Tellabs Inc. must face claims of securities fraud in a case that has reached the Supreme Court, the 7th Circuit ordered Jan. 17. The decision comes despite the June 2007 Supreme Court ruling, which seemed to raise the bar for private securities fraud actions.

In his opinion Judge Richard Posner concluded the plaintiffs' claim against Naperville, Ill.-based Tellabs was sufficient to meet the standard of “strong inference” of scienter the Supreme Court set last year in a decision many viewed as a blow to business

Investors allege that between December 2000 and June 2001, former Tellabs CEO Richard Notebaert knowingly made misleading and falsely optimistic statements to investors about the company. Between those dates Tellabs stock fell from $67.18 to $16.04. Investors sued Tellabs in 2002.

The case reached the Supreme Court after the 7th Circuit reversed a federal district court's dismissal of the case. The Supreme Court vacated the 7th Circuit decision, finding that the plaintiffs had not met requirements of the Private Securities Litigation Reform Act of 1995, which states evidence must show “a strong inference that the defendant acted with … intent to deceive, manipulate or defraud.” Justice Ruth Bader Ginsberg defined this “strong inference” as being “more than merely plausible or reasonable.”

In his most recent opinion, Posner determined the plaintiffs adequately argued their case to the requirements of the PSLRA and remanded the case to the district court. “The plausibility of an explanation depends on the plausibility of the alternative explanations,” he wrote. “As more and more alternatives to a given explanation are ruled out, the probability of that explanation's being the correct one rises.”

As for Tellabs' argument that Notebaert was unaware of the company's problems and was merely repeating what company executives had told him, Posner found, “It is conceivable, yes, but it is exceedingly unlikely.”

Tellabs Inc. must face claims of securities fraud in a case that has reached the Supreme Court, the 7th Circuit ordered Jan. 17. The decision comes despite the June 2007 Supreme Court ruling, which seemed to raise the bar for private securities fraud actions.

In his opinion Judge Richard Posner concluded the plaintiffs' claim against Naperville, Ill.-based Tellabs was sufficient to meet the standard of “strong inference” of scienter the Supreme Court set last year in a decision many viewed as a blow to business

Investors allege that between December 2000 and June 2001, former Tellabs CEO Richard Notebaert knowingly made misleading and falsely optimistic statements to investors about the company. Between those dates Tellabs stock fell from $67.18 to $16.04. Investors sued Tellabs in 2002.

The case reached the Supreme Court after the 7th Circuit reversed a federal district court's dismissal of the case. The Supreme Court vacated the 7th Circuit decision, finding that the plaintiffs had not met requirements of the Private Securities Litigation Reform Act of 1995, which states evidence must show “a strong inference that the defendant acted with … intent to deceive, manipulate or defraud.” Justice Ruth Bader Ginsberg defined this “strong inference” as being “more than merely plausible or reasonable.”

In his most recent opinion, Posner determined the plaintiffs adequately argued their case to the requirements of the PSLRA and remanded the case to the district court. “The plausibility of an explanation depends on the plausibility of the alternative explanations,” he wrote. “As more and more alternatives to a given explanation are ruled out, the probability of that explanation's being the correct one rises.”

As for Tellabs' argument that Notebaert was unaware of the company's problems and was merely repeating what company executives had told him, Posner found, “It is conceivable, yes, but it is exceedingly unlikely.”