Higher Standards For Shareholder Lawsuits
Investors lost another round at the Supreme Court when the justices imposed a strict standard for shareholder lawsuits seeking to recover losses from companies accused of fraudulent business practices. The 8-1 opinion written by Justice Ruth Bader Ginsburg will make it harder for groups of investors to file lawsuits alleging they lost money because company officials violated federal securities laws.
A lawsuit will survive only if the facts alleged in it are “cogent and compelling” in pointing to an intent to deceive investors, Ginsburg wrote. Those factual allegations must be at least as compelling as “any opposing inference” suggesting innocence, she added. The standard will be applied at the very start of a securities fraud case, meaning many lawsuits may be tossed out at the earlier stages of a court battle. The high court is being asked to clarify what legal hurdles investors must clear in a case with far-reaching repercussions for class-action lawsuits against public companies. Such suits have helped shareholders recover billions of dollars following the wave of corporate scandals. Under the 1995 changes, a securities fraud complaint must allege facts giving rise to a “strong inference” that defendants acted with an intent to deceive investors.
