In an amicus curiae brief, the Securities and Exchange Commission urged the Supreme Court to vacate the Seventh Circuit’s decision in Makor Issues & Rights, Ltd. v. Tellabs, Inc., 437 F.3d 588 (7th Cir. 2006), on grounds that the Circuit Court misinterpreted the heightened pleading standards governing securities fraud claims imposed by the Private Securities Litigation Reform Act (PSLRA). The SEC asserted that the Seventh Circuit’s holding, that plaintiffs need merely to allege sufficient facts such that a “reasonable person” could infer that defendants acted with the intent to commit securities fraud, was flawed. The SEC argued that pursuant to the PSLRA, a “reasonable inference” of scienter is plainlyinsufficient. Instead, plaintiffs must allege facts creating a “strong inference” that defendants acted with a culpable state of mind. Furthermore, the SEC argued that the Seventh Circuit impermissibly declined to consider facts within plaintiff’s Complaint that supported a plausible inference that defendants did not intend to commit fraud.

http://www.sec.gov/litigation/briefs/2007/tellabsbrief.pdf