SCOTUS clarifies pleading requirements under PSLRA

Under the Private Securities Litigation Reform Act (“PSLRA”), Congress imposed a heightened pleading standard on plaintiffs and required them to “state with particularity facts giving rise to a strong inference that the defendant acted with the required state of mind.” In interpreting "strong inference," SCOTUS held (TELLABS, INC. v. MAKOR ISSUES & RIGHTS, LTD.) that a trial court

must consider, not only inferences urged by the plaintiff, as the Seventh Circuit did, but also competing inferences rationally drawn from the facts alleged. An inference of fraudulent intent may be plausible, yet less cogent than other, nonculpable explanations for the defendant’s conduct. To qualify as “strong”within the intendment of §21D(b)(2), we hold, 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.