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For the better part of a decade, it has been commonplace to say that Congress’s goal in enacting the Private Securities Litigation Reform Act establishing a uniform and more exacting standard for determining the sufficiency of scienter (i.e., intent to defraud) allegations in securities fraud cases proved elusive. The scienter standard, and whether the allegations of a securities fraud complaint satisfy it, are perhaps the most frequently litigated aspects of the PSLRA. Legal bookshelves groan under stacks of decisions and commentary categorizing the approaches adopted across the circuits.

Last month, the U.S. Supreme Court granted certiorari and ordered expedited briefing in Tellabs, Inc. v. Makor Issues & Rights, Ltd., [FOOTNOTE 1]in which it will likely decide how to evaluate whether a complaint adequately alleges particularized facts that give rise to, as the PSLRA mandates, “a strong inference that the defendant acted with” scienter. The rigorous pleading standard contemplated by Congress will best be served by adoption of a standard that, as the majority of appellate courts have held, permits a court to weigh competing inferences of a defendant’s innocent mental state alongside any culpable inferences that may arise from the allegations.

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