent that the company intended to deceive the public. Opposing counsel argued that the court should be able to infer more easily, at a burden of forty percent, an intent to deceive based on the company's actions and words.

The case comes on appeal from the US Court of Appeals for the Seventh Circuit, which held [opinion, PDF] in January that the shareholder's complaint had enough detail to establish "a strong inference that [Tellabs] knew [it] had exaggerated its revenues." This case is one of several cases being considered by the Supreme Court where companies hope to limit class actions suits against them. On Monday, the Court agreed to consider whether shareholders of companies that commit securities fraud should be able to sue investment banks, lawyers, and auditors that allegedly also participated in the fraud. The Court heard arguments [JURIST report] Tuesday in a case involving shareholders seeking damages from banks that allegedly violated antitrust laws. AP has more.

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