US - The Supreme Court has ruled that investors seeking to sue companies and executives in class action lawsuits must show "cogent and compelling evidence" of intent to defraud.
Yesterday’s decision was the second one this week that was a defeat for shareholders and a victory for defendant companies.
On Monday, the justices ruled that securities underwriters on Wall Street are generally immune from civil antitrust lawsuits.
The Supreme Court’s decision involved a securities fraud complaint against Tellabs Inc, a maker of equipment for fibre optic networks.
Investors accused the company and top executives of overstating projections of revenues and demand for products. A federal appeals court in Chicago had said cases should go to trail if a “reasonable person could infer that the defendant acted with the required intent.”
But the Supreme Court ruling said the bar should be higher.
Wallace Wormley, managing director of UK-based investment consulting firm OSPARA, said: “This ruling will nip in the bud any frivolous or any fishing expeditions looking for things based on rumours. Lawyers and courts have ample tools at their disposal to surface evidence where wrongdoing has taken place.”
Caroline Goodman, managing director of Institutional Protection Services, said the decision was not the end of class action cases and said they were becoming more relevant for investors.
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