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Supreme Court Deals Investors Another Setback

June 22, 2007

The court voted 8-1 to overturn a lower court ruling that allowed a fraud suit to proceed against Tellabs, Inc.

Investors had sought damages, claiming there was a strong possibility that company officials knowingly inflated revenue numbers in order to make their stock more attractive on Wall Street.

Writing for the majority, Justice Ruth Bader Ginsburg said the plaintiffs had failed to bring enough evidence to warrant an action.

Her opinion said a suggestion of official wrongdoing must be “cogent and at least as compelling” as an alternative explanation – something she said this particular case failed to do.

She also said the lower court misinterpreted a 1995 law concerning shareholder suits.

Wall Street applauded the high court's decision. It's seen as providing a way for companies to jettison shareholder suits in the early stages of litigation, avoiding long and costly trials and appeals.

On June 18, the Supreme Court rejected an investor suit against Wall Street banks over alleged anticompetitive practices, stemming from the pricing of newly issued stocks.

In a 7-1 decision, the court rejected the plaintiffs' argument that Wall Street bankers conspired to illegally pump up prices of nearly 1,000 initial public offerings. Many of those stocks surged to dizzying heights in the days following their IPO, only to crash to earth when the selling started in the spring of 2000.

Writing for the majority, Justice Stephen Breyer held that current law does not allow antitrust laws to be invoked in the suit. He said an antitrust action would pose a substantial risk of injury to the stock market.

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